PRER14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Amendment No. 2)
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934
Filed by the Registrant
þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
þ Preliminary
Proxy Statement
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
o Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to
§240.14a-12
OSI RESTAURANT PARTNERS,
INC.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the
appropriate box):
o No
fee required.
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Fee computed on table below per
Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities
to which transaction applies:
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Common Stock, par value
$0.01 per share, of OSI Restaurant Partners, Inc.
(Common Stock)
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(2)
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Aggregate number of securities to
which transaction applies:
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76,417,759 shares of
Common Stock (including restricted Common Stock)
11,067,475 options to
purchase shares of Common Stock
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37,533
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deferred compensation units
equivalent to Common Stock credited under the Outback Steakhouse
Directors Deferred Compensation Plan, as amended (the
Deferred Compensation Plan)
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(3)
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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):
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As of January 12, 2007, there
were (i) 76,417,759 shares of Common Stock (including
restricted Common Stock) outstanding and owned by stockholders
other than Kangaroo Holdings, Inc. and Kangaroo Acquisition,
Inc., (ii) options to purchase 11,067,475 shares of
Common Stock with an exercise price less than $40.00 per
share outstanding and (iii) 37,533 deferred
compensation units equivalent to Common Stock credited under the
Deferred Compensation Plan. The filing fee was determined by
adding (x) the product of (I) the number of shares of
Common Stock that are proposed to be acquired in the merger and
(II) the merger consideration of $40.00 in cash per share
of Common Stock, plus (y) $118,784,585 expected to be paid
to holders of options to purchase Common Stock with an exercise
price of less than $40.00 per share in exchange for the
cancellation of such options, plus (z) $1,501,320 expected
to be paid to holders of deferred compensation units credited
under the Deferred Compensation Plan in exchange for the
cancellation of such units ((x), (y) and (z) together,
the Total Consideration). The payment of the filing
fee, calculated in accordance with Exchange Act
Rule 0-11(c)(1),
was calculated by multiplying the Total Consideration by .000107.
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(4)
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Proposed maximum aggregate value of
transaction:
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$3,176,996,175
$339,939
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Fee paid previously with
preliminary materials.
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o
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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.
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(1) Amount Previously
Paid:
(2) Form, Schedule or
Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
SUBJECT TO
COMPLETION DATED MARCH 26, 2007
2202 North West Shore Boulevard,
Suite 500, Tampa, Florida 33607
March 30, 2007
Dear Stockholder:
You are cordially invited to attend a special meeting of
stockholders of OSI Restaurant Partners, Inc. (OSI,
we, us or our), to be held
at the A La Carte Event Pavilion, 4050-B Dana Shores Drive,
Tampa, Florida 33634, on Wednesday, April 25, 2007, at
9:00 a.m., Eastern Daylight Time. At the special meeting,
you will be asked to consider and vote upon a proposal to adopt
the Agreement and Plan of Merger, dated as of November 5,
2006 (the Merger Agreement), among OSI, Kangaroo
Holdings, Inc. (Parent) and Kangaroo Acquisition,
Inc. (Merger Sub), pursuant to which Merger Sub will
merge with and into OSI and OSI will become a direct or indirect
wholly owned subsidiary of Parent. Parent is controlled by an
investor group comprised of investment funds associated with
Bain Capital Partners, LLC and investment funds affiliated with
Catterton Management Company, LLC, which are private equity
firms. Our founders and certain members of our management are
expected to exchange shares of our common stock for shares of
Parent in connection with the merger.
Upon completion of the merger, each outstanding share of our
common stock not held by Parent, Merger Sub, OSI or any
subsidiary of OSI or a stockholder who perfects appraisal rights
in accordance with Delaware law, will be converted into the
right to receive $40.00 in cash, without interest.
On November 5, 2006, our board of directors (other than
Chris T. Sullivan, our Chairman of the Board, Robert D. Basham,
our Vice Chairman of the Board, and A. William Allen, III,
our Chief Executive Officer, each of whom is expected to
exchange shares of our common stock for shares of Parent in
connection with the merger and therefore abstained from voting),
based in part upon the unanimous recommendation of a special
committee of our board of directors comprised of all of our
independent directors, (i) determined that it was advisable
and in the best interests of OSI and its stockholders to enter
into the Merger Agreement and (ii) approved and adopted the
Merger Agreement and the transactions contemplated by the Merger
Agreement. Therefore, our board of directors recommends that
you vote FOR the adoption of the Merger
Agreement.
The proxy statement attached to this letter provides you with
information about the merger, the Merger Agreement and the
special meeting. A copy of the Merger Agreement is attached as
Annex A to the proxy statement. We encourage you to read
the entire proxy statement and its annexes carefully.
Your vote is very important, regardless of the number of
shares of our common stock you own. Under Delaware law, the
merger cannot be completed unless holders of a majority of the
outstanding shares of our common stock entitled to vote at the
special meeting vote for the adoption of the Merger Agreement.
In addition, the Merger Agreement requires that a majority of
the outstanding shares of our common stock entitled to vote at
the special meeting vote for the adoption of the Merger
Agreement without consideration as to the vote of any shares
held by our founders and certain members of our management who
are expected to exchange shares of our common stock for shares
of Parent in connection with the merger. If you do not vote,
it will have the same effect as a vote against the adoption of
the Merger Agreement.
Whether or not you plan to attend the special meeting in person,
please complete, sign, date and return promptly the enclosed
proxy card. If you hold shares through a broker or other
nominee, you should follow the procedures provided by your
broker or nominee. These actions will not limit your right to
vote in person if you wish to attend the special meeting and
vote in person.
Thank you in advance for your cooperation and continued support.
Sincerely,
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Thomas A. James
Co-Chairman of the
Special Committee
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Toby S. Wilt
Co-Chairman of the
Special Committee
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Chris T. Sullivan
Chairman of the
Board
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THIS PROXY
STATEMENT IS DATED MARCH 30, 2007, AND IS FIRST BEING
MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 2, 2007.
2202 North
West Shore Boulevard, Suite 500, Tampa, Florida 33607
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 25, 2007
TO THE STOCKHOLDERS OF OSI RESTAURANT PARTNERS, INC.:
A special meeting of stockholders of OSI Restaurant Partners,
Inc., a Delaware corporation (OSI, we,
us or our), will be held at the A
La Carte Event Pavilion, 4050-B Dana Shores Drive, Tampa,
Florida 33634, on Wednesday, April 25, 2007, beginning at
9:00 a.m., Eastern Daylight Time, for the following
purposes:
1. Adoption of the Merger Agreement. To
consider and vote on a proposal to adopt the Agreement and Plan
of Merger, dated as of November 5, 2006 (the Merger
Agreement), among OSI, Kangaroo Holdings, Inc. and
Kangaroo Acquisition, Inc., pursuant to which, upon completion
of the merger, each outstanding share of OSI common stock, par
value $0.01 per share (other than shares held in our
treasury, shares owned by our subsidiaries, Kangaroo Holdings,
Inc. or Kangaroo Acquisition, Inc. and shares held by
stockholders who perfect appraisal rights in accordance with
Delaware law), will be converted into the right to receive
$40.00 in cash, without interest.
2. Adjournment or Postponement of the Special
Meeting. To approve the adjournment or
postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies if there are
insufficient votes at the time of the meeting to adopt the
Merger Agreement.
3. Other Matters. To transact such other
business as may properly come before the special meeting or any
adjournment or postponement thereof.
Only stockholders of record of our common stock as of the close
of business on March 28, 2007, will be entitled to notice
of, and to vote at, the special meeting and any adjournment or
postponement of the special meeting. All stockholders of record
are cordially invited to attend the special meeting in person.
Your vote is very important, regardless of the number of
shares of our common stock you own. Under
Delaware law, adoption of the Merger Agreement requires holders
of a majority of the outstanding shares of our common stock
entitled to vote at the special meeting to vote for the adoption
of the Merger Agreement. In addition, the Merger Agreement
requires that a majority of the outstanding shares of our common
stock entitled to vote at the special meeting adopt the Merger
Agreement without consideration as to the vote of any shares
held by our founders and certain members of our management who
are expected to purchase shares of Parent in connection with the
merger. Even if you plan to attend the meeting in person, we
request that you complete, sign, date and return the enclosed
proxy in the envelope provided and thus ensure that your shares
will be represented at the meeting if you are unable to attend.
If you sign, date and mail your proxy card without indicating
how you wish to vote, your vote will be counted as a vote
FOR the adoption of the Merger
Agreement and FOR the adjournment or
postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies.
If you fail to vote by proxy or in person, the effect will be
that your shares will not be counted for purposes of determining
whether a quorum is present at the special meeting and, if a
quorum is present, will have the same effect as a vote against
the adoption of the Merger Agreement. If you are
a stockholder of record and wish to vote in person at the
special meeting, you may withdraw your proxy and vote in person.
Stockholders of OSI who do not vote in favor of the adoption of
the Merger Agreement will have the right to seek appraisal of
the fair value of their shares if the merger is completed, but
only if they comply with all procedural requirements of Delaware
law, which are summarized in the accompanying proxy statement
under the caption Appraisal Rights beginning on
page 99.
By Order Of The Board Of Directors,
Joseph J. Kadow
Secretary
March 30, 2007
TABLE OF
CONTENTS
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Page
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10
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15
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32
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50
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i
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Page
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81
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81
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82
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A-1
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B-1
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C-1
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D-1
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E-1
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ii
SUMMARY
TERM SHEET
This summary term sheet highlights selected information from
this proxy statement and may not contain all of the information
that is important to you. To understand the merger fully, and
for a more complete description of the legal terms of the
merger, you should carefully read this entire proxy statement,
the annexes attached to this proxy statement and the documents
referred to in this proxy statement. We have included section
references to direct you to a more complete description of the
topics presented in this summary term sheet. In this proxy
statement, the terms OSI, we,
us, our and the Company
refer to OSI Restaurant Partners, Inc. In addition, we refer to
Kangaroo Holdings, Inc. as Parent and to Kangaroo
Acquisition, Inc. as Merger Sub.
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The Proposal. You are being asked to vote on a
proposal to adopt the Agreement and Plan of Merger, dated as of
November 5, 2006 (the Merger Agreement), by and
among OSI, Parent and Merger Sub. Pursuant to the Merger
Agreement, Merger Sub will be merged with and into OSI, and OSI
will be the surviving corporation and a direct or indirect
wholly owned subsidiary of Parent. In the event that there are
not sufficient votes at the time of the special meeting to adopt
the Merger Agreement, stockholders may also be asked to vote on
a proposal to adjourn or postpone the special meeting to solicit
additional proxies. See The Special Meeting
beginning on page 77.
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The Parties to the Merger Agreement. OSI
Restaurant Partners, Inc., a Delaware corporation, is one of the
largest casual dining restaurant companies in the world, with a
portfolio of eight restaurant concepts, over
1,400 system-wide restaurants and 2006 annual revenues for
company-owned stores exceeding $3.9 billion. We operate in
all 50 states and in 20 countries internationally,
predominantly through company-owned stores, but we also operate
under a variety of partnerships and franchises.
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Kangaroo Holdings, Inc. is a Delaware corporation, formed in
anticipation of the merger by Bain Capital Fund IX, L.P.,
an investment fund sponsored by Bain Capital Partners, LLC
(Bain Capital and the fund, together with associated
collective investment vehicles, including Bain Capital (OSI) IX,
L.P. (Bain AIV), Bain Capital Funds),
and Catterton Partners VI, L.P. and Catterton Partners VI,
Offshore, L.P. (collectively, Catterton VI Funds),
investment funds managed by Catterton Management Company, LLC
(Catterton and together with Catterton VI Funds and
affiliated investment vehicles, Catterton Partners
Funds). The Catterton VI Funds and Bain AIV are
collectively referred to in this proxy statement as the
Funds. Upon completion of the merger, OSI will be a direct
or indirect wholly owned subsidiary of Parent. Our founders,
Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon (our
Founders), and certain members of our management,
including A. William Allen, III, our Chief Executive
Officer, Paul E. Avery, our Chief Operating Officer, Joseph J.
Kadow, our Executive Vice President, Chief Officer-Legal and
Corporate Affairs and Secretary, and Dirk A. Montgomery, our
Senior Vice President and Chief Financial Officer, are expected
to exchange shares of our common stock for shares of Parent in
connection with the merger. We refer to these individuals as the
OSI Investors. Parent currently has de
minimis assets and no operations.
Bain Capital is a global private investment firm whose
affiliates manage several pools of capital including private
equity, venture capital, public equity and leveraged debt assets
totaling approximately $40 billion. Since its inception in
1984, Bain Capital has made private equity investments and
add-on acquisitions in over 230 companies around the world,
including such restaurant and retail concepts as Dominos
Pizza, Dunkin Donuts and Burger King, and retailers
including Toys R Us, AMC Entertainment, Staples and
Burlington Coat Factory. Headquartered in Boston, Bain Capital
has offices in New York, London, Munich, Tokyo, Hong Kong and
Shanghai.
Catterton is a leading private equity firm in the United States
focused exclusively on the consumer industry with more than
$2 billion in assets under management. Founded in 1990,
Catterton invests in all major consumer segments, including Food
and Beverage, Retail and Restaurants, Consumer Products and
Services, and Media and Marketing Services. Catterton has led
investments in companies such as
Build-A-Bear
Workshop, Cheddars Restaurant Holdings Inc., P.F.
Changs China Bistro, Baja Fresh Mexican Grill, First Watch
Restaurants, Frederic Fekkai, Kettle Foods, Farleys and
Sathers Candy Co. and Odwalla, Inc.
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Kangaroo Acquisition, Inc. is a Delaware corporation formed by
Parent in anticipation of the merger. Subject to the terms and
conditions of the Merger Agreement and in accordance with
Delaware law, at the effective time of the merger, Merger Sub
will merge with and into OSI and OSI will continue as the
surviving corporation. Merger Sub currently has de
minimis assets and no operations.
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Going-Private Transaction. This is a
going private transaction. If the merger is
completed, your shares will be converted into the right to
receive $40.00 per share, without interest and less any
applicable withholding tax, and:
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Parent will directly or indirectly own our entire equity
interest;
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you will no longer have any interest in our future earnings or
growth;
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we will no longer be a public company;
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our common stock will no longer be traded on the New York Stock
Exchange (the NYSE); and
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we may no longer be required to file periodic and other reports
with the Securities and Exchange Commission (the
SEC).
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See Special Factors Certain Effects of the
Merger beginning on page 57.
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Special Committee. A special committee of our
board of directors, consisting of all of our independent
directors, was formed to review, evaluate and make a
recommendation to our board of directors with respect to the
merger. The members of the special committee are John A.
Brabson, Jr., W.R. Carey, Jr., Debbi Fields, Gen.
(Ret.) Tommy Franks, Thomas A. James and Toby S. Wilt. Our
non-independent directors are Mr. Allen, Mr. Sullivan,
Mr. Basham and Lee Roy Selmon. See Special
Factors Fairness of the Merger; Recommendations of
the Special Committee and Our Board of Directors beginning
on page 32.
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Special Committee and Board
Recommendation. The special committee unanimously
determined that the merger is both procedurally and
substantively fair to OSIs stockholders (other than the
OSI Investors) and in the best interests of our stockholders,
and unanimously recommended that our board of directors approve
and adopt the Merger Agreement. Based in part on the
recommendation of the special committee, our board of directors
(with Mr. Sullivan, our Chairman of the Board;
Mr. Basham, our Vice Chairman of the Board; and
Mr. Allen, our Chief Executive Officer, abstaining)
unanimously determined that the merger is both procedurally and
substantively fair to OSIs stockholders (other than the
OSI Investors), and in the best interests of our stockholders,
and unanimously approved and adopted the Merger Agreement and
the transactions contemplated by the Merger Agreement.
ACCORDINGLY, OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE ADOPTION OF THE MERGER AGREEMENT.
See Special Factors Fairness of the Merger;
Recommendations of the Special Committee and Our Board of
Directors beginning on page 32.
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Opinion of Wachovia Capital Markets, LLC. In
connection with the merger, the special committee received a
written opinion from Wachovia Capital Markets, LLC, its
financial advisor (Wachovia Securities), as to the
fairness, from a financial point of view and as of the date of
such opinion, of the $40.00 per share merger consideration
to be received by holders of our common stock (other than the
OSI Investors). The opinion also was provided to our board of
directors for its information and use in connection with its
consideration of the transactions contemplated by the Merger
Agreement. The full text of Wachovia Securities written
opinion, dated November 5, 2006, is attached to this proxy
statement as Annex B. You are encouraged to read this
opinion carefully in its entirety for a description of the
assumptions made, procedures followed, matters considered and
limitations on the scope of review undertaken. Wachovia
Securities opinion addresses only the fairness of the
merger consideration to our stockholders (other than the OSI
Investors) from a financial point of view as of the date of the
opinion and does not address any other aspect of the merger,
including the merits of the underlying decision by OSI to engage
in the merger. The opinion was addressed to the special
committee and was provided to our board of directors for its
information and use, but does not constitute a recommendation as
to how any stockholder should vote or act on any matter relating
to the proposed merger. See Special
Factors Opinion of Wachovia Capital Markets,
LLC beginning on page 41.
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Opinion of Piper Jaffray & Co. In
connection with the merger, the special committee received a
written opinion from Piper Jaffray & Co. (Piper
Jaffray), as to the fairness, from a financial point of
view and as of the date of such opinion, of the $40.00 per
share merger consideration to be received by our stockholders
(other than the OSI Investors). The opinion also was provided to
our board of directors for its information and use in connection
with its consideration of the transactions contemplated by the
Merger Agreement. The full text of Piper Jaffrays written
opinion, dated November 5, 2006, is attached to this proxy
statement as Annex C. You are encouraged to read this
opinion carefully in its entirety for a description of the
assumptions made, procedures followed, matters considered and
limitations on the scope of review undertaken. Piper
Jaffrays opinion addresses only the fairness of the merger
consideration to our stockholders (other than the OSI Investors)
from a financial point of view as of the date of the opinion.
The opinion was addressed to the special committee and was
provided to our board of directors for its information and use,
but does not constitute a recommendation as to how any
stockholder should vote or act on any matter relating to the
proposed merger. See Special Factors
Opinion of Piper Jaffray & Co. beginning on
page 50.
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Purpose of the Transaction. The purpose of the
transaction is for Bain Capital Funds, Catterton Partners Funds
and the OSI Investors to obtain control of OSI and to enable
OSIs stockholders to realize a premium on their shares of
OSI common stock based on the closing price of our common stock
on November 3, 2006. See Special Factors
Purposes and Reasons of the OSI Investors beginning on
page 36.
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Position of the OSI Investors Regarding the Fairness of the
Merger. Each of the OSI Investors believes that
the merger is both procedurally and substantively fair to
OSIs stockholders (other than the OSI Investors). Their
belief is based upon their knowledge and analysis of OSI, as
well as the factors discussed in the section entitled
Special Factors Position of OSI Investors
Regarding the Fairness of the Merger beginning on
page 37.
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Position of Parent, Merger Sub and the Funds Regarding the
Fairness of the Merger. Parent, Merger Sub and
the Funds believe that the merger is both procedurally and
substantively fair to OSIs stockholders (other than the
OSI Investors). Their belief is based upon their knowledge and
analysis of OSI, as well as the factors discussed in the section
entitled Special Factors Position of Parent,
Merger Sub and the Funds Regarding the Fairness of the
Merger beginning on page 40.
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Special Meeting. The special meeting will be
held on Wednesday, April 25, 2007, beginning at 9:00 a.m.,
Eastern Daylight Time, at the A La Carte Event Pavilion,
4050-B Dana Shores Drive, Tampa, Florida 33634.
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Record Date and Quorum. You are entitled to
vote at the special meeting if you owned shares of our common
stock at the close of business on March 28, 2007, the record
date for the special meeting. You will have one vote for each
share of OSI common stock that you owned on the record date. As
of the record date, there were [75,521,662] shares of our
common stock entitled to vote at the special meeting,
[66,686,775] of which were held by persons other than the OSI
Investors. The holders of a majority of the outstanding shares
of our common stock at the close of business on the record date
represented in person or by proxy will constitute a quorum for
purposes of the special meeting. See Special
Meeting Record Date and Quorum beginning on
page 78.
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Required Vote. Under Delaware law, the
adoption of the Merger Agreement requires holders of a majority
of the outstanding shares of our common stock entitled to vote
at the special meeting to vote for the adoption of the Merger
Agreement. In addition, the Merger Agreement requires that a
majority of the outstanding shares of our common stock entitled
to vote at the special meeting vote for the adoption of the
Merger Agreement without consideration as to the vote of any
shares held by the OSI Investors. A failure to vote your
shares of our common stock or an abstention will have the same
effect as voting against the adoption of the Merger
Agreement. See The Special Meeting
Required Vote beginning on page 78.
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Regulatory Approvals Required. The
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
Hart-Scott-Rodino
Act), provides that transactions such as the merger may
not be completed until certain information has been submitted to
the Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice and certain waiting period
requirements have been satisfied. OSI and Parent filed
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notification reports with the Department of Justice and the
Federal Trade Commission under the
Hart-Scott-Rodino
Act on November 27, 2006. On December 22, 2006, the
Federal Trade Commission granted early termination of the
waiting period under the
Hart-Scott-Rodino
Act. OSI and Merger Sub also filed a business combination report
and information sheet with the Korean Fair Trade Commission on
December 5, 2006 and subsequently filed additional
information on December 20, 2006. On December 22,
2006, the Korean Fair Trade Commission approved the merger.
Except for the required filings under the Hart-Scott-Rodino Act,
the filings with the Korean Fair Trade Commission, and the
filing of a certificate of merger in Delaware at the effective
time of the merger, we are unaware of any material federal,
state or foreign regulatory requirements or approvals required
for the execution of the Merger Agreement or completion of the
merger. See Special Factors Regulatory
Approvals beginning on page 74.
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Interests of OSIs Directors and Executive Officers in
the Merger. Our directors and executive officers
have interests in the merger that are different from, or in
addition to, their interests as OSI stockholders. These
interests include:
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All OSI equity-based awards (other than shares of restricted
stock held by the OSI Investors) will vest and be cashed out,
which would result in an aggregate cash payment to our directors
and executive officers of approximately $19,265,000 based on
holdings as of March 28, 2007.
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Immediately prior to the effective time of the merger, each
award of restricted stock held by Mr. Allen, Mr. Kadow
and Mr. Montgomery will be exchanged for shares of common
stock of Parent and upon closing it is expected that Parent will
grant Mr. Avery restricted shares of Parent common stock
with an aggregate value of $12,000,000. Mr. Kadow also is
expected to purchase shares of Parent common stock with an
aggregate value of $200,000. As a result, immediately following
the closing, each of Mr. Allen, Mr. Avery,
Mr. Kadow and Mr. Montgomery will own approximately
1.5%, 1.0%, 0.3% and 0.3%, respectively, of the fully-diluted
outstanding common stock of Parent. The common stock of Parent
issued in the exchange is expected to vest in five equal annual
installments on each of the first five anniversaries of the
closing; provided that vesting will accelerate in the event of a
termination of employment as a result of death or disability, by
OSI without cause or by the executive with good reason or upon a
subsequent change of control. Additional members of management
are expected to exchange restricted or unrestricted OSI stock
for shares of common stock of Parent or to purchase shares of
Parent common stock at the same price per share as the OSI
Investors. These members of management are expected to consist
of approximately 40 individuals identified by Parent in
consultation with the OSI Investors as among those important to
the success of OSI (such individuals, the Additional
Management Investors). The opportunity to exchange shares
of OSI common stock for, or to purchase shares of, Parent common
stock is intended to provide an equity-based incentive and
retention benefit with respect to future operations of Parent
and its subsidiaries. No arrangements reflecting this potential
exchange or purchase have been entered into with the Additional
Management Investors.
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Each of Mr. Allen, Mr. Avery, Mr. Kadow and
Mr. Montgomery is party to an employment agreement that
provides for change in control severance benefits in the event
of certain qualifying terminations (as defined below) of
employment in connection with or following the merger. Assuming
the merger is completed on April 30, 2007, and qualifying
terminations of employment of all four executives were to occur
on that date, the aggregate cash severance benefit under these
agreements (including any estimated tax
gross-up
payment) would be approximately $17,050,000. Each executive
officer would also receive certain ancillary severance benefits
and would be eligible for tax
gross-up
payments. Each of Mr. Allen, Mr. Avery, Mr. Kadow
and Mr. Montgomery and Parent currently expect that the
existing employment agreements will be amended and restated to
provide compensation and benefits to the executives following
the closing. If the parties enter into these amended and
restated agreements or the qualifying terminations referred to
above do not occur, the aggregate cash severance benefits,
ancillary severance benefits and tax
gross-up
payments described above would not become payable on the date
referred to above. A qualifying termination is a
separation from service (as defined in the Internal Revenue
Code) of the employee caused by OSI without cause or by the
employee for good reason within two years after the merger.
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A $5,000,000 cash bonus pool will be allocated by the Chief
Executive Officer of OSI, with approval from the post-closing
board of directors of OSI, among Mr. Allen, Mr. Avery,
Mr. Kadow and Mr. Montgomery and an additional 50 to
60 OSI home office personnel and will be paid immediately
following the closing.
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Options to purchase shares of Parent common stock representing
2.5% of the fully-diluted common stock of Parent immediately
following the closing, of which 1.75% will be issued at closing,
will be allocated as follows: Mr. Allen (26%);
Mr. Avery (24%); Mr. Kadow (16.7%);
Mr. Montgomery (8%); and other members of OSI management
(25.3%).
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It is expected that each of Mr. Sullivan, Mr. Basham
and Mr. Allen will serve on the board of directors of
Parent as of the closing of the merger.
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Immediately prior to completion of the merger, it is expected
that Mr. Sullivan, Mr. Basham and Mr. Gannon
(each of whom is a director or director emeritus of OSI) will
exchange approximately 1,800,000, 2,500,000 and
300,000 shares of OSI common stock, respectively, for
Parent common stock representing approximately 6.0%, 8.3% and
1.0%, respectively, of the fully-diluted outstanding common
stock of Parent immediately following the effective time of the
Merger. The Founders will receive cash equal to the per share
merger consideration to be received by OSIs stockholders
in the merger for the remaining shares of OSI common stock that
they own.
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It is expected that Mr. Sullivan, Mr. Basham and
Mr. Gannon will receive an annual management fee of
$5,600,000 in the aggregate (which may be paid to them directly
or to an entity that they organize) and will enter into
employment agreements with OSI providing annual compensation of
$800,000 in the aggregate.
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OSI directors and officers are entitled to continued
indemnification and insurance coverage under the Merger
Agreement.
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Gen. (Ret.) Tommy Franks is a director of Bank of America. We
have various corporate banking relationships with Bank of
America, and it participates as a lender in our $225,000,000
revolving credit facility. In addition, individual restaurant
locations have depository relationships with Bank of America in
the ordinary course of business. Bank of America and certain of
its affiliates have committed to provide Merger Sub a portion of
the debt financing necessary to complete the merger.
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Certain directors and executive officers are also party to
transactions with OSI and its affiliates as discussed under
Special Factors Related Party
Transactions beginning on page 69.
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The aggregate consideration expected to be received by our
directors, director emeritus and executive officers in
connection with the merger (including amounts described in the
bullets above) is approximately $400,240,112, of which
approximately $330,967,880 relates to unrestricted common stock
owned by those individuals, and is set forth in more detail
under Special Factors Interests of Our
Directors and Executive Officers in the Merger beginning
on page 64. The consideration to be paid to OSIs
unaffiliated stockholders in the merger is expected to be
approximately $3.0 billion.
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Appraisal Rights. Pursuant to Delaware law,
our stockholders have the right to dissent from the merger and
receive a cash payment for the judicially determined fair value
of their shares of our common stock. The judicially determined
fair value could be greater than, equal to or less than the
$40.00 per share that our stockholders are entitled to
receive in the merger. To exercise their appraisal rights,
stockholders must not vote in favor of the adoption of the
Merger Agreement and must strictly comply with specific
procedures. A copy of the provisions of Delaware law that grant
appraisal rights and govern such procedures is attached as
Annex D to this proxy statement.
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Financing. The total amount of funds required
to complete the merger and the related transactions, including
payment of fees and expenses in connection with the merger, is
anticipated to be approximately $3.63 billion. This amount
is expected to be provided through a combination of
(i) equity contributions from Bain Capital Funds, Catterton
Partners Funds and the OSI Investors, totaling approximately
$1.2 billion, (ii) debt financing totaling
approximately $2.43 billion (which is expected to include
proceeds from the sale of real estate as part of the real estate
financing) and (iii) our available cash. Bain Capital
Fund IX, L.P. and Catterton VI Funds may assign to other
affiliated and/or non-affiliated investors, with the consent of
Parent, a portion of their respective commitments under the
equity commitment letter each delivered to Parent. The
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real estate financing consists of a sale and leaseback of our
fee-owned real estate and related assets associated with certain
company-owned restaurants operating under the Outback
Steakhouse, Carrabbas and other concept brands. The
purchase price of the real estate will be financed in part with
the proceeds of first mortgage and mezzanine loans, which will
be part of a commercial mortgage-backed securitization. See
Special Factors Financing beginning on
page 60. The closing of the merger is not conditioned on
the receipt of the debt or equity financing by Parent. Parent
and Merger Sub, however, are not required to consummate the
merger until after the earlier to occur of (x) the
completion of a 20 consecutive business day marketing period
(during which the purchasing entities will market the debt
financing) and (y) April 30, 2007 (if certain
financial statements and financial data customarily included in
private placements pursuant to Rule 144A of the Securities
Act of 1933, as amended (the Securities Act), have
been furnished by us to Parent and Merger Sub on or prior to
April 2, 2007). See The Merger Agreement
Effective Time; The Marketing Period beginning on
page 81.
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Guarantees. Pursuant to limited guarantees,
each of Bain Capital Fund IX, L.P. and Catterton VI Funds
has agreed to guaranty the obligations of Parent and Merger Sub
under the Merger Agreement (i) up to the amount of
$33,750,000 and $11,250,000, respectively, with respect to any
termination fee payable by Parent and (ii) up to the amount
of $161,250,000 and $53,750,000, respectively, with respect to
damages arising from failures of Parent or Merger Sub to comply
with the Merger Agreement. The limited guarantees are our sole
remedies against the guarantors and their related persons. See
Special Factors Guarantees beginning on
page 64.
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Material United States Federal Income Tax Consequences of the
Merger. For U.S. federal income tax
purposes, the disposition of OSI common stock pursuant to the
merger generally will be treated as a sale of the shares of our
common stock for cash by each of our stockholders. As a result,
in general, each stockholder will recognize gain or loss equal
to the difference, if any, between the amount of cash received
in the merger and such stockholders adjusted tax basis in
the shares surrendered. Such gain or loss will be capital gain
or loss if the shares of common stock surrendered are held as a
capital asset in the hands of the stockholder, and will be
long-term capital gain or loss if the shares of common stock
have a holding period of more than one year at the effective
time of the merger. We recommend that our stockholders
consult their own tax advisors as to the particular tax
consequences to them of the merger. See Special
Factors Material United States Federal Income Tax
Consequences beginning on page 72.
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Litigation. Two stockholder complaints have
been filed as purported class actions on behalf of the public
stockholders of OSI. The first, against OSI, each of OSIs
directors, Bain Capital and Catterton, was filed in the Circuit
Court of the 13th Judicial Circuit in and for Hillsborough
County, Florida. The second, against OSI, each of OSIs
directors, J. Timothy Gannon, Paul E. Avery, Joseph J.
Kadow and Dirk A. Montgomery, was filed in the Court of Chancery
of the State of Delaware in and for New Castle County. The
complaints each allege, among other things, that the directors
of OSI breached their fiduciary duties in connection with the
proposed transaction by failing to maximize stockholder value
and by approving a transaction that purportedly benefits the OSI
Investors at the expense of OSIs public stockholders. The
Delaware complaint also alleges that the OSI officers named as
defendants breached their fiduciary duties in connection with
the merger. Among other things, the complaints seek to enjoin
OSI, its directors and the other defendants from proceeding with
or consummating the merger. Bain Capital, Catterton and OSI
(and, in the Delaware complaint, Gannon) are alleged to have
aided and abetted the individual defendants in breaching their
fiduciary duties. Counsel for the parties to these two suits
have reached an agreement in principle, expressed in a
memorandum of understanding, providing for the settlement of the
suits subject to Florida court approval and on terms and
conditions that include, among other things, certain
supplemental disclosure in this proxy statement and, in the
event that any termination fee becomes due and payable by OSI,
an agreement by Bain Capital and Catterton to waive a portion of
such termination fee. Defendants have vigorously denied, and
continue to vigorously deny, any wrongdoing or liability with
respect to all claims asserted in these suits. If the Florida
court approves the settlement contemplated in the memorandum of
understanding, both suits will be dismissed with prejudice. The
absence of an injunction arising from these matters prohibiting
the consummation of the merger is a condition to the closing of
the merger. The settlement contemplated by the parties is
expressly conditioned upon the affirmative vote of a majority of
the outstanding shares of our common stock entitled to vote at
the special meeting (or any adjournment thereof)
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for the adoption of the Merger Agreement with, and without,
consideration as to the vote of any shares held by the OSI
Investors, and on the closing of the merger and transactions
contemplated thereby. The defendants considered it desirable
that the actions be settled to avoid the burden, expense, risk,
inconvenience and distraction of continued litigation and to
resolve all of the claims that were or could have been brought
in the actions being settled. See Special
Factors Litigation beginning on page 73.
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Treatment of Stock Options and Other Stock-Based
Awards. Except as we otherwise agree to in
writing with Parent, Merger Sub and certain members of our
management (including the OSI Investors):
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each outstanding option to purchase shares of our common stock,
whether vested or unvested, will be canceled and converted into
the right to receive a cash payment equal to the excess (if any)
of the $40.00 per share cash merger consideration over the
exercise price per share of the option, multiplied by the number
of shares subject to the option, without interest and less any
applicable withholding taxes;
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each holder under our Directors Deferred Compensation
Plan, as amended, will be entitled to $40.00 per each
notional share held under such holders account;
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each award of restricted stock will be converted into the right
to receive $40.00 per share in cash plus certain earnings
thereon, less any applicable withholding taxes, payable on a
deferred basis at the time the underlying restricted stock would
have vested under its terms as in effect immediately prior to
the effective time and subject to the satisfaction by the holder
of all terms and conditions to which such vesting was subject;
provided, however, that the holders deferred cash account
will become immediately vested and payable upon termination of
such holders employment by us without cause or upon such
holders death or disability; and
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all amounts held in the accounts denominated in shares of our
common stock under the Partner Equity Deferred Compensation
Stock Plan component of the OSI Restaurant Partners, Inc.
Partner Equity Plan (the PEP) will be converted into
an obligation to pay cash with a value equal to the product of
(i) the $40.00 per share merger consideration and
(ii) the number of notional shares of our common stock
credited to such deferred unit account, in accordance with the
payment schedule and consistent with the terms of the PEP as in
effect from time to time.
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See The Merger Agreement Treatment of Stock,
Stock Options and Other Stock-Based Awards beginning on
page 82.
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Anticipated Closing of Merger. We are working
to complete the merger as soon as possible. We anticipate
completing the merger by the end of April 2007, subject to the
adoption of the Merger Agreement by our stockholders and the
satisfaction of the other closing conditions. See The
Merger Agreement Effective Time; The Marketing
Period beginning on page 81. We will issue a press
release when the merger has been completed.
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Procedure for Receiving Merger
Consideration. As soon as reasonably practicable
after the effective time of the merger and in any event not
later than the second business day following the effective time,
a paying agent will mail a letter of transmittal and
instructions to you and the other OSI stockholders. The letter
of transmittal and instructions will tell you how to surrender
your stock certificates in exchange for the merger
consideration. You should not return your stock certificates
with the enclosed proxy card, and you should not forward your
stock certificates to the paying agent without a letter of
transmittal.
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Solicitation of Transactions; Recommendation to
Stockholders. The Merger Agreement permitted us
to solicit or encourage alternative acquisition offers under the
direction of the special committee until 11:59 p.m. (New
York time) on December 26, 2006, the date that was
50 days after the date of the public announcement of the
Merger Agreement. As the solicitation period has now expired,
the Merger Agreement now restricts our ability to solicit or
encourage alternative acquisition offers. Notwithstanding these
restrictions, under certain limited circumstances required for
our board of directors to comply with its fiduciary duties, our
board of directors or the special committee may respond to an
unsolicited bona fide written proposal received after the
expiration of the solicitation period. If our board of directors
or the special committee determines that such unsolicited bona
fide written proposal is a superior proposal and concludes
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that, in light of the superior proposal, it would be
inconsistent with our directors fiduciary obligations
under applicable law to make or not withdraw its recommendation
with respect to the merger or fail to change its recommendation,
we may terminate the Merger Agreement after paying a specified
termination fee and, in certain circumstances, reimbursing
Parent for its
out-of-pocket
fees and expenses. See The Merger Agreement
Solicitation of Transactions; Recommendation to
Stockholders beginning on page 89.
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Conditions to Closing. Before we can complete
the merger, a number of conditions must be satisfied or waived
by all parties. These include:
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the approval of the Merger Agreement by a majority of the
outstanding shares of our common stock entitled to vote at the
special meeting without consideration as to the vote of any
shares held by the OSI Investors;
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the absence of laws or governmental judgments or orders that
prohibit the completion of the merger;
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the performance by each of the parties of its obligations prior
to the effective time of the merger under the Merger Agreement
in all material respects; and
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the accuracy of the representations and warranties of each of
the parties to the Merger Agreement, subject to the materiality
and other standards set forth in the Merger Agreement.
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See The Merger Agreement Conditions to the
Merger beginning on page 95.
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Termination of the Merger Agreement. The
Merger Agreement may be terminated at any time prior to the
effective time of the merger, whether before or after
stockholder approval has been obtained, as follows:
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by mutual written consent of Parent and OSI;
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by either Parent or OSI, if:
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the merger has not been consummated on or before April 30,
2007;
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a final, non-appealable injunction, order, decree or ruling
prohibits the merger;
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our stockholders do not adopt the Merger Agreement at the
special meeting or any adjournment thereof; or
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the non-terminating party breaches or fails to perform in any
material respect any of its representations, warranties or
agreements in the Merger Agreement such that the closing
conditions would not be satisfied and cannot be cured prior to
April 30, 2007, but only after the terminating party
provides 30 days notice to the non-terminating
party; or
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the special committee or our board of directors concludes in
good faith that, in light of a superior acquisition proposal, it
would be inconsistent with the directors exercise of their
fiduciary obligations to make or not withdraw its recommendation
that the stockholders adopt the Merger Agreement or fail to
change that recommendation in a manner adverse to Parent; or
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Parent does not (i) deposit sufficient cash to satisfy its
obligations pursuant to the Merger Agreement within five
business days after notice by OSI that the mutual conditions to
closing and the conditions to Parents obligations to close
have been satisfied and (ii) proceed immediately thereafter
to give effect to closing; provided that OSI will not have a
termination right based upon a notice which is delivered prior
to the final day of the marketing period or if certain financial
information has not been furnished to Parent on or prior to
April 2, 2007.
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See The Merger Agreement Termination
beginning on page 96.
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Termination Fees and Expenses. Under certain
circumstances, in connection with the termination of the Merger
Agreement by us, we will be required to pay to Parent or its
designee a termination fee and reimburse certain fees and
expenses of Parent relating to the Merger Agreement in an
aggregate amount that, under specified circumstances, may be as
much as $45,000,000. Parent has agreed to pay us a termination
fee of
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$45,000,000 if we terminate the Merger Agreement in certain
circumstances related to the failure of Parent to promptly close
the transaction. See The Merger Agreement
Termination Fees and Expenses beginning on page 97.
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Additional Information. You can find more
information about OSI in the periodic reports and other
information we file with the SEC. The information is available
at the SECs public reference facilities and at the website
maintained by the SEC at http://www.sec.gov. For a more detailed
description of the additional information available, please see
Where You Can Find More Information beginning on
page 190.
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9
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers are intended to address some
commonly asked questions regarding the special meeting and the
merger. These questions and answers may not address all
questions that may be important to you as our stockholder.
Please refer to the more detailed information contained
elsewhere in this proxy statement, the annexes to this proxy
statement and the documents referred to in this proxy statement.
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What is the proposed transaction? |
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The proposed transaction is the merger of Merger Sub with and
into OSI pursuant to the Merger Agreement. Once the Merger
Agreement has been adopted by the OSI stockholders and the other
closing conditions under the Merger Agreement have been
satisfied or waived, Merger Sub will merge with and into OSI.
OSI will be the surviving corporation in the merger and will
become a direct or indirect wholly owned subsidiary of Parent.
Parent is controlled by an investor group comprised of Bain
Capital Funds and Catterton VI Funds. The OSI Investors are
expected to exchange shares of OSI common stock for shares of
Parent in connection with the merger. In the event that there
are not sufficient votes at the time of the special meeting to
adopt the Merger Agreement, stockholders may also be asked to
vote upon a proposal to adjourn or postpone the special meeting
to solicit additional proxies. |
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What will I receive in the merger? |
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Upon completion of the merger, you will receive $40.00 in cash,
without interest and less any required withholding taxes, for
each share of our common stock that you own. For example, if you
own 100 shares of our common stock, you will receive
$4,000.00 in cash in exchange for your shares of our common
stock, less any required withholding taxes. You will not own
shares in the surviving corporation. |
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Where and when is the special meeting? |
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The special meeting will take place at the A La Carte
Pavilion,
4050-B Dana
Shores Drive, Tampa, Florida 33634, on April 25, 2007, at
9:00 a.m., Eastern Daylight Time. |
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May I attend the special meeting? |
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All stockholders of record as of the close of business on
March 28, 2007, the record date for the special meeting,
may attend the special meeting. In order to be admitted to the
special meeting, a form of personal identification will be
required, as well as either an admission ticket or proof of
ownership of OSI common stock. If you are a stockholder of
record, your admission ticket is attached to your proxy card. |
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If your shares are held in the name of a bank, broker or other
holder of record, and you plan to attend the special meeting,
you must present proof of your ownership of OSI common stock,
such as a bank or brokerage account statement, to be admitted to
the meeting, or you may request an admission ticket in advance.
If you would rather have an admission ticket, you can obtain one
in advance by mailing a written request, along with proof of
your ownership of OSI common stock, to: |
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OSI Restaurant Partners, Inc.
2202 North West Shore Boulevard, Suite 500
Tampa, Florida 33607
Attention: Investor Relations |
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Please note that if you hold your shares in the name of a bank,
broker or other holder of record and plan to vote at the
meeting, you must also present at the meeting a proxy issued to
you by the holder of record of your shares. |
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No cameras, recording equipment, electronic devices, large bags,
briefcases or packages will be permitted in the special meeting. |
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Who can vote at the special meeting? |
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You can vote at the special meeting if you owned shares of OSI
common stock at the close of business on March 28, 2007,
the record date for the special meeting. As of the close of
business on that day, |
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[75,521,662] shares of OSI common stock were outstanding.
See The Special Meeting beginning on page 77. |
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How are votes counted? |
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Votes will be counted by the inspector of election appointed for
the special meeting, who will separately count For
and Against votes, abstentions and broker non-votes.
A broker non-vote occurs when a nominee holding
shares for a beneficial owner does not receive instructions with
respect to the proposal from the beneficial owner. Because the
adoption of the Merger Agreement under Delaware law requires the
affirmative vote of holders of a majority of the shares of our
common stock entitled to vote at the special meeting (and the
Merger Agreement requires the vote of shares held by the OSI
Investors not be taken into account), the failure to vote,
broker non-votes and abstentions will have the same effect as
voting Against the adoption of the Merger Agreement.
Because approval of the proposal to adjourn or postpone the
special meeting, if necessary or appropriate, to solicit
additional proxies requires the affirmative vote of holders
representing a majority of the shares present in person or by
proxy at the special meeting, broker non-votes and abstentions
will have the same effect as voting Against that
proposal. A failure to vote will have no effect with respect to
the adjournment proposal. |
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What vote of our stockholders is required to adopt the
proposals? |
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Under Delaware law, the adoption of the Merger Agreement
requires holders of a majority of the outstanding shares of our
common stock entitled to vote at the special meeting to vote for
the adoption of the Merger Agreement. In addition, the Merger
Agreement requires that a majority of the outstanding shares of
our common stock entitled to vote at the special meeting vote
for the adoption of the Merger Agreement without consideration
as to the vote of any shares held by the OSI Investors.
Accordingly, failure to vote or an abstention will have the same
effect as a vote against the adoption of the Merger Agreement.
Approval of the proposal to adjourn or postpone the special
meeting, if necessary or appropriate, to solicit additional
proxies if there are not sufficient votes to adopt the Merger
Agreement requires the affirmative vote of holders representing
a majority of the shares present in person or by proxy at the
special meeting. The transaction is not structured so that
approval of at least a majority of unaffiliated OSI stockholders
is required because, although the votes of the OSI Investors are
excluded, the votes of our directors who are not OSI Investors
are included. |
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How does our board of directors recommend that I vote on the
proposals? |
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Our board of directors recommends that our stockholders vote
FOR the adoption of the Merger
Agreement. You should read Special Factors
Fairness of the Merger; Recommendations of the Special Committee
and Our Board of Directors beginning on page 32 for a
discussion of the factors that the special committee and our
board of directors considered in deciding to recommend adoption
of the Merger Agreement. Our board of directors recommends that
our stockholders vote FOR the proposal
to adjourn or postpone the special meeting, if necessary or
appropriate, to solicit additional proxies. |
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What do I need to do now? |
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We urge you to read this proxy statement carefully in its
entirety, including its annexes, and to consider how the merger
affects you. If you are a stockholder of record, then you can
ensure that your shares are voted at the special meeting by
completing, signing and dating the enclosed proxy card and
returning it in the envelope provided. If you hold your shares
in street name, you can ensure that your shares are
voted at the special meeting by instructing your broker on how
to vote, as discussed below. |
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Who will bear the cost of this solicitation? |
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The expenses of preparing, printing and mailing this proxy
statement and the proxies solicited hereby will be borne by OSI.
Additional solicitation may be made by telephone, facsimile or
other contact by certain directors, officers, employees or
agents of OSI, none of whom will receive additional compensation
therefor. Bain Capital Funds and Catterton VI Funds, directly or
through one or more affiliates or representatives, may, at their
own cost, also make additional solicitation by mail, telephone,
facsimile or other contact in connection with the merger. |
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Will a proxy solicitor be used? |
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Yes. OSI has retained MacKenzie Partners, Inc. to assist in the
solicitation of proxies for the special meeting. OSI has paid
MacKenzie Partners, Inc. a retainer of $15,000 toward a final
fee to be agreed upon based on customary fees for the services
provided, which fee will include the reimbursement of
out-of-pocket fees and expenses. Bain Capital has engaged
Georgeson Inc. and Innisfree M&A Incorporated to assist in
any solicitation efforts Bain Capital Funds may decide to make
in connection with the merger and has agreed to pay each of
Georgeson Inc. and Innisfree M&A Incorporated a fee of up to
$50,000 plus reimbursement of
out-of-pocket
fees and expenses. |
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If my shares are held in street name by my
broker, will my broker vote my shares for me? |
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Yes, but only if you provide instructions to your broker on how
to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your
shares. Without those instructions, your shares will not be
voted. Broker non-votes will be counted for the purpose of
determining the presence or absence of a quorum, but will not be
deemed votes cast and will have the same effect as voting
against adoption of the Merger Agreement and adjournment or
postponement of the special meeting to solicit additional
proxies. |
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Can I change my vote? |
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Yes. You can change your vote at any time before your proxy is
voted at the special meeting. If you are a registered
stockholder, you may revoke your proxy by notifying the
Corporate Secretary of OSI in writing or by submitting by mail a
new proxy dated after the date of the proxy being revoked. In
addition, your proxy may be revoked by attending the special
meeting and voting in person (you must vote in person, as simply
attending the special meeting will not cause your proxy to be
revoked). |
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Please note that if you hold your shares in street
name and you have instructed your broker to vote your
shares, the above-described options for changing your vote do
not apply, and instead you must follow the directions received
from your broker to change your vote. |
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How do I vote my Outback Steakhouse, Inc. Salaried Employees
401(k) Plan shares? |
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If you participate in the OSI Restaurant Partners, Inc. Stock
Fund under the Outback Steakhouse, Inc. Salaried Employees
401(k) Plan (the 401(k) Plan), you may give voting
instructions to Merrill Lynch Trust Company, FSB, as trustee of
the 401(k) Plan, by completing and returning the 401(k) Plan
instruction card accompanying this proxy statement. Your
instructions will tell the trustee how to vote the number of
shares of our common stock representing your proportionate
interest in the OSI Restaurant Partners, Inc. Stock Fund which
you are entitled to vote under the 401(k) Plan, and any such
instruction will be kept confidential. The trustee will vote
your shares in accordance with your duly executed 401(k) Plan
instruction card so long as it is received by April 18,
2007. If you do not give the trustee voting instructions, the
trustee will vote your shares of common stock in the same
proportion as the shares for which the trustee receives voting
instructions from other 401(k) Plan participants, unless doing
so would not be consistent with certain federal employee benefit
laws. |
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You may also revoke previously given voting instructions prior
to April 18, 2007, by filing with the trustee either a
written notice of revocation or a properly completed and signed
401(k) Plan instruction card bearing a later date. Your voting
instructions will be kept confidential by the trustee. |
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What does it mean if I get more than one proxy card or vote
instruction card? |
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If your shares are registered differently or are in more than
one account, you will receive more than one proxy card or, if
you hold your shares in street name, more than one
vote instruction card. Please complete and return all of the
proxy cards or vote instruction cards you receive to ensure that
all of your shares are voted. |
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Should I send in my stock certificates now? |
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No. Shortly after the merger is completed, you will receive a
letter of transmittal with instructions informing you how to
send in your stock certificates to the paying agent in order to
receive the merger consideration. You should use the letter of
transmittal to exchange stock certificates for the merger
consideration to which you are entitled as a result of the
merger. DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR
PROXY. |
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When can I expect to receive the merger consideration for my
shares? |
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Once the merger is completed, you will be sent a letter of
transmittal with instructions informing you how to send in your
stock certificates in order to receive the merger consideration.
Once you have submitted your properly completed letter of
transmittal, OSI stock certificates and other required documents
to the paying agent, the paying agent will send you the merger
consideration payable with respect to your shares. |
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I do not know where my stock certificate is how
will I get my cash? |
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The materials the paying agent will send you after completion of
the merger will include the procedures that you must follow if
you cannot locate your stock certificate. This will include an
affidavit that you will need to sign attesting to the loss of
your certificate. You may also be required to provide a bond to
OSI in order to cover any potential loss. |
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What happens if I sell my shares before the special
meeting? |
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The record date of the special meeting is earlier than the
special meeting and the date that the merger is expected to be
completed. If you transfer your shares of our common stock after
the record date but before the special meeting, you will retain
your right to vote at the special meeting, but will have
transferred the right to receive the $40.00 per share in
cash to be received by our stockholders in the merger. In order
to receive the $40.00 per share, you must hold your shares
through completion of the merger. |
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Am I entitled to exercise appraisal rights instead of
receiving the merger consideration for my shares? |
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Yes. As a holder of our common stock, you are entitled to
appraisal rights under Delaware law in connection with the
merger if you meet certain conditions, which conditions are
described in this proxy statement under the caption
Appraisal Rights beginning on page 99. |
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What are the consequences of the merger to members of
OSIs management and board of directors? |
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Following the merger, it is expected that the members of our
management will continue as management of the surviving
corporation. Our current board of directors, however, will be
replaced by a new board of directors to be nominated by Parent,
although we understand that Mr. Sullivan, Mr. Basham
and Mr. Allen will continue to serve as directors. Like all
other OSI stockholders, members of our management and board of
directors will be entitled to receive $40.00 per share in
cash for each of their shares of our common stock. In addition,
the OSI Investors (other than Mr. Avery) and certain additional
members of management are expected to exchange certain of their
shares of restricted or unrestricted stock for shares of Parent
common stock and to purchase shares of Parent common stock. Upon
closing, it is expected that Parent will grant Mr. Avery
restricted shares of Parent common stock with an aggregate value
of $12,000,000. All options (whether or not vested) to acquire
our common stock will be canceled at the effective time of the
merger and holders of these options will be entitled to receive
a cash payment equal to the amount, if any, by which $40.00
exceeds the exercise price of the option, multiplied by the
number of shares of our common stock underlying the options. |
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Will members of OSIs management or board of directors
hold any equity interests in the surviving corporation following
the consummation of the merger? |
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The OSI Investors are expected to contribute restricted or
unrestricted OSI stock to Parent in exchange for common stock of
Parent. The OSI Investors other than the Founders also have been
given the opportunity to purchase shares of Parent common stock
at the same price per share as the Bain Capital Funds and the
Catterton Partners Funds, which opportunity is in addition to
the options expected to be granted under the management equity
incentive plan described under Special
Factors Interests of Our Directors and
Executive Officers in the Merger Management Equity
Incentive Plan, and Mr. Kadow is expected to |
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purchase shares of Parent common stock with an aggregate value
of $200,000. In addition, the Additional Management Investors
are expected to exchange restricted or unrestricted stock for
shares of common stock of Parent or to purchase shares of Parent
common stock at the same price per share as the OSI Investors.
It is currently expected that Mr. Sullivan,
Mr. Basham, Mr. Gannon, Mr. Allen,
Mr. Avery, Mr. Kadow and Mr. Montgomery will each
own approximately 6.0%, 8.3%, 1.0%, 1.5%, 1.0%, 0.3% and 0.3%,
respectively, of the fully-diluted outstanding common stock of
Parent immediately after the merger. Mr. Sullivan,
Mr. Basham, Mr. Gannon, Mr. Allen,
Mr. Avery, Mr. Kadow and Mr. Montgomery currently
beneficially own approximately 3.3%, 5.7%, 1.6%, 0.9%, 1.0%,
0.3% and 0.1%, respectively, of our outstanding shares of common
stock. Each holder of Parent common stock will be entitled to
one vote per share. Accordingly, each of Mr. Sullivan,
Mr. Basham, Mr. Gannon, Mr. Allen,
Mr. Avery, Mr. Kadow and Mr. Montgomery will have
a voting interest that corresponds with his respective common
stock ownership. See Special Factors Certain
Effects of the Merger beginning on page 57. |
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Who can help answer my other questions? |
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If you have more questions about the merger, you should contact
our proxy solicitation agent, MacKenzie Partners, Inc., at (800)
322-2885 (toll-free) or (212) 929-5500 (collect) or via email at
proxy@mackenziepartners.com. If your broker holds your shares,
you may call your broker for additional information. |
14
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in
this proxy statement, contain not only historical information,
but also forward-looking statements. Forward-looking statements
represent OSIs expectations or beliefs concerning future
events, including the following: any projections or forecasts,
including the financial forecast included under Financial
Forecast beginning on page 181, any statements
regarding future sales, costs and expenses and gross profit
percentages, any statements regarding the continuation of
historical trends, any statements regarding the expected number
of future restaurant openings and expected capital expenditures,
any statements regarding the sufficiency of our cash balances
and cash generated from operating and financing activities for
future liquidity and capital resource needs and any statement
regarding the expected completion and timing of the merger and
other information relating to the merger. Without limiting the
foregoing, the words believes,
anticipates, plans, expects,
should, estimates and similar
expressions are intended to identify forward-looking statements.
You should read statements that contain these words carefully.
They discuss our future expectations or state other
forward-looking information and may involve known and unknown
risks over which we have no control. Those risks include,
without limitation:
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the satisfaction of the conditions to consummation of the
merger, including the adoption of the Merger Agreement by our
stockholders (without taking into account the vote of shares
held by the OSI Investors);
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the actual terms of the financing that will be obtained for the
merger;
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the occurrence of any event, change or other circumstance that
could give rise to the termination of the Merger Agreement,
including a termination under circumstances that could require
us to pay a termination fee of up to $45,000,000 to Parent or
its designee;
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the amount of the costs, fees, expenses and charges related to
the merger;
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the effect of the announcement of the merger on our business
relationships, operating results and business generally,
including our ability to retain key employees;
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the risk that the merger may not be completed in a timely manner
or at all, which may adversely affect our business and the price
of our common stock;
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the potential adverse effect on our business, properties and
operations because of certain covenants we agreed to in the
Merger Agreement;
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the outcome of the legal proceedings instituted against us and
others in connection with the merger;
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risks related to diverting managements attention from our
ongoing business operations;
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the restaurant industry is a highly competitive industry with
many well-established competitors;
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our results can be impacted by changes in consumer tastes and
the level of consumer acceptance of our restaurant concepts
(including consumer tolerance of price increases); local,
regional, national and international economic conditions; the
seasonality of our business; demographic trends; traffic
patterns; change in consumer dietary habits; employee
availability; the cost of advertising and media; government
actions and policies; inflation; and increases in various costs,
including construction and real estate costs;
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our results can be affected by consumer perception of food
safety;
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our ability to expand is dependent upon various factors such as
the availability of attractive sites for new restaurants;
ability to obtain appropriate real estate sites at acceptable
prices; ability to obtain all required governmental permits
including zoning approvals and liquor licenses on a timely
basis; impact of government moratoriums or approval processes,
which could result in significant delays; ability to obtain all
necessary contractors and subcontractors; union activities such
as picketing and hand billing that could delay construction; the
ability to generate or borrow funds; the ability to negotiate
suitable lease terms; and the ability to recruit and train
skilled management and restaurant employees;
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price and availability of commodities, including but not limited
to such items as beef, chicken, shrimp, pork, seafood, dairy,
potatoes, onions and energy supplies, are subject to fluctuation
and could increase or decrease more than we expect;
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weather and natural disasters could result in construction
delays and also adversely affect the results of one or more
restaurants for an indeterminate amount of time; and
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other risks detailed in our filings with the SEC, including
Item 1A. Risk Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2006. See Where You
Can Find More Information on page 190.
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We believe that the assumptions on which our forward-looking
statements are based are reasonable. However, we cannot assure
you that the actual results or developments we anticipate will
be realized or, if realized, that they will have the expected
effects on our business or operations. All subsequent written
and oral forward-looking statements concerning the merger or
other matters addressed in this proxy statement and attributable
to us or any person acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or
referred to in this section. Forward-looking statements speak
only as of the date of this proxy statement or the date of any
document incorporated by reference in this document. Except as
required by applicable law or regulation, we do not undertake to
release the results of any revisions of these forward-looking
statements to reflect future events or circumstances.
16
INTRODUCTION
This proxy statement and the accompanying form of proxy are
being furnished to holders of shares of OSI common stock in
connection with the solicitation of proxies by our board of
directors for use at a special meeting of our stockholders to be
held at the A La Carte Pavilion, 4050-B Dana Shores Drive,
Tampa, Florida 33634, on Wednesday, April 25, 2007, at
9:00 a.m., Eastern Daylight Time.
We are asking our stockholders to vote on the adoption of the
Merger Agreement. If the merger is completed, OSI will become a
direct or indirect wholly owned subsidiary of Parent, and our
stockholders will have the right to receive $40.00 in cash,
without interest, for each share of our common stock.
SPECIAL
FACTORS
Background
of the Merger
On July 25, 2005, OSIs board of directors held a
regular meeting with most of the directors attending in person.
At the meeting, Mr. Allen, OSIs Chief Executive
Officer, discussed managements reassessment of OSIs
portfolio of restaurant concepts, the goal of which was to
evaluate the strategic importance of each concept as well as
determine the proper allocation of resources to the various
concepts. Mr. Allen also informed the board of directors
that he would work with OSIs management team to develop
formal three- and five-year business plans. The board of
directors informed Mr. Allen that they would actively be
involved in the development of such plans, and Mr. Allen
agreed to arrange subsequent meetings with the board to discuss
development of the plans.
On October 4, 2005, after having seen Mr. Allen at an
industry trade show, a representative from Catterton made an
unsolicited telephone call to Mr. Allen to discuss the
possibility of Catterton making a proposal to acquire all of the
outstanding common stock of OSI. At the trade show, the
Catterton representative had asked Mr. Allen whether OSI
had considered a going-private transaction, and Mr. Allen
responded that he had not thought of OSI going private at that
time. On subsequent telephone calls, the representatives from
Catterton discussed the possibility of Catterton and the
Blackstone Group (collectively Blackstone/Catterton)
jointly making a proposal to acquire all of the outstanding
common stock of OSI. Thereafter, representatives from
Blackstone/Catterton proposed that OSI and Blackstone/Catterton
enter into a non-disclosure and standstill agreement to
facilitate Blackstone/Cattertons due diligence
investigation of OSI.
A regular meeting of OSIs board of directors was held in
person on October 26, 2005. At the meeting, Mr. Allen
and the board discussed his business priorities and strategies
for OSI. Mr. Allen also informed the board
of directors that the business plans discussed at the July
board of directors meeting were in process and would be
presented to the board of directors at its January 2006 meeting.
Mr. Allen also discussed with the board of directors his
discussions with Blackstone/Catterton.
A special meeting of OSIs board of directors was held by
telephone on November 14, 2005. At the meeting,
Mr. Allen reviewed with the board of directors his
discussions with Blackstone/Catterton. After discussion, the
board of directors approved the execution of a non-disclosure
and standstill agreement with Blackstone/Catterton and approved
Mr. Sullivan and OSIs management providing
information to, and meeting with, Blackstone/Catterton, provided
that neither Mr. Sullivan nor any member of OSIs
management engage in any negotiations or discussions regarding
the value of OSI or their participation in (or compensation in
connection with) any transaction involving OSI.
On November 18, 2005, Mr. Allen met with
representatives of Blackstone/Catterton at Blackstones
office in New York to discuss OSIs business strategy and
financial condition as well as the possibility of
Blackstone/Catterton jointly making a proposal to acquire all of
the outstanding common stock of OSI.
On November 29, 2005, OSI entered into a non-disclosure and
standstill agreement with Blackstone/Catterton to facilitate
Blackstone/Cattertons due diligence of OSI, with a view
toward Blackstone/Catterton making a proposal to acquire all of
the outstanding common stock of OSI. Thereafter, OSI began
sharing confidential information with Blackstone/Catterton.
17
On December 2, 2005, OSIs independent directors held
a meeting by telephone to consider the possibility of
Blackstone/Catterton making a proposal to acquire all of the
outstanding common stock of OSI. The independent directors
discussed, among other issues, the formation of a special
committee and the hiring of independent outside counsel and
financial advisors.
At a regular meeting of the board of directors on
January 24, 2006, held in person, Mr. Allen discussed
with the board the continuing reassessment of OSIs
portfolio of restaurant concepts and a three-year growth plan
developed by OSIs management and distributed to the board
members. Mr. Allen also reviewed with the board of
directors the due diligence materials that had been provided to,
and discussions that had taken place with, Blackstone/Catterton.
Mr. Montgomery then discussed OSIs capital structure,
including its leverage as compared to its peers and its capacity
for additional indebtedness. The directors discussed in detail
the presentations of Mr. Allen and Mr. Montgomery,
including the possibility of increasing OSIs leverage and
the potential uses of the funding that would come from such an
increase, including the repurchase of shares of OSI common stock.
A special meeting of the OSI board of directors was held on
February 13, 2006, with most of the directors participating
in person. At the meeting, the board continued the discussion of
OSIs capital structure begun at its January 24, 2006
meeting. The board considered whether OSI should increase its
existing indebtedness and the potential uses of the funding that
would come from such an increase, including stock repurchases,
purchases of interests in minority-owned and franchisee
restaurants and restaurant enhancements.
Following further due diligence by Blackstone/Catterton,
OSIs management was informed on February 15, 2006,
that Blackstone/Catterton was declining to submit a proposal to
OSIs board in light of the determination by
Blackstone/Catterton that it would not be able to offer a value
in excess of the then-current public market share price of
$40.78. As a result, Blackstone/Catterton terminated its due
diligence. The board of directors was subsequently informed by
OSIs management that Blackstone/Catterton had terminated
its discussions with OSI.
At an analyst meeting on February 17, 2006, Mr. Allen
announced that OSIs management was developing a strategy
to increase stockholder value (the Stockholder Value
Initiative), and that OSIs management was
considering, among other things, the further leveraging of OSI
and the monetization of OSIs assets.
On March 2, 2006, representatives of the activist hedge
fund Pirate Capital LLC (Pirate) discussed with
Mr. Montgomery its accumulation of a substantial position
in OSI common stock. Mr. Allen and Mr. Montgomery met
with representatives of Pirate on March 22, 2006 to discuss
OSIs business strategy and financial condition.
Mr. Montgomery had subsequent telephone conversations with
representatives of Pirate periodically through May 2006.
A special meeting of the board of directors was held on
March 13, 2006, with most of the directors participating by
telephone. At the meeting, Mr. Allen discussed with the
board a proposal to engage Wachovia Securities as OSIs
financial investment advisor to provide counsel with respect to
the Stockholder Value Initiative. After discussion, the board
unanimously approved the engagement of Wachovia Securities as a
financial investment advisor to the board on a non-exclusive
basis. An engagement letter with Wachovia Securities was
subsequently executed on April 17, 2006. Mr. Allen
also updated the board of directors regarding his conversations
with Pirate and discussed Pirates previous activist
campaign toward companies in the restaurant industry. The board
of directors also determined to engage the law firm Wachtell,
Lipton, Rosen & Katz (Wachtell Lipton) to
serve as its independent counsel with respect to the Stockholder
Value Initiative as well as with respect to Pirates
accumulation of shares and the possibility that Pirate might
initiate a proxy contest.
On April 20, 2006, during an investor teleconference
announcing OSIs financial results for the quarter ended
March 31, 2006, Mr. Allen discussed the Stockholder
Value Initiative, clarifying that OSI was considering all
strategic alternatives available, including separating or
monetizing individual or multiple restaurant concepts, further
leveraging OSI and using the proceeds to repurchase shares (a
Leveraged Recapitalization) and monetizating
OSIs real estate assets. Mr. Allen explained that
management was reviewing these as well as other options and that
he expected this review to take the balance of 2006.
A regular meeting of the board of directors was held in person
on April 25, 2006. At the meeting, Mr. Allen updated
the board of directors regarding conversations he and
Mr. Montgomery had with representatives of Pirate and a
recent conversation he had with Catterton regarding their
continuing interest in acquiring OSI. The board then
18
discussed with Wachovia Securities, its financial advisor, and
Wachtell Lipton, its legal advisor, the alternatives it was
considering in connection with the Stockholder Value Initiative.
These alternatives included separating or monetizing individual
or multiple restaurant concepts, a Leveraged Recapitalization
and monetizing OSIs real estate assets through a
sale-leaseback or real estate investment trust. After lengthy
discussion in which Wachovia Securities, Wachtell Lipton and
members of OSIs management participated, the board reached
a consensus that a Leveraged Recapitalization had the potential
to deliver the most value to OSIs stockholders as compared
to the other alternatives then being considered. Furthermore, it
was believed that a Leveraged Recapitalization could be effected
on an expedited basis, potentially delivering value to
stockholders significantly earlier than the other alteratives
being considered at that time. The board also noted that the
other alternatives then being considered had the potential to
decrease the operational flexibility of OSI.
In May 2006, representatives of Pirate contacted OSI requesting
information regarding the Stockholder Value Initiative as well
as an additional opportunity to meet with Mr. Sullivan. On
May 23, 2006, OSI responded in writing that, since OSI was
considering a broad range of strategic options, it was premature
to further discuss the details of the Stockholder Value
Initiative publicly. OSI invited Pirate to execute a mutually
agreeable confidentiality agreement, including a standstill
provision, as a prerequisite to receiving any confidential
information. Pirate declined to enter into the proposed form of
confidentiality agreement.
On May 19, 2006, representatives from Catterton again
contacted Mr. Allen about the possibility of Catterton
resuming its consideration of a transaction with OSI. Catterton
also informed Mr. Allen that it had discussed with Bain
Capital the possibility of jointly making a proposal to acquire
all of the outstanding common stock of OSI and that Bain Capital
had expressed interest in the possibility of such a transaction.
Catterton requested that Mr. Allen allow Catterton and Bain
Capital (collectively, Bain/Catterton) to conduct
due diligence of OSI with a view toward potentially making a
proposal to acquire all of the outstanding common stock of OSI.
On June 5, 2006, Pirate disclosed in a filing with the SEC
on Schedule 13D that funds controlled by it had acquired
5.3% of the outstanding shares of OSI common stock. The
Schedule 13D filing included a letter sent by Pirate to
Mr. Sullivan, dated June 5, 2006, encouraging
OSIs board of directors, among other things, to divest
assets, halt certain expansion activities and establish a
special committee to develop, with the assistance of an
investment banking firm, a strategy to increase stockholder
value. Pirate intimated that if such action were not taken it
would nominate a competing slate of directors for election at
OSIs 2007 annual meeting.
At a telephonic board meeting on June 9, 2006, following a
discussion of matters related to Pirate, Mr. Allen informed
the board of directors that Catterton had contacted him about
the possibility of a mutually agreeable transaction involving
Bain/Catterton, including, if requested by the board of
directors, Bain/Catterton potentially making a proposal to
acquire all of the outstanding common stock of OSI. The board of
directors approved, subject to the execution of a non-disclosure
and standstill agreement, OSI providing financial, accounting
and legal information to, and meeting with, Bain/Catterton and
their advisors, provided that neither Mr. Sullivan nor any
member of OSIs management engage in any negotiations or
discussions regarding the value of OSI or their participation in
(or compensation in connection with) any such transaction. The
approval of entering into a non-disclosure and standstill
agreement and providing information was by a vote of 5-1, with
Mr. James voting against providing information based on his
concern that news of the discussions could leak. The board
further agreed that until Bain/Catterton made a proposal to
acquire OSI, OSI should continue to develop the Stockholder
Value Initiative. Following the board meeting, OSI, Bain Capital
and Catterton entered into a non-disclosure and standstill
agreement to facilitate Bain/Cattertons due diligence
investigation.
During the months of June and July 2006, Bain/Catterton and
their representatives held legal and business due diligence
meetings with OSIs senior management, including a meeting
with Mr. Allen in Atlantic City and a meeting on
July 19, 2006, in Tampa, during which members of OSIs
senior management, including Mr. Allen, Mr. Sullivan,
Mr. Montgomery and Mr. Kadow, provided certain
financial information to representatives of Bain/Catterton and
discussed OSIs competitive position and business strategy.
On July 17, 2006, OSI announced that Mr. Ben Novello
had resigned his position as President of its Outback Steakhouse
brand and that Mr. Avery, OSIs Chief Operating
Officer, would assume the additional role of President of the
Outback Steakhouse brand on an interim basis.
19
On July 24, 2006, Bain/Catterton delivered a letter to OSI
explaining that Bain/Catterton expected to finalize their due
diligence within two weeks and, if requested by OSI, would be
able to submit a firm proposal to acquire OSI at that time.
The board of directors held a meeting in person on July 25,
2006. Representatives of Wachtell Lipton and Wachovia Securities
joined a portion of the meeting to discuss the Stockholder Value
Initiative and the status of discussions with Bain/Catterton. At
the meeting, OSIs management presented a proposed
Leveraged Recapitalization, developed with the assistance of
Wachovia Securities, that contemplated OSI increasing its level
of indebtedness and using the proceeds to fund a substantial
stock repurchase program. Representatives of Wachovia Securities
explained that based on their assumptions about, among other
things, the projected performance of OSI, the proposed Leveraged
Recapitalization had the potential to increase OSIs
earnings growth, increase OSIs return on equity and
economic profit and create significant shareholder value.
Wachovia Securities estimated that, by the end of 2008, a
Leveraged Recapitalization that included $1.2 billion of
debt financing could result in an implied stock price of $60.32,
$51.69 or $37.26 under an upside plan, base
case plan, and downside plan, respectively.
Wachovia Securities recommended that to accomplish the proposed
Leveraged Recapitalization the board pursue a $1 billion
share repurchase through a modified Dutch tender offer.
Representatives from Wachovia Securities also informed the board
that, among those alternatives being considered for the
Stockholder Value Initiative at that time, in their view the
proposed Leveraged Recapitalization was the best opportunity
available to OSI in the context of remaining a public entity. A
representative from Wachtell Lipton then advised the board of
directors on disclosure and other legal matters pertaining to
the proposed Leveraged Recapitalization. After extensive
discussion, the board concluded that, while the proposed
Leveraged Recapitalization had the potential to deliver
significant value to stockholders, the level of indebtedness
proposed by management could unduly restrict the Companys
operational flexibility. The board therefore determined that the
levels of debt and other aspects of the Leveraged
Recapitalization proposed by OSIs management should not be
pursued by OSI and asked OSIs management to
reformulate the proposed Leveraged Recapitalization with lower
levels of debt incurrence.
The board then discussed an alternative approach being
considered in connection with the Stockholder Value Initiative,
the separation or monetization of certain OSI brands. The board
reached a consensus, however, that this approach was not, at the
time, in the best interests of OSIs stockholders as
compared to the other alternatives the board was considering,
including the proposed Leveraged Recapitalization.
Mr. Allen then updated the board on the due diligence
discussions between OSI and Bain/Catterton and the letter
received from Bain/Catterton the previous day. After a
discussion in which Wachtell Lipton and Wachovia Securities
participated, the board agreed that the discussions with
Bain/Catterton were still preliminary and that the board and
management should not postpone further development of the
Stockholder Value Initiative and a Leveraged Recapitalization
while entertaining discussions with Bain/Catterton.
On July 27, 2006, in a press release announcing OSIs
financial results for the quarter ended June 30, 2006, OSI
announced that it had previously retained Wachovia Securities,
that development of the Stockholder Value Initiative had been
accelerated and that final recommendations were targeted to be
presented to the board of directors by the end of OSIs
third quarter. OSI also announced the board of directors
conclusion that the separation or monetization of certain brands
(including Carrabbas Italian Grill, Flemings Prime
Steakhouse & Wine Bar and Bonefish Grill) was not in
the best interest of OSIs stockholders compared to the
other alternatives being considered.
On August 3, 2006, Mr. Allen and Mr. Montgomery
met with Bain/Cattertons financing sources in New York to
provide due diligence regarding OSIs business and
operations.
On August 8, 2006, Bain/Catterton delivered a letter to OSI
that expressed a willingness, if requested by OSI, to submit a
firm proposal to acquire all of the outstanding common stock of
OSI at a price of $37.50 per share in cash (representing a
premium of 33% to the closing price of OSIs common stock
on such date), subject to certain terms and conditions.
Bain/Catterton advised that such offer would be subject to
certain terms and conditions, including the receipt of financing
commitments with terms acceptable to them. Bain/Catterton
expressed confidence that they would be able to finalize the
needed financing commitments within 48 hours of the date of
the letter. Bain/Catterton affirmed that their willingness to
proceed with a firm proposal was not conditioned on the
participation of either management or the Founders in the
proposed transaction.
20
On August 11, 2006, Bain/Catterton delivered a revised
letter to the board of directors reiterating their willingness,
if requested by the board of directors, to submit a firm
proposal to acquire all of the outstanding common stock of OSI
at a price of $37.50 per share in cash, subject to certain
terms and conditions, and reporting that all areas of their due
diligence evaluation were complete. The letter included as
attachments debt financing letters from Bank of America, N.A.
and Deutsche Bank outlining their commitment to provide debt
financing for the proposed transaction and form equity
commitment letters committing to provide equity financing for
the proposed transaction that Bain Capital Fund IX, L.P., a
private equity fund sponsored by Bain Capital, and Catterton
Partners VI, L.P., a private equity fund sponsored by Catterton,
would be willing to execute in connection with such a
transaction.
The board of directors met on August 14, 2006, in an
in-person meeting, to consider the Stockholder Value Initiative
and the August 8 and August 11 letters from Bain/Catterton. At
the meeting, Mr. Montgomery discussed managements
five-year business plan and a revised Leveraged Recapitalization
proposal, developed with the assistance of Wachovia Securities.
Representatives from Wachovia Securities offered their view on
the revised Leveraged Recapitalization proposal and
representatives from Wachtell Lipton advised the board of
directors on legal matters pertaining to the Leveraged
Recapitalization. The board then excused Wachovia Securities
from the meeting and discussed the proposed Leveraged
Recapitalization. During these discussions, some directors
expressed concern regarding the assumptions on which Wachovia
Securities had premised its conclusions regarding the Leveraged
Recapitalization, including the Companys ability to
achieve even the Leveraged Recapitalizations base
case plan, particularly in light of uncertainty in
OSIs prospects in an increasingly competitive industry and
managements failure over successive quarters to meet its
internal financial projections and business plan. The board also
discussed the risks associated with purchasing OSI stock at its
current market price in the event that the recent decline of
OSIs stock price continued. Thereafter, Wachtell Lipton
summarized the August 8 and August 11 letters from
Bain/Catterton, and Mr. Allen gave a description of
managements due diligence discussions with Bain/Catterton
to date. The directors discussed with Mr. Allen and
Mr. Avery their views on the achievability of
managements five-year business plan if the Leveraged
Recapitalization were pursued. Mr. Sullivan then informed
the board of directors of his concerns regarding the Leveraged
Recapitalization as proposed, and particularly his concerns
regarding the assumptions on which the proposal was premised. He
informed the board that he favored continuing the discussions
with Bain/Catterton as being in the best interests of OSIs
stockholders and requested that the board consider the formation
of a special committee of independent directors to consider a
potential transaction with Bain/Catterton.
A director then requested an executive session of the board
with Wachtell Lipton, and members of management, the
non-independent directors (consisting of Mr. Allen,
Mr. Sullivan, Mr. Basham and Mr. Selmon) and
Mr. Gannon were excused from the meeting. In the executive
session, OSIs independent directors (consisting of
John A. Brabson, Jr., W.R. Carey, Jr., Debbi
Fields, Gen. (Ret.) Tommy Franks, Thomas A. James and Toby S.
Wilt), with the assistance of Wachtell Lipton, discussed, among
other things, managements potential conflict of interest
in the proposed transaction with Bain/Catterton,
managements ability successfully to effectuate the
five-year business plan, the potential purchase price indicated
by Bain/Catterton and whether in light of the circumstances the
proposed going private transaction could be in the best
interests of OSIs stockholders. The directors present in
the executive session concluded that Bain/Cattertons
$37.50 proposed purchase price did not provide sufficient value
to stockholders as compared to other alternatives, including a
Leveraged Recapitalization, and that, unless Bain/Catterton was
prepared to propose a higher price, forming a special committee
of the board to further consider the proposal was not warranted
at that time. The full board then reconvened and, after
discussion, agreed that management would inform Bain/Catterton
that the proposed purchase price was inadequate. Management was
further instructed that after such conversation management
should not have any further discussions with Bain/Catterton and
should proceed with development of a Leveraged Recapitalization.
On August 17, 2006, the board of directors received a
revised indication of interest from Bain/Catterton expressing a
willingness, if requested by the board of directors, to submit a
firm proposal to acquire all of the outstanding common stock of
OSI at a price of $38.50 per share in cash, subject to
certain terms and conditions. This revised price represented a
premium of 32% to the closing price of OSIs common stock
on August 16, 2006. Bain/Catterton also expressed a
willingness to discuss other potential transactions with OSI,
including participation in an alternative transaction in
connection with the Stockholder Value Initiative.
21
On August 18, 2006, the board of directors of OSI held a
telephonic meeting to consider the revised indication of
interest from Bain/Catterton. During the meeting, Wachovia
Securities presented a preliminary valuation analysis to an
executive session of the board, comprised of all the independent
directors of OSI (consisting of Mr. Brabson,
Mr. Carey, Ms. Fields, Gen. (Ret.) Franks,
Mr. James and Mr. Wilt), as well as representatives of
Wachtell Lipton. Such analysis had been prepared by Wachovia
Securities solely for the benefit of the independent directors
and had not been shared with management or the other directors.
The valuation analysis presented was based on managements
projections and included several different methodologies, each
of which derived a range of implied enterprise values for OSI as
reflected by either a multiple to estimated earnings before
interest, taxes, depreciation and amortization for the last
12 months, subject to certain adjustments provided by
management (LTM EBITDA) or as an implied price per
share. The first analysis presented was a leveraged buyout
analysis which ascertains the price at which an
acquisition of a company may be attractive to a potential
financial buyer. The leveraged buyout analysis included a
valuation range of $34.93 to $43.49 per share. The second
analysis presented was a comparable companies
analysis which attempts to provide an implied value of a
company by comparing it to similar publicly traded companies.
The comparable companies analysis yielded a median enterprise
value to LTM EBITDA multiple of approximately 7.7x as reflected
in the share prices and net debt of publicly traded peers as
stated at the time of the presentation in public filings. The
third analysis presented was a comparable transactions
analysis which generates an implied value of a company
based on publicly available financial terms of selected
comparable change of control transactions involving companies
that share certain characteristics with the company being
valued. The comparable transactions analysis yielded a median
enterprise value to LTM EBITDA multiple of approximately 7.2x
among recent change of control transactions involving similar
companies to OSI. The fourth analysis presented was a
discounted cash flow analysis. The discounted cash
flow analysis attempts to establish the intrinsic value of the
operating assets of a company by applying a discount rate
derived from the companys weighted average cost of capital
to determine the present value of each of the free cash flows of
the business over the projection period and the terminal value
of the business beyond the provided projection horizon. The
terminal value is derived from either a terminal
multiple, which represents a multiple of EBITDA at the
final year of the projection horizon, or an applied
perpetuity growth rate, which represents the nominal
rate at which the companys free cash flow is expected to
grow annually. The discounted cash flow analysis included a
valuation range of approximately $3.7 billion to
$4.3 billion, or approximately $46.00 to $53.00 per share,
which assumed that managements projections would be
achieved and a weighted average cost of capital ranging from
8-10% (which range was estimated by Wachovia Securities based
upon its professional judgment), terminal multiples ranging from
6.5x to 8.5x, and perpetuity growth rates ranging from 1.5% to
3.5%. The final analysis presented was a transaction
premiums paid analysis which reviewed the control premiums
paid or payable in certain change of control transactions
involving publicly traded target companies in order to compare
the premium paid over the companys present and historical
share prices to that paid in past transactions. The transaction
premiums paid analysis yielded median
one-day
prior, one-week prior and four-weeks prior offer premiums paid
or payable of 20.2%, 21.1% and 24.6%, respectively. At no point
during this, or any subsequent, presentation did Wachovia
Securities recommend or determine a price to be paid for the
shares of OSI to be purchased in the transaction.
After the representatives from Wachovia Securities presented
their analysis, they excused themselves from the meeting. The
independent directors, among themselves and with Wachtell
Lipton, then discussed whether they should recommend to the
board of directors the formation of a special committee to
evaluate the revised Bain/Catterton proposal. The independent
directors discussed, among other things, the impact of the
formation of a special committee on a Leveraged Recapitalization
and the business of OSI and whether the proposed transaction
could be in the best interests of OSIs stockholders.
Wachtell Lipton read and explained draft resolutions regarding
the formation of a special committee. The independent directors
then discussed whether it was desirable to form a special
committee in light of the revised Bain/Catterton proposal.
Following this discussion, the independent directors by a vote
of 5-1 (with
Ms. Fields voting against) voted to approve the resolutions
forming a special committee as presented. Thereafter, the full
board was reconvened and, after a discussion of the actions
taken by the independent directors, the full board, by a vote of
9-0 (with Ms. Fields abstaining), adopted the resolutions
approved by the independent directors. In the meeting of
independent directors, Ms. Fields voted against approving
the resolutions providing for the formation of the special
committee and in the meeting of the board of directors she
abstained, based on her preference for the Company to pursue
operational matters and a Leveraged Recapitalization, in light
of her concern that management might otherwise be distracted
from those pursuits. She indicated,
22
though, that she wanted to serve on the special committee if it
were to be formed. As a result, a special committee was
delegated with full power and authority to, among other things,
review, evaluate and, if appropriate, negotiate a possible
acquisition of OSI by Bain/Catterton and any alternatives
thereto and also to reject or recommend to the full board of
directors a proposed transaction with Bain/Catterton
and/or any
alternatives thereto. Management was also instructed that all
communications between management and Bain/Catterton would be
overseen by the special committee and its legal and financial
advisors and that management should not discuss with
Bain/Catterton the terms on which they might participate in the
proposed transaction until authorized to do so by the special
committee.
Following adjournment of the board meeting, the newly
constituted special committee met and appointed Mr. Wilt
and Mr. James as its co-chairmen and selected Wachtell
Lipton as its legal counsel. The special committee also
discussed the engagement of financial advisors. It was agreed
that, because of its familiarity with OSI, Wachovia Securities
was in the best position to advise the special committee and
opine as to fairness of any transaction, and also that it might
be desirable to obtain an additional opinion from a second firm
that had not previously done any work for OSI.
On September 9, 2006, the special committee, following
discussion, concluded that Wachovia Securities should be
retained and that a second investment bank should also be
retained that should receive a single fee conditioned on the
rendering of any opinion on the transaction and that such fee
should not be contingent upon future events, including the
execution of a merger agreement or the closing of a merger. See
Special Factors Opinion of Wachovia Capital
Markets, LLC Miscellaneous on page 49 and
Special Factors Opinion of Piper
Jaffray & Co. Miscellaneous beginning
on page 56.
On September 12, 2006, Pirate amended its previously filed
Schedule 13D to disclose that funds controlled by it no
longer owned any outstanding shares of OSI. According to
Pirates Schedule 13D Amendment, Pirate sold its
shares in July and August of 2006.
On September 15, 2006, the special committee held a
telephonic meeting to further consider the August 17, 2006,
Bain/Catterton revised indication of interest expressing a
willingness, if requested by the board of directors, to submit a
firm proposal to acquire all of the outstanding common stock of
OSI at a price of $38.50 per share in cash. At the meeting,
representatives of Wachovia Securities presented a valuation
analysis updated from the August 18 presentation, provided a
summary of the Bain/Catterton revised indication of interest and
a summary of a Leveraged Recapitalization alternative. Wachovia
Securities presentation included the same five analyses
presented at the August 18 meeting, which were a leveraged
buyout analysis, a comparable companies
analysis, a comparable transactions analysis,
a discounted cash flow analysis and a
transaction premiums paid analysis. The leveraged
buyout analysis was updated to reflect revisions to the
projections and other financial and operating information
provided by management. The revisions to managements
financial projections were provided for the reasons, and
reflected the information, discussed under Financial
Forecast beginning on page 181. The revised leveraged
buyout analysis based on managements revised projections
included a valuation range of $36.29 to $44.71 per share. The
comparable companies analysis was updated to reflect publicly
available information regarding comparable companies. The
revised comparable companies analysis yielded a median
enterprise value to LTM EBITDA multiple of approximately 8.4x as
reflected in the share prices and net debt of publicly traded
peers as stated at the time of the presentation in public
filings. The comparable transactions analysis was updated to
reflect publicly available information regarding comparable
transactions. The revised comparable transactions analysis
yielded a median enterprise value to LTM EBITDA multiple of
approximately 7.0x among recent change of control transactions
involving similar companies to OSI. The discounted cash flow
analysis was updated to reflect managements revised
projections and other financial and operating information
provided by management. The revised discounted cash flow
analysis yielded a valuation range of approximately
$3.8 billion to $4.3 billion, or approximately $47.00
to $53.00 per share, which assumed that managements
base case plan projections would be achieved and a
weighted average cost of capital ranging from 8-10% (which range
was estimated by Wachovia Securities based upon its professional
judgment), terminal multiples ranging from 6.5x to 8.5x, and
perpetuity growth rates ranging from 1.5% to 3.5%. The
transaction premiums paid analysis was unchanged from the August
18 presentation and yielded median
one-day
prior, one-week prior and four-weeks prior offer premiums paid
or payable of 20.2%, 21.1% and 24.6%, respectively. Thereafter,
the special committee discussed the revised Bain/Catterton
indication of interest, including, among other things, the
benefits and risks of conducting a public auction for OSI. The
special committee noted the following risks associated with an
auction process: the risk that Bain/
23
Catterton might choose not to enter into the auction, the risk
that no bidder would come forward in the auction process and the
risk that the auction process could significantly disrupt OSI
and its operations. The special committee, after discussion with
its legal and financial advisors, concluded that the Company
could effectively conduct an auction process that minimized
these risks by utilizing a post-signing market check. Therefore,
the special committee concluded that it would be advisable, in
the event the Bain/Catterton indication of interest matured into
a definitive agreement, to conduct a post-signing market check,
including actively soliciting potential buyers.
After further discussion of the Wachovia Securities
presentation, it was the consensus of the special committee that
the $38.50 proposed purchase price was inadequate. The special
committee therefore determined that Mr. James and
Mr. Wilt and Wachovia Securities would convey its
conclusion to Bain/Catterton as well as inform OSIs
management to proceed with the further development of a
Leveraged Recapitalization.
Thereafter, representatives of Wachovia Securities and
Mr. James contacted Bain/Catterton to indicate that the
$38.50 proposed purchase price was inadequate. They indicated
that OSI was prepared to move forward with its Stockholder Value
Initiative unless a higher value was offered by Bain/Catterton.
On September 26, 2006, at the request of Bain/Catterton,
Wachtell Lipton and members of OSIs senior management met
with Bain/Catterton in Boston and provided certain information
concerning OSIs cost reductions, marketing plan and
comparable sales. On September 27, 2006, Ropes &
Gray LLP (Ropes & Gray), legal advisors to
Bain/Catterton, requested legal diligence from Wachtell Lipton
for the period since August 11, 2006. Following that
meeting, on October 2, 2006, representatives of
Bain/Catterton informed Wachovia Securities that they would be
willing, if requested by the special committee, to submit a firm
proposal to acquire all of the outstanding common stock of OSI
at an increased price of $39.50 per share in cash. After
consulting with the co-chairs of the special committee, Wachovia
Securities informed Bain/Catterton that they were disappointed
with the $39.50 value proposed and requested that Bain/Catterton
submit its best and final proposal, recognizing that
if the value was not sufficient from the special
committees perspective, discussions between the special
committee and Bain/Catterton would likely be terminated.
On October 4, 2006, representatives of Bain/Catterton
informed Wachovia Securities that they would be willing, if
requested by the special committee, to submit a firm proposal to
acquire all of the outstanding common stock of OSI at an
increased price of $40.00 per share in cash. In response to
questions from Wachovia Securities, a representative of
Bain/Catterton indicated that $40.00 per share was the
highest value Bain/Catterton would be willing to offer.
On October 9, 2006, the special committee held a telephonic
meeting to consider Bain/Cattertons increased price of
$40.00 per share. At the meeting, Wachtell Lipton described the
material terms of Bain/Cattertons revised indication of
interest reflecting a proposed value of $40.00 per share in
cash, and Wachovia Securities provided an updated valuation
analysis and a summary of a Leveraged Recapitalization
alternative. Wachovia Securities presentation included the
same five analyses presented at the August 18 and September 15
meetings, which were a leveraged buyout analysis, a
comparable companies analysis, a comparable
transactions analysis, a discounted cash flow
analysis and a transaction premiums paid
analysis. The leveraged buyout analysis was updated to
reflect revisions to the projections and other financial and
operating information provided by management. The revisions to
managements financial projections were provided for the
reasons, and reflect the information, discussed under
Financial Forecast beginning on page 181. The
revised leveraged buyout analysis based on managements
revised projections included a valuation range of $37.48 to
$42.53 per share. The comparable companies analysis was updated
to reflect publicly available information regarding comparable
companies. The revised comparable companies analysis yielded a
median enterprise value to LTM EBITDA multiple of approximately
8.7x as reflected in the share prices and net debt of publicly
traded peers as stated at the time of the presentation in public
filings. The comparable transactions analysis was updated to
reflect publicly available information regarding comparable
transactions. The revised comparable transactions analysis
yielded a median enterprise value to LTM EBITDA multiple of
approximately 7.2x among recent change of control transactions
involving similar companies to OSI. The discounted cash flow
analysis was updated to reflect managements revised
projections and other financial and operating information
provided by management. The revised discounted cash flow
analysis included a valuation range from the analysis of $39.08
to $51.21 per share,
24
which assumed that managements most recently provided
base case projections would be achieved, terminal multiples
ranging from 6.5x to 7.5x, and perpetuity growth rates ranging
from 1.5% to 2.5%. The revised discounted cash flow analysis
also included a valuation range from the analysis of $34.19 to
$44.87 per share, which assumed downside scenario projections
provided by management would be achieved, terminal multiples
ranging from 6.0x to 7.0x, and perpetuity growth rates ranging
from 1.5% to 2.5%. Both discounted cash flow analyses assumed a
weighted average cost of capital of 9-10% (which range was
estimated by Wachovia Securities based upon its professional
judgment). The transaction premiums paid analysis was unchanged
from the August 18 and September 15 presentations and yielded
median
one-day
prior, one-week prior and four-weeks prior offer premiums paid
or payable of 20.2%, 21.1% and 24.6%, respectively. Following
Wachovia Securities presentation, the directors asked the
representatives from Wachovia Securities and Wachtell Lipton to
leave the meeting so that they could discuss the revised
proposal and Wachovia Securities presentation in an
executive session.
On October 10, 2006, the special committee held a
telephonic meeting to further consider the revised
Bain/Catterton $40.00 indication of interest. The directors
discussed in particular whether the merger consideration
proposed by Bain/Catterton would result in greater value to
OSIs stockholders than pursuing managements
five-year business plan and undertaking a Leveraged
Recapitalization. It was agreed that Mr. Wilt and
Mr. James should request that Bain/Catterton increase their
proposed purchase price above $40.00 per share.
On or about October 11, 2006, Mr. Wilt and
Mr. James held a discussion with representatives of
Bain/Catterton. Mr. Wilt and Mr. James requested that
Bain/Catterton increase their proposed purchase price above
$40.00 per share. The representatives of Bain/Catterton
expressed their firm view that Bain/Catterton would not increase
their proposed purchase price above $40.00 per share.
On October 14, 2006, Wachtell Lipton, on behalf of the
special committee, delivered an initial draft merger agreement
to Ropes & Gray. On October 16, 2006,
Ropes & Gray delivered suggested revisions to the draft
merger agreement. This draft confirmed that there would not be a
financing condition to the proposed merger, as requested, and
that many of the other terms presented in the initial draft,
including the ability to solicit other buyers after the
definitive agreement was executed, would be acceptable.
Throughout October 2006, negotiations between Wachtell Lipton
and Ropes & Gray regarding the draft merger agreement
progressed. Baker & Hostetler LLP, counsel to OSI,
began the process of preparing disclosure schedules for the
draft merger agreement. Initial drafts of these schedules were
furnished to Ropes & Gray on October 21, 2006.
On October 16, 2006, Mr. James contacted a
representative of Piper Jaffray to determine whether they would
be available to render a fairness opinion to the special
committee if requested. The special committee chose to retain
Piper Jaffray based upon Piper Jaffrays experience in the
valuation of businesses and their securities in connection with
mergers and acquisitions and similar transactions, especially
with respect to restaurant enterprises. The special committee
also considered that Piper Jaffray had no material prior
relationship with OSI or its affiliates and would be able to
devote the resources required to render a fairness opinion. See
Special Factors Opinion of Piper Jaffray &
Co. on page 50.
On October 19, 2006, at the request of Bain/Catterton, the
special committee authorized the OSI Investors to discuss with
Bain/Catterton the terms on which they might participate with
Bain/Catterton in the proposed transaction so long as
(i) the special committee and its advisors were fully
apprised as to any discussions or negotiations and were provided
with copies of all documents exchanged between the parties and
(ii) the OSI Investors did not enter into any arrangements
with Bain/Catterton that would restrict them from supporting any
other party that was willing to pay more than the amount
proposed by Bain/Catterton. Thereafter, Mr. Sullivan,
Mr. Basham and Mr. Gannon engaged Kirkland &
Ellis LLP (Kirkland & Ellis), and
Mr. Allen, Mr. Avery, Mr. Kadow and
Mr. Montgomery engaged Cleary, Gottlieb, Steen &
Hamilton (Cleary Gottlieb), to act as their legal
advisors in connection with the proposed transaction. Through
the remainder of October 2006, Kirkland & Ellis and
Cleary Gottlieb separately negotiated with Ropes & Gray
term sheets summarizing the terms of the arrangements of the OSI
Investors represented by them, including employment terms,
investment commitment, incentive equity and representation on
the board of directors of Parent. Bain/Catterton did not request
that the OSI Investors, or any other stockholders of the
Company, enter into voting arrangements that would have required
the OSI Investors to vote in favor of a Bain/Catterton
transaction, although other public company transactions often
25
include such arrangements. Such voting arrangements could have
restricted the OSI Investors from supporting any other party
that was willing to pay more than the amount proposed by
Bain/Catterton.
On October 21, 2006, Ropes & Gray delivered to
Wachtell Lipton an initial draft of a limited guaranty to be
entered into by the funds sponsored by Bain Capital and
Catterton Partners that would participate in the proposed
transaction.
On October 22, 2006, the special committee held a meeting
by telephone. The meeting was attended by representatives of
Wachtell Lipton, Wachovia Securities and Piper Jaffray. During
the meeting, Wachtell Lipton reviewed with the special committee
the terms of the draft merger agreement and the issues in the
draft merger agreement that remained open, including
Bain/Cattertons proposal with respect to the treatment of
OSIs stock options and stock-based awards, whether a
unanimous vote of the special committee would be a condition of
the proposed transaction, whether OSI would be permitted to pay
dividends through the closing of the proposed transaction and
whether it would be a condition to the closing of the proposed
transaction that the approval of OSIs stockholders be
obtained without taking into account the vote of shares held by
the OSI Investors. Wachtell Lipton also discussed with the
special committee the amount and triggers for the termination
fees proposed by Bain/Catterton and contrasted them with the
amount and triggers proposed initially by the special committee.
The special committee also addressed the length of the proposed
post-signing go-shop period. The special committee
discussed the open issues in the draft merger agreement and gave
guidance to Wachtell Lipton as to how to respond to such issues.
On October 22, 2006, the special committee formally engaged
Piper Jaffray to render a fairness opinion to the special
committee, should the committee so request. In retaining Piper
Jaffray to render such opinion, the special committee was aware
that Piper Jaffray is a large, global, full-service financial
institution that had, in the past, rendered services to Bain
Capital and certain of its affiliates and had received fees in
respect of such prior services. Prior to entering into the
engagement, Piper Jaffray performed a customary conflicts check
to ensure that it was not presently rendering any services to
Bain Capital, Catterton or any of their respective affiliates,
or any other person or entity that might give rise to a conflict
of interest in connection with its role as financial advisor to
the special committee. To further ensure the independence of
Piper Jaffrays analysis, payment of fees to Piper Jaffray
under the engagement letter was not contingent upon the
execution of the merger agreement or the closing of the merger.
On October 23, 2006, Wachtell Lipton delivered a revised
draft of the merger agreement to Ropes & Gray on behalf
of the special committee. Wachtell Lipton also delivered
comments on the limited guaranty proposed by Bain/Catterton. In
connection with providing the revised draft to Ropes &
Gray, which proposed the deletion of a representation that the
special committee unanimously voted to recommend the
transaction, Wachtell Lipton communicated to Bain/Catterton that
there might not be a unanimous view of the members of the
special committee with respect to the proposed transaction.
On October 23, 2006, OSIs audit committee held a
meeting by telephone that was attended by representatives from
PricewaterhouseCoopers LLP, OSIs independent registered
certified public accounting firm
(PricewaterhouseCoopers). At the meeting,
Mr. Montgomery and PricewaterhouseCoopers discussed with
the committee members, including Mr. Brabson,
Mr. Carey and Mr. James, all of whom were also members
of the special committee, that OSIs management had
discovered an understatement in OSIs accounting treatment
of unearned revenue for unredeemed gift cards and certificates
as of September 30, 2006. Mr. Montgomery explained to
the committee that OSIs management and
PricewaterhouseCoopers were investigating the scope of the
understatement and were determining whether OSI would need to
delay issuing its third-quarter earnings. The audit committee
asked Mr. Montgomery and PricewaterhouseCoopers to report
back to the audit committee as soon as possible.
On October 23, 2006, the members of the special committee
had dinner together, without advisors present, to discuss the
proposed transaction. At the dinner, among other matters, the
special committee also discussed the understatement in
OSIs liability for unearned revenue for unredeemed gift
cards and certificates. Following conclusion of the dinner, the
co-chairs of the special committee updated Wachtell Lipton as to
the various matters discussed at the dinner.
On October 24, 2006, an in-person meeting of the board of
directors was held. At the meeting Mr. James, chairman of
the audit committee, briefed the board of directors on
Mr. Montgomerys and PricewaterhouseCoopers
26
presentation to the audit committee the previous day,
explaining that OSIs management estimated that the
apparent understatement was approximately $20,000,000 to
$40,000,000. Mr. James also noted the possibility that OSI
would need to delay issuing its third-quarter earnings as well
as the possibility of a restatement being required. After
discussion, the board delegated to the audit committee full
authority to investigate the matter as well as make any
decisions regarding delaying announcement of OSIs
third-quarter earnings.
On October 24, 2006, the special committee held a meeting,
with most of the members of the special committee attending in
person. The meeting was attended by representatives of Wachtell
Lipton, Wachovia Securities and Piper Jaffray. During the
meeting, Wachtell Lipton reviewed with the special committee the
status of negotiations with Bain/Catterton on the draft merger
agreement, including provisions respecting the treatment of
OSIs stock options and stock-based awards and the proposed
termination fees. The special committee discussed the open
issues in the draft merger agreement and gave guidance to
Wachtell Lipton as to how to respond to such issues. The open
issues discussed were: (i) the treatment of the
Companys stock options and stock-based awards,
(ii) whether a unanimous vote of the committee would be a
requirement of the proposed transaction, (iii) whether the
Company would be permitted to pay dividends through the closing
of the proposed transaction and (iv) whether it would be a
condition to the closing of the proposed transaction that the
approval of the Companys stockholders be obtained without
taking into account the vote of the shares held by Founders and
management participating in the proposed transaction with
Bain/Catterton. The special committee also discussed the issues
raised at the board meeting earlier in the day regarding the
possibility of a restatement being required with respect to its
accounting treatment of unearned revenue for unredeemed gift
cards and certificates having been understated. The special
committee directed Wachovia Securities and Wachtell Lipton to
ensure that Bain/Catterton was made fully aware of the issues
discussed at the board meeting the previous day, as well as any
updates, and that the fact that they had been made so aware was
appropriately reflected in the definitive documentation to be
considered in connection with the proposed transaction. Wachovia
Securities and Wachtell Lipton therefore promptly provided
Bain/Catterton and its accounting and legal advisors with
information relating to these issues and gave Bain/Catterton
full opportunity to conduct due diligence on them, which due
diligence included several discussions between Bain/Catterton
and its advisors and OSI and PricewaterhouseCoopers.
On October 25, 2006, the audit committee held a telephonic
meeting to further consider OSIs liability for unearned
revenue for unredeemed gift cards and certificates. After
discussion, the audit committee determined that OSI should delay
releasing its third-quarter earnings.
Later that afternoon, OSI publicly announced that it was
delaying its third-quarter earnings release because it had
preliminarily determined that its liability for unearned revenue
for unredeemed gift cards and certificates as of
September 30, 2006, was understated by an estimated
$20,000,000 to $40,000,000, based on an accounting method under
which OSI would recognize income in proportion to redemptions as
they occur for an estimate of the gift cards and certificates
that will never be redeemed. See Information About
OSI Financial Statements on page 118.
On October 25, 2006, Ropes & Gray delivered a
revised draft of the merger agreement and limited guaranty,
together with drafts of Parents disclosure schedules, to
Wachtell Lipton.
On October 26, 2006, the special committee held a meeting
by telephone during which representatives of Wachtell Lipton
reviewed with the special committee the terms of the draft
merger agreement and the issues in the draft that remained open,
including the treatment of OSIs stock options and
stock-based awards, whether a unanimous vote of the special
committee would be a requirement of the proposed transaction,
whether OSI would be permitted to pay dividends through the
closing of the proposed transaction and whether it would be a
condition that the approval of OSIs stockholders be
obtained without taking into account the vote of shares held by
the OSI Investors. The special committee also further discussed
the possibility of a restatement being required with respect to
OSIs accounting treatment of unearned revenue for
unredeemed gift cards and certificates.
On October 26, 2006, Mr. James on behalf of the
special committee executed an engagement letter with Wachovia
Securities containing the terms of its service as a financial
advisor to the special committee.
From October 27, 2006 through October 28, 2006,
Wachtell Lipton and Ropes & Gray continued to negotiate
the draft merger agreement, and Kirkland & Ellis and
Cleary Gottlieb separately negotiated with Ropes & Gray
27
summary term sheets with respect to the OSI Investors
arrangements. During its negotiations with Ropes &
Gray, Wachtell Lipton informed Ropes & Gray that no
assurance could be given that the proposal would, in the event
it was approved, receive the unanimous support of the special
committee, and indicated that a higher proposed purchase price
from Bain/Catterton could alter this result. In response,
Ropes & Gray indicated that Bain/Catterton was only
willing to proceed with a transaction that would receive the
unanimous support of the members of the special committee.
On October 27, 2006, materials regarding the proposed
transaction were delivered to the members of the special
committee and members of the board of directors in advance of
the special committee and board of directors meetings scheduled
for October 29, 2006.
On October 27 and 28, 2006, various members of the special
committee had individual discussions with each other regarding
the proposed transaction being negotiated with Bain/Catterton.
In addition, the co-chairs of the special committee as well as
several special committee members had discussions with Wachtell
Lipton regarding the proposed transaction. On October 28,
Wachtell Lipton held discussions with Kirkland & Ellis
and Ropes & Gray regarding issues surrounding the
potential lack of unanimity by the special committee.
On October 29, 2006, the special committee met to consider
the proposed transaction. Wachtell Lipton confirmed to the
special committee that the merger agreement had been fully
negotiated and was now in final form, explaining the resolution
of all previously open issues in the merger agreement, including
that (i) liability under the limited guarantees would be
capped at $215,000,000; (ii) OSI would be allowed to pay
dividends through closing of the proposed transaction;
(iii) OSIs undisclosed liabilities representation
would be subject to a generally accepted accounting principles
(GAAP) standard; (iv) it would be a condition
to the proposed transaction that a majority of the stockholders
of OSI voted for the transaction, exclusive of shares held by
the OSI Investors; and (v) any liability related to the
understatement in liability for unredeemed gift cards and
certificates would be a liability of the surviving corporation.
The special committee was informed that Bain/Catterton had
stated that it was not prepared to proceed with the transaction
unless the special committee was able unanimously to approve and
recommend the merger agreement. After discussion, the special
committee reached a consensus that it would not be able to
deliver a unanimous approval as at least three directors,
Ms. Fields, Mr. James and General (Ret.) Franks,
indicated that they had reservations regarding the transaction
as then proposed, expressing or agreeing with the view that a
Leveraged Recapitalization could have the potential to provide
more value to stockholders than the proposed Bain/Catterton
transaction. The special committee then requested that
Mr. Sullivan and Mr. Allen join the special committee
meeting and they were informed of the special committees
consensus decision. Following these discussions,
Mr. Sullivan and Mr. Allen left the meeting of the
special committee. The special committee then requested that
Wachtell Lipton contact Ropes & Gray promptly to report
the special committees conclusion. Prior to adjournment,
the special committee ratified the engagement letters entered
into with Wachovia Securities and Piper Jaffray. The board of
directors meeting that had been called to consider the proposed
transaction was then canceled.
Immediately following the conclusion of the special committee
meeting, Wachtell Lipton contacted Ropes & Gray to
indicate that the special committee had reached a consensus that
it would not be able to deliver a unanimous approval and
recommendation for the proposed merger agreement.
Ropes & Gray informed Wachtell Lipton that
Bain/Catterton was not at the time prepared to proceed with any
transaction that did not receive the unanimous support of the
members of the special committee and that Bain/Catterton was not
prepared to increase its proposed purchase price of $40.00 per
share.
On October 31, 2006, the special committee held a meeting
by telephone to discuss communications that had taken place
between certain members of the special committee and Wachtell
Lipton, on the one hand, and certain members of management and
the Founders, on the other hand. The special committee was
informed that after the October 29, 2006 special committee
meeting, Mr. Sullivan had contacted Mr. Wilt to
express his disappointment with the special committees
decision not to approve the Bain/Catterton transaction, as
proposed, and to reiterate his view that a Bain/Catterton
transaction was in the best interests of OSIs
stockholders. Mr. Sullivan also stated that he believed
Mr. Avery would consider resigning from his position at OSI
if a transaction with Bain/Catterton were not completed. The
special committee was also informed that Mr. Allen had also
contacted Mr. Wilt to express Mr. Allens view
that a Bain/Catterton transaction was in the best interests of
OSIs stockholders. In this conversation, Mr. Allen
had also indicated his view that it would be inappropriate to
pursue a Leveraged Recapitalization, should the board decide to
pursue one, without fully disclosing to the Companys
stockholders
28
the terms of the Bain/Catterton proposal, including the $40.00
per share offer price (which was likely to be above the price
per share offered in any repurchase of shares undertaken in
connection with a Leveraged Recapitalization). Mr. Allen
had also explained his belief that the Company was at risk of
losing Mr. Avery if a transaction with Bain/Catterton were
not pursued due to the Companys inability, so long as it
remained a public company, to compensate Mr. Avery at a
level sufficient to cause him to continue his employment, noting
that, beginning in 2005, management had requested that the board
address the long-term compensation of Mr. Avery but that
these requests had not been addressed. Mr. Allen, together
with Mr. Kadow, repeated these views in separate
conversations with each member of the special committee and in a
conversation with Wachtell Lipton. The special committee was
also informed that Mr. Allen and Mr. Kadow had
mentioned to Wachtell Lipton that if the Bain/Catterton
transaction were not pursued it was possible that one or more
Founders could resign, which could have an adverse impact on the
Company. Following discussion of these matters, the special
committee determined that the views expressed by
Mr. Sullivan, Mr. Allen and Mr. Kadow should not
be considered in connection with the special committees
consideration of the merits of alternative courses of action for
the Company, but rather that the special committee should make
its own determination of what was in the best interests of
OSIs stockholders, based on its own views and knowledge of
the Company and the analyses provided by the special
committees advisers. On that basis, the special committee
determined not to reconsider the proposed transaction with
Bain/Catterton.
On November 1, 2006, the special committee held a meeting
by telephone to further discuss the communications described
above. After a full discussion in which Wachtell Lipton
participated, the special committee affirmed its conclusion of
October 31 that the special committee would not reconsider
the proposed transaction with Bain/Catterton. The special
committee decided that representatives of the special committee
should meet with members of the Companys senior management
to focus on alternatives to the proposed Bain/Catterton
transaction.
On November 2, 2006, Mr. Brabson, General (Ret.)
Franks, Mr. James and Mr. Wilt discussed with
Mr. Allen and Mr. Montgomery the business prospects of
OSI and the issues facing OSI, including operational, management
and accounting concerns. Mr. James and Mr. Wilt then
requested that the Chairman of the Board, Mr. Sullivan,
convene a special meeting of the board to discuss the strategic
direction of OSI and possible alternatives to be pursued.
On November 2, 2006, the members of the special committee
had dinner together to discuss the business prospects of OSI and
the issues facing OSI. Following the conclusion of the dinner,
the co-chairs and Gen. (Ret.) Franks contacted Wachtell Lipton
to discuss certain matters raised at the dinner and potential
next steps.
Also on November 2, 2006, Ropes & Gray contacted
Wachtell Lipton to inform them that Bain/Catterton was
potentially willing to proceed with the proposed transaction
even if the recommendation of the special committee was not
unanimous, subject to certain modifications to the proposed
merger agreement. These modifications included an additional
condition to closing in the event of perfection of
dissenters rights by a specified percentage of OSI
stockholders and a modification to the conditions so that the
votes of the OSI Investors would be counted for purposes of
determining whether the condition that a majority of the
stockholders of OSI voted for the transaction had been
satisfied. Finally, Bain/Catterton proposed that they receive
reimbursement of their expenses in the situation where the OSI
stockholders turned down the proposed merger. Following
consultation with the special committee, Wachtell Lipton
informed Ropes & Gray that none of the proposed changes
to the draft merger agreement would be acceptable to the special
committee.
On November 2, 2006, Mr. Montgomery also contacted
Mr. James in his capacity as Chairman of the audit
committee and reported that, in the course of evaluating
OSIs accounting for unredeemed gift cards, OSIs
management had identified additional potentially significant
concerns related to OSIs accounting for leases, minority
partner interests, certain other equity accounts and gift card
incentive expenses that could result in adjustments to
OSIs financial statements. In addition,
Mr. Montgomery explained that OSIs liability for
unearned revenue for unredeemed gift cards and certificates,
which was initially estimated to have been understated by
approximately $20,000,000 to $40,000,000, could in fact be
understated by approximately $50,000,000 to $70,000,000. As a
result, Mr. Montgomery explained that, although a final
determination had not been made, OSI would most likely need to
restate its historical financial statements and was likely to
delay filing its Form 10-Q for the fiscal quarter ending
September 30, 2006 for an indeterminate period.
Mr. Montgomery also reported that PricewaterhouseCoopers
agreed with managements assessment, subject to completion
of their audit procedures, which were underway. In light of
these matters, the board of directors meeting to discuss the
strategic direction of OSI was canceled.
29
On November 3, 2006, the special committee held a
telephonic meeting with Wachtell Lipton to discuss the
additional accounting concerns described above as well as the
increased likelihood that OSI would need to restate its
historical financial statements, the uncertainty as to when such
a restatement could be completed and the potential that
additional accounting concerns could be identified in the course
of further investigating the Companys accounting
practices. The special committee acknowledged, among other
concerns, the likelihood that, following the public announcement
of the additional accounting concerns and any restatement,
OSIs stock price would be adversely affected and that OSI
would be unable timely to file its
Form 10-Q
for the fiscal quarter ending September 30, 2006. Following
discussion in which Wachtell Lipton participated, it was the
consensus of the special committee that the additional
accounting concerns and the likelihood of a restatement
substantially increased the level of execution risk, and
decreased the likelihood of successful completion, of any
Leveraged Recapitalization or other similar transaction. The
special committee noted in particular that the accounting
concerns identified, and any additional accounting concerns that
might be identified in the course of further investigating
OSIs accounting practices, could result in the financial
statements necessary for raising the financing required for any
Leveraged Recapitalization either being delayed or not being
available, and that such accounting concerns could adversely
impact potential financing sources perception of OSI and
their willingness to purchase debt or other securities of OSI in
connection with the financing for any Leveraged
Recapitalization. The special committee also noted that
following announcement of any additional accounting concerns,
OSIs stock price was likely further to decline. As a
result, the special committee concluded that it was appropriate
to reevaluate the proposed Bain/Catterton transaction under the
then-current circumstances. The special committee therefore
requested that Wachtell Lipton approach Bain/Catterton and its
counsel, Ropes & Gray, to inform them of the additional
accounting concerns identified and to confirm that the
Bain/Catterton proposal, including the $40.00 per share
proposed purchase price, was still available in light of those
developments. Wachtell Lipton was authorized to inform
Ropes & Gray that although no formal vote of the
members of the special committee had been taken, the special
committee now believed that it might reach a unanimous,
favorable consensus with respect to the proposed transaction.
Wachovia Securities and Piper Jaffray were also asked to be
prepared to render their fairness opinions at a special
committee meeting scheduled for November 5. Subsequent to
the special committee meeting, the Chairman of the Board of OSI
was asked to schedule a meeting of the board of directors should
one be necessary following conclusion of the November 5 special
committee meeting.
From November 3 through November 5, 2006, Wachtell
Lipton and Ropes & Gray completed negotiating the
remaining details of the merger agreement and, together with
Baker & Hostetler LLP, the disclosure schedules, during
which time Ropes & Gray confirmed that
Bain/Cattertons proposed purchase price of $40.00 per
share would not be reduced. In addition, Kirkland &
Ellis and Cleary Gottlieb finalized with Ropes & Gray
their respective negotiations regarding the summary term sheets
relating to the OSI Investors arrangements. Bain/Catterton
and its advisors were also provided with the ability to perform
additional due diligence with respect to the additional
accounting items that had been identified.
On November 5, 2006, the special committee held a
telephonic meeting to consider the proposed transaction.
Representatives of Wachtell Lipton were in attendance and
representatives of Wachovia Securities and Piper Jaffray joined
the meeting to give their respective fairness opinion
presentations. At the meeting, Wachtell Lipton summarized the
terms of the proposed merger agreement, discussed considerations
relating to Bain/Cattertons proposed financing commitments
for the transaction and discussed various other issues related
to the proposed transaction under consideration. The special
committee then received separate presentations from Wachovia
Securities and Piper Jaffray on the financial aspects of the
transaction. The analysis presented by Wachovia Securities was
updated from the October 9 presentation to reflect revisions to
the projections and other financial and operating information
originally provided by management and publicly available
information regarding comparable companies and comparable
transactions. The revisions to managements financial
projections are discussed under Financial Forecast
beginning on page 181. Each of Wachovia Securities and
Piper Jaffray also delivered to the special committee their
respective opinions that, as of November 5, 2006, and based
on and subject to the various factors, assumptions and
limitations set forth in its opinion, the $40.00 per share
merger consideration to be received by holders of shares of OSI
common stock was fair from a financial point of view to the
holders of such shares, other than the OSI Investors. See
Special Factors Opinion of Wachovia Capital
Markets, LLC and Special Factors Opinion
of Piper Jaffray & Co. After consideration and
deliberation in which Wachtell Lipton, Wachovia Securities and
Piper Jaffray participated, the special committee voted
unanimously to declare it advisable
30
and in the best interests of OSI and its stockholders for OSI to
enter into the proposed merger agreement, approved and adopted
the proposed merger agreement and determined to recommend the
approval and adoption of the proposed merger agreement by the
board of directors and by the stockholders of OSI.
Following the special committee meeting, a meeting of the
compensation committee of the board of directors was held. The
compensation committee approved amendments to OSIs equity
incentive plans that provided for the treatment of OSIs
stock options and stock-based awards as set forth in the Merger
Agreement. The compensation committee also approved amendments
to OSIs employment agreements with Mr. Allen,
Mr. Avery, Mr. Kadow and Mr. Montgomery providing
for change in control severance benefits in the event of certain
qualifying terminations of employment in connection with or
following a merger. These amendments were approved in order to
provide the executives an incentive to continue to be employed
by OSI in the event an alternative proposal arose and was
accepted during the solicitation period and in the event they
were unable to enter into satisfactory employment arrangements
with Bain/Catterton. See Special Factors
Interests of Our Directors and Executive Officers in the
Merger beginning on page 64. These actions were also
approved by the board of directors at the meeting discussed
below.
Following the compensation committee meeting, a meeting of the
entire board of directors was held. At the meeting, Wachtell
Lipton explained that the special committee had unanimously
declared it advisable and in the best interests of OSI and its
stockholders for OSI to enter into the proposed merger
agreement, approved and adopted the proposed merger agreement
and had determined to recommend the approval and adoption of the
proposed merger agreement by the board of directors and the
stockholders of OSI. Wachtell Lipton then summarized the terms
of the proposed merger agreement and discussed various other
issues. At the meeting, the board received presentations from
Wachovia Securities and Piper Jaffray on the financial aspects
of the transaction. Each of Wachovia Securities and Piper
Jaffray also described their respective fairness opinions that
had been delivered to the special committee. Wachtell Lipton
summarized the two fairness opinions and explained that although
the two fairness opinions had been delivered to the special
committee, the board was entitled to rely upon such opinions in
connection with its evaluation of the proposed merger. After
consideration and deliberation in which Wachtell Lipton,
Wachovia Securities and Piper Jaffray participated, the board of
directors (other than Mr. Sullivan, Mr. Basham, and
Mr. Allen, each of whom is an OSI Investor and stands to
individually benefit from the consummation of the transaction,
and therefore abstained from voting), expressly adopted the
unanimous recommendation of the special committee and determined
that it was advisable and in the best interests of OSI and its
stockholders for OSI to enter into the proposed merger
agreement, approved and adopted the proposed merger agreement
and the transactions contemplated by the proposed merger
agreement, and determined to recommend the proposed merger
agreement for adoption by OSIs stockholders.
Following the board meeting, a telephonic meeting of the audit
committee of the board of directors was held. At the meeting
Mr. Montgomery and representatives from
PricewaterhouseCoopers discussed with the audit committee
OSIs contemplated accounting restatement and related
issues. The audit committee agreed that OSI would be required to
restate its earnings and therefore its historical financial
statements could no longer be relied upon. The audit committee
also engaged an additional independent accounting firm to assist
in the review being undertaken by management.
Following the end of the meeting of the audit committee, the
proposed merger agreement, the financing commitments and the
limited guarantees were executed and delivered and the summary
term sheet with respect to their arrangements were entered into
by each of the OSI Investors.
On the morning of November 6, 2006, OSI released a press
release announcing the transaction. Separately, OSI announced
that it would need to restate its consolidated financial
statements to correct for the previously announced
understatement in its liability for unearned revenue for
unredeemed gift cards and certificates and for other errors in
its financial statements, including deferred rent, minority
interests in consolidated entities and additional paid-in
capital. OSI further explained that, as part of the restatement,
it had determined to recognize income for unredeemed gift cards
and certificates that will never be redeemed at the time at
which their redemption becomes remote and that, as a result of
this correction in accounting methodology, OSI expected an
adjustment to its unearned revenue liability of approximately
$50,000,000 to $70,000,000 at September 30, 2006.
31
Beginning on Monday, November 6, 2006, pursuant to the
solicitation provisions set forth in Section 5.3(a) of the
Merger Agreement, Wachovia Securities contacted certain
potential acquirers that they had identified and discussed with
the special committee. These potential acquirers were chosen on
the basis of their likelihood of interest in participating in a
transaction with the Company, their ability to consummate a
transaction with the Company and/or their potential interest in
the restaurant industry. During the go-shop period,
Wachovia Securities contacted a total of 15 parties and three
parties contacted Wachovia Securities. Five parties requested
draft confidentiality agreements for the purpose of receiving
access to confidential due diligence materials and, of those,
two parties executed confidentiality agreements with OSI as the
other three parties chose not to further pursue a transaction.
Each of these two parties received preliminary due diligence
materials promptly following the execution of their respective
confidentiality agreements. Neither party indicated, prior to
the end of the go-shop period, that it would be
interested in making a proposal to acquire the Company at a
price in excess of $40.00 per share. The go-shop
period under the Merger Agreement ended at 11:59 p.m. (New
York time) on December 26, 2006. Since the end of the
go-shop period, no party has approached the special
committee or the Company expressing an interest in pursuing a
transaction to acquire the Company at a price in excess of
$40.00 per share.
Beginning in October 2006, OSI conducted a review of its
accounting policies for gift cards and certificates as well as
certain other balance sheet accounts. On January 8, 2007,
OSI filed an amendment to its
Form 10-K
for the fiscal year ended December 31, 2005, and filed its
Form 10-Q
for the fiscal quarter ended September 30, 2006, reflecting
the restatement of its consolidated financial statements for
certain prior periods based on that review. On January 17,
2007, OSI filed an amendment to its
Form 10-Q
for the fiscal quarter ended March 31, 2006, and an
amendment to its
Form 10-Q
for the fiscal quarter ended June 30, 2006, reflecting the
restatement of its consolidated financial statements for the
periods covered by those reports based on that review.
Fairness
of the Merger; Recommendations of the Special Committee and Our
Board of Directors
In this section, we refer to our board of directors, other than
Chris T. Sullivan, our Chairman of the Board, Robert D. Basham,
our Vice Chairman of the Board, and A. William Allen, III,
our Chief Executive Officer, each of whom abstained from voting
on the merger, as the Board. The Board believes that
the merger (which is the
Rule 13e-3
transaction for which a
Schedule 13E-3
Transaction Statement has been filed with the SEC) is both
procedurally and substantively fair to OSIs stockholders
(other than the OSI investors) and in the best interests of
OSIs stockholders. On November 5, 2006, the special
committee and the Board separately approved and adopted the
Merger Agreement and authorized the transactions contemplated by
the Merger Agreement, including the merger, and recommended that
OSIs stockholders approve and adopt the Merger Agreement.
In addition, the special committee believed that sufficient
procedural safeguards were and would be present to ensure the
fairness of the merger and to permit the special committee to
represent effectively the interests of OSIs stockholders
(other than the OSI Investors) without retaining an unaffiliated
representative to act solely on behalf of such stockholders. The
special committee considered a number of factors relating to
these procedural safeguards, including those discussed below,
each of which it believed supported its decision and provided
assurance of the fairness of the merger to OSIs
stockholders (other than the OSI Investors). In reaching these
conclusions, the Board and the special committee considered the
following material factors, among others:
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that the comparative decline in OSIs financial performance
and results of operations as compared to its historical
financial performance and results of operations, uncertainty in
OSIs prospects and long-term strategy, a weakening of
OSIs competitive position in its industry, uncertainty in
the outlook for the casual dining industry, concerns regarding
the ability of management to take the steps necessary to
restructure the Outback Steakhouse and other dining concepts
that were facing declines in their business, and general
economic and stock market conditions made the merger desirable
at this time, as compared with other times, in OSIs
operating history;
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the $40.00 in cash to be received by OSIs stockholders in
the merger represents:
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a premium of approximately 23.3% over the closing price of
shares of OSI common stock on November 3, 2006, the last
trading day prior to announcement of the merger;
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a premium of approximately 19.7% over the average closing price
of shares of OSI common stock over a
30-day
period; and
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a premium of approximately 26.5% over the average closing price
of shares of OSI common stock over a
90-day
period;
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that holders of OSI common stock that do not vote in favor of
the adoption of the Merger Agreement or otherwise waive their
appraisal rights will have the opportunity to demand appraisal
of the fair value of their shares under Delaware law;
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that the consideration to be paid in the merger is all cash,
which provides certainty of value to OSIs stockholders;
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the financing commitments received by Parent and Merger Sub with
respect to the Merger Agreement, the identity of the
institutions providing such commitments and the conditions to
the obligations of such institutions to fund such commitments,
each as described under the caption Special
Factors Financing on page 60;
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their belief that OSIs stock price was not likely to trade
at or above the $40.00 price offered in the merger in the near
future. The Board and the special committee based this belief on
a number of factors, including: the directors knowledge
and understanding of OSIs prospects in an increasingly
competitive industry; managements failure over successive
quarters to meet its internal financial projections and business
plan; research analyst target prices; and the various valuation
methodologies and analyses, expressly adopted by the special
committee and Board, prepared by Wachovia Securities (described
below under Opinion of Wachovia Capital
Markets, LLC beginning on page 41) and by Piper
Jaffray (described below under Opinion of
Piper Jaffray & Co. beginning on page 50);
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the financial analysis reviewed by Wachovia Securities and Piper
Jaffray at the special committee meeting, in the case of the
special committee, and the board meeting, in the case of the
Board, on November 5, 2006, and the separate opinions of
Wachovia Securities and Piper Jaffray, each described in detail
under Opinion of Wachovia Capital Markets,
LLC and Opinion of Piper
Jaffray & Co., respectively, that, as of
November 5, 2006, and based on and subject to the various
factors, assumptions and limitations set forth in their
respective opinions, the $40.00 per share merger
consideration to be received by holders of shares of OSI common
stock was fair from a financial point of view to the holders of
such shares (other than the OSI Investors);
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their belief, based on, among other things, the data provided by
Wachovia Securities and Piper Jaffray, that the $40.00 per
share merger consideration compared favorably to the high end of
the range of fair values for OSI common stock as set forth in
each of the Wachovia Securities and Piper Jaffray analyses. See
Opinion of Wachovia Capital Markets, LLC
and Opinion of Piper Jaffray &
Co.;
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the impact of the accounting issues identified by OSIs
management on alternatives to the merger, including the
increased level of execution risk, and the decreased likelihood
of successful completion, of any such alternatives;
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their belief, based on the factors described above, that the
$40.00 per share merger consideration would result in
greater value to OSIs stockholders than either pursuing
managements current business plan or undertaking a
Leveraged Recapitalization, assuming one was possible, in which
OSI would incur debt and engage in a significant share
repurchase program, or other alternatives considered as part of
the Shareholder Value Initiative;
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the terms of the Merger Agreement, including the fact that the
Merger Agreement contains provisions that permit OSI to conduct
a post-signing market test to ensure that the $40.00 per
share price provided in the transaction is the best available to
OSIs stockholders, including (i) a
50-day
period during which OSI, under the direction of the special
committee, was permitted to actively seek competing proposals
for a business combination or acquisition, which period the
special committee believed was sufficient time for any
potentially interested party to conduct sufficient due diligence
to make such a competing proposal, and (ii) the right, even
after the end of the
50-day
solicitation period, subject to certain conditions, to explore
unsolicited proposals and to terminate the Merger Agreement and
accept a Superior Proposal prior to stockholder
approval of the Merger Agreement, subject to payment of a
customary
break-up fee
and, in
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certain circumstances, to reimbursement of Parents
out-of-pocket
fees and expenses. The special committee believed that these
provisions were important in ensuring that the transaction would
be substantively fair to OSIs stockholders (other than the
OSI Investors) and in the best interests of OSIs
stockholders and provided the special committee with adequate
flexibility to explore potential transactions with other
parties;
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the fact that all of the members of the special committee, some
of whom have significant investments in OSI common stock, were
unanimous in their determination to approve the Merger Agreement
and that the Merger Agreement was approved by all of the
directors of OSI who are not participating in the transaction;
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the fact that the Merger Agreement is subject to limited
conditions, including the fact that Parent delivered financing
commitments from reputable and financially sound lenders that,
together with the equity commitments received, are sufficient to
pay the merger consideration; and
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the fact that the transaction will be subject to the approval of
OSI stockholders without consideration to the vote of any OSI
common stock held by the OSI Investors.
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The special committee and the Board also believe the process by
which OSI entered into the Merger Agreement with Parent and
Merger Sub was fair, and in reaching that determination the
special committee and the Board took into account, in addition
to the factors above, the following:
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the consideration and negotiation of the Bain/Catterton
transaction was conducted entirely under the oversight of the
members of the special committee, consisting of all the
independent directors of OSI, and that no limitations were
placed on the authority of the special committee. Accordingly,
the special committee was free to explore a transaction with any
other bidder it determined was more favorable or likely to be
more favorable than Bain/Catterton. The purpose of establishing
the special committee and granting it the exclusive authority to
review, evaluate and negotiate the terms of the transaction on
behalf of OSI was to ensure that OSIs stockholders (other
than the OSI Investors) were adequately represented by
disinterested persons. None of the members of the special
committee has any financial interest in the merger that is
different from OSIs stockholders (other than the OSI
Investors) generally;
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the special committee was advised by independent legal counsel
and an internationally recognized financial advisor selected by
them. The special committee engaged Wachtell Lipton as legal
counsel, Wachovia Securities as financial advisor and Piper
Jaffray for the purpose of delivering a fairness opinion to
advise the special committee in its efforts to represent
OSIs stockholders (other than the OSI Investors). Wachovia
Securities and Piper Jaffray each rendered separate fairness
opinions to the special committee as to the fairness from a
financial point of view of the merger consideration to be
received by holders of our common stock (other than the OSI
Investors). In determining to retain Wachovia Securities to act
as the special committees financial advisor, the special
committee was aware that Wachovia Securities was advising OSI in
connection with a Leveraged Recapitalization and had, in the
past, rendered additional services to OSI. Wachovia Securities
and its affiliates provide a full range of financial advisory,
securities banking, insurance and lending services in the
ordinary course of business for which they receive customary
fees which are summarized in Opinion of Wachovia Capital
Markets, LLC Miscellaneous on page 49. As
of November 2006, Wachovia Securities and its affiliates had
$199.5 million in total credit exposure to the Company and
its subsidiaries, of which $164.5 million was currently
funded (inclusive of a $24.5 million off-balance sheet
guarantee of the Company). Affiliates of Wachovia Securities
served as Lead Arranger and Administrative Agent on the
Companys renewed $225.0 million revolver closed on
March 10, 2006. Affiliates of Wachovia Securities also
acted as the sole lender on a $50.0 million line of credit
closed on October 12, 2006. As of October 2006, affiliates
of Wachovia Securities also had approximately $30.6 million
in committed loans to the executives, board members and certain
investment projects partially owned by executives or board
members, of which approximately $25.6 million was
outstanding. The loans are comprised of the following
arrangements: (1) secured and unsecured loans were made to
Mr. Sullivan in the aggregate amount of approximately
$6.25 million, between May 2003 and July 2005 for business
and personal use with interest rates of LIBOR + 1.35% and prime;
(2) secured and unsecured loans were made to
Mr. Steven Shlemon in the aggregate amount of approximately
$4.5 million between December 2002 and October 2005 for
business and personal use with interest rates of LIBOR + 2.35%
and Prime; (3) secured and unsecured loans were made to
Mr. Carey in the aggregate amount of approximately
$0.7 million between October 2005 and August 2006 for
business and personal use with interest rates of LIBOR + 2.35%
and
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prime 0.50%; and (4) Mssrs. Sullivan, Basham,
Avery and Kadow have guaranteed a total of approximately
$19 million of loans issued by affiliates of Wachovia
Securities in connection with various real estate and other
investment projects. These loans were made between December 1998
and September 2005 and carry interest rates of LIBOR + 0.90%,
LIBOR + 5.00%, and prime. The special committee was also aware
that in October and November 2005, Piper Jaffray had preliminary
discussions with a senior member of OSIs management team
regarding the possibility of representing OSI in connection with
OSIs evaluation of strategic alternatives for one of
OSIs restaurant concepts. However, in November 2005, OSI
told Piper Jaffray that OSI was no longer interested in
evaluating strategic alternatives regarding this concept, and
discussions between Piper Jaffray and OSI regarding this concept
ended. In December 2006, OSI and Piper Jaffray restarted
discussions regarding strategic alternatives for this concept
which are ongoing. The special committee was also aware that
Piper Jaffray is a large, global, full-service financial
institution that had, in the past, rendered services to Bain
Capital and certain of Bain Capitals portfolio companies
and had received fees in respect of such prior services;
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the special committee had extensive, arms-length
negotiations with Bain/Catterton over several months, which,
among other things, resulted in an increase in the merger
consideration from $37.50 to $40.00 per share, a 6.6%
increase; and
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accounting issues might prevent OSI from timely filing financial
statements, the absence of which might significantly restrict
OSIs ability to achieve increased stockholder value by
means of a recapitalization.
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The special committee and the Board were aware of and also
considered the following adverse factors associated with the
merger, among others:
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at various times over the past several years, OSI common stock
has traded in excess of the $40.00 merger consideration,
although the special committee and the Board believed it was
unlikely that OSI stock would trade in excess of $40.00 in the
near term;
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that the stockholders of OSI (other than the OSI Investors and
additional members of management who may be given the
opportunity to exchange restricted or unrestricted stock for
shares of Parent common stock or to purchase shares of Parent
common stock) will have no ongoing equity participation in the
surviving corporation following the merger, meaning that such
stockholders will cease to participate in OSIs future
earnings or growth, or to benefit from any increases in the
value of OSI common stock;
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that the proposed merger will be a taxable transaction for OSI
stockholders whose shares are converted into cash in the merger;
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that if the merger is not completed, OSI will be required to pay
its fees associated with the transaction as well as, under
certain circumstances, reimburse Bain/Catterton for its
out-of-pocket
fees and expenses associated with the transaction;
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that OSI did not undertake an affirmative auction prior to
entering into the Merger Agreement, although the special
committee and the Board were satisfied that the Merger Agreement
provided the special committee and the Board with an adequate
opportunity to conduct an affirmative post-signing market test
to ensure that the $40.00 per share merger consideration is
the best available to OSIs stockholders (other than the
OSI Investors);
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that OSI will be required to pay to or as directed by Parent a
termination fee and, in certain circumstances, to reimburse
Parent for its
out-of-pocket
fees and expenses if the Merger Agreement is terminated under
certain circumstances; and
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that if the merger is not completed, OSI may be adversely
affected due to potential disruptions in its operations.
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In addition, the Board was aware that the OSI Investors would be
entering into arrangements with Parent simultaneous with the
execution of the Merger Agreement providing that such persons
anticipate reinvesting a portion of their proceeds from the
merger into Parent in connection with the completion of the
transaction and that such persons would remain employed in
substantially their respective current capacities following the
completion of the transaction. The Board was also aware of the
additional employee benefits that Parent has committed to
provide pursuant to the Merger Agreement. Although the special
committee and the Board were generally aware of these interests
(and had reviewed letters of intent and term sheets setting
forth material terms of these
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arrangements), the special committees and the
Boards primary concern was to ensure that the per share
merger consideration and other terms of the Merger Agreement
were both procedurally and substantively fair to OSIs
stockholders (other than the OSI Investors) and in the best
interests of OSIs stockholders. See Special
Factors Interests of Our Directors and Executive
Officers in the Merger beginning on page 64 and
The Merger Agreement Employee Benefits
beginning on page 91.
In analyzing the transaction relative to the going concern value
of OSI, the special committee and the Board each took into
account the 30-day and 90-day average stock prices, which
the special committee and the Board considered a meaningful
reflection of OSIs going concern value, and expressly
adopted the analyses and methodologies used by Wachovia
Securities and Piper Jaffray as a whole to evaluate the going
concern value of OSI, including the historical stock price
analysis, the comparable companies analysis and the range of
present values of both the current five-year plan of OSIs
management and the potential recapitalization of OSI through a
share repurchase. See below under Opinion of
Wachovia Capital Markets, LLC beginning on page 41
and Opinion of Piper Jaffray &
Co. beginning on page 50. Further, the special
committee and the Board considered the analyses and conclusions
of Wachovia Securities and Piper Jaffray. Wachovia
Securities and Piper Jaffrays analyses were based
upon certain management-provided scenarios and assumptions, but
did not include an independent analysis of the liquidation value
or book value of OSI. The special committee and the Board did
not consider liquidation value as a factor because OSI is a
viable going concern business and the trading history of OSI
common stock is an indication of its value as such. The special
committee and Board did not view the prices paid for Company
stock by the Company over the prior two years as relevant beyond
indicating the trading price of the common stock during that
period. The Companys stock repurchases over the last two
years were effected primarily to offset the dilutive effect of
stock option exercises. In addition, due to the fact that OSI is
being sold as a going concern, the special committee and the
Board did not consider the liquidation value of OSI relevant to
a determination as to whether the merger is procedurally and
substantively fair to OSIs stockholders (other than the
OSI Investors) and in the best interests of OSIs
stockholders. Further, the special committee and the Board did
not consider net book value a material indicator of the value of
OSI because it understates its value as a going concern, but is
instead indicative of historical costs.
In view of the large number of factors considered by the special
committee and the Board in connection with the evaluation of the
Merger Agreement and the merger and the complexity of these
matters, except as expressly noted above, the special committee
and the Board did not consider it practicable to, nor did it
attempt to, quantify, rank or otherwise assign relative weights
to the specific factors it considered in reaching its decision,
nor did it evaluate whether these factors were of equal
importance. In addition, individual directors may have given
different weight to the various factors. The special committee
held discussions with Wachovia Securities and Piper Jaffray with
respect to the quantitative and qualitative analyses of the
financial terms of the merger. The special committee and the
Board conducted a discussion of, among other things, the factors
described above, including asking questions of OSIs
management and its financial and legal advisors, and reached the
conclusion that the merger is both procedurally and
substantively fair to OSIs stockholders (other than the
OSI Investors) and in the best interests of OSIs
stockholders. Therefore, the Board recommends that you vote
FOR the adoption of the Merger
Agreement. Other than as described in this proxy statement, OSI
is not aware of any firm offers by any other person during the
prior two years for a merger or consolidation of OSI with
another company, the sale or transfer of all or substantially
all of OSIs assets or a purchase of OSIs securities
that would enable such person to exercise control of OSI.
Purposes
and Reasons of the OSI Investors
The purposes of the OSI Investors for engaging in the merger are
to enable our stockholders to realize a premium on their shares
of OSI based on the closing price of shares of our common stock
on November 3, 2006 and to enable the OSI Investors to
continue to own minority equity interests in OSI after shares of
OSI Common Stock cease to be publicly traded.
Purposes
and Reasons of Parent, Merger Sub and the Funds
For Parent and Merger Sub, the purpose of the merger is to
effectuate the transactions contemplated by the Merger
Agreement. For the Funds, the purpose of the merger is to allow
them to own controlling equity interests in
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OSI and to bear the rewards and risks of such ownership after
shares of OSI common stock cease to be publicly traded.
Position
of the OSI Investors Regarding the Fairness of the
Merger
Under the rules governing going private
transactions, the OSI Investors are required to express their
beliefs as to the substantive and procedural fairness of the
merger to OSIs stockholders (other than the OSI
Investors). The OSI Investors are making the statements included
in this subsection solely for the purposes of complying with the
requirements of
Rule 13e-3
and related rules under the Securities Exchange Act of 1934, as
amended (the Exchange Act).
Mr. Sullivan, Mr. Basham and Mr. Allen, each in
his capacity as a member of our board of directors, participated
in the deliberations of the resolutions of the board of
directors on November 5, 2006 approving the Merger
Agreement and the transactions contemplated by the Merger
Agreement. In such capacity, they received advice from the
special committees legal and financial advisors, including
advice from the special committees financial advisors as
to the substantive and procedural fairness of the transaction to
OSIs stockholders (other than the OSI Investors), from a
financial point of view. See Special Factors
Opinion of Wachovia Capital Markets, LLC on page 41
and Special Factors Opinion of Piper
Jaffray & Co. on page 50. Mr. Sullivan,
Mr. Basham and Mr. Allen were not members of, and did
not participate in the deliberations of, the special committee.
Mr. Avery, Mr. Kadow, Mr. Montgomery and
Mr. Gannon are not members of our board of directors.
Mr. Avery, Mr. Gannon and Mr. Montgomery did not
participate in the deliberations of our board of directors
regarding the substantive and procedural fairness of the merger
to OSIs stockholders (other than the OSI Investors), or
any other aspect of the transaction. Mr. Kadow was present
for such deliberations in his capacity as Secretary of OSI.
Mr. Avery, Mr. Kadow, Mr. Montgomery and Mr.
Gannon did not receive any advice from the special
committees legal or financial advisors as to the
substantive and procedural fairness of the merger or any other
aspect of the transaction.
The OSI Investors believe the merger is substantively and
procedurally fair to OSIs stockholders (other than the OSI
Investors) on the basis of the factors described below. However,
the OSI Investors have not performed, or engaged a financial
advisor to perform, any valuation or other analysis for the
purposes of assessing the substantive and procedural fairness of
the merger to OSIs stockholders (other than the OSI
Investors). Mr. Sullivan, Mr. Basham and
Mr. Allen, each in his capacity as a member of our board of
directors, received advice from the special committees
financial advisors, and the OSI Investors have expressly adopted
the analyses and methodologies used by Wachovia Securities and
Piper Jaffray in their determination of the substantive and
procedural fairness of the transaction to OSIs
stockholders (other than the OSI Investors), from a financial
point of view.
In making their determination that the merger is substantively
fair to OSIs stockholders (other than the OSI Investors),
the OSI Investors expressly adopted the unanimous recommendation
of the special committee and considered the following material
positive factors, among others:
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that the comparative decline in OSIs financial performance
and results of operations as compared to its historical
financial performance and results of operations, uncertainty in
OSIs prospects and long-term strategy, a weakening of
OSIs competitive position in its industry, uncertainty in
the outlook for the casual dining industry, concerns regarding
the ability of management to take the steps necessary to
restructure the Outback Steakhouse and other dining concepts
that were facing declines in their business, and general
economic and stock market conditions made the merger desirable
at this time, as compared with other times, in the
Companys operating history;
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$40.00 in cash to be received by OSIs stockholders in the
merger represents:
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a premium of approximately 23.3% over the closing price of a
share of OSI common stock on November 3, 2006, the last
trading day prior to announcement of the merger;
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a premium of approximately 19.7% over the average closing price
of a share of OSI common stock over a
30-day
period leading up to announcement of the merger; and
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a premium of approximately 26.5% over the average closing price
of a share of OSI common stock over a
90-day
period leading up to announcement of the merger;
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their belief that OSIs stock price was not likely to trade
at or above the $40.00 per share price offered in the merger in
the near future based on a number of factors, including a
comparative decline in OSIs financial performance and
results of operations as compared to its historical financial
performance and results of operations, their knowledge and
understanding of OSIs prospects in an increasingly
competitive industry, a weakening of OSIs competitive
position in the industry, uncertainty in the outlook for the
casual dining industry, the need to restructure the Outback
Steakhouse and other dining concepts that were facing declines
in their business, research analyst target prices and general
economic and stock market conditions;
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the impact of the accounting issues identified by OSIs
management on alternatives to the merger, including the
increased level of execution risk, and the decreased likelihood
of successful completion, of any such alternatives;
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their belief, based on the factors described in the preceding
bullet points, that the $40.00 per share merger consideration
would result in greater value to OSIs stockholders than
remaining a public entity and either pursuing managements
current business plan or undertaking a Leveraged
Recapitalization, assuming one was possible in which OSI would
incur debt and engage in a significant share repurchase program,
or other alternatives considered as part of the Shareholder
Value Initiative;
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holders of OSI common stock that do not vote in favor of the
adoption of the Merger Agreement or otherwise waive their
appraisal rights will have the opportunity to demand appraisal
of the fair value of their shares under Delaware law;
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the merger will provide consideration to OSIs stockholders
entirely in cash;
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the financing commitments received by Parent and Merger Sub with
respect to the Merger Agreement, the identity of the
institutions providing such commitments and the conditions to
the obligations of such institutions to fund such commitments,
each as described under the caption Special
Factors Financing on page 60;
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the special committee unanimously determined, and our board of
directors determined by the unanimous vote of all directors
(other than Mr. Sullivan, Mr. Basham and
Mr. Allen, who abstained), that the Merger Agreement and
the transactions contemplated by the Merger Agreement, including
the merger, are both procedurally and substantively fair to
OSIs stockholders (other than the OSI Investors) and in
the best interests of OSIs stockholders;
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the terms of the Merger Agreement provided a
50-day
period during which OSI, under the direction of the special
committee, was permitted to actively seek competing proposals
for a business combination or acquisition;
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the special committee received and our board of directors is
entitled to rely on the opinion of Wachovia Securities, dated
November 5, 2006, to the effect that, as of that date and
based upon and subject to the factors and assumptions set forth
in its opinion, the $40.00 per share in cash to be received
by the holders of the outstanding shares of OSI common stock
pursuant to the Merger Agreement was fair from a financial point
of view to those holders (other than the OSI Investors); and
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the special committee received and our board of directors was
provided for its use in connection with its consideration of the
transactions contemplated by the Merger Agreement the opinion of
Piper Jaffray, dated November 5, 2006, to the effect that,
as of that date and based upon and subject to the factors and
assumptions set forth in its opinion, the $40.00 per share
in cash to be received by the holders of the outstanding shares
of OSI common stock pursuant to the Merger Agreement was fair
from a financial point of view to those holders (other than the
OSI Investors).
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The OSI Investors also considered the following material
negative factors, among others:
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OSIs stockholders, with the exception of the OSI Investors
and certain other members of OSI management who may acquire
equity interests in Parent in connection with the closing of the
merger, will have no ongoing equity participation in OSI
following the merger; such stockholders will cease to
participate in OSIs future earnings or growth, if any, or
to benefit from increases, if any, in the value of OSI common
stock and will not participate in any future sale of OSI to a
third party;
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38
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prior to execution of the Merger Agreement there was no attempt
made to contact other possible purchasers of OSI or to conduct a
public auction of OSI;
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the cash consideration to be received by the holders of OSI
common stock will be taxable to them; and
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OSI common stock has traded at a price significantly greater
than $40.00 per share during the past twelve months.
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The OSI Investors believe that the merger is procedurally fair
to OSIs stockholders (other than the OSI Investors) based
upon the following material factors, among others:
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the special committee consisted entirely of directors who are
independent directors and included all of the independent
directors on our board of directors;
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the members of the special committee will not personally benefit
from the consummation of the merger in a manner different from
the OSI stockholders (other than the OSI Investors);
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the special committee retained and was advised by independent
legal counsel experienced in advising on similar transactions;
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the special committee retained and was advised by Wachovia
Securities, which assisted the committee in its evaluation of
the fairness from a financial point of view, to the holders of
OSI common stock (other than the OSI Investors) of the
$40.00 per share cash merger consideration;
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the special committee retained and was advised by Piper Jaffray,
which assisted the committee in its evaluation of the fairness
from a financial point of view, to the holders of OSI common
stock (other than the OSI Investors) of the $40.00 per
share cash merger consideration;
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the merger was unanimously approved by the members of the
special committee and by all members of our board of directors
(other than Mr. Sullivan, Mr. Basham and
Mr. Allen, who abstained);
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the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of our common
stock entitled to vote at the special meeting (without
consideration as to the vote of any shares held by the OSI
Investors); and
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the terms of the Merger Agreement provide for a post-signing
go-shop period that permitted the special committee
to solicit competing acquisition proposals for the
50-day
period beginning on the date of the public announcement of the
Merger Agreement.
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The OSI Investors believe that the merger is procedurally fair
despite the fact that our board of directors did not retain an
unaffiliated representative, other than the special committee,
to act solely on behalf of OSIs stockholders for purposes
of negotiating the terms of the Merger Agreement. In this
regard, the OSI Investors note that the use of a special
committee of independent directors is a mechanism recognized to
ensure the procedural fairness of transactions of this type. The
OSI Investors also believe that the merger is procedurally fair
despite the fact that Mr. Sullivan, Mr. Basham and
Mr. Allen, each in his capacity as a member of our board of
directors, participated in the deliberation of the resolutions
of our board of directors on November 5, 2006, approving
the Merger Agreement and the transactions contemplated by the
Merger Agreement (although each abstained from voting to approve
such resolutions) and Mr. Kadow was present during such
deliberations; in this regard, the OSI Investors note that all
of the other members of the OSI board who voted on the
transaction approved the merger.
The OSI Investors did not consider the net book value of OSI
common stock in determining the substantive fairness of the
merger to OSIs stockholders (other than the OSI Investors)
because they believe that net book value, which is an accounting
concept, does not reflect, or have any meaningful impact on, the
market trading price of OSI common stock. They note, however,
that the merger consideration of $40.00 per share of OSI
common stock is higher than the net book value of the OSI common
stock. The OSI Investors did not view the prices OSI paid for
its stock over the prior two years as relevant beyond indicating
the trading price of the common stock during that period.
OSIs stock repurchases over the last two years were
effected primarily to offset the dilutive effect of stock option
exercises. The OSI Investors did not consider liquidation value
in determining the substantive fairness of the merger to
OSIs stockholders (other than the OSI Investors) because
of their belief that liquidation value did not present a
meaningful valuation for OSI and its business; rather, it was
the belief of the OSI Investors that OSIs value is derived
from the cash flows generated from its continuing operations,
rather than from the value of its assets that might be realized
in a liquidation. Further, because OSIs assets include a
significant amount of intangible assets,
39
intellectual property, leased properties and other assets that
are not readily transferable or are subject to restrictions on
their transfer in a liquidation scenario, the OSI Investors
concluded that OSI is not susceptible to a meaningful
liquidation valuation. Moreover, it was the belief of the OSI
Investors that a large part of OSIs success is
attributable to its market share and market presence created by
owning chains of numerous individual restaurants unified by a
recognizable brand name and reputation for quality, and any
liquidation of its assets or
break-up or
piecemeal sale of its parts would not maximize stockholder value
because it would not likely compensate OSIs stockholders
for the value inherent in each concepts market position or
brand identity. Therefore, the OSI Investors believed that the
liquidation methodology would result in a lower valuation for
OSI than had been proposed in the merger negotiations.
The foregoing discussion of the information and factors
considered and given weight by the OSI Investors in connection
with their evaluation of the substantive and procedural fairness
to OSIs stockholders (other than the OSI Investors) of the
Merger Agreement and the transactions contemplated by the Merger
Agreement is not intended to be exhaustive but is believed to
include all material factors considered by them. The OSI
Investors did not find it practicable to and did not quantify or
otherwise attach relative weights to the foregoing factors in
reaching their position as to the substantive and procedural
fairness to OSIs stockholders (other than the OSI
Investors) of the Merger Agreement and the transactions
contemplated by the Merger Agreement. The OSI Investors believe
that these factors provide a reasonable basis for their belief
that the merger is substantively and procedurally fair to
OSIs stockholders (other than the OSI Investors). This
belief should not, however, be construed as a recommendation to
any OSI stockholder to vote to adopt the Merger Agreement.
However, Mr. Sullivan, Mr. Basham and Mr. Allen,
each in his capacity as a member of our board of directors,
concur with the recommendation of our board of directors that
our stockholders adopt the Merger Agreement. See Special
Factors Fairness of the Merger; Recommendations of
the Special Committee and Our Board of Directors beginning
on page 32.
Position
of Parent, Merger Sub and the Funds Regarding the Fairness of
the Merger
Under a potential interpretation of the rules governing
going private transactions, Parent, Merger Sub and
the Funds may be required to express their beliefs as to the
procedural and substantive fairness of the merger to OSIs
stockholders (other than the OSI Investors). Parent, Merger Sub
and the Funds are making the statements included in this section
solely for the purposes of complying with the requirements of
Rule 13e-3
and related rules under the Exchange Act. The views of Parent,
Merger Sub and the Funds should not be construed as a
recommendation to any stockholder as to how that stockholder
should vote on the proposal to adopt the Merger Agreement.
Parent, Merger Sub and the Funds attempted to negotiate the
terms of a transaction that would be most favorable to them, and
not to the stockholders of OSI, and, accordingly, did not
negotiate the Merger Agreement with a goal of obtaining terms
that were fair to such stockholders. None of Parent, Merger Sub
or the Funds believe that it has or had any fiduciary duty to
OSI or its stockholders, including with respect to the merger
and its terms. The stockholders of OSI were, as described
elsewhere in this proxy statement, represented by the special
committee that negotiated with Parent, Merger Sub and the Funds
on their behalf, with the assistance of independent legal and
financial advisors.
None of Parent, Merger Sub or the Funds participated in the
deliberations of the special committee and none of them
participated in the conclusions of the special committee or the
board of directors of OSI that the merger was fair to OSIs
stockholders (other than the OSI Investors), nor did they
undertake any independent evaluation of the fairness of the
merger or engage any financial advisor for such purposes.
However, Parent, Merger Sub and the Funds found persuasive the
conclusions of the special committee and the board of directors
with respect to the substantive and procedural fairness of the
merger to OSIs stockholders (other than the OSI Investors)
as set forth in the proxy statement under Fairness of the
Merger Recommendations of the Special Committee and
Our Board of Directors. In addition, Parent, Merger Sub
and the Funds believe the proposed merger is substantively and
procedurally fair to OSIs stockholders (other than the OSI
Investors) based on the following other factors:
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$40.00 in cash to be received by OSIs stockholders in the
merger represents:
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40
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a premium of approximately 23.3% over the closing price of a
share of OSI common stock on November 3, 2006, the last
trading day prior to announcement of the merger;
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a premium of approximately 19.7% over the average closing price
of a share of OSI common stock over a
30-day
period leading up to announcement of the merger; and
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a premium of approximately 26.5% over the average closing price
of a share of OSI common stock over a
90-day
period leading up to announcement of the merger;
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the $40 per share merger consideration and other terms and
conditions of the Merger Agreement resulted from extensive
negotiations between the special committee and its advisors and
Parent and Merger Sub and their respective advisors;
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holders of OSI common stock that do not vote in favor of the
adoption of the Merger Agreement or otherwise waive their
appraisal rights will have the opportunity to demand appraisal
of the fair value of their shares under Delaware law;
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the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of our common
stock entitled to vote at the special meeting (without
consideration as to the vote of any shares held by the OSI
Investors); and
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the terms of the Merger Agreement provide for a post-signing
go-shop period that permitted the special committee
to solicit competing acquisition proposals for the
50-day
period beginning on the date of the public announcement of the
Merger Agreement.
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Parent, Merger Sub and the Funds did not consider the
liquidation value of OSI because they considered OSI to be a
viable, going concern and therefore did not consider liquidation
value to be a relevant methodology. Further, Parent, Merger Sub
and the Funds did not consider net book value, which is an
accounting concept, as a factor because they believed that net
book value is not a material indicator of the value of OSI as a
going concern but rather is indicative of historical costs.
Parent, Merger Sub and the Funds note that net book value per
share of OSI stock was lower than the $40.00 per share cash
merger consideration.
The foregoing discussion of the information and factors
considered and given weight by Parent, Merger Sub and the Funds
in connection with the fairness of the Merger Agreement and the
merger is not intended to be exhaustive but is believed to
include all material factors considered by Parent, Merger Sub
and the Funds. Parent, Merger Sub and the Funds did not find it
practicable to, and did not, quantify or otherwise attach
relative weights to the foregoing factors in reaching their
position as to the fairness of the Merger Agreement and the
merger. Parent, Merger Sub and the Funds believe that these
factors provide a reasonable basis for their position that the
merger is fair to OSIs stockholders (other than the OSI
Investors).
Opinion
of Wachovia Capital Markets, LLC
On April 17, 2006, our board of directors engaged Wachovia
Securities to act as its financial advisor in connection with
its analysis and consideration of the various strategic
alternatives available to OSI. As the boards financial
advisor, Wachovia Securities was engaged to perform such
financial advisory and investment banking services as set forth
in the engagement letter between Wachovia Securities and OSI.
Under the terms of its engagement, such services included
assisting OSI in analyzing the feasibility of transactions such
as divestitures and recapitalizations.
Following the formation of the special committee, Wachovia
Securities was retained as the special committees
financial advisor in connection with its analysis and
consideration of the merger. As its financial advisor, Wachovia
Securities was engaged to perform such financial advisory and
investment banking services for the special committee as was
requested by the special committee and set forth in the
engagement letter between Wachovia Securities and OSI. Under the
terms of its engagement, such services include assisting the
special committee in analyzing, structuring, negotiating and
effecting the proposed transaction, and rendering an opinion in
accordance with Wachovia Securities customary practice as
to whether the consideration to be paid in the transaction is
fair from a financial point of view to OSIs stockholders,
other than the OSI Investors. Wachovia Securities was not
retained to act solely on behalf of unaffiliated stockholders of
the Company. The special
41
committee did not impose any limitation on Wachovia Securities
in preparing its analysis or opinion. At the meeting of the
special committee, on November 5, 2006, Wachovia Securities
rendered its oral opinion, which opinion was later confirmed in
writing, as of November 5, 2006 and based on and subject to
the various factors, assumptions and limitations set forth in
its opinion, that the $40.00 per share merger consideration
to be received by holders of shares of OSI common stock was fair
from a financial point of view to the holders of such shares
(other than the OSI Investors). The opinion also was summarized
at a subsequent meeting of the board of directors that same day.
The full text of the written opinion of Wachovia Securities,
dated November 5, 2006, which sets forth, among other
things, the assumptions made, procedures followed, matters
considered and limitations on the review undertaken by Wachovia
Securities, is attached as Annex B to this proxy statement
and is incorporated herein by reference. You should read the
written opinion carefully and in its entirety. The Wachovia
Securities opinion is for the use and benefit of the
special committee and our board of directors and addressed only
the fairness, as of the date of the opinion, from a financial
point of view, of the merger consideration to the holders of
shares of OSI common stock, other than the OSI Investors.
The opinion of Wachovia Securities does not address any other
aspect of the merger, including the merits of the underlying
decision by OSI to engage in the merger, and does not constitute
a recommendation to any stockholder as to how such stockholder
should vote on the proposed merger or any matter related
thereto. In addition, OSI did not ask Wachovia Securities to
address, and the opinion does not address, the fairness to, or
any other consideration of, the holders of any class of
securities, creditors or other constituencies of OSI, other than
the holders of OSI common stock (excluding the OSI Investors).
In arriving at its opinion, Wachovia Securities, among other
things:
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reviewed the Merger Agreement;
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reviewed certain publicly available business, financial and
other information regarding OSI;
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reviewed certain business, financial and other information
regarding OSI and its prospects that was furnished to Wachovia
Securities by OSIs management, and discussed with
OSIs management this information as well as the business,
past and current operations, financial condition and future
prospects of OSI, including internal financial forecasts of OSI
prepared by OSIs management, and the risks and
uncertainties of OSI continuing to pursue an independent
strategy (see Financial Forecast beginning on page
181);
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reviewed the current and historical market prices and trading
activity of OSI common stock;
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compared certain business, financial and other information
regarding OSI with similar information regarding certain other
publicly traded companies that Wachovia Securities deemed to be
relevant;
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compared the proposed financial terms of the Merger Agreement
with the financial terms of certain other business combinations
and transactions that Wachovia Securities deemed to be relevant;
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participated in discussions and negotiations among
representatives of OSI and Parent, and their respective
financial and legal advisors; and
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considered other information such as financial studies, analyses
and investigations, as well as financial and economic and market
criteria that Wachovia Securities deemed to be relevant.
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In connection with the review, Wachovia Securities has relied
upon the accuracy and completeness of financial and other
information obtained and reviewed for the purpose of the opinion
and has not assumed any responsibility for any independent
verification of such information. Wachovia Securities has relied
upon assurances of OSIs management that it is not aware of
any facts or circumstances that would make such information
about OSI inaccurate or misleading. With respect to OSIs
financial forecasts, Wachovia Securities has assumed that they
have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management as to
the expected future financial performance of OSI. Wachovia
Securities has discussed such forecasts and estimates, as well
as the assumptions upon which they are based, with OSIs
management, but assumes no responsibility for and expresses no
view as to OSIs financial forecasts or the assumptions
upon which they are based. Wachovia Securities has relied on
advice of counsel to the special committee as to all legal
matters with respect to OSI and the transactions contemplated by
the Merger Agreement.
42
In rendering the opinion, Wachovia Securities assumed that the
transactions contemplated by the Merger Agreement will be
consummated on the terms described in the Merger Agreement,
without waiver of any material terms or conditions. The opinion
is necessarily based on economic, market, financial and other
conditions as they existed on and could be evaluated as of
November 5, 2006. Although subsequent developments may
affect this opinion, Wachovia Securities does not have any
obligation to update, revise or reaffirm the opinion.
Financial
Analyses
At the November 5, 2006 meeting of the special committee
and the subsequent meeting of our board of directors that same
day, Wachovia Securities made a presentation of certain
financial analyses of the proposed merger. The following is a
summary of the material analyses contained in the presentation
that was delivered to the special committee and may be relied
upon by our board of directors. Some of the summaries of
financial analyses include information presented in tabular
format. In order to understand fully the financial analyses
performed by Wachovia Securities, the table must be read
together with the accompanying text of each summary. The table
alone does not constitute a complete description of the
financial analyses, including the methodologies and assumptions
underlying the analyses, and if viewed in isolation could create
a misleading or incomplete view of the financial analyses
performed by Wachovia Securities. The fact that any specific
analysis has been referred to in the summary below and in this
proxy statement is not meant to indicate that such analysis was
given more weight than any other analysis; in reaching its
conclusion, Wachovia Securities arrived at its ultimate opinion
based on the results of all analyses undertaken by it and
assessed as a whole and believes the totality of the factors
considered and performed by Wachovia Securities in connection
with its opinion operated collectively to support its
determinations as to the fairness of the merger consideration
from a financial point of view to the holders of shares of OSI
common stock, other than the OSI Investors. Wachovia Securities
did not draw, in isolation, conclusions from or with regard to
any one factor or method of analysis.
In arriving at its opinion, Wachovia Securities made its
determination as to the fairness, from a financial point of
view, as of the date of the opinion, of the merger consideration
to be received by OSIs stockholders, other than the OSI
Investors, on the basis of the multiple, financial and
comparative analyses described below. The following summary is
not a complete description of all of the analyses performed and
factors considered by Wachovia Securities in connection with its
opinion, but rather is a summary of the material financial
analyses performed and factors considered by Wachovia
Securities. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not necessarily
susceptible to partial analysis. With respect to the analysis of
publicly traded companies and the analysis of transactions
summarized below, such analyses reflect selected companies and
transactions, and not necessarily all companies or transactions,
that may be considered relevant in evaluating OSI or the merger.
In addition, no company or transaction used as a comparison is
either identical or directly comparable to OSI or the merger.
These analyses involve complex considerations and judgments
concerning financial and operating characteristics and other
factors that could affect the public trading or acquisition
values of the companies concerned. The estimates of future
performance of OSI provided by OSIs management used in or
underlying Wachovia Securities analyses are not
necessarily indicative of future results or values, which may be
significantly more or less favorable than those estimates. In
performing its analyses, Wachovia Securities considered industry
performance, general business and economic conditions and other
matters, many of which are beyond OSIs control. Estimates
of the financial value of companies do not purport to be
appraisals or reflect the prices at which such companies
actually may be sold. The merger consideration to be paid per
share of OSI common stock was determined through negotiation
between OSI and Parent, and the decision to enter into the
merger was solely that of Parent and OSI. The opinion and
financial analyses of Wachovia Securities were only one of many
factors considered by the special committee and our board of
directors in their evaluation of the merger and should not be
viewed as determinative of the views of the special committee or
our board of directors with respect to the merger or the merger
consideration.
Summary
of Imputed Share Values
Wachovia Securities assessed the fairness of the per share
merger consideration to the holders of shares of OSI common
stock and its affiliates by assessing the value of OSI using
several methodologies, a comparable companies analysis using
valuation multiples from selected publicly traded companies, a
comparable acquisitions analysis, a
43
discounted cash flow analysis, an analysis of the present value
of OSIs management plan, a leveraged buyout analysis, and
a premiums paid analysis, each of which is described in more
detail in the summaries set forth below. Each of these
methodologies was used to generate imputed valuation ranges that
were then compared to the per share merger consideration. The
following table shows the ranges of imputed valuation per share
of OSI common stock derived under each of these methodologies.
The table should be read together with the more detailed summary
of each of these valuation analyses as set forth below.
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Imputed Valuation
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Per Common Share
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Valuation Methodology
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Minimum
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Maximum
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Comparable Companies Analysis
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$
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34.35
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$
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40.00
|
|
Discounted Cash Flow Analysis
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$
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29.77
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$
|
42.30
|
|
Analysis of Present Value of OSI
Restaurant Partners, Inc.s Management Plan
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$
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28.70
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$
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42.38
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|
Leveraged Buyout Analysis
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$
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30.78
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|
$
|
40.08
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|
Comparable Transactions Analysis
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$
|
28.10
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$
|
37.00
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|
Premiums Paid Analysis
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$
|
39.80
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|
$
|
41.60
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Comparable
Companies Analysis
Wachovia Securities reviewed certain financial information of
publicly traded companies in the casual dining restaurant
industry that it deemed comparable to OSI and similar to the
Company as determined by reviewing the sales and earnings growth
and other financial characteristics detailed in the projections
provided by OSIs management. The Comparable Companies
Analysis attempts to provide an implied value of a company by
comparing it to similar publicly-traded companies. The
comparable companies analyzed are set forth below:
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Company Name
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Price(1)
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% of 52
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Shares
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Mkt.
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Enterprise
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LTM Financials
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Enterprise Value/
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P/E Multiples
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Growth
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2007 (E)
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Latest Qtr.-FYE
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Ticker
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Low-High
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Week High
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Out.
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Value
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Value(2)
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Sales
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EBITDA
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% Margin
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LTM EBITDA
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LTM EBIT
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2006(E)
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2007(E)
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Rate
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PEG Ratio
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(in millions, except per share values)
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Darden Restaurants,
Inc.(3)
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DRI
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$41.59
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93.6
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%
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146.8
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$
|
6,106.5
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$
|
6,784.8
|
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$
|
5,767.3
|
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$
|
776.6
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13.5
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%
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8.7
|
x
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12.3
|
x
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18.3
|
x
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16.6
|
x
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|
12.4
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%
|
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133.5
|
%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/06 -
May
|
|
|
|
|
|
$32.00 - $44.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brinker International,
Inc.
|
|
|
EAT
|
|
|
$45.76
|
|
|
95.3
|
%
|
|
|
82.7
|
|
|
|
3,785.1
|
|
|
|
4,232.2
|
|
|
|
4,215.3
|
|
|
|
512.3
|
|
|
|
12.2
|
%
|
|
|
8.3
|
x
|
|
|
13.2
|
x
|
|
|
18.5
|
x
|
|
|
16.3
|
x
|
|
|
13.5
|
%
|
|
|
120.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/06 -
June
|
|
|
|
|
|
$31.48 - $48.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruby Tuesday,
Inc.(3)(4)
|
|
|
RI
|
|
|
$27.43
|
|
|
83.2
|
%
|
|
|
58.6
|
|
|
|
1,607.6
|
|
|
|
1,976.8
|
|
|
|
1,336.7
|
|
|
|
234.8
|
|
|
|
17.6
|
%
|
|
|
8.4
|
x
|
|
|
12.2
|
x
|
|
|
16.3
|
x
|
|
|
15.3
|
x
|
|
|
15.4
|
%
|
|
|
99.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/5/06 -
June
|
|
|
|
|
|
$21.03 - $32.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applebees International,
Inc.(4)
|
|
|
APPB
|
|
|
$22.89
|
|
|
86.5
|
%
|
|
|
74.4
|
|
|
|
1,703.7
|
|
|
|
1,887.9
|
|
|
|
1,296.1
|
|
|
|
206.0
|
|
|
|
15.9
|
%
|
|
|
9.2
|
x
|
|
|
13.3
|
x
|
|
|
20.4
|
x
|
|
|
18.5
|
x
|
|
|
14.9
|
%
|
|
|
123.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/24/06 -
December
|
|
|
|
|
|
$17.29 - $26.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landrys Restaurants,
Inc.
|
|
|
LNY
|
|
|
$29.09
|
|
|
80.1
|
%
|
|
|
22.1
|
|
|
|
643.8
|
|
|
|
1,462.0
|
|
|
|
1,395.4
|
|
|
|
185.6
|
|
|
|
13.3
|
%
|
|
|
7.9
|
x
|
|
|
12.8
|
x
|
|
|
20.5
|
x
|
|
|
14.2
|
x
|
|
|
12.0
|
%
|
|
|
118.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/30/06 -
December
|
|
|
|
|
|
$25.80 - $36.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RARE Hospitality,
Inc.(3)
|
|
|
RARE
|
|
|
$31.22
|
|
|
89.6
|
%
|
|
|
34.0
|
|
|
|
1,061.7
|
|
|
|
1,087.1
|
|
|
|
1,046.6
|
|
|
|
125.7
|
|
|
|
12.0
|
%
|
|
|
8.6
|
x
|
|
|
13.2
|
x
|
|
|
20.4
|
x
|
|
|
17.4
|
x
|
|
|
18.0
|
%
|
|
|
96.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/1/06 -
December
|
|
|
|
|
|
$24.98 - $34.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mean:
|
|
|
88.0
|
%
|
|
|
69.8
|
|
|
$
|
2,484.7
|
|
|
$
|
2,905.1
|
|
|
$
|
2,509.6
|
|
|
$
|
340.1
|
|
|
|
14.1
|
%
|
|
|
8.5
|
x
|
|
|
12.8
|
x
|
|
|
19.1
|
x
|
|
|
16.4
|
x
|
|
|
14.4
|
%
|
|
|
115.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median:
|
|
|
88.0
|
%
|
|
|
66.5
|
|
|
$
|
1,655.6
|
|
|
$
|
1,932.3
|
|
|
$
|
1,366.1
|
|
|
$
|
220.4
|
|
|
|
13.4
|
%
|
|
|
8.5
|
x
|
|
|
13.0
|
x
|
|
|
19.4
|
x
|
|
|
16.5
|
x
|
|
|
14.2
|
%
|
|
|
119.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OSI(3)(5)
|
|
$33.19
|
|
|
68.7
|
%
|
|
|
74.7
|
|
|
|
2,478.8
|
|
|
|
2,715.8
|
|
|
|
3,839.5
|
|
|
|
366.1
|
|
|
|
9.5
|
%
|
|
|
7.4
|
x
|
|
|
15.2
|
x
|
|
|
21.6
|
x
|
|
|
16.8
|
x
|
|
|
14.0
|
%
|
|
|
119.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/30/06 -
December
|
|
$27.30 - $48.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyer Group Offer
|
|
$40.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.2
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Prices and earnings estimates
obtained from the First Call Network on November 2, 2006.
|
|
|
|
(2)
|
|
Market value of equity plus net
debt. Equity value determined by basic shares outstanding.
|
|
|
|
(3)
|
|
Denotes a company that holds a
large portion of real estate.
|
|
|
|
(4)
|
|
Denotes a company that has a
significant amount of franchised restaurants.
|
|
|
|
(5)
|
|
Net debt for OSI as of
June 30, 2006.
|
Note: Operating results normalized
for unusual and non-recurring expenses. Includes non-cash stock
based compensation expense.
Although certain non-public restaurant companies might be
considered comparable, they were not included in the analysis
because no valuation information was publicly available for
these companies. No company used in the comparable companies
analysis possessed characteristics identical to those of OSI.
Accordingly, an analysis of the results of the comparable
companies necessarily involves complex considerations and
judgments concerning differences in financial and operating
characteristics of the selected companies, as well as other
factors that could affect the public trading value of the
selected companies and OSI. Mathematical analysis, such as
determining the
44
average or median, is not in itself a meaningful method of using
comparable company data. Wachovia Securities performed this
analysis to understand the range of estimated price to earnings,
or P/E, ratio, estimated price to earnings to growth rate, or
PEG ratio, and multiples of estimated earnings before interest,
taxes, depreciation and amortization for the last
12 months, subject to certain adjustments, commonly
referred to as adjusted LTM EBITDA (Adjusted
EBITDA), of these comparable companies based upon market
prices. In addition, Wachovia Securities reviewed certain
operating metrics for these companies, such as operating profit
margin and growth rates of earnings per share over a five-year
time period to analyze the relative valuation of these
companies. Wachovia Securities calculated certain financial
ratios of these comparable companies based on the most recent
publicly available information, including multiples of:
|
|
|
|
|
estimated P/E ratio for the fiscal years 2006 and 2007;
|
|
|
|
estimated PEG ratio for the fiscal year 2007; and
|
|
|
|
enterprise value to LTM EBITDA as of September 30, 2006.
|
Based in part on the multiples described above and the multiples
calculated for all of the companies mentioned on page 44,
Wachovia Securities derived indications of the aggregate value
of OSI by applying multiples ranging from 7.9x to 9.2x
OSIs Adjusted EBITDA as of September 30, 2006 of
$366,100,000. Wachovia Securities utilized these selected
multiples after considering the current market conditions and
the size and diversification of operations of the comparable
companies, among other things. The resulting indicated range of
value was $34.35 to $40.00, as compared to the merger
consideration of $40.00 per share. The financial data considered
as part of this analysis included, among other things:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Transactions
|
|
|
|
OSI
(1)
|
|
|
OSI
(2)(3)
|
|
|
Mean
|
|
|
Median
|
|
|
Enterprise Value to LTM EBITDA
|
|
|
9.2x
|
|
|
|
7.4x
|
|
|
|
8.5x
|
|
|
|
8.5x
|
|
Enterprise Value to LTM EBIT
|
|
|
|
|
|
|
15.2x
|
|
|
|
12.8x
|
|
|
|
13.0x
|
|
Price per Share to Current Year
2006 EPS Estimate
|
|
|
|
|
|
|
21.6x
|
|
|
|
19.1x
|
|
|
|
19.4x
|
|
Price per Share to Current Year
2007 EPS Estimate
|
|
|
|
|
|
|
16.8x
|
|
|
|
16.4x
|
|
|
|
16.5x
|
|
Price to 2007 Earnings to Growth
Rate Ratio
|
|
|
|
|
|
|
119.7
|
%
|
|
|
115.5
|
%
|
|
|
119.6
|
%
|
|
|
|
(1)
|
|
Based on merger consideration of
$40.00 per share.
|
|
|
|
(2)
|
|
Based on OSI current share price of
$33.19 as of November 2, 2006.
|
|
|
|
(3)
|
|
OSI 2006 and 2007 earnings
estimates based on estimates provided by management.
|
Note: Operating results normalized for unusual and non-recurring
expenses. Includes non-cash stock based compensation expense.
Discounted
Cash Flow Analysis
Wachovia Securities performed a discounted cash flow analysis of
OSI as a stand-alone entity. The Discounted Cash Flow Analysis
attempts to establish the intrinsic value of the operating
assets of the Company by applying a discount rate derived from
the Companys weighted average cost of capital to determine
the present value of each of the free cash flows of the business
over the projection period and the terminal value of the
business beyond the provided projection horizon. Wachovia
Securities calculated the discounted cash flow values for OSI as
the sum of the present values of:
|
|
|
|
|
the projected future free cash flows that OSI would generate for
the fiscal year ending 2006 through the fiscal year ending 2011,
the calculation of which, as set forth below, is unlevered net
income (equal to operating income, tax-effected at a 31.5% tax
rate) plus depreciation and amortization expense, less capital
expenditures, less changes in working capital, plus other
non-cash expense items and other nonrecurring items; and
|
|
|
|
|
|
the terminal value of OSI at the end of that period.
|
The estimated future free cash flows were based on OSIs
managements estimates for both a base and downside plan
for the years 2007 through 2011 (see Financial
Forecast on page 181) with the referenced
45
EBITDA inclusive of certain non-cash, non-recurring
adjustments, which were also provided by management. The
terminal value multiples for OSI were calculated based on
projected 2011 EBITDA, a range of exit multiples, which
represent the estimated trading multiple of a certain financial
metric, such as EBITDA, at the final year of the projection
horizon, from 6.5x to 7.5x (based on estimated long-term
historical range of comparable trading multiples and recognizing
that such multiple does not reflect any control premium present
at time of valuation), and a range of perpetuity growth rates,
which represent a constant nominal rate at which the
Companys free cash flow is expected to grow annually
beyond the projection horizon, of 1.5% to 2.5% (based on an
estimated range of long-term nominal growth rates consistent
with mature companies in the restaurant industry). Wachovia
Securities used discount rates ranging from 9.0% to 11.0% for
OSI based on Wachovia Securities judgment of the estimated
weighted average cost of capital of OSI (after performing a
detailed analysis on the Companys weighted average cost of
capital). The discounted cash flow analysis is set forth below.
Based on this analysis, Wachovia Securities derived a range of
implied values per share of OSI common stock of $29.77 to
$42.30, as compared to the merger consideration of
$40.00 per share. Although discounted cash flow analysis is
a widely accepted and practiced valuation methodology, it relies
on a number of assumptions, including growth rates, terminal
multiples and discount rates. The valuation derived from the
discounted cash flow analysis is not necessarily indicative of
OSIs present or future value or results.
Managements Base Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in Thousands)
|
|
|
Net Revenue
|
|
$
|
4,243,059
|
|
|
$
|
4,436,242
|
|
|
$
|
4,813,961
|
|
|
$
|
5,217,542
|
|
|
$
|
5,622,321
|
|
EBITDA(1)
|
|
|
415,916
|
|
|
|
481,607
|
|
|
|
529,046
|
|
|
|
592,625
|
|
|
|
637,455
|
|
Operating Income
|
|
|
250,416
|
|
|
|
308,286
|
|
|
|
346,499
|
|
|
|
395,605
|
|
|
|
426,359
|
|
Provision for Taxes
|
|
|
78,881
|
|
|
|
97,110
|
|
|
|
109,147
|
|
|
|
124,616
|
|
|
|
134,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered Net Income
|
|
|
171,535
|
|
|
|
211,176
|
|
|
|
237,352
|
|
|
|
270,990
|
|
|
|
292,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Depreciation &
Amortization
|
|
|
165,500
|
|
|
|
173,321
|
|
|
|
182,547
|
|
|
|
197,020
|
|
|
|
211,096
|
|
Less: Capital Expenditures
|
|
|
(201,217
|
)
|
|
|
(215,281
|
)
|
|
|
(225,123
|
)
|
|
|
(232,971
|
)
|
|
|
(212,046
|
)
|
Less: Working Capital (Needs) /
Inflow
|
|
|
5,899
|
|
|
|
(3,924
|
)
|
|
|
4,793
|
|
|
|
3,466
|
|
|
|
722
|
|
Plus: Non-cash expense line
items & Other
|
|
|
14,740
|
|
|
|
3,290
|
|
|
|
(4,670
|
)
|
|
|
(10,649
|
)
|
|
|
(19,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered Free Cash Flow
|
|
$
|
156,456
|
|
|
$
|
168,581
|
|
|
$
|
194,899
|
|
|
$
|
227,855
|
|
|
$
|
272,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managements Downside Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Net Revenue
|
|
$
|
4,184,835
|
|
|
$
|
4,335,648
|
|
|
$
|
4,667,482
|
|
|
$
|
5,016,284
|
|
|
$
|
5,373,400
|
|
EBITDA(1)
|
|
|
382,273
|
|
|
|
428,642
|
|
|
|
480,806
|
|
|
|
534,675
|
|
|
|
573,595
|
|
Operating Income
|
|
|
216,773
|
|
|
|
255,322
|
|
|
|
299,909
|
|
|
|
342,605
|
|
|
|
369,748
|
|
Provision for Taxes
|
|
|
68,283
|
|
|
|
80,426
|
|
|
|
94,471
|
|
|
|
107,920
|
|
|
|
116,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered Net Income
|
|
|
148,489
|
|
|
|
174,896
|
|
|
|
205,438
|
|
|
|
234,684
|
|
|
|
253,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Depreciation &
Amortization
|
|
|
165,500
|
|
|
|
173,321
|
|
|
|
180,897
|
|
|
|
192,070
|
|
|
|
203,846
|
|
Less: Capital Expenditures
|
|
|
(201,217
|
)
|
|
|
(215,281
|
)
|
|
|
(192,123
|
)
|
|
|
(199,971
|
)
|
|
|
(199,046
|
)
|
Less: Working Capital (Needs) /
Inflow
|
|
|
2,583
|
|
|
|
(5,941
|
)
|
|
|
2,501
|
|
|
|
1,192
|
|
|
|
(834
|
)
|
Plus: Non-cash expense line
items & Other
|
|
|
14,729
|
|
|
|
3,287
|
|
|
|
(4,673
|
)
|
|
|
(10,654
|
)
|
|
|
(19,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered Free Cash Flow
|
|
$
|
130,084
|
|
|
$
|
130,281
|
|
|
$
|
192,039
|
|
|
$
|
217,321
|
|
|
$
|
238,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjusted to exclude certain non-cash, non-recurring
adjustments.
46
Management
Base Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Per Share
|
|
|
|
|
|
|
|
Price Per Share
|
|
|
|
|
|
|
Free Cash Flow Growth After 2011
|
|
|
|
|
|
|
|
Multiple of 2011
EBITDA(1)
|
|
|
|
|
|
|
1.50%
|
|
|
1.75%
|
|
|
2.00%
|
|
|
2.25%
|
|
|
2.50%
|
|
|
|
|
|
|
|
6.5x
|
|
|
6.8x
|
|
|
7.0x
|
|
|
7.3x
|
|
|
7.5x
|
|
|
WACC
|
|
|
9.0
|
%
|
|
$
|
37.47
|
|
|
$
|
38.63
|
|
|
$
|
39.88
|
|
|
$
|
41.22
|
|
|
$
|
42.66
|
|
|
WACC
|
|
|
9.00
|
%
|
|
$
|
41.28
|
|
|
$
|
42.64
|
|
|
$
|
43.99
|
|
|
$
|
45.35
|
|
|
$
|
46.70
|
|
|
|
|
9.5
|
%
|
|
|
34.84
|
|
|
|
35.84
|
|
|
|
36.91
|
|
|
|
38.05
|
|
|
|
39.28
|
|
|
|
|
|
9.50
|
%
|
|
|
40.49
|
|
|
|
41.81
|
|
|
|
43.14
|
|
|
|
44.46
|
|
|
|
45.78
|
|
|
|
|
10.0
|
%
|
|
|
32.54
|
|
|
|
33.41
|
|
|
|
34.33
|
|
|
|
35.31
|
|
|
|
36.36
|
|
|
|
|
|
10.00
|
%
|
|
|
39.71
|
|
|
|
41.01
|
|
|
|
42.30
|
|
|
|
43.59
|
|
|
|
44.89
|
|
|
|
|
10.5
|
%
|
|
|
30.50
|
|
|
|
31.27
|
|
|
|
32.07
|
|
|
|
32.92
|
|
|
|
33.83
|
|
|
|
|
|
10.50
|
%
|
|
|
38.96
|
|
|
|
40.22
|
|
|
|
41.49
|
|
|
|
42.75
|
|
|
|
44.02
|
|
|
|
|
11.0
|
%
|
|
|
28.70
|
|
|
|
29.37
|
|
|
|
30.08
|
|
|
|
30.82
|
|
|
|
31.61
|
|
|
|
|
|
11.00
|
%
|
|
|
38.22
|
|
|
|
39.46
|
|
|
|
40.70
|
|
|
|
41.93
|
|
|
|
43.17
|
|
Managements
Downside Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Per Share
|
|
|
|
|
|
|
|
Price Per Share
|
|
|
|
|
|
|
Free Cash Flow Growth After 2011
|
|
|
|
|
|
|
|
Multiple of 2011
EBITDA{1}
|
|
|
|
|
|
|
1.50%
|
|
|
1.75%
|
|
|
2.00%
|
|
|
2.25%
|
|
|
2.50%
|
|
|
|
|
|
|
|
6.5x
|
|
|
6.8x
|
|
|
7.0x
|
|
|
7.3x
|
|
|
7.5x
|
|
|
WACC
|
|
|
9.0
|
%
|
|
$
|
32.38
|
|
|
$
|
33.47
|
|
|
$
|
34.63
|
|
|
$
|
35.88
|
|
|
$
|
37.23
|
|
|
WACC
|
|
|
9.0
|
%
|
|
$
|
36.70
|
|
|
$
|
37.92
|
|
|
$
|
39.14
|
|
|
$
|
40.36
|
|
|
$
|
41.58
|
|
|
|
|
9.5
|
%
|
|
|
30.09
|
|
|
|
31.03
|
|
|
|
32.03
|
|
|
|
33.10
|
|
|
|
34.25
|
|
|
|
|
|
9.5
|
%
|
|
|
35.98
|
|
|
|
37.17
|
|
|
|
38.36
|
|
|
|
39.56
|
|
|
|
40.75
|
|
|
|
|
10.0
|
%
|
|
|
28.08
|
|
|
|
28.90
|
|
|
|
29.77
|
|
|
|
30.70
|
|
|
|
31.68
|
|
|
|
|
|
10.0
|
%
|
|
|
35.28
|
|
|
|
36.45
|
|
|
|
37.61
|
|
|
|
38.78
|
|
|
|
39.94
|
|
|
|
|
10.5
|
%
|
|
|
26.31
|
|
|
|
27.03
|
|
|
|
27.79
|
|
|
|
28.60
|
|
|
|
29.45
|
|
|
|
|
|
10.5
|
%
|
|
|
34.60
|
|
|
|
35.74
|
|
|
|
36.88
|
|
|
|
38.02
|
|
|
|
39.16
|
|
|
|
|
11.0
|
%
|
|
|
24.74
|
|
|
|
25.37
|
|
|
|
26.04
|
|
|
|
26.75
|
|
|
|
27.50
|
|
|
|
|
|
11.0
|
%
|
|
|
33.94
|
|
|
|
35.06
|
|
|
|
36.17
|
|
|
|
37.28
|
|
|
|
38.40
|
|
(1) Adjusted to exclude
certain non-cash, non-recurring adjustments.
Note: Price per share calculated
using fully diluted shares outstanding, which includes both
vested and unvested options and restricted stock. Diluted
options are calculated using the treasury stock method at the
current trading share price of $33.19 as of November 2,
2006.
Analysis
of Present Value of Future Share Price
Wachovia Securities utilized the Analysis of Present Value of
Future Share Price to determine the equivalent share price as of
the date of the opinion, assuming that the Companys shares
will trade in the public markets based on the financial
projections at that time, according to prevalent forward equity
trading multiples. The equivalent price at the time of the
opinion is attained by applying a discount rate of the
Companys cost of equity, as estimated today, to the
projected share price derived in the previously described
analysis. In conducting its analysis of the present value of
OSIs future share price, Wachovia Securities utilized
OSIs managements earnings per share projections for
both a base and downside plan for the years 2007 through 2011.
Wachovia Securities extrapolated potential future share prices
at the end of each of 2007 and 2008 by applying a one-year
forward multiple range of 15.0x to 17.0x based on OSIs
historical P/E range, and by applying a discount rate of 10.6%
based on Wachovia Securities judgment of the estimated
cost of equity. This judgment as to the estimated cost of equity
was based in part on Wachovia Securities analysis of the
financial and stock volatility metrics of companies comparable
to OSI. The analysis resulted in a range of theoretical values
per share of OSI common stock of $28.70 to $42.38, as compared
to the merger consideration of $40.00 per share.
Leveraged
Buyout Analysis
Wachovia Securities performed a leveraged buyout analysis to
ascertain the price at which an acquisition of OSI may be
attractive to a potential financial buyer, assuming certain
market-based investment return requirements for financial
sponsors as well as the possible exit multiples attainable after
an assumed investment horizon. The analysis of the value of OSI
in a leveraged buyout scenario was based upon market-based
capital structure assumptions used in the industry when
performing this analysis and OSIs managements
estimates for both a base and downside plan for the years 2007
through 2011 and downside plan for the years 2007 through 2011
(see Financial Forecast on page 181) with the
referenced EBITDA inclusive of certain non-cash, non-recurring
adjustments, which were also provided by management. Targeted
five-year returns on equity, the effective annual increase over
the financial buyers original equity investment over the
term of its investment period, of 19% to 25% (the estimated
range of required returns for financial sponsors within recent
and historical transactions) and an exit multiple of 6.0x to
8.0x (estimated range of exit multiples utilized by financial
sponsors and which reflects varying financing market conditions
over time and the addition of possible control premiums)
estimated 2011 EBITDA were assumed. Wachovia Securities used its
own estimates of (a) a financial buyers expected
return on equity and
47
(b) the expected EBITDA multiple at the end of the assumed
holding period by a financial buyer, based on its experience in
comparable transactions. Wachovia Securities believed that the
combination of these assumptions was comparable to those likely
to be used by potential competing bidders in a potential
leveraged buyout of OSI. Based on these assumptions, the
resulting range of implied leveraged acquisition equity values
was $30.78 to $40.08 per share, as compared to the merger
consideration of $40.00 per share.
Comparable
Transactions Analysis
Using publicly available information, Wachovia Securities
reviewed the multiples implied in certain change of control
transactions involving companies participating in industries
deemed by Wachovia Securities to be comparable to the industry
in which OSI participates. A Comparable Transaction Analysis
generates an implied value of a company based on publicly
available financial terms of selected comparable change of
control transactions involving companies that share certain
characteristics with the company being valued. However, no
company or transaction utilized in the comparable transaction
analysis is identical to OSI or the merger. The review focused
on selected consummated and proposed transactions between 2002
and the date of Wachovia Securities opinion. These
comparable transactions included mergers
and/or
acquisitions in the restaurant industry. The comparable
transactions included transactions falling within these criteria
in the time frame used that were identified by Wachovia
Securities and for which Wachovia Securities was able to
identify reliable valuation statistics. The proposed
transactions may not ultimately be consummated. Below is a list
of the transactions reviewed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Data
|
|
|
Valuation Data
|
|
|
|
|
|
|
|
Latest Twelve Months
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Market
|
|
|
Enterprise
|
|
|
EV/
|
|
|
EV/
|
|
|
EV/
|
|
Target Company
|
|
Acquiring Company
|
|
Transaction Date
|
|
Sales
|
|
|
EBITDA
|
|
|
EBIT
|
|
|
Income
|
|
|
Value
|
|
|
Value(1)
|
|
|
Sales
|
|
|
EBITDA
|
|
|
EBIT
|
|
|
|
($ in millions)
|
|
|
Joes Crab Shack
|
|
JH Whitney Capital Partners
|
|
ANNOUNCED
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
192.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lone Star Steakhouse and
Saloon
|
|
Lone Star Funds
|
|
ANNOUNCED
|
|
$
|
677.6
|
|
|
$
|
45.9
|
|
|
$
|
22.8
|
|
|
$
|
17.2
|
|
|
$
|
624.3
|
|
|
|
566.1
|
|
|
|
0.8
|
x
|
|
|
12.3
|
x
|
|
|
24.8x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Mex Restaurants,
Inc
|
|
Sun Capital Partners, Inc.
|
|
ANNOUNCED
|
|
|
549.9
|
|
|
|
57.6
|
|
|
|
39.7
|
|
|
|
14.7
|
|
|
|
359.0
|
|
|
|
359.0
|
|
|
|
0.7
|
x
|
|
|
6.2
|
x
|
|
|
9.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ryans Restaurant Group
Inc.
|
|
Buffets Inc
|
|
ANNOUNCED
|
|
|
822.5
|
|
|
|
98.9
|
|
|
|
63.5
|
|
|
|
36.5
|
|
|
|
706.2
|
|
|
|
832.1
|
|
|
|
1.0
|
x
|
|
|
8.4
|
x
|
|
|
13.1x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Main Street Restaurant
Group
|
|
Briad Main Street, Inc.
|
|
June 29, 2006
|
|
|
243.6
|
|
|
|
18.2
|
|
|
|
8.2
|
|
|
|
2.9
|
|
|
|
120.7
|
|
|
|
143.6
|
|
|
|
0.6
|
x
|
|
|
7.9
|
x
|
|
|
17.4x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dave & Busters,
Inc.
|
|
Wellspring Capital
|
|
March 8, 2006
|
|
|
453.6
|
|
|
|
63.1
|
|
|
|
21.3
|
|
|
|
9.2
|
|
|
|
271.4
|
|
|
|
359.9
|
|
|
|
0.8
|
x
|
|
|
5.7
|
x
|
|
|
16.9x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fox & Hound Restaurant
Group
|
|
Newcastle Partners and Steel
Partners
|
|
February 24, 2006
|
|
|
164.7
|
|
|
|
22.1
|
|
|
|
12.4
|
|
|
|
8.5
|
|
|
|
175.3
|
|
|
|
182.2
|
|
|
|
1.1
|
x
|
|
|
8.2
|
x
|
|
|
14.7x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Restaurant
Concepts
|
|
Pacific Equity Partners
|
|
September 22, 2005
|
|
|
359.5
|
|
|
|
24.5
|
|
|
|
12.1
|
|
|
|
8.1
|
|
|
|
219.4
|
|
|
|
201.4
|
|
|
|
0.6
|
x
|
|
|
8.2
|
x
|
|
|
16.6x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whistle Junction / EACO
Corp.
|
|
Banner Buffets LLC
|
|
July 1, 2005
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
26.0
|
|
|
|
30.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quality Dining
|
|
Management
|
|
April 13, 2005
|
|
|
239.5
|
|
|
|
23.0
|
|
|
|
12.6
|
|
|
|
3.7
|
|
|
|
37.2
|
|
|
|
116.1
|
|
|
|
0.5
|
x
|
|
|
5.1
|
x
|
|
|
9.2x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chevys
|
|
Real Mex Restaurants
|
|
January 11, 2005
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
85.2
|
|
|
|
86.1
|
|
|
|
N/M
|
|
|
|
N/M
|
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mimis Café
|
|
Bob Evans
|
|
July 7, 2004
|
|
|
252.6
|
|
|
|
19.0
|
|
|
|
10.7
|
|
|
|
(0.1
|
)
|
|
|
107.9
|
|
|
|
182.0
|
|
|
|
0.7
|
x
|
|
|
9.6
|
x
|
|
|
17.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant
Corp.
|
|
Fairmont Capital
|
|
March 10, 2004
|
|
|
220.5
|
|
|
|
24.7
|
|
|
|
10.3
|
|
|
|
3.8
|
|
|
|
103.8
|
|
|
|
131.6
|
|
|
|
0.6
|
x
|
|
|
5.3
|
x
|
|
|
12.8x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ninety-Nine Restaurants,
Inc.
|
|
OCharleys, Inc.
|
|
January 27, 2003
|
|
|
196.4
|
|
|
|
27.2
|
|
|
|
21.5
|
|
|
|
17.6
|
|
|
|
157.3
|
|
|
|
147.3
|
|
|
|
0.8
|
x
|
|
|
5.4
|
x
|
|
|
6.9x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Saltgrass Steak House
|
|
Landrys Restaurants, Inc.
|
|
October 1, 2002
|
|
|
100.0
|
|
|
|
13.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/M
|
|
|
|
75.0
|
|
|
|
0.8
|
x
|
|
|
5.8
|
x
|
|
|
N/M
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mean:
|
|
$
|
356.7
|
|
|
$
|
36.4
|
|
|
$
|
21.4
|
|
|
$
|
11.1
|
|
|
$
|
230.3
|
|
|
$
|
240.3
|
|
|
|
0.7
|
x
|
|
|
7.4
|
x
|
|
$
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median:
|
|
|
248.1
|
|
|
|
24.6
|
|
|
|
12.6
|
|
|
|
8.5
|
|
|
|
157.3
|
|
|
|
182.0
|
|
|
|
0.7
|
x
|
|
|
7.1
|
x
|
|
|
14.7
|
|
|
|
|
(1)
|
|
Market value of equity plus net
debt.
|
Wachovia Securities performed this analysis to understand the
range of multiples of EBITDA paid or proposed to be paid in
these comparable transactions and to estimate the comparable
value of OSI. Accordingly, an analysis of the resulting
multiples of the selected transactions necessarily involves
complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and the
selected transactions and other factors that may have affected
the selected transactions
and/or
affect the merger. The analysis showed that the median multiple
of transaction value to EBITDA, based on publicly available
information, for the 12 months prior to the announcement of
the transaction for the comparable transactions was 7.1x. EBITDA
was not available for the three transactions which have an
asterisk in the table above. Based in part on the foregoing
multiples and qualitative judgments concerning differences
between the characteristics of these transactions and the
merger, Wachovia
48
Securities derived indicative aggregate values of OSI by
applying multiples ranging from 6.5x to 8.5x to OSIs
Adjusted EBITDA as of September 30, 2006 of $366,100,000.
The resulting range of per share values based on the analysis of
comparable transactions was $28.10 to $37.00 per share, as
compared to the merger consideration of $40.00 per share.
Analysis
of Transaction Premiums Paid
Using publicly available information, Wachovia Securities
reviewed the control premiums paid or payable in certain change
of control transactions involving publicly traded target
companies in order to compare the premium paid over the
Companys present and historical share prices to that paid
in past transactions. The review focused on consummated and
proposed transactions between January 1, 2002 and the date
of Wachovia Securities opinion. These transactions
included mergers
and/or
proposed acquisitions across all industries with transaction
values between $1 billion and $10 billion. The 241 transactions
analyzed included transactions falling within these criteria in
the time frame used that were identified by Wachovia Securities
and for which Wachovia Securities was able to identify reliable
valuation statistics. Some of the proposed transactions utilized
in this analysis may not ultimately be consummated. Wachovia
Securities performed this analysis to understand the
one-day
prior, one-week prior, and four-weeks prior offer premiums paid
or proposed to be paid relative to the target company share
price at transaction announcement, and to estimate the
comparable value of OSI. The analysis showed median
one-day
prior, one-week prior and four-weeks prior offer premiums paid
or payable of 20.0%, 21.1% and 24.8%, respectively. Wachovia
Securities applied the median premiums paid or payable to
OSIs current and historical stock prices as of the date of
the opinion. The analysis resulted in a range of implied values
per share of OSI common stock of $39.80 to $41.60, as compared
to the merger consideration of $40.00 per share.
Miscellaneous
Wachovia Securities is acting as financial advisor to the
special committee in connection with the merger. Under the terms
of its engagement, OSI has agreed to pay Wachovia Securities a
transaction fee, payable upon consummation of any transaction or
series of transactions in which a third party acquires directly
or indirectly at least 50% of the stock, assets, revenues,
income or business of OSI, or otherwise gains control of OSI.
Since this transaction fee is contingent upon the consummation
of a transaction, and since the consummation of a transaction is
unlikely to occur in the absence of a favorable fairness
opinion, Wachovia Securities has an incentive for a transaction
to be consummated. The transaction fee payable to Wachovia
Securities, approximately $12.2 million, is equal to the
sum of (x) 0.35% of the purchase price paid in connection
with any such sale transaction, up to a purchase price that
reflects a price per share of $40.00 or less, and (y) 1.5%
of the amount, if any, by which the purchase price paid in the
sale transaction exceeds a purchase price implied by a price per
share of $40.00. OSI has also agreed to reimburse Wachovia
Securities for expenses reasonably incurred in performing its
services, including reasonable fees and expenses of its legal
counsel, and to indemnify Wachovia Securities and certain
related persons for various liabilities related to or arising
out of its engagement, including liabilities arising under the
federal securities laws.
Wachovia Securities has executed advisory and financing
transactions on behalf of portfolio companies of Bain Capital as
well as, in certain instances, investor groups which included
affiliates of Bain Capital, and executed financing transactions
on behalf of investor groups including Catterton and its
affiliates. For rendering these services (all of which were
unrelated to this transaction), these portfolio companies of
Bain Capital and such investor groups including affiliates of
Bain Capital made payments to Wachovia Securities totaling
approximately $2 million in 2005, and $25 million in
2006, and the investor groups including Catterton and its
affiliates made payments to Wachovia Securities of less than
approximately $50,000 in 2005 and approximately $500,000 in
2006. For the lending and banking services currently being
provided by affiliates of Wachovia Securities to the Company
such affiliates have received compensation (excluding interest
payments) of approximately $700,000 in 2006 and an amount which
is not available for 2005. For the loans and guarantees
currently outstanding to executives and board members of the
Company, affiliates of Wachovia Securities received no material
compensation (excluding interest expenses) in 2006 and
insufficient information is available for 2005. In addition,
Wachovia Insurance Services, an affiliate of Wachovia
Securities, provides full outsourced risk management services
for the Company.
49
For such services, Wachovia Insurance Services received
compensation of approximately $3.6 million in 2006 and
approximately $3.4 million in 2005.
In addition, in the ordinary course of its business, Wachovia
Securities may actively trade securities of OSI for its own
account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
The special committee selected Wachovia Securities as its
financial advisor in connection with the merger because Wachovia
Securities is a nationally recognized investment banking firm
with experience in similar transactions and also because of the
special committees belief that Wachovia Securities
familiarity with OSI enhanced its ability to advise the special
committee. Wachovia Securities is continually engaged in the
valuation of businesses and their securities in connection with
mergers and acquisitions, strategic alliances, competitive bids
and private placements.
Opinion
of Piper Jaffray & Co.
Under an engagement letter dated October 22, 2006, the
special committee retained Piper Jaffray to render an opinion as
to whether the consideration to be received by our stockholders
(other than the OSI Investors) in the merger is fair to such
stockholders from a financial point of view. On November 5,
2006, at a meeting of the special committee held to evaluate the
merger, Piper Jaffray delivered to the special committee an oral
opinion, confirmed by delivery of a written opinion dated
November 5, 2006, to the effect that, as of that date and
based on and subject to various assumptions, matters considered
and limitations described in its opinion, the consideration to
be received by our stockholders (other than the OSI Investors)
in the merger is fair to such stockholders from a financial
point of view. Piper Jaffray was not retained to act solely on
behalf of unaffiliated stockholders of the Company. Piper
Jaffray understood that the opinion would be provided to our
board of directors for its information and use in connection
with its consideration of the merger.
The special committee chose to retain Piper Jaffray based upon
Piper Jaffrays experience in the valuation of businesses
and their securities in connection with mergers and acquisitions
and similar transactions, especially with respect to restaurant
enterprises. The special committee also considered that Piper
Jaffray is a large, global, full-service financial institution.
Piper Jaffray is a nationally recognized investment banking firm
and is regularly engaged as a financial advisor in connection
with mergers and acquisitions, underwritings and secondary
distributions of securities and private placements. At the time
of its hiring, Piper Jaffray had no material prior relationship
with OSI or its affiliates.
The full text of the opinion, which sets forth, among other
things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken
by Piper Jaffray in rendering its opinion, is attached to this
proxy statement as Annex C and is incorporated in its
entirety herein by reference. You are urged to, and should,
carefully read the entire opinion. The opinion addresses only
the fairness of the merger consideration to our stockholders
(other than the OSI Investors) from a financial point of view as
of the date of the opinion. The opinion was addressed to the
special committee and could be used by our board in connection
with its consideration of the merger, but was not intended to
be, and does not constitute, a recommendation as to how any
stockholder should vote or act on any matter relating to the
proposed merger.
In arriving at its opinion, Piper Jaffray, among other things,
reviewed:
|
|
|
|
|
the financial terms of the Merger Agreement;
|
|
|
|
certain publicly available financial, business and operating
information concerning us;
|
|
|
|
certain internal financial, operating and other data prepared by
our management and furnished to Piper Jaffray;
|
|
|
|
|
|
certain internal financial projections that were prepared by our
management for financial planning purposes and furnished to
Piper Jaffray (see Financial Forecast on
page 181;
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certain publicly available market and securities data of OSI;
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certain financial data and the imputed prices and trading
activity of certain other publicly traded companies that Piper
Jaffray deemed relevant for purposes of its opinion;
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50
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the financial terms, to the extent publicly available, of
certain merger transactions that Piper Jaffray deemed relevant
for purposes of its opinion; and
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other information, financial studies, analyses and
investigations and other factors that Piper Jaffray deemed
relevant for purposes of its opinion.
|
In addition, Piper Jaffray performed a discounted cash flow
analysis with respect to OSI. Piper Jaffray also conducted
discussions with members of our senior management and Wachovia
Securities, our financial advisor, concerning our financial
condition, historical and current operating results, business
and prospects.
The following is a summary of the material financial analyses
performed by Piper Jaffray in connection with the preparation of
its fairness opinion. The preparation of analyses and a fairness
opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to
the particular circumstances. This summary does not purport to
be a complete description of the analyses performed by Piper
Jaffray.
This summary includes information presented in tabular format.
You should read the tables together with the corresponding text,
and consider the tables and text as a whole, in order to fully
understand the financial analyses presented by Piper Jaffray.
The tables alone do not constitute a complete summary of the
financial analyses. You should not take the order in which these
analyses are presented below, and the results of those analyses,
as any indication of the relative importance or weight given to
these analyses by Piper Jaffray, the special committee or our
board of directors. Except as otherwise noted, the following
quantitative information, to the extent that it is based on
market data, is based on market data as it existed on or before
November 5, 2006, and is not necessarily indicative of
current market conditions.
Piper Jaffray reviewed the financial terms of the proposed
merger, including the merger consideration. Based on a price of
$40.00 per share in cash for our common stock, the implied
fully diluted equity value for OSI was approximately $3.1
billion and the implied enterprise value of OSI (based on
financial information as of June 30, 2006) was
approximately $3.4 billion. Enterprise value is the
sum of the fully diluted market value of any common equity plus
any short-term debt, long-term debt and minority interests in
consolidated entities, minus cash and cash equivalents.
Selected
Market Information Concerning OSI
Piper Jaffray reviewed selected market information concerning
our common stock. Among other things, Piper Jaffray noted the
following with respect to the trading prices of our common stock:
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Closing market price 1 trading day
prior to the announcement of the merger (November 3, 2006)
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$
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32.43
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Closing market price 5 trading
days prior to the announcement of the merger
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$
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33.49
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Closing market price 20 trading
days prior to the announcement of the merger
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$
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33.32
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Average closing market price for
the 6 months prior to the announcement of the merger
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$
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33.53
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Average closing market price for
the 12 months prior to the announcement of the merger
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$
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37.73
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52-week low market price
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$
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27.37
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52-week high market price
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$
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46.62
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Piper Jaffrays analysis concerning our common stock was
based on market information concerning our common stock
available as of November 3, 2006. Piper Jaffray did not and
does not express any opinion as to the prices at which our
common stock may trade following the announcement of the merger
proposal or at any time in the future.
Comparable
Companies Analysis
Piper Jaffray reviewed selected financial data for OSI and
compared this to corresponding data for selected publicly traded
companies that are in the restaurant industry and which Piper
Jaffray believes are comparable to us. Piper Jaffray selected
these companies based on information obtained by searching SEC
filings, public company disclosures, press releases, industry
and popular press reports, databases and other sources. Piper
Jaffray identified
51
and analyzed the following group of eleven comparable companies
with market capitalizations greater than $200,000,000 that are
either full-service steak concepts or other full-service
concepts with long-term earnings per share growth rates between
10% and 15%:
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LT
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Price
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Equity
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Company
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Change from 12-Month
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Growth
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P/E Multiple(1)
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PEG Ratio
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CV7/LTM
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CV/2007
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Company
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11/02/06
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Value
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Value
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Low
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High
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Rate(1)
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CY06
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CY07
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CY06
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CY07
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Sales
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EBITDA
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Sales
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EBITDA
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($ in millions, except per share data)
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Selected Full Service Restaurant
Companies
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Darden Restaurants
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$
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41.59
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6,548
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7,150
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35
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%
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(6
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%)
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13%
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18.2x
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16.4x
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1.5x
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1.3x
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1.2x
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9.4x
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1.1x
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8.5x
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Brinker International
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45.76
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3,891
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4,338
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45
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%
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(5
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%)
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13%
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19.1x
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16.8x
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1.4x
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1.2x
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1.0x
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8.6x
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0.9x
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7.3x
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Applebees
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22.89
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1,790
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1,981
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32
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%
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(14
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%)
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13%
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19.5x
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17.6x
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1.5x
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1.3x
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1.5x
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8.6x
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1.4x
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8.5x
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CBRL Group
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43.11
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1,412
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2,242
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35
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%
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(10
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%)
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12%
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15.4x
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14.6x
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1.3x
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1.2x
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0.9x
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8.0x
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0.8x
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8.7x
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Bob Evans
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33.11
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1,220
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1,414
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54
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%
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(5
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%)
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NA
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22.8x
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19.5x
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NA
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NA
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0.9x
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9.1x
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0.8x
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NA
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Texas Roadhouse
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14.66
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1,145
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1,147
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60
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%
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(15
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%)
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21%
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34.7x
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27.0x
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1.7x
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1.3x
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2.2x
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17.2x
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1.6x
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11.4x
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RARE Hospitality
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31.22
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1,089
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1,116
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25
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%
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(10
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%)
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18%
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20.0x
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17.1x
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1.1x
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1.0x
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1.1x
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9.0x
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0.9x
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7.6x
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Landrys Restaurants
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29.09
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667
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1,485
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13
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%
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(20
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%)
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11%
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17.7x
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13.8x
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1.6x
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1.2x
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1.1x
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8.0x
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1.2x
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7.5x
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OCharleys, Inc.
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20.09
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471
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621
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58
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%
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(5
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%)
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13%
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22.5x
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19.0x
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1.7x
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1.4x
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0.6x
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8.0x
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0.6x
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6.0x
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Ruths Chris Steak House
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18.52
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451
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476
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14
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%
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(25
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%)
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18%
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21.0x
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17.6x
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1.1x
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1.0x
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2.1x
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14.1x
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1.4x
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9.0x
|
|
Mortons Restaurant Group
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|
|
16.17
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|
273
|
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|
320
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|
20
|
%
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|
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(20
|
%)
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|
|
19%
|
|
|
|
21.2x
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|
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|
15.6x
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|
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1.1x
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0.8x
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1.0x
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10.1x
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0.9x
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7.8x
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|
Low
|
|
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|
|
|
|
|
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|
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13
|
%
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(25
|
%)
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|
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11%
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|
|
|
15.4x
|
|
|
|
13.8x
|
|
|
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1.1x
|
|
|
|
0.8x
|
|
|
|
0.6x
|
|
|
|
8.0x
|
|
|
|
0.6x
|
|
|
|
6.0x
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
%
|
|
|
(12
|
%)
|
|
|
15%
|
|
|
|
21.1x
|
|
|
|
17.7x
|
|
|
|
1.4x
|
|
|
|
1.2x
|
|
|
|
1.2x
|
|
|
|
10.0x
|
|
|
|
1.1x
|
|
|
|
8.3x
|
|
Median
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
%
|
|
|
(10
|
%)
|
|
|
13%
|
|
|
|
20.0x
|
|
|
|
17.1x
|
|
|
|
1.4x
|
|
|
|
1.2x
|
|
|
|
1.1x
|
|
|
|
9.0x
|
|
|
|
0.9x
|
|
|
|
8.2x
|
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
%
|
|
|
(5
|
%)
|
|
|
21%
|
|
|
|
34.7x
|
|
|
|
27.0x
|
|
|
|
1.7x
|
|
|
|
1.4x
|
|
|
|
2.2x
|
|
|
|
17.2x
|
|
|
|
1.6x
|
|
|
|
11.4x
|
|
OSI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
Current Market Price(2)
|
|
|
33.19
|
|
|
|
2,535
|
|
|
|
2,773
|
|
|
|
22
|
%
|
|
|
(31
|
%)
|
|
|
12%
|
|
|
|
22.7x
|
|
|
|
17.3x
|
|
|
|
1.8x
|
|
|
|
1.4x
|
|
|
|
0.7x
|
|
|
|
7.7x
|
|
|
|
0.7x
|
|
|
|
6.9x
|
|
Offer Price(2)(3)
|
|
|
40.00
|
|
|
|
3,112
|
|
|
|
3,392
|
|
|
|
47
|
%
|
|
|
(17
|
%)
|
|
|
12%
|
|
|
|
27.3x
|
|
|
|
20.8x
|
|
|
|
2.2x
|
|
|
|
1.7x
|
|
|
|
0.9x
|
|
|
|
9.4x
|
|
|
|
0.8x
|
|
|
|
8.3x
|
|
Notes:
|
|
(1) |
Long-term growth rate and earnings per share estimates provided
by First Call and Wall Street research. Long-term growth rates
based on expected five-year secular growth trends.
|
|
|
(2) |
Based on the most recent trading price of $33.19 per share
(as of November 2, 2006).
|
|
|
(3) |
LTM and 2007 projected financial results have been provided by
management and adjusted to exclude non-cash charges pertaining
to catch-up
payments related to the Companys partnership programs.
|
The financial data analyzed as part of this analysis included,
among other things:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Comparable Company Values
|
|
|
|
OSI(1)(3)
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
High
|
|
|
Enterprise Value to LTM Sales
|
|
|
0.9
|
x
|
|
|
0.6
|
x
|
|
|
1.2
|
x
|
|
|
1.1
|
x
|
|
|
2.1
|
x
|
Enterprise Value to LTM EBITDA(2)
|
|
|
9.5
|
x
|
|
|
7.9
|
x
|
|
|
9.6
|
x
|
|
|
8.8
|
x
|
|
|
14.3
|
x
|
Price per Share to CY 2006 EPS
|
|
|
27.0
|
x
|
|
|
15.3
|
x
|
|
|
20.7
|
x
|
|
|
19.6
|
x
|
|
|
33.5
|
x
|
Price to 2006 Earnings to Growth
Rate Ratio
|
|
|
2.2
|
x
|
|
|
1.1
|
x
|
|
|
1.4
|
x
|
|
|
1.4
|
x
|
|
|
1.7
|
x
|
Enterprise Value to CY 2007
Sales
|
|
|
0.8
|
x
|
|
|
0.6
|
x
|
|
|
1.0
|
x
|
|
|
0.9
|
x
|
|
|
1.5
|
x
|
Enterprise Value to CY 2007
EBITDA(2)
|
|
|
8.3
|
x
|
|
|
6.0
|
x
|
|
|
7.9
|
x
|
|
|
7.6
|
x
|
|
|
11.1
|
x
|
Price per Share to CY 2007 EPS
|
|
|
20.8
|
x
|
|
|
13.6
|
x
|
|
|
17.4
|
x
|
|
|
16.8
|
x
|
|
|
26.2
|
x
|
Price to 2007 Earnings to Growth
Rate Ratio
|
|
|
1.7
|
x
|
|
|
0.8
|
x
|
|
|
1.2
|
x
|
|
|
1.2
|
x
|
|
|
1.4
|
x
|
|
|
|
(1)
|
|
Based on merger consideration of
$40.00 per share.
|
|
(2)
|
|
Adjusted to exclude certain
non-recurring expenses and non-cash
catch-up
charges pertaining to OSIs partnership plans and adjusted
for estimated gift card and certificate breakage charges as of
November 3, 2006.
|
|
(3)
|
|
OSIs 2006 and 2007 sales and
earnings estimates based on managements estimates.
|
A comparable company analysis attempts to provide an implied
value of a company by comparing it to similar publicly-traded
companies. No company utilized in the comparable company
analysis is identical to OSI. This analysis showed that, based
on the estimates and assumptions used in the analysis, the
enterprise value and price per share of OSI implied by the
merger consideration set forth in the Merger Agreement was
within the range of values of the comparable companies. The
price to earnings to growth rate ratio for both 2006 and 2007 is
higher for OSI than for the comparable companies.
Comparable
M&A Transactions Analysis
Piper Jaffray reviewed selected financial data for OSI and
compared this to corresponding data from the following group of
32 selected restaurant industry merger and acquisition
transactions. Piper Jaffray selected these transactions by
searching SEC filings, public company disclosures, press
releases, industry and popular press
52
reports, databases and other sources and by applying the
following criteria: (i) transactions in SIC codes 5812
(eating places) or 5813 (drinking places); (ii) transaction
targets engaged in the restaurant industry and deemed similar to
OSI; and (iii) transactions announced between 2003 and the
date of the opinion with enterprise values greater than
$50,000,000.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
Transaction Value/LTM
|
|
|
EBITDA
|
|
Acquirer
|
|
Target
|
|
Value
|
|
Sales
|
|
|
EBITDA
|
|
|
Margin
|
|
|
J.H. Whitney Capital Partners
|
|
Joes Crab Shack
(Landrys Restaurant Inc.)
|
|
$
|
192.0
|
|
|
NA
|
|
|
|
5.6
|
x
|
|
|
NA
|
|
Catterton Partners and Oak
Investement Partners
|
|
Cheddars
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Sun Capital Partners
|
|
Real Mex Restaurants
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Lone Star Funds
|
|
Lone Star Steakhouse & Saloon
|
|
|
556.3
|
|
|
0.8
|
x
|
|
|
12.0
|
x
|
|
|
6.6
|
%
|
Buffets Inc
|
|
Ryans Restaurant Group
|
|
|
841.9
|
|
|
NA
|
|
|
|
10.3
|
x
|
|
|
NA
|
|
Bruckmann, Rosser, Sherrill /
Castle Harlan
|
|
Bravo Inc.
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Zensho Co., Ltd.
|
|
Catalina
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Briad Group
|
|
Main Street Restaurant Group
|
|
|
136.3
|
|
|
0.6
|
x
|
|
|
8.2
|
x
|
|
|
6.8
|
%
|
Merrill Lynch Global Private Equity
|
|
NPC International Inc.
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Wellspring Capital Management LLC
|
|
Checkers Drive-In Restaurants
|
|
|
195.0
|
|
|
1.0
|
x
|
|
|
7.2
|
x
|
|
|
14.0
|
%
|
Grotech Capital, Charlesbank
Capital, Leonard Green & Partners
|
|
Del Taco, Inc.
|
|
|
600.0
|
|
|
1.0
|
x
|
|
|
7.5
|
x
|
|
|
12.9
|
%
|
Newcastle Partners and Steel
Partners
|
|
Fox & Hound Restaurant Group
|
|
|
179.6
|
|
|
1.1
|
x
|
|
|
8.2
|
x
|
|
|
13.3
|
%
|
Bain Capital, The Carlyle Group and
Thomas H. Lee Partners
|
|
Dunkin Brands, Inc.
(Dunkin Donuts, Baskin-Robbins, Togos)
|
|
|
2,425.0
|
|
|
NA
|
|
|
|
12.9
|
x
|
|
|
NA
|
|
Wellspring Capital Management LLC
|
|
Dave & Busters Inc.
|
|
|
375.0
|
|
|
0.9
|
x
|
|
|
6.0
|
x
|
|
|
14.5
|
%
|
Leonard Green Partners
|
|
Claim Jumper Restaurants
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Sun Capital Partners
|
|
Garden Fresh Restaurant Corporation
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Bruckmann, Rosser,
Sherrill & Co.
|
|
Corner Bakery Café
|
|
|
64.0
|
|
|
0.5
|
x
|
|
|
6.0
|
x
|
|
|
8.3
|
%
|
Trimaran Capital Partners
|
|
El Pollo Loco
|
|
|
415.0
|
|
|
NA
|
|
|
|
9.4
|
x
|
|
|
NA
|
|
Castle Harlan Inc.
|
|
Perkins Restaurant & Bakery
|
|
|
245.0
|
|
|
0.7
|
x
|
|
|
6.6
|
x
|
|
|
10.7
|
%
|
Palladium Equity Partners
|
|
Taco Bueno Restaurants
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Triarc Cos
|
|
RTM Restaurant Group (Arbys
Franchisee)
|
|
|
727.0
|
|
|
0.9
|
x
|
|
|
NA
|
|
|
|
NA
|
|
Management /PNC Mezzanine Capital
|
|
Au Bon Pain
|
|
|
120.0
|
|
|
0.7
|
x
|
|
|
NA
|
|
|
|
NA
|
|
Pacific Equity Partners
|
|
Worldwide Restaurant Concepts
|
|
|
221.7
|
|
|
0.6
|
x
|
|
|
7.4
|
x
|
|
|
8.4
|
%
|
Trimaran Capital Partners
|
|
Charlie Browns Inc.
|
|
|
140.0
|
|
|
NA
|
|
|
|
7.5
|
x
|
|
|
NA
|
|
Centre Partners Management
|
|
Uno Restaurant Holdings Corp.
|
|
|
190.0
|
|
|
0.7
|
x
|
|
|
5.6
|
x
|
|
|
12.7
|
%
|
Charlesbank Capital Partners /
Grotech Capital Group
|
|
Captain Ds
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Crescent Capital Investments
|
|
Churchs Chicken
|
|
|
390.0
|
|
|
1.6
|
x
|
|
|
7.5
|
x
|
|
|
20.8
|
%
|
Management / Investor Group
|
|
Quality Dining, Inc.
|
|
|
131.3
|
|
|
0.6
|
x
|
|
|
6.3
|
x
|
|
|
9.1
|
%
|
Bob Evans Farms
|
|
Mimis Café
|
|
|
182.0
|
|
|
0.7
|
x
|
|
|
9.6
|
x
|
|
|
7.5
|
%
|
Brazos Private Equity Partners
|
|
Cheddars
|
|
|
NA
|
|
|
NA
|
|
|
|
NA
|
|
|
|
NA
|
|
Centre Partners Management /
Fairmont Capital
|
|
Garden Fresh Restaurant Corporation
|
|
|
134.3
|
|
|
0.6
|
x
|
|
|
5.0
|
x
|
|
|
12.4
|
%
|
Wind Point Partners
|
|
VICORP Restaurants Inc
|
|
|
225.0
|
|
|
0.6
|
x
|
|
|
5.1
|
x
|
|
|
11.3
|
%
|
53
The financial data analyzed as part of this analysis included,
among other things:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Transactions
|
|
|
|
OSI(1)
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
High
|
|
|
Enterprise Value to LTM Revenue
|
|
|
0.9
|
x
|
|
|
0.5
|
x
|
|
|
0.8
|
x
|
|
|
0.7
|
x
|
|
|
1.6x
|
|
Enterprise Value to LTM EBITDA
|
|
|
9.5
|
x
|
|
|
5.0
|
x
|
|
|
7.7
|
x
|
|
|
7.4
|
x
|
|
|
12.9x
|
|
|
|
|
(1)
|
|
Based on the merger consideration
of $40.00 per share.
|
A comparable M&A transaction analysis generates an implied
value of a company based on publicly available financial terms
of selected comparable change of control transactions involving
companies that share certain characteristics with the company
being valued. However, no company or transaction utilized in the
comparable transaction analysis is identical to OSI or the
merger. This analysis showed that, based on the estimates and
assumptions used in the analysis, the enterprise value of OSI
was within the range of values of the comparable transactions.
Premiums
Paid Analysis
Piper Jaffray reviewed publicly available information for
selected completed or pending public buyout transactions to
determine the premiums paid in the transactions over recent
trading prices of the target companies prior to announcement of
the transaction. Piper Jaffray selected these transactions by
searching SEC filings, public company disclosures, press
releases, industry and popular press reports, databases and
other sources and by applying the following criteria:
|
|
|
|
|
transactions in which the U.S. publicly traded target
company operated in an industry other than technology, finance
or healthcare; and
|
|
|
|
transactions announced since January 1, 2000 with
enterprise values between $1 billion and $5 billion.
|
Piper Jaffray performed its analysis on over 160 transactions
that satisfied these criteria. The table below shows a
comparison of premiums paid in these transactions to the premium
that would be paid to our stockholders (other than the OSI
Investors) based on the per share merger consideration.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Transactions
|
|
|
|
OSI(1)
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
High
|
|
|
One-day
prior to announcement
|
|
|
23.3
|
%
|
|
|
(26.3
|
)%
|
|
|
26.4
|
%
|
|
|
24.8
|
%
|
|
|
92.8
|
%
|
5-days
prior to announcement
|
|
|
19.4
|
%
|
|
|
(28.0
|
)%
|
|
|
29.1
|
%
|
|
|
27.0
|
%
|
|
|
103.4
|
%
|
20-days
prior to announcement
|
|
|
20.0
|
%
|
|
|
(28.1
|
)%
|
|
|
31.0
|
%
|
|
|
27.1
|
%
|
|
|
110.5
|
%
|
|
|
|
(1)
|
|
Based on merger consideration of
$40.00 per share.
|
Piper Jaffray also performed an analysis on a subset of 26 of
these transactions in which the acquirer is a financial sponsor
or a private equity consortium. The table below shows comparison
of premiums paid in these transactions to the premium that would
be paid to our stockholders (other than the OSI Investors) based
on the per share merger consideration.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Transactions
|
|
|
|
OSI(1)
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
High
|
|
|
One-day
prior to announcement
|
|
|
23.3
|
%
|
|
|
(21.8
|
)%
|
|
|
20.9
|
%
|
|
|
20.9
|
%
|
|
|
50.0
|
%
|
5-days
prior to announcement
|
|
|
19.4
|
%
|
|
|
(19.6
|
)%
|
|
|
23.1
|
%
|
|
|
22.2
|
%
|
|
|
50.0
|
%
|
20-days
prior to announcement
|
|
|
20.0
|
%
|
|
|
(16.6
|
)%
|
|
|
24.3
|
%
|
|
|
20.8
|
%
|
|
|
77.8
|
%
|
|
|
|
(1)
|
|
Based on merger consideration of
$40.00 per share.
|
By observing premiums paid in other transactions, Piper Jaffray
was able to estimate a range of premiums appropriate for
evaluating the price to be paid in the merger. This analysis
showed that, based on the estimates and assumptions used in the
analysis, the premium to be paid for OSI implied by the merger
consideration set forth in the Merger Agreement was within the
range of values of the comparable transactions.
54
Discounted
Cash Flow Analysis
Piper Jaffray calculated a range of theoretical enterprise
values for OSI based on (i) the net present value of
implied projected annual cash flows of OSI from fiscal year 2007
through fiscal year 2011 and (ii) the net present value of
a terminal value using the following discounted cash flow
analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Financial
Results(1)
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)
|
|
$
|
410
|
|
|
$
|
481
|
|
|
$
|
534
|
|
|
$
|
602
|
|
|
$
|
655
|
|
Operating income
|
|
|
244
|
|
|
|
308
|
|
|
|
352
|
|
|
|
405
|
|
|
|
444
|
|
Income taxes (31.5%)
|
|
|
77
|
|
|
|
97
|
|
|
|
111
|
|
|
|
128
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax operating income
|
|
|
167
|
|
|
|
211
|
|
|
|
241
|
|
|
|
278
|
|
|
|
304
|
|
Unlevered free cash flow
calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization
|
|
|
166
|
|
|
|
173
|
|
|
|
183
|
|
|
|
197
|
|
|
|
211
|
|
Changes in working capital
|
|
|
12
|
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
(17
|
)
|
|
|
(25
|
)
|
Maintenance capex
|
|
|
(15
|
)
|
|
|
(33
|
)
|
|
|
(33
|
)
|
|
|
(33
|
)
|
|
|
(13
|
)
|
Growth capex
|
|
|
(186
|
)
|
|
|
(182
|
)
|
|
|
(192
|
)
|
|
|
(200
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered free cash flow
|
|
|
143
|
|
|
|
159
|
|
|
|
188
|
|
|
|
225
|
|
|
|
278
|
|
Discounted free cash flow
calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlevered free cash flow
|
|
|
143
|
|
|
|
159
|
|
|
|
188
|
|
|
|
225
|
|
|
|
278
|
|
Terminal exit multiple
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0
|
x
|
Terminal value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total free cash flow
|
|
|
143
|
|
|
|
159
|
|
|
|
188
|
|
|
|
225
|
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net present value calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate(3) 13.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net present value of unlevered free
cash flows
|
|
|
127
|
|
|
|
125
|
|
|
|
130
|
|
|
|
137
|
|
|
|
150
|
|
Net present value of terminal value
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,826
|
|
Enterprise value
|
|
|
3,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: total debt
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: minority interest
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: cash
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity value
|
|
|
3,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted shares outstanding
|
|
|
77.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value per share
|
|
$
|
41.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
Rate(2)
|
|
Sensitivity analysis:
|
|
|
|
|
11.1%
|
|
|
12.1%
|
|
|
13.1%
|
|
|
14.1%
|
|
|
15.1%
|
|
|
Exit multiple of EBITDA in 2011
|
|
|
7.0x
|
|
|
$
|
40.24
|
|
|
$
|
38.46
|
|
|
$
|
36.78
|
|
|
$
|
35.18
|
|
|
$
|
33.67
|
|
|
|
|
7.5x
|
|
|
|
42.72
|
|
|
|
40.84
|
|
|
|
39.05
|
|
|
|
37.36
|
|
|
|
35.74
|
|
|
|
|
8.0x
|
|
|
|
45.20
|
|
|
|
43.21
|
|
|
|
41.32
|
|
|
|
39.53
|
|
|
|
37.82
|
|
|
|
|
8.5x
|
|
|
|
47.68
|
|
|
|
45.58
|
|
|
|
43.59
|
|
|
|
41.70
|
|
|
|
39.90
|
|
|
|
|
9.0x
|
|
|
|
50.16
|
|
|
|
47.96
|
|
|
|
45.86
|
|
|
|
43.87
|
|
|
|
41.98
|
|
Notes:
|
|
(1) |
Financial projections provided by management.
|
|
|
(2) |
Excludes non-recurring expenses and non-cash
catch-up
charges pertaining to OSIs partnership plans.
|
|
|
(3) |
Discount rate based on the weighted average cost of capital.
|
Terminal value is the theoretical future enterprise value of a
company derived by applying a range of EBITDA multiples to the
forecasted EBITDA of a company at a future point in time. In the
case of OSI, Piper Jaffray calculated terminal value at the end
of OSIs 2011 fiscal year based upon a multiple of
OSIs projected fiscal year 2011 EBITDA. A discounted cash
flow analysis is typically used to estimate the present value of
available cash flows that a prudent investor would expect a
company to generate over its remaining life. Piper Jaffray used
forecasts of results for fiscal years 2007 through 2011 prepared
by our management using certain assumptions (see Financial
Forecast on page 181). Piper Jaffray used these
forecasts in calculations for which historical financial
55
information was not available. Piper Jaffray calculated the
range of net present values based on an assumed tax rate of
31.5%, a range of discount rates between 11.1% and 15.1% and a
range of 7.0x to 9.0x EBITDA for OSIs terminal value,
applied to OSIs projected fiscal year 2011 EBITDA. Piper
Jaffray based the assumed tax rate on the assumed tax rate
OSIs management used to create its forecasts (see
Financial Forecast on page 181). Piper Jaffray
based the discount rates of 11.1% to 15.1% on its analysis of
OSIs weighted average cost of capital. Piper Jaffray based
the range of terminal value multiples on a review of merger and
acquisition transactions that Piper Jaffray deemed relevant to
the merger. This analysis resulted in an implied per share value
of OSI ranging from a low of $33.75 to a high of $50.29.
Miscellaneous
The summary set forth above does not contain a complete
description of the analyses performed by Piper Jaffray, but does
summarize the material analyses performed by Piper Jaffray in
rendering its opinion. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial
analysis or summary description. Piper Jaffray believes that its
analyses and the summary set forth above must be considered as a
whole and that selecting portions of its analyses or of the
summary, without considering the analyses as a whole or all of
the factors included in its analyses, would create an incomplete
view of the processes underlying the analyses set forth in the
Piper Jaffray opinion. In arriving at its opinion, Piper Jaffray
considered the results of all of its analyses and did not
attribute any particular weight to any factor or analysis.
Instead, Piper Jaffray made its determination as to fairness on
the basis of its experience and financial judgment after
considering the results of all of its analyses. The fact that
any specific analysis has been referred to in the summary above
is not meant to indicate that this analysis was given greater
weight than any other analysis. No company or transaction used
in the above analyses as a comparison is directly comparable to
OSI or the proposed merger.
Piper Jaffray performed its analyses solely for purposes of
providing its opinion to the special committee. In performing
its analyses, Piper Jaffray made numerous assumptions with
respect to industry performance, general business and economic
conditions and other matters. Certain of the analyses performed
by Piper Jaffray are based upon forecasts of future results
furnished to Piper Jaffray by our management, which are not
necessarily indicative of actual future results and may be
significantly more or less favorable than actual future results.
These forecasts are inherently subject to uncertainty because,
among other things, they are based upon numerous factors or
events beyond the control of the parties or their respective
advisors. Piper Jaffray does not assume responsibility if future
results are materially different from forecasted results.
Piper Jaffrays opinion was one of many factors taken into
consideration by the special committee and our board of
directors in making the determination to adopt the Merger
Agreement and recommend that the stockholders adopt the Merger
Agreement. The above summary does not purport to be a complete
description of the analyses performed by Piper Jaffray in
connection with the opinion and is qualified in its entirety by
reference to the written opinion of Piper Jaffray attached to
this proxy statement.
Piper Jaffray relied upon and assumed the accuracy, completeness
and fair presentation of the financial, accounting and other
information provided to it by us or otherwise made available to
it, and did not independently verify this information. Piper
Jaffray also assumed, in reliance upon the assurances of our
management, that the information provided to Piper Jaffray by us
was prepared on a reasonable basis in accordance with industry
practice and, with respect to financial forecasts, projections
and other estimates and other business outlook information,
reflected the best currently available estimates and judgments
of our management, was based on reasonable assumptions, and that
there was not, and our management was not aware of, any
information or facts that would make the information provided to
Piper Jaffray incomplete or misleading. Piper Jaffray expresses
no opinion as to such financial forecasts, projections and other
estimates and other business outlook information or the
assumptions on which they are based. Piper Jaffray relied, with
our consent, on the advice of our outside counsel, on our
audited and unaudited financial statements (including the notes
and accounting policies described therein), and on the
assumptions of our management as to all accounting, legal, tax
and financial reporting matters with respect to OSI and the
Merger Agreement. Without limiting the generality of the
foregoing, Piper Jaffray assumed that we were not a party to any
material pending transaction, including any external financing,
recapitalization, acquisition or merger, divestiture or spinoff,
other than the proposed merger.
56
Piper Jaffray assumed that the merger would be completed on the
terms set forth in the Merger Agreement reviewed by Piper
Jaffray, without amendments and with full satisfaction of all
covenants and conditions without any waiver. Piper Jaffray
expressed no opinion regarding whether the necessary approvals
or other conditions to the consummation of the merger will be
obtained or satisfied.
Piper Jaffray did not assume responsibility for performing, and
did not perform, any appraisals or valuations of specific assets
or liabilities of OSI. Piper Jaffray expresses no opinion
regarding the liquidation value or solvency of any entity. Piper
Jaffray did not undertake any independent analysis of any
outstanding, pending or threatened litigation, regulatory
action, possible unasserted claims or other contingent
liabilities to which we, or any of our respective affiliates,
are a party or may be subject. At the direction of the special
committee, and with its consent, Piper Jaffrays opinion
made no assumption concerning, and therefore did not consider,
the potential effects of litigation, claims, investigations, or
possible assertions of claims, or the outcomes or damages
arising out of any such matters.
Piper Jaffrays opinion was necessarily based on the
information available to it and the facts and circumstances as
they existed and were subject to evaluation as of the date of
the opinion. Events occurring after the date of the opinion
could materially affect the assumptions used by Piper Jaffray in
preparing its opinion. Piper Jaffray expresses no opinion as to
the prices at which shares of our common stock have traded or
may trade following announcement of the merger or at any time
after the date of the opinion. Piper Jaffray has not undertaken
and is not obligated to affirm or revise its opinion or
otherwise comment on any events occurring after the date it was
rendered.
In connection with its engagement, Piper Jaffray was not
requested to, and did not, initiate any discussions with, or
solicit any indications of interest from, third parties with
respect to the merger or any alternative to the merger. Piper
Jaffray was not requested to opine as to, and the opinion does
not address, the basic business decision to proceed with or
effect the merger, or the relative merits of the merger compared
to any alternative business strategy or transaction in which we
might engage. Piper Jaffray did not express any opinion as to
whether any alternative transaction might produce consideration
for our stockholders in excess of the merger consideration.
Piper Jaffray has performed investment banking services for
certain portfolio companies of Bain Capital during the last two
years, and Piper Jaffray expects to continue to perform such
services from time to time. Piper Jaffray has received
approximately $3.1 million in the aggregate for all
services provided for such portfolio companies during the last
two years.
Piper Jaffray received a fee of $1,000,000 from OSI for
providing its opinion. No portion of the consideration that we
paid Piper Jaffray was contingent upon the conclusions set forth
in its opinion or upon the consummation of the merger. We have
also agreed to indemnify Piper Jaffray against certain
liabilities in connection with its services and to reimburse it
for certain expenses in connection with its services. In the
ordinary course of its business, Piper Jaffray and its
affiliates may actively trade our securities for their own
account or the accounts of their customers and, accordingly,
Piper Jaffray may at any time hold a long or short position in
such securities.
Certain
Effects of the Merger
If the merger is completed, all of the equity interests in OSI
will be owned directly or indirectly by Parent, which
immediately following the effective time of the merger will be
owned by Bain Capital Funds, Catterton Partners Funds, the OSI
Investors and certain other members of our management who may
acquire equity interests in Parent. Immediately before and
contingent upon the completion of the merger, the OSI Investors
(other than Mr. Avery) are expected to contribute restricted or
unrestricted OSI common stock to Parent in exchange for common
stock of Parent. Except for the OSI Investors, Bain Capital
Funds, Catterton Partners Funds and the Additional Management
Investors, no current stockholder of OSI will have any ownership
interest in, nor be a stockholder of, OSI immediately following
the completion of the merger. As a result, our stockholders
(other than the OSI Investors) will no longer benefit from any
increase in OSIs value, nor will they bear the risk of any
decrease in OSIs value. Following the merger, Parent will
benefit from any increase in the value of OSI and also will bear
the risk of any decrease in the value of OSI.
Upon completion of the merger, each OSI stockholder will be
entitled to receive $40.00 in cash for each share of OSI common
stock held. Except as otherwise agreed to in writing by OSI,
Parent, Merger Sub and certain
57
members of OSI management (including certain of the OSI
Investors) (i) each outstanding option to purchase shares
of OSI common stock, whether vested or unvested, will be
canceled and converted into the right to receive a cash payment
equal to the excess (if any) of the $40.00 per share cash
merger consideration over the exercise price per share of the
option, multiplied by the number of shares subject to the
option, without interest and less any applicable withholding
taxes; (ii) each holder under OSIs Directors
Deferred Compensation Plan, as amended, will be entitled to
$40.00 per each notional share held under such
holders account; (iii) each award of restricted stock
will be converted into the right to receive $40.00 per
share in cash plus certain earnings thereon, less any applicable
withholding taxes, payable on a deferred basis at the time the
underlying restricted stock would have vested under its terms as
in effect immediately prior to the effective time and subject to
the satisfaction by the holder of all terms and conditions to
which such vesting was subject; provided, however, that the
holders deferred cash account will become immediately
vested and payable upon termination of such holders
employment by us without cause or upon such holders death
or disability; and (iv) all amounts held in the accounts
denominated in shares of our common stock under the Partner
Equity Deferred Compensation Stock Plan component of the PEP,
will be converted into an obligation to pay cash with a value
equal to the product of (a) the $40.00 per share merger
consideration and (b) the number of notional shares of our
common stock credited to such deferred unit account, in
accordance with the payment schedule and consistent with the
terms of the PEP as in effect from time to time.
Following the merger, shares of OSI common stock will no longer
be traded on the NYSE or any other public market.
Our common stock constitutes margin securities under
the regulations of the Board of Governors of the Federal Reserve
System, which has the effect, among other things, of allowing
brokers to extend credit on collateral of our common stock. As a
result of the merger, our common stock will no longer constitute
margin securities for purposes of the margin
regulations of such Board of Governors and therefore will no
longer constitute eligible collateral for credit extended by
brokers.
Our common stock is currently registered as a class of equity
security under the Exchange Act. Registration of our common
stock under the Exchange Act may be terminated upon application
of OSI to the SEC if our common stock is not listed on the NYSE
or another national securities exchange and there are fewer than
300 record holders of the outstanding shares. Termination of
registration of our common stock under the Exchange Act will
substantially reduce the information required to be furnished by
OSI to its stockholders and the SEC, and would make certain
provisions of the Exchange Act, such as the short-swing trading
provisions of Section 16(b) of the Exchange Act and the
requirement of furnishing a proxy statement in connection with
any stockholder meeting pursuant to Section 14(a) of the
Exchange Act, no longer applicable to OSI. If OSI (as the entity
surviving the merger) completed a registered exchange or public
offering of debt securities, however, it would be required to
file periodic reports with the SEC under the Exchange Act for a
period of time following that transaction.
Parent and the OSI Investors expect that following completion of
the merger, OSIs operations will be conducted
substantially as they are currently being conducted. Parent and
the OSI Investors have informed us that they have no current
plans or proposals or negotiations which relate to or would
result in an extraordinary corporate transaction involving our
corporate structure, business or management, such as a merger,
reorganization, liquidation, relocation of any operations, or
sale or transfer of a material amount of assets except as
described in this proxy statement. Parent and the OSI Investors
may initiate from time to time reviews of us and our assets,
corporate structure, capitalization, operations, properties,
management and personnel to determine what changes, if any,
would be desirable following the merger. They expressly reserve
the right to make any changes that they deem necessary or
appropriate in light of their review or in light of future
developments.
Following consummation of the merger, Parent will own directly
or indirectly 100% of our outstanding common stock and will
therefore have a corresponding interest in OSIs net book
value and net earnings. It is currently expected that
immediately following the closing, Mr. Sullivan,
Mr. Basham, Mr. Gannon, Mr. Allen,
Mr. Avery, Mr. Kadow and Mr. Montgomery will each
own approximately 6.0%, 8.3%, 1.0%, 1.5%, 1.0%, 0.3% and 0.3% of
the fully-diluted outstanding common stock of Parent.
Mr. Sullivan, Mr. Basham, Mr. Gannon,
Mr. Allen, Mr. Avery, Mr. Kadow and
Mr. Montgomery currently beneficially own approximately
3.3%, 5.7%, 1.6%, 0.9%, 1.0%, 0.3% and 0.1%, respectively, of
our outstanding shares of common stock. Each holder of Parent
common stock will be entitled to one vote per share.
Accordingly, each holder of Parent common stock will have a
voting
58
interest that corresponds with his respective common stock
ownership. Each holder of common stock of Parent will have an
interest in OSIs net book value and net earnings in
proportion to his ownership interest.
The table below sets forth the interest in voting shares of OSI
and the interest in OSIs net book value and net earnings
for the OSI Investors before and after the merger, based on the
historical net book value of OSI as of December 31, 2006
and the historical net earnings of OSI for the year ended
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully Diluted Expected Ownership of OSI
|
|
|
|
Ownership of OSI Prior to the Merger(1)
|
|
|
After the Merger
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
|
|
|
|
|
|
|
for the
|
|
|
|
|
|
|
|
|
for the
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Net Book
|
|
|
|
|
|
Year
|
|
|
Net Book
|
|
|
|
|
|
|
Ended
|
|
|
Value as of
|
|
|
|
|
|
Ended
|
|
|
Value as of
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
% Ownership
|
|
|
2006
|
|
|
2006
|
|
|
% Ownership
|
|
|
2006
|
|
|
2006
|
|
|
Chris T. Sullivan
|
|
|
3.3
|
%
|
|
$
|
3,305,280
|
|
|
$
|
40,300,029
|
|
|
|
6.0
|
%
|
|
$
|
6,009,600
|
|
|
$
|
73,272,780
|
|
Robert D. Basham
|
|
|
5.8
|
%
|
|
|
5,809,280
|
|
|
|
70,830,354
|
|
|
|
8.3
|
%
|
|
|
8,313,280
|
|
|
|
101,360,679
|
|
J. Timothy Gannon
|
|
|
1.6
|
%
|
|
|
1,602,560
|
|
|
|
19,539,408
|
|
|
|
1.0
|
%
|
|
|
1,001,600
|
|
|
|
12,212,130
|
|
A. William Allen, III
|
|
|
0.9
|
%
|
|
|
901,440
|
|
|
|
10,990,917
|
|
|
|
1.5
|
%
|
|
|
1,502,400
|
|
|
|
18,318,195
|
|
Paul E. Avery
|
|
|
1.0
|
%
|
|
|
1,001,600
|
|
|
|
12,212,130
|
|
|
|
1.0
|
%
|
|
|
1,001,600
|
|
|
|
12,212,130
|
|
Joseph J. Kadow
|
|
|
0.3
|
%
|
|
|
300,480
|
|
|
|
3,665,639
|
|
|
|
0.3
|
%
|
|
|
300,480
|
|
|
|
3,663,639
|
|
Dirk Montgomery
|
|
|
0.1
|
%
|
|
|
100,160
|
|
|
|
1,221,213
|
|
|
|
0.3
|
%
|
|
|
300,480
|
|
|
|
3,663,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13.0
|
%
|
|
$
|
13,020,800
|
|
|
$
|
158,757,690
|
|
|
|
18.4
|
%
|
|
$
|
18,429,440
|
|
|
$
|
224,703,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based upon beneficial ownership as of December 31, 2006,
net income for the year ended December 31, 2006 and net
book value as of December 31, 2006.
|
Plans for
OSI After the Merger
After the effective time of the merger, and excluding the
transactions contemplated in connection with the merger as
described in this proxy statement, Parent and the OSI Investors
anticipate that OSIs operations will be conducted
substantially as they are currently being conducted, except that
it will cease to be an independent public company and will
instead be a direct or indirect wholly owned subsidiary of
Parent. After the effective time of the merger, the directors of
Merger Sub immediately prior to the effective time of the merger
will become the directors of OSI, and the officers of OSI
immediately prior to the effective time of the merger will
remain the officers of OSI, in each case until the earlier of
their resignation or removal or until their respective
successors are duly elected or appointed and qualified, as the
case may be.
Conduct
of OSIs Business if the Merger is Not Completed
In the event that the Merger Agreement is not adopted by
OSIs stockholders or if the merger is not completed for
any other reason, OSI stockholders will not receive any payment
for their shares of OSI common stock. Instead, OSI will remain
an independent public company, its common stock will continue to
be listed and traded on the NYSE, and OSI stockholders will
continue to be subject to the same risks and opportunities as
they currently are with respect to their ownership of OSI common
stock. If the merger is not completed, there can be no assurance
as to the effect of these risks and opportunities on the future
value of your OSI shares, including the risk that the market
price of our common stock may decline to the extent that the
current market price of our stock reflects a market assumption
that the merger will be completed. From time to time, our board
of directors will evaluate and review the business operations,
properties, dividend policy and capitalization of OSI, and,
among other things, make such changes as are deemed appropriate
and continue to seek to maximize stockholder value. If the
Merger Agreement is not adopted by our stockholders or if the
merger is not consummated for any other reason, there can be no
assurance that any other transaction acceptable to OSI will be
offered or that the business, prospects or results of operations
of OSI will not be adversely impacted.
However, pursuant to the Merger Agreement, under certain
circumstances, OSI is permitted to terminate the Merger
Agreement and recommend an alternative transaction. See
The Merger Agreement Termination
beginning on page 96.
59
Under certain circumstances, if the merger is not completed, OSI
may be obligated to pay Parent or its designee a termination fee
or to reimburse Parent or its designee for
out-of-pocket
fees and expenses in connection with the merger. See The
Merger Agreement Termination Fees and Expenses
beginning on page 97.
Financing
The total amount of funds necessary to complete the merger and
the related transactions is anticipated to be approximately
$3.63 billion, consisting of (1) approximately
$3.17 billion to be paid out to our stockholders and
holders of other equity-based interests in OSI,
(2) approximately $231,000,000 to refinance our existing
indebtedness, (3) approximately $130,000,000 to pay fees
and expenses in connection with the transaction and (4)
approximately $100,000,000 which will provide a source of funds
for capital expenditures by the Company post-closing.
These funds are anticipated to come from the following sources:
|
|
|
|
|
cash equity contributions by Bain Capital Fund IX and
Catterton Funds, or the respective assignees (as described below
under Equity Financing) of their
commitments, of $1 billion in the aggregate, pursuant to
equity commitment letters;
|
|
|
|
|
|
borrowings by OSI, as the surviving corporation, of
$1.1 billion of term loans under a $1.35 billion
senior secured credit facility;
|
|
|
|
the issuance by Merger Sub of $800,000,000 in aggregate
principal amount of senior unsecured notes
and/or
senior subordinated unsecured notes (collectively, the
notes) in a public offering or Rule 144A or
other private offering, or if and to the extent Merger Sub does
not, or is unable to, issue the notes in at least $800,000,000
in aggregate principal amount on or prior to the closing date,
borrowings by OSI, as the surviving corporation, under a new
senior unsecured bridge facility in the amount of at least
$800,000,000, less the amount of the notes issued on or prior to
the closing date;
|
|
|
|
borrowings by one or more special purpose bankruptcy-remote
vehicles formed by Parent (the OSI propco), the sole
assets of which will be certain owned real properties and
improvements thereon acquired from OSI and its subsidiaries
(which real properties and improvements we refer to herein
collectively as the OSI propco real property and
which acquisition we refer to as the OSI propco
acquisition) or the equity interests of the special
purpose vehicle acquiring the OSI propco real property, of at
least $530,000,000 in aggregate principal amount under new real
estate financings (collectively, the real estate
financings), or if and to the extent OSI propco does not,
or is unable to, borrow loans under such real estate facilities
providing for at least $500,000,000 in borrowings by OSI, as the
surviving corporation, or OSI propco under a new senior
unsecured bridge facility (the real estate bridge
facility), or alternatively if the OSI propco real
property will not support a financing of at least $500,000,000,
an increase to the closing date financings under the senior
secured credit facilities and either the senior unsecured bridge
facility or notes offering; and
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cash on the balance sheet of OSI.
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Equity
Financing
Bain Capital Fund IX, L.P. delivered an equity commitment
letter for $853,000,000 to Parent, and Catterton VI Funds has
delivered an equity commitment letter for $150,000,000 to
Parent. Each of Bain Capital Fund IX, L.P. and Catterton VI
Funds also has agreed to contribute additional amounts as
required by the terms of the debt financing, subject to certain
limitations. These commitments constitute all of the equity
portion of the merger financing, other than shares of OSI common
stock exchanged for Parent common stock by the OSI Investors.
Each of the equity commitment letters provides that the equity
funds will be contributed to fund, and to the extent necessary
to fund, the merger and the other transactions contemplated by
the Merger Agreement, including the payment of the merger
consideration, repayment of our debt, and payment of related
fees and expenses and for no other purpose. Each of the equity
commitments is generally subject to certain other terms
contained therein, including the satisfaction or waiver at the
closing of the conditions precedent to the obligations of Parent
to consummate the merger. The terms of each of the equity
commitment letters will expire automatically upon the
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earliest to occur of (i) the termination of the Merger
Agreement; (ii) the assertion by us or any of our
controlled affiliates of a claim in a proceeding against Parent,
Merger Sub, the equity investor or any related person that
directly or indirectly arises out of or relates to such equity
commitment letter, the equity investors limited guaranty,
the Merger Agreement or any of the transactions contemplated by
them or the Merger Agreement; or (iii) April 30, 2007.
In addition, subject to the consent of Parent, a portion of the
commitment of each of Bain Capital Fund IX, L.P. and
Catterton VI Funds may be assigned to other affiliated and/or
non-affiliated investors. Bain Capital Fund IX, L.P. and
Catterton VI Funds have informed Parent and OSI that they may
syndicate a portion of their respective equity commitments to
other investors, and such syndication efforts may include
investments by existing shareholders of OSI, other affiliates of
OSI, limited partners of Bain Capital Funds and their
co-investors or unaffiliated investors. The terms and conditions
of any such investments would be subject to negotiations and
discussions among Bain Capital Funds and Catterton VI Funds and
the potential investors.
Debt
Financing
Merger Sub has entered into a debt financing commitment letter
with Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman
Islands Branch, Deutsche Bank Securities Inc., Bank of America,
N.A., Banc of America Bridge LLC, and Banc of America Securities
LLC providing Merger Sub with committed financing for
(i) $1.35 billion in senior secured credit facilities,
(ii) $800,000,000 under a new senior unsecured bridge
facility and (iii) $530,000,000 under new senior real
estate bridge facilities. Merger Sub has additionally engaged
Deutsche Bank Securities Inc. and Banc of America Securities LLC
to place or underwrite the issuance and sale of $800,000,000 in
aggregate principal amount of the notes in a public offering or
in a Rule 144A or other private placement and to structure
and arrange the real estate financings.
The documentation governing the senior secured credit
facilities, the real estate financings and each of the bridge
facilities has not been finalized and, accordingly, their actual
terms may differ from those described in this proxy statement.
Except as described herein, there is no current plan or
arrangement to finance or repay the debt financing arrangements.
Senior
Secured Credit Facilities
The senior secured credit facilities are expected to be
comprised of a $1.1 billion term loan facility and $250,000,000
in revolving credit facilities. As a result of the merger,
Merger Sub will be merged with and into OSI, and OSI, as the
surviving corporation, will be the borrower under the senior
secured credit facilities. All obligations of OSI under the
senior secured credit facilities will be guaranteed by Parent
and each existing and future direct and indirect wholly owned
domestic subsidiary and certain non-wholly owned subsidiaries of
OSI, subject to certain exceptions. The obligations of OSI and
the guarantors under the senior secured credit facilities will
be secured by substantially all of the assets of OSI and the
guarantors, including the equity interests in certain
subsidiaries.
The full amount of the term loans is expected to be used to fund
a portion of the merger consideration, to refinance our existing
indebtedness and to pay related fees and expenses. The term
loans are expected to bear interest based on either the adjusted
London inter-bank offered rate (Adjusted LIBOR) plus
an initial spread, or the alternate base rate (ABR)
plus an initial spread, at the option of OSI. The term loans
will mature seven years after the effective date of the merger
and will also require quarterly interim amortization payments,
with the balance payable at the final maturity date of the term
loans. The borrower may make voluntary prepayments of the term
loans at any time. In addition, the term loans are required to
be prepaid in certain circumstances, including with the net cash
proceeds of debt issuances (other than debt otherwise
permitted), the net cash proceeds of certain asset sales
(subject to reinvestment rights and other exceptions) and
specified percentages of certain cash flows.
The revolving credit facilities will be available at closing for
working capital, capital expenditures and other general
corporate purposes, but may not be used to fund a portion of the
merger consideration, to refinance our existing indebtedness and
to pay related fees and expenses. The revolving credit
facilities will mature six years after the effective date of the
merger and are expected to bear interest based on either
Adjusted LIBOR plus an initial spread, or ABR plus an initial
spread, at the option of OSI.
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The senior secured credit facilities will contain customary
representations and warranties and customary affirmative and
negative covenants, including, among other things, restrictions
on indebtedness, liens, investments, asset sales, mergers and
consolidations, dividends and other distributions, redemptions,
prepayments of certain indebtedness, and a maximum leverage
ratio and minimum interest coverage ratio. The senior secured
facilities will also include customary events of default,
including upon a change of control.
High
Yield Notes
Banc of America Securities LLC and Deutsche Bank Securities Inc.
have been engaged by Merger Sub to place or underwrite the
issuance and sale of $800,000,000 in aggregate principal amount
of the notes in a public offering or in a Rule 144A or
other private placement. Although the interest rate, maturity
and other material terms of the notes have not been finalized,
we expect that the notes will have terms and conditions
customary for senior unsecured note offerings
and/or
unsecured senior subordinate note offerings of issuers that are
affiliates of Parent.
High
Yield Bridge Facility
If and to the extent the offering or placement of the notes is
not completed on or prior to the closing of the merger, Banc of
America Bridge LLC and Deutsche Bank AG Cayman Islands Branch
have committed to provide Merger Sub with $800,000,000 of loans
under a senior unsecured bridge facility. The obligations of
OSI, as successor to Merger Sub pursuant to the merger, under
the senior unsecured bridge facility will be guaranteed on a
senior basis by each of its subsidiaries that is a guarantor of
the senior secured credit facilities.
The loans under the senior unsecured bridge facility will be
increasing rate bridge loans. For the initial six-month period
under the senior unsecured bridge facility, interest on the
bridge loans is expected to accrue at a rate per annum based on
three-month Adjusted LIBOR, as determined on the effective date
of the merger, plus an initial spread, subject to a maximum
overall interest cap. The bridge loans will have an initial
maturity of one year after the effective date of the merger, but
the maturity of any bridge loans outstanding at that time will
automatically be extended to the eighth anniversary of the
effective date of the merger. Holders of the extended term loans
will have the right to exchange such loans for exchange notes
maturing on the eighth anniversary of the effective date of the
merger and to require the borrower to register the exchange
notes for public resale under a registration statement in
compliance with applicable securities laws.
The borrower will be required to prepay the bridge loans or to
make an offer to prepay or repurchase the extended term loans
and the exchange notes under certain circumstances, including
upon certain non-ordinary course asset sales or issuance of
certain debt, subject to certain exceptions and others to be
agreed, and upon a change of control.
The senior unsecured bridge facility will contain customary
representations and warranties and covenants for similar
financings, including high yield type covenants. The senior
unsecured bridge facility will also include customary events of
default, including a change of control.
Real
Estate Financings
It is expected that OSI propco will obtain at least $500,000,000
in gross proceeds from the real estate financings. Although the
interest rate, maturity and other material terms of the real
estate financings have not been finalized, we expect that the
real estate financings will have terms and conditions customary
for real estate financings for affiliates of Parent.
Real
Estate Bridge Facility
If and to the extent the real estate financings are not
consummated prior to the closing of the merger, and subject to a
minimum determination of the financeable amount as set forth
below, Deutsche Bank and Bank of America have committed to
provide $530,000,000 of loans to OSI propco under a real estate
bridge facility structured as a senior unsecured bridge facility
with the terms set forth below. If certain conditions are unable
to be met related to the OSI propco acquisition, the loans will
be structured as a senior unsecured bridge facility with
substantially the same terms, including guarantees, interest
rates, covenants, representations and warranties, events
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of default and maturity, all as set forth above under
Debt Financing High Yield Bridge
Facility. OSI propcos obligations under the real
estate bridge facility will be guaranteed on a senior basis by
its direct parent and secured by a pledge by the parent of the
stock of OSI propco. If the loans under the real estate bridge
facility are not fully repaid at the end of the initial
90 days, the OSI propco real property and certain
additional collateral will be required to secure the loans under
the real estate bridge facility.
For the initial three-year period of the loans under the real
estate bridge facility, interest payable by OSI propco is
expected to accrue at a rate per annum based on Adjusted LIBOR
plus an initial spread, subject to an adjustment down upon
entering into a master lease and provision of security by OSI
propco as described above. The spread increases as of the end of
the first anniversary of the effective date of the merger and
each subsequent anniversary. All loans provided to OSI propco
under the real estate bridge facility will mature three years
after the effective date of the merger but, subject to certain
conditions, the maturity of such loans may be extended for up to
two consecutive
12-month
periods thereafter.
OSI propco will be required to prepay the real estate bridge
loans under certain circumstances, including with the proceeds
of the real estate financings upon the closing thereof, upon the
release of properties from a certain real property pool and upon
the occurrence of a change of control.
Availability of the real estate bridge facility is dependent
upon the OSI propco real property meeting a minimum financeable
amount requirement, based in part upon the lesser of 85% of the
aggregate appraised as-leased market value of such real
properties and 150% of the aggregate appraised dark value of
such real properties. If such financeable amount is determined
to be less than $500,000,000, the full amount of the real estate
financings or the loans to be financed under the real estate
bridge facility is expected to be reallocated and financed under
the senior secured credit facilities, the senior unsecured
bridge facility
and/or the
notes. If such financeable amount is determined to be greater
than $530,000,000 and the amount of the real estate financings
or the real estate bridge facility is increased by such excess,
the $1.1 billion term loan facility will be reduced to
$950,000,000 and the balance will reduce the senior unsecured
bridge facility
and/or the
notes
dollar-for-dollar
such that the aggregate amount of commitments and financing
available on the effective date of the merger is not decreased.
The real estate bridge facility will contain customary
representations and warranties and covenants for similar
financings, including high yield type covenants. The real estate
bridge facility will also include customary events of default.
Conditions
to the Debt Financing
The debt financing commitments will expire if not drawn on or
prior to April 30, 2007. The facilities contemplated by the
debt financing commitments are subject to customary closing
conditions, including:
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there not having occurred, since December 31, 2005, any
event, development or state of circumstances that has had,
individually or in the aggregate, a Company Material
Adverse Effect as defined in the Merger Agreement in
effect on the date of the debt financing commitment letters;
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the execution and delivery of definitive credit documents;
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the merger and all related transactions must have been
consummated in accordance with the terms of the Merger Agreement;
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delivery of certain specified financial statements of OSI;
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the absence of a material adverse change with respect to OSI, to
the extent such change constitutes a material adverse
change for purposes of the Merger Agreement;
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receipt of equity contributions in an amount equal to at least
25% of the total sources required to consummate the merger from
one or more of Bain Capital, Catterton and co-investors
reasonably acceptable to the lead arrangers for the debt
financing; and
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receipt of customary closing documents.
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63
Although the debt financing described in this proxy statement is
not subject to the lenders satisfaction with their due
diligence or to a market out, such financing might
not be funded on the closing date because of failure to meet the
closing conditions or for other reasons.
Since the final terms of the debt financing facilities have not
been agreed upon, such terms and amounts may differ from those
set forth above and, in certain cases, such differences may be
significant. We do not intend to update or otherwise revise any
statements concerning the terms of the financing included in
this proxy statement to reflect circumstances existing after the
date when such statements were made or to reflect the occurrence
of future events even in the event that any of the statements
regarding the financing arrangements are shown to be in error or
otherwise no longer appropriate.
As of the date of this proxy statement, no alternative financing
arrangements or alternative financing plans have been made in
the event the debt financing described herein is not available
as anticipated.
Guarantees
Pursuant to limited guarantees, each of Bain Capital
Fund IX, L.P. and Catterton VI Funds has agreed to guaranty
the obligations of Parent and Merger Sub under the Merger
Agreement (i) up to the amount of $33,750,000 and
$11,250,000, respectively, with respect to any termination fee
payable by Parent and (ii) up to the amount of $161,250,000
and $53,750,000, respectively, with respect to damages arising
from failures of Parent or Merger Sub to comply with the Merger
Agreement. Our rights of recourse against the guarantors are
limited to such amounts, and the limited guarantees are our sole
remedies against the guarantors and their related persons. The
guarantees will terminate upon consummation of the merger,
except that if we or any of our controlled affiliates assert a
claim other than as permitted under the limited guarantee
agreement, such limited guarantee will terminate and become null
and void.
Interests
of Our Directors and Executive Officers in the Merger
General
In considering the recommendation of the special committee and
our board of directors with respect to the Merger Agreement, OSI
stockholders should be aware that some of the OSI directors and
executive officers have interests in the merger and have
arrangements that are different from, or in addition to, those
of OSI stockholders generally. These interests and arrangements
may create potential conflicts of interest. The special
committee and our board of directors were aware of these
potential conflicts of interest and considered them, among other
matters, in reaching their decisions to adopt the Merger
Agreement and to recommend that OSI stockholders vote in favor
of adoption of the Merger Agreement.
Stock
Options, Restricted Stock and Other Equity-Based
Awards
As of the effective time of the merger:
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each outstanding option to purchase shares of our common stock
held by a director or executive officer, whether vested or
unvested, will be canceled and converted into the right to
receive a cash payment equal to the excess (if any) of the
$40.00 per share cash merger consideration over the
exercise price per share of the option, multiplied by the number
of shares subject to the option, without interest and less any
applicable withholding taxes;
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each holder under our Directors Deferred Compensation
Plan, as amended, will be entitled to $40.00 per each
notional share held under such holders account;
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each award of restricted stock held by Mr. Allen,
Mr. Kadow and Mr. Montgomery will be exchanged for
shares of common stock of Parent. In addition, it is expected
that Parent will grant to Mr. Avery restricted shares of
Parent common stock with an aggregate value of $12,000,000 upon
closing and that Mr. Kadow will purchase shares of Parent
common stock with an aggregate value of $200,000. Immediately
following the closing each of Mr. Allen, Mr. Avery,
Mr. Kadow and Mr. Montgomery will own approximately
1.5%, 1.0%, 0.3% and 0.3%, respectively, of the fully-diluted
outstanding common stock of Parent. The common
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stock of Parent issued in the exchange is expected to vest in
five equal annual installments on each of the first five
anniversaries of the closing; provided that vesting will
accelerate in the event of a termination of employment as a
result of death or disability, by OSI without cause or by the
executive with good reason or upon a subsequent change of
control; and
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each award of restricted stock held by an executive officer or
director that is not exchanged for Parent common stock as
described in the immediately preceding bullet point will be
converted into the right to receive $40.00 per share in
cash, plus certain earnings thereon, less any applicable
withholding taxes, payable on a deferred basis at the time the
underlying restricted stock would have vested under its terms as
in effect immediately prior to the effective time and subject to
the satisfaction by the holder of all terms and conditions to
which such vesting was subject; provided, however, that the
holders deferred cash account will become immediately
vested and payable upon termination of such holders
employment by us without cause or upon such holders death
or disability.
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We estimate the amounts that will be payable to each OSI named
executive officer in settlement of stock options as follows:
Mr. Allen, $3,483,000, Mr. Avery, $10,433,000 and
Mr. Kadow, $2,125,250. We estimate the aggregate amount
that will be payable to all directors and executive officers in
settlement of stock options, restricted stock (other than
restricted stock held by Mr. Allen, Mr. Kadow and
Mr. Montgomery) and other equity-based awards to be
approximately $19,265,000. Mr. Allen, Mr. Kadow and
Mr. Montgomery will contribute their restricted OSI stock
to Parent in exchange for common stock of Parent.
Management
Employment Agreements
Each of Mr. Allen, Mr. Avery, Mr. Kadow, and
Mr. Montgomery is party to an employment agreement with OSI
that would provide benefits to the executive in the event of
specified triggering events in connection with a change of
control of OSI such as the proposed merger.
Pursuant to the agreements, in the event of a separation of
service of the executive by OSI without cause or by the
executive for good reason within two years after a change of
control of OSI, the executive will receive a lump sum payment
equal to two times the sum of:
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his gross annual base salary at the rate in effect immediately
prior to the change of control, and
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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.
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However, in the case of Mr. Montgomery, if he has not been
employed for the entirety of the two fiscal years preceding the
year in which a change of control occurs, the amount used for
purposes of the second bullet point above will be equal to his
target bonus for the year in which the change of control occurs.
In addition, each agreement 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 Internal Revenue Code without
imposition of an excise tax. If the parachute value of an
executives payments does not exceed the 110% threshold,
the executives 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.
Assuming that the current employment agreements remain in
effect, that the merger is completed on April 30, 2007 and
that thereafter each executive officers employment is
terminated on that date by OSI without cause or voluntarily
terminated on that date by the executive officer for good
reason, the estimated cost of the cash severance benefits
described above (including any estimated tax
gross-up
payment) would be as follows: Mr. Allen, $9,391,000,
Mr. Avery, $2,573,000, Mr. Kadow, $834,000, and
Mr. Montgomery, $4,246,000.
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Each of Mr. Allen, Mr. Avery, Mr. Kadow and
Mr. Montgomery and Parent currently expects that the
existing employment agreements described above will be amended
and restated based upon the term sheet described below, in which
event the amounts described in the immediately preceding
paragraph would not become payable.
Management
Employment Term Sheet
Effective as of the closing, each of Mr. Allen,
Mr. Avery, Mr. Kadow and Mr. Montgomery is
expected to execute an amended and restated employment agreement
with Parent. These agreements would amend and restate the
employment agreements described above. Principal terms of the
new agreements would include the following:
Term: Five-year term, subject to automatic
one-year renewals absent notice to the contrary.
Base Salary: Base salary equal to current base
salary as in effect immediately prior to the closing, subject to
annual increase. The parties may agree to an additional increase
to make up for lost dividends on restricted stock.
Target Bonus: Target bonus opportunity equal
to current bonus plan.
Benefits; Perquisites: Benefits and
perquisites at least as favorable as in effect immediately prior
to the closing, including airplane usage and split dollar life
insurance.
Restricted Stock: It is expected that Parent
will grant Mr. Avery restricted shares of Parent common
stock with an aggregate value of $12,000,000 upon the closing of
the merger.
Severance: In the event of a termination of
employment by Parent without cause or a termination by the
executive for good reason, the executive will be entitled to
(i) 1 times annual base salary plus average annual bonus
paid over the prior three years, payable in 12 equal monthly
installments and (ii) full vesting of life insurance
benefits and benefit continuation for one year following such
termination.
Gross-up: Gross-up
for excise and related taxes in the event the severance
compensation and other payments or distributions to an executive
in connection with the merger constitute excess parachute
payments. The parties will cooperate to avoid application
of the Section 280G excise tax upon the occurrence of any
subsequent change in control.
Flemings Steakhouse and Blue Coral
Concepts: Mr. Allen will retain an equity
interest in Flemings Steakhouse. The parties will discuss
Mr. Allens participation in opportunities involving
Blue Coral Seafood & Spirits (Blue Coral).
Restrictive Covenants: Each of Mr. Allen,
Mr. Avery, Mr. Kadow and Mr. Montgomery will be
subject to confidentiality obligations, and non-competition and
non-solicitation covenants, for one year following termination
of employment.
Legal Fees: Parent will pay all reasonable
legal fees incurred by Mr. Allen, Mr. Avery,
Mr. Kadow and Mr. Montgomery arising out of the
negotiation and drafting of the management arrangements.
Transaction Bonus: A $5,000,000 cash bonus
pool will be allocated by the Chief Executive Officer of OSI,
with approval of the post-closing board of directors of OSI,
among Mr. Allen, Mr. Avery, Mr. Kadow and
Mr. Montgomery and an additional 50 to 60 OSI home office
personnel and will be paid immediately following the closing.
Additional Investment Opportunity: Each of
Mr. Allen, Mr. Avery, Mr. Kadow and
Mr. Montgomery will have the opportunity to make additional
investments in Parent common stock at closing.
Management
Equity Incentive Plan
Options to purchase shares of Parent common stock representing
2.5% of the common stock of Parent as of the closing, on a fully
diluted basis, of which 1.75% will be issued at closing, will be
allocated as follows:
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Mr. Allen, 26%; Mr. Avery, 24%; Mr. Kadow, 16.7%;
Mr. Montgomery, 8%.
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Other members of OSI management, 25.3%.
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Arrangements
with Mr. Sullivan, Mr. Basham and
Mr. Gannon
Effective as of the closing, each of Mr. Basham,
Mr. Gannon and Mr. Sullivan is expected to enter into
agreements with Parent. Principal terms of these agreements
would include the following:
Equity Roll-Over: Immediately prior to the
effective time of the merger, Mr. Sullivan, Mr. Basham
and Mr. Gannon will exchange approximately 1,800,000,
2,500,000 and 300,000 shares of OSI common stock,
respectively, for Parent common stock representing approximately
6.0%, 8.3% and 1.0%, respectively, of the fully-diluted
outstanding common stock of Parent immediately following the
closing.
Preemptive Rights: Subject to customary
exceptions, prior to an initial public offering or a change of
control of Parent, each of Mr. Sullivan, Mr. Basham
and Mr. Gannon will have preemptive rights that will
entitle them to purchase a pro rata share of:
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any additional issuance of equity by Parent or any of its
subsidiaries; and
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any loans to, or debt securities issued by, Parent or any of its
subsidiaries, if Bain Capital Funds and/or Catterton Partners
Funds are participating in the applicable financing as a lender.
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Board Representation: Prior to an initial
public offering or a change of control, each of
Mr. Sullivan and Mr. Basham will be entitled to
appoint a director to Parents board of directors (and to
the board of directors of each subsidiary of Parent on which a
representative of any of the Bain Capital Funds and/or Catterton
Partners Funds serves as a director) for so long as such
individual (or his permitted transferees) holds at least 50% of
the shares of Parent common stock owned on the date of the
closing.
Management Fee: Mr. Sullivan,
Mr. Basham and Mr. Gannon will receive an annual
management fee of $5,600,000 in the aggregate (which may be paid
to them directly or to an entity that they organized).
Employment Agreements: Each of
Mr. Sullivan, Mr. Basham and Mr. Gannon will
enter into an employment agreement with Parent providing annual
compensation of $800,000 in the aggregate. Each employment
agreement will have an initial term of five years, with
automatic one-year renewal periods and will provide a severance
benefit in an amount equal to the applicable individuals
annual compensation for a period equal to the greater of the
remainder of the initial term of the employment agreement and
two years, payable over 24 months in the event employment
is terminated as a result of the individuals death or
disability, by Parent without cause or by the individual with
good reason.
Legal Fees: Parent will pay the fees and
reasonable
out-of-pocket
fees and expenses of each of Mr. Sullivan, Mr. Basham
and Mr. Gannon incurred in connection with the merger and
related transactions.
Indemnification
of Directors and Officers; Directors and Officers
Insurance
The OSI directors and officers are entitled under the Merger
Agreement to continued indemnification and insurance coverage.
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Consideration to be Received by Directors and Executive
Officers
The following table reflects the consideration expected to be
received by each of our directors, director emeritus and
executive officers in connection with the merger:
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Cash Merger
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Consideration
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Parent
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to be Received
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Common Stock
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Restricted
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from the
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to be Issued
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Cash to be
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Stock
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|
|
|
Conversion of
|
|
|
in Exchange
|
|
|
Received
|
|
|
to be
|
|
|
Deferred
|
|
|
Cash
|
|
|
Annual
|
|
|
|
|
|
|
OSI
|
|
|
for OSI
|
|
|
from OSI
|
|
|
Received
|
|
|
Compensation
|
|
|
Bonus
|
|
|
Management
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Options
|
|
|
in Parent
|
|
|
Units
|
|
|
Pool
|
|
|
Fee
|
|
|
Consideration
|
|
|
|
$
|
|
|
$(1)
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Robert D. Basham
|
|
$
|
73,128,160
|
|
|
$
|
100,000,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,043,477
|
|
|
$
|
176,171,637
|
|
John A. Brabson
|
|
$
|
841,240
|
|
|
$
|
0
|
|
|
$
|
23,705
|
|
|
$
|
0
|
|
|
$
|
212,408
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,077,352
|
|
W.R. Carey
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
409,402
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
409,402
|
|
Debbi Fields
|
|
$
|
25,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
382,793
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
407,793
|
|
General (Ret)
Tommy Franks
|
|
$
|
104,120
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
138,484
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
242,604
|
|
Thomas A. James
|
|
$
|
340,320
|
|
|
$
|
0
|
|
|
$
|
423,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
763,320
|
|
Lee Roy Selmon
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
207,995
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
207,995
|
|
Chris T. Sullivan
|
|
$
|
26,872,920
|
|
|
$
|
72,000,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,191,304
|
|
|
$
|
101,064,224
|
|
Toby S. Wilt
|
|
$
|
1,200,000
|
|
|
$
|
0
|
|
|
$
|
1,125,000
|
|
|
$
|
0
|
|
|
$
|
227,776
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,552,776
|
|
J. Timothy Gannon
|
|
$
|
35,732,120
|
|
|
$
|
12,000,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
365,219
|
|
|
$
|
48,097,339
|
|
A. William Allen III
|
|
$
|
8,000,000
|
|
|
$
|
18,000,000
|
|
|
$
|
3,483,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,387,500
|
|
|
$
|
0
|
|
|
$
|
30,870,500
|
|
Paul E. Avery
|
|
$
|
724,000
|
|
|
$
|
0
|
|
|
$
|
10,433,000
|
|
|
$
|
12,000,000
|
|
|
$
|
0
|
|
|
$
|
1,387,500
|
|
|
$
|
0
|
|
|
$
|
24,544,500
|
|
Dirk A. Montgomery
|
|
$
|
0
|
|
|
$
|
4,000,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
600,000
|
|
|
$
|
0
|
|
|
$
|
4,600,000
|
|
Joseph J. Kadow
|
|
$
|
0
|
|
|
$
|
3,000,000
|
|
|
$
|
2,125,250
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
587,500
|
|
|
$
|
0
|
|
|
$
|
5,712,750
|
|
Michael W. Coble
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
477,600
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
477,600
|
|
Curt Glowacki
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Steven T. Shlemon
|
|
$
|
64,320
|
|
|
$
|
2,976,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,040,320
|
|
|
|
|
(1) |
|
The shares expected to be received by Mr. Allen,
Mr. Montgomery and Mr. Kadow in exchange for their
restricted stock of OSI are expected to vest at a rate of 20% on
each of the first five anniversaries of the closing, subject to
acceleration in certain circumstances. In addition, it is
expected that Parent will establish a new option plan providing
for awards of an aggregate of 2.5% of its common stock
outstanding as of the closing of the merger, with options
representing 1.75% of its common stock expected to be granted as
of closing and allocated 26% to Mr. Allen, 24% to
Mr. Avery, 16.7% to Mr. Kadow, 8% to
Mr. Montgomery and the remaining 25.3% to other members of
OSI management. The allocation of this 25.3% and the terms and
conditions, including vesting and exercise terms, have not yet
been determined. |
Each of Mr. Allen, Mr. Avery, Mr. Kadow,
Mr. Montgomery and Parent currently expects that the
existing employment agreements will be amended and restated
based upon the term sheets described above, in which event the
severance amounts discussed under Interests of
our Directors and Executive Officers in the Merger
Management Employment Agreements would not become payable.
Mr. Allen, Mr. Avery, Mr. Kadow,
Mr. Montgomery and our other management also will receive
options to purchase shares of Parent Common Stock as described
under Interests of Our Directors and
Executive Officers in the Merger Management Equity
Incentive Plan.
68
Related
Party Transactions
In addition to the arrangements in connection with the merger
discussed elsewhere, we had the following transactions with
related parties:
Transactions
Related to Common Stock
The following table provides information with respect to
purchases of our common stock by our executive officers and
directors upon the exercise of stock options during the past two
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
No. of Shares
|
|
|
Price of
|
|
Name of OSI Investor
|
|
Ending
|
|
|
Purchased
|
|
|
Shares
|
|
|
Paul E. Avery
|
|
|
3/31/05
|
|
|
|
50,000
|
|
|
$
|
17.67
|
|
A. William Allen
|
|
|
12/31/06
|
|
|
|
200,000
|
|
|
$
|
28.39
|
|
Steven T. Shlemon
|
|
|
9/30/05
|
|
|
|
75,000
|
|
|
$
|
19.00
|
|
The following table provides information with respect to grants
of restricted stock or stock options to our executive officers
and directors during the past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of
|
|
|
Number of
|
|
|
Type of
|
|
|
Exercise Price
|
|
Name of OSI Investor
|
|
Grant
|
|
|
Shares Granted
|
|
|
Grant
|
|
|
of Stock Option
|
|
A. William Allen III
|
|
|
4/27/05
|
|
|
|
300,000
|
|
|
|
restricted stock
|
|
|
|
N/A
|
|
A. William Allen III
|
|
|
12/8/05
|
|
|
|
150,000
|
|
|
|
restricted stock
|
|
|
|
N/A
|
|
Gen (Ret.) Tommy Franks
|
|
|
4/27/05
|
|
|
|
2,403
|
|
|
|
restricted stock
|
|
|
|
N/A
|
|
Joseph J. Kadow
|
|
|
10/26/05
|
|
|
|
50,000
|
|
|
|
restricted stock
|
|
|
|
N/A
|
|
Joseph J. Kadow
|
|
|
10/24/06
|
|
|
|
25,000
|
|
|
|
restricted stock
|
|
|
|
N/A
|
|
Dirk A. Montgomery
|
|
|
10/19/05
|
|
|
|
100,000
|
|
|
|
restricted stock
|
|
|
|
N/A
|
|
The following table provides information with respect to
OSIs purchases of shares of its common stock during the
past two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Range of Prices
|
|
|
Weighted Average
|
|
|
|
|
Quarter Ending
|
|
Purchased
|
|
|
Paid
|
|
|
Price Paid
|
|
|
|
|
December 31, 2006
|
|
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
September 30, 2006
|
|
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
June 30, 2006
|
|
|
1,155,000
|
|
|
$
|
40.44-$43.98
|
|
|
$
|
41.44
|
|
|
|
|
|
March 31, 2006
|
|
|
264,000
|
|
|
$
|
41.71-$44.05
|
|
|
$
|
43.85
|
|
|
|
|
|
December 31, 2005
|
|
|
530,000
|
|
|
$
|
35.03-$41.06
|
|
|
$
|
38.49
|
|
|
|
|
|
September 30, 2005
|
|
|
500,000
|
|
|
$
|
37.83-$46.53
|
|
|
$
|
42.88
|
|
|
|
|
|
June 30, 2005
|
|
|
750,000
|
|
|
$
|
41.28-$45.88
|
|
|
$
|
43.54
|
|
|
|
|
|
March 31, 2005
|
|
|
396,500
|
|
|
$
|
43.85-$47.56
|
|
|
$
|
45.07
|
|
|
|
|
|
Other
Transactions
OSI is party to a Stock Redemption Agreement (each an
Agreement) with each of Mr. Sullivan,
Mr. Basham and Mr. Gannon (individually, an
Executive). Under the terms of each Agreement,
following the Executives death, the personal
representative of the Executive will have the right to require
OSI to purchase OSI common stock beneficially owned by the
Executive at the date of death, for a per share price equal to
the mean (rounded to the nearest one-tenth of one cent) of the
last sale price of OSI common stock as quoted on the NYSE or the
principal exchange on which OSI common stock is then traded for
30 consecutive trading days ending on the business day before
the Executives death. If, however, the Executives
death results (i) from an illness that was diagnosed or an
accident that occurred within one year of the Executives
death and (ii) the accident or illness was publicly
disclosed, then the per share purchase price will be equal to
the mean (rounded to the nearest one-tenth of one cent) of the
last sale price of OSI common stock as quoted on the NYSE or the
principal exchange on which OSI common stock is then traded for
30 consecutive trading days ending on the business day before
the date of public disclosure of the accident or illness. The
maximum dollar amount of common stock that OSI is obligated to
purchase from the
69
estate of the Executive is $30,000,000. OSIs obligation to
purchase common stock beneficially owned by the Executive is
funded by an insurance policy on the life of the Executive owned
by OSI providing a death benefit of $30,000,000. The Agreements
will remain in place for so long as our board of directors deems
appropriate.
OSIs Lee Roy Selmons restaurant
(Selmons) is owned by Selmons/Florida-I,
Limited Partnership (Selmons Partnership). OS
Southern, Inc., a wholly owned subsidiary of OSI, is the sole
general partner and 70% owner of the Selmons Partnership.
Lee Roy Selmon, a director of OSI, owns a 10% limited
partnership interest in the Selmons Partnership solely
with respect to the first Selmons restaurant opened by the
Selmons Partnership. OSI has opened four additional
Selmons restaurants. Mr. Selmon has no ownership
interest in these additional restaurants, but receives a royalty
of 1% of each restaurants gross sales. Mr. Selmon
will receive a royalty of 1% of the gross sales from any future
Selmons restaurants opened by OSI or its affiliates.
During the past two years, Mr. Selmon has received
distributions from the Selmons Partnership in the
aggregate amount of $144,777 and royalties in the amount of
$135,740.
Toby S. Wilt, a director of OSI, through his wholly owned
corporation, TSW Investments, Inc., has invested in seven
limited partnerships, each of which owns and operates one
Carrabbas Italian Grill restaurant as a franchisee of
Carrabbas. Carrabbas owns a 45% interest as a
general partner in each of these limited partnerships. During
the past two years, Mr. Wilt received distributions from
these partnerships in the aggregate amount of $76,830.
Mr. Allen, through his revocable trust in which he and his
wife are the grantors, trustees and sole beneficiaries, owns all
of the equity interests in AWA III Steakhouses, Inc., which
owns 2.5% of Outback/Flemings, LLC. Outback/Flemings, LLC serves
as the general partner of limited partnerships that own certain
Flemings Steakhouses. During the past two years,
Mr. Allen, through his ownership interest in
Outback/Flemings, LLC, received no distributions from
investments in 40 restaurants and paid in capital of
$516,926.
Mr. Avery has invested in two limited partnerships, each of
which owns and operates one Carrabbas Italian Grill
restaurant as a franchisee of Carrabbas and in which
Carrabbas owns a 45% interest as a general partner.
Mr. Avery also has invested in two unaffiliated limited
partnerships which own and operate one Bonefish Grill restaurant
each as a franchisee of Bonefish Grill, Inc.
(Bonefish). During the past two years,
Mr. Avery received distributions from these Bonefish
partnerships in the aggregate amount of $51,091.
On January 1, 2005, OSI entered into a Purchase Agreement
to acquire certain Carrabbas Italian Grill joint venture
restaurants from limited partnerships in which Mr. Avery
had ownership interests. The aggregate purchase price paid to
Mr. Avery for his ownership interest in those joint venture
restaurants was $141,157. In addition, on August 1, 2005,
Mr. Avery sold to OSI all of his limited partnership
interests in two Carrabbas Italian Grill and 15 Bonefish
Grill restaurants (to which he had previously contributed an
aggregate amount of $317,469) for a purchase price of $285,856.
On October 12, 2006, Mr. Avery sold to Carrabbas
all of his limited partnership interests in three
Carrabbas Italian Grill restaurants (to which he had
previously contributed an aggregate amount of $60,000) for a
purchase price of $34,500. He received distributions in the
aggregate amount of $8,319 from these limited partnerships
during the past two years.
Steven T. Shlemon, President of Carrabbas, has made
investments in three unaffiliated limited partnerships each of
which owns and operates an Outback Steakhouse restaurant
pursuant to a franchise agreement with OSF. During the past two
years, Mr. Shlemon received distributions from these
partnerships in the aggregate amount of $21,823. On
December 5, 2005, Mr. Shlemon sold to an independent
franchisee all of his limited partnership interests in three
Outback Steakhouse restaurants (to which he had previously
contributed an aggregate amount of $150,000) for a purchase
price of $162,161. Mr. Shlemon has invested in three
limited partnerships, each of which owns and operates one
Carrabbas Italian Grill restaurant as a franchisee of
Carrabbas and in which Carrabbas owns a 45% interest
as a general partner. During the past two years,
Mr. Shlemon received distributions from these partnerships
in the aggregate amount of $11,810. A sibling of
Mr. Shlemon is employed by a subsidiary of OSI as a
restaurant managing partner and received aggregate compensation
of $79,000 in 2006 and $85,192 in 2005. In addition, Mr.
Shlemons sibling has made an investment in two limited
partnerships, each of which owns and operates one Outback
Steakhouse restaurant and of which OSF is the sole general
partner and majority owner. Mr. Shlemons sibling
received distributions in these partnerships in the aggregate
amount of $127,000 in 2006 and $135,689 in 2005. On
June 30, 2006, Mr. Shlemon sold to Carrabbas all
of his limited partnership interest in one Carrabbas
Italian Grill restaurant (to which he had previously contributed
an aggregate amount of $40,000) for a
70
purchase price of $56,340. He received distributions in the
aggregate amount of $13,954 from this limited partnership during
the past two years.
Gen. (Ret.) Tommy Franks is a director of Bank of America. We
have various corporate banking relationships with Bank of
America, and it participates as a lender in our $225,000,000
revolving credit facility. In addition, individual restaurant
locations have depository relationships with Bank of America in
the ordinary course of business. Bank of America and certain of
its affiliates have committed to provide Merger Sub a portion of
the debt financing necessary to complete the merger.
A sibling of Mr. Kadow is employed by a subsidiary of OSI as a
Vice President of Operations and received aggregate compensation
of $423,797 in 2006 and $443,589 in 2005. The sibling received
benefits consistent with other employees in the same capacity.
In addition, the sibling is allowed to purchase participation
interests in cash flow from restaurants (on the same basis as
other similarly situated employees), and he invested an
aggregate amount of $392,000 in 23 limited partnerships that own
and operate nine Outback restaurants, 11 Bonefish Grill
restaurants and three Carrabbas restaurants. In 2006, the
sibling purchased participation interests for $125,000 and
received distributions in the aggregate amount of $52,000.
Fees and
Expenses
Whether or not the merger is completed, in general, all fees and
expenses incurred in connection with the merger will be paid by
the party incurring those fees and expenses. If the Merger
Agreement is terminated, OSI will, in specified circumstances,
be required to reimburse Parent and Merger Sub for up to
$7.5 million of documented out-of-pocket fees and expenses.
See The Merger Agreement Termination Fees and
Expenses on page 97. Fees and expenses incurred or to
be incurred by OSI in connection with the merger are estimated
at this time to be as follows:
|
|
|
|
|
Description
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Legal fees and expenses
|
|
$
|
7,750
|
|
Accounting expenses
|
|
|
350
|
|
Financial advisory fee and expenses
|
|
|
14,200
|
|
Special committee meeting
fees(1)
|
|
|
84
|
|
Printing, proxy solicitation and
mailing costs
|
|
|
1,240
|
|
Filing fees
|
|
|
340
|
|
Miscellaneous
|
|
|
136
|
|
|
|
|
|
|
Total
|
|
$
|
24,100
|
|
|
|
|
|
|
|
|
(1) |
Represents regular meeting fees, the special committee members
were not paid any additional amounts for their service on the
special committee.
|
These expenses will not reduce the merger consideration to be
received by OSI stockholders.
Appraisal
Rights
Our stockholders have the right under Delaware law to dissent
from the adoption of the Merger Agreement, to exercise appraisal
rights and to receive payment in cash of the fair value for
their shares of our common stock determined in accordance with
Delaware law. The fair value of shares of our common stock, as
determined in accordance with Delaware law, may be more or less
than the merger consideration to be paid to non-dissenting
stockholders in the merger. To preserve their rights,
stockholders who wish to exercise appraisal rights must not vote
in favor of the adoption of the Merger Agreement and must follow
specific procedures. Dissenting stockholders must precisely
follow these specific procedures to exercise appraisal rights or
their appraisal rights may be lost. These procedures are
described in this proxy statement, and the provisions of
Delaware law that grant appraisal rights and govern such
procedures are attached as Annex D to this proxy statement.
See Appraisal Rights beginning on page 99.
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Material
United States Federal Income Tax Consequences of the
Merger
The following is a discussion of the material United States
federal income tax consequences of the merger to
U.S. holders (as defined below) whose shares of our common
stock are converted into the right to receive cash in the
merger. The discussion is based upon the Internal Revenue Code,
Treasury regulations, Internal Revenue Service published rulings
and judicial and administrative decisions in effect as of the
date of this proxy statement, all of which are subject to change
(possibly with retroactive effect) and to differing
interpretations. The following discussion does not purport to
consider all aspects of U.S. federal income taxation that
might be relevant to our stockholders. This discussion applies
only to stockholders who, on the date on which the merger is
completed, hold shares of our common stock as a capital asset
within the meaning of section 1221 of the Internal Revenue
Code. The following discussion does not address taxpayers
subject to special treatment under U.S. federal income tax
laws, such as insurance companies, financial institutions,
dealers in securities or currencies, traders of securities that
elect the
mark-to-market
method of accounting for their securities, persons that have a
functional currency other than the U.S. dollar, tax-exempt
organizations, mutual funds, real estate investment trusts,
S corporations or other pass-through entities (or investors
in an S corporation or other pass-through entity) and
taxpayers subject to the alternative minimum tax. In addition,
the following discussion may not apply to stockholders who
acquired their shares of our common stock upon the exercise of
employee stock options or otherwise as compensation for services
or through a tax-qualified retirement plan or who hold their
shares as part of a hedge, straddle, conversion transaction or
other integrated transaction. The following discussion does not
address the U.S. federal income tax consequences of the
merger to the OSI Investors. If our common stock is held through
a partnership, the U.S. federal income tax treatment of a
partner in the partnership will generally depend upon the status
of the partner and the activities of the partnership. It is
recommended that partnerships that are holders of our common
stock and partners in such partnerships consult their own tax
advisors regarding the tax consequences to them of the merger.
The following discussion also does not address potential
alternative minimum tax, foreign, state, local and other tax
consequences of the merger. All stockholders should consult
their own tax advisors regarding the U.S. federal income tax
consequences, as well as the foreign, state and local tax
consequences of the disposition of their shares in the merger.
For purposes of this summary, a U.S. holder is
a beneficial owner of shares of our common stock, who or that
is, for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation (or other entity taxable as a corporation) created
or organized in or under the laws of the United States, any
state of the United States or the District of Columbia;
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an estate the income of which is subject to U.S. federal
income tax regardless of its source;
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a trust if (1) a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more U.S. persons are authorized to control all
substantial decisions of the trust; or (2) it was in
existence on August 20, 1996 and has a valid election in
place to be treated as a domestic trust for U.S. federal
income tax purposes; or
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otherwise is subject to U.S. federal income taxation on a
net income basis.
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Except with respect to the backup withholding discussion below,
this discussion is confined to the tax consequences to a
stockholder who or that, for U.S. federal income tax
purposes, is a U.S. holder.
For U.S. federal income tax purposes, the disposition of
OSI common stock pursuant to the merger generally will be
treated as a sale of our common stock for cash by each of our
stockholders. Accordingly, in general, the U.S. federal
income tax consequences to a stockholder receiving cash in the
merger will be as follows:
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The stockholder will recognize a capital gain or loss for
U.S. federal income tax purposes upon the disposition of
the stockholders shares of our common stock pursuant to
the merger.
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The amount of capital gain or loss recognized by each
stockholder will be measured by the difference, if any, between
the amount of cash received by the stockholder in the merger
(other than, in the case of a dissenting stockholder, amounts,
if any, which are deemed to be interest for U.S. federal
income tax purposes, which
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amounts will be taxed as ordinary income) and the
stockholders adjusted tax basis in the shares of our
common stock surrendered in the merger. Gain or loss will be
determined separately for each block of shares (i.e., shares
acquired at the same cost in a single transaction) surrendered
for cash in the merger.
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The capital gain or loss, if any, will be long-term with respect
to shares of our common stock that have a holding period for tax
purposes in excess of one year at the effective time of the
merger. Long-term capital gains of individuals are eligible for
reduced rates of taxation. There are limitations on the
deductibility of capital losses. A dissenting stockholder may be
required to recognize any gain or loss in the year the merger
closes, irrespective of whether the dissenting stockholder
actually receives payment in that year.
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Cash payments made pursuant to the merger will be reported to
our stockholders and the Internal Revenue Service to the extent
required by the Internal Revenue Code and applicable Treasury
regulations. Non-corporate stockholders may be subject to
back-up
withholding at a rate of 28% on any cash payments they receive.
Stockholders who are U.S. holders generally will not be
subject to backup withholding if they: (1) furnish a
correct taxpayer identification number and certify that they are
not subject to backup withholding on the substitute
Form W-9
included in the election form/letter of transmittal they are to
receive or (2) are otherwise exempt from backup
withholding. Stockholders who are not U.S. holders should
complete and sign a
Form W-8BEN
(or other applicable tax form) and return it to the paying agent
in order to provide the information and certification necessary
to avoid backup withholding tax or otherwise establish an
exemption from backup withholding tax. Certain of our
stockholders will be asked to provide additional tax information
in the letter of transmittal for the shares of our common stock.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules generally will be
allowed as a refund or a credit against your U.S. federal
income tax liability provided the required information is timely
furnished to the Internal Revenue Service.
As contemplated under the Merger Agreement, each of
Mr. Basham, Mr. Gannon, Mr. Sullivan,
Mr. Allen, Mr. Kadow and Mr. Montgomery will
acquire, and Parent will issue and transfer to such person, a
number of shares of common stock of Parent in exchange for the
contribution of such persons shares of OSI common stock to
Parent. This exchange is intended to qualify as a tax-free
exchange with respect to each such stockholder under
Section 351 of the Internal Revenue Code.
With respect to their shares of OSI common stock not contributed
to Parent, each of Mr. Basham, Mr. Gannon,
Mr. Sullivan, Mr. Allen, Mr. Kadow and
Mr. Montgomery will receive cash equal to the per share
merger consideration to be received by OSIs other
stockholders in the merger. For U.S. federal income tax
purposes, the disposition of these shares of OSI common stock
pursuant to the merger generally is expected to be treated as a
sale of OSI common stock for cash by each OSI Investor.
Accordingly, the U.S. federal income tax consequences are
expected to be the same as those described above.
The foregoing is a general discussion of certain material
U.S. federal income tax consequences. We recommend that you
consult your own tax advisor to determine the particular tax
consequences to you (including the application and effect of any
foreign, state or local income and other tax laws) of the
receipt of cash in exchange for shares of our common stock
pursuant to the merger.
Litigation
On November 8, 2006, a putative class action complaint
captioned Charter Township of Clinton Police and Fire
Retirement System v. OSI Restaurant Partners, Inc., et al.,
No. 06-CA-010348,
was filed in the Circuit Court of the 13th Judicial Circuit in
and for Hillsborough County, Florida against OSI, each of
OSIs directors, J. Timothy Gannon, Bain Capital Partners,
LLC, and Catterton Partners, challenging the proposed
transaction as unfair and inadequate to OSIs public
stockholders.
On January 25, 2007, plaintiffs counsel in the
Florida action voluntarily dismissed the action as to
Mr. Gannon and filed an amended complaint, which did not
name Mr. Gannon as a defendant, against the remaining
defendants. The amended complaint alleges that OSIs
directors breached their fiduciary duties in connection with the
proposed transaction by failing to maximize stockholder value
and by approving a transaction that purportedly benefits the OSI
Investors at the expense of OSIs public stockholders; that
the directors of OSI breached their fiduciary duties
73
by failing to disclose certain allegedly material information
to stockholders; and that OSI, Bain Capital and Catterton aided
and abetted the alleged fiduciary breaches. The amended
complaint seeks, among other relief, class certification of the
lawsuit, an injunction against the proposed transaction,
declaratory relief, compensatory and/or rescissory damages to
the putative class, and an award of attorneys fees and
expenses to plaintiffs. Following a case management conference,
the court granted plaintiff discovery from the defendants. On
February 23, 2007, defendants Brabson, Carey, Fields,
Franks, James, and Wilt answered the amended complaint and
asserted affirmative defenses. The other defendants filed
motions to dismiss the amended complaint on the same date.
On January 30, 2007, a class action complaint captioned
Robert Mann v. Chris T. Sullivan, et al.,
No. CA2709-N,
was filed in the Court of Chancery of Delaware in and for New
Castle County against the same defendants stated above,
including Mr. Gannon and except that Catterton Management
Company LLC was named as a defendant rather than Catterton
Partners. Paul E. Avery, Joseph J. Kadow, and Dirk A. Montgomery
were also named as defendants. The complaint alleges that
OSIs directors and the officer defendants breached their
fiduciary duties in connection with the proposed transaction,
and that Mr. Gannon, Bain Capital and Catterton aided and
abetted the alleged fiduciary breaches. The complaint seeks,
among other relief, an injunction against the proposed
transaction, declaratory relief, compensatory and/or rescissory
damages to the putative class, and an award of attorneys
fees and expenses to plaintiffs.
Counsel for the parties to these two suits have reached an
agreement in principle, expressed in a memorandum of
understanding, providing for the settlement of the suits subject
to Florida court approval and on terms and conditions that
include, among other things, certain supplemental disclosure in
this proxy statement and, in the event that any termination fee
becomes due and payable by OSI, an agreement by Bain Capital and
Catterton to waive a portion of such company termination fee.
Defendants have vigorously denied, and continue to vigorously
deny, any wrongdoing or liability with respect to all claims
asserted in these suits. If the Florida court approves the
settlement contemplated in the memorandum of understanding, both
suits will be dismissed with prejudice. The absence of an
injunction arising from these matters prohibiting the
consummation of the merger is a condition to the closing of the
merger. The settlement contemplated by the parties is expressly
conditioned upon the affirmative vote of a majority of the
outstanding shares of our common stock entitled to vote at the
special meeting (or any adjournment thereof) for the adoption of
the Merger Agreement with, and without, consideration as to the
vote of any shares held by the OSI Investors and on the closing
of the merger and the Merger Agreement and transactions
contemplated thereby. The defendants considered it desirable
that the actions be settled to avoid the burden, expense, risk,
inconvenience and distraction of continued litigation and to
resolve all of the claims that were or could have been brought
in the actions being settled.
Regulatory
Approvals
Under the Merger Agreement, we and the other parties to the
Merger Agreement have agreed to use our reasonable best efforts
to complete the transactions contemplated by the Merger
Agreement as promptly as practicable, including obtaining all
necessary governmental approvals. The
Hart-Scott-Rodino
Act provides that transactions such as the merger may not be
completed until certain information has been submitted to the
Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice and certain waiting period
requirements have been satisfied. OSI and Parent filed
notification reports with the Department of Justice and the
Federal Trade Commission under the
Hart-Scott-Rodino
Act on November 27, 2006. On December 22, 2006, the
Federal Trade Commission granted early termination of the
waiting period under the
Hart-Scott-Rodino
Act.
OSI and Merger Sub also filed a business combination report and
information sheet with the Korean Fair Trade Commission on
December 5, 2006, and subsequently filed additional
information on December 20, 2006. On December 22,
2006, the Korean Fair Trade Commission approved the merger.
Except as noted above with respect to the required filings under
the
Hart-Scott-Rodino
Act, the filings with the Korean Fair Trade Commission, and the
filing of a certificate of merger in Delaware at or before the
effective date of the merger, we are unaware of any material
federal, state or foreign regulatory requirements or approvals
required for the execution of the Merger Agreement or completion
of the merger.
74
IDENTITY
AND BACKGROUND OF FILING PERSONS
OSI
Restaurant Partners, Inc.
OSI Restaurant Partners, Inc., a Delaware corporation, is one of
the largest casual dining restaurant companies in the world,
with a portfolio of eight restaurant concepts, over 1,400
system-wide restaurants and 2006 annual revenues for
company-owned stores exceeding $3.9 billion. We operate in
all 50 states and in 20 countries internationally,
predominantly through company-owned stores, but we also operate
under a variety of partnerships and franchises.
OSIs principal executive offices are located at
2202 North West Shore Boulevard, Suite 500, Tampa,
Florida 33607, and its telephone number is
(813) 282-1225.
OSI
Executive Officers
A. William Allen III has served as Chief Executive
Officer of OSI since March 2005 and has been a director since
April 2005. From January 2004 to March 2005, Mr. Allen
served as President of West Coast Concepts of OSI. He is a
co-founder and was the President of Flemings Prime
Steakhouse & Wine Bar from October 1999 until January 2004.
Paul E. Avery has served as Chief Operating Officer of OSI since
March 2005. Mr. Avery was named President of Outback
Steakhouse of Florida, Inc. (OSF), a subsidiary of
OSI, in April 1997. Mr. Avery served as a director of OSI
from April 1998 to April 2004.
Michael W. Coble has served as President of Outback Steakhouse
International, Inc., a wholly owned subsidiary of OSI, since
January 2002 and as a director of that entity since April 2006.
Curt Glowacki has served as President of OSF since January 2007.
Mr. Glowacki served as President and Chief Executive
Officer of Mexican Restaurants, Inc., 1135 Edgebrook, Houston,
Texas 77034, from 2000 to 2006 and has been a director of that
entity since 2000.
Dirk A. Montgomery has served as Chief Financial Officer of OSI
since November 2005. Mr. Montgomery served as Retail Senior
Financial Officer of ConAgra Foods, Inc., One ConAgra Drive,
Omaha, Nebraska 68102, from November 2004 to October 2005. From
2000 to 2004, he was employed as Chief Financial Officer by
Express, a subsidiary of Limited Brands, Inc., Three Limited
Parkway, Columbus, Ohio, 43216.
Joseph J. Kadow has served as Chief Officer Legal
and Corporate Affairs and Executive Vice President of OSI since
April 2005, and General Counsel and Secretary since April 1994.
Mr. Kadow also served as Senior Vice President from April
1994 to April 2005.
Steven T. Shlemon has served as President of Carrabbas
Italian Grill, Inc. (Carrabbas), a
wholly-owned subsidiary of OSI, since April 2000.
OSI
Directors (other than Mr. Allen) and Director
Emeritus:
Debbi Fields has served as a director of OSI since 1996 and is
the founder of Mrs. Fields, Inc., 2855 East Cottonwood
Parkway, Suite 400, Salt Lake City, Utah 84121, an
international franchisor and operator of retail dessert stores,
serving as Chairman of the Board from 1992 to 1996. From 1996 to
2000, Ms. Fields worked as a consultant to
Mrs. Fields, Inc. after the company was sold to private
investors. From 2000 to 2007, she has been President and owner
of Debbi Fields Enterprises, 100 Ridgeway Loop, Suite 108,
Memphis, Tennessee 38120.
Thomas A. James has served as a director of OSI since 2002 and
has been the Chairman and Chief Executive Officer of Raymond
James Financial, Inc., a financial services company, since 1983,
and Chief Executive Officer of its subsidiary, Raymond James and
Associates, Inc., since 1969. The principal address for each
company is 880 Carillon Parkway, St. Petersburg, Florida 33716.
Chris T. Sullivan is a founder of OSI and has been the Chairman
of the Board of OSI since its formation in 1991.
Mr. Sullivan was the Chief Executive Officer of OSI from
1991 until March 2005.
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Robert D. Basham is a founder of OSI and was Chief Operating
Officer of OSI from its formation in 1991 until March 2005, at
which time he resigned as Chief Operating Officer and was
appointed Vice Chairman. Mr. Basham has been a director of
MarineMax, Inc., 18167 US 19 North, Suite 499, Clearwater,
Florida 33764, a recreational boat dealer, since January 2002.
John A. Brabson, Jr. has served as a director of OSI since
1992 and is a Partner of Everest Partners, LLC, a real estate
development company, and has been President of Brabson
Investments, Inc., a privately owned investment company, since
January 2000. The address for both companies is: 100 North Tampa
Street, Suite 2175, Tampa, Florida 33602.
W. R. Carey, Jr. has served as a director of OSI since
1992 and is a founder, and since 1981 has been President, of
Corporate Resource Development, 665 River Knoll Drive Marietta,
Georgia 30067, a sales and marketing consulting and training
firm. Mr. Carey is a director of Kforce, Inc., 1001 East
Palm Avenue, Tampa, Florida 33605, a national provider of
professional and technical specialty staffing services, since
October 1995, and of Lime Energy Corp., 1280 Landmeier Road, Elk
Grove, Illinois 60007, a developer, manufacturer and integrator
of energy saving technologies and building automation controls
as well as an independent developer of scalable, negative power
systems, since March 2006.
General (Ret.) Tommy Franks has served as a director of OSI
since 2005 and has been President of Franks &
Associates, LLC., a private consulting firm, since 2003. His
principal business address is RR1, Box 86A, Roosevelt,
Oklahoma 73564. General (Ret.) Franks served in the United
States Army from 1966 to 2003. In August 2003, he retired as a
four star general after commanding Operation Enduring Freedom in
Afghanistan and Operation Iraqi Freedom in Iraq. General (Ret.)
Franks is a director of Bank of America, 100 North Tryon Street
Charlotte, North Carolina 28255, a bank holding company and a
financial holding company under the Gramm-Leach-Bliley Act.
Lee Roy Selmon has served as a director of OSI since 1994 and
has been President of University of South Florida
(USF) Foundation Partnership for Athletics since
February 2004. Mr. Selmon has also been a director of Fifth
Third Bank, Florida region, which is a division of Fifth Third
Bancorp., 2150 Goodlette Road North, Naples, Florida 34102,
since January 2004. From May 2001 to February 2004,
Mr. Selmon was USFs Director of Athletics. The
principal address for USF is 4202 East Fowler Avenue, ADM241,
Tampa, Florida
33620-6150.
Toby S. Wilt has served as a director of OSI since 1997 and has
been Chairman of Christie Cookie Company, 4117 Hillsboro
Pike #104, Nashville, Tennessee 37215, a privately owned
gourmet cookie manufacturer, retailer and wholesaler, since
1989, and President of TSW Investment Company, 3737 West
End Avenue Unit #105, Nashville, Tennessee 37205, a
privately owned investment company, since 1987. Mr. Wilt
has been a director of
1st Source
Corporation, 100 North Michigan Street, South Bend, Indiana
46601, a registered bank holding company, since 2002, and TLC
Vision Corp, 5280 Solar Drive, Suite 100, Mississauga,
Ontario A6 00000, a diversified healthcare service company whose
primary business is eye care, since January 2004.
J. Timothy Gannon is a founder, director emeritus and
employee of OSI. Mr. Gannon has been employed by OSI since
1987. Mr. Gannon served as a director of the Company from
its formation to 2004. Mr. Gannon also served as Senior
Vice President of OSI from its formation until March 2005.
Each person identified above is a United States citizen. None of
OSI or any of OSIs executive officers, directors or
director emeritus has, during the past five years, been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors). None of OSI or any of OSIs
executive officers, directors or director emeritus has, during
the past five years, been a party to any judicial or
administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or
state securities laws, or a finding of any violation of federal
or state securities laws. Except as set forth above, the
business address of each person identified above is c/o OSI
Restaurant Partners, Inc., 2202 North West Shore Boulevard,
Suite 500, Tampa, Florida 33607.
Kangaroo
Holdings, Inc.
Kangaroo Holdings, Inc. is a Delaware corporation formed by Bain
Capital Funds and Catterton VI Funds in anticipation of the
merger. The OSI Investors are expected to exchange shares of OSI
common stock for shares of
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Parent in connection with the merger. Upon completion of the
merger, OSI will be a direct or indirect wholly owned subsidiary
of Parent. Parent currently has de minimis assets and no
operations. Parents principal executive offices are
c/o Bain Capital Partners, LLC, 111 Huntington Avenue,
Boston, Massachusetts 02199, and its telephone number is
(617) 516-2000.
Bain Capital is a global private investment firm whose
affiliates manage several pools of capital including private
equity, venture capital, public equity and leveraged debt assets
totaling approximately $40 billion. Since its inception in
1984, Bain Capital has made private equity investments and
add-on acquisitions in over 230 companies around the world,
including such restaurant and retail concepts as Dominos
Pizza, Dunkin Donuts and Burger King, and retailers
including Toys R Us, AMC Entertainment, Staples and
Burlington Coat Factory. Headquartered in Boston, Bain Capital
has offices in New York, London, Munich, Tokyo, Hong Kong and
Shanghai. Catterton is a leading private equity firm in the
United States focused exclusively on the consumer industry with
more than $2 billion in assets under management. Founded in
1990, Catterton invests in all major consumer segments,
including Food and Beverage, Retail and Restaurants, Consumer
Products and Services, and Media and Marketing Services.
Catterton has led investments in companies such as
Build-A-Bear
Workshop, Cheddars Restaurant Holdings Inc., P.F.
Changs China Bistro, Baja Fresh Mexican Grill, First Watch
Restaurants, Frederic Fekkai, Kettle Foods, Farleys and
Sathers Candy Co. and Odwalla, Inc.
Kangaroo
Acquisition, Inc.
Kangaroo Acquisition, Inc. is a Delaware corporation formed by
Parent in anticipation of the merger. Subject to the terms and
conditions of the Merger Agreement and in accordance with
Delaware law, at the effective time of the merger, Merger Sub
will merge with and into OSI and OSI will continue as the
surviving corporation. Merger Sub currently has de minimis
assets and no operations. Merger Subs principal executive
offices are c/o Bain Capital Partners, LLC,
111 Huntington Avenue, Boston, Massachusetts 02199, and its
telephone number is
(617) 516-2000.
Bain
Capital (OSI) IX, L.P.
Bain Capital (OSI) IX, L.P. is a
newly-formed Delaware limited partnership formed for the purpose
of investing in Parent.
Catterton
Partners VI, L.P.
Catterton Partners VI, L.P. is a Delaware limited partnership
engaged in the business of making private equity and other types
of investments.
Catterton
Partners VI, Offshore, L.P.
Catterton Partners VI, Offshore, L.P. is a Cayman Islands
exempted limited partnership engaged in the business of making
private equity and other types of investments.
Additional information concerning Parent, Merger Sub and the
Funds is set forth on Annex E to this proxy statement.
THE
SPECIAL MEETING
Time,
Place and Purpose of the Special Meeting
This proxy statement is being furnished to our stockholders as
part of the solicitation of proxies by our board of directors
for use at the special meeting to be held on Wednesday, April
25, 2007, beginning at 9:00 a.m., Eastern Daylight Time, at
the A La Carte Pavilion, 4050-B Dana Shores Drive, Tampa,
Florida 33634, or at any postponement or adjournment thereof.
The purpose of the special meeting is for our stockholders to
consider and vote upon the adoption of the Merger Agreement and
to approve the adjournment or postponement of the special
meeting, if necessary or appropriate, to solicit additional
proxies. Our stockholders must adopt the Merger Agreement for
the merger to occur. If our stockholders do not adopt the Merger
Agreement, the merger will not occur. A copy of the Merger
Agreement is attached to this proxy statement as Annex A.
This proxy statement and the enclosed form of proxy are first
being mailed to our stockholders on or about April 2, 2007.
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Record
Date and Quorum
The holders of record of our common stock as of the close of
business on March 28, 2007, the record date for the special
meeting, are entitled to receive notice of, and to vote at, the
special meeting. On the record date, there were
[75,521,662] shares of our common stock outstanding.
The holders of a majority of the outstanding shares of our
common stock at the close of business on the record date
represented in person or by proxy will constitute a quorum for
purposes of the special meeting. A quorum is necessary to hold
the special meeting. Once a share is represented at the special
meeting, it will be counted for the purpose of determining
whether a quorum is present at the special meeting and any
postponement or adjournment of the special meeting. However, if
a new record date is set for the adjourned or postponed special
meeting, then a new quorum must be established.
Required
Vote
Under Delaware law, the merger cannot be completed unless
holders of a majority of the outstanding shares of our common
stock entitled to vote at the close of business on the record
date for the special meeting vote for the adoption of the Merger
Agreement. In addition, the Merger Agreement requires that a
majority of the outstanding shares of our common stock entitled
to vote at the special meeting vote for the adoption of the
Merger Agreement without consideration as to the vote of any
shares held by the OSI Investors. Each outstanding share of our
common stock is entitled to one vote.
Approval of the proposal to adjourn or postpone the special
meeting, if necessary or appropriate, to solicit additional
proxies requires the affirmative vote of holders representing a
majority of the shares present in person or by proxy at the
special meeting.
As of the record date for the special meeting, the directors and
executive officers of OSI (other than the OSI Investors)
beneficially owned, in the aggregate, 138,775 shares of our
common stock, or approximately 0.18% of our outstanding common
stock. Persons other than the OSI Investors held 66,686,775
shares of our common stock, representing approximately 88.3% of
our outstanding common stock, as of such date. Those directors
and executive officers have informed us that they intend to vote
all of their shares of our common stock
FOR the adoption of the Merger
Agreement and FOR any adjournment or
postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies.
Proxies;
Revocation
If you are a stockholder of record and submit a proxy by
returning a signed proxy card by mail, your shares will be voted
at the special meeting as you indicate on your proxy card. If no
instructions are indicated on your proxy card, your shares of
OSI common stock will be voted FOR the
adoption of the Merger Agreement and FOR
any adjournment or postponement of the special meeting, if
necessary or appropriate, to solicit additional proxies. The
persons named as proxies may propose and vote for one or more
postponements or adjournments of the special meeting to solicit
additional proxies.
If your shares are held in street name by your
broker, you should instruct your broker how to vote your shares
using the instructions provided by your broker. If you have not
received such voting instructions or require further information
regarding such voting instructions, contact your broker and they
can give you directions on how to vote your shares. Under the
rules of the NYSE, brokers who hold shares in street
name for customers may not exercise their voting
discretion with respect to the approval of non-routine matters
such as the adoption of the Merger Agreement or approval of any
adjournment or postponement of the special meeting. Therefore,
absent specific instructions from the beneficial owner of the
shares, brokers are not empowered to vote the shares with
respect to the adoption of the Merger Agreement or approval of
any adjournment or postponement of the special meeting (i.e.,
broker non-votes). Shares of our common stock held
by persons attending the special meeting but not voting, or
shares for which we have received proxies with respect to which
holders have abstained from voting, will be considered
abstentions. Abstentions and properly executed broker non-votes,
if any, will be treated as shares that are present and entitled
to vote at the special meeting for purposes of determining
whether a quorum exists but will have
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the same effect as a vote Against the adoption of
the Merger Agreement and any adjournment or postponement of the
special meeting.
You may revoke your proxy at any time before the vote is taken
at the special meeting. To revoke your proxy, you must
(i) advise the Corporate Secretary of OSI of the revocation
in writing, (ii) submit by mail a new proxy card dated
after the date of the proxy you wish to revoke or
(iii) attend the special meeting and vote your shares in
person. Attendance at the special meeting will not by itself
constitute revocation of a proxy.
Please note that if you hold your shares in street
name and you have instructed your broker to vote your
shares, the options for revoking your proxy described in the
paragraph above do not apply and instead you must follow the
directions provided by your broker to change your vote.
If you participate in the OSI Restaurant Partners, Inc. Stock
Fund under the 401(k) Plan, you will receive a voting
instruction card which will provide Merrill Lynch Trust Company,
FSB, as trustee of the 401(k) Plan, with instructions on how to
vote the number of shares representing your proportionate
interest in the OSI Restaurant Partners, Inc. Stock Fund which
you are entitled to vote under the 401(k) Plan. You must submit
your voting instructions to the trustee by the close of business
on April 18, 2007, to allow the trustee time to receive
your voting instructions and vote on behalf of the 401(k) Plan.
You may revoke previously given voting instructions prior to
April 18, 2007, by filing with the trustee either a written
notice of revocation or a properly completed and signed 401(k)
Plan instruction card bearing a later date. Your voting
instructions will be kept confidential by the trustee.
OSI does not expect that any matter other than the adoption of
the Merger Agreement (and approval of the adjournment or
postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies) will be brought
before the special meeting. The persons appointed as proxies
will have discretionary authority to vote upon other business
unknown by OSI a reasonable time prior to the solicitation of
proxies, if any, that properly comes before the special meeting
and any adjournments or postponements of the special meeting.
Adjournments
and Postponements
The special meeting may be adjourned or postponed for the
purpose of soliciting additional proxies. Any adjournment may be
made without notice (if the adjournment is not for more than
30 days), other than by an announcement made at the special
meeting of the time, date and place of the adjourned meeting.
Whether or not a quorum exists, holders of a majority of the
shares of our common stock present in person or represented by
proxy at the special meeting and entitled to vote thereat may
adjourn the special meeting. If no instructions are indicated on
your proxy card, your shares of our common stock will be voted
FOR any adjournment or postponement of
the special meeting, if necessary or appropriate, to solicit
additional proxies. Any adjournment or postponement of the
special meeting for the purpose of soliciting additional proxies
will allow our stockholders who have already sent in their
proxies to revoke them at any time prior to their use at the
special meeting as adjourned or postponed.
Solicitation
of Proxies
OSI will pay the cost of this proxy solicitation. In addition to
soliciting proxies by mail, directors, officers and employees of
OSI may solicit proxies personally and by telephone, facsimile
or other electronic means of communication. These persons will
not receive additional or special compensation for such
solicitation services.
OSI will, upon request, reimburse brokers, banks and other
nominees for their expenses in sending proxy materials to their
customers who are beneficial owners and obtaining their voting
instructions. OSI has retained MacKenzie Partners, Inc. to
assist it in the solicitation of proxies for the special
meeting. OSI has paid MacKenzie Partners, Inc. a retainer of
$15,000 toward a final fee to be agreed upon based on customary
fees for the services provided, which fee will include the
reimbursement of out-of-pocket fees and expenses.
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Bain Capital Funds and Catterton VI Funds, directly or
through one or more affiliates or representatives, may, at their
own cost, also make additional solicitation by mail, telephone,
facsimile or other contact in connection with the merger. Bain
Capital has retained Georgeson Inc. and Innisfree M&A
Incorporated to assist in any solicitation efforts Bain Capital
Funds may decide to make in connection with the merger.
Georgeson
and/or
Innisfree may solicit proxies from individuals, banks, brokers,
custodians, nominees, other institutional holders and other
fiduciaries. Bain Capital has agreed to reimburse each of
Georgeson and Innisfree for its reasonable administrative and
out-of-pocket
expenses, to indemnify it against certain losses, costs and
expenses, and to pay a fee of up to $50,000 in connection with
such proxy solicitation.
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THE
MERGER AGREEMENT
This section of the proxy statement describes the material
provisions of the Merger Agreement but it may not contain all of
the information about the Merger Agreement that is important to
you. The Merger Agreement is attached as Annex A to this
proxy statement and is incorporated into this proxy statement by
reference. We encourage you to read the Merger Agreement in its
entirety. The Merger Agreement is a commercial document that
establishes and governs the legal relations among us, Parent and
Merger Sub with respect to the transactions described in this
proxy statement. We do not intend for the text of the Merger
Agreement to be a source of factual, business or operational
information about OSI or its subsidiaries. The Merger Agreement
contains representations, warranties and covenants that are
qualified and limited, including by information in the schedules
referenced in the Merger Agreement that the parties delivered in
connection with the execution of the Merger Agreement.
Representations and warranties are used as a tool to allocate
risks between the respective parties to the Merger Agreement,
including where the parties do not have complete knowledge of
all facts, instead of to establish such matters as facts.
Furthermore, the representations and warranties may be subject
to different standards of materiality applicable to the parties,
which may differ from what may be viewed as material to
stockholders or under the federal securities laws. These
representations may or may not have been accurate as of any
specific date and do not purport to be accurate as of the date
of this proxy statement. Moreover, information concerning the
subject matter of the representations and warranties may have
changed since the date of the Merger Agreement and subsequent
developments or new information qualifying a representation or
warranty may not have been included in this proxy statement.
Effective
Time; The Marketing Period
The effective time of the merger will occur at the time that we
file a certificate of merger with the Secretary of State of the
State of Delaware on the closing date of the merger (or such
later time as provided in such certificate). The closing date
will occur no later than the third business day after all of the
conditions to the merger set forth in the Merger Agreement have
been satisfied or waived (other than conditions that by their
nature are to be satisfied on the closing date) (or at such
other date as we and Parent may agree); provided that if such
conditions have been satisfied or waived but the Marketing
Period (as defined below) has not expired, then the closing will
occur on the date that is the earliest to occur of:
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a date during the Marketing Period specified by Parent on no
less than three business days notice to OSI;
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the final day of the Marketing Period; and
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April 30, 2007, if certain financial statements and
financial data customarily included in private placements
pursuant to Rule 144A of the Securities Act have been
furnished by us to Parent and Merger Sub on or prior to
April 2, 2007.
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The Marketing Period is defined in the Merger
Agreement as the period of 20 consecutive business days after
the fifth business day after the date we first mailed this proxy
statement to a stockholder throughout which:
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Parent and Merger Sub have such financial and other pertinent
information as may be reasonably requested by them to consummate
the debt financing, including all financial statements and
financial data customarily included in private placements
pursuant to Rule 144A promulgated under the Securities
Act; and
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the conditions to closing concerning the absence of a judgment
or order issued by any court or tribunal that prohibits
consummation of the merger and the termination or expiration of
the waiting period under the
Hart-Scott-Rodino
Act have been satisfied and no condition exists that would be
reasonably expected to cause any of the conditions to
Parents obligations to close not to be satisfied assuming
the closing were to be scheduled for any time during such
consecutive
20-day
period.
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Throughout the Marketing Period Parent and Merger Sub have
agreed:
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to use reasonable best efforts to satisfy on a timely basis the
conditions to obtaining the financing set forth in the debt
financing commitments obtained in connection with the
merger; and
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in the event that any portion of the debt financing becomes
unavailable on the terms and conditions contemplated in such
commitments, to use reasonable best efforts to obtain as
promptly as practicable alternative financing on terms and
conditions, taken as a whole, no less favorable to Parent or
Merger Sub as determined by Parent and Merger Sub in their
reasonable judgment.
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In addition, in the event that any portion of the debt financing
structured as high yield financing or real estate securitization
financing has not been consummated notwithstanding that the last
day of the Marketing Period has occurred, then, subject to
certain exceptions, Parent and Merger Sub must use the proceeds
of the bridge financing to replace the high yield financing or
real estate financing on the closing date. See Financing
Commitments; Cooperation of OSI below for a further
discussion of Parent and Merger Subs covenants relating to
the financing commitments.
Structure
Subject to the terms and conditions of the Merger Agreement and
in accordance with Delaware law, at the effective time of the
merger, Merger Sub will merge with and into OSI. The separate
corporate existence of Merger Sub will cease, and OSI will
continue as the surviving corporation and a direct or indirect
wholly owned subsidiary of Parent. The surviving corporation
will be a privately held corporation and our current
stockholders, other than the OSI Investors and the Additional
Management Investors, will cease to have any ownership interest
in the surviving corporation or rights as our stockholders.
Therefore, such current stockholders will not participate in any
future earnings or growth of the surviving corporation and will
not benefit from any appreciation in value of the surviving
corporation.
Treatment
of Stock, Stock Options and Other Stock-Based Awards
Common
Stock
At the effective time of the merger, each share of our common
stock issued and outstanding immediately prior to the effective
time of the merger will automatically be canceled and will cease
to exist and will be converted into the right to receive $40.00
in cash, without interest and less applicable withholding taxes,
other than shares of our common stock:
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held in our treasury or by any of our subsidiaries immediately
prior to the effective time of the merger, which shares will be
canceled without conversion or consideration;
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owned by Parent or Merger Sub immediately prior to the effective
time of the merger, which shares will be canceled without
conversion or consideration;
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held by stockholders who have properly demanded and perfected
their appraisal rights in accordance with Delaware law, which
shares will be entitled to payment of the fair value of such
shares in accordance with Delaware law; and
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owned by OSI Investors, and that will be canceled immediately
prior to the effective time and converted into a number of
shares of Parent common stock.
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After the effective time of the merger, each stock certificate
representing shares of common stock converted into the right to
receive the merger consideration will be canceled and cease to
exist and the holder of such certificate will have only the
right to receive the merger consideration of $40.00 in cash per
share, without any interest and less applicable withholding
taxes.
Stock
Options and Other Stock-Based Awards
Except as we otherwise agreed to in writing with Parent, Merger
Sub and the OSI Investors:
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each option to purchase shares of our common stock, whether
vested or unvested, that is outstanding immediately prior to the
effective time, will, as of the effective time, become fully
vested and be converted into the right to receive at the
effective time an amount in cash equal to the excess (if any) of
the $40.00 per share cash merger consideration over the
exercise price per share of the option, multiplied by the number
of
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shares subject to the option (such amount, the option
amount), without interest and less any applicable
withholding taxes;
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at the effective time, each account under our Directors
Deferred Compensation Plan, as amended, will become fully vested
and payable and will entitle each holder thereof to receive, at
the effective time, $40.00 per share in cash in respect of
each notional share credited to the holder under his or her
account;
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immediately prior to the effective time, each award of
restricted stock will be converted into the right to receive
$40.00 per share in cash, plus certain earnings thereon, less
any applicable withholding taxes, payable on a deferred basis at
the time the underlying restricted stock would have vested under
its terms as in effect immediately prior to the effective time
and subject to the satisfaction by the holder of all terms and
conditions to which such vesting was subject; provided, however,
that the holders deferred cash account will become
immediately vested and payable upon termination of such
holders employment by us without cause or upon such
holders death or disability; and
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at the effective time, all amounts held in the accounts
denominated in shares of our common stock under the Partner
Equity Deferred Compensation Stock Plan component of the PEP
will be converted into an obligation to pay cash with a value
equal to the product of (i) the $40.00 per share
merger consideration and (ii) the number of shares of our
common stock deemed held in such deferred unit account, in
accordance with the payment schedule and consistent with the
terms of the PEP as in effect from time to time.
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Exchange
and Payment Procedures
Prior to the effective time of the merger, Parent will deposit,
or will cause to be deposited, cash in an amount sufficient to
pay the merger consideration and the amount required by the
Merger Agreement to be so deposited with respect to stock
options and other stock-based awards with a bank or trust
company (the paying agent) reasonably acceptable to
us. As soon as reasonably practicable after the effective time
of the merger and in any event not later than the second
business day after the effective time, the paying agent will
mail a letter of transmittal and instructions to you and the
other holders of our common stock. The letter of transmittal and
instructions will tell you how to surrender your common stock
certificates in exchange for the merger consideration.
You should not return your stock certificates with the
enclosed proxy card, and you should not forward your stock
certificates to the paying agent without a letter of
transmittal.
You will not be entitled to receive the merger consideration
until you surrender your stock certificate or certificates to
the paying agent, together with a duly completed and executed
letter of transmittal and any other documents as may reasonably
be required by the paying agent. The merger consideration may be
paid to a person other than the person in whose name the
corresponding certificate is registered if the certificate is
properly endorsed or is otherwise in the proper form for
transfer. In addition, the person who surrenders such
certificate must establish to the reasonable satisfaction of the
surviving corporation that any applicable stock transfer taxes
have been paid or are not applicable.
No interest will be paid or will accrue on the cash payable upon
surrender of the certificates. The paying agent will be entitled
to deduct and withhold, and pay to the appropriate taxing
authorities, any applicable taxes from the merger consideration
and the option consideration. Any sum which is withheld and paid
to a taxing authority by the paying agent will be deemed to have
been paid to the person with regard to whom it is withheld.
At the effective time of the merger, our stock transfer books
will be closed, and there will be no further registration of
transfers of outstanding shares of our common stock. If, after
the effective time of the merger, certificates are presented to
the surviving corporation or Parent for transfer, they will be
canceled and exchanged for the merger consideration.
Any portion of the merger consideration deposited with the
paying agent that remains undistributed to the former holders of
shares for 18 months after the effective time of the merger
will be delivered, upon demand, to the surviving corporation.
Holders of certificates who have not surrendered their
certificates prior to the delivery of such funds to the
surviving corporation may only look to the surviving corporation
for the payment of the merger consideration. None of OSI, the
surviving corporation, Parent, Merger Sub, the paying agent or
any other person
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will be liable to any former holder of shares for any amount of
property delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any
portion of the merger consideration deposited with the paying
agent that remains unclaimed as of a date that is immediately
prior to such time as such amounts would otherwise escheat to or
become property of any governmental authority will, to the
extent permitted by applicable law, become the property of
Parent, free and clear of any claims or interest of any person
previously entitled to the merger consideration.
If you have lost a certificate, or if it has been stolen or
destroyed, then before you will be entitled to receive the
merger consideration, you will have to make an affidavit of that
fact and, if required by the paying agent, post a bond in a
customary amount as indemnity against any claim that may be made
against it with respect to that certificate.
Representations
and Warranties
We make various representations and warranties in the Merger
Agreement with respect to OSI, our subsidiaries and, in some
cases, certain joint ventures in which we own an equity or
ownership interest. These include representations and warranties
regarding:
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organization, good standing and qualification to do business;
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capitalization, including in particular the number of shares of
our common stock, stock options and other equity-based interests;
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corporate power and authority to enter into the Merger Agreement
and to consummate the transactions contemplated by the Merger
Agreement;
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the approval and recommendation by our board of directors and
special committee of the Merger Agreement, the merger and the
other transactions contemplated by the Merger Agreement;
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the absence of violations of or conflicts with governing
documents, applicable law or certain agreements as a result of
entering into the Merger Agreement and consummating the merger;
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the required consents and approvals of governmental entities in
connection with the transactions contemplated by the Merger
Agreement;
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SEC filings since December 31, 2003, including the
financial statements contained therein;
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internal controls and procedures;
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the absence of undisclosed liabilities;
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compliance with laws since January 1, 2005;
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possession of permits necessary to conduct our business;
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employment and labor matters, including matters relating to
employee benefit plans;
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the absence of certain changes or events;
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the absence of litigation and investigations;
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the accuracy of this proxy statement and the related
Schedule 13E-3;
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taxes and environmental matters;
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intellectual property;
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real property;
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the receipt by the special committee of a fairness opinion from
each of Wachovia Capital Markets, LLC and Piper
Jaffray & Co.;
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the required vote of our stockholders in connection with the
adoption of the Merger Agreement;
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material contracts to which we are a party;
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the absence of undisclosed brokers fees;
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insurance policies;
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the inapplicability of anti-takeover statutes to the merger;
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affiliate transactions; and
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outstanding indebtedness.
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Many of our representations and warranties are qualified by the
absence of a material adverse effect on OSI, which means, for
purposes of the Merger Agreement, any facts, circumstances,
events or changes that are materially adverse to the business,
financial condition or long-term profitability of OSI and its
subsidiaries, taken as a whole, excluding facts, circumstances,
events or changes:
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generally affecting the casual dining or restaurant industries
in the United States or the economy or the financial securities
markets in the United States or elsewhere in the world,
including regulatory and political conditions or developments
(including any outbreak or escalation of hostilities or acts of
war or terrorism) or changes in interest rates; provided (and
only to the extent) such change, effect, development, event or
occurrence does not have a disproportionate impact on us and our
subsidiaries as compared to other persons in the casual dining
or restaurant industries;
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to the extent resulting from (i) the announcement or the
existence of, or compliance with, the Merger Agreement or the
announcement of the merger and the other transactions
contemplated by the Merger Agreement, (ii) any litigation
arising from allegations of a breach of fiduciary duty or other
violation of applicable law relating to the Merger Agreement or
the transactions contemplated by the Merger Agreement or
(iii) changes in applicable laws, GAAP or accounting
standards; or
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to the extent resulting from (i) changes in the market
price or trading volume of our common stock; (ii) changes
in any analysts recommendations, any financial strength
rating or any other recommendations or ratings as to OSI or its
subsidiaries (including in and of itself, any failure to meet
analyst projections) or (iii) our failure to meet any
expected or projected financial or operating performance target
publicly announced prior to the date of the Merger Agreement; as
well as any change by us in any expected or projected financial
or operating performance target as compared with any target
publicly announced prior to the date of the Merger Agreement,
provided that in each case the facts, circumstances or events
underlying such change or failure shall not be excluded to the
extent such facts, circumstances or events would otherwise
constitute a company material adverse effect.
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Parent and Merger Sub make various representations and
warranties in the Merger Agreement with respect to Parent and
Merger Sub. These include representations and warranties
regarding:
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organization, good standing and qualification to do business;
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corporate or other power and authority to enter into the Merger
Agreement and to consummate the transactions contemplated by the
Merger Agreement;
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the absence of any violation of or conflict with their governing
documents, applicable law or certain agreements as a result of
entering into the Merger Agreement and consummating the merger;
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the absence of litigation and investigations;
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the accuracy of information supplied for inclusion or
incorporation by reference in this proxy statement and the
related
Schedule 13E-3;
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financing;
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capitalization of Merger Sub;
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the required vote to adopt the Merger Agreement;
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the absence of undisclosed brokers fees;
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lack of ownership of our common stock;
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ownership interest in our competitors;
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WARN Act;
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no additional representations;
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solvency; and
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agreements with our directors and management.
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The representations and warranties of each of the parties to the
Merger Agreement will expire upon the effective time of the
merger. You should be aware that these representations and
warranties made by OSI to Parent and Merger Sub and by Parent
and Merger Sub to OSI, as the case may be, subject to important
limitations and qualifications agreed to by the parties to the
Merger Agreement, may or may not be accurate as of the date they
were made and do not purport to be accurate as of the date of
this proxy statement.
Conduct
of Our Business Pending the Merger
Under the Merger Agreement, OSI has agreed that, subject to
certain exceptions, unless required by the Merger Agreement or
applicable law or Parent gives its written consent (which
consent may not be unreasonably withheld, delayed or
conditioned), between the date of the Merger Agreement and the
effective time of the merger:
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the business of OSI and its subsidiaries will be conducted in,
and it will not take any action except in, the ordinary course
of business; and
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OSI will use commercially reasonable efforts to direct the
business of certain of its joint ventures to be conducted in the
ordinary course of business.
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OSI has also agreed, on behalf of OSI and its subsidiaries, that
during the same time period, and unless required by the Merger
Agreement or applicable law or Parent gives its written consent
(which consent may not be unreasonably withheld, delayed or
conditioned), OSI:
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except in the ordinary course of business consistent with past
practice, will not, and will not permit any of its subsidiaries
that is not wholly owned to, authorize, declare or pay any
dividends on or make any distribution with respect to its
outstanding shares of capital stock, except (i) those paid
or made on a pro rata basis by subsidiaries and (ii) that
OSI may continue to pay regular quarterly cash dividends, which
are declared, announced and paid prior to the closing date
consistent with past practice (not to exceed $0.13 per
share per quarter);
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will not, and will not permit any of its subsidiaries to, split,
combine or reclassify any of its capital stock or other equity
securities or issue any other securities in respect of, in lieu
of or in substitution for shares of its capital stock or other
equity securities, except for any such transaction by a wholly
owned subsidiary of OSI which remains a wholly owned subsidiary
after consummation of such transaction;
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except as required by existing written agreements or OSI benefit
plans, or as otherwise required by applicable law, will not, and
will not permit any of its subsidiaries to:
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except in the ordinary course of business or as may be required
by contract, increase the compensation or other benefits
provided to OSIs present or former directors or officers;
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except in the ordinary course of business, approve or enter into
any employment, change of control, severance or retention
agreement with any employee of OSI; or
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subject to certain exceptions, establish, adopt, enter into,
amend, terminate or waive any rights with respect to any
(i) collective bargaining agreement or (ii) any plan,
trust, fund, policy or arrangement for the benefit of any
current or former directors or officers or any of their
beneficiaries, except, in the case of clause (ii) only, as
would not, individually or in the aggregate, result in a
material increase in cost to OSI;
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will not, and will not permit any of its subsidiaries to, change
in any material respects any financial accounting policies or
procedures or any of its methods of reporting income, deductions
or other material items for financial accounting purposes,
except as required by GAAP, SEC rule or policy or applicable law;
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will not, and will not permit any of its subsidiaries to, adopt
any amendments to its certificate of incorporation or bylaws or
similar applicable charter documents;
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except for transactions among OSI and its wholly owned
subsidiaries or among OSIs wholly owned subsidiaries, will
not, and will not permit any of its subsidiaries to, issue,
sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of its
capital stock or other ownership interest in OSI or its
subsidiaries or any securities convertible into or exchangeable
for any such shares or ownership interest, or any rights,
warrants or options to acquire or with respect to any such
shares of capital stock, ownership interest or convertible or
exchangeable securities or take any action to cause to be
exercisable any otherwise unexercisable option under any
existing stock option plan (except as otherwise provided by the
terms of the Merger Agreement or the express terms of any
unexercisable options outstanding on the date of the Merger
Agreement), other than:
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issuances of shares of OSI common stock in respect of any
exercise of OSI stock options and settlement of any OSI
stock-based awards in each case outstanding on November 5,
2006;
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issuances of shares of OSI common stock in the ordinary course
of business pursuant to OSI benefit plans;
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the sale of shares of OSI common stock pursuant to the exercise
of options to purchase OSI common stock if necessary to
effectuate an optionee direction upon exercise or for
withholding of taxes; and
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the grant of equity compensation awards in the ordinary course
of business consistent with past practice;
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except for transactions among OSI and its wholly owned
subsidiaries or among OSIs wholly owned subsidiaries and
except in the ordinary course of business consistent with past
practice, will not, and will not permit any of its subsidiaries
to, directly or indirectly, purchase, redeem or otherwise
acquire any shares of its capital stock or any rights, warrants
or options to acquire any such shares;
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will not, and will not permit any of its subsidiaries to, incur,
assume, guarantee, prepay or otherwise become liable for, modify
in any material respect the terms of, any indebtedness for
borrowed money or become responsible for the obligations of any
person, other than in the ordinary course of business consistent
with past practice and except for:
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any intercompany indebtedness for borrowed money among OSI and
its wholly owned subsidiaries or among OSIs wholly owned
subsidiaries;
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indebtedness for borrowed money incurred to replace, renew,
extend, refinance or refund certain existing indebtedness for
borrowed money without increasing the amount of such permitted
borrowings or incurring breakage costs; provided that any
road shows or similar marketing efforts of OSI, or
syndication by its financing sources, in connection with the
replacement, renewal, extension or refinancing of the existing
indebtedness for borrowed money will not occur during the
Marketing Period and during the period commencing five business
days immediately prior to the Marketing Period;
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guarantees by OSI of indebtedness for borrowed money of OSI,
which indebtedness for borrowed money is incurred in compliance
with the Merger Agreement;
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indebtedness for borrowed money incurred pursuant to the terms
of agreements in effect prior to the date of the Merger
Agreement, including amounts available but not borrowed as of
the date of the Merger Agreement, to the extent such agreements
were disclosed to Parent and Merger Sub; and
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indebtedness for borrowed money not to exceed $25,000,000 in
aggregate principal amount outstanding at any time incurred by
OSI or any of its subsidiaries other than in accordance with the
above;
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except for transactions among OSI and its wholly owned
subsidiaries or among OSIs wholly owned subsidiaries, will
not, and will cause its subsidiaries not to, sell, lease,
license, transfer, exchange or swap, mortgage or otherwise
encumber (including securitizations), or subject to any lien
(except certain permitted
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liens) or otherwise dispose of (whether by merger, consolidation
or acquisition of stock or assets, license or otherwise, and
including by way of formation of a joint venture) any material
portion of its or its subsidiaries material properties or
assets, including the capital stock of subsidiaries, other than
in the ordinary course of business consistent with past practice
and other than (i) pursuant to existing agreements in
effect prior to the date of the Merger Agreement or (ii) as
may be required by applicable law or any governmental entity in
order to permit or facilitate the consummation of the
transactions contemplated by the Merger Agreement;
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will not, and will not permit any of its subsidiaries to,
modify, amend, terminate or waive any rights under any material
contract, or any contract that would be a material contract if
in effect on the date of the Merger Agreement, in any material
respect in a manner which is adverse to OSI other than in the
ordinary course of business;
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will not, and will not permit any of its subsidiaries to, enter
into any material contracts other than in the ordinary course of
business;
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will not, and will not permit any of its subsidiaries to,
acquire (i) any corporation, partnership or other business
organization or division thereof or any assets, having a value
in excess of $3,000,000 individually or $10,000,000 in the
aggregate, other than purchases of inventory and other assets in
the ordinary course of business or (ii) any direct or
indirect interest in any existing partnership, joint venture or
restaurant from any other holder of an interest in any of the
foregoing or any franchisee;
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will not, and will not permit any of its subsidiaries to, open
or close, or commit to open or close, any restaurant locations
or enter into any partnership or joint venture, or authorize or
make any other capital expenditures, in each case other than in
the ordinary course of business;
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will not, and will not permit any of its subsidiaries to, make
any loans, advances or capital contributions to, or investments
in, any person, in each case other than (i) in the ordinary
course of business, (ii) pursuant to actions permitted by
the Merger Agreement or (iii) loans, advances and capital
contributions to, and investments in, OSI or a wholly owned
subsidiary of OSI;
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will not, and will not permit any of its subsidiaries to, enter
into, amend, waive or terminate (other than terminations in
accordance with their terms) any affiliate transaction (other
than continuing any affiliate transactions in existence on the
date of the Merger Agreement);
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will not, and will not permit any of its subsidiaries to, make
any material amendment in any tax return other than in the
ordinary course of business or make or change any material tax
election except in the ordinary course of business;
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will not, and will not permit any of its subsidiaries to, adopt
or enter into a plan of complete or partial liquidation,
dissolution, restructuring, recapitalization or other
reorganization of OSI, or any of its subsidiaries;
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will not, and will not permit any of its subsidiaries to, write
up, write down or write off the book value of any assets that
are, individually or in the aggregate, material to OSI and its
subsidiaries, taken as a whole, other than (i) in the
ordinary course of business or (ii) as may be required by
GAAP or applicable law;
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will not, and will not permit any of its subsidiaries to, pay,
discharge, waive, settle or satisfy any claim, liability or
obligation, other than (i) in the ordinary course of
business or (ii) any claim, liability or obligation not in
excess of $3,000,000 individually or $10,000,000 in the
aggregate;
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will not, and will not permit any of its subsidiaries to, agree,
or announce an intention, to take any of the foregoing actions;
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will not consent to or otherwise voluntarily agree to guarantee
or become liable for any indebtedness for borrowed money in
excess of amounts outstanding as of the date of the Merger
Agreement; and
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will use commercially reasonable efforts to direct the business
of certain of its joint ventures to be conducted in compliance
with the foregoing interim covenants as if such joint ventures
were subsidiaries of OSI.
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Stockholders
Meeting
The Merger Agreement requires us to duly call, give notice of
and hold a meeting of our stockholders to adopt the Merger
Agreement as promptly as reasonably practicable after the
mailing of this proxy statement. Subject to limited
circumstances contemplated by the Merger Agreement, our board of
directors is required to recommend that our stockholders vote in
favor of adoption of the Merger Agreement.
Solicitation
of Transactions; Recommendation to Stockholders
Solicitation
of Transactions
From the date of the Merger Agreement until 11:59 p.m. (New
York time) on December 26, 2006 (the solicitation
period), OSI and its subsidiaries and their respective
officers, employees, accountants, consultants and other
representatives had the right to:
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solicit, initiate or encourage any inquiry with respect to, or
the making, submission or announcement of, any alternative
proposal (which we define below); and
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participate in discussions or negotiations regarding, and
furnish to any person information with respect to, and take any
other action to facilitate any inquiries or the making of any
proposal that constitutes, or may lead to, an alternative
proposal.
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OSI, however, could not, and could not authorize or permit any
of its subsidiaries or representatives to, provide to any third
party any material non-public information unless OSI had
received from such third party an executed confidentiality
agreement with confidentiality provisions in form no more
favorable to such person than those confidentiality provisions
contained in the confidentiality agreement signed by OSI, Bain
Capital and Catterton.
An alternative proposal means any bona fide proposal
or offer made by any person or group of persons, other than
Parent or its subsidiaries, for:
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a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, dissolution, liquidation
or similar transaction involving OSI;
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the direct or indirect acquisition in a single transaction or
series of related transactions by any person of 25% or more of
the assets of OSI and its subsidiaries, taken as a whole;
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the direct or indirect acquisition in a single transaction or
series of related transactions by any person of 25% or more of
the outstanding shares of OSI common stock;
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any tender offer or exchange offer that if consummated would
result in any person beneficially owning 25% or more of OSI
common stock then outstanding; or
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all or a substantial portion of any of the following restaurant
chains: Outback Steakhouse, Bonefish Grill, Carrabbas
Italian Grill, Flemings Steakhouse and Roys.
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OSI has agreed that, subject to certain exceptions and the
solicitation period described above, it will not, its
subsidiaries will not and their respective representatives will
not (i) solicit, initiate or knowingly facilitate or
encourage any inquiry with respect to, or the making, submission
or announcement of, any alternative proposal;
(ii) participate in any negotiations regarding an
alternative proposal with, or furnish any non-public information
or access to its properties, books, records or personnel to, any
person that has made or, to OSIs knowledge, is considering
making an alternative proposal; (iii) engage in discussions
regarding an alternative proposal with any person that has made
or, to the OSIs knowledge, is considering making an
alternative proposal, except to notify such person as to the
existence of these restrictions; (iv) approve, endorse or
recommend any alternative proposal; (v) enter into any
letter of intent or agreement in principle or any agreement
providing for any alternative proposal (except for a
confidentiality agreement); (vi) otherwise cooperate with,
or assist or participate in, or knowingly facilitate or
encourage any effort or attempt by any person (other than
Parent, Merger Sub or their representatives) with respect to, or
which would reasonably be expected to result in, an alternative
proposal or (vii) exempt any person from the restrictions
contained in any state takeover or similar laws, or otherwise
cause such restrictions not to apply. The foregoing restriction
does not apply with respect to any person who has provided a
written indication
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of interest during the solicitation period that the OSI board of
directors or special committee believes in good faith could
reasonably be expected to result in a superior proposal (as
defined below). We refer to such person as an excluded
party.
In addition, subject to the following paragraph, and except as
may relate to an excluded party, following the end of the
solicitation period, OSI was required to immediately cease and
cause to be terminated any ongoing discussions or negotiations
with any parties with respect to an alternative proposal.
Notwithstanding the restrictions on solicitation described
above, at any time from the end of the solicitation period and
continuing until the earlier of receipt of stockholder approval
with respect to the Merger Agreement and the date of termination
of the Merger Agreement, if OSI receives an unsolicited bona
fide written alternative proposal:
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which (i) constitutes a superior proposal or
(ii) which the special committee or the board of directors
determines in good faith could reasonably be expected to result
in a superior proposal; and
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the special committee or the board of directors determines in
good faith, after consultation with the special committees
or OSIs legal counsel that the failure of the special
committee or the board of directors to take the actions set
forth below with respect to such alternative proposal would be
inconsistent with the directors exercise of their
fiduciary obligations to OSIs stockholders under
applicable law, then OSI may take the following actions:
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furnish non-public information to the third party making such
alternative proposal if prior to so furnishing such information,
OSI receives from the third party a confidentiality agreement
with confidentiality provisions in form no more favorable to
such person than those confidentiality provisions contained in
the confidentiality agreement signed by OSI, Bain Capital and
Catterton; and
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engage in discussions or negotiations with such third party with
respect to such alternative proposal.
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A superior proposal means an alternative proposal (but changing
the references to 25% or more in the definition of
alternative proposal to 50% or more) on terms that
the special committee or the board of directors determines in
good faith, after consulting with financial advisors and legal
counsel and considering matters it determines appropriate
(including the timing, ability to finance, financial and
regulatory aspects and likelihood of consummation of such
proposal, and any alterations to the Merger Agreement), is more
favorable to OSI and its stockholders than the transactions
contemplated by the Merger Agreement.
The Merger Agreement does not prohibit OSI or its board of
directors from taking and disclosing to OSIs stockholders
a position with respect to a tender or exchange offer by a third
party pursuant to SEC rules or from making any other disclosure
required by applicable law.
Recommendation
to Stockholders
The Merger Agreement provides that, subject to the exceptions
described below, neither the special committee nor the board of
directors will:
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withdraw or modify, or propose publicly to withdraw or modify in
a manner adverse to Parent, the approval or recommendation by
the special committee or the board of directors of the Merger
Agreement or the transactions contemplated by the Merger
Agreement;
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approve, adopt or recommend, or propose publicly to approve,
adopt or recommend, any alternative proposal;
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make any recommendation in connection with a tender offer or
exchange offer other than a recommendation against such
offer; or
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exempt any person from the restrictions contained in any state
takeover or similar laws, including Section 203 of the
Delaware General Corporation Law.
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We refer to each of the foregoing as a change of
recommendation. In response to the receipt of a superior
proposal that has not been withdrawn or abandoned, the special
committee or the board of directors may, at any time, make a
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change of recommendation if the special committee or the board
of directors has concluded in good faith, after consultation
with legal and financial advisors, that the failure of the
special committee or the board of directors to effect a change
of recommendation would be inconsistent with the directors
exercise of their fiduciary obligations under applicable law. No
change of recommendation may change the approval of the special
committee or our board of directors for purposes of causing any
state takeover statute or other state law to be inapplicable to
the transactions contemplated by the Merger Agreement.
Nothing in the Merger Agreement prohibits or restricts the
special committee or our board of directors from making a change
of recommendation to the extent that the special committee or
our board of directors determines in good faith, after
consultation with our or the special committees legal
counsel, that the failure of the special committee or our board
of directors to effect a change of recommendation would be
inconsistent with the directors exercise of their
fiduciary obligations to our stockholders under applicable law.
Employee
Benefits
Parent has agreed that it will honor all of our benefit plans
and compensation arrangements and agreements in accordance with
their terms in effect immediately before the effective time. For
a period of two years following the completion of the merger,
Parent will provide to each current employee of OSI and its
subsidiaries total compensation and benefits that are
substantially comparable in the aggregate to the total
compensation and benefits to employees immediately before the
effective time (except that Parent is not required to provide
equity based compensation, equity-based benefits and
nonqualified deferred compensation programs). Parent has the
ability to amend or terminate a benefit plan in the event such
amendment or termination is necessary to conform with applicable
laws.
Subject to certain limitations, for purposes of new employee
benefit plans provided to employees after completion of the
merger, each of our employees will be credited with his or her
years of service with us and our subsidiaries to the same extent
as such employee was entitled, before the effective time, to
credit for such service under any similar benefit plan. Such
credit for service will not apply with respect to benefit
accrual under any defined benefit pension plan or to the extent
that such credit would result in any duplication of benefits. In
addition, Parent must cause all preexisting condition exclusions
and
actively-at-work
requirements of each new employee benefit plan providing
medical, dental, pharmaceutical
and/or
vision benefits to any employee to be waived for such employee
and his or her covered dependents, unless such conditions would
not have been waived under the comparable prior plan of OSI or
its subsidiaries in which such employee participated immediately
prior to the effective time. Parent also must cause any eligible
expenses incurred by an employee and his or her covered
dependents during the portion of the plan year of the prior plan
of OSI ending on the date such employees participation in
the corresponding new employee benefit plan begins to be taken
into account under such new employee benefit plan for purposes
of satisfying all deductible, coinsurance and maximum
out-of-pocket
requirements applicable to such employee and his or her covered
dependents for the applicable plan year.
Parent has agreed to make the additional payments described
below in respect of buy-out options and
employment options. Buy-out options are options to
purchase shares of OSI common stock granted to managing partners
and chef partners upon completion of an employment contract.
Employment options are options to purchase shares of OSI common
stock granted to managing partners and chef partners upon the
commencement of an employment agreement.
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With respect to buy-out options held by managing partners and
chef partners currently employed by OSI (Current
Partners), Parent has agreed that if the cash amount that
a Current Partner receives in respect of a buy-out option
pursuant to the Merger Agreement plus the amount the Current
Partner has received in connection with any prior exercise of
part of that buy-out option is less than the Current Partner
would have received under the PEP, the Current Partner will
receive a supplemental PEP contribution equal to the difference.
The supplemental PEP contribution will be deposited into the PEP
and will be subject to applicable terms of the PEP, including
the distribution schedule under the PEP. Receipt of the
supplemental PEP contribution will be contingent upon execution
of an award agreement that will provide for the release of all
claims regarding the buy-out options. The aggregate amount of
the supplemental PEP contributions with respect to Current
Partners cannot exceed $32,300,000.
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With respect to buy-out options held by managing partners and
chef partners no longer employed by OSI (Former
Partners), Parent has agreed that if the cash amount that
a Former Partner receives in respect of a buy-out option
pursuant to the Merger Agreement plus the amount the Former
Partner has received in connection with any prior exercise of
part of that buy-out option is less than the Former Partner
would have received under the PEP, the Former Partner will
receive a supplemental PEP contribution equal to the difference.
The supplemental PEP contribution will be deposited into the PEP
(or a separate but substantially identical plan) and will be
subject to applicable terms of the PEP (or a separate but
substantially identical plan), including the distribution
schedule under the PEP (or a separate but substantially
identical plan). Receipt of the supplemental PEP contribution is
contingent upon execution of an award agreement that will
provide for the release of all claims regarding the buy-out
options. The aggregate amount of the supplemental PEP
contributions with respect to Former Partners cannot exceed
$9,600,000.
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With respect to Current Partners who hold employment options
(other than certain de minimis awards), Parent has agreed that
if the cash amount that a Current Partner receives in respect of
an employment option pursuant to the Merger Agreement plus the
amount the Current Partner has received in connection with any
prior exercise of part of that employment option is less than
$25,000, the Current Partner will receive a supplemental cash
payment equal to the difference. The supplemental cash payment
will be paid to the Current Partner upon the first to occur of
(i) completion of the Current Partners employment
term, (ii) termination of the Current Partners
employment due to death or disability or (iii) termination
of the Current Partners employment by OSI without
cause. A Current Partner will not receive the
supplemental cash payment if the Current Partner resigns or is
terminated for cause prior to completing the Current
Partners employment term. Receipt of the supplemental cash
payment will be contingent upon execution of an award agreement
that will provide for the release of all claims regarding the
employment options. The aggregate amount of the bonus awards
will not exceed $10,200,000.
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With respect to our non-executive home-office employees, we or
Parent following the effective time will establish a program to
grant options to purchase shares of Parent common stock on such
terms, in such amounts, and to such participants in such group
as the board of directors of Parent in consultation with our
Chief Executive Officer determines. In determining eligibility
for and the amount and terms of any awards under such program,
the board will take into account such factors as it deems
necessary or appropriate to advance the interests of OSI, which
factors may include the desire to take into account the
cancellation of stock options without any payment pursuant to
the Merger Agreement or to otherwise supplement value, if any,
realized by participants with respect to their stock options.
Indemnification
of Directors and Officers; Insurance
Parent and Merger Sub have agreed that all rights to
exculpation, indemnification and advancement of expenses now
existing in favor of our and our subsidiaries current or
former directors, officers or employees, as the case may be, as
provided in their respective organizational documents or in any
agreement will survive the merger and will continue in full
force and effect. For a period of six years from the effective
time, Parent and the surviving corporation must maintain in
effect exculpation, indemnification and advancement of expenses
provisions no less favorable in the aggregate than those of our
and our subsidiaries organizational documents in effect
immediately prior to the effective time or in any of our or our
subsidiaries indemnification agreements with any of our or
their respective directors, officers or employees in effect
immediately prior to the effective time, and must not modify any
such provisions, for a period of six years from the effective
time, in any manner that would adversely affect the rights
thereunder of any individuals who at the effective time were our
or our subsidiaries current or former directors, officers
or employees; provided, however, that all rights to
indemnification in respect of any action pending or asserted or
any claim made within such period will continue until the
disposition of such action or resolution of such claim.
Each of Parent and the surviving corporation must, to the
fullest extent permitted under applicable law, indemnify and
hold harmless each of our and our subsidiaries current and
former director or officer and each person who served as a
director, officer, member, trustee or fiduciary of another
corporation, partnership, joint venture, trust, pension or other
employee benefit plan or enterprise at our request, in and to
the extent of their capacities as such and not as our or our
subsidiaries stockholders
and/or
equity holders or otherwise against any costs or
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expenses, judgments, fines, losses, claims, damages, liabilities
and amounts paid in settlement in connection with any actual or
threatened claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative arising
out of, relating to or in connection with any action or omission
occurring or alleged to have occurred whether before or after
the effective time; provided, however, that the surviving
corporation will not be liable for any settlement effected
without the surviving corporations prior written consent.
For a period of six years from the effective time, Parent must
cause to be maintained in effect the current policies of
directors and officers liability insurance and
fiduciary liability insurance maintained by us or our
subsidiaries with respect to matters arising on or before the
effective time; provided that Parent is not required to pay
annual premiums in excess of 300% of the last annual premium
paid by us prior to the date of the Merger Agreement, but in
such case Parent must purchase as much coverage as reasonably
practicable for such amount. Parent must pay all reasonable
expenses that may be incurred by any indemnified party in
enforcing the indemnity and other obligations. The obligations
described above will survive the merger and are in addition to
other rights of the indemnified party.
Agreement
to Use Reasonable Best Efforts
Subject to the terms and conditions of the Merger Agreement,
each of the parties has agreed to use its reasonable best
efforts to complete the merger, including obtaining all
necessary approvals and consents from governmental entities or
third parties, defending any lawsuit challenging the merger and
delivering any additional instrument necessary to consummate the
merger. However, we are not required to pay and cannot (without
prior written consent of Parent) pay any material fee, penalty,
or other consideration to any landlord or other third party to
obtain any consent or approval required for the completion of
the merger.
Additionally, subject to the terms and conditions of the Merger
Agreement, OSI and Parent will (i) make their respective
filings under the
Hart-Scott-Rodino
Act within 15 days of the date of the Merger Agreement;
(ii) use reasonable best efforts to cooperate in
determining whether filings or consents are necessary to
complete the merger and timely make such filings or seek such
consents; (iii) use reasonable best efforts to consummate
the merger, including resolving any governmental antitrust or
other objections or impediments; (iv) promptly inform the
other party upon receipt of any material communication from a
governmental entity; and (v) keep each other apprised of
the status of matters relating to the merger.
Each of OSI and Parent have also agreed not to participate in
any substantive discussion with a governmental entity in
connection with the proposed transactions unless it notifies the
other party and gives the other party the opportunity to
participate in such discussion to the extent permitted by the
governmental entity. Neither OSI nor Parent is permitted to
extend any waiting period under the
Hart-Scott-Rodino
Act or enter into an agreement with a governmental entity
relating to the merger without the prior written consent of the
other party.
If any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted or
threatened to be instituted challenging the merger as violative
of any antitrust, competition or trade regulation law, each of
OSI and Parent will cooperate in all respects with each other
and will use their respective reasonable best efforts to contest
and resist any such action or proceeding and to have vacated,
lifted, reversed or overturned any decree, judgment, injunction
or other order, whether temporary, preliminary or permanent,
that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by the Merger
Agreement.
Financing
Commitments; Cooperation of OSI
Parent and Merger Sub will use their reasonable best efforts to
obtain the equity and debt financing necessary to consummate the
merger, on the terms and conditions described in the equity
commitment letter and debt commitment letter pursuant to which
certain lenders have committed to provide the financing,
including using their reasonable best efforts to:
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negotiate definitive agreements with respect thereto on the
terms and conditions contained in the financing commitments;
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satisfy on a timely basis all conditions to obtaining the
financing applicable to Parent and Merger Sub set forth in such
definitive agreements that are within its control; and
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comply with their obligations and enforce their rights under the
executed equity and debt commitment letters.
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Parent must keep us informed of the status of its efforts to
arrange the financing and must not permit any amendment or
modification to be made to, or any waiver of any material
provision or remedy under, the debt commitment letter except as
expressly permitted under the Merger Agreement. Parent must
notify us immediately in the event that Parent becomes aware of
any circumstance that makes procurement of any portion of the
financing unlikely to occur in the manner or from the sources
contemplated in the financing commitments, and Parent and Merger
Sub must use their respective reasonable best efforts to arrange
any such portion from alternative sources on terms and
conditions, taken as a whole, no less favorable to Parent or
Merger Sub. In addition, in the event that:
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all or any portion of the debt financing structured as high
yield financing or real estate securitization financing has not
been consummated notwithstanding that the last day of the
marketing period has occurred (see Effective Time; The
Marketing Period for a discussion of the marketing period);
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subject to limited exceptions, all closing conditions in the
Merger Agreement have been satisfied or waived; and
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the bridge facilities contemplated by the debt commitment letter
or alternative bridge financing obtained and the proceeds
thereof are available on the terms and conditions described in
the debt commitment letter (or replacement thereof),
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then Parent and Merger Sub will cause the proceeds of the bridge
financing to be used to replace the high yield financing or real
estate financing on the closing.
We have agreed to, and have agreed to cause our subsidiaries
(and to use our reasonable best efforts to cause our and their
respective representatives) to, provide such reasonable
cooperation as may be reasonably requested by Parent and Merger
Sub in connection with the financing or any alternative
financing, including using our reasonable best efforts to:
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subject to certain restrictions, cause, upon reasonable advance
notice by Parent and on a reasonable number of occasions,
appropriate officers and employees to be available on a
customary basis for meetings, including management and other
presentations and road show appearances,
participation in drafting and due diligence sessions, and the
preparation of disclosure documents in connection with any such
financing;
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cause our independent accountants and legal counsel to provide
assistance to Parent and Merger Sub (including providing
customary comfort) for fees consistent with our existing
arrangements with such accountants and legal counsel;
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furnish Parent and Merger Sub as promptly as practicable with
such financial and other pertinent information as may be
reasonably requested by Parent or Merger Sub, including all
financial statements and financial data of the type and form,
and for the periods, customarily included in private placements
under Rule 144A of the Securities Act to consummate the
offering of high yield debt securities contemplated by the debt
commitment letter;
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cooperate with the marketing efforts of Parent, Merger Sub and
their financing sources for any portion of the financings
contemplated by the debt commitment letter and assist Parent,
Merger Sub and their financing sources in the timely preparation
of offering documents and similar documents and materials for
lender and rating agency presentations;
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in connection with any real estate financing contemplated by the
debt commitment letter, allow Parent, Merger Sub and their
financing sources to perform reasonable and customary due
diligence related to such properties;
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satisfy the conditions precedent set forth in the debt
commitment letter (to the extent within our control or requiring
our action or cooperation); and
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obtain accountants comfort letters, surveys and title
insurance as reasonably requested by Parent.
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Conditions
to the Merger
The respective obligations of the parties to effect the merger
are subject to the satisfaction (or waiver by all parties) at or
prior to the effective time of the following conditions:
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the adoption of the Merger Agreement by our stockholders
(without considering the vote of any OSI common stock owned by
the OSI Investors);
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no law, judgment, injunction, order or decree by any court or
other tribunal of competent jurisdiction which prohibits the
consummation of the merger has been entered and is in effect;
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the expiration or termination of any applicable waiting period
(and any extension thereof) under the
Hart-Scott-Rodino
Act; and
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any other approvals required for the consummation, as of the
effective time, of the merger, other than approvals the failure
to obtain which would not have, individually or in the
aggregate, a material adverse effect, are obtained.
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Our obligation to effect the merger is further subject to the
fulfillment of the following conditions:
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(i) the representations and warranties of Parent and Merger
Sub with a materiality qualification must be true and correct in
all respects as of the date of the Merger Agreement and as of
the date the merger is completed, and (ii) the
representations and warranties of Parent and Merger Sub which
are not qualified by a materiality qualification must be true
and correct at and as of the date of the Merger Agreement and at
and as of date the merger is completed, except for such failures
to be true and correct as would not have, in the aggregate, a
material adverse effect; provided, however that in either case
to the extent that a representation or warranty expressly speaks
as of an earlier date, in which case it need be true and correct
only as of that date;
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Parent must have in all material respects performed all
obligations and complied with all the agreements required by the
Merger Agreement to be performed or complied with by it prior to
the effective time;
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Parent must have delivered to us a certificate with respect to
the satisfaction of the conditions relating to its
representations and warranties and obligations; and
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Parent must have caused to be deposited with the paying agent
cash in an aggregate amount sufficient to pay the merger
consideration and other amounts payable pursuant to the Merger
Agreement.
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The obligation of Parent to effect the merger is further subject
to the fulfillment of the following conditions:
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(i) our representations and warranties (other than our
representations and warranties concerning our capitalization,
the absence of an event or events having a material adverse
effect from December 31, 2005 through the date of the
Merger Agreement, the absence of an event or events having a
material adverse effect after the date of the Merger Agreement,
brokers fees and indebtedness, the Unqualified
Representations) set forth in the Merger Agreement which
are qualified by a material adverse effect qualification must be
true and correct in all respects as so qualified at and as of
the date of the Merger Agreement and at and as of the closing
date as though made at and as of the closing date, (ii) our
representations and warranties (other than the Unqualified
Representations) set forth in the Merger Agreement which are not
qualified by a material adverse effect qualification must be
true and correct at and as of the date of the Merger Agreement
and at and as of the closing date as though made at and as of
the closing date, except for such failures to be true and
correct as would not have, in the aggregate, a material adverse
effect, (iii) the Unqualified Representations must be true
and correct in all respects at and as of the date of the Merger
Agreement and at and as of the closing date as though made at
and as of the closing date (subject, in the case of each of the
Unqualified Representations (other than those concerning the
absence of an event or events having a material adverse effect),
to such inaccuracies as do not individually or in the aggregate
exceed $18,000,000), and (iv) our representations and
warranties concerning the absence of an event or events having a
material adverse effect must be true and correct in all respects
at and as of the date of the Merger Agreement and at and as of
the closing date as though made at and as of the closing date;
provided, however, that, with respect to (i), (ii),
(iii) and (iv) above, representations and warranties
that are made as of a particular date or period
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must be true and correct (in the manner set forth in
clauses (i), (ii), (iii) or (iv), as applicable) only
as of such date or period;
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we must have in all material respects performed all obligations
and complied with all the agreements required by the Merger
Agreement to be performed or complied with by us prior to the
effective time; and
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we have delivered to Parent a certificate with respect to the
satisfaction of the conditions relating to our representations
and warranties and obligations.
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Neither OSI nor Parent may rely, either as a basis for not
consummating the merger or for terminating the Merger Agreement
and abandoning the merger, on the failure of any condition to be
satisfied if such failure was caused by such partys breach
of any provision of the Merger Agreement or failure to use its
reasonable best efforts to consummate the merger and the other
transactions contemplated by the Merger Agreement.
Termination
The Merger Agreement may be terminated and abandoned at any time
prior to the effective time of the merger, whether before or
after stockholder approval has been obtained, as follows:
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by the mutual written consent of OSI and Parent;
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by either OSI or Parent if:
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the merger has not been consummated on or before April 30,
2007; provided that the party seeking to terminate must not have
breached in any material respect its obligations under the
Merger Agreement in any manner that proximately caused the
failure to consummate the merger on or before such date;
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an injunction, order, decree or ruling has been entered
permanently restraining, enjoining or otherwise prohibiting the
consummation of the merger and such injunction has become final
and non-appealable; provided that the party seeking to terminate
must have used its reasonable best efforts to remove such
injunction, order, decree or ruling as and to the extent
required by the Merger Agreement; or
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the special meeting (including any adjournments thereof) is
concluded and stockholder approval was not obtained; provided
that this right to terminate is not available to any party whose
breach of a representation or warranty or failure to fulfill any
obligation under the Merger Agreement caused the failure to
obtain such stockholder approval;
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Parent breaches or fails to perform in any material respect any
of its representations, warranties or agreements contained in
the Merger Agreement, which breach or failure to perform would
result in a failure of a condition to closing of the merger and
cannot be cured by April 30, 2007; provided that OSI
provides 30 days notice, which states the basis, to
Parent prior to such termination;
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the special committee or the board of directors has concluded in
good faith, after consultation with legal counsel and financial
advisors, that, in light of a superior proposal, it would be
inconsistent with the directors exercise of their
fiduciary duties to make or not withdraw the recommendation to
adopt the Merger Agreement or fail to effect a change of
recommendation; or
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Parent does not deposit the merger consideration and other
amounts payable pursuant to the Merger Agreement with the paying
agent within five business days after notice by OSI to Parent
that the mutual conditions and OSIs conditions are
satisfied (or, upon an immediate closing, would be satisfied)
and proceed immediately thereafter to give effect to a closing;
provided, however, that OSI will have no right to terminate
(i) based upon a notice which is delivered prior to the
final day of the marketing period or (ii) if it has not
furnished certain financial information on or prior to
April 2, 2007;
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by Parent, if OSI breaches or fails to perform in any material
respect any of its representations, warranties or agreements
contained in the Merger Agreement, which breach or failure to
perform would result in a failure of a condition to closing of
the merger and cannot be cured by April 30, 2007; provided
that Parent provides 30 days notice, which states the
basis, to OSI prior to such termination.
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In the event of termination of the Merger Agreement based on the
foregoing provisions, the Merger Agreement will terminate
(except for the confidentiality agreement, the provisions
concerning payment of termination fees and certain miscellaneous
provisions), and there will be no other liability on the part of
us or Parent to the other except, subject to certain
limitations, liability arising out of an intentional breach of
the Merger Agreement or as provided for in the confidentiality
agreement, in which case the aggrieved party shall be entitled
to all rights and remedies available at law or in equity.
Termination
Fees and Expenses
Payable
by OSI
Under the Merger Agreement, we are required to pay certain
termination fees and expenses to Parent as follows:
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if we terminate the Merger Agreement because the merger has not
been completed, through no fault of our own, by April 30,
2007 and concurrently with or within nine months after such
termination, we enter into any definitive agreement with respect
to a qualifying transaction (as defined below) that provides a
value per share not less than the merger consideration under the
Merger Agreement, we must reimburse Parent for the documented
out-of-pocket fees and expenses reasonably incurred by it in
connection with the Merger Agreement (not to exceed $7,500,000
in cash);
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if (i) prior to the termination of the Merger Agreement,
any alternative proposal (substituting 50% for the 25% threshold
set forth in the definition of alternative proposal) or the bona
fide intention of any person to make an alternative proposal (a
qualifying transaction) is publicly proposed or
publicly disclosed or otherwise made known to us prior to, and
not withdrawn at the time of, the special meeting; (ii) the
Merger Agreement is terminated by Parent or OSI because
stockholder approval was not obtained; and
(iii) concurrently with or within nine months after such
termination, any definitive agreement providing for a qualifying
transaction has been entered into and consummated, then we must
pay Parent or its designee a termination fee of $45,000,000 in
cash; or
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if we terminate the Merger Agreement after the end of the
solicitation period because the board of directors or special
committee concludes it must withdraw or change its
recommendation of the Merger Agreement in light of a superior
proposal, in accordance with its fiduciary obligations under
law, then we must pay to or as directed by Parent a termination
fee of $45,000,000 in cash.
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Upon payment of the termination fee, we will have no further
liability with respect to the Merger Agreement or the
transactions contemplated by the Merger Agreement to Parent or
its stockholders. In no event will we be required to pay the
termination fee on more than one occasion.
Payable
by Parent
In the event that we terminate the Merger Agreement because
(i) the mutual conditions to closing of the merger and
Parents conditions to closing would have been satisfied
had the closing been scheduled on April 30, 2007 and the
merger has not occurred on or before such date or
(ii) Parent has not deposited the merger consideration with
the paying agent pursuant to the Merger Agreement and proceeded
to close the merger within five business days after notice by
OSI to Parent that the mutual conditions to closing and
Parents conditions to closing are satisfied (or, upon an
immediate closing, would be satisfied), then Parent or its
affiliates must pay $45,000,000 to us.
We have agreed that (other than in the case of fraud) our right
to receive payment of a termination fee from Parent pursuant to
the terms of the Merger Agreement (and any guaranteed amount
from the guarantors pursuant to the guarantees) will be the sole
and exclusive remedy available to us, our affiliates and our
subsidiaries against Parent, Merger Sub, the guarantors and any
of their respective former, current, or future general or
limited partners, stockholders, managers, members, directors,
officers, affiliates or agents in the event that we have
incurred any losses or damages, or suffered any harm, with
respect to the Merger Agreement or the transactions contemplated
by the Merger Agreement (including any loss suffered as a result
of the failure of the merger to be consummated), and upon
payment of the termination fee, none of Parent, Merger Sub, the
guarantors or any of their respective former, current, or future
general or limited partners, stockholders, managers, members,
directors, officers, affiliates or
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agents will have any further liability or obligation relating to
or arising out of the Merger Agreement or the transactions
contemplated by the Merger Agreement under any theory for any
reason (except for intentional breach of the Merger Agreement).
In the case of any intentional breach of the Merger Agreement
(and irrespective of whether Parent has paid a termination fee),
Parent and the guarantors will in no event collectively be
directly or indirectly liable for losses and damages arising
from or in connection with such intentional breach in an
aggregate amount in excess of $215,000,000 (for the avoidance of
doubt, if Parent (or the guarantors) pay a termination fee, such
fee will be included in the calculation of such aggregate
amount), the maximum liability of each guarantor, directly or
indirectly, will be limited to the express obligations of such
guarantor under its guaranty, and in no event (other than in the
case of fraud) will we, our affiliates or our subsidiaries seek
or be entitled to recover any money damages in the aggregate in
excess of the guaranteed amount from Parent, Merger Sub, the
guarantors, or any of their respective former, current, or
future general or limited partners, stockholders, managers,
members, directors, officers, affiliates or agents.
Amendment
and Waiver
Any provision of the Merger Agreement may be amended or waived
at any time prior to the closing date of the merger, whether
before or after the adoption of the Merger Agreement by our
stockholders, if such amendment or waiver is in writing and
signed, in the case of an amendment by OSI, Parent and Merger
Sub, or in the case of a waiver, by the party against whom the
waiver is effective. However, after the Merger Agreement has
been adopted by our stockholders, there will be no amendment or
waiver that by law would require the further approval of our
stockholders without such approval having been obtained.
Specific
Performance
The parties to the Merger Agreement are entitled to an
injunction or injunctions to prevent breaches of the Merger
Agreement and to enforce specifically the terms and provisions
of the Merger Agreement.
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APPRAISAL
RIGHTS
The discussion of the provisions set forth below is not a
complete summary regarding your appraisal rights under Delaware
law and is qualified in its entirety by reference to the text of
the relevant provisions of Delaware law, which are attached to
this proxy statement as Annex D. Stockholders intending to
exercise appraisal rights should carefully review Annex D.
Failure to follow any of the statutory procedures precisely may
result in a termination or waiver of these rights.
If the merger is consummated, dissenting holders of our common
stock who follow the procedures specified in Section 262 of
the Delaware General Corporation Law within the appropriate time
periods will be entitled to have their shares of our common
stock appraised by a court and to receive the fair
value of such shares in cash as determined by the Delaware
Court of Chancery in lieu of the consideration that such
stockholder would otherwise be entitled to receive pursuant to
the Merger Agreement.
The following is a brief summary of Section 262, which sets
forth the procedures for dissenting from the merger and
demanding statutory appraisal rights. Failure to follow the
procedures set forth in Section 262 precisely could result
in the loss of appraisal rights. This proxy statement
constitutes notice to holders of our common stock concerning the
availability of appraisal rights under Section 262. A
stockholder of record wishing to assert appraisal rights must
hold the shares of stock on the date of making a demand for
appraisal rights with respect to such shares and must
continuously hold such shares through the effective time of the
merger.
Stockholders who desire to exercise their appraisal rights must
satisfy all of the conditions of Section 262. A written
demand for appraisal of shares must be filed with us before the
special meeting. This written demand for appraisal of shares
must be in addition to and separate from a vote against the
merger. Stockholders electing to exercise their appraisal rights
must not vote FOR the merger. Any
proxy or vote against the merger will not constitute a demand
for appraisal within the meaning of Section 262.
A demand for appraisal must be executed by or for the
stockholder of record, fully and correctly, as such
stockholders name appears on the share certificate. If the
shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand must be executed by
or for the fiduciary. If the shares are owned by or for more
than one person, as in a joint tenancy or tenancy in common, the
demand must be executed by or for all joint owners. An
authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder
of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in exercising the
demand, he is acting as agent for the record owner or owners. A
person having a beneficial interest in our 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
the steps summarized below and in a timely manner to perfect
whatever appraisal rights the beneficial owner may have.
A stockholder who elects to exercise appraisal rights should
mail or deliver the required written demand to us at our address
at 2202 North West Shore Boulevard, Suite 500, Tampa,
Florida 33607, Attention: Executive Vice President, Chief
Officer Legal and Corporate Affairs and Secretary.
The written demand for appraisal should specify the
stockholders name and mailing address, and that the
stockholder is demanding appraisal of his, her or its shares of
our common stock. Within ten days after the effective time of
the merger, we must provide notice of the effective time of the
merger to all of our stockholders who have complied with
Section 262 and have not voted for the merger.
Within 120 days after the effective time of the merger (but
not thereafter), any stockholder who has satisfied the
requirements of Section 262 may deliver to us a written
demand for a statement listing the aggregate number of shares
not voted in favor of the merger and with respect to which
demands for appraisal have been received and the aggregate
number of holders of such shares. We, as the surviving
corporation in the merger, must mail such written statement to
the stockholder no later than the later of 10 days after
the stockholders request is received by us or 10 days
after the latest date for delivery of a demand for appraisal
under Section 262.
Within 120 days after the effective time of the merger (but
not thereafter), either we or any stockholder who has complied
with the required conditions of Section 262 and who is
otherwise entitled to appraisal rights may file a petition in
the Delaware Court of Chancery demanding a determination of the
fair value of the shares of our
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common stock owned by stockholders entitled to appraisal rights.
We have no present intention to file such a petition if demand
for appraisal is made.
Upon the filing of any petition by a stockholder in accordance
with Section 262, service of a copy must be made upon us.
We must, within 20 days after 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 we have not reached agreements as to the value of their
shares. If we file a petition, the petition must be accompanied
by the verified list. The Register in Chancery, if so ordered by
the court, will give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to us
and to the stockholders shown on the list at the addresses
therein stated, and notice will also be given by publishing a
notice at least one 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
must be approved by the court, and we will bear the costs
thereof. The Delaware Court of Chancery may require the
stockholders who have demanded an appraisal for their shares
(and who hold stock represented by certificates) to submit their
stock certificates to the Register in Chancery for notation of
the pendency of the appraisal proceedings and the Delaware Court
of Chancery may dismiss the proceedings as to any stockholder
that fails to comply with such direction.
If a petition for an appraisal is filed in a timely fashion,
after a hearing on the petition, the court will determine which
stockholders are entitled to appraisal rights and will appraise
the shares owned by these stockholders, determining the fair
value of such shares, exclusive of any element of value arising
from the accomplishment or expectation of the merger, together
with a fair rate of interest to be paid, if any, upon the amount
determined to be the fair value.
Stockholders considering seeking appraisal of their shares
should note that the fair value of their shares determined under
Section 262 could be more, the same or less than the
consideration they would receive pursuant to the Merger
Agreement if they did not seek appraisal of their shares. The
costs of the appraisal proceeding may be determined by the court
and taxed against the parties as the court deems equitable under
the circumstances. Upon application of a dissenting stockholder,
the court may order that all or a portion of the expenses
incurred by any dissenting stockholder in connection with the
appraisal proceeding, including reasonable attorneys fees
and the fees and expenses of experts, be charged pro rata
against the value of all shares entitled to appraisal. In the
absence of a determination or assessment, each party bears his,
her or its own expenses. The exchange of shares for cash
pursuant to the exercise of appraisal rights generally will be a
taxable transaction for United States federal income tax
purposes and possibly state, local and foreign income tax
purposes as well. See Special Factors Material
United States Federal Income Tax Consequences of the
Merger on page 72.
Any stockholder who has duly demanded appraisal in compliance
with Section 262 will not, after the effective time of the
merger, be entitled to vote for any purpose the shares subject
to demand or to receive payment of dividends or other
distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior
to the effective time of the merger.
At any time within 60 days after the effective time of the
merger, any stockholder will have the right to withdraw his, her
or its demand for appraisal and to accept the terms offered in
the Merger Agreement. After this period, a stockholder may
withdraw his, her or its demand for appraisal and receive
payment for his, her or its shares as provided in the Merger
Agreement only with our consent. If no petition for appraisal is
filed with the court within 120 days after the effective
time of the merger, stockholders rights to appraisal (if
available) will cease. Inasmuch as we have no obligation to file
such a petition, any stockholder who desires a petition to be
filed is advised to file it on a timely basis. No petition
timely filed in the court demanding appraisal may be dismissed
as to any stockholder without the approval of the court, which
approval may be conditioned upon such terms as the court deems
just.
Failure by any stockholder to comply fully with the procedures
of Section 262 of the Delaware General Corporation Law (as
reproduced in Annex D to this proxy statement) may result
in termination of such stockholders appraisal rights. In
view of the complexity of Section 262, OSI stockholders who
may wish to dissent from the merger and pursue appraisal rights
should consult their legal advisors.
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INFORMATION
ABOUT OSI
OSIs
Business
We were incorporated in October 1987 as Multi-Venture Partners,
Inc., a Florida corporation, and in January 1990, we changed our
name to Outback Steakhouse, Inc. (Outback Florida).
Outback Steakhouse, Inc., a Delaware corporation (Outback
Delaware), was formed in April 1991 as part of a corporate
reorganization completed in June 1991 in connection with our
initial public offering, upon which Outback Delaware became a
holding company for Outback Florida. On April 25, 2006, we
changed our name from Outback Steakhouse, Inc. to OSI Restaurant
Partners, Inc. Unless the context requires otherwise, references
to the Company in this section Information
about OSI mean OSI Restaurant Partners, Inc., our wholly
owned subsidiaries and each of the limited partnerships and
joint ventures controlled by us and our subsidiaries.
In April 1993, we purchased a 50% interest in the cash flows of
two Carrabbas Italian Grill restaurants located in
Houston, Texas (the Original Restaurants), and
entered into a
50-50 joint
venture with the founders of Carrabbas to develop
additional Carrabbas Italian Grill restaurants.
Carrabbas was formed in January 1995. In January 1995, our
Founders obtained sole ownership of the Original Restaurants and
we obtained sole ownership of the Carrabbas Italian Grill
concept and four restaurants in Florida. At that time, the
original
50-50 joint
venture continued to develop restaurants in the State of Texas.
In March 2004, we purchased our Founders interest in the
nine existing Texas restaurants. We have the sole right to
develop restaurants, and we continue to be obligated to pay
royalties to our Founders ranging from 1.0% to 1.5% of sales of
Carrabbas Italian Grill restaurants opened after 1994.
In May 1995, through our wholly owned subsidiary, Outback
Steakhouse International, Inc., a Florida corporation, we
entered into an agreement with Connerty International, Inc. to
form Outback Steakhouse International, L.P., a Georgia
limited partnership to franchise Outback Steakhouse restaurants
internationally. In 1998, Outback Steakhouse International, L.P.
began directly investing in Outback Steakhouse restaurants in
certain markets internationally as well as continuing to
franchise restaurants. In May 2002, we purchased the 20%
interest in Outback Steakhouse International, L.P. that we did
not previously own.
In June 1999, we entered into an agreement with Roy Yamaguchi,
the founder of Roys restaurants (Roys),
through our wholly owned subsidiary, OS Pacific, Inc., a Florida
corporation, to develop and operate future Roys worldwide.
Roys is an upscale casual restaurant featuring
Hawaiian Fusion cuisine. There were two Roys
in the continental U.S., six Roys in Hawaii, two
Roys in Japan and one Roys in Guam at
December 31, 2006, in which we do not have an economic
interest.
In October 1999, we purchased three Flemings Steakhouse
restaurants through our wholly owned subsidiary, OS Prime, Inc.,
a Florida corporation. Flemings Steakhouse is an upscale
casual steakhouse format that serves dinner only and features
prime cuts of beef as well as fresh seafood, pork, veal and
chicken entrees and offers a selection of over 100 quality wines
available by the glass. Through September 1, 2004, we had
an agreement to develop and operate Flemings Steakhouse
restaurants with our partners in the Outback/Flemings LLC,
which is a consolidated entity. In January 2003, we acquired two
Flemings Steakhouses from the founders of Flemings
Steakhouse pursuant to an asset purchase agreement dated
October 1, 1999. In September 2004, we exercised our option
to purchase an additional 39% interest in Outback/Flemings
LLC after the twentieth restaurant was opened and we now own a
90% interest in Outback/Flemings LLC.
In 2000, through our wholly owned subsidiary, OS Southern, Inc.,
a Florida corporation, we opened one Selmons restaurant as
a developmental format. The second Selmons opened in 2003,
the third opened in 2005 and the fourth and fifth opened in 2006.
In October 2001, we purchased the Bonefish Grill restaurant
operating system from the founders of Bonefish Grill, through
our wholly owned subsidiary, Bonefish. At the same time, we
entered into an agreement to acquire an interest in three
existing Bonefish Grill restaurants and to develop and operate
additional Bonefish Grills. Bonefish Grill is a mid-scale,
casual seafood format that serves dinner only and features fresh
oak-grilled fish, fresh seafood, as well as beef, pork, chicken,
and pasta entrees. Under the terms of the Bonefish agreements,
the Company purchased the ownership interest of one of the
founders of Bonefish Grill subsequent to his death in January
2004.
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In August 2002, we opened one Cheeseburger in Paradise
(Cheeseburger) restaurant. It was opened as a
developmental format through our wholly owned subsidiary, OS
Tropical, Inc., a Florida corporation, and with our joint
venture partner, Cheeseburger Holding Company, LLC. In July
2005, Cheeseburger Holding Company, LLC transferred to OS
Tropical, Inc. its 40% interest in Cheeseburger in Paradise,
LLC. OS Tropical, Inc. is now the sole owner of Cheeseburger in
Paradise, LLC, the entity that owns and develops Cheeseburger
restaurants. In addition, in July 2005, the sublicense agreement
between Cheeseburger Holding Company, LLC and Cheeseburger in
Paradise, LLC was amended and restated to change the royalty
paid by Cheeseburger in Paradise, LLC from 2.0% to 4.5% of net
sales. Since 2002, we have continued to open additional
Cheeseburger restaurants and have 38 locations as of
December 31, 2006. Cheeseburger features gourmet hamburgers
and sandwiches, as well as retail merchandise inspired by Jimmy
Buffett.
In September 2003, we entered into an agreement to develop and
operate Paul Lees Chinese Kitchen (Paul
Lees) restaurants through our wholly owned
subsidiary, OS Cathay, Inc., a Florida corporation, and with our
joint venture partner, PLCK Holdings, LLC. Paul Lees was a
casual, suburban restaurant serving moderately priced
traditional Chinese dishes. Two Paul Lees opened in 2004,
and two opened in 2005. In January 2006, we entered into an
agreement in principle to sell our interest in the Paul
Lees joint venture to our partner but that sale was not
completed. All of the Paul Lees were closed in 2006.
On August 1, 2006, we opened our first Blue Coral in
Newport Beach, California. We entered into an agreement in July
2005 to form a limited liability company to develop and operate
Blue Coral restaurants. The limited liability company is 75%
owned by our wholly owned subsidiary, OS USSF, Inc., a Florida
corporation, and 25% owned by F-USFC, LLC, which is 95% owned by
a minority interest holder in our Flemings Steakhouse
joint venture. Blue Coral is an upscale casual seafood
restaurant that serves dinner only and features fresh seafood
entrees and spirits with a vodka bar.
Concepts
and Strategies
Our restaurant system includes full-service restaurants with
several types of ownership structures. At December 31,
2006, the system included restaurant formats and ownership
structures as listed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Domestic)
|
|
|
(International)
|
|
|
Carrabbas
|
|
|
|
|
|
Flemings
|
|
|
|
|
|
Cheeseburger
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback
|
|
|
Outback
|
|
|
Italian
|
|
|
Bonefish
|
|
|
Prime
|
|
|
|
|
|
In
|
|
|
Blue
|
|
|
Lee Roy
|
|
|
|
|
|
|
Steakhouses
|
|
|
Steakhouses
|
|
|
Grills
|
|
|
Grills
|
|
|
Steakhouses
|
|
|
Roys
|
|
|
Paradise
|
|
|
Coral
|
|
|
Selmons
|
|
|
Total
|
|
|
Company owned
|
|
|
679
|
|
|
|
118
|
|
|
|
229
|
|
|
|
112
|
|
|
|
45
|
|
|
|
23
|
|
|
|
38
|
|
|
|
1
|
|
|
|
5
|
|
|
|
1,250
|
|
Development Joint Venture
|
|
|
1
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Franchise
|
|
|
106
|
|
|
|
29
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
Total
|
|
|
786
|
|
|
|
162
|
|
|
|
229
|
|
|
|
119
|
|
|
|
45
|
|
|
|
23
|
|
|
|
38
|
|
|
|
1
|
|
|
|
5
|
|
|
|
1,408
|
|
Outback restaurants serve dinner only on weeknights; however,
many locations also serve an early dinner (opening
as early as noon, but using the same dinner menu) on one or both
days of the weekend. Outback features a limited menu of high
quality, uniquely seasoned steaks, prime rib, chops, ribs,
chicken, seafood and pasta and also offers specialty appetizers,
including the signature Bloomin Onion,
desserts and full liquor service. Carrabbas Italian Grill
restaurants serve dinner only and feature a limited menu of high
quality Italian cuisine including a variety of pastas, chicken,
seafood, veal and wood-fired pizza. Carrabbas Italian
Grill also offers specialty appetizers, desserts, coffees and
full liquor service. Flemings Steakhouse restaurants serve
dinner only and feature a limited menu of prime cuts of beef,
fresh seafood, veal and chicken entrees. Flemings
Steakhouse also offers several specialty appetizers and desserts
and a full service bar. The majority of Roys restaurants
serve dinner only and feature a limited menu of Hawaiian
Fusion cuisine that includes a blend of flavorful sauces
and Asian spices with a variety of seafood, beef, short ribs,
pork, lamb and chicken. Roys also offers several specialty
appetizers, desserts and full liquor service. Selmons
serves lunch and dinner and features Southern Style
comfort food.
Selmons also offers appetizers, desserts and full liquor
service. Bonefish Grill serves dinner only and features a
variety of fresh grilled fish complemented by a variety of
sauces. Bonefish Grill also offers specialty appetizers,
desserts and full liquor service. Cheeseburger serves dinner
only on weeknights, is open for lunch and dinner on weekends and
features gourmet hamburgers and sandwiches. Cheeseburger also
offers appetizers, desserts, full
102
liquor service and retail merchandise inspired by Jimmy Buffett.
Blue Coral serves dinner only and features fresh seafood entrees
and spirits with a vodka bar.
We believe that we differentiate our Outback Steakhouse,
Carrabbas Italian Grill, Flemings Steakhouse,
Roys, Selmons, Bonefish Grill, Cheeseburger and Blue
Coral restaurants by:
|
|
|
|
|
emphasizing consistently high quality ingredients and
preparation of a limited number of menu items that appeal to a
broad array of tastes;
|
|
|
|
attracting a diverse mix of customers through casual and upscale
dining atmospheres emphasizing highly attentive service;
|
|
|
|
hiring and retaining experienced restaurant management by
providing general managers the opportunity to purchase an
interest in the cash flows of the restaurants they
manage; and
|
|
|
|
limiting service to dinner only for the majority of our
locations (generally from 4:30 p.m. to 11:00 p.m.),
which reduces the hours of restaurant management and employees.
|
During the past year, we developed a plan at Outback Steakhouse
to optimize menu offerings and improve labor productivity. Some
initiatives include increased labor efficiency from improved
practices regarding food preparation and elimination of
pre-portioning work, as well as plateware initiatives to
slightly reduce excess sauces, vegetable, and salad serving
sizes. These initiatives are under way in all Outback
restaurants with positive initial results and targeted
completion during 2007. We also renegotiated several food supply
contracts in 2006 to generate savings. We are evaluating several
other actions, including rolling-out lunch service in certain
locations. We believe these initiatives could result in annual
operating improvements of $45 million at full
implementation, or a 1.25% expense reduction (as a percentage of
sales) in 2007 compared to 2006 and a 2.0% expense reduction (as
a percentage of sales) in each of the years 2008 through 2011
compared to 2006.
Outback
Steakhouse
Menu. The Outback Steakhouse menu includes
several cuts of freshly prepared, uniquely seasoned and seared
steaks, plus prime rib, barbecued ribs, pork chops, chicken,
seafood and pasta. The menu is designed to have a limited number
of selections to permit the greatest attention to quality while
offering sufficient breadth to appeal to all taste preferences.
We test new menu items to replace slower-selling items and
regularly upgrade ingredients and cooking methods to improve the
quality and consistency of our food offerings. The menu also
includes several specialty appetizers and desserts, together
with full bar service featuring Australian wine and Australian
beer. Alcoholic beverages account for approximately 12.5% of
domestic Outback Steakhouses revenues. The price range of
appetizers is $2.99 to $8.99 and the price range of entrees is
$7.49 to $29.99. The average check per person was approximately
$18.00 to $21.00 during 2006. The prices that we charge in
individual locations vary depending upon the demographics of the
surrounding area. Outback Steakhouses also offer a low-priced
childrens menu, and certain Outback Steakhouses also offer
a separate menu offering larger portions of prime beef with
prices ranging from $22.99 to $31.99.
Casual Atmosphere. Outback Steakhouses feature
a casual dining atmosphere with a decor suggestive of the rustic
atmosphere of the Australian outback. The decor includes blond
woods, large booths and tables and Australian memorabilia such
as boomerangs, surfboards, maps and flags.
Restaurant Management and Employees. The
general manager of each domestic Outback is required to purchase
a 10% interest in the restaurant he or she manages for $25,000
and is required to enter into a five-year employment agreement.
This interest gives the general manager the right to receive a
percentage of his or her restaurants annual cash flows for
the duration of the agreement. By requiring this level of
commitment and by providing the general manager with a
significant stake in the success of the restaurant, we believe
that we are able to attract and retain experienced and highly
motivated managers.
Outback
Steakhouse International
Menu. Outback Steakhouses international
restaurants have substantially the same core menu items as
domestic Outback locations, although certain side items and
other menu items are local in nature. Signature
103
Outback items are available in all locations. Local menus are
designed to have the same limited quantity of items and
attention to quality as those in the United States. The prices
that we charge in individual locations vary significantly
depending on local demographics and related local costs involved
in procuring product.
Casual Atmosphere. Outback International
locations look very much like their domestic counterparts,
although there is more diversity in certain restaurant layouts
and sizes. They range in size from 3,500 to 7,000 square
feet. Many tend to be multiple stories and some have customer
parking underneath the restaurant.
Restaurant Management and Employees. The
general manager of every unit is required to purchase a
participation interest in the restaurant he or she manages and
enter into an employment agreement. The amount and terms vary by
country. This interest gives the general manager the right to
receive a percentage of his or her restaurants annual cash
flows for the duration of the agreement.
Carrabbas
Italian Grill
Menu. The Carrabbas Italian Grill menu
includes several types of uniquely prepared Italian dishes
including pastas, chicken, seafood, and wood-fired pizza. The
menu is designed to have a limited number of selections to
permit the greatest attention to quality while offering
sufficient breadth to appeal to all taste preferences. We test
new menu items to replace slower-selling items and regularly
upgrade ingredients and cooking methods to improve quality and
consistency of our food offerings. The menu also includes
several specialty appetizers, desserts and coffees, together
with full bar service featuring Italian wines and specialty
drinks. Alcoholic beverages account for approximately 16% of
Carrabbas revenues. The price range of appetizers is $6.99
to $11.00 and the price of entrees is $10.99 to $22.00 with
nightly specials ranging from $9.49 to $26.99. The average check
per person was approximately $20.00 to $22.00 during 2006. The
prices that we charge in individual locations vary depending
upon the demographics of the surrounding area.
Casual Atmosphere. Carrabbas Italian
Grills feature a casual dining atmosphere with a traditional
Italian exhibition kitchen where customers can watch their meals
being prepared. The decor includes dark woods, large booths and
tables and Italian memorabilia featuring Carrabba family photos,
authentic Italian pottery and cooking utensils.
Restaurant Management and Employees. The
general manager of each Carrabbas Italian Grill is
required to purchase a 10% interest in the restaurant he or she
manages for $25,000 and is required to enter into a five-year
employment agreement. This interest gives the general manager
the right to receive a percentage of his or her
restaurants annual cash flows for the duration of the
agreement. By requiring this level of commitment and by
providing the general manager with a significant stake in the
success of the restaurant, we believe that we are able to
attract and retain experienced and highly motivated managers. In
addition, since our restaurants are generally open for dinner
only, we believe that we have an advantage in attracting and
retaining servers, food preparers and other employees who find
the shorter hours an attractive life-style alternative to
restaurants serving both lunch and dinner.
Bonefish
Grill
Menu. The Bonefish Grill menu offers fresh
grilled fish and other seafood uniquely prepared with a variety
of freshly prepared sauces. In addition to seafood, the menu
also includes beef, pork and chicken entrees, several specialty
appetizers and desserts. In addition to full bar service,
Bonefish offers a specialty martini list. Alcoholic beverages
account for approximately 26% of Bonefishs revenue. The
price range of entrees is $12.50 to $26.00. Appetizers range
from $5.50 to $14.90. The average check per person was
approximately $24.50 to $26.50 during 2006.
Casual Atmosphere. Bonefish offers a casual
dining experience in an upbeat, refined setting. The warm,
inviting dining room has hardwood floors, large booths and
tables and distinctive artwork inspired by Floridas
natural coastal setting.
Restaurant Management and Employees. The
general manager of each Bonefish is required to purchase a 10%
interest in the restaurant he or she manages for $25,000 and is
required to enter into a five-year employment agreement. This
interest gives the general manager the right to receive a
percentage of his or her restaurants annual cash flows for
the duration of the agreement. By requiring this level of
commitment and by providing the general
104
manager with a significant stake in the success of the
restaurant, we believe that we are able to attract and retain
experienced and highly motivated managers. In addition, since
our restaurants are generally open for dinner only, we believe
that we have an advantage in attracting and retaining servers,
food preparers and other employees who find the shorter hours an
attractive life-style alternative to restaurants serving both
lunch and dinner.
Flemings
Steakhouse
Menu. The Flemings Steakhouse menu
features prime cuts of beef, fresh seafood, as well as pork,
veal and chicken entrees. Accompanying the entrees is an
extensive assortment of freshly prepared salads and side dishes
available a la carte. The menu also includes several specialty
appetizers and desserts. In addition to full bar service,
Flemings Steakhouse offers a selection of over 100 quality
wines available by the glass. Alcoholic beverages account for
approximately 32% of Flemings Steakhouses revenue.
The price range of entrees is $20.50 to $37.95. Appetizers
generally range from $6.50 to $15.95 and side dishes range from
$4.95 to $11.50. The average check per person was approximately
$70.00 to $80.00 during 2006.
Upscale Casual Atmosphere. Flemings
Steakhouse offers an upscale dining experience in an upbeat,
casual setting. The décor features an open dining room
built around an exhibition kitchen and expansive bar. The
refined and casually elegant setting features lighter woods and
colors with rich cherry wood accents and high ceilings. Private
dining rooms are available for private gatherings or corporate
functions.
Restaurant Management and Employees. The
general manager of each Flemings Steakhouse is required to
purchase a 6% interest in the restaurant he or she manages for
$25,000 and is required to enter into a five-year employment
agreement. The chef of each Flemings Steakhouse is
required to purchase a 2% interest in the restaurant for $10,000
and is required to enter into a five-year employment agreement.
This interest gives the general manager and chef the right to
receive a percentage of their restaurants annual cash
flows for the duration of the agreement. By requiring this level
of commitment and by providing the general manager and chef with
a significant stake in the success of the restaurant, we believe
that we are able to attract and retain experienced and highly
motivated managers and chefs. In addition, since our restaurants
are open for dinner only, we believe that we have an advantage
in attracting and retaining servers, food preparers and other
employees who find the shorter hours an attractive life-style
alternative to restaurants serving both lunch and dinner.
Roys
Menu. Roys menu offers Chef Roy
Yamaguchis Hawaiian Fusion cuisine, a blend of
flavorful sauces and Asian spices and features a variety of fish
and seafood, beef, short ribs, pork, lamb and chicken. The menu
also includes several specialty appetizers and desserts.
Alcoholic beverages account for approximately 28% of Roys
revenue. In addition to full bar service, Roys offers a
large selection of quality wines. The price range of entrees is
$21.00 to $65.00. Appetizers range from $8.00 to $26.00. The
average check per person was approximately $50.00 to $60.00
during 2006.
Upscale Casual Atmosphere. Roys offers
an upscale casual dining experience, including spacious dining
rooms, an expansive lounge area, a covered outdoor dining patio
and Roys signature exhibition kitchen. Private dining
rooms are available for private gatherings or corporate
functions.
Restaurant Management and Employees. The
general manager of each Roys is required to purchase a 6%
interest in the restaurant he or she manages for $25,000 and is
required to enter into a five-year employment agreement. The
chef of each Roys is required to purchase a 5% interest in
the restaurant for $15,000 and is required to enter into a
five-year employment agreement. This interest gives the general
manager and chef the right to receive a percentage of their
restaurants annual cash flows for the duration of the
agreement. By requiring this level of commitment and by
providing the general manager and chef with a significant stake
in the success of the restaurant, we believe that we are able to
attract and retain experienced and highly motivated managers and
chefs. In addition, since our restaurants are open for dinner
only, we believe that we have an advantage in attracting and
retaining servers, food preparers and other employees who find
the shorter hours an attractive life-style alternative to
restaurants serving both lunch and dinner.
105
Cheeseburger
Menu. The Cheeseburger in Paradise menu offers
a signature cheeseburger, traditional American favorites, fresh
fish dishes, and Caribbean and New Orleans style creations. Each
Cheeseburger offers a Tiki Bar with an extensive drink menu,
including a variety of frozen drinks, as well as live
entertainment. Alcoholic beverages account for approximately 25%
of Cheeseburgers revenue. The price range of entrees is
$6.45 to $15.99. Appetizers range from $2.45 to $12.95. The
average check per person was approximately $12.50 to $13.50
during 2006.
Casual Atmosphere. Cheeseburger offers a
casual dining experience in an island setting. The exterior is a
Key West-style structure. The interior is island décor and
nautical sports paraphernalia scattered throughout weathered
woods, sailcloth, tin roofs, thatch and bamboo.
Restaurant Management and Employees. The
general manager of each Cheeseburger is required to purchase a
10% interest in the restaurant he or she manages for $25,000 and
is required to enter into a five-year employment agreement. This
interest gives the general manager the right to receive a
percentage of his or her restaurants annual cash flows for
the duration of the agreement. By requiring this level of
commitment and by providing the general manager with a
significant stake in the success of the restaurant, we believe
that we are able to attract and retain experienced and highly
motivated managers. In addition, since our restaurants are
generally open for dinner only during the week and open for
lunch and dinner only on weekends, we believe that we have an
advantage in attracting and retaining servers, food preparers
and other employees who find the shorter hours an attractive
life-style alternative to restaurants serving both lunch and
dinner.
Selmons
Menu. The Selmons menu features southern
comfort cooking, including meatloaf, barbecue ribs, pork and
chicken. Selmons also offers desserts and a
childrens menu. Alcoholic beverages account for
approximately 16% of Selmons revenue. The price range of
entrees is $7.49 to $20.99. Appetizers range from $6.99 to
$11.49. The average check per person was approximately $16.00 to
$18.00 during 2006.
Casual Atmosphere. Selmons features a
dining room and sports bar, complemented by Lee Roy Selmon and
other sports memorabilia. Televisions are located throughout the
bar and restaurant.
Restaurant Management and Employees. The
general manager of each Selmons is required to purchase a
10% interest in the restaurant he or she manages for $25,000 and
is required to enter into a five-year employment agreement. This
interest gives the general manager the right to receive a
percentage of his or her restaurants annual cash flows for
the duration of the agreement. By requiring this level of
commitment and by providing the general manager with a
significant stake in the success of the restaurant, we believe
that we are able to attract and retain experienced and highly
motivated managers.
Expansion
During the year ended December 31, 2006, we added
11 domestic Outback Steakhouses to our restaurant system as
a result of the opening of 18 Company-owned restaurants and
two franchise locations and the closing of nine
Company-owned restaurants. Also, we added 22 international
Outback Steakhouses as a result of the opening of
20 Company-owned restaurants, two franchise locations and
two development joint venture restaurant and the closing of two
franchise locations. We added 30 Bonefish Grills as a
result of the opening of 29 Company-owned restaurants and
one franchise location. In addition, we added the following
Company-owned restaurants to our restaurant system:
29 Carrabbas Italian Grills, six Flemings
Steakhouses, three Roys, 12 Cheeseburger restaurants,
two Selmons restaurants and one Blue Coral restaurant. In
2006, we closed one Company-owned Bonefish Grill, one
Cheeseburger and the four remaining Paul Lees restaurants.
Company-owned restaurants include restaurants owned by
partnerships in which we are a general partner and joint
ventures in which we are one of two members. Our ownership
interests in the partnerships and joint ventures generally range
from 50% to 90%. Company-owned restaurants also include
restaurants owned by our Roys consolidated venture in
which we have less than a majority ownership. We consolidate
this venture because we control the executive committee (which
functions as a board of directors) through representation on the
committee
106
by related parties, and we are able to direct or cause the
direction of management and operations on a
day-to-day
basis. Additionally, the majority of capital contributions made
by our partner in the Roys consolidated venture have been
funded by loans to the partner from a third party where we are
required to be a guarantor of the debt, which provides us
control through our collateral interest in the joint venture
partners membership interest. As a result of our
controlling financial interest in this venture, it is included
in Company-owned restaurants. We are responsible for 50% of the
costs of new restaurants operated under this consolidated joint
venture and our joint venture partner is responsible for the
other 50%. Our joint venture partner in the consolidated joint
venture funds its portion of the costs of new restaurants
through a line of credit that we guarantee. The results of
operations of Company-owned restaurants are included in our
consolidated operating results. The portion of income or loss
attributable to the other partners interest is eliminated
in the line item in our Consolidated Statements of Income
entitled Elimination of minority interest.
Development Joint Venture restaurants are organized as general
partnerships and joint ventures in which we are one of two
general partners and generally own 50% of the partnership and
our joint venture partner generally owns 50%. We are responsible
for 50% of the costs of new restaurants operated as Development
Joint Ventures and our joint venture partner is responsible for
the other 50%. Our investments in these ventures are accounted
for under the equity method, therefore the income derived from
restaurants operated as Development Joint Ventures is presented
in the line item Income from operations of unconsolidated
affiliates in our Consolidated Statements of Income.
Site Selection. We currently lease
approximately 70% of our restaurant sites. Our leased sites are
generally located in strip shopping centers; however, we do
build freestanding buildings on leased properties. In the
future, we expect to construct a significant number of
freestanding restaurants on owned or leased sites. We expect 40%
to 50% of new restaurants to be freestanding locations, of which
approximately 10% to 20% will be on owned property and 80% to
90% will be on leased property. We consider the location of a
restaurant to be critical to its long-term success and devote
significant effort to the investigation and evaluation of
potential sites. The site selection process focuses on trade
area demographics, and site visibility, accessibility and
traffic volume. We also review potential competition and the
profitability of national chain restaurants operating in the
area. Construction of a new restaurant takes approximately 90 to
180 days from the date the location is leased or under
contract and fully permitted.
We design the interior of our restaurants in-house and utilize
outside architects when necessary. A typical Outback Steakhouse
is approximately 6,200 square feet and features a dining
room and an island, full-service liquor bar. The dining area of
a typical Outback Steakhouse consists of 45 to 48 tables and
seats approximately 220 people. The bar area consists of
approximately ten tables and has seating capacity for
approximately 54 people. Appetizers and complete dinners are
served in the bar area.
A typical Carrabbas Italian Grill is approximately
6,500 square feet and features a dining room, pasta bar and
a full service liquor bar. The dining area of a typical
Carrabbas Italian Grill consists of 40 to 45 tables and
seats approximately 230 people. The liquor bar area includes six
tables and seating capacity for approximately 60 people, and the
pasta bar has seating capacity for approximately ten people.
Appetizers and complete dinners are served in both the pasta bar
and liquor bar.
A typical Flemings Steakhouse is approximately
7,100 square feet and features a dining room, a private
dining area, an exhibition kitchen and full service liquor bar.
The main dining area of a typical Flemings Steakhouse
consists of approximately 35 tables and seats approximately 170
people while the private dining area seats an additional 30
people. The bar area includes six tables and bar seating with a
capacity for approximately 35 people.
A typical Roys is approximately 7,100 square feet and
features a dining room, a private dining area, an exhibition
kitchen and full service liquor bar. The main dining area of a
typical Roys consists of approximately 41 tables and seats
approximately 155 people while the private dining area seats an
additional 50 people. The bar area includes six tables and bar
seating with a capacity for approximately 35 people.
A typical Bonefish Grill is approximately 5,500 square feet
and features a dining room and full service liquor bar. The
dining area of a typical Bonefish Grill consists of
approximately 38 tables and seats approximately 166 people. The
bar area includes four tables and bar seating with a capacity
for approximately 25 people.
107
A typical Cheeseburger is approximately 6,800 square feet
and features a dining room and full service Tiki bar. The dining
area of a typical Cheeseburger consists of approximately 22
tables and seats approximately 95 people. The bar area includes
21 tables and bar seating with a capacity for approximately 116
people and also features live music. The covered, exterior patio
consists of 12 tables and seats approximately 55 people.
Appetizers and complete dinners are served in the bar and patio
areas.
Selmons five locations range from 6,700 to
10,000 square feet and feature a dining room and full
service liquor bar. The dining area of Selmons consists of
approximately 30 to 46 tables and seats approximately 125
people. The bar area includes 16 to 18 tables and bar seating
with a capacity for approximately 85 to 105 people.
Restaurant
Locations
As of December 31, 2006, we had 1,408 system-wide
restaurants (including a total of 786 domestic Outback
Steakhouses, 162 international Outback Steakhouses, 229
Carrabbas Italian Grills, 119 Bonefish Grills,
45 Flemings Steakhouses, 23 Roys, five
Selmons, one Blue Coral and 38 Cheeseburger restaurants)
in the 50 states and 20 international countries detailed
below:
Company-Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
23
|
|
Kansas
|
|
14
|
|
New Jersey
|
|
29
|
|
Utah
|
|
6
|
Arizona
|
|
33
|
|
Kentucky
|
|
17
|
|
New Mexico
|
|
6
|
|
Vermont
|
|
1
|
Arkansas
|
|
10
|
|
Louisiana
|
|
19
|
|
New York
|
|
43
|
|
Virginia
|
|
60
|
California
|
|
14
|
|
Maine
|
|
1
|
|
North Carolina
|
|
60
|
|
West Virginia
|
|
8
|
Colorado
|
|
28
|
|
Maryland
|
|
38
|
|
North Dakota
|
|
1
|
|
Wisconsin
|
|
11
|
Connecticut
|
|
11
|
|
Massachusetts
|
|
22
|
|
Ohio
|
|
49
|
|
Wyoming
|
|
2
|
Delaware
|
|
3
|
|
Michigan
|
|
38
|
|
Oklahoma
|
|
15
|
|
|
|
|
Florida
|
|
190
|
|
Minnesota
|
|
11
|
|
Pennsylvania
|
|
41
|
|
Canada
|
|
10
|
Georgia
|
|
47
|
|
Mississippi
|
|
2
|
|
Rhode Island
|
|
2
|
|
Hong Kong
|
|
5
|
Hawaii
|
|
7
|
|
Missouri
|
|
20
|
|
South Carolina
|
|
37
|
|
Japan
|
|
11
|
Idaho
|
|
1
|
|
Montana
|
|
1
|
|
South Dakota
|
|
2
|
|
Philippines
|
|
2
|
Illinois
|
|
31
|
|
Nebraska
|
|
8
|
|
Tennessee
|
|
36
|
|
Puerto Rico
|
|
2
|
Indiana
|
|
30
|
|
Nevada
|
|
15
|
|
Texas
|
|
78
|
|
South Korea
|
|
88
|
Iowa
|
|
7
|
|
New Hampshire
|
|
4
|
|
|
|
|
|
|
|
|
Franchise
and Development Joint Venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
1
|
|
North Carolina
|
|
1
|
|
Australia
|
|
2
|
|
Malaysia
|
|
2
|
Alaska
|
|
1
|
|
Ohio
|
|
1
|
|
Bahamas
|
|
1
|
|
Mexico
|
|
4
|
California
|
|
61
|
|
Oregon
|
|
8
|
|
Brazil
|
|
14
|
|
Philippines
|
|
1
|
Florida
|
|
1
|
|
Pennsylvania
|
|
1
|
|
Canada
|
|
3
|
|
Singapore
|
|
1
|
Idaho
|
|
5
|
|
South Carolina
|
|
1
|
|
China
|
|
2
|
|
Taiwan
|
|
2
|
Mississippi
|
|
6
|
|
Tennessee
|
|
4
|
|
Costa Rica
|
|
1
|
|
Thailand
|
|
1
|
Montana
|
|
2
|
|
Washington
|
|
21
|
|
Guam
|
|
1
|
|
United Kingdom
|
|
6
|
|
|
|
|
|
|
|
|
Indonesia
|
|
2
|
|
Venezuela
|
|
1
|
For financial information about geographic areas, see
Note 17 of Notes to Consolidated Financial Statements
included under Financial Statements.
Management and Employees. The management staff
of a typical Outback Steakhouse, Carrabbas Italian Grill,
Selmons, Cheeseburger or Bonefish Grill consists of one
general manager, one assistant manager and one
108
kitchen manager. The management staff of a typical
Flemings Steakhouse or Roys consists of one general
manager, an executive chef and two assistant managers. Each
restaurant also employs approximately 55 to 75 hourly
employees, many of whom work part-time. The general manager of
each restaurant has primary responsibility for the
day-to-day
operation of his or her restaurant and is required to abide by
Company established operating standards.
Purchasing. Our management negotiates directly
with suppliers for most food and beverage products to ensure
uniform quality and adequate supplies and to obtain competitive
prices. We and our franchisees purchase substantially all food
and beverage products from authorized local or national
suppliers, and we periodically make advance purchases of various
inventory items to ensure adequate supply or obtain favorable
pricing. We currently purchase substantially all of our beef
from five suppliers, with whom we maintain good relationships.
Supervision and Training. We require our area
operating partners and restaurant general managers to have
significant experience in the full-service restaurant industry.
In addition, we have developed a comprehensive
12-week
training course that all operating partners and general managers
are required to complete. The program emphasizes our operating
strategy, procedures and standards. Our senior management meets
quarterly with our operating partners to discuss
business-related issues and share ideas. In addition, members of
senior management regularly visit the restaurants to ensure that
our concept, strategy and standards of quality are being adhered
to in all aspects of restaurant operations.
The restaurant general managers and area operating partners,
together with our Presidents, Regional Vice Presidents, Senior
Vice Presidents of Training and Directors of Training, are
responsible for selecting and training the employees for each
new restaurant. The training period for new non-management
employees lasts approximately one week and is characterized by
on-the-job
supervision by an experienced employee. Ongoing employee
training remains the responsibility of the restaurant manager.
Written tests and observation in the workplace are used to
evaluate each employees performance. Special emphasis is
placed on the consistency and quality of food preparation and
service which is monitored through monthly meetings between
kitchen managers and senior management.
Advertising and Marketing. We use radio and
television advertising in selected markets for Outback,
Carrabbas Italian Grill and Bonefish Grill where it is
cost-effective. Historically, our goal has been to develop a
sufficient number of restaurants in each market we serve to
permit the cost-effective use of radio and television
advertising. Our upscale casual restaurants are less dependent
on broadcast media and more dependent on site visibility and
local marketing. We engage in a variety of promotional
activities, such as contributing goods, time and money to
charitable, civic and cultural programs, in order to increase
public awareness of our restaurants.
General
Manager and Area Operating Partner Programs
The general manager of each Company-owned domestic Outback,
Carrabbas Italian Grill, Bonefish Grill, Selmons,
and Cheeseburger restaurant is required, as a condition of
employment, to sign a five-year employment agreement and is
required to purchase a 10% interest in the restaurant he or she
is employed to manage. The general manager of each Company-owned
Flemings Steakhouse and Roys is required, as a
condition of employment, to sign a five-year employment
agreement and is required to purchase a 6% interest in the
restaurant he or she is employed to manage. The chef of each
Company-owned Flemings Steakhouse and Roys is
required, as a condition of employment, to sign a five-year
employment agreement and is required for Flemings
Steakhouse to purchase a 2% interest and for Roys to
purchase a 5% interest in the restaurant. We require each new
unaffiliated franchisee to provide the same opportunity to the
general manager of each new restaurant opened by that
franchisee. To date, the purchase price for the 10% interest in
Outback, Carrabbas Italian Grill, Bonefish Grill,
Cheeseburger and Selmons and the 6% interest in
Flemings Steakhouse and Roys has been fixed at
$25,000, and the purchase price for chef partners ranges from
$10,000 to $15,000, which may be refundable under certain
conditions as defined in the employment agreement. This interest
gives the general manager and chef the right to receive a
percentage of their restaurants annual cash flows for the
duration of the agreement. During the term of employment, each
general manager and chef is prohibited from selling or otherwise
transferring his or her interest, and after the term of
employment, any sale or transfer of that interest is subject to
certain rights of first refusal as defined in the employment
agreement. In addition, each general manager and chef is
required to sell his or her interest to his or her
109
employer or our general partners upon termination of employment
on terms set forth in his or her employment agreement. In the
first quarter of 2006, we implemented changes to our general
manager partner and chef partner program that are effective for
all new general manager partner and chef partner employment
agreements signed after March 1, 2006. Upon completion of
each five-year term of employment, the general managers and
chefs will participate in a deferred compensation program in
lieu of receiving stock options under the historical plan. All
general manager and chef partners then under contract were given
an opportunity to elect participation in the new plan and
substantially all partners converted. Future cash funding
requirements of the deferred compensation program will vary
significantly depending on timing of partner contracts,
forfeiture rates and numbers of partner participants.
Area operating partners are required, as a condition of
employment, to purchase a 4% to 9% interest in the restaurants
they develop for an initial investment of $50,000. This interest
gives the area operating partner the right to receive a
percentage of his or her restaurants annual cash flows for
the duration of the agreement. When area operating partner
buyouts occur, they are completed primarily through cash and
issuance of our common stock to the partner equivalent to the
fair value of their interest. We intend to continue the area
operating partner program.
Ownership
Structures
Our ownership interests in each of our restaurants are divided
into two basic categories: (i) Company-owned restaurants
that are owned by general partnerships in which we are a general
partner and own a controlling financial interest or in which we
exercise control while holding less than a majority ownership,
and (ii) development joint ventures. The results of
operations of Company-owned restaurants are included in our
Consolidated Statements of Income, and the results of operations
of restaurants owned by development joint ventures are accounted
for using the equity method of accounting.
Competition
The restaurant industry is intensely competitive with respect to
price, service, location and food quality, and there are many
well-established competitors with greater financial and other
resources than ours. Some of our competitors have been in
existence for a substantially longer period than we have and may
be better established in the markets where our restaurants are
or may be located. Changes in consumer tastes, local, regional,
national or international economic conditions, demographic
trends, traffic patterns and the type, number and location of
competing restaurants often affect the restaurant business. In
addition, factors such as inflation, increased food, labor and
benefits costs, energy costs, consumer perceptions of food
safety and the availability of experienced management and hourly
employees may adversely affect the restaurant industry in
general and our restaurants in particular.
Seasonality
and Quarterly Results
Our business is subject to seasonal fluctuations. Historically,
customer spending patterns for our established restaurants are
generally highest in the first quarter of the year and lowest in
the third quarter of the year. Additionally, holidays, severe
winter weather, hurricanes, thunderstorms and similar conditions
may affect sales volumes seasonally in some of the markets where
we operate. Quarterly results have been and will continue to be
significantly affected by the timing of new restaurant openings
and their associated pre-opening costs. As a result of these and
other factors, our financial results for any given quarter may
not be indicative of the results that may be achieved for a full
fiscal year.
Unaffiliated
Franchise Program
At December 31, 2006, there were 106 domestic franchised
Outback Steakhouses and 29 international franchised Outback
Steakhouses. Each unaffiliated domestic franchisee paid an
initial franchise fee of $40,000 for each restaurant and pays a
continuing monthly royalty of 3% of gross restaurant sales and a
monthly marketing administration fee of 0.5% of gross restaurant
sales. Initial fees and royalties for international franchisees
vary by market. Each unaffiliated international franchisee paid
an initial franchise fee of $40,000 to $200,000 for each
restaurant and pays a continuing monthly royalty of 3% to 4% of
gross restaurant sales. In addition, until such time
110
as we establish a national advertising fund or a regional
advertising cooperative, all domestic unaffiliated franchisees
are required to expend, on a monthly basis, a minimum of 3% of
gross restaurant sales on local advertising. Once we establish a
national advertising fund or a regional advertising cooperative,
covered domestic franchisees will be required to contribute, on
a monthly basis, 3.5% of gross restaurant sales to the fund or
cooperative in lieu of local advertising.
At December 31, 2006, there were seven domestic franchised
Bonefish Grills. Four of the unaffiliated domestic franchisees
paid an initial franchise fee of $50,000 for each restaurant and
pay a continuing monthly royalty of 4% of gross restaurant
sales. Three of the seven domestic franchised locations are
located in Washington and have a modified method for paying
royalties. Royalty payments can range from 0% to 4% depending on
sales volumes. In addition, under the terms of the franchise
agreement, until such time as we establish a national
advertising fund or a regional advertising cooperative, all
domestic unaffiliated franchisees are required to expend, on a
monthly basis, a minimum of 3% of gross restaurant sales on
local advertising and pay a monthly marketing administration fee
of 0.5% of gross restaurant sales. Once we establish a national
advertising fund or a regional advertising cooperative, covered
domestic franchisees will be required to contribute, on a
monthly basis, 3.5% of gross restaurant sales to the fund or
cooperative in lieu of local advertising.
There were no unaffiliated franchises of Carrabbas Italian
Grill, Flemings Steakhouse, Roys, Cheeseburger,
Selmons, or Blue Coral at December 31, 2006.
All unaffiliated franchisees are required to operate their
Outback Steakhouse and Bonefish Grill restaurants in compliance
with our methods, standards and specifications regarding such
matters as menu items, ingredients, materials, supplies,
services, fixtures, furnishings, decor and signs, although the
franchisee has full discretion to determine the prices to be
charged to customers. In addition, all franchisees are required
to purchase all food, ingredients, supplies and materials from
suppliers approved by us.
Employees
We employ approximately 116,000 persons, approximately 700 of
whom are corporate personnel employed by OSI Restaurant
Partners, Inc. Approximately 5,100 are restaurant management
personnel and the remainder are hourly restaurant personnel. Of
the approximately 700 corporate employees, approximately 105 are
in management and 595 are administrative or office employees.
None of our employees are covered by a collective bargaining
agreement.
Trademarks
We regard our Outback Steakhouse, Carrabbas Italian Grill,
Flemings Steakhouse, Roys, Cheeseburger, Bonefish
Grill, Blue Coral and Selmons service marks and our
Bloomin Onion trademark as having significant
value and as being important factors in the marketing of our
restaurants. We have also obtained a trademark for several other
of our menu items, and the No Rules. Just Right.,
Aussie Mood. Awesome Food. and other advertising
slogans. We are aware of names and marks similar to our service
marks used by other persons in certain geographic areas in which
we have restaurants. However, we believe such uses will not
adversely affect us. Our policy is to pursue registration of our
marks whenever possible and to oppose vigorously any
infringement of our marks.
OSIs
Properties
We currently lease approximately 70% of our restaurant sites
domestically and 98% of our restaurant sites internationally. In
the future, we intend to continue to construct and own a
significant number of new restaurants on owned or leased land.
Initial lease expirations primarily range from five to ten
years, with the majority of the leases providing for an option
to renew for one or more additional terms. All of our leases
provide for a minimum annual rent, and most leases call for
additional rent based on sales volume at the particular location
over specified minimum levels. Generally, the leases are net
leases that require us to pay the costs of insurance, taxes and
a portion of lessors operating costs. For a listing of
restaurant locations, see OSIs
Business Restaurant Locations beginning on
page 108.
111
As of December 31, 2006, we lease approximately
152,000 square feet of office space in Tampa, Florida,
under a lease expiring in 2014 (with the exception of
approximately 16,000 square feet which expires in 2008).
Our executive offices are located in approximately
140,000 square feet of that space, and we sublease the
remaining 12,000 square feet.
Legal
Proceedings
We are subject to legal proceedings, claims and liabilities,
such as liquor liability, sexual harassment and slip and fall
cases, etc., which arise in the ordinary course of business and
are generally covered by insurance. In the opinion of
management, the amount of the ultimate liability with respect to
those actions will not have a materially adverse impact on our
financial position or results of operations and cash flows.
We filed a report on
Form 8-K
with the SEC dated June 27, 2003 regarding the jury verdict
in a civil suit against us. On June 26, 2003, in a civil
case against us in the Delaware Circuit Court, County of
Delaware, State of Indiana, titled David D. Markley and Lisa
K. Markley, Plaintiffs, vs. Outback Steakhouse of Florida, Inc.,
et. al, Defendants, alleging liability under the
dramshop liquor liability statute, a jury returned a
verdict in favor of the two plaintiffs who were injured by a
drunk driver. The portion of the verdict against us was
$39,000,000. We appealed the verdict to the Indiana Court of
Appeals. On July 25, 2005, the Court of Appeals affirmed
the verdict of the trial courts. We petitioned the Court of
Appeals for rehearing and rehearing was denied. We filed a
petition for transfer with the Indiana Supreme Court. On
February 21, 2006, the Indiana Supreme Court granted
transfer. On November 8, 2006, the Indiana Supreme Court
issued its decision reversing the verdict of the Indiana Court
of Appeals, reversing the order of the trial court denying a new
trial and remanding the case to the trial court with direction
to vacate the judgment and schedule a new trial. The decision of
the Indiana Supreme Court has been certified to the trial court
and the verdict vacated. A new trial will be scheduled.
We have insurance coverage related to this case provided by our
primary carrier for $21,000,000 and by an excess insurance
carrier for the balance of the verdict of approximately
$19,000,000. The excess insurance carrier, Firemans
Fund Insurance Company, has filed a declaratory judgment
suit in the U.S. District Court, Southern District of
Indiana claiming it was not notified of the case and is
therefore not liable for its portion of the verdict. We do not
believe the excess carriers case has any merit and we are
vigorously defending this case. Activity in this case has been
held in abeyance pending resolution of appeals in the Markley
case. We have filed counter-claims against the excess carrier
and cross-claims against the primary carrier and our third-party
administrator. Our third-party administrator, Wachovia Insurance
Services, Inc., has executed an indemnification agreement
indemnifying us against any liability resulting from the alleged
failure to give notice to Firemans Fund Insurance
Company.
Outback Steakhouse of Florida, Inc. and OS Restaurant
Services, Inc. are the defendants in a class action lawsuit
brought by the U.S. Equal Employment Opportunity Commission
(EEOC v. Outback Steakhouse of Florida, Inc. and OS
Restaurant Services, Inc., U.S. District Court, District of
Colorado, Case
No. 06-cv-1935,
filed September 28, 2006) alleging that they have engaged
in a pattern or practice of discrimination against women on the
basis of their gender with respect to hiring and promoting into
management positions as well as discrimination against women in
terms and condition of their employment. In addition to the
EEOC, two former employees have successfully intervened as party
plaintiffs in the case. The case is currently in the motion
stage.
For a discussion of a stockholder complaint filed against us in
connection with the merger, see Special
Factors Litigation beginning on page 73.
112
Selected
Financial Data
The following table sets forth selected consolidated financial
data at and for each of the five fiscal years in the period
ended December 31, 2006. It should be read in conjunction
with the Consolidated Financial Statements and Notes thereto,
included under Financial Statements and
managements discussion and analysis of financial condition
and results of operations included under
Managements Discussion and Analysis of
Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004(1)
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales
|
|
$
|
3,919,776
|
|
|
$
|
3,590,869
|
|
|
$
|
3,197,536
|
|
|
$
|
2,654,541
|
|
|
$
|
2,277,823
|
|
Other revenues
|
|
|
21,183
|
|
|
|
21,848
|
|
|
|
18,453
|
|
|
|
17,786
|
|
|
|
17,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,940,959
|
|
|
|
3,612,717
|
|
|
|
3,215,989
|
|
|
|
2,672,327
|
|
|
|
2,295,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,415,459
|
|
|
|
1,315,340
|
|
|
|
1,203,107
|
|
|
|
987,866
|
|
|
|
857,998
|
|
Labor and other related(2)
|
|
|
1,087,258
|
|
|
|
930,356
|
|
|
|
817,214
|
|
|
|
670,798
|
|
|
|
572,567
|
|
Other restaurant operating
|
|
|
885,562
|
|
|
|
783,745
|
|
|
|
667,797
|
|
|
|
537,854
|
|
|
|
450,339
|
|
Depreciation and amortization
|
|
|
151,600
|
|
|
|
127,773
|
|
|
|
104,767
|
|
|
|
85,076
|
|
|
|
73,357
|
|
General and administrative(2)
|
|
|
234,642
|
|
|
|
197,135
|
|
|
|
174,047
|
|
|
|
138,063
|
|
|
|
121,114
|
|
Hurricane property losses
|
|
|
|
|
|
|
3,101
|
|
|
|
3,024
|
|
|
|
|
|
|
|
|
|
Provision for impaired assets and
restaurant closings
|
|
|
14,154
|
|
|
|
27,170
|
|
|
|
2,394
|
|
|
|
5,319
|
|
|
|
5,689
|
|
Contribution for Dine Out
for Hurricane Relief
|
|
|
|
|
|
|
1,000
|
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
Income from operations of
unconsolidated affiliates
|
|
|
(5
|
)
|
|
|
(1,479
|
)
|
|
|
(1,725
|
)
|
|
|
(6,015
|
)
|
|
|
(5,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
3,788,670
|
|
|
|
3,384,141
|
|
|
|
2,972,232
|
|
|
|
2,418,961
|
|
|
|
2,075,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
152,289
|
|
|
|
228,576
|
|
|
|
243,757
|
|
|
|
253,366
|
|
|
|
220,578
|
|
Other income (expense), net
|
|
|
7,950
|
|
|
|
(2,070
|
)
|
|
|
(2,104
|
)
|
|
|
(1,100
|
)
|
|
|
(3,322
|
)
|
Interest income
|
|
|
3,312
|
|
|
|
2,087
|
|
|
|
1,349
|
|
|
|
1,479
|
|
|
|
2,529
|
|
Interest expense
|
|
|
(14,804
|
)
|
|
|
(6,848
|
)
|
|
|
(3,629
|
)
|
|
|
(1,810
|
)
|
|
|
(1,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and elimination of minority interest
|
|
|
148,747
|
|
|
|
221,745
|
|
|
|
239,373
|
|
|
|
251,935
|
|
|
|
218,468
|
|
Provision for income taxes
|
|
|
41,812
|
|
|
|
73,808
|
|
|
|
78,622
|
|
|
|
85,214
|
|
|
|
76,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before elimination of
minority interest
|
|
|
106,935
|
|
|
|
147,937
|
|
|
|
160,751
|
|
|
|
166,721
|
|
|
|
141,564
|
|
Elimination of minority interest
|
|
|
6,775
|
|
|
|
1,191
|
|
|
|
9,180
|
|
|
|
2,476
|
|
|
|
(1,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
a change in accounting principle
|
|
|
100,160
|
|
|
|
146,746
|
|
|
|
151,571
|
|
|
|
164,245
|
|
|
|
143,156
|
|
Cumulative effect of a change in
accounting principle (net of taxes)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
100,160
|
|
|
$
|
146,746
|
|
|
$
|
151,571
|
|
|
$
|
164,245
|
|
|
$
|
142,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004 (1)
|
|
|
2003
|
|
|
2002
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
Basic earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
a change in accounting principle
|
|
$
|
1.35
|
|
|
$
|
1.98
|
|
|
$
|
2.05
|
|
|
$
|
2.18
|
|
|
$
|
1.87
|
|
Cumulative effect of a change in
accounting principle (net of taxes)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.35
|
|
|
$
|
1.98
|
|
|
$
|
2.05
|
|
|
$
|
2.18
|
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
a change in accounting principle
|
|
$
|
1.31
|
|
|
$
|
1.92
|
|
|
$
|
1.95
|
|
|
$
|
2.10
|
|
|
$
|
1.80
|
|
Cumulative effect of a change in
accounting principle (net of taxes)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.31
|
|
|
$
|
1.92
|
|
|
$
|
1.95
|
|
|
$
|
2.10
|
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of
common shares outstanding
|
|
|
73,971
|
|
|
|
73,952
|
|
|
|
74,117
|
|
|
|
75,256
|
|
|
|
76,734
|
|
Diluted weighted average number of
common shares outstanding
|
|
|
76,213
|
|
|
|
76,541
|
|
|
|
77,549
|
|
|
|
78,393
|
|
|
|
79,312
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (deficit)
|
|
$
|
(248,991
|
)
|
|
$
|
(219,291
|
)
|
|
$
|
(185,893
|
)
|
|
$
|
(121,307
|
)
|
|
$
|
12,777
|
|
Total assets
|
|
|
2,258,587
|
|
|
|
2,009,498
|
|
|
|
1,733,392
|
|
|
|
1,497,619
|
|
|
|
1,374,402
|
|
Long-term debt
|
|
|
174,997
|
|
|
|
90,623
|
|
|
|
59,900
|
|
|
|
9,550
|
|
|
|
14,436
|
|
Minority interest in consolidated
entities
|
|
|
36,929
|
|
|
|
44,259
|
|
|
|
48,092
|
|
|
|
52,885
|
|
|
|
43,166
|
|
Stockholders equity
|
|
|
1,221,213
|
|
|
|
1,144,420
|
|
|
|
1,047,111
|
|
|
|
968,419
|
|
|
|
922,393
|
|
Cash dividends per common share
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.49
|
|
|
$
|
0.12
|
|
|
|
|
(1)
|
|
In 2004, we adopted FIN 46R,
Consolidation of Variable Interest Entities, and
began consolidating variable interest entities in which we
absorb a majority of the entitys expected losses, receive
a majority of the entitys expected residual returns, or
both, as a result of ownership, contractual or other financial
interests in the entity.
|
|
|
|
(2)
|
|
In 2006, we adopted the fair value
based method of accounting for stock-based employee compensation
as required by SFAS No. 123R, Share-Based
Payment, a revision of SFAS No. 123,
Accounting for Stock-Based Compensation. The fair
value based method requires us to expense all stock-based
employee compensation. We have adopted SFAS No. 123R using
the modified prospective method. Accordingly, we have expensed
all unvested and newly granted stock-based employee compensation
beginning January 1, 2006, but prior period amounts have
not been retrospectively adjusted.
|
|
|
|
(3)
|
|
In 2002, we adopted
SFAS No. 142, Goodwill and Other Intangible
Assets, and in accordance with the transitional impairment
provision of SFAS No. 142, we recorded the cumulative
effect of a change in accounting principle of $740,000, net of
taxes of approximately $446,000.
|
114
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. As defined
in Exchange Act Rule 13a-15(f), internal control over financial
reporting is a process designed by, or under the supervision of,
our Chief Executive Officer and Chief Financial Officer and
effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that (i) pertain to the maintenance
of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we carried out an evaluation of the
effectiveness of our internal control over financial reporting
as of December 31, 2006 based on the Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based upon this evaluation, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2006.
PricewaterhouseCoopers LLP, an independent registered certified
public accounting firm, has audited our managements
assessment of the effectiveness of the Companys internal
control over financial reporting and the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2006 as stated in their report included herein.
115
Report of
Independent Registered Certified Public Accounting
Firm
To the Board of Directors and Shareholders of OSI Restaurant
Partners, Inc:
We have completed integrated audits of OSI Restaurant Partners,
Inc.s consolidated financial statements and of its
internal control over financial reporting as of
December 31, 2006, in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income,
stockholders equity and cash flows present fairly, in all
material respects, the financial position of OSI Restaurant
Partners, Inc. and its subsidiaries at December 31, 2006
and 2005, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2006 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it accounts
for stock-based compensation in 2006.
Internal control over financial reporting
Also, in our opinion, managements assessment, included in
the accompanying Managements Report on Internal
Control over Financial Reporting, that the Company
maintained effective internal control over financial reporting
as of December 31, 2006 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable
116
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Tampa, Florida
March 1, 2007
117
Financial
Statements
OSI
Restaurant Partners, Inc.
CONSOLIDATED
BALANCE SHEETS
(IN
THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
94,856
|
|
|
$
|
84,876
|
|
Short-term investments
|
|
|
681
|
|
|
|
1,828
|
|
Inventories
|
|
|
87,066
|
|
|
|
68,468
|
|
Deferred income tax assets
|
|
|
22,092
|
|
|
|
43,697
|
|
Other current assets
|
|
|
110,501
|
|
|
|
80,739
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
315,196
|
|
|
|
279,608
|
|
Property, fixtures and equipment,
net
|
|
|
1,548,926
|
|
|
|
1,387,700
|
|
Investments in and advances to
unconsolidated affiliates, net
|
|
|
26,269
|
|
|
|
21,397
|
|
Deferred income tax assets
|
|
|
69,952
|
|
|
|
23,340
|
|
Goodwill
|
|
|
150,278
|
|
|
|
112,627
|
|
Intangible assets
|
|
|
26,102
|
|
|
|
11,562
|
|
Other assets
|
|
|
89,914
|
|
|
|
142,114
|
|
Notes receivable collateral for
franchisee guarantee
|
|
|
31,950
|
|
|
|
31,150
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,258,587
|
|
|
$
|
2,009,498
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
165,674
|
|
|
$
|
117,273
|
|
Sales taxes payable
|
|
|
22,978
|
|
|
|
17,761
|
|
Accrued expenses
|
|
|
97,134
|
|
|
|
96,692
|
|
Current portion of partner deposit
and accrued buyout liability
|
|
|
15,546
|
|
|
|
15,175
|
|
Unearned revenue
|
|
|
186,977
|
|
|
|
170,785
|
|
Income taxes payable
|
|
|
15,497
|
|
|
|
17,771
|
|
Current portion of long-term debt
|
|
|
60,381
|
|
|
|
63,442
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
564,187
|
|
|
|
498,899
|
|
Partner deposit and accrued buyout
liability
|
|
|
102,924
|
|
|
|
72,900
|
|
Deferred rent
|
|
|
73,895
|
|
|
|
61,509
|
|
Long-term debt
|
|
|
174,997
|
|
|
|
90,623
|
|
Guaranteed debt
|
|
|
34,578
|
|
|
|
31,283
|
|
Other long-term liabilities
|
|
|
49,864
|
|
|
|
65,605
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,000,445
|
|
|
|
820,819
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Minority interests in consolidated
entities
|
|
|
36,929
|
|
|
|
44,259
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value, 200,000 shares authorized; 78,750 and
78,750 shares issued; 75,127 and 74,854 shares
outstanding as of December 31, 2006 and 2005, respectively
|
|
|
788
|
|
|
|
788
|
|
Additional paid-in capital
|
|
|
269,872
|
|
|
|
293,368
|
|
Retained earnings
|
|
|
1,092,271
|
|
|
|
1,057,944
|
|
Accumulated other comprehensive
income
|
|
|
8,388
|
|
|
|
384
|
|
Unearned compensation related to
outstanding restricted stock
|
|
|
|
|
|
|
(40,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,371,319
|
|
|
|
1,311,626
|
|
Less treasury stock, 3,623 and
3,896 shares at December 31, 2006 and 2005,
respectively, at cost
|
|
|
(150,106
|
)
|
|
|
(167,206
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,221,213
|
|
|
|
1,144,420
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,258,587
|
|
|
$
|
2,009,498
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
118
OSI
Restaurant Partners, Inc.
CONSOLIDATED
STATEMENTS OF INCOME
(IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales
|
|
$
|
3,919,776
|
|
|
$
|
3,590,869
|
|
|
$
|
3,197,536
|
|
Other revenues
|
|
|
21,183
|
|
|
|
21,848
|
|
|
|
18,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,940,959
|
|
|
|
3,612,717
|
|
|
|
3,215,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,415,459
|
|
|
|
1,315,340
|
|
|
|
1,203,107
|
|
Labor and other related
|
|
|
1,087,258
|
|
|
|
930,356
|
|
|
|
817,214
|
|
Other restaurant operating
|
|
|
885,562
|
|
|
|
783,745
|
|
|
|
667,797
|
|
Depreciation and amortization
|
|
|
151,600
|
|
|
|
127,773
|
|
|
|
104,767
|
|
General and administrative
|
|
|
234,642
|
|
|
|
197,135
|
|
|
|
174,047
|
|
Hurricane property losses
|
|
|
|
|
|
|
3,101
|
|
|
|
3,024
|
|
Provision for impaired assets and
restaurant closings
|
|
|
14,154
|
|
|
|
27,170
|
|
|
|
2,394
|
|
Contribution for Dine Out
for Hurricane Relief
|
|
|
|
|
|
|
1,000
|
|
|
|
1,607
|
|
Income from operations of
unconsolidated affiliates
|
|
|
(5
|
)
|
|
|
(1,479
|
)
|
|
|
(1,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
3,788,670
|
|
|
|
3,384,141
|
|
|
|
2,972,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
152,289
|
|
|
|
228,576
|
|
|
|
243,757
|
|
Other income (expense), net
|
|
|
7,950
|
|
|
|
(2,070
|
)
|
|
|
(2,104
|
)
|
Interest income
|
|
|
3,312
|
|
|
|
2,087
|
|
|
|
1,349
|
|
Interest expense
|
|
|
(14,804
|
)
|
|
|
(6,848
|
)
|
|
|
(3,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and elimination of minority interest
|
|
|
148,747
|
|
|
|
221,745
|
|
|
|
239,373
|
|
Provision for income taxes
|
|
|
41,812
|
|
|
|
73,808
|
|
|
|
78,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before elimination of
minority interest
|
|
|
106,935
|
|
|
|
147,937
|
|
|
|
160,751
|
|
Elimination of minority interest
|
|
|
6,775
|
|
|
|
1,191
|
|
|
|
9,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
100,160
|
|
|
$
|
146,746
|
|
|
$
|
151,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.35
|
|
|
$
|
1.98
|
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of
shares outstanding
|
|
|
73,971
|
|
|
|
73,952
|
|
|
|
74,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.31
|
|
|
$
|
1.92
|
|
|
$
|
1.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of
shares outstanding
|
|
|
76,213
|
|
|
|
76,541
|
|
|
|
77,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
119
OSI
Restaurant Partners, Inc.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(IN
THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Unearned
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Compensation
|
|
|
Stock
|
|
|
Total
|
|
|
Balance, December 31, 2003
|
|
|
74,279
|
|
|
|
788
|
|
|
|
257,185
|
|
|
|
874,332
|
|
|
|
(2,078
|
)
|
|
|
|
|
|
|
(161,808
|
)
|
|
|
968,419
|
|
Purchase of treasury stock
|
|
|
(2,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,554
|
)
|
|
|
(95,554
|
)
|
Reissuance of treasury stock
|
|
|
1,643
|
|
|
|
|
|
|
|
|
|
|
|
(5,556
|
)
|
|
|
|
|
|
|
|
|
|
|
50,538
|
|
|
|
44,982
|
|
Dividends ($0.49 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,524
|
)
|
Stock option income tax benefit
|
|
|
|
|
|
|
|
|
|
|
14,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,527
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,730
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,571
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
73,767
|
|
|
|
788
|
|
|
|
273,442
|
|
|
|
981,823
|
|
|
|
(2,118
|
)
|
|
|
|
|
|
|
(206,824
|
)
|
|
|
1,047,111
|
|
Purchase of treasury stock
|
|
|
(2,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,363
|
)
|
|
|
(92,363
|
)
|
Reissuance of treasury stock
|
|
|
2,220
|
|
|
|
|
|
|
|
(3,686
|
)
|
|
|
(28,687
|
)
|
|
|
|
|
|
|
|
|
|
|
88,280
|
|
|
|
55,907
|
|
Dividends ($0.52 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,753
|
)
|
Stock option income tax benefit
|
|
|
|
|
|
|
|
|
|
|
16,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,514
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,412
|
|
Issuance of restricted stock
|
|
|
1,044
|
|
|
|
|
|
|
|
3,686
|
|
|
|
(3,185
|
)
|
|
|
|
|
|
|
(44,202
|
)
|
|
|
43,701
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,344
|
|
|
|
|
|
|
|
3,344
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,746
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,502
|
|
|
|
|
|
|
|
|
|
|
|
2,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
74,854
|
|
|
|
788
|
|
|
|
293,368
|
|
|
|
1,057,944
|
|
|
|
384
|
|
|
|
(40,858
|
)
|
|
|
(167,206
|
)
|
|
|
1,144,420
|
|
Reclassification upon adoption of
SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
|
(40,858
|
)
|
|
|
|
|
|
|
|
|
|
|
40,858
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(1,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,435
|
)
|
|
|
(59,435
|
)
|
Reissuance of treasury stock
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
(25,340
|
)
|
|
|
|
|
|
|
|
|
|
|
65,177
|
|
|
|
39,837
|
|
Dividends ($0.52 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,896
|
)
|
Stock option income tax benefit
|
|
|
|
|
|
|
|
|
|
|
8,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,058
|
|
Stock option compensation expense
|
|
|
|
|
|
|
|
|
|
|
10,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,245
|
|
Issuance of restricted stock
|
|
|
260
|
|
|
|
|
|
|
|
(9,761
|
)
|
|
|
(1,597
|
)
|
|
|
|
|
|
|
|
|
|
|
11,358
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
8,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,820
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,160
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,004
|
|
|
|
|
|
|
|
|
|
|
|
8,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
75,127
|
|
|
$
|
788
|
|
|
$
|
269,872
|
|
|
$
|
1,092,271
|
|
|
$
|
8,388
|
|
|
$
|
|
|
|
$
|
(150,106
|
)
|
|
$
|
1,221,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
120
OSI
Restaurant Partners, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(IN
THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
100,160
|
|
|
$
|
146,746
|
|
|
$
|
151,571
|
|
Adjustments to reconcile net income
to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
151,600
|
|
|
|
127,773
|
|
|
|
104,767
|
|
Provision for impaired assets and
restaurant closings and hurricane losses
|
|
|
14,154
|
|
|
|
30,271
|
|
|
|
5,418
|
|
Stock-based compensation expense
|
|
|
70,642
|
|
|
|
13,474
|
|
|
|
7,495
|
|
Income tax benefit credited to
equity
|
|
|
8,058
|
|
|
|
16,514
|
|
|
|
14,527
|
|
Excess income tax benefits from
stock based compensation
|
|
|
(4,046
|
)
|
|
|
|
|
|
|
|
|
Minority interest in consolidated
entities income
|
|
|
6,775
|
|
|
|
1,191
|
|
|
|
9,180
|
|
Income from operations of
unconsolidated affiliates
|
|
|
(5
|
)
|
|
|
(1,479
|
)
|
|
|
(1,725
|
)
|
Benefit from deferred income taxes
|
|
|
(25,005
|
)
|
|
|
(23,318
|
)
|
|
|
(13,222
|
)
|
(Gain) loss on disposal of
property, fixtures and equipment and lease termination
|
|
|
(6,264
|
)
|
|
|
3,605
|
|
|
|
4,102
|
|
Change in assets and liabilities,
net of effects of acquisitions and FIN 46R consolidations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in inventories
|
|
|
(18,387
|
)
|
|
|
(5,635
|
)
|
|
|
(2,773
|
)
|
Increase in other current assets
|
|
|
(30,932
|
)
|
|
|
(19,686
|
)
|
|
|
(11,884
|
)
|
Increase in other assets
|
|
|
(147
|
)
|
|
|
(10,301
|
)
|
|
|
(20,440
|
)
|
Increase in accounts payable, sales
taxes payable and accrued expenses
|
|
|
52,578
|
|
|
|
28,415
|
|
|
|
29,025
|
|
Increase in deferred rent
|
|
|
12,386
|
|
|
|
12,099
|
|
|
|
8,123
|
|
Increase in unearned revenue
|
|
|
16,192
|
|
|
|
14,403
|
|
|
|
21,514
|
|
(Decrease) increase in income taxes
payable
|
|
|
(2,274
|
)
|
|
|
7,166
|
|
|
|
1,995
|
|
Increase in other long-term
liabilities
|
|
|
22,729
|
|
|
|
22,876
|
|
|
|
1,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
368,214
|
|
|
|
364,114
|
|
|
|
308,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investment securities
|
|
|
(5,632
|
)
|
|
|
(5,568
|
)
|
|
|
(60,125
|
)
|
Maturities and sales of investment
securities
|
|
|
6,779
|
|
|
|
5,165
|
|
|
|
79,524
|
|
Cash paid for acquisitions of
businesses, net of cash acquired
|
|
|
(63,622
|
)
|
|
|
(5,200
|
)
|
|
|
(28,066
|
)
|
Cash paid for designation rights
|
|
|
|
|
|
|
|
|
|
|
(42,500
|
)
|
Capital expenditures
|
|
|
(315,235
|
)
|
|
|
(327,862
|
)
|
|
|
(254,871
|
)
|
Proceeds from the sale of property,
fixtures and equipment and lease termination
|
|
|
31,693
|
|
|
|
11,508
|
|
|
|
2,583
|
|
Proceeds from the sale of
designation rights
|
|
|
|
|
|
|
|
|
|
|
11,075
|
|
Increase in cash from adoption of
FIN 46R
|
|
|
|
|
|
|
|
|
|
|
1,080
|
|
Deposits to partner deferred
compensation plans
|
|
|
(6,310
|
)
|
|
|
|
|
|
|
|
|
Payments from unconsolidated
affiliates
|
|
|
358
|
|
|
|
131
|
|
|
|
1,361
|
|
Distributions to unconsolidated
affiliates
|
|
|
|
|
|
|
|
|
|
|
(121
|
)
|
Investments in and advances to
unconsolidated affiliates
|
|
|
(2,267
|
)
|
|
|
(1,956
|
)
|
|
|
(247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
$
|
(354,236
|
)
|
|
$
|
(323,782
|
)
|
|
$
|
(290,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term
debt
|
|
$
|
371,787
|
|
|
$
|
171,546
|
|
|
$
|
124,723
|
|
Proceeds from minority interest
contributions
|
|
|
3,323
|
|
|
|
8,635
|
|
|
|
5,100
|
|
Distributions to minority interest
|
|
|
(12,541
|
)
|
|
|
(17,899
|
)
|
|
|
(8,151
|
)
|
(Decrease) increase in partner
deposit and accrued buyout liability
|
|
|
(12,139
|
)
|
|
|
11,830
|
|
|
|
10,798
|
|
Repayments of long-term debt
|
|
|
(294,147
|
)
|
|
|
(141,084
|
)
|
|
|
(71,369
|
)
|
Proceeds from sale-leaseback
transactions
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
Dividends paid
|
|
|
(38,896
|
)
|
|
|
(38,753
|
)
|
|
|
(38,524
|
)
|
Excess income tax benefits from
stock-based compensation
|
|
|
4,046
|
|
|
|
|
|
|
|
|
|
Payments for purchase of treasury
stock
|
|
|
(59,435
|
)
|
|
|
(92,363
|
)
|
|
|
(95,554
|
)
|
Proceeds from reissuance of
treasury stock
|
|
|
34,004
|
|
|
|
49,655
|
|
|
|
39,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(3,998
|
)
|
|
|
(43,433
|
)
|
|
|
(33,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
9,980
|
|
|
|
(3,101
|
)
|
|
|
(14,915
|
)
|
Cash and cash equivalents at the
beginning of the period
|
|
|
84,876
|
|
|
|
87,977
|
|
|
|
102,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the
end of the period
|
|
$
|
94,856
|
|
|
$
|
84,876
|
|
|
$
|
87,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
14,582
|
|
|
$
|
6,916
|
|
|
$
|
3,683
|
|
Cash paid for income taxes, net of
refunds
|
|
|
72,160
|
|
|
|
88,516
|
|
|
|
79,117
|
|
Supplemental disclosures of
non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of employee partners
interests in cash flows of their restaurants
|
|
$
|
6,083
|
|
|
$
|
4,208
|
|
|
$
|
1,833
|
|
Litigation liability and insurance
receivable
|
|
|
(39,000
|
)
|
|
|
39,000
|
|
|
|
|
|
Increase in guaranteed debt and
investment in unconsolidated affiliate
|
|
|
2,495
|
|
|
|
|
|
|
|
|
|
Assets received for note
|
|
|
|
|
|
|
|
|
|
|
14,700
|
|
Debt assumed under FIN 46R
|
|
|
|
|
|
|
|
|
|
|
30,339
|
|
Issuance of restricted stock
|
|
|
9,761
|
|
|
|
44,202
|
|
|
|
|
|
Conversion of partner deposit and
accrued buyout liability to notes
|
|
|
3,673
|
|
|
|
2,827
|
|
|
|
2,721
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
121
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
BASIS OF PRESENTATION OSI Restaurant Partners, Inc.
(the Company) develops and operates casual dining
restaurants primarily in the United States. The Companys
restaurants are generally organized as partnerships, with the
Company as the general partner.
Profits and losses of each partnership are shared based on
respective partnership interest percentages, as are cash
distributions and capital contributions with exceptions defined
in the management agreement.
Additional Outback Steakhouse restaurants in which the Company
has no direct investment are operated under franchise agreements.
PRINCIPLES OF CONSOLIDATION The Consolidated
Financial Statements include the accounts and operations of the
Company and affiliated partnerships in which the Company is a
general partner and owns a controlling financial interest. The
Consolidated Financial Statements also include the accounts and
operations of a consolidated venture in which the Company has a
less than majority ownership. The Company consolidates this
venture because the Company controls the executive committee
(which functions as a board of directors) through representation
on the committee by related parties and is able to direct or
cause the direction of management and operations on a
day-to-day
basis. Additionally, the majority of capital contributions made
by the Companys partner in the consolidated venture have
been funded by loans to the partner from a third party where the
Company is required to be a guarantor of the debt, which
provides the Company control through its collateral interest in
the joint venture partners membership interest. The
portion of income or loss attributable to the minority
interests, not to exceed the minority interests equity in
the consolidated entity, is eliminated in the line item in the
Companys Consolidated Statements of Income entitled
Elimination of minority interest. All material
intercompany balances and transactions have been eliminated.
The unconsolidated affiliates are accounted for using the equity
method.
The Company consolidates variable interest entities in which the
Company absorbs a majority of the entitys expected losses,
receives a majority of the entitys expected residual
returns, or both, as a result of ownership, contractual or other
financial interests in the entity. Therefore, if the Company has
a controlling financial interest in a variable interest entity,
the assets, liabilities, and results of the activities of the
variable interest entity are included in the consolidated
financial statements. The Company has ownership interests in 25
individual restaurants, which consist of six domestic Outback
Steakhouses, 18 Carrabbas Italian Grills and one
Roys, which it consolidates, as it is the primary
beneficiary of those restaurants. The Company has ownership
interests in one domestic Outback Steakhouse and in its joint
ventures in Brazil and the Philippines that are not
consolidated, as the Company is not the primary beneficiary.
The Company has a minority investment in an unconsolidated
affiliate in which it has a 22.5% equity interest and for which
it operates catering and concession facilities. Additionally,
the Company guarantees a portion of the affiliates debt
(see Note 7 of Notes to Consolidated Financial Statements).
Although the Company holds an interest in this variable interest
entity, the Company is not the primary beneficiary of this
entity and therefore it is not consolidated.
The Company is a franchisor of 142 restaurants as of
December 31, 2006, but does not possess any ownership
interests in its franchisees and generally does not provide
financial support to franchisees in its typical franchise
relationship. These franchise relationships are not deemed
variable interest entities and are not consolidated. However,
the Company guarantees an uncollateralized line of credit that
permits borrowing of up to $35,000,000, maturing in December
2008, for an entity affiliated with its California franchisees
(see Note 7 of Notes to Consolidated Financial Statements).
The limited liability company that holds this line of credit is
a variable interest entity and is consolidated by the Company.
This entity draws on its line of credit to loan funds to
entities in California to purchase
and/or build
land and buildings for lease to individual Outback Steakhouse
franchisees.
122
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Therefore, it holds as collateral the notes receivable and
underlying assets from these corporations in offsetting amounts
to the debt owed to the bank, which are both included in the
Companys Consolidated Balance Sheets.
REVISIONS AND RECLASSIFICATIONS Certain prior year
amounts shown in the accompanying consolidated financial
statements have been reclassified to conform with the 2006
presentation. The Company has revised its Consolidated Balance
Sheet as of December 31, 2005 to reflect approximately
$19,715,000 of accrued insurance in Other long-term
liabilities and approximately $19,253,000 of other accrued
expenses in Accounts Payable. Previously, the
Company reported these amounts in Accrued expenses.
The Company has also revised the Consolidated Statements of Cash
Flows to reflect the line item (Decrease) increase in
partner deposit and accrued buyout liability as financing
cash flows rather than operating cash flows and reflected the
conversion of partner deposits and accrued buyout liability to
notes payable as a non-cash item. This revision caused Net
cash provided by operating activities and Net cash
used in financing activities to decrease by $9,003,000 and
$8,077,000 for the years ended December 31, 2005 and 2004,
respectively. Excess income tax benefits credited to
equity was presented separately in the 2006 presentation
of cash flows from operating activities and had previously been
included in the change in income taxes payable in the
Consolidated Statements of Cash Flows. These reclassifications
had no effect on total assets, total liabilities,
stockholders equity or net income.
USE OF ESTIMATES The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimated.
CASH AND CASH EQUIVALENTS Cash equivalents consist
of investments that are readily convertible to cash with an
original maturity date of three months or less.
SHORT-TERM INVESTMENTS The Companys short-term
investments, consisting primarily of high grade debt securities,
are classified as
held-to-maturity
because the Company has the positive intent and ability to hold
the securities to maturity.
Held-to-maturity
securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity,
which approximates fair value at December 31, 2006. The
Company owns no investments that are considered to be
available-for-sale
or trading securities. At December 31, 2006, all
held-to-maturity
securities had maturities of less than one year and are
classified as current assets.
CONCENTRATIONS OF CREDIT RISK Financial instruments
that potentially subject the Company to concentrations of credit
risk are cash and cash equivalents, and short-term investments.
The Company attempts to limit its credit risk associated with
cash and cash equivalents and short-term investments by
utilizing outside investment managers with major financial
institutions that, in turn, invest in investment-grade
commercial paper and other corporate obligations rated A or
higher, certificates of deposit, government obligations and
other highly rated investments and marketable securities. At
times, cash balances may be in excess of FDIC insurance limits.
INVENTORIES Inventories consist of food and
beverages, and are stated at the lower of cost
(first-in,
first-out) or market. The Company will periodically make advance
purchases of various inventory items to ensure adequate supply
or to obtain favorable pricing. At December 31, 2006 and
2005, inventories included advance purchases of approximately
$57,660,000 and $27,185,000, respectively.
GOODWILL Goodwill represents the residual purchase
price after allocation of the purchase price of a business to
the individual fair values of assets acquired. On an annual
basis, the Company reviews the recoverability of goodwill based
primarily upon an analysis of discounted cash flows of the
related reporting unit as compared to the carrying value or
whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Generally, the Company
performs its annual assessment for impairment during the third
quarter of its fiscal year, unless facts and circumstances
require differently.
123
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
UNEARNED REVENUE Unearned revenue represents the
Companys liability for gift cards and certificates that
have been sold but not yet redeemed and are recorded at the
redemption value. The Company recognizes restaurant sales and
reduces the related deferred liability when gift cards and
certificates are redeemed or the likelihood of the gift card or
certificate being redeemed by the customer is remote (gift card
breakage). As of December 31, 2006, the Company has
determined that redemption of gift cards and certificates issued
by the Outback, Carrabbas and Bonefish concepts on or
before three years prior to the balance sheet date is remote.
The Company recognizes breakage income as a component of
Restaurant sales in the Consolidated Statements of
Income.
PROPERTY, FIXTURES AND EQUIPMENT Property, fixtures
and equipment are stated at cost, net of accumulated
depreciation. At the time property, fixtures and equipment are
retired, or otherwise disposed of, the asset and accumulated
depreciation are removed from the accounts and any resulting
gain or loss is included in earnings. The Company expenses
repair and maintenance costs incurred to maintain the appearance
and functionality of the restaurant that do not extend the
useful life of any restaurant asset or are less than $1,000.
Improvements to leased properties are depreciated over the
shorter of their useful life or the lease term, which includes
cancelable renewal periods where failure to exercise such
options would result in an economic penalty. Depreciation is
computed on the straight-line method over the following
estimated useful lives:
|
|
|
|
|
Buildings and building improvements
|
|
|
20 to 30 years
|
|
Furniture and fixtures
|
|
|
5 to 7 years
|
|
Equipment
|
|
|
2 to 15 years
|
|
Leasehold improvements
|
|
|
5 to 20 years
|
|
The Companys accounting policies regarding property,
fixtures and equipment include certain management judgments and
projections regarding the estimated useful lives of these assets
and what constitutes increasing the value and useful life of
existing assets. These estimates, judgments and projections may
produce materially different amounts of depreciation expense
than would be reported if different assumptions were used.
OPERATING LEASES Rent expense for the Companys
operating leases, which generally have escalating rentals over
the term of the lease, is recorded on a straight-line basis over
the lease term and those renewal periods that are reasonably
assured. The initial lease term begins when the Company has the
right to control the use of the leased property, which is
typically before rent payments are due under the terms of the
lease. The difference between rent expense and rent paid is
recorded as deferred rent and is included in the Consolidated
Balance Sheets.
IMPAIRMENT OF LONG-LIVED ASSETS The Company assesses
the potential impairment of identifiable intangibles, long-lived
assets and goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Recoverability of assets is measured by comparing the carrying
value of the asset to the future cash flows expected to be
generated by the asset. In evaluating long-lived restaurant
assets for impairment, the Company considers a number of factors
such as:
a) Restaurant sales trends;
b) Local competition;
c) Changing demographic profiles;
d) Local economic conditions;
e) New laws and government regulations that adversely
affect sales and profits; and
f) The ability to recruit and train skilled restaurant
employees.
If the aforementioned factors indicate that the Company should
review the carrying value of the restaurants long-lived
assets, it performs an impairment analysis. Identifiable cash
flows that are largely independent of other assets and
liabilities typically exist for land and buildings, and for
combined fixtures, equipment and improvements
124
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for each restaurant. If the total future cash flows are less
than the carrying amount of the asset, the carrying amount is
written down to the estimated fair value, and a loss resulting
from value impairment is recognized by a charge to earnings.
Judgments and estimates made by the Company related to the
expected useful lives of long-lived assets are affected by
factors such as changes in economic conditions and changes in
operating performance. As the Company assesses the ongoing
expected cash flows and carrying amounts of its long-lived
assets, these factors could cause the Company to realize a
material impairment charge.
CONSTRUCTION IN PROGRESS The Company capitalizes all
direct costs incurred to construct its restaurants. Upon
opening, these costs are depreciated and charged to expense
based upon their property classification. The amount of interest
capitalized in connection with restaurant construction was
approximately $567,000, $378,000 and $207,000 in 2006, 2005 and
2004, respectively.
DERIVATIVES The Companys restaurants are
dependent upon energy to operate and are impacted by changes in
energy prices, including natural gas. The Company utilized
derivative instruments to mitigate its exposure to material
increases in natural gas prices between November 2006 and
October 2007. It is not applying hedge accounting, as defined by
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and any changes in
fair value of the derivative instruments are
marked-to-market
through earnings in the period of change. The effects of these
derivative instruments were immaterial to its financial
statements for all periods presented.
REVENUE RECOGNITION The Company records revenues
from normal recurring sales upon the performance of services.
Revenue from the sales of franchises is recognized as income
when the Company has substantially performed all of its material
obligations under the franchise agreement. Continuing royalties,
which are a percentage of net sales of franchised restaurants,
are accrued as income when earned. These revenues are included
in the line Other revenues in the Consolidated
Statements of Income.
DISTRIBUTION EXPENSE TO EMPLOYEE PARTNERS The
Company requires its general managers and area operating
partners to enter into five-year employment agreements and
purchase an interest in their restaurants annual cash
flows for the duration of the agreement. Payments made to
managing partners pursuant to these programs are included in the
line item Labor and other related expenses, and
payments made to area operating partners pursuant to these
programs are included in the line item General and
administrative expenses in the Consolidated Statements of
Income.
EMPLOYEE PARTNER STOCK BUYOUT EXPENSE Area operating
partners are required to purchase a 4% to 9% interest in the
restaurants they develop for an initial investment of $50,000.
This interest gives the area operating partner the right to
receive a percentage of his or her restaurants annual cash
flows for the duration of the agreement. Under the terms of
these partners employment agreements, the Company has the
option to purchase their interest after a five-year period under
the conditions of the agreement. The Company estimates future
purchases of area operating partners interests using
current information on restaurant performance to calculate and
record an accrued buyout liability in the line item
Partner deposit and accrued buyout liability in the
Consolidated Balance Sheets. Expenses associated with recording
the buyout liability are included in the line General and
administrative expenses in the Consolidated Statements of
Income. When partner buyouts occur, they are completed primarily
through issuance of cash and the Companys common stock to
the partner equivalent to the fair value of their interest. In
the period the Company completes the buyout, an adjustment is
recorded to recognize any remaining expense associated with the
purchase and reduce the related accrued buyout liability.
ADVERTISING COSTS The Companys policy is to
report advertising costs as expenses in the year in which the
costs are incurred or the first time the advertising takes
place. The total amounts charged to advertising expense were
approximately $151,173,000, $159,242,000 and $126,404,000 in
2006, 2005 and 2004, respectively.
125
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE
INCOME For all significant
non-U.S. operations,
the functional currency is the local currency. Assets and
liabilities of those operations are translated into
U.S. dollars using the exchange rates in effect at the
balance sheet date. Results of operations are translated using
the average exchange rates for the reporting period. Translation
gains and losses are reported as a separate component of
accumulated other comprehensive income (loss) in
stockholders equity.
INCOME TAXES The Company uses the asset and
liability method which recognizes the amount of current and
deferred taxes payable or refundable at the date of the
financial statements as a result of all events that have been
recognized in the consolidated financial statements as measured
by the provisions of enacted tax laws.
The minority interest in affiliated partnerships includes no
provision or liability for income taxes, as any tax liability
related thereto is the responsibility of the individual minority
partners. Minority interest in certain foreign affiliated
corporations is presented net of any provision or liability for
income taxes.
STOCK-BASED COMPENSATION Effective January 1,
2006, the Company adopted the fair value based method of
accounting for stock-based employee compensation as required by
SFAS No. 123R, Share-Based Payment, a
revision of SFAS No. 123, Accounting for
Stock-Based Compensation. The fair value based method
requires the Company to expense all stock-based employee
compensation. SFAS No. 123R also requires the benefits
of tax deductions in excess of recognized compensation cost to
be reported as a financing cash flow, rather than as an
operating cash flow as previously required. The Company has
adopted SFAS No. 123R using the modified prospective
method. Accordingly, the Company has expensed all unvested and
newly granted stock-based employee compensation beginning
January 1, 2006, but prior period amounts have not been
retrospectively adjusted.
The incremental pre-tax stock-based compensation expense
recognized for stock options due to the adoption of
SFAS No. 123R for the year ended December 31,
2006 was approximately $10,245,000. Total stock-based
compensation expense, including the incremental pre-tax
stock-based compensation expense above, grants of other equity
awards and employee partner stock buyout expense, was
approximately $70,642,000, $13,474,000 and $7,495,000 with an
associated tax benefit of approximately $25,941,000, $3,264,000
and $2,926,000 for the years ended December 31, 2006, 2005
and 2004, respectively. The Company did not capitalize any
stock-based compensation costs during the year ended
December 31, 2006.
Prior to January 1, 2006, the Company accounted for its
stock-based employee compensation under the intrinsic value
method. No stock-based employee compensation cost was reflected
in net income to the extent options granted had an exercise
price equal to or exceeding the fair market value of the
underlying common stock on the date of grant. The following
table provides pro forma net income and earnings per share
amounts using the fair value based method of
SFAS No. 123, Accounting for Stock-Based
Compensation (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Net income
|
|
$
|
146,746
|
|
|
$
|
151,571
|
|
Stock-based employee compensation
expense included in net income, net of related taxes
|
|
|
7,092
|
|
|
|
4,576
|
|
Total stock-based employee
compensation expense determined under fair value based method,
net of related taxes
|
|
|
(23,012
|
)
|
|
|
(20,196
|
)
|
|
|
|
|
|
|
|
|
|
126
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Pro forma net income
|
|
$
|
130,826
|
|
|
$
|
135,951
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.98
|
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
1.77
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.92
|
|
|
$
|
1.95
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
1.72
|
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
|
The preceding pro forma results were calculated using the
Black-Scholes option pricing model. The following assumptions
were used for the years ended December 31, 2005 and 2004,
respectively: (1) risk-free interest rates of 4.22% and
3.63%; (2) dividend yield of 1.24% and 1.25%;
(3) expected lives of 7.1 and 6.3 years; and
(4) volatility of 28.9% and 30.0%. Expected volatilities
are based on historical volatility of the Companys stock.
The Company uses historical data to estimate option exercise and
employee termination within the valuation model; separate groups
of employees that have similar historical exercise behavior are
considered separately for valuation purposes under
SFAS No. 123R. The expected term of options granted
represents the period of time that options granted are expected
to be outstanding. The risk-free rate for periods within the
contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
Results may vary depending on the assumptions applied within the
model.
EARNINGS PER COMMON SHARE Earnings per common share
are computed in accordance with SFAS No. 128,
Earnings Per Share, which requires companies to
present basic earnings per share and diluted earnings per share.
Basic earnings per share are computed by dividing net income by
the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share
are computed by dividing net income by the weighted average
number of shares of common stock outstanding and restricted
stock and dilutive options outstanding during the year.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS In
June 2006, the FASB ratified the consensus reached by the EITF
on EITF Issue
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation)
(EITF
06-3).
A consensus was reached that entities may adopt a policy of
presenting sales taxes in the income statement on either a gross
or net basis. If taxes are significant, an entity should
disclose its policy of presenting taxes and the amounts of
taxes. EITF
06-3 is
effective for periods beginning after December 15, 2006.
The Company presents sales taxes collected from customers on a
net basis. The Company does not expect the adoption of EITF
06-3 to
impact its method for presenting sales taxes in its financial
statements.
In June 2006, the EITF reached a consensus on EITF Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements (EITF
06-4),
which requires the application of the provisions of
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions to endorsement
split-dollar life insurance arrangements. This would require
recognition of a liability for the discounted future benefit
obligation owed to an insured employee by the insurance carrier.
EITF 06-4 is
effective for fiscal years beginning after December 15,
2007. The Company may have certain policies subject to the
provisions of EITF
06-4 and is
currently evaluating the impact that EITF
06-4 would
have on its financial statements.
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
and disclosure of uncertainty in tax positions. FIN 48
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also
127
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and
transition associated with tax positions. The provisions of
FIN 48 are effective for fiscal years beginning after
December 15, 2006. The Company is currently evaluating the
impact that FIN 48 will have on its financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value and expands the
related disclosure requirements. The provisions of
SFAS No. 157 are effective for fiscal years beginning
after November 15, 2007. The Company is currently
evaluating the impact that SFAS No. 157 will have on
its financial statements.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each
financial statement and related financial statement disclosure
using both the rollover approach and the iron curtain approach,
as those terms are defined in SAB 108. The rollover
approach quantifies misstatements based on the impact of the
misstatement, whereas the iron curtain approach quantifies
misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the
current year, irrespective of the reversing effect of prior year
misstatements on the income statement. Financial statements
would require adjustment when either approach results in
quantifying a misstatement that is material. Correcting prior
year financial statements for immaterial errors would not
require previously filed reports to be amended. If a company
determines that an adjustment to prior year financial statements
is required upon adoption of SAB 108 and does not elect to
restate its previous financial statements, then it must
recognize the cumulative effect of applying SAB 108 in
fiscal 2006 beginning balances of the affected assets and
liabilities with a corresponding adjustment to the fiscal 2006
opening balance in retained earnings. SAB 108 is effective
for the first fiscal year ending after November 15, 2006.
The adoption of SAB 108 did not have a material impact on
the Companys financial statements.
Other current assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Income tax deposits
|
|
$
|
41,091
|
|
|
$
|
29,916
|
|
Accounts receivable
|
|
|
21,539
|
|
|
|
19,396
|
|
Accounts receivable
vendors
|
|
|
25,160
|
|
|
|
9,874
|
|
Accounts receivable
franchisees
|
|
|
3,601
|
|
|
|
1,777
|
|
Prepaid expenses
|
|
|
16,516
|
|
|
|
16,625
|
|
Deposits
|
|
|
2,094
|
|
|
|
2,651
|
|
Other current assets
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,501
|
|
|
$
|
80,739
|
|
|
|
|
|
|
|
|
|
|
128
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
PROPERTY,
FIXTURES AND EQUIPMENT, NET
|
Property, fixtures and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Land
|
|
$
|
196,308
|
|
|
$
|
200,394
|
|
Buildings and building improvements
|
|
|
806,863
|
|
|
|
689,056
|
|
Furniture and fixtures
|
|
|
295,848
|
|
|
|
231,608
|
|
Equipment
|
|
|
567,463
|
|
|
|
498,018
|
|
Leasehold improvements
|
|
|
383,939
|
|
|
|
345,640
|
|
Construction in progress
|
|
|
75,111
|
|
|
|
68,878
|
|
Less: accumulated depreciation
|
|
|
(776,606
|
)
|
|
|
(645,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,548,926
|
|
|
$
|
1,387,700
|
|
|
|
|
|
|
|
|
|
|
The Company expensed repair and maintenance costs of
approximately $95,000,000, $86,000,000 and $76,000,000 for the
years ended December 31, 2006, 2005 and 2004, respectively.
Depreciation expense for the years ended December 31, 2006,
2005 and 2004 was $150,559,000, $126,115,000 and $104,013,000,
respectively.
During 2005, the Company recorded an impairment charge of
$7,581,000 against the deferred license fee receivable related
to certain non-restaurant operations and an impairment charge of
$14,975,000 for intangible and other asset impairments related
to the closing of Paul Lees Chinese Kitchen. The Company
also recorded impairment charges for two Bonefish Grill
restaurants and seven domestic Outback Steakhouse restaurants.
Two of these Outback restaurants closed during 2005. The total
provision for impaired assets and restaurant closings was
$27,170,000 in 2005.
During 2006, the Company recorded impairment charges for eight
domestic Outback Steakhouse restaurants, three international
Outback Steakhouse restaurants, three Carrabbas Italian
Grill restaurants, three Cheeseburger in Paradise restaurants
and three Bonefish Grill restaurants. Of these restaurants, six
domestic Outback Steakhouses, one Bonefish Grill and one
Cheeseburger in Paradise closed in 2006. The total provision for
impaired assets and restaurant closings was $14,154,000 in 2006.
On October 11, 2005, the Company executed a sale agreement
for certain land in Las Vegas, Nevada where a Company-owned
Outback Steakhouse was operated. Pursuant to the agreement if
the sale is consummated after the inspection and title and
survey contingency periods, the Company will receive $8,800,000
on the closing date of the sale, which will be on or before
March 31, 2008, and will be provided space in a new
development to operate an Outback Steakhouse. The purchaser will
pay the Company an additional $5,000,000 if plans for the new
restaurant are not agreed upon prior to the closing date. In
October 2006, a fire occurred at this Outback Steakhouse, and
the Company recorded an impairment charge of $447,000 for the
closing of this restaurant, (included in the total provision
discussed above). This event does not affect the sale agreement,
and, at this time, the Company does not intend to rebuild the
restaurant before the closing date of the sale.
129
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
GOODWILL
AND INTANGIBLE ASSETS
|
The change in the carrying amount of goodwill for the years
ended December 31, 2006 and 2005 is as follows (in
thousands):
|
|
|
|
|
December 31, 2004
|
|
$
|
109,028
|
|
Acquisitions (see Note 15 of
Notes to Consolidated Financial Statements)
|
|
|
4,124
|
|
Acquisition adjustment
|
|
|
(525
|
)
|
|
|
|
|
|
December 31, 2005
|
|
|
112,627
|
|
Acquisitions (see Note 15 of
Notes to Consolidated Financial Statements)
|
|
|
37,832
|
|
Acquisition adjustment
|
|
|
(181
|
)
|
|
|
|
|
|
December 31, 2006
|
|
$
|
150,278
|
|
|
|
|
|
|
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Amortization
|
|
December 31,
|
|
|
|
Period (Years)
|
|
2006
|
|
|
2005
|
|
|
Tradename (gross)
|
|
Indefinite
|
|
$
|
13,100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks (gross)
|
|
24
|
|
|
8,344
|
|
|
|
8,344
|
|
Less: accumulated amortization
|
|
|
|
|
(861
|
)
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net trademarks
|
|
|
|
|
7,483
|
|
|
|
7,833
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade dress (gross)
|
|
15
|
|
|
777
|
|
|
|
777
|
|
Less: accumulated amortization
|
|
|
|
|
(123
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net trade dress
|
|
|
|
|
654
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable leases (gross, lives
ranging from 2 to 30 years)
|
|
20
|
|
|
5,416
|
|
|
|
3,224
|
|
Less: accumulated amortization
|
|
|
|
|
(551
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net favorable leases
|
|
|
|
|
4,865
|
|
|
|
3,024
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, less total
accumulated amortization of $1,535 and $783 at December 31,
2006 and 2005, respectively
|
|
22
|
|
$
|
26,102
|
|
|
$
|
11,562
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amortization expense related to these intangible
assets was $825,000, $1,421,000, and $662,000 for the years
ended December 31, 2006, 2005, and 2004, respectively.
Annual amortization expense related to these intangible assets
for the next five years is anticipated to be approximately
$700,000.
130
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Other assets
|
|
$
|
66,826
|
|
|
$
|
59,921
|
|
Insurance receivable (see
Notes 8 and 12)
|
|
|
2,885
|
|
|
|
41,696
|
|
Liquor licenses, net of
accumulated amortization of $5,939 and $5,037 at
December 31, 2006 and 2005, respectively
|
|
|
15,540
|
|
|
|
15,728
|
|
Deferred license fee
|
|
|
1,549
|
|
|
|
2,136
|
|
Assets held for sale
|
|
|
3,114
|
|
|
|
22,633
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,914
|
|
|
$
|
142,114
|
|
|
|
|
|
|
|
|
|
|
On October 26, 2005, the Board of Directors approved up to
$24,000,000 to be used for the purchase and development of
46 acres in Tampa, Florida. This purchase closed in
December 2005. On December 5, 2006, the Company sold
approximately 41.5 acres of this property for $17,300,000
and an escrow for site work improvements valued at $7,500,000.
The Company kept approximately 4.5 acres of land for the
development of three restaurants and recorded a gain of
$2,785,000 in the line item Other income (expense),
net in its Consolidated Statements of Income during the
fourth quarter of 2006.
Assets held for sale as of December 31, 2006 consisted of
$2,445,000 of land and $669,000 of buildings. Assets held for
sale as of December 31, 2005 consisted of $21,439,000 of
land, $1,194,000 of buildings. No gain or loss has been recorded
on assets held for sale as it is anticipated that proceeds from
the sale will exceed the net book value of the assets.
In January 2001, the Company entered into a ten-year licensing
agreement with an entity owned by minority interest owners of
certain non-restaurant operations. The licensing agreement
transferred the right and license to use certain assets of these
non-restaurant operations. As of July 19, 2005, the Company
began renegotiating the terms of this licensing agreement, and
as a result, the Company assessed the recoverability of the
carrying value of the associated deferred license fee and
determined that an impairment charge was necessary. Thus, a
$7,581,000 pretax charge was recorded against the deferred
license fee to reflect managements best estimate of its
current net realizable value as of June 30, 2005. The
negotiation of the deferred license fee was finalized on
September 20, 2005. The $7,000,000
agreed-upon
license fees are to be received in $500,000 increments on
July 31 of each year from 2006 to 2019 inclusive.
In 1996, the Company entered into key man life insurance
policies for three of the Companys founders. During 1999
through 2001, the Company entered into collateral assignment
split dollar arrangements with five officers on life insurance
policies owned by individual trusts for each officer. The
primary purpose of these split dollar policies was to provide
liquidity in the officers estates to pay estate taxes
minimizing the need for the estate to liquidate its holdings of
the Companys stock. The Company will recover the premiums
it has paid either through policy withdrawals or from life
insurance benefits in the event of death. Premiums were paid
only through 2001 and resumed in 2005 after these collateral
assignment arrangements were converted to endorsement split
dollar arrangements. The Company is now the owner of the
policies and has included the amount of its collateral interest
in the cash value of the policies in Other Assets.
In March 2006, the Company acquired endorsement split dollar
insurance policies with a $5 million death benefit for
three executive officers. The beneficiary of the policies is the
Company to the extent of premiums paid or the cash value,
whichever is greater with the balance being appointed to a
personal beneficiary designated by the executive officer. Upon
the Companys surrender of the policy it retains all of the
cash value, however, upon payment of a death claim, it intends
to retain an amount equal to the cumulative premiums it
previously paid or the
131
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cash value, whichever is greater, and it intends to pay the
balance of the stated death benefit to the beneficiary
designated by the executive officer.
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Accrued payroll and other
compensation
|
|
$
|
54,664
|
|
|
$
|
53,709
|
|
Accrued insurance
|
|
|
16,778
|
|
|
|
10,086
|
|
Other accrued expenses
|
|
|
25,692
|
|
|
|
32,897
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,134
|
|
|
$
|
96,692
|
|
|
|
|
|
|
|
|
|
|
No accrued restaurant closing expenses related to restaurant
closing provisions were included in other accrued expenses as of
December 31, 2006. Remaining accrued restaurant closing
expenses of less than $100,000 were included in other accrued
expenses as of December 31, 2005, related to restaurant
closing provisions.
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Revolving lines of credit,
uncollateralized, interest rate at 6.00% at December 31,
2006 and 5.00% to 5.21% at December 31, 2005
|
|
$
|
154,000
|
|
|
$
|
73,000
|
|
Outback Korea notes payable,
interest rates ranging from 5.27% to 6.29% at December 31,
2006 and 4.95% to 6.06% at December 31, 2005
|
|
|
39,700
|
|
|
|
46,670
|
|
Outback Korea long-term note
payable, interest rate of 5.85% at December 31, 2006
|
|
|
10,629
|
|
|
|
|
|
Outback Japan notes payable,
interest rates of 1.40% at December 31, 2006 and 0.86% at
December 31, 2005
|
|
|
5,114
|
|
|
|
5,085
|
|
Outback Japan revolving lines of
credit, interest rates ranging from 1.05% to 1.26% at
December 31, 2006 and 0.69% to 0.77% at December 31,
2005
|
|
|
13,017
|
|
|
|
14,636
|
|
Other notes payable,
uncollateralized, interest rates ranging 2.07% to 7.75% at
December 31, 2006 and 2.07% to 7.00% at December 31,
2005
|
|
|
7,993
|
|
|
|
8,424
|
|
Sale-leaseback obligation
|
|
|
4,925
|
|
|
|
6,250
|
|
Guaranteed debt of franchisee
|
|
|
32,083
|
|
|
|
31,283
|
|
Guaranteed debt of unconsolidated
affiliate
|
|
|
2,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,956
|
|
|
|
185,348
|
|
Less: current portion
|
|
|
(60,381
|
)
|
|
|
(63,442
|
)
|
Less: guaranteed debt
|
|
|
(34,578
|
)
|
|
|
(31,283
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt of OSI Restaurant
Partners, Inc.
|
|
$
|
174,997
|
|
|
$
|
90,623
|
|
|
|
|
|
|
|
|
|
|
Effective March 10, 2006, the Company amended an
uncollateralized $150,000,000 revolving credit facility that was
scheduled to mature in June 2007 with a new $225,000,000 maximum
borrowing amount and maturity date of June 2011. The amended
line of credit permits borrowing at interest rates ranging from
45 to 65 basis points over the 30, 60, 90 or
180-day
London Interbank Offered Rate (LIBOR) (ranging from 5.35% to
5.36% at December 31,
132
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2006 and ranging from 4.39% to 4.69% at December 31,
2005). At December 31, 2006, the unused portion of the
revolving line of credit was $71,000,000.
The credit agreement contains certain restrictions and
conditions as defined in the agreement that require the Company
to maintain consolidated net worth equal to or greater than
consolidated total debt and to maintain a ratio of total
consolidated debt to EBITDAR (earnings before interest, taxes,
depreciation, amortization and rent) equal to or less than 3.0
to 1.0.
Effective March 10, 2006, the Company also amended a
$30,000,000 line of credit that was scheduled to mature in June
2007 with a new $40,000,000 maximum borrowing amount and
maturity date of June 2011. The amended line permits borrowing
at interest rates ranging from 45 to 65 basis points over
LIBOR for loan draws and 55 to 80 basis points over LIBOR
for letter of credit advances. The credit agreement contains
certain restrictions and conditions as defined in the agreement.
There were no draws outstanding on this line of credit as of
December 31, 2006 and 2005, however, $25,072,000 and
$20,072,000, respectively, was committed for the issuance of
letters of credit as required by insurance companies that
underwrite the Companys workers compensation
insurance and also, where required, for construction of new
restaurants.
On October 12, 2006, the Company entered into a short-term
uncollateralized line of credit agreement that has a maximum
borrowing amount of $50,000,000 and a maturity date of March
2007. The line permits borrowing at an interest rate
55 basis points over the LIBOR Market Index Rate at the
time of each draw. The credit agreement contains certain
restrictions and conditions as defined in the agreement. There
were no draws outstanding on this line of credit as of
December 31, 2006.
The Company has notes payable with banks bearing interest at
rates ranging from 5.27% to 6.29% and from 4.95% to 6.06% at
December 31, 2006 and 2005, respectively, to finance
development of the Companys restaurants in South Korea.
The notes are denominated and payable in Korean won, with
outstanding balances as of December 31, 2006 maturing at
dates ranging from January 2007 to October 2007. As of
December 31, 2006 and 2005, the combined outstanding
balance was approximately $39,700,000 and $46,670,000,
respectively. Certain of the notes payable are collateralized by
lease and other deposits. At December 31, 2006 and 2005,
collateralized notes totaled approximately $41,360,000 and
$34,326,000, respectively. The Company has been pre-approved by
these banks for additional borrowings of approximately
$15,900,000 and $4,800,000 at December 31, 2006 and 2005,
respectively.
Effective September 28, 2006, the Company established an
uncollateralized note payable at a principal amount of
10,000,000,000 Korean won, which bears interest at 1.25% over
the Korean Stock
Exchange 3-month
certificate of deposit rate (5.85% as of December 31,
2006). The proceeds of this note were used to refinance
approximately 9,000,000,000 Korean won of short-term borrowings
and to pay estimated 2006 corporate income taxes of
1,000,000,000 Korean won. The note is denominated and payable in
Korean won and matures in September 2009. As of
December 31, 2006, the outstanding principle on this note
was approximately $10,629,000. The note contains certain
restrictions and conditions as defined in the agreement that
require the Companys Korean subsidiary to maintain a ratio
of debt to equity equal to or less than 2.5 to 1.0 and to
maintain a ratio of bank borrowings to total assets equal to or
less than 0.4 to 1.0.
The Company has notes payable with banks to finance the
development of the Companys restaurants in Japan
(Outback Japan). The notes are payable to banks,
collateralized by letters of credit and lease deposits of
approximately $3,300,000 and $3,100,000 at December 31,
2006 and 2005, respectively, and bear interest at 1.40% and at
0.86% at December 31, 2006 and 2005, respectively. The
notes are denominated and payable in Japanese yen, with
outstanding balances as of December 31, 2006 maturing in
September 2007. As of December 31, 2006 and 2005,
outstanding balances totaled approximately $5,114,000 and
$5,085,000, respectively.
In October 2003, Outback Japan established a revolving line of
credit to finance the development of new restaurants in Japan
and refinance certain notes payable. The line permits borrowing
up to a maximum of $10,000,000. Effective March 10, 2006,
this revolving credit facility that was scheduled to mature in
June 2007 was
133
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amended with a new maturity date in June 2011. The amended line
of credit permits borrowing at interest rates ranging from 45 to
65 basis points over LIBOR. As of December 31, 2006 and
2005, the Company had borrowed approximately $9,096,000 and
$9,043,000, respectively, on the line of credit at an average
interest rate of 1.19%, with draws as of December 31, 2006
maturing from February 2007 to June 2007. The revolving line of
credit contains certain restrictions and conditions as defined
in the agreement.
In February 2004, Outback Japan established an additional
revolving line of credit to finance the development of new
restaurants in Japan and to refinance certain notes payable. The
line permits borrowing up to a maximum of $10,000,000 with
interest of LIBOR divided by a percentage equal to 1.00 minus
the Eurocurrency Reserve Percentage. The line matured in
December 2006, and Outback Japan amended it to extend the
maturity of the line until the earlier of March 31, 2007 or
the date on which the acquisition of the Company by the investor
group is final. All other material provisions of the agreement
remained the same. As of December 31, 2006 and 2005,
Outback Japan had borrowed approximately $3,921,000 and
$5,593,000, respectively, on the line of credit at an average
interest rate of 1.17%, with draws as of December 31, 2006
maturing in January 2007. The revolving line of credit contains
certain restrictions and conditions as defined in the agreement.
As of December 31, 2006 and 2005, the Company had
approximately $7,993,000 and $8,424,000 of notes payable at
interest rates ranging from 2.07% to 7.75% and from 2.07% to
7.00%, respectively. These notes have been primarily issued for
buyouts of general manager interests in the cash flows of their
restaurants and generally are payable over five years.
In August 2005, the Company entered into a sale-leaseback
arrangement for five of its properties. Pursuant to this
arrangement, the Company sold these properties for a total of
$6,250,000, including $1,250,000 for tenant improvements. The
Company then leased the sites back for a
30-year term
and will make lease payments on the first day of each calendar
month. Since this transaction does not qualify for
sale-leaseback accounting treatment, the Company has included
the proceeds in the Companys Consolidated Balance Sheets
as long-term debt. During the fourth quarter of 2006, the
Company determined that it will not be leasing one of the sites
and reduced the amount of long-term debt recorded by the
original book value of the site including tenant improvements or
$1,325,000 to $4,925,000. The Company does not have any further
obligations with this site.
DEBT
GUARANTEES
The Company is the guarantor of an uncollateralized line of
credit that permits borrowing of up to $35,000,000 for a limited
liability company, T-Bird Nevada, LLC (T-Bird),
owned by its California franchisee. This line of credit matures
in December 2008. The line of credit bears interest at rates
ranging from 50 to 90 basis points over LIBOR. The Company
was required to consolidate T-Bird effective January 1,
2004 upon adoption of revised FASB Interpretation No. 46
(FIN 46R), Consolidation of Variable
Interest Entities. At December 31, 2006 and 2005, the
outstanding balance on the line of credit was approximately
$32,083,000 and $31,283,000, respectively, and is included in
the Companys Consolidated Balance Sheets as long-term
debt. T-Bird uses proceeds from the line of credit for the
purchase of real estate and construction of buildings to be
opened as Outback Steakhouse restaurants and leased to the
Companys franchisees. According to the terms of the line
of credit, T-Bird may borrow, repay, re-borrow or prepay
advances at any time before the termination date of the
agreement.
If a default under the line of credit were to occur requiring
the Company to perform under the guarantee obligation, the
Company has the right to call into default all of its franchise
agreements in California and exercise any rights and remedies
under those agreements as well as the right to recourse under
loans T-Bird has made to individual corporations in California
that own the land
and/or
building leased to those franchise locations. Events of default
are defined in the line of credit agreement and include the
Companys covenant commitments under existing lines of
credit. The Company is not the primary obligor on the line of
credit, and it is not aware of any non-compliance with the
underlying terms of the line of credit agreement that would
result in it having to perform in accordance with the terms of
the guarantee.
134
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is the guarantor of an uncollateralized line of
credit that permits borrowing of up to a maximum of $24,500,000
for its joint venture partner, RY-8, Inc. (RY-8), in
the development of Roys restaurants. The line of credit
originally expired in December 2004 and was renewed twice with a
new termination date in June 2011. According to the terms of the
credit agreement, RY-8 may borrow, repay, re-borrow or prepay
advances at any time before the termination date of the
agreement. On the termination date of the agreement, the entire
outstanding principal amount of the loan then outstanding and
any accrued interest is due. At December 31, 2006 and 2005,
the outstanding balance on the line of credit was approximately
$24,349,000 and $22,926,000, respectively.
RY-8s obligations under the line of credit are
unconditionally guaranteed by the Company and Roys
Holdings, Inc, (RHI). If an event of default occurs
(as defined in the agreement, and including the Companys
covenant commitments under existing lines of credit), then the
total outstanding balance, including any accrued interest, is
immediately due from the guarantors.
If an event of default occurs and RY-8 is unable to pay the
outstanding balance owed, the Company would, as guarantor, be
liable for this balance. However, in conjunction with the credit
agreement, RY-8 and RHI have entered into an Indemnity Agreement
and a Pledge of Interest and Security Agreement in favor of the
Company. These agreements provide that if the Company is
required to perform its obligation as guarantor pursuant to the
credit agreement, then RY-8 and RHI will indemnify the Company
against all losses, claims, damages or liabilities which arise
out of or are based upon its guarantee of the credit agreement.
RY-8s and RHIs obligations under these agreements
are collateralized by a first priority lien upon and a
continuing security interest in any and all of RY-8s
interests in the joint venture. RY-8 was in violation of certain
of its debt covenants. The Company has received a waiver from
the bank of its guarantee obligation solely relating to this
violation.
As a result of the Companys recourse provisions and the
financial performance of the restaurants that collateralize the
guarantee, the estimated fair value of the guarantee to be
recorded is immaterial to the Companys financial condition
and financial statements.
The Company is a guarantor of a portion of $68,000,000 in bonds
issued by Kentucky Speedway, LLC (Speedway).
Speedway is an unconsolidated affiliate in which the Company has
a 22.5% equity interest and for which the Company operates
catering and concession facilities. Payments on the bonds began
in December 2003 and will continue according to a redemption
schedule with final maturity in December 2022. At
December 31, 2006 and 2005, the outstanding balance on the
bonds was $63,300,000.
In June 2006, Speedway modified certain terms and conditions of
its debt, including (i) lowering its interest rate,
(ii) removing a liquidity coverage requirement,
(iii) reducing a fixed charge coverage ratio,
(iv) delaying redemption payments for 2006, 2007, and 2008,
and (v) revising a put feature that now allows the lenders
to require full payment of the debt on or after June 2011. In
connection with these modifications, in June 2006, the Company
and other equity owners of Speedway entered into an amended
guarantee, which increased the Companys guarantee on the
bonds from $9,445,000 to $17,585,000. The Companys
guarantee will proportionally decrease as payments are made on
the bonds.
As part of the amended guarantee, the Company and other Speedway
equity owners are obligated to contribute, either as equity or
subordinated debt, any amounts necessary to maintain
Speedways defined fixed charge coverage ratio. The Company
is obligated to contribute 27.78% of such amounts. Speedway has
not yet reached its operating break-even point. Since the
initial investment, the Company has made additional working
capital contributions and loans to this affiliate in payments
totaling $5,503,000. Of this amount, $1,867,000 was loaned
during 2006 and $1,392,000 was loaned in 2005.
Each guarantor has unconditionally guaranteed Speedways
obligations under the bonds not to exceed its maximum guaranteed
amount. The Companys maximum guaranteed amount is
$17,585,000. If an event of default occurs as defined by the
amended guarantee, or if the lenders exercise the put feature,
the total outstanding amount of the Bonds, plus any accrued
interest, is immediately due from Speedway and each guarantor
would be obligated to make payment under its guaranty up to its
maximum guaranteed amount.
135
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2006, in accordance with FASB Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45), the
Company recognized a liability of $2,495,000, representing the
estimated fair value of the guarantee and a corresponding
increase to the Companys investment in Speedway, which is
included in the line item entitled Investments In and
Advances to Unconsolidated Affiliates, Net in the
Companys Consolidated Balance Sheets. Prior to the June
2006 modifications, the guarantee was not subject to the
recognition or measurement requirements of FIN 45 and no
liability related to the guarantee was recorded at
December 31, 2005 or any prior period.
The Companys Korean subsidiary is the guarantor of debt
owed by landlords of two of the Companys Outback
Steakhouse restaurants in Korea. The Company is obligated to
purchase the building units occupied by its two restaurants in
the event of default by the landlords on their debt obligations,
which were approximately $1,400,000 and $1,500,000 as of
December 31, 2006. Under the terms of the guarantees, the
Companys monthly rent payments are deposited with the
lender to pay the landlords interest payments on the
outstanding balances. The guarantees are in effect until the
earlier of the date the principal is repaid or the entire lease
term of ten years for both restaurants, which expire in 2014 and
2016. The guarantees specify that upon default the purchase
price would be a maximum of 130% of the landlords
outstanding debt for one restaurant and the estimated legal
auction price for the other restaurant, approximately $1,900,000
and $2,300,000 as of December 31, 2006. If the Company were
required to perform under either guarantee, it would obtain full
title to the corresponding building unit and could liquidate the
property, each having an estimated fair value of approximately
$2,900,000. As a result, the Company has not recognized a
liability related to these guarantees in accordance with
FIN 45. The Company has various depository and banking
relationships with the lender, including several outstanding
notes payable.
The aggregate payments of debt outstanding at December 31,
2006, for the next five years, are summarized as
follows: 2007 $60,381,000; 2008
$34,126,000; 2009 $12,321,000; 2010
$1,162,000; 2011 $157,041,000; and
thereafter $4,925,000. The carrying amount of
long-term debt approximates fair value.
DEBT AND
DEBT GUARANTEE SUMMARY (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable
|
|
|
Payable
|
|
|
Payable
|
|
|
|
Total
|
|
|
During 2007
|
|
|
During 2008-2011
|
|
|
After 2011
|
|
|
Debt
|
|
$
|
235,378
|
|
|
$
|
60,381
|
|
|
$
|
170,072
|
|
|
$
|
4,925
|
|
Debt guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum availability of debt
guarantees
|
|
$
|
81,285
|
|
|
$
|
|
|
|
$
|
77,085
|
|
|
$
|
4,200
|
|
Amount outstanding under debt
guarantees
|
|
|
78,217
|
|
|
|
|
|
|
|
74,017
|
|
|
|
4,200
|
|
Carrying amount of liabilities
|
|
|
34,578
|
|
|
|
|
|
|
|
34,578
|
|
|
|
|
|
|
|
8.
|
OTHER
LONG-TERM LIABILITIES
|
Other long-term liabilities consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Litigation (See Notes 5 and
12)
|
|
$
|
|
|
|
$
|
39,000
|
|
Accrued insurance liability
|
|
|
31,236
|
|
|
|
26,411
|
|
Other liabilities
|
|
|
18,628
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,864
|
|
|
$
|
65,605
|
|
|
|
|
|
|
|
|
|
|
136
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other long-term liabilities at December 31, 2006 also
include $10,409,000 for the unfunded portion of the PEP Stock
Plan and $5,799,000 for the Diversified Plan, which are owed to
managing partners and chef partners (see Note 13).
|
|
9.
|
FOREIGN
CURRENCY TRANSLATION AND COMPREHENSIVE INCOME
|
Comprehensive income includes net income and foreign currency
translation adjustments. Total comprehensive income for the
years ended December 31, 2006, 2005 and 2004 was
approximately $108,164,000, $149,248,000 and $151,531,000,
respectively, which included the effect of gains and (losses)
from translation adjustments of approximately $8,004,000,
$2,502,000 and ($40,000), respectively.
The Company repurchased shares of its common stock,
$0.01 par value, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Number of shares repurchased
|
|
|
1,419
|
|
|
|
2,177
|
|
|
|
2,155
|
|
Aggregate purchase price
|
|
$
|
59,435
|
|
|
$
|
92,363
|
|
|
$
|
95,554
|
|
Repurchased shares are carried as treasury stock on the
Consolidated Balance Sheets and are recorded at cost. During
2006, 2005 and 2004, the Company reissued approximately
1,692,000, 3,264,000 and 1,643,000 shares of treasury
stock, respectively, that had a cost of approximately
$76,535,000, $131,981,000 and $50,538,000, respectively for
exercises of stock options and grants of restricted stock.
Provision for income taxes consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
52,277
|
|
|
$
|
70,619
|
|
|
$
|
76,321
|
|
State
|
|
|
11,403
|
|
|
|
16,435
|
|
|
|
11,213
|
|
Foreign
|
|
|
3,137
|
|
|
|
10,072
|
|
|
|
4,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,817
|
|
|
|
97,126
|
|
|
|
91,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(21,650
|
)
|
|
|
(19,944
|
)
|
|
|
(11,569
|
)
|
State
|
|
|
(2,325
|
)
|
|
|
(1,565
|
)
|
|
|
(1,653
|
)
|
Foreign
|
|
|
(1,030
|
)
|
|
|
(1,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,005
|
)
|
|
|
(23,318
|
)
|
|
|
(13,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
41,812
|
|
|
$
|
73,808
|
|
|
$
|
78,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation of income taxes calculated at the United
States federal tax statutory rate to the Companys
effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Income taxes at federal statutory
rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net
of federal benefit
|
|
|
3.9
|
|
|
|
4.1
|
|
|
|
4.0
|
|
Employment related credits, net
|
|
|
(10.7
|
)
|
|
|
(6.8
|
)
|
|
|
(5.3
|
)
|
Other, net
|
|
|
(0.1
|
)
|
|
|
1.0
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28.1
|
%
|
|
|
33.3
|
%
|
|
|
32.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax effects of temporary differences that give rise
to significant portions of deferred tax assets and liabilities
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
$
|
28,281
|
|
|
$
|
22,947
|
|
Insurance reserves
|
|
|
17,771
|
|
|
|
13,208
|
|
Unearned revenue
|
|
|
4,925
|
|
|
|
25,979
|
|
Deferred compensation
|
|
|
26,629
|
|
|
|
2,425
|
|
Partner accrued buyout liability
|
|
|
9,512
|
|
|
|
9,382
|
|
Goodwill and amortization
|
|
|
10,620
|
|
|
|
10,735
|
|
Foreign net operating loss
carryforward
|
|
|
1,512
|
|
|
|
3,439
|
|
Other, net
|
|
|
1,529
|
|
|
|
6,808
|
|
|
|
|
|
|
|
|
|
|
Gross deferred income tax assets
|
|
|
100,779
|
|
|
|
94,923
|
|
Less: valuation allowance
|
|
|
(4,149
|
)
|
|
|
(6,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
96,630
|
|
|
|
88,380
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liability:
|
|
|
|
|
|
|
|
|
Less: depreciation
|
|
|
(4,586
|
)
|
|
|
(21,343
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
92,044
|
|
|
$
|
67,037
|
|
|
|
|
|
|
|
|
|
|
The Company has revised its income tax accounts as of and for
the year ended December 31, 2005, to correct temporary
differences related to the depreciation of assets held in
consolidated tax partnerships and to separately reflect the tax
assets and liabilities of different tax jurisdictions. The
revisions increased other current assets by $29.5 million,
reduced non-current deferred tax assets by $11.4 million
and increased income taxes payable of $18.1 million. The
revision decreased the current tax provision $11.4 million
and the deferred tax benefit by a corresponding amount. The
revisions had no impact on results of operations and cash flows.
138
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes in the valuation allowance account for the deferred
tax assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance at January 1
|
|
$
|
6,543
|
|
|
$
|
7,855
|
|
|
$
|
6,081
|
|
Additions charged to costs and
expenses
|
|
|
|
|
|
|
526
|
|
|
|
1,774
|
|
Change in assessments about the
realization of deferred tax assets
|
|
|
(2,394
|
)
|
|
|
(1,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
4,149
|
|
|
$
|
6,543
|
|
|
$
|
7,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A provision was not made for any United States or additional
foreign taxes on undistributed earnings related to the
Companys foreign affiliates as these earnings were and are
expected to continue to be permanently reinvested. If the
Company identifies an exception to its general reinvestment
policy of undistributed earnings, additional taxes will be
posted.
|
|
12.
|
COMMITMENTS
AND CONTINGENCIES
|
OPERATING LEASES The Company leases restaurant and
office facilities and certain equipment under operating leases
having initial terms expiring between 2007 and 2021. The
restaurant facility leases primarily have renewal clauses from
five to 30 years exercisable at the option of the Company.
Certain of these leases require the payment of contingent
rentals based on a percentage of gross revenues, as defined by
the terms of the applicable lease agreement. Total rental
expense for the years ended December 31, 2006, 2005 and
2004 was approximately $111,987,000, $95,169,000 and
$79,331,000, respectively, and included contingent rent of
approximately $7,361,000, $5,826,000 and $4,695,000,
respectively.
Future minimum rental payments on operating leases (including
leases for restaurants scheduled to open in 2007) are as
follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
99,168
|
|
2008
|
|
|
93,661
|
|
2009
|
|
|
87,460
|
|
2010
|
|
|
81,140
|
|
2011
|
|
|
69,900
|
|
Thereafter
|
|
|
209,710
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
641,039
|
|
|
|
|
|
|
In January 2005, the Company executed a lease termination
agreement to vacate a premises occupied by a Company-owned
Outback Steakhouse. In accordance with the terms of this
agreement, the Company vacated the restaurant and terminated its
lease in June 2006. The Company received approximately
$6,014,000 and recorded a gain of $5,165,000 on the disposal of
this restaurant during the second quarter of 2006, which is
included in the line item Other income (expense),
net in the Companys Consolidated Statements of
Income.
PURCHASE OBLIGATIONS The Company has minimum
purchase commitments with various vendors through June 2009.
Outstanding commitments as of December 31, 2006 were
approximately $643,478,000 and consist primarily of minimum
purchase commitments of beef, pork, chicken, and other food
products related to normal business operations and contracts for
advertising, marketing, sports sponsorships, printing and
technology.
LONG-TERM INCENTIVES On December 8, 2005, the
Board approved long-term incentive agreements for certain of its
brand presidents. Payments are contingent on employment as brand
president for a ten-year term (a reduced payment may be made
upon completion of the eighth year). The agreements provide for
minimum payments of $500,000 to $1,000,000 per individual
upon completion of the term. In addition, upon completion of the
term, the individual will receive 5% of the excess, if any, of
cumulative operating profit of the brand over the
139
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cumulative cost of capital employed in the brand. The cost of
capital is subject to annual adjustment by the Company.
LITIGATION AND OTHER MATTERS The Company is subject
to legal proceedings claims and liabilities that arise in the
ordinary course of business. In the opinion of management, the
amount of the ultimate liability with respect to those actions
will not materially affect the Companys financial position
or results of operations and cash flows.
In June 2003, in a civil case against the Company in Indiana
state court alleging liability under the dramshop
liquor liability statute, a jury returned a verdict in favor of
the two plaintiffs who were injured by a drunk driver. The
portion of the verdict against the Company was $39,000,000. The
Company appealed the verdict to the Indiana Court of Appeals. On
July 25, 2005, the Court of Appeals affirmed the verdict of
the trial courts. The Company petitioned the Court of Appeals
for rehearing and rehearing was denied. The Company filed a
petition for transfer with the Indiana Supreme Court. On
February 21, 2006, the Indiana Supreme Court granted
transfer. On November 8, 2006, the Indiana Supreme Court
issued its decision reversing the verdict of the Indiana Court
of Appeals, reversing the order of the trial court denying a new
trial and remanding the case to the trial court with direction
to vacate the judgment and schedule a new trial. The decision of
the Indiana Supreme Court has been certified to the trial court
and the verdict vacated. A new trial will be scheduled.
As a result of the Indiana Supreme Courts decision, the
Company, at September 30, 2006, reversed its entry for the
original $39,000,000 verdict that was recorded as a non-current
liability in its Consolidated Balance Sheets and as a
non-current receivable in other assets.
The Company has insurance coverage related to this case provided
by its primary carrier for $21,000,000 and by an excess
insurance carrier for the balance of the verdict of
approximately $19,000,000. The excess insurance carrier has
filed a declaratory judgment suit claiming it was not notified
of the case and is therefore not liable for its portion of the
verdict. The Company does not believe the excess carriers
case has any merit and is vigorously defending this case.
Activity in this case has been held in abeyance pending
resolution of appeals in the dramshop case. The
Company has filed counter-claims against the excess carrier and
cross-claims against the primary carrier and its third-party
administrator. The Companys third-party administrator has
executed an indemnification agreement indemnifying the Company
against any liability resulting from the alleged failure to give
notice to the excess insurance carrier.
On November 7, 2006, a stockholder complaint was filed as a
purported class action on behalf of all public stockholders of
the Company, against the Company, each of Companys
directors, J. Timothy Gannon, Bain Capital Partners, LLC and
Catterton Partners in the Circuit Court of the
13th Judicial Circuit in and for Hillsborough County,
Florida. The complaint is captioned Charter Township of Clinton
Police and Fire Retirement System v. OSI Restaurant
Partners, Inc., Chris T. Sullivan, Robert D. Basham, A. William
Allen, III, John A. Brabson, Jr., W.R. Max
Carey, Jr., Debbie Fields, General (Ret.) Tommy Franks,
Thomas A. James, Lee Roy Selmon, Toby S. Wilt, J. Timothy
Gannon, Bain Capital Partners, LLC and Catterton Partners, Case
No. 06-CA-010348
Div. B. The plaintiff alleges that it is an owner of the
Companys common stock. The complaint alleges, among other
things, that the directors of the Company breached their
fiduciary duties in connection with the proposed transaction by
failing to maximize stockholder value and by approving a
transaction that purportedly benefits the Companys
management expected to invest in the proposed transaction at the
expense of the Companys public stockholders. Among other
things, the complaint seeks to enjoin the Company, its directors
and the other defendants from proceeding with or consummating
the merger. Bain Capital Partners, LLC and Catterton Partners
are alleged to have aided and abetted the individual defendants
in breaching their fiduciary duties. Based on the facts known to
date, the Company and other defendants believe that the claim
asserted is without merit and intend to defend this suit
vigorously. The absence of an injunction prohibiting the
consummation of the merger is a condition to the closing of the
merger. Subsequent to December 31, 2006, a second
shareholder complaint was filed (see Note 19).
140
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GUARANTEES The Company guarantees debt owed to banks
by some of its franchisees, joint venture partners and
unconsolidated affiliates. The maximum amount guaranteed is
approximately $81,285,000 with outstanding guaranteed amounts of
approximately $78,217,000 at December 31, 2006. The Company
would have to perform under the guarantees if the borrowers
default under their respective loan agreements. The default
would trigger a right for the Company to take over the
borrowers franchise or partnership interest.
Pursuant to the Companys joint venture agreement for the
development of Roys restaurants, RY-8, its joint venture
partner, has the right to require the Company to purchase up to
25% of RY-8s interests in the joint venture at anytime
after June 17, 2004 and up to another 25% (total 50%) of
its interests in the joint venture at anytime after
June 17, 2009. The purchase price to be paid by the Company
would be equal to the fair market value of the joint venture as
of the date that RY-8 exercised its put option multiplied by the
percentage purchased.
In addition, if RY-8 is unable to fund its working capital needs
and future interest payments, the Company would be obligated to
make those payments on behalf of its joint venture partner.
INSURANCE The Company purchased insurance for
individual claims that exceed the amounts listed in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Workers Compensation
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
General Liability(1)
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
Health(2)
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Property Coverage
|
|
|
7,500,000
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
|
(1) |
|
Beginning in 2004, for claims arising from liquor liability,
there is an additional $1,000,000 deductible until a $2,000,000
aggregate has been met. At that time, any claims arising from
liquor liability revert to the general liability deductible. |
|
|
|
(2) |
|
The Company is self-insured for all aggregate health benefits
claims, limited to $300,000 per covered individual per year. |
The Company records a liability for all unresolved claims and
for an estimate of incurred but not reported claims at the
anticipated cost to the Company based on estimates provided by a
third party administrator and insurance company. The
Companys accounting policies regarding insurance reserves
include certain actuarial assumptions and management judgments
regarding economic conditions, the frequency and severity of
claims and claim development history and settlement practices.
Unanticipated changes in these factors or future adjustments to
these estimates may produce materially different amounts of
expense that would be reported under these programs.
PROPOSED MERGER On November 5, 2006, the
Company entered into a definitive agreement to be acquired by an
investor group for $40.00 per share in cash. The
Companys Board of Directors, on the unanimous
recommendation of a Special Committee of independent directors,
approved the merger agreement and recommended that the
Companys shareholders adopt the agreement. If the proposed
merger is approved by the Companys shareholders, the
Company must pay a merger transaction fee equal to 0.35% of the
approximately $3.2 billion transaction value less $300,000
of fees already paid or $10,760,000. If the proposed merger is
not approved, the Company may be required to pay a termination
fee of $25,000,000 to $45,000,000 and reimburse
out-of-pocket
fees and expenses incurred with respect to the transactions
contemplated by the merger agreement, up to a maximum of
$7,500,000 (see Note 14).
|
|
13.
|
STOCK-BASED
COMPENSATION PLANS AND OTHER BENEFIT PLANS
|
STOCK-BASED
COMPENSATION PLANS
The Companys Amended and Restated Stock Option Plan was
approved by the shareholders of the Company in April 1999, and
has subsequently been amended as deemed appropriate by the
Companys Board of Directors or
141
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shareholders. In 2004, this plan was amended to allow the
issuance of restricted stock and was renamed the Amended and
Restated Stock Plan (the Stock Plan). There are
currently 23,500,000 shares of the Companys common
stock which may be issued and sold upon exercise of options or
grants of restricted common stock under the Stock Plan. The term
of options and restricted stock granted is determined by the
Board of Directors and grantees generally vest in the options or
shares over a one to ten year period.
The purpose of the Stock Plan is to attract competent personnel,
to provide long-term incentives to Directors and key employees,
and to discourage employees from competing with the Company.
In 2002, the Company adopted the 2002 Managing Partner Stock
Option Plan to provide for the issuance of options to managing
partners and other key employees of the Company, including upon
commencement of employment and to managing partners upon
completion of the term of their employment agreements. In 2005,
this plan was amended to allow the issuance of restricted stock
and was renamed the Amended and Restated Managing Partner Stock
Plan (the MP Stock Plan). No options or restricted
stock may be granted under the MP Stock Plan to Directors or
Officers of the Company or any of its subsidiaries or affiliated
partnerships. The MP Stock Plan is administered by the Board of
Directors. There are currently 7,500,000 shares of the
Companys common stock which may be issued or sold upon
exercise of options or grants of restricted common stock under
the MP Stock Plan. The term of options and restricted stock
granted under the MP Stock Plan is determined by the Board of
Directors and generally ranges from five to fifteen years.
Options under the Stock Plan and the MP Stock Plan may be
options that qualify under Section 422 of the Internal
Revenue Code (Incentive Stock Options) or options
that do not qualify under Section 422 (Nonqualified
Options). To date, the Company has only issued
Nonqualified Options.
The exercise price for options granted under the Stock Plan and
the MP Stock Plan generally cannot be less than fair market
value at the date of grant of the shares covered by the option.
The exercise price of options granted under the MP Stock Plan
was historically determined by using a three-month
weighted-average stock price to eliminate the daily trading
increases and decreases in the stock price. This averaging
method resulted in certain option grants under the MP Stock Plan
that were above or below the closing price as of the exact grant
date. Compensation expense resulted if the exercise price of
these options was less than the market price on the date of
grant. The Company discontinued use of the average stock price
in November 2005.
In 2006, the Company adopted the Partner Equity Plan (the
PEP) for managing partners and chef partners in
domestic restaurants. The PEP, as approved by the Board and the
Companys shareholders, includes the Partner Equity
Deferred Compensation Diversified Plan (the Diversified
Plan) and the Partner Equity Deferred Compensation Stock
Plan (the PEP Stock Plan).
When a managing partner or chef partner of a domestic restaurant
executes a five-year employment agreement, he or she makes a
capital contribution in exchange for a partnership interest in
the restaurant. Upon completion of each five-year term of
employment, the participating partners will receive a deferred
compensation benefit. The Diversified Plan will permit partners
to direct the investment of their deferred compensation accounts
into a variety of benchmark investment funds. Specified portions
of partners accounts will be required to be invested in
the PEP Stock Plan (a minimum of 75%, 50% and 25% based on
completion of the first, second and third or subsequent
employment terms, respectively). Only shares of the
Companys common stock purchased on the open market will be
utilized in the PEP Stock Plan.
The PEP is effective for all new partner employment agreements
signed after March 1, 2006 and will replace the issuance of
stock options to partners upon completion of their terms of
employment. In addition, during the first quarter of 2006, all
partners with existing employment agreements were given an
opportunity to elect to participate in the PEP in lieu of the
receipt of stock options upon completion of their terms of
employment. As a result, the only partners who will receive
stock option grants under the MP Stock Plan in the future are
those partners who executed an employment agreement prior to
March 1, 2006 and who did not elect to participate in the
PEP.
142
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The PEP Stock Plan is intended to be an unfunded, unsecured
promise to pay the participant in the Companys common
stock, subject to the terms and conditions of the PEP Stock
Plan. The Diversified Plan also is intended to be an unfunded,
unsecured promise to pay the participant in cash, subject to the
terms and conditions of the Diversified Plan.
The Company currently intends to fund its PEP obligation by
making a cash contribution to an irrevocable grantor or
rabbi trust upon each partners completion of a
term of employment (the Company is the sole owner of any assets
in the trust and participants are general creditors of the
Company with respect to their benefits under the PEP). A
specified percentage of these funds will be required to be used
by the trustee to purchase shares of the Companys common
stock on the open market. No shares will be issued by the
Company to the PEP.
All distributions from PEP Stock Plan accounts will be made in
whole shares of common stock. Distributions from Diversified
Plan accounts will be made in cash. The maximum number of shares
that may be distributed pursuant to the PEP Stock Plan is
5,000,000, subject to adjustment for stock dividends, stock
splits and certain other changes in the Companys
capitalization.
Participants PEP Stock Plan accounts will be credited with
phantom shares of the Companys common stock at the time of
a contribution based on the amount of the cash contribution to
the PEP Stock Plan and the closing trading price of the
Companys common stock on the NYSE on the day of the
contribution (or, if there is no trading of the shares on that
day, on the next date on which trading occurs). Accounts will be
credited with notional gains or losses from the date the
contribution is credited based on actual increases and decreases
in the value of the Companys common stock. A participant
will have no voting rights or other rights as a shareholder
based on phantom shares of the Companys common stock
credited to his or her account, and the Company will have no
obligation to set aside or reserve the Companys common
stock for the purpose of meeting its obligations under the PEP
Stock Plan. Notwithstanding the foregoing, a participant will be
entitled to receive credits to his or her account under the
Diversified Plan equal to the amount of any dividends that are
payable on the Companys common stock based on the number
of phantom shares of the Companys common stock credited to
the participants account at the time such dividend is
declared. Although participants accounts in the PEP Stock
Plan will not actually hold the Companys common stock, the
Company expects to cause the trust to purchase the
Companys common stock in the open market in amounts equal
to the number of phantom shares credited to the PEP Stock Plan
accounts. The Company will not issue shares of its common stock
to the trust for PEP from its treasury or from authorized and
unissued shares without shareholder approval. As of
December 31, 2006, the trust has not purchased any shares
(see Note 8).
Amounts credited to a partners accounts are fully vested
at all times and participants will have no discretion with
respect to the time and form of benefit payments under the PEP.
Except in the event of the death or disability of the
participant, each account will be distributed to the participant
in three payments:
|
|
|
|
|
25% of the then total account balance will be distributed five
years after the Company contribution is made (which generally
occurs at the end of the five-year employment term);
|
|
|
|
|
|
an additional 25% of the account (i.e., one-third of the
remaining account balance) will be distributed seven years after
the Company contribution is made; and
|
|
|
|
|
|
the remaining account balance will be distributed 10 years
after the Company contribution is made.
|
The Company currently administers the PEP Stock Plan. The
administrator may, at any time, amend or terminate the PEP Stock
Plan, except that no amendment or termination may reduce a
participants account balance or accelerate benefits under
the PEP Stock Plan in violation of Section 409A of the IRC.
If the Company terminates the PEP Stock Plan, the Company must
pay to each participant the balance of the participants
accounts at the time and in the form such amounts would have
been paid absent termination of the PEP Stock Plan.
Notwithstanding the foregoing, to the extent permitted under
Section 409A of the IRC, the Company may, in its complete
and sole discretion, accelerate distributions under the PEP
Stock Plan in the event of (i) change in the ownership or
effective
143
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
control of the Company, (ii) change in the ownership of a
substantial portion of the assets of the Company,
(iii) liquidation or bankruptcy of the Company, or
(iv) any other circumstances permitted under
Section 409A of the IRC.
After completion of each five-year employment term under the
current terms of the PEP, each partner will be issued
1,000 shares of the Companys common stock
(Partner Shares) under the MP Stock Plan. Once
awarded, these Partner Shares are unrestricted and may be sold
or transferred at any time. Partner Shares are accounted for in
a similar manner as restricted stock and compensation expense is
recognized over the five-year service period prior to the
issuance date at the end of the employment term.
The Stock Plan, MP Stock Plan and PEP Stock Plan were amended in
November 2006 as a result of the proposed merger (see
Note 14).
As of December 31, 2006, the Company had granted to
employees of the Company a cumulative total of approximately
22,740,000 options (after forfeitures) under the Stock Plan to
purchase the Companys common stock at prices ranging from
$0.19 to $43.90 per share, which was the estimated fair
market value at the time of each grant, and approximately
691,000 shares of restricted stock. As of December 31,
2006, the Company had granted to employees of the Company a
cumulative total of approximately 6,696,000 options (after
forfeitures) under the MP Stock Plan to purchase the
Companys common stock at prices ranging from $29.23 to
$46.93 per share and approximately 663,000 shares of
restricted stock and Partner Shares. As of December 31,
2006, options for approximately 3,056,000 shares were
exercisable in total under both of the plans, and no shares of
restricted stock or Partner Shares were exercisable under either
plan. As of December 31, 2006, the Company had an
obligation under the PEP Stock Plan to pay its participants the
equivalent of approximately 291,000 shares of common stock,
and the PEP stock trust had not purchased any shares as of
December 31, 2006. The Company also had an obligation under
the Diversified Plan to pay its participants approximately
$6,154,000, and the Diversified trust was funded by
approximately $6,100,000 as of December 31, 2006.
STOCK
OPTIONS
The following table presents a summary of the Companys
stock options as of December 31, 2006 and activity in the
Companys stock option plans for the year ended
December 31, 2006 (in thousands, except option prices and
contractual life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
Outstanding at December 31,
2005
|
|
|
16,643
|
|
|
$
|
32.25
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
100
|
|
|
|
36.65
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,335
|
)
|
|
|
25.40
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(785
|
)
|
|
|
39.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
14,623
|
|
|
$
|
32.52
|
|
|
|
8.3
|
|
|
$
|
111,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
3,056
|
|
|
$
|
25.96
|
|
|
|
4.7
|
|
|
$
|
40,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested, non-exercisable at
December 31, 2006
|
|
|
8,069
|
|
|
$
|
32.89
|
|
|
|
10.3
|
|
|
$
|
59,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value (market value on date of exercise less
exercise price) of options exercised during the years ended
December 31, 2006, 2005 and 2004 was approximately
$21,249,000, $42,421,000 and $37,812,000, respectively. The
aggregate intrinsic value of options outstanding as of
December 31, 2006, disclosed in the table above, represents
the closing stock price on the last trading day of the year less
the exercise price, multiplied by the
144
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
number of
in-the-money
stock options outstanding. The excess cash tax benefit
classified as a financing cash inflow for the year ended
December 31, 2006 was approximately $4,046,000.
Tax benefits resulting from the exercise of non-qualified stock
options reduced taxes currently payable by approximately
$8,058,000, $16,514,000 and $14,527,000 in 2006, 2005 and 2004,
respectively. The tax benefits are credited to additional
paid-in capital.
At December 31, 2006, there was approximately $16,816,000
of unrecognized, pre-tax compensation expense related to
non-vested stock options. This cost is expected to be recognized
over a weighted-average period of 4.2 years. The
weighted-average grant date fair value of stock options granted
during 2006, 2005 and 2004 was $13.34, $14.80 and
$12.67 per share, respectively. The following assumptions
were used to calculate the fair value of options granted during
the year ended December 31, 2006: (1) risk-free
interest rate of 4.6%; (2) dividend yield of 1.26%;
(3) expected life of 7.5 years; and
(4) volatility of 28.5%.
The Company has a policy of repurchasing shares on the open
market to satisfy stock option exercises, to reduce the dilutive
effect of restricted stock and for deposits in the PEP Stock
Plan. The Company generally repurchases shares based on
estimates of exercises, vesting of restricted stock and
contributions to the PEP Stock Plan and has repurchased
1,419,000 shares in 2006. The Company typically issues
treasury shares upon exercise of stock options.
RESTRICTED
STOCK AND PARTNER SHARES
The following table presents restricted stock and Partner Share
activity in the Companys plans for the year ended
December 31, 2006 (in thousands, except average fair value):
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average Fair
|
|
|
|
Share Awards
|
|
|
Value per Award
|
|
|
Restricted stock and Partner Share
awards outstanding at December 31, 2005
|
|
|
1,044
|
|
|
$
|
41.54
|
|
Granted
|
|
|
605
|
|
|
|
36.39
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(95
|
)
|
|
|
41.84
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and Partner Share
awards outstanding at December 31, 2006
|
|
|
1,554
|
|
|
$
|
39.62
|
|
|
|
|
|
|
|
|
|
|
The Company did not grant restricted stock during the year ended
December 31, 2004.
The preceding table includes 339,250 non-vested Partner Shares
granted with a weighted-average fair value of $36.11 and 10,000
Partner Shares forfeited with a weighted-average fair value of
$36.04 during the year ended December 31, 2006.
On April 25, 2006, the Companys Board of Directors
awarded an equivalent of 79,000 shares of the
Companys common stock to certain employees with a
weighted-average grant date fair value of $41.61 per award.
These awards had an option to be settled in cash or through
issuance of restricted stock, and therefore, qualified as
liability-based awards under SFAS No. 123R as of
September 30, 2006. In October 2006, the Board of Directors
approved replacing the rewards with grants of restricted stock,
which are included in the preceding table.
Compensation expense recognized in net income for restricted
stock, liability-based and Partner Share awards granted during
the year ended December 31, 2006 was approximately
$9,234,000. At December 31, 2006, unrecognized pre-tax
compensation expense related to non-vested restricted stock and
Partner Share awards was approximately $48,472,000 and will be
recognized over a weighted-average period of 5.2 years.
145
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On April 27, 2005, the Companys Board of Directors
approved a grant of restricted common stock to the
Companys Chief Executive Officer under the Stock Plan.
Under the terms of the grant, 300,000 shares of restricted
common stock were issued and will vest as follows: on
December 31, 2009, 90,000 shares, plus an additional
30,000 shares if the market capitalization of the Company
exceeds $6,060,000,000; on December 31, 2011,
90,000 shares, plus an additional 30,000 shares if the
market capitalization of the Company exceeds $8,060,000,000; and
on December 31, 2014, the balance of all remaining unvested
shares. On December 8, 2005, the Companys Board of
Directors approved an additional grant of restricted stock to
the Companys Chief Executive Officer under the Stock Plan.
Under the terms of the grant, 150,000 shares of restricted
stock were issued effective December 31, 2005 and will vest
as follows: on December 31, 2009, 75,000 shares and on
December 31, 2011, the remaining 75,000 shares.
On July 27, 2005, the Companys Board of Directors
approved a grant of 50,000 shares of restricted common
stock to the Senior Vice President of Real Estate and
Development as an inducement grant in connection with his
hiring. These shares were not issued under any existing stock
plan of the Company. Under the terms of the grant, the
50,000 shares of restricted stock will vest as follows: on
June 13, 2008, 10,000 shares; on June 13, 2010,
10,000 shares; on June 13, 2012, 15,000 shares;
and on June 13, 2015, the balance of all remaining unvested
shares.
On October 26, 2005, the Companys Board of Directors
approved a grant of 100,000 shares of restricted common
stock to the Senior Vice President and Chief Financial Officer
as an inducement grant in connection with his hiring, effective
November 1, 2005. These shares were not issued under any
existing stock plan. Under the terms of the grant, the
100,000 shares of restricted stock will vest as follows: on
November 1, 2010, 50,000 shares, plus an additional
10,000 shares if the market capitalization of the Company
exceeds $6,000,000,000; and on November 1, 2012, the
balance of all remaining unvested shares.
The Companys Board of Directors approved a grant of
50,000 shares of restricted common stock to the Chief
Marketing Officer of its Outback Steakhouse brand as an
inducement grant in connection with her hiring, effective
October 1, 2006. These shares were not issued under any
existing stock plan. Under the terms of the grant, all of the
shares will vest on October 1, 2011 unless this employee is
terminated after October 1, 2009 for other than
cause, as defined in the employment agreement, at
which time 50% of the shares will vest.
OTHER
BENEFIT PLAN
The Company has a qualified defined contribution 401(K) plan
covering substantially all full-time employees, except officers
and certain highly compensated employees. Assets of this plan
are held in trust for the sole benefit of the employees. The
Company contributed approximately $1,800,000, $1,500,000 and
$1,350,000 to the 401(K) plan during the plan years ended
December 31, 2006, 2005 and 2004, respectively.
On November 5, 2006, the Company entered into a definitive
agreement to be acquired by an investor group comprised of
affiliates of Bain Capital Partners, LLC and Catterton Partners
and Company founders Chris T. Sullivan, Robert D. Basham and J.
Timothy Gannon, for $40.00 per share in cash (the
Merger Consideration). The Companys Board of
Directors, on the unanimous recommendation of a Special
Committee of independent directors, approved the merger
agreement and recommended that the Companys shareholders
adopt the agreement.
The total transaction value, including assumed debt, is
approximately $3.2 billion. The transaction is expected to
close prior to the end of April 2007, and is subject to approval
of the Companys shareholders (other than those Company
managers investing in the acquisition) and customary closing
conditions. The transaction is not subject to a financing
condition.
After the effective time of the proposed merger, the Company
will continue its current operations, except that it will cease
to be an independent public company, and its common stock will
no longer be traded on the New York Stock Exchange.
146
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The merger agreement contains certain termination rights. The
merger agreement provides that in certain circumstances, upon
termination, the Company may be required to pay a termination
fee of either $25,000,000 or, in certain circumstances,
$45,000,000, and reimburse
out-of-pocket
fees and expenses incurred with respect to the transactions
contemplated by the merger agreement, up to a maximum of
$7,500,000. Also under certain circumstances, upon termination,
the Company may be entitled to receive a termination fee of
$45,000,000.
Merger expenses of approximately $2,900,000 for the year ended
December 31, 2006 were included in the line item
General and administrative expenses in the
Companys Consolidated Statements of Income and reflect
primarily the professional service costs incurred by the Company
in connection with the proposed merger transaction.
On November 5, 2006, the Company entered into amendments to
certain employment, stock option and restricted stock agreements
with the Companys Chief Executive Officer, Chief Operating
Officer, Chief Officer Legal and Corporate Affairs
and Chief Financial Officer. 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 the Chief Financial Officer, 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 the Chief Executive Officers Amendment, if a
change of control and subsequent separation of service cause the
vesting of all restricted stock granted to him pursuant to
certain Restricted Stock Agreements, the Company will not be
required to pay him severance compensation of $5,000,000, as
previously required under his employment agreement in certain
circumstances.
Pursuant to the Amendments for the Chief Executive Officer,
Chief Operating Officer and Chief Officer Legal and
Corporate Affairs, 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 the Chief Executive
Officer, Chief Officer Legal and Corporate Affairs
and Chief Financial Officer, 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 executives
payments does not exceed the 110% threshold, the
executives 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.
On November 5, 2006, the Company amended 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 MP Stock
Plan). Pursuant to these amendments, each option granted
under the Stock Plan and the MP 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
147
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 participants 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 participants 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.
|
|
15.
|
BUSINESS
COMBINATIONS
|
In January 2004, one of the cofounders of Bonefish Grill died.
Under the terms of the Bonefish agreements, the Company
purchased the 25% ownership interest of this founder in a
Bonefish partnership that owns and operates Bonefish Grill
restaurants in Florida for approximately $9,522,000 in cash.
Since the date of acquisition, the Company has reduced the
minority partners remaining interest in this entity to 25%
in the consolidated financial statements. The Company recorded
goodwill of approximately $3,332,000 associated with this
transaction, all of which is expected to be deductible for
income tax purposes. Additionally, the Company recorded
trademark and trade dress assets with values of approximately
$1,000,000 and $75,000, which will be amortized over useful
lives of 20 and 15 years, respectively, and favorable lease
intangibles of approximately $474,000, which will be amortized
over the remaining terms of the associated leases, ranging from
two to 24 years.
In March 2004, the Company acquired the 36% minority ownership
interests of its partners in nine Carrabbas restaurants in
Texas for approximately $3,738,000 in cash. No minority interest
for these stores has been reflected in the consolidated
financial statements since that date.
In September 2004, the Company acquired an additional 39%
ownership interest in the joint venture that operates
Flemings for approximately $24,300,000 in cash and
$14,700,000 paid in satisfaction of amounts outstanding under
loans previously made by the Company to the joint venture
partners. Since the date of acquisition, the Company has reduced
the minority partners remaining interest to 10% in the
consolidated financial statements. In connection with the
allocation of the purchase price paid to acquire the additional
ownership interest, the Company recorded tax-deductible goodwill
of approximately $13,732,000 and trademark and trade dress
assets with values of approximately $6,747,000 and $702,000,
which will be amortized over 25 and 15 years, respectively.
On January 1, 2005, the Company acquired the 50% minority
ownership interests of its partner in four Carrabbas
restaurants in Ohio for approximately $5,200,000 in cash and the
assumption of the employee partner buyout liability for these
stores of approximately $590,000. No minority interest for these
stores has been reflected in the Consolidated Financial
Statements since that date. The Company recorded goodwill of
approximately $4,100,000 associated with this transaction, all
of which is expected to be deductible for income tax purposes.
148
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February 2006, the Company purchased ten Outback Steakhouses
from its franchisee in Eastern Canada for approximately
$7,456,000 in cash and the assumption of the employee partner
buyout liability for these locations of approximately $748,000
and other liabilities of approximately $134,000. The Company
recorded goodwill of approximately $3,209,000 associated with
this transaction, $2,407,000 of which is expected to be
deductible for income tax purposes. Additionally, the Company
recorded favorable lease intangibles of $300,000, which will be
amortized over the remaining terms of the associated leases,
ranging from 4 to 15 years (see Note 4).
In August 2006, the Company acquired the remaining 50% minority
ownership interests in nineteen Carrabbas restaurants, the
remaining 20% minority ownership interests in six
Carrabbas restaurants, and an additional 10% ownership
interest in one Carrabbas restaurant for a total of
$28,500,000 in cash and the forgiveness of amounts owed by the
minority owners of $380,000 (see Note 16). Since the date
of acquisition, the Company has reduced the minority
partners remaining interest to 50% for one store, with no
minority interests for the remaining twenty-five stores in the
consolidated financial statements. The Company recorded goodwill
of $7,376,000 associated with this transaction, all of which is
expected to be deductible for income tax purposes. Additionally,
the Company recorded fixed assets of $1,830,000, a trade name
asset of $13,100,000, minority interests in consolidated
entities of $5,021,000 and favorable lease intangibles of
$1,636,000, which will be amortized over the remaining terms of
these associated leases, ranging from 16 to 30 years (see
Note 4).
On October 1, 2006, the Company acquired the remaining 50%
minority ownership interests in six Carrabbas restaurants
and the remaining 20% minority ownership interests in five
Carrabbas restaurants for $3,400,000 in cash and the
assumption of certain employee partner buyout liabilities (see
Note 16).
On October 1, 2006, the Company acquired the remaining 20%
minority ownership interests in eight Bonefish Grill restaurants
and the remaining 13% minority ownership interest in one
Bonefish Grill restaurant for $2,500,000 in cash.
On November 8, 2006, the Company acquired the remaining 18%
minority ownership interests in eighty-eight Outback Steakhouse
restaurants in South Korea. The total acquisition price was
approximately $34,872,000, of which $17,831,000 was paid in cash
to the sellers, $14,041,000 was paid in satisfaction of amounts
outstanding under loans previously made by the Company to the
sellers and $3,000,000 was placed into an interest-bearing
escrow account. The escrowed monies are to provide a source for
indemnification against claims of misrepresentation or breach of
warranty and payment of certain expenses. The Company recorded
goodwill of $25,320,000 associated with this transaction, none
of which is expected to be deductible for income tax purposes.
Additionally, the Company recorded fixed assets of $1,378,000.
The Company allocated the purchase price on a preliminary basis
using information currently available. The allocation of the
purchase price to the assets and liabilities acquired will be
finalized in fiscal 2007, as the Company obtains more
information regarding asset valuations, liabilities assumed and
revisions of preliminary estimates of fair values made at the
date of purchase. The Company completed this acquisition to
sever all relationships with the minority owners of Aussie
Chung, Ltd. (see Note 12).
On a pro forma basis, the effects of the acquisitions were not
significant to the Companys results of operations.
|
|
16.
|
RELATED
PARTY TRANSACTIONS
|
During 2001, Mr. Lee Roy Selmon, a member of the Board of
Directors invested approximately $101,000 for a 10% interest in
the operations of a Company-owned restaurant that bears his name
and to which he is making a material image contribution.
Mr. Selmon will receive a 1% royalty from all future Lee
Roy Selmons restaurants developed by the Company. In 2006,
Mr. Selmon received distributions from the Selmons
partnership in the amount of approximately $80,000 and royalties
in the amount of approximately $92,000. Mr. Selmon also
serves on the board of directors of Fifth Third Bank, Florida
region, which is a division of Fifth Third Bancorp. Some of the
Companys individual restaurant locations have depository
relationships with Fifth Third Bancorp.
A member of the Board of Directors, through his wholly-owned
corporation, has made investments in the aggregate amount of
approximately $331,000 in seven limited partnerships that are
parties to joint ventures that own
149
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and operate certain Carrabbas Italian Grill restaurants.
In 2006, this director received distributions of approximately
$35,000 from these partnerships.
A member of the Board of Directors and a named executive officer
of the Company, through his revocable trust in which he and his
wife are the grantors, trustees and sole beneficiaries, owns a
100% interest in AWA III Steakhouse, Inc., which owns 2.5%
of Outback/Flemings, LLC, the joint venture that operates
Flemings Prime Steakhouse and Wine Bars. In 2006, this
director and officer did not receive distributions from these
investments and made a capital contribution of approximately
$296,000.
A named executive officer of the Company has made investments in
the aggregate amount of approximately $227,000 in six limited
partnerships that are parties to joint ventures that own and
operate either certain Carrabbas Italian Grill restaurants
or Bonefish Grill restaurants. In 2006, this officer received
distributions from these partnerships of approximately $24,000.
A named executive officer of the Company has made investments in
the aggregate amount of approximately $60,000 in three limited
partnerships that are parties to joint ventures that own and
operate certain Carrabbas Italian Grill restaurants. In
2006, this officer did not receive distributions from these
partnerships.
An executive officer of the Company has made investments in the
aggregate amount of approximately $1,250,000 in an international
franchisee that owns and operates six Outback Steakhouse
restaurants in South East Asia. In 2006, he did not receive
distributions from this franchisee. Additionally, this executive
officer has made an investment of $50,000 in a franchisee that
operates two Bonefish Grill restaurants. In 2006, he received
distributions of approximately $4,000 from this franchisee.
A sibling of a named executive officer is employed with a
subsidiary of the Company as a restaurant managing partner and
received aggregate compensation in 2006 of $79,000. As a
qualified managing partner, the sibling was entitled to make
investments in Company restaurants, on the same basis as other
qualified managing partners, and invested $375,000 in
partnerships that own and operate two Outback Steakhouse
restaurants and received distributions from these partnerships
in the aggregate amount of $127,000 in the year 2006.
A sibling of a named executive officer is employed with a
subsidiary of the Company as a Vice President of Operations and
received aggregate compensation in 2006 of $423,797. The sibling
received benefits consistent with other employees in the same
capacity. In addition, the sibling is allowed to purchase
participation interests in cash flow from restaurants (on the
same basis as other similarly situated employees) and he
invested an aggregate amount of $392,000 in 23 limited
partnerships that own and operate nine Outback restaurants, 11
Bonefish Grill restaurants and three Carrabbas Italian
Grill restaurants. In 2006, the sibling purchased participation
interests for $125,000 and received distributions in the
aggregate amount of $52,000.
The parents and a certain sibling of a member of the Board of
Directors made investments in the aggregate amount of
approximately $131,000 in four unaffiliated limited partnerships
that own and operate four Outback Steakhouse restaurants
pursuant to franchise agreements with Outback Steakhouse of
Florida, Inc. and received distributions from the partnerships
in the aggregate amount of approximately $29,000 during 2006.
The relatives of a member of the Board of Directors made
investments of approximately $66,000 in one unaffiliated limited
partnership that owns and operates two Bonefish Grill
restaurants as a franchisee of Bonefish. They received
distributions from this partnership in the aggregate amount of
approximately $19,000 during 2006.
In January 2006, a member of the Companys Board of
Directors became a director on the board of Bank of America
Corporation. The Company has various corporate banking
relationships with Bank of America. They participate as a lender
in the Companys $225,000,000 revolving credit facility,
and they are the lender for the $35,000,000 uncollateralized
line of credit that the Company guarantees for a limited
liability company that is owned by its California franchisee. In
addition, individual restaurant locations have depository
relationships with Bank of America in the ordinary course of
business.
150
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2006, the Company acquired additional ownership of
twenty-six Carrabbas restaurants (see Note 15). A
named executive officer of the Company received approximately
$56,000 as a result of his ownership interest in one of these
joint venture restaurants. He had contributed an aggregate
amount of approximately $40,000 for this interest.
A named executive officer of the Company received approximately
$35,000 as a result of the sale of his ownership interest in
three joint venture restaurants to the Company in October 2006.
He had contributed an aggregate amount of approximately $60,000
for this interest (see Note 15).
The Company operates restaurants under eight brands that have
similar investment criteria and economic and operating
characteristics and are considered one reportable operating
segment. Approximately 8%, 7% and 6% of the Companys total
revenues for the years ended December 31, 2006, 2005 and
2004, respectively, were attributable to operations in foreign
countries, and approximately 9%, 7% and 6% of the Companys
total long-lived assets were located in foreign countries where
the Company holds assets as of December 31, 2006, 2005 and
2004, respectively.
The following table represents the computation of basic and
diluted earnings per common share as required by
SFAS No. 128 Earnings Per Share (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net income
|
|
$
|
100,160
|
|
|
$
|
146,746
|
|
|
$
|
151,571
|
|
Basic weighted average number of
common shares outstanding
|
|
|
73,971
|
|
|
|
73,952
|
|
|
|
74,117
|
|
Basic earnings per common share
|
|
$
|
1.35
|
|
|
$
|
1.98
|
|
|
$
|
2.05
|
|
Effect of stock-based compensation
awards
|
|
|
2,242
|
|
|
|
2,589
|
|
|
|
3,432
|
|
Diluted weighted average number of
common shares outstanding
|
|
|
76,213
|
|
|
|
76,541
|
|
|
|
77,549
|
|
Diluted earnings per common share
|
|
$
|
1.31
|
|
|
$
|
1.92
|
|
|
$
|
1.95
|
|
Basic earnings per common share is computed using net income and
the basic weighted average number of common shares outstanding
during the period. Diluted earnings per common share is computed
using net income and the diluted weighted average number of
common shares outstanding. Diluted weighted average common
shares outstanding includes potentially dilutive common shares,
restricted stock awards, Partner Shares and contingently
issuable shares under the PEP outstanding during the period.
Potentially dilutive common shares include the assumed exercise
of stock options and issuance of restricted stock awards and
Partner Shares using the treasury stock method.
Diluted earnings per common share excludes antidilutive stock
options of approximately 4,466,000, 2,393,000 and 1,671,000
during 2006, 2005 and 2004, respectively.
In January 2007, the staff of the SEC notified the Company that
its inquiry in the South Korean matter involving improper
payments to government officials has been terminated without a
recommendation for an enforcement action.
On January 23, 2007, the Companys Board of Directors
declared a quarterly dividend of $0.13 per share of the
Companys common stock. The dividend will be paid
March 2, 2007 to shareholders of record as of
February 16, 2007.
151
OSI
Restaurant Partners, Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On January 30, 2007, a stockholder complaint was filed
individually and as a purported class action on behalf of the
injured stockholders of the Company against the Company, each of
the Companys directors, Timothy Gannon, Bain Capital
Partners LLC, Catterton Management Company, LLC, Paul E. Avery,
Joseph J. Kadow and Dirk A. Montgomery in the Court of Chancery
of the State of Delaware in and for New Castle County. The
complaint is captioned Robert Mann v. Chris T. Sullivan,
Robert D. Basham, A. William Allen III, Debbi Fields,
Thomas A. James, John A. Brabson, Jr., General (Ret) Tommy
Franks, Lee Roy Selmon, Toby S. Wilt, Timothy Gannon, Bain
Capital Partners, LLC, Catterton Management Company, LLC, Paul
E. Avery, Joseph J. Kadow, Dirk A. Montgomery and OSI
Restaurant Partners, Inc. The complaint alleges, among other
things, that the directors of the Company and Mr. Avery,
Mr. Kadow and Mr. Montgomery breached their fiduciary
duties in connection with the proposed transaction by failing to
maximize stockholder value and by approving a transaction that
purportedly benefits the Companys founders and certain
members of its management who are expected to invest in Kangaroo
Holdings, Inc. at the expense of the Companys public
stockholders. Bain Capital and Catterton are alleged to have
aided and abetted the individual defendants in breaching their
fiduciary duties. Among other things, the complaint seeks to
enjoin the Company, its directors and the other defendants from
proceeding with or consummating the merger. Based on the facts
known to date, the defendants believe that the claim asserted is
without merit and intend to defend this suit vigorously. The
absence of an injunction prohibiting the consummation of the
merger is a condition to the closing of the merger.
|
|
20.
|
SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
The following tables present selected quarterly financial data
for the periods ending as indicated, (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Revenues
|
|
$
|
992,360
|
|
|
$
|
992,025
|
|
|
$
|
950,636
|
|
|
$
|
1,005,938
|
|
Income from operations
|
|
|
54,725
|
|
|
|
37,809
|
|
|
|
26,372
|
|
|
|
33,711
|
|
Income before provision for income
taxes and elimination of minority interest
|
|
|
52,583
|
|
|
|
40,567
|
|
|
|
23,263
|
|
|
|
32,334
|
|
Net income(1)
|
|
|
32,231
|
|
|
|
28,832
|
|
|
|
17,268
|
|
|
|
21,829
|
|
Basic earnings per share
|
|
$
|
0.44
|
|
|
$
|
0.39
|
|
|
$
|
0.23
|
|
|
$
|
0.30
|
|
Diluted earnings per share
|
|
$
|
0.42
|
|
|
$
|
0.38
|
|
|
$
|
0.23
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Revenues
|
|
$
|
898,443
|
|
|
$
|
919,113
|
|
|
$
|
872,871
|
|
|
$
|
922,290
|
|
Income from operations
|
|
|
82,633
|
|
|
|
64,922
|
|
|
|
47,741
|
|
|
|
33,280
|
|
Income before provision for income
taxes and elimination of minority interest
|
|
|
80,909
|
|
|
|
63,770
|
|
|
|
46,476
|
|
|
|
30,590
|
|
Net income(1)
|
|
|
50,351
|
|
|
|
39,534
|
|
|
|
29,472
|
|
|
|
27,389
|
|
Basic earnings per share
|
|
$
|
0.68
|
|
|
$
|
0.53
|
|
|
$
|
0.40
|
|
|
$
|
0.37
|
|
Diluted earnings per share
|
|
$
|
0.65
|
|
|
$
|
0.51
|
|
|
$
|
0.38
|
|
|
$
|
0.36
|
|
|
|
|
(1) |
|
Net income includes $2,532,000, $502,000, $10,513,000 and
$607,000 in provisions for impaired assets and restaurant
closings in the first, second, third and fourth quarters of
2006, respectively. Net income includes $951,000, $7,679,000,
$1,396,000 and $17,144,000 in provisions for impaired assets and
restaurant closings in the first, second, third and fourth
quarters of 2005, respectively. |
152
Net Book
Value Per Share of OSI Common Stock
The net book value per share of OSI common stock as of
December 31, 2006 was $16.26.
Ratio of
Earnings to Fixed Charges
Computation
of Ratio of Earnings to Fixed Charges
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Earnings available for fixed charges
|
|
$
|
238,408
|
|
|
$
|
271,027
|
|
|
$
|
268,478
|
|
|
$
|
259,496
|
|
|
$
|
201,710
|
|
Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,607
|
|
|
|
2,012
|
|
|
|
3,835
|
|
|
|
7,226
|
|
|
|
15,371
|
|
Portion of rentals deemed to be
interest
|
|
|
16,404
|
|
|
|
20,914
|
|
|
|
26,444
|
|
|
|
31,723
|
|
|
|
37,329
|
|
Other
|
|
|
136
|
|
|
|
154
|
|
|
|
261
|
|
|
|
273
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges
|
|
$
|
18,147
|
|
|
$
|
23,080
|
|
|
$
|
30,540
|
|
|
$
|
39,222
|
|
|
$
|
53,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges
|
|
|
13.1
|
|
|
|
11.7
|
|
|
|
8.8
|
|
|
|
6.6
|
|
|
|
3.8
|
|
For purposes of calculating the ratio of earnings to fixed
charges, earnings consist of income before income taxes and
other party interests in consolidated entities plus fixed
charges plus amortization of capitalized interest plus
distributed income of equity investees minus capitalized
interest. Fixed charges include: (i) interest expense,
whether expensed or capitalized; (ii) amortization of debt
issuance cost; and (iii) the portion of rental expenses
representative of the interest factor, which is calculated based
upon
1/3
of rental expenses related to operating leases.
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
Overview
We are one of the largest casual dining restaurant companies in
the world, with eight restaurant concepts, more than 1,400
system-wide restaurants and 2006 annual revenues for
Company-owned stores exceeding $3.9 billion. We operate in
all 50 states and in 20 countries internationally,
predominantly through Company-owned stores, but we also operate
under a variety of partnerships and franchises. Our primary
focus as a company of restaurants is to provide a quality
product together with quality service across all of our brands.
This goal entails offering consumers of different demographic
backgrounds an array of dining alternatives suited for differing
needs. Our sales are primarily generated through a diverse
customer base, which includes people eating in our restaurants
as regular users who return for meals several times a week or on
special occasions such as birthday parties, private events and
for business entertainment. Secondarily, we generate revenues
through sales of franchises and ongoing royalties.
The restaurant industry is a highly competitive and fragmented
business, which is subject to sensitivity from changes in the
economy, trends in lifestyles, seasonality (customer spending
patterns at restaurants are generally highest in the first
quarter of the year and lowest in the third quarter of the year)
and fluctuating costs. Operating margins for restaurants are
susceptible to fluctuations in prices of commodities, which
include among other things, beef, chicken, seafood, butter,
cheese, produce and other necessities to operate a store, such
as natural gas or other energy supplies. Additionally, the
restaurant industry is characterized by a high initial capital
investment, coupled with high labor costs. The combination of
these factors underscores our initiatives to drive increased
sales at existing stores in order to raise margins and profits,
because the incremental sales contribution to profits from every
additional dollar of sales above the minimum costs required to
open, staff and operate a store is very high. We are not a
company focused on growth in the number of restaurants to
generate additional sales. Our expansion and operation
strategies are to balance investment costs and the economic
factors of operation, in order to generate reasonable,
sustainable margins and achieve acceptable returns on investment
from our restaurant concepts.
Promotion of our Outback Steakhouse and Carrabbas Italian
Grill restaurants is assisted by the use of national and spot
television and radio media, which we have also begun to use in
certain markets for our Bonefish Grill brand. We advertise on
television in spot markets when our brands achieve sufficient
penetration to make a
153
meaningful broadcast schedule affordable. We rely on
word-of-mouth
customer experience, grassroots marketing in local venues,
direct mail and national print media to support broadcast media
and as the primary campaigns for our upscale casual and newer
brands. We do not attempt to lure customers with discounts, as
is common to many restaurants in the casual dining industry. Our
advertising spending is targeted to promote and maintain brand
image and develop consumer awareness. We strive to drive sales
through excellence in execution rather than through discounting
and other short-lived marketing efforts. Our marketing strategy
of getting people to visit frequently and also recommending our
restaurants to others complements what we believe are the
fundamental elements of success: convenient sites,
service-oriented employees and flawless execution in a
well-managed restaurant.
Key factors that can be used in evaluating and understanding our
restaurants and assessing our business include the following:
|
|
|
|
|
Average unit volumes a per store calculated average
sales amount, which helps us gauge the changes in consumer
traffic, pricing and development of the brand;
|
|
|
|
|
|
Operating margins store revenues after deduction of
the main store-level operating costs (including cost of sales,
restaurant operating expenses, and labor and related costs);
|
|
|
|
|
|
System-wide sales a total sales volume for all
company-owned, franchise and unconsolidated joint venture
stores, regardless of ownership to interpret the health of our
brands; and
|
|
|
|
|
|
Same-store or comparable sales a
year-over-year
comparison of sales volumes for stores that are open in both
years in order to remove the impact of new openings in comparing
the operations of existing stores.
|
Our 2006 financial results included:
|
|
|
|
|
Growth of consolidated revenues by 9.1% to $3.9 billion;
|
|
|
|
|
|
110 new unit openings across all brands;
|
|
|
|
|
|
Decline in net income by 31.7% to $100.2 million, caused by
a decrease in comparable store sales, increases in restaurant
operating expenses and a significant increase in stock-based
compensation costs including:
|
|
|
|
|
|
Conversion costs related to the implementation of the new
Partner Equity Program;
|
|
|
|
|
|
Ongoing costs from the Partner Equity Program;
|
|
|
|
|
|
Stock option expenses resulting from the implementation of a new
accounting standard; and
|
|
|
|
|
|
Restricted stock grants to managing partners and certain members
of senior management.
|
Our consolidated operating results are affected by the growth of
our newer brands. As we continue to develop and expand new
restaurant concepts at different rates, our cost of sales, labor
costs, restaurant operating expenses and income from operations
change from the mix of brands in our portfolio with slightly
different operating characteristics. Labor and related expenses
as a percentage of restaurant sales are higher at our new format
stores than have typically been experienced at Outback
Steakhouses. However, cost of sales as a percentage of
restaurant sales at those stores is lower than those at Outback.
These trends are expected to continue with our planned
development of stores in 2007.
Revenues from restaurant sales for the year ended
December 31, 2006 increased 9.2% compared with the same
period in 2005. This increase was primarily driven by new unit
openings as we experienced a softening of sales in our existing
restaurants in the second, third and fourth quarters. This trend
affected the casual dining segment as a whole and impacted all
of our restaurant brands and certain international locations.
On November 5, 2006, we entered into a definitive agreement
to be acquired by an investor group comprised of Bain Capital
Partners, LLC, Catterton Partners and Company founders Chris T.
Sullivan, Robert D. Basham and J. Timothy Gannon, for
$40.00 per share in cash. Our Board of Directors approved
the merger agreement and recommended that our shareholders adopt
the agreement.
Our industrys challenges and risks include, but are not
limited to, the impact of government regulation, the
availability of qualified employees, consumer perceptions
regarding food safety
and/or the
health benefits of certain
154
types of food, including attitudes about alcohol consumption,
economic conditions and commodity pricing. Additionally, our
planned development schedule is subject to risk because of
rising real estate and construction costs, and our results are
affected by consumer tolerance of price increases. Changes in
our operations in future periods may also result from changes in
beef prices and other commodity costs and continued pre-opening
expenses from the development of new restaurants and our
expansion strategy.
Introduction
At December 31, 2006, the OSI Restaurant Partners, Inc.
restaurant system included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue
|
|
|
|
|
|
|
|
|
|
(Domestic)
|
|
|
(International)
|
|
|
Carrabbas
|
|
|
|
|
|
Flemings
|
|
|
|
|
|
Cheeseburger
|
|
|
Coral
|
|
|
|
|
|
|
|
|
|
Outback
|
|
|
Outback
|
|
|
Italian
|
|
|
Bonefish
|
|
|
Prime
|
|
|
|
|
|
in
|
|
|
Seafood
|
|
|
Lee Roy
|
|
|
|
|
|
|
Steakhouses
|
|
|
Steakhouses
|
|
|
Grills
|
|
|
Grills
|
|
|
Steakhouses
|
|
|
Roys
|
|
|
Paradise
|
|
|
and Spirits
|
|
|
Selmons
|
|
|
Total
|
|
|
Company-owned
|
|
|
679
|
|
|
|
118
|
|
|
|
229
|
|
|
|
112
|
|
|
|
45
|
|
|
|
23
|
|
|
|
38
|
|
|
|
1
|
|
|
|
5
|
|
|
|
1,250
|
|
Development joint
venture
|
|
|
1
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Franchise
|
|
|
106
|
|
|
|
29
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
786
|
|
|
|
162
|
|
|
|
229
|
|
|
|
119
|
|
|
|
45
|
|
|
|
23
|
|
|
|
38
|
|
|
|
1
|
|
|
|
5
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned restaurants include restaurants owned by
partnerships in which we are a general partner and joint
ventures in which we are one of two members. Our ownership
interests in the partnerships and joint ventures generally range
from 50% to 90%. Company-owned restaurants also include
restaurants owned by our Roys consolidated venture in
which we have less than a majority ownership. We consolidate
this venture because we control the executive committee (which
functions as a board of directors) through representation on the
committee by related parties, and we are able to direct or cause
the direction of management and operations on a
day-to-day
basis. Additionally, the majority of capital contributions made
by our partner in the Roys consolidated venture have been
funded by loans to the partner from a third party where we are
required to be a guarantor of the line of credit, which provides
us control through our collateral interest in the joint venture
partners membership interest. As a result of our
controlling financial interest in this venture, it is included
in Company-owned restaurants. We are responsible for 50% of the
costs of new restaurants operated under this consolidated joint
venture and our joint venture partner is responsible for the
other 50%. Our joint venture partner in the consolidated joint
venture funds its portion of the costs of new restaurants
through a line of credit that we guarantee (see Liquidity and
Capital Resources). The results of operations of Company-owned
restaurants are included in our consolidated operating results.
The portion of income or loss attributable to the other
partners interests is eliminated in the line item in our
Consolidated Statements of Income entitled Elimination of
minority interest.
Development Joint Venture restaurants are organized as general
partnerships and joint ventures in which we are one of two
general partners and generally own 50% of the partnership and
our joint venture partner generally owns 50%. We are responsible
for 50% of the costs of new restaurants operated as Development
Joint Ventures and our joint venture partner is responsible for
the other 50%. Our investments in these ventures are accounted
for under the equity method, therefore the income derived from
restaurants operated as Development Joint Ventures is presented
in the line item Income from operations of unconsolidated
affiliates in our Consolidated Statements of Income.
We derive no direct income from operations of franchised
restaurants other than initial franchise fees and ongoing
royalties, which are included in Other revenues.
155
The following tables set forth, for the periods indicated:
(i) the percentages that the items in our Consolidated
Statements of Income bear to total revenues or restaurant sales,
as indicated; and (ii) selected operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant sales
|
|
|
99.5
|
%
|
|
|
99.4
|
%
|
|
|
99.4
|
%
|
Other revenues
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales(1)
|
|
|
36.1
|
|
|
|
36.6
|
|
|
|
37.6
|
|
Labor and other related(1)
|
|
|
27.7
|
|
|
|
25.9
|
|
|
|
25.6
|
|
Other restaurant operating(1)
|
|
|
22.6
|
|
|
|
21.8
|
|
|
|
20.9
|
|
Depreciation and amortization
|
|
|
3.8
|
|
|
|
3.5
|
|
|
|
3.3
|
|
General and administrative
|
|
|
6.0
|
|
|
|
5.5
|
|
|
|
5.4
|
|
Hurricane property losses
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Provision for impaired assets and
restaurant closings
|
|
|
0.4
|
|
|
|
0.8
|
|
|
|
0.1
|
|
Contribution for Dine Out
for Hurricane Relief
|
|
|
|
|
|
|
*
|
|
|
|
*
|
|
Income from operations of
unconsolidated affiliates
|
|
|
(*
|
)
|
|
|
(*
|
)
|
|
|
(0.1
|
)
|
Total costs and expenses
|
|
|
96.1
|
|
|
|
93.7
|
|
|
|
92.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3.9
|
|
|
|
6.3
|
|
|
|
7.6
|
|
Other income (expense), net
|
|
|
0.2
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Interest income
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
*
|
|
Interest expense
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and elimination of minority interest
|
|
|
3.8
|
|
|
|
6.1
|
|
|
|
7.4
|
|
Provision for income taxes
|
|
|
1.1
|
|
|
|
2.0
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before elimination of
minority interest
|
|
|
2.7
|
|
|
|
4.1
|
|
|
|
5.0
|
|
Elimination of minority interest
|
|
|
0.2
|
|
|
|
*
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2.5
|
%
|
|
|
4.1
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a percentage of restaurant sales. |
|
|
|
* |
|
Less than 1/10 of one percent of total revenues. |
156
System-wide sales grew by 7.9% in 2006 and by 11.8% in 2005.
System-wide sales is a non-GAAP financial measure that includes
sales of all restaurants operating under our brand names,
whether we own them or not. The two components of system-wide
sales, including those of OSI Restaurant Partners, Inc. and
those of franchisees and development joint ventures, are
provided in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
OSI RESTAURANT PARTNERS, INC.
RESTAURANT
SALES (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback Steakhouses
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
2,260
|
|
|
$
|
2,238
|
|
|
$
|
2,198
|
|
International
|
|
|
308
|
|
|
|
258
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,568
|
|
|
|
2,496
|
|
|
|
2,387
|
|
Carrabbas Italian Grills
|
|
|
649
|
|
|
|
580
|
|
|
|
483
|
|
Bonefish Grills
|
|
|
311
|
|
|
|
224
|
|
|
|
130
|
|
Flemings Prime Steakhouse
and Wine Bars
|
|
|
188
|
|
|
|
150
|
|
|
|
109
|
|
Other restaurants
|
|
|
204
|
|
|
|
141
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company-owned restaurant
sales
|
|
$
|
3,920
|
|
|
$
|
3,591
|
|
|
$
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following information presents sales for franchised and
unconsolidated development joint venture restaurants. These are
restaurants that are not owned by us and from which we only
receive a franchise royalty or a portion of their total income.
Management believes that franchise and unconsolidated
development joint venture sales information is useful in
analyzing our revenues because franchisees and affiliates pay
service fees
and/or
royalties that generally are based on a percentage of sales.
Management also uses this information to make decisions about
future plans for the development of additional restaurants and
new concepts as well as evaluation of current operations.
These sales do not represent sales of OSI Restaurant Partners,
Inc., and are presented only as an indicator of the changes in
the restaurant system, which management believes is important
information regarding the health of our restaurant brands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
FRANCHISE AND DEVELOPMENT
JOINT VENTURE SALES (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback Steakhouses
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
359
|
|
|
$
|
362
|
|
|
$
|
341
|
|
International
|
|
|
106
|
|
|
|
113
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
465
|
|
|
|
475
|
|
|
|
438
|
|
Carrabbas Italian Grills
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonefish Grills
|
|
|
16
|
|
|
|
11
|
|
|
|
11
|
|
Other restaurants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total franchise and development
joint venture sales(1)
|
|
$
|
481
|
|
|
$
|
486
|
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from franchise and
development joint ventures(2)
|
|
$
|
21
|
|
|
$
|
20
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Franchise and development joint venture sales are not included
in Company revenues as reported in the Consolidated Statements
of Income. |
|
|
|
(2) |
|
Represents the franchise royalty and portion of total income
included in the Consolidated Statements of Income in the line
items Other revenues or Income from operations
of unconsolidated affiliates. |
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Number of restaurants (at end of
the period):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback Steakhouses
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned domestic
|
|
|
679
|
|
|
|
670
|
|
|
|
652
|
|
Company-owned
international
|
|
|
118
|
|
|
|
88
|
|
|
|
69
|
|
Franchised and development joint
venture domestic
|
|
|
107
|
|
|
|
105
|
|
|
|
104
|
|
Franchised and development joint
venture international
|
|
|
44
|
|
|
|
52
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
948
|
|
|
|
915
|
|
|
|
881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrabbas Italian Grills
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
229
|
|
|
|
200
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonefish Grills
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
112
|
|
|
|
86
|
|
|
|
59
|
|
Franchised and development joint
venture
|
|
|
7
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
119
|
|
|
|
90
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flemings Prime Steakhouse
and Wine Bars
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
45
|
|
|
|
39
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roys
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
23
|
|
|
|
20
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cheeseburger in Paradise
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
38
|
|
|
|
27
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lee Roy Selmons
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Coral Seafood and Spirits
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Lees Chinese Kitchens
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System-wide total
|
|
|
1,408
|
|
|
|
1,298
|
|
|
|
1,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None of our individual brands are considered separate reportable
segments for purposes of Statement of Financial Accounting
Standards (SFAS) No. 131; however, differences
in certain operating ratios are discussed in this section to
enhance the financial statement users understanding of our
results of operations and our changes in financial condition.
Revenues
Restaurant sales. Restaurant sales increased
by 9.2% in 2006 as compared with 2005 and by 12.3% in 2005 as
compared with 2004. The 2006 increase in restaurant sales was
attributable to additional revenues of approximately
$202,433,000 from the opening of new restaurants after
December 31, 2005 and revenues of approximately $18,449,000
from the purchase in February 2006 of ten Eastern Canada Outback
Steakhouse franchise restaurants. This increase was partially
offset by decreases in sales at existing restaurants. The 2005
increase in restaurant sales was attributable to increases in
sales at existing restaurants and additional revenues of
approximately $192,798,000 from the opening of new restaurants
after December 31, 2004. The following table includes
additional activities that
158
influenced the changes in restaurant sales at domestic
Company-owned restaurants for the years ended December 31,
2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Average restaurant unit volumes
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback Steakhouses
|
|
$
|
3,348
|
|
|
$
|
3,397
|
|
|
$
|
3,435
|
|
Carrabbas Italian Grills
|
|
|
3,053
|
|
|
|
3,168
|
|
|
|
3,061
|
|
Bonefish Grills
|
|
|
3,058
|
|
|
|
3,090
|
|
|
|
3,041
|
|
Flemings Prime Steakhouse
and Wine Bars
|
|
|
4,512
|
|
|
|
4,527
|
|
|
|
4,357
|
|
Roys
|
|
|
3,774
|
|
|
|
3,767
|
|
|
|
3,472
|
|
Operating weeks:
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback Steakhouses
|
|
|
35,230
|
|
|
|
34,313
|
|
|
|
33,304
|
|
Carrabbas Italian Grills
|
|
|
11,082
|
|
|
|
9,538
|
|
|
|
8,228
|
|
Bonefish Grills
|
|
|
5,306
|
|
|
|
3,783
|
|
|
|
2,234
|
|
Flemings Prime Steakhouse
and Wine Bars
|
|
|
2,172
|
|
|
|
1,725
|
|
|
|
1,302
|
|
Roys
|
|
|
1,132
|
|
|
|
998
|
|
|
|
941
|
|
Year to year percentage change:
|
|
|
|
|
|
|
|
|
|
|
|
|
Menu price increases(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback Steakhouses
|
|
|
0.7
|
%
|
|
|
4.0
|
%
|
|
|
2.4
|
%
|
Carrabbas Italian Grills
|
|
|
1.0
|
%
|
|
|
2.4
|
%
|
|
|
1.5
|
%
|
Bonefish Grills
|
|
|
1.5
|
%
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
Same-store sales (stores open
18 months or more):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outback Steakhouses
|
|
|
(1.5
|
)%
|
|
|
(0.8
|
)%
|
|
|
2.7
|
%
|
Carrabbas Italian Grills
|
|
|
(1.1
|
)%
|
|
|
6.0
|
%
|
|
|
3.3
|
%
|
Bonefish Grills
|
|
|
0.4
|
%
|
|
|
4.3
|
%
|
|
|
7.5
|
%
|
Flemings Prime Steakhouse
and Wine Bars
|
|
|
4.3
|
%
|
|
|
11.5
|
%
|
|
|
17.1
|
%
|
Roys
|
|
|
1.0
|
%
|
|
|
5.0
|
%
|
|
|
11.5
|
%
|
|
|
|
(1) |
|
Reflects nominal amounts of menu price changes, prior to any
change in product mix because of price increases, and may not
reflect amounts effectively paid by the customer. Menu price
increases are not provided for Flemings and Roys as
a significant portion of their sales come from specials, which
fluctuate daily. |
Other revenues. Other revenues, consisting
primarily of initial franchise fees and royalties, decreased by
$665,000 to $21,183,000 in 2006 as compared with $21,848,000 in
2005. This decrease primarily resulted from lower franchise fees
and royalties for Outback Steakhouse International as a result
of the purchase in February 2006 of ten Eastern Canada Outback
Steakhouse franchise restaurants. Other revenues increased by
$3,395,000 to $21,848,000 in 2005 as compared with $18,453,000
in 2004. This increase resulted primarily from higher franchise
fees and royalties from stores operated as franchises during
2005 as compared to 2004.
Costs
and Expenses
Cost of sales. Cost of sales, consisting of
food and beverage costs, decreased by 0.5% of restaurant sales
to 36.1% in 2006 as compared with 36.6% in 2005. This decrease
in cost of sales as a percentage of restaurant sales was
attributable to an increase in menu prices and to an increase in
the proportion of consolidated sales associated with our
non-Outback Steakhouse restaurants that have lower cost of goods
sold ratios than Outback Steakhouses. Decreases in dairy,
chicken and international beef costs during 2006 compared with
2005 were partially offset by higher produce and seafood costs.
Cost of sales decreased by 1.0% of restaurant sales to 36.6% in
2005 as compared with 37.6% in 2004. Decreases in cost of sales
were attributable to an increase in the proportion of
consolidated sales associated with our non-Outback Steakhouse
restaurants that have lower cost of goods sold ratios than
Outback Steakhouses. In addition, menu price increases reduced
cost of sales as a percentage of restaurant sales and
159
increases in commodity costs for beef and chicken during the
period were partially offset by decreases in certain dairy and
produce costs, particularly butter, cheese, onions and potatoes.
Labor and other related expenses. Labor and
other related expenses include all direct and indirect labor
costs incurred in operations, including distribution expense to
managing partners. Labor and other related expenses increased by
1.8% of restaurant sales to 27.7% in 2006 as compared with 25.9%
in 2005. Of the increase, approximately 0.6% was attributable to
conversion costs related to the implementation of the new
Partner Equity Program and 0.7% resulted from ongoing costs from
the Partner Equity Program, stock-based compensation expenses
resulting from the implementation of a new accounting standard
and restricted stock grants to managing partners. The total
costs associated with implementation of the Partner Equity
Program caused a corresponding $27,468,000 increase in the
Partner deposit and accrued buyout liability balance
in our Consolidated Balance Sheet as of December 31, 2006
as compared to December 31, 2005. Additionally, declines in
average unit volumes at domestic Outback Steakhouses and
Carrabbas Italian Grills, minimum wage increases and
increases in the proportion of new restaurant formats, which
have higher average labor costs than domestic Outback
Steakhouses and Carrabbas Italian Grills, increased labor
and other related expenses as a percentage of restaurant sales
compared to 2005. This increase was partially offset by a
decrease in distribution expense to managing partners. Labor and
other related expenses increased by 0.3% of restaurant sales to
25.9% in 2005 as compared with 25.6% in 2004. The increase was
attributable to a minimum wage increase in New York, Illinois
and Florida, restricted stock expense for managing partners and
increases in the proportion of new restaurant formats, which
have higher average labor costs than domestic Outback
Steakhouses and Carrabbas Italian Grills.
Other restaurant operating expenses. Other
restaurant operating expenses include certain unit-level
operating costs such as operating supplies, rent, repair and
maintenance, advertising expenses, utilities, pre-opening costs
and other occupancy costs. A substantial portion of these
expenses is fixed or indirectly variable. Other operating
expenses as a percentage of restaurant sales increased by 0.8%
to 22.6% in 2006 as compared with 21.8% in 2005. This increase
resulted from higher utility, supplies and repair and
maintenance costs, declines in average unit volumes at domestic
Outback Steakhouses and Carrabbas Italian Grills and an
increase in the proportion of new format restaurants and
international Outback Steakhouses in operation, which have
higher average restaurant operating expenses as a percentage of
restaurant sales than domestic Outback Steakhouses and
Carrabbas Italian Grills. Other operating expenses as a
percentage of restaurant sales increased by 0.9% to 21.8% in
2005 as compared with 20.9% in 2004. This increase resulted from
an increase in the proportion of new format restaurants and
international Outback Steakhouses in operation, which have
higher average restaurant operating expenses as a percentage of
restaurant sales than domestic Outback Steakhouses and
Carrabbas Italian Grills, as well as higher utility costs,
increased advertising expenses and increased expenditures for
other supplies.
Depreciation and amortization. Depreciation
and amortization costs as a percentage of total revenues
increased 0.3% to 3.8% in 2006 compared with 3.5% in 2005.
Increased depreciation expense as a percentage of total revenues
resulted from lower average unit volumes at domestic Outback
Steakhouses and Carrabbas Italian Grills during 2006 and
higher depreciation costs for certain of our new restaurant
formats, which have higher average construction costs than an
Outback Steakhouse. Depreciation and amortization costs as a
percentage of total revenues increased 0.2% to 3.5% in 2005
compared with 3.3% in 2004. Increased depreciation expense as a
percentage of total revenues resulted from lower average unit
volumes at domestic Outback Steakhouses during the year, the
continued rollout of a new point of sale system to our Outback
Steakhouse restaurants, remodeling of restaurants and higher
depreciation costs for certain of our new restaurant formats,
which have higher average construction costs than an Outback
Steakhouse.
General and administrative. General and
administrative expenses increased by $37,507,000 to $234,642,000
in 2006 as compared with $197,135,000 in 2005. This increase
resulted from an increase in overall administrative costs
associated with operating additional domestic and international
Outback Steakhouses, Carrabbas Italian Grills,
Flemings Prime Steakhouses, Roys, Bonefish Grills
and Cheeseburger in Paradise restaurants. Additionally, the
increase resulted from $4,063,000 of compensation expense
recognized for restricted stock benefits for certain members of
senior management that was not recognized last year and
$5,320,000 of stock options expensed as a result of the
implementation of a new accounting standard. Also, during 2006
we incurred $1,072,000 of expense from writing off investments
in new Cheeseburger in Paradise restaurant developments that
were discontinued due to the anticipation that there would not
be a favorable return on the investments, $3,900,000
160
of consulting expenses for reviewing branding and strategic
initiatives, $2,900,000 of professional fees related to the
proposed merger transaction and a gain of $317,000 in the cash
surrender value of life insurance. These increases were offset
by the reduction of $2,100,000 in compensation expense
associated with our Chief Executive Officer recognized during
the first quarter of 2005, which did not recur in 2006. General
and administrative expenses increased by $23,088,000 to
$197,135,000 in 2005 as compared with $174,047,000 in 2004. This
increase resulted from an increase in overall administrative
costs associated with operating additional domestic and
international Outback Steakhouses, Carrabbas Italian
Grills, Flemings Prime Steakhouses, Roys, Bonefish
Grills and Cheeseburger in Paradise restaurants. Additionally,
the increase resulted from approximately $2,100,000 in
compensation expense recognized in the first quarter of 2005
associated with our new Chief Executive Officer, approximately
$2,373,000 of compensation expense for restricted stock benefits
for certain members of senior management, approximately
$1,000,000 in administrative costs for the Paul Lees
Chinese Kitchen operations and carrying costs of approximately
$2,840,000 associated with the acquisition of designation rights
from Chi-Chis in 2004. These increases were partially
offset by a reduction of $3,200,000 in consulting fees paid for
supply chain management projects in 2004 that did not recur in
2005.
Hurricane property losses. During 2005,
hurricanes caused property losses of $3,101,000. During August
and September 2004, four hurricanes caused property losses of
$3,024,000, which included $1,300,000 from the destruction of
the Outback Steakhouse restaurant in the Cayman Islands. We have
decided not to reopen this location.
Provision for impaired assets and restaurant
closings. During 2006, we recorded a provision
for impaired assets and restaurant closings of $14,154,000 which
included the following charges: $569,000 for the impairment of
two domestic Outback Steakhouse restaurants, $1,707,000 for the
closing of six domestic Outback Steakhouse restaurants,
$1,574,000 for the impairment of three international Outback
Steakhouse restaurants, $3,468,000 for the impairment of three
Carrabbas Italian Grill restaurants, $2,055,000 for the
closing of one Cheeseburger in Paradise restaurant and
$1,855,000 for the impairment of two Cheeseburger in Paradise
restaurants, $868,000 for the closing of one Bonefish Grill
restaurant and $423,000 for the impairment of two Bonefish Grill
restaurants that were sold in the second quarter, $704,000 for
the loss associated with certain non-restaurant operations and
$931,000 for an impairment charge for intangible and other asset
impairments related to the closing of Paul Lees Chinese
Kitchen.
During 2005, we recorded a provision for impaired assets and
restaurant closings of $27,170,000, which included $7,581,000
for an impairment charge against the deferred license fee
related to certain non-restaurant operations, $14,975,000 for an
impairment charge for intangible and other asset impairments
related to the closing of Paul Lees Chinese Kitchen,
$1,992,000 for the impairment of two Bonefish Grill restaurants
in Washington, $816,000 for the impairment of two domestic
Outback Steakhouse restaurants and $1,806,000 for the closing of
five domestic Outback Steakhouse restaurants. Two of these
Outback restaurants closed during 2005, and the other three
closed in 2006.
During 2004, we recorded a provision for impaired assets and
restaurant closings of $2,394,000, which included $415,000 for
the impairment of two domestic Outback Steakhouse restaurants,
$1,893,000 for one Outback Steakhouse restaurant closing in
Japan (which includes $812,000 of goodwill written off for this
location), and $86,000 for one Carrabbas Italian Grill
restaurant closing.
Contribution for Dine Out for Hurricane
Relief. This line item represents our
$1,000,000 contribution for Dine for America, a
fundraising effort in October 2005 to provide support to the
victims of hurricanes and also our 2004 contribution of 100% of
sales proceeds of $1,607,000 from one days sales in
Florida for hurricane relief after four storms damaged the state
in a very short period of time in 2004.
Income from operations of unconsolidated
affiliates. Income from operations of
unconsolidated affiliates represents our portion of net income
from restaurants operated as development joint ventures. Income
from development joint ventures decreased by $1,474,000 to
$5,000 in 2006 as compared with $1,479,000 in 2005. This
decrease is due to losses of $2,699,000 incurred on our
investment in Kentucky Speedway, LLC during 2006. This decrease
is partially offset by expenses resulting from the adoption of a
buyout program for managing and area operating partners in
certain Outback Steakhouses in our joint venture in Brazil
during the first quarter of 2005, which did not recur in 2006.
This decrease is also offset by a $574,000 write-down of an
Outback Steakhouse
161
operated as a joint venture in Pennsylvania during the second
quarter of 2005. Operating performance issues and our inability
to obtain more favorable lease terms resulted in a decision not
to extend the lease for this restaurant past the initial term.
Income from development joint ventures decreased by $246,000 to
$1,479,000 in 2005 as compared with $1,725,000 in 2004. This
decrease was attributable primarily to a write-down in the
second quarter of 2005 of approximately $574,000 of an Outback
Steakhouse operated as a joint venture in Pennsylvania.
Operating performance issues and our inability to obtain more
favorable lease terms resulted in a decision not to extend the
lease for this restaurant past the initial term. Additionally,
this decrease was attributable to the adoption of a buyout
program for managing and area operating partners in certain
Outback Steakhouses in our joint venture in Brazil. The
cumulative decrease was partially offset by continued
improvement in our Brazilian joint venture.
Income from operations. Income from operations
decreased by $76,287,000 to $152,289,000 in 2006 as compared to
$228,576,000 in 2005 as a result of declines in average unit
volumes at domestic Outback Steakhouses and Carrabbas
Italian Grills, conversion costs related to the implementation
of the Partner Equity Program, stock-based compensation expenses
resulting from the implementation of a new accounting standard,
the provision for impaired assets and restaurant closings and
the changes in the relationships between revenues and expenses
discussed above. Income from operations decreased by $15,181,000
to $228,576,000 in 2005 as compared to $243,757,000 in 2004 as a
result of the increase in revenues, the changes in the
relationship between revenues and expenses discussed above, the
opening of new restaurants, the provision for impaired assets
and restaurant closings and the 2005 and 2004 Dine Out for
Hurricane Relief contributions.
Other income (expense), net. Other income
(expense) represents the net of revenues and expenses from
non-restaurant operations. Net other income was $7,950,000 in
2006 compared with net other expense of $2,070,000 in 2005 and
net other expense of $2,104,000 in 2004. The increase in other
income (expense) primarily relates to a gain of $5,165,000
recorded during the second quarter of 2006 for amounts recovered
in accordance with the terms of a lease termination agreement
and a gain of $2,785,000 recorded during the fourth quarter of
2006 for amounts received from a sale of land in Tampa, Florida.
Interest income. Interest income was
$3,312,000 in 2006 as compared with $2,087,000 in 2005 and
$1,349,000 in 2004. Interest income increased due to higher
interest rates on short-term investment balances. Interest
income for the years ended December 31, 2006, 2005 and 2004
included interest of approximately $1,764,000, $1,131,000 and
$583,000, respectively, from notes receivable held by a limited
liability company owned by our California franchisee.
Interest expense. Interest expense was
$14,804,000 in 2006 as compared with $6,848,000 in 2005 and
$3,629,000 in 2004. The increase in interest expense is due to
higher average debt balances. Interest expense for the years
ended December 31, 2006, 2005 and 2004 included
approximately $1,764,000, $1,131,000 and $590,000, respectively,
of expense from outstanding borrowings on the line of credit
held by a limited liability company owned by our California
franchisee. The
year-to-year
changes in interest expense also resulted from changes in
short-term interest rates and changes in borrowing needs as
funds were needed to finance various acquisitions in 2006
including: the acquisition of ten Outback Steakhouse restaurants
from our franchisee in Eastern Canada, the acquisition of the
remaining minority ownership interests in 36 Carrabbas
restaurants, the acquisition of additional ownership interest in
one Carrabbas restaurant, the acquisition of the remaining
minority ownership interests in nine Bonefish Grill restaurants
and the acquisition of the remaining minority ownership
interests in 88 Outback Steakhouse restaurants in South Korea.
Provision for income taxes. The provision for
income taxes in all three years presented reflects expected
income taxes due at federal statutory rates and state income tax
rates, net of the federal benefit. The effective income tax rate
was 28.1% in 2006, 33.3% in 2005 and 32.8% in 2004. The decline
in the effective tax rate in 2006 compared to 2005 was primarily
due to an increase in FICA tax credits for employee-reported
tips as a percentage of income before provision for income taxes
and a higher percentage of profits in lower-taxed jurisdictions.
The increase in the effective tax rate from 2004 to 2005
resulted from the tax effect of additional nondeductible
executive compensation and a charge for nondeductible goodwill
impairment.
Elimination of minority interest. The
allocation of minority owners income included in this line
item represents the portion of income or loss from operations
included in consolidated operating results attributable to the
ownership interests in certain restaurants in which we have a
controlling interest. As a percentage of revenues,
162
the income allocations were 0.2% in 2006 compared with less
than 0.1% in 2005 and 0.3% in 2004. The charge for intangible
and other asset impairments related to the closing of Paul
Lees Chinese Kitchen caused the decrease in the
elimination of minority interest as a percentage of revenues in
2005.
Net income and earnings per common share. Net
income for 2006 was $100,160,000, a decrease of 31.7% from net
income of $146,746,000 in 2005. Basic earnings per common share
decreased to $1.35 for 2006 compared with $1.98 for 2005 as a
result of the decrease in net income and the increase in basic
weighted average shares outstanding of approximately
19,000 shares. Basic weighted average shares outstanding
increased as a result of the issuance of shares under stock
option plans, partially offset by common stock repurchases.
Diluted earnings per common share decreased to $1.31 for 2006
compared with $1.92 for 2005 as a result of the decrease in net
income and partially offset by the decrease in diluted weighted
average shares outstanding of approximately 328,000 shares.
The decrease in diluted weighted average shares outstanding was
primarily due to the reduced number of dilutive options
outstanding and was partially offset by the effect of
contingently issuable shares related to the PEP Stock Plan for
2006 compared with 2005.
Net income for 2005 was $146,746,000, a decrease of 3.2% from
net income of $151,571,000 in 2004. Basic earnings per common
share decreased to $1.98 for 2005 from basic earnings per common
share of $2.05 in 2004, and basic weighted shares outstanding
decreased by approximately 165,000 shares during 2005.
Diluted earnings per common share decreased to $1.92 for 2005
from diluted earnings per common share of $1.95 in 2004, and
diluted weighted shares outstanding decreased by approximately
1,008,000 shares during 2005. The decrease in both basic
and diluted weighted shares outstanding in 2005 compared with
2004 was primarily due to the purchase of treasury shares during
2005 partially offset by the issuance of shares for stock option
exercises.
Liquidity
and Capital Resources
The following table presents a summary of our cash flows from
operating, investing and financing activities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net cash provided by operating
activities
|
|
$
|
368,214
|
|
|
$
|
364,114
|
|
|
$
|
308,976
|
|
Net cash used in investing
activities
|
|
|
(354,236
|
)
|
|
|
(323,782
|
)
|
|
|
(290,307
|
)
|
Net cash used in financing
activities
|
|
|
(3,998
|
)
|
|
|
(43,433
|
)
|
|
|
(33,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
$
|
9,980
|
|
|
$
|
(3,101
|
)
|
|
$
|
(14,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We require capital principally for the development of new
restaurants, remodeling older restaurants and investments in
technology and also use capital for acquisitions of franchisees
and joint venture partners. We require capital to pay dividends
to common stockholders (refer to additional discussion in the
Dividend section of Managements Discussion and Analysis of
Financial Condition and Results of Operation). We also utilize
capital to repurchase our common stock as part of an ongoing
share repurchase program. Capital expenditures totaled
$315,235,000, $327,862,000 and $254,871,000 for the years ended
December 31, 2006, 2005 and 2004, respectively. We either
lease our restaurants under operating leases for periods ranging
from five to 30 years (including renewal periods) or build
free standing restaurants where it is cost effective. As of
December 31, 2006, there were approximately 347 domestic
restaurants and two international restaurants developed on land
that we owned.
If demand for our products and services were to decrease as a
result of increased competition, changing consumer tastes,
changes in local, regional, national and international economic
conditions or changes in the level of consumer acceptance of our
restaurant brands, our restaurant sales could decline
significantly. The following table sets forth approximate
amounts by which cash provided by operating activities may
decline in the event of a decline in restaurant sales of 5%, 10%
and 15% compared with total revenues for the period ended
December 31, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5%
|
|
|
10%
|
|
|
15%
|
|
|
Decrease in restaurant sales
|
|
$
|
(195,989
|
)
|
|
$
|
(391,978
|
)
|
|
$
|
(587,966
|
)
|
Decrease in cash provided by
operating activities
|
|
|
(36,944
|
)
|
|
|
(73,888
|
)
|
|
|
(110,832
|
)
|
163
The estimates above are based on the assumption that earnings
before income taxes, depreciation and amortization decrease
approximately $0.19 for every $1.00 decrease in restaurant
sales. These numbers are estimates only and do not consider
other measures we could implement were such decreases in revenue
to occur.
We have formed joint ventures to develop Outback Steakhouses in
Brazil and the Philippines. We are also developing Company-owned
restaurants internationally in Puerto Rico, South Korea, Hong
Kong, Eastern Canada and Japan.
In January 2005, we executed a lease termination agreement to
vacate a premises occupied by a Company-owned Outback
Steakhouse. In accordance with the terms of this agreement, we
vacated the restaurant and terminated its lease in June 2006. We
received $6,014,000 and recorded a gain of $5,165,000 on the
disposal of this restaurant during the second quarter of 2006,
which is included in the line item Other income (expense),
net in our Consolidated Statements of Income.
On October 11, 2005 we executed a sale agreement for
certain land in Las Vegas, Nevada where a Company-owned Outback
Steakhouse was operated. Pursuant to the agreement if the sale
is consummated after the inspection and title and survey
contingency periods, we will receive $8,800,000 on the closing
date of the sale, which will be on or before March 31,
2008, and will be provided space in a new development to operate
an Outback Steakhouse. The purchaser will pay us an additional
$5,000,000 if plans for the new restaurant are not agreed upon
prior to the closing date. In October 2006, a fire occurred at
this Outback Steakhouse, and we recorded an impairment charge of
$447,000 for the closing of this restaurant. This event does not
affect the sale agreement, and, at this time, we do not intend
to rebuild the restaurant before the closing date of the sale.
On October 26, 2005, our Board of Directors approved up to
$24,000,000 to be used for the purchase and development of
46 acres in Tampa, Florida. This purchase closed in
December 2005. On December 5, 2006, we sold approximately
41.5 acres of this property for $17,300,000 and an escrow
for site work improvements valued at $7,500,000. We kept
approximately 4.5 acres of land for the development of
three restaurants and recorded a gain of $2,785,000 in the line
item Other income (expense), net in our Consolidated
Statements of Income during the fourth quarter of 2006.
In the first quarter of 2006, we implemented changes to our
general manager partner program that are effective for all new
general manager partner and chef partner employment agreements
signed after March 1, 2006. Upon completion of each
five-year term of employment, the general managers and chefs
will participate in a deferred compensation program in lieu of
receiving stock options under the historical plan. We will
require the use of capital to fund this new Partner Equity Plan
as each general managing partner earns a contribution and
currently estimate funding requirements ranging from $20,000,000
to $25,000,000 in each of the first two years of the plan,
without considering the effects of the proposed merger. All
general manager and chef partners then under contract were given
an opportunity to elect participation in the new plan and
substantially all partners converted. Future cash funding
requirements will vary significantly depending on timing of
partner contracts, forfeiture rates and numbers of partner
participants and may differ materially from estimates.
On November 5, 2006, we entered into a definitive agreement
to be acquired by an investor group comprised of Bain Capital
Partners, LLC, Catterton Partners and our founders Chris T.
Sullivan, Robert D. Basham and J. Timothy Gannon, for
$40.00 per share in cash (the Merger
Consideration). Our Board of Directors, on the unanimous
recommendation of a Special Committee of independent directors,
approved the merger agreement and recommended that our
shareholders adopt the agreement.
The total transaction value, including assumed debt, is
approximately $3.2 billion. The transaction is expected to
close prior to the end of April 2007, and is subject to approval
of our shareholders (other than those managers investing in the
acquisition) and customary closing conditions. The transaction
is not subject to a financing condition.
After the effective time of the proposed merger, we will
continue our current operations, except that we will cease to be
an independent public company, and our common stock will no
longer be traded on the New York Stock Exchange.
164
The merger agreement contains certain termination rights. The
merger agreement provides that in certain circumstances, upon
termination, we may be required to pay a termination fee of
$25,000,000 to $45,000,000 and reimburse
out-of-pocket
fees and expenses incurred with respect to the transactions
contemplated by the merger agreement, up to a maximum of
$7,500,000. Also under certain circumstances, upon termination,
we may be entitled to receive a termination fee of $45,000,000.
Merger expenses of approximately $2,900,000 for the year ended
December 31, 2006 were included in the line item
General and administrative expenses in our
Consolidated Statements of Income and reflect primarily the
professional service costs incurred in connection with the
proposed merger transaction.
On November 5, 2006, we entered into amendments to certain
employment, stock option and restricted stock agreements with
our Chief Executive Officer, Chief Operating Officer, Chief
Officer Legal and Corporate Affairs and Chief
Financial Officer. Pursuant to the Amendments, in the event of a
separation of service of the executive by us 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 the Chief
Financial Officer, 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 the Chief Executive Officers Amendment, if a
change of control and subsequent separation of service cause the
vesting of all restricted stock granted to him pursuant to
certain Restricted Stock Agreements, we will not be required to
pay him severance compensation of $5,000,000, as previously
required under his employment agreement in certain circumstances.
Pursuant to the Amendments for the Chief Executive Officer,
Chief Operating Officer and Chief Officer Legal and
Corporate Affairs, 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 us without cause,
resigns for good reason, dies or suffers a disability.
Pursuant to the Amendments for each of the Chief Executive
Officer, Chief Officer Legal and Corporate Affairs
and Chief Financial Officer, 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 us 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 executives
payments does not exceed the 110% threshold, the
executives 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.
On November 5, 2006, we amended 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 MP Stock
Plan). Pursuant to these amendments, each option granted
under the Stock Plan and the MP 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
165
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, we 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 our stock credited to
each participants 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 our common
stock credited to such participants 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.
On November 8, 2006, we acquired the remaining 18% minority
ownership interests in eighty-eight Outback Steakhouse
restaurants in South Korea. The total acquisition price was
approximately $34,872,000, of which $17,831,000 was paid in cash
to the sellers, $14,041,000 was paid in satisfaction of amounts
outstanding under loans previously made by us to the sellers and
$3,000,000 was placed into an interest-bearing escrow account.
The escrowed monies are to provide a source for indemnification
against claims of misrepresentation or breach of warranty and
payment of certain expenses. We expect the allocation of the
purchase price to the assets and liabilities acquired will be
finalized in fiscal 2007, as we obtain more information
regarding asset valuations, liabilities assumed and revisions of
preliminary estimates of fair values made at the date of
purchase. We completed this acquisition to sever all
relationships with the minority owners of Aussie Chung, Ltd.
On December 13, 2006, we negotiated a lump sum of $750,000
as settlement of a $1,454,000 note receivable from the owner of
certain non-restaurant operations. We recorded the resulting
loss of $704,000 in the line item Provision for impaired
assets and restaurant closings in our Consolidated
Statements of Income during the third quarter of 2006.
Credit
Facilities
Effective March 10, 2006, we amended an uncollateralized
$150,000,000 revolving credit facility that was scheduled to
mature in June 2007 with a new $225,000,000 maximum borrowing
amount and maturity date of June 2011. The amended line of
credit permits borrowing at interest rates ranging from 45 to
65 basis points over the 30, 60, 90 or
180-day
LIBOR (ranging from 5.35% to 5.36% at December 31, 2006).
At December 31, 2006, the unused portion of the line of
credit was $71,000,000.
The credit agreement contains certain restrictions and
conditions as defined in the agreement that require us to
maintain consolidated net worth equal to or greater than
consolidated total debt and to maintain a ratio of total
consolidated debt to EBITDAR (earnings before interest, taxes,
depreciation, amortization and rent) equal to or less than 3.0
to 1.0. At December 31, 2006, we were in compliance with
these debt covenants.
Effective March 10, 2006, we also amended a $30,000,000
line of credit that was scheduled to mature in June 2007 with a
new $40,000,000 maximum borrowing amount and maturity date of
June 2011. The amended line permits borrowing at interest rates
ranging from 45 to 65 basis points over LIBOR for loan
draws and 55 to 80 basis points over LIBOR for letter of
credit advances. The credit agreement contains certain
restrictions and conditions as defined in the agreement. At
December 31, 2006, we were in compliance with these debt
covenants. There were no draws outstanding on this line of
credit as of December 31, 2006 and 2005, however,
$25,072,000 and $20,072,000, respectively, of the line of credit
was committed for the issuance of letters of credit as required
by insurance companies that underwrite our workers
compensation insurance and also, where required, for
construction of new restaurants.
166
On October 12, 2006, we entered into a short-term
uncollateralized line of credit agreement that has a maximum
borrowing amount of $50,000,000 and a maturity date of March
2007. The line permits borrowing at an interest rate 55 basis
points over the LIBOR Market Index Rate at the time of each
draw. The credit agreement contains certain restrictions and
conditions as defined in the agreement. At December 31,
2006, we were in compliance with these debt covenants. There
were no draws outstanding on this line of credit as of
December 31, 2006.
We have notes payable with banks bearing interest at rates
ranging from 5.27% to 6.29% and from 4.95% to 6.06% at
December 31, 2006 and 2005, respectively, to finance
development of our restaurants in South Korea. The notes are
denominated and payable in Korean won, with outstanding balances
as of December 31, 2006 maturing at dates ranging from
January 2007 to October 2007. As of December 31, 2006 and
2005, the combined outstanding balance was approximately
$39,700,000 and $46,670,000, respectively. Certain of the notes
payable are collateralized by lease and other deposits. At
December 31, 2006 and 2005, collateralized notes totaled
approximately $41,360,000 and $34,326,000, respectively. We have
been pre-approved by these banks for additional borrowings of
approximately $15,900,000 and $4,800,000 at December 31,
2006 and 2005, respectively.
Effective September 28, 2006, we established an
uncollateralized note payable at a principal amount of
10,000,000,000 Korean won, which bears interest at 1.25% over
the Korean Stock
Exchange 3-month
certificate of deposit rate (5.85% as of December 31,
2006). The proceeds of this note were used to refinance
approximately 9,000,000,000 Korean won of short-term borrowings
and to pay estimated 2006 corporate income taxes of
1,000,000,000 Korean won. The note is denominated and payable in
Korean won and matures in September 2009. As of
December 31, 2006, the outstanding principal on this note
was approximately $10,629,000. The note contains certain
restrictions and conditions as defined in the agreement that
require our Korean subsidiary to maintain a ratio of debt to
equity equal to or less than 2.5 to 1.0 and to maintain a ratio
of bank borrowings to total assets equal to or less than 0.4 to
1.0. At December 31, 2006, we were in compliance with these
debt covenants.
We have notes payable with banks to finance the development of
our restaurants in Japan (Outback Japan). The notes
are payable to banks, collateralized by letters of credit and
lease deposits of approximately $3,300,000 and $3,100,000 at
December 31, 2006 and 2005, respectively, and bear interest
at 1.40% and at 0.86% at December 31, 2006 and 2005,
respectively. The notes are denominated and payable in Japanese
yen, with outstanding balances as of December 31, 2006
maturing in September 2007. As of December 31, 2006 and
2005, outstanding balances totaled approximately $5,114,000 and
$5,085,000, respectively.
In October 2003, Outback Japan established a revolving line of
credit to finance the development of new restaurants in Japan
and refinance certain notes payable. The line permits borrowing
up to a maximum of $10,000,000. Effective March 10, 2006,
this revolving credit facility that was scheduled to mature in
June 2007 was amended with a new maturity date in June 2011. The
amended line of credit permits borrowing at interest rates
ranging from 45 to 65 basis points over LIBOR. As of
December 31, 2006 and 2005, Outback Japan had borrowed
approximately $9,096,000 and $9,043,000, respectively, on the
line of credit at an average interest rate of 1.19%, with draws
as of December 31, 2006 maturing from February 2007 to June
2007. The revolving line of credit contains certain restrictions
and conditions as defined in the agreement. At December 31,
2006, we were in compliance with these debt covenants.
In February 2004, Outback Japan established an additional
revolving line of credit to finance the development of new
restaurants in Japan and to refinance certain notes payable. The
line permits borrowing up to a maximum of $10,000,000 with
interest of LIBOR divided by a percentage equal to 1.00 minus
the Eurocurrency Reserve Percentage. The line matured in
December 2006, and Outback Japan amended it to extend the
maturity of the line until the earlier of March 31, 2007 or
the date on which the acquisition of us by the investor group is
final. All other material provisions of the agreement remained
the same. As of December 31, 2006 and 2005, Outback Japan
had borrowed approximately $3,921,000 and $5,593,000,
respectively, on the line of credit at an average interest rate
of 1.17%, with draws as of December 31, 2006 maturing in
January 2007. The revolving line of credit contains certain
restrictions and conditions as defined in the agreement. At
December 31, 2006, we were in compliance with these debt
covenants.
As of December 31, 2006 and 2005, we had approximately
$7,993,000 and $8,424,000, respectively, of notes payable at
interest rates ranging from 2.07% to 7.75% and from 2.07% to
7.00%, respectively. These notes have
167
been primarily issued for buyouts of general manager interests
in the cash flows of their restaurants and generally are payable
over five years.
In August 2005, we entered into a sale-leaseback arrangement for
five of our properties. Pursuant to this arrangement, we sold
these properties for a total of $6,250,000, including $1,250,000
for tenant improvements. We then leased the sites back for a
30-year term
and will make lease payments on the first day of each calendar
month. Since this transaction does not qualify for
sale-leaseback accounting treatment, we have recorded the
proceeds in our Consolidated Balance Sheets as long-term debt.
During the fourth quarter of 2006, we determined that we will
not be leasing one of the sites and reduced the amount of the
long-term debt recorded by the original book value of the site,
including tenant improvements of $1,325,000, to $4,925,000. We
do not have any further obligations with this site.
Our primary source of credit is our uncollateralized revolving
line of credit that permits borrowing up to $225,000,000. Based
upon provisions of the line of credit agreement and operating
data and outstanding borrowings as of and through
December 31, 2006, the margin over LIBOR rates charged to
us on future amounts drawn under the line will continue to be
0.125% higher than our base margin unless: (i) outstanding
debt balances decrease by more than $114,700,000; or
(ii) earnings before interest, taxes, depreciation,
amortization and rent increase more than 12.2%. Furthermore, the
margin over LIBOR rates charged to us on future amounts drawn
under the line would increase by an additional 0.125% if:
(i) outstanding debt balances increased by more than
$120,800,000; or (ii) earnings before interest, taxes,
depreciation, amortization and rent decreased more than 10.3%.
In addition, based upon provisions of the line of credit
agreement, availability of funds under the uncollateralized
revolving line of credit would not be affected unless:
(i) outstanding debt balances increased by more than
$164,800,000; (ii) earnings before interest, taxes,
depreciation, amortization and rent decreased more than 25.2%;
or (iii) our net worth decreased approximately 13.5%.
Debt
Guarantees
We are the guarantor of an uncollateralized line of credit that
permits borrowing of up to $35,000,000 for a limited liability
company, T-Bird Nevada, LLC (T-Bird), owned by a
California franchisee. This line of credit bears interest at
rates ranging from 50 to 90 basis points over LIBOR and
matures in December 2008. We were required to consolidate T-Bird
effective January 1, 2004 upon adoption of FIN 46R.
The outstanding balance on the line of credit at
December 31, 2006 and 2005 was approximately $32,083,000
and $31,283,000, respectively, and is included in our
Consolidated Balance Sheets as long-term debt. T-Bird uses
proceeds from the line of credit for the purchase of real estate
and construction of buildings to be operated as Outback
Steakhouse restaurants and leased to our franchisees. According
to the terms of the line of credit, T-Bird may borrow, repay,
re-borrow or prepay advances at any time before the termination
date of the agreement.
If a default under the line of credit were to occur requiring us
to perform under the guarantee obligation, we have the right to
call into default all of our franchise agreements in California
and exercise any rights and remedies under those agreements as
well as the right to recourse under loans T-Bird has made to
individual corporations in California which own the land
and/or
building that is leased to those franchise locations. Events of
default are defined in the line of credit agreement and include
our covenant commitments under existing lines of credit. We are
not the primary obligor on the line of credit and we are not
aware of any non-compliance with the underlying terms of the
line of credit agreement that would result in us having to
perform in accordance with the terms of the guarantee.
We expect that our capital requirements through the end of 2007
will be met by cash flows from operations and, to the extent
needed, advances on our lines of credit. If the proposed merger
is approved by our shareholders, the terms of our credit
agreements may change significantly, and we may have
substantially more debt.
The consolidated financial statements also include the accounts
and operations of our Roys consolidated venture in which
we have a less than majority ownership. We consolidate this
venture because we control the executive committee (which
functions as a board of directors) through representation on the
board by related parties, and we are able to direct or cause the
direction of management and operations on a
day-to-day
basis. Additionally, the majority of capital contributions made
by our partner in the Roys consolidated venture have been
funded by loans to the partner from a third party where we are
required to be a guarantor of the debt, which provides
168
us control through our collateral interest in the joint venture
partners membership interest. As a result of our
controlling financial interest in this venture, it is included
in our consolidated financial statements. The portion of income
or loss attributable to the minority interests, not to exceed
the minority interests equity in the subsidiary, is
eliminated in the line item in our Consolidated Statements of
Income entitled Elimination of minority interest.
All material intercompany balances and transactions have been
eliminated.
We are the guarantor of an uncollateralized line of credit that
permits borrowing of up to a maximum of $24,500,000 for our
joint venture partner, RY-8, Inc. (RY-8), in the
development of Roys restaurants. The line of credit
originally expired in December 2004 and was renewed twice with a
new termination date in June 2011. According to the terms of the
credit agreement, RY-8 may borrow, repay, re-borrow or prepay
advances at any time before the termination date of the
agreement. On the termination date of the agreement, the entire
outstanding principal amount of the loan then outstanding and
any accrued interest is due. At December 31, 2006, the
outstanding balance on the line of credit was approximately
$24,349,000.
RY-8s obligations under the line of credit are
unconditionally guaranteed by us and Roys Holdings, Inc.
(RHI). If an event of default occurs (as defined in
the agreement, and including our covenant commitments under
existing lines of credit), then the total outstanding balance,
including any accrued interest, is immediately due from the
guarantors. At December 31, 2006, we were in compliance
with the debt covenants.
If an event of default occurs and RY-8 is unable to pay the
outstanding balance owed, we would, as guarantor, be liable for
this balance. However, in conjunction with the credit agreement,
RY-8 and RHI have entered into an Indemnity Agreement and a
Pledge of Interest and Security Agreement in favor of OSI
Restaurant Partners, Inc. These agreements provide that if we
are required to perform our obligation as guarantor pursuant to
the credit agreement, then RY-8 and RHI will indemnify us
against all losses, claims, damages or liabilities which arise
out of or are based upon our guarantee of the credit agreement.
RY-8s and RHIs obligations under these agreements
are collateralized by a first priority lien upon and a
continuing security interest in any and all of RY-8s
interests in the joint venture. RY-8 was in violation of certain
of its debt covenants. We have received a waiver from the bank
of our guarantee obligation solely relating to this violation.
We are the guarantor on $68,000,000 in bonds issued by Kentucky
Speedway, LLC (Speedway). Speedway is an
unconsolidated affiliate in which we have a 22.5% equity
interest and for which we operate catering and concession
facilities. Payments on the bonds began in December 2003 and
will continue according to a redemption schedule with final
maturity in December 2022. At December 31, 2006 and 2005,
the outstanding balance on the bonds was approximately
$63,300,000.
In June 2006, Speedway modified certain terms and conditions of
its debt, including (i) lowering its interest rate,
(ii) removing a liquidity coverage requirement,
(iii) reducing a fixed charge coverage ratio,
(iv) delaying redemption payments for 2006, 2007, and 2008,
and (v) revising a put feature which now allows the lenders
to require full payment of the debt on or after June 2011. In
connection with these modifications, in June 2006, we and other
equity owners of Speedway entered into an amended guarantee,
which increased our guarantee on the bonds from $9,445,000 to
$17,585,000. Our guarantee will proportionally decrease as
payments are made on the bonds.
As part of the amended guarantee, we and other Speedway equity
owners are obligated to contribute, either as equity or
subordinated debt, any amounts necessary to maintain
Speedways defined fixed charge coverage ratio. We are
obligated to contribute 27.78% of such amounts. Speedway has not
yet reached its operating break-even point. Since the initial
investment, we have made additional working capital
contributions and loans to this affiliate in payments totaling
$5,503,000. Of this amount, $1,867,000 was loaned during 2006
and $1,392,000 was loaned in 2005. In addition, based on current
operating performance, we anticipate making additional
contributions in 2007 of approximately $1,500,000 to $2,000,000.
This affiliate is expected to incur further operating losses at
least through 2007.
Each guarantor has unconditionally guaranteed Speedways
obligations under the bonds not to exceed its maximum guaranteed
amount. Our maximum guaranteed amount is $17,585,000. If an
event of default occurs as defined by the amended guarantee, or
if the lenders exercise the put feature, the total outstanding
amount on the Bonds, plus any accrued interest, is immediately
due from Speedway and each guarantor would be obligated to make
payment under its guaranty up to its maximum guaranteed amount.
169
In June 2006, in accordance with FIN 45, we recognized a
liability of $2,495,000, representing the estimated fair value
of the guarantee and a corresponding increase to the investment
in Speedway, which is included in the line item entitled
Investments In and Advances to Unconsolidated Affiliates,
Net in our Consolidated Balance Sheets. Prior to the June
2006 modifications, the guarantee was not subject to the
recognition or measurement requirements of FIN 45 and no
liability related to the guarantee was recorded at
December 31, 2005 or any prior period.
Our Korean subsidiary is the guarantor of debt owed by landlords
of two of our Outback Steakhouse restaurants in Korea. We are
obligated to purchase the building units occupied by our two
restaurants in the event of default by the landlords on their
debt obligations, which were approximately $1,400,000 and
$1,500,000 as of December 31, 2006. Under the terms of the
guarantees, our monthly rent payments are deposited with the
lender to pay the landlords interest payments on the
outstanding balances. The guarantees are in effect until the
earlier of the date the principal is repaid or the entire lease
term of ten years for both restaurants, which expire in 2014 and
2016. The guarantees specify that upon default the purchase
price would be a maximum of 130% of the landlords
outstanding debt for one restaurant and the estimated legal
auction price for the other restaurant, approximately $1,900,000
and $2,300,000 as of December 31, 2006. If we were required
to perform under either guarantee, we would obtain full title to
the corresponding building unit and could liquidate the
property, each having an estimated fair value of approximately
$2,900,000. As a result, we have not recognized a liability
related to these guarantees in accordance with FIN 45. We
have various depository and banking relationships with the
lender, including several outstanding notes payable.
We are not aware of any non-compliance with the underlying terms
of the borrowing agreements for which we provide a guarantee
that would result in us having to perform in accordance with the
terms of the guarantee.
Other
Material Commitments
Our contractual obligations, debt obligations, commitments and
debt guarantees as of December 31, 2006, are summarized in
the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
CONTRACTUAL
OBLIGATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current
portion)
|
|
$
|
269,956
|
|
|
$
|
60,381
|
|
|
$
|
46,448
|
|
|
$
|
158,202
|
|
|
$
|
4,925
|
|
Operating leases
|
|
|
641,039
|
|
|
|
99,168
|
|
|
|
181,121
|
|
|
|
151,040
|
|
|
|
209,710
|
|
Unconditional purchase
obligations(1)
|
|
|
643,478
|
|
|
|
636,207
|
|
|
|
7,271
|
|
|
|
|
|
|
|
|
|
Partner deposit and accrued buyout
liability(2)
|
|
|
118,470
|
|
|
|
15,546
|
|
|
|
39,464
|
|
|
|
54,899
|
|
|
|
8,561
|
|
Other long-term liabilities(3)
|
|
|
49,864
|
|
|
|
|
|
|
|
17,368
|
|
|
|
11,631
|
|
|
|
20,865
|
|
Commitments(4)
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
Contingent merger commitments(5)
|
|
|
10,760
|
|
|
|
10,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,735,667
|
|
|
$
|
822,062
|
|
|
$
|
291,672
|
|
|
$
|
375,772
|
|
|
$
|
246,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEBT GUARANTEES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum availability of debt
guarantees
|
|
$
|
81,285
|
|
|
$
|
|
|
|
$
|
35,000
|
|
|
$
|
42,085
|
|
|
$
|
4,200
|
|
Amount outstanding under debt
guarantees
|
|
|
78,217
|
|
|
|
|
|
|
|
32,083
|
|
|
|
41,934
|
|
|
|
4,200
|
|
Carrying amount of liabilities
|
|
|
34,578
|
|
|
|
|
|
|
|
32,083
|
|
|
|
2,495
|
|
|
|
|
|
|
|
|
(1) |
|
We have minimum purchase commitments with various vendors
through June 2009. Outstanding commitments consist primarily of
minimum purchase levels of beef, butter, cheese and other food
products related to normal business operations as well as
contracts for advertising, marketing, sports sponsorships,
printing and technology. |
|
|
|
(2) |
|
Partner deposit and accrued buyout liability payments by period
are estimates only and may vary significantly in amounts and
timing of settlement based on employee turnover, return of
deposits to us in accordance with employee agreements and change
in buyout values of our employee partners. (See Note 1 of
Notes to Consolidated Financial Statements included under
Financial Statements). |
170
|
|
|
(3) |
|
Other long-term liabilities reflected on our Consolidated
Balance Sheet are long-term insurance estimates, long-term
incentive plan compensation for certain of our officers, amounts
owed to managing partners and chef partners under our partner
equity plans and litigation (see Notes 5 and 8 of Notes to
Consolidated Financial Statements included under
Financial Statements). |
|
|
|
(4) |
|
Commitments represent the remaining guaranteed minimum amounts
of long-term incentive plan compensation for certain of our
officers that has not been recorded in other long-term
liabilities. |
|
|
|
(5) |
|
Contingent merger commitments include a merger transaction fee
that will be payable if the proposed merger is approved by our
shareholders. If the proposed merger is not approved, we will be
required to pay a termination fee of $25,000,000 to $45,000,000
and reimburse
out-of-pocket
fees and expenses incurred with respect to the transactions
contemplated by the merger agreement, up to a maximum of
$7,500,000. |
We expect that our working capital and capital expenditure
requirements through the next 12 months will be met by cash
flow from operations and, to the extent needed, advances on our
line of credit. (See Note 7 of Notes to Consolidated
Financial Statements included under Financial
Statements). If the proposed merger is approved by our
shareholders, the terms of our credit agreements may change
significantly, and we may have substantially more debt.
Share
Repurchase
On July 26, 2000, our Board of Directors authorized the
repurchase of up to 4,000,000 shares of our common stock,
with the timing, price, quantity and manner of the purchases to
be made at the discretion of management, depending upon market
conditions. In addition, the Board of Directors authorized the
repurchase of shares on a regular basis to offset shares issued
as a result of stock option exercises. On July 23, 2003,
our Board of Directors extended both the repurchase
authorization for an additional 2,500,000 shares of our
common stock, and the authorization to offset shares issued as a
result of stock option exercises. We will fund the repurchase
program with available cash and bank credit facilities. On
February 13, 2006, our Board of Directors authorized the
repurchase of an additional 1,500,000 shares and authorized
the continued repurchase of shares on a regular basis to offset
shares issued as a result of stock option exercises and as
restricted shares vest and become dilutive. During the period
from the authorization date through December 31, 2006,
approximately 9,997,000 shares of our common stock have
been issued as the result of stock option exercises. As of
December 31, 2006, under these authorizations we have
repurchased approximately 15,415,000 shares of our common
stock for approximately $552,057,000.
Dividends
Our Board of Directors authorized the following dividends during
2005 and 2006:
|
|
|
|
|
|
|
Declaration
|
|
Record
|
|
Payable
|
|
Amount per Share
|
Date
|
|
Date
|
|
Date
|
|
of Common Stock
|
|
January 26, 2005
|
|
February 18, 2005
|
|
March 4, 2005
|
|
$0.13
|
April 27, 2005
|
|
May 20, 2005
|
|
June 3, 2005
|
|
0.13
|
July 27, 2005
|
|
August 19, 2005
|
|
September 2, 2005
|
|
0.13
|
October 26, 2005
|
|
November 18, 2005
|
|
December 2, 2005
|
|
0.13
|
January 24, 2006
|
|
February 17, 2006
|
|
March 3, 2006
|
|
0.13
|
April 25, 2006
|
|
May 19, 2006
|
|
June 2, 2006
|
|
0.13
|
July 25, 2006
|
|
August 18, 2006
|
|
September 1, 2006
|
|
0.13
|
October 24, 2006
|
|
November 17, 2006
|
|
December 1, 2006
|
|
0.13
|
On January 23, 2007, our Board of Directors declared a
quarterly dividend of $0.13 per share of our common stock.
The dividend is payable March 2, 2007 to shareholders of
record as of February 16, 2007. As a result of the proposed
merger transaction, we do not intend to declare dividends in the
second quarter of 2007 and thereafter. If the merger is not
completed, then we will continue to base future dividend
decisions on a number of factors, including our operating
results and financial requirements. If we were to continue to
pay dividends at the current dividend rate, the annual dividend
payment would be between $38,000,000 and $40,000,000, depending
on the shares outstanding during the respective quarters. We
would pay the dividend with cash flow from operations.
171
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our Consolidated Financial
Statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities during
the reporting period (see Note 1 of Notes to Consolidated
Financial Statements included under Financial
Statements). We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions. Our significant accounting
policies are described in Note 1 of Notes to Consolidated
Financial Statements included under Financial
Statements. We consider the following policies to be the
most critical in understanding the judgments that are involved
in preparing our financial statements.
Property, Fixtures and Equipment. Property,
fixtures and equipment are stated at cost, net of accumulated
depreciation. At the time property, fixtures and equipment are
retired, or otherwise disposed of, the asset and accumulated
depreciation are removed from the accounts and any resulting
gain or loss is included in earnings. We expense repair and
maintenance costs incurred to maintain the appearance and
functionality of the restaurant that do not extend the useful
life of any restaurant asset or are less than $1,000.
Improvements to leased properties are depreciated over the
shorter of their useful life or the lease term, which includes
cancelable renewal periods where failure to exercise such
options would result in an economic penalty. Depreciation is
computed on the straight-line method over the following
estimated useful lives:
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Buildings and building improvements
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20 to 30 years
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Furniture and fixtures
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5 to 7 years
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Equipment
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2 to 15 years
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Leasehold improvements
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5 to 20 years
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Our accounting policies regarding property, fixtures and
equipment include certain management judgments and projections
regarding the estimated useful lives of these assets and what
constitutes increasing the value and useful life of existing
assets. These estimates, judgments and projections may produce
materially different amounts of depreciation expense than would
be reported if different assumptions were used.
Operating Leases. Rent expense for our
operating leases, which generally have escalating rentals over
the term of the lease, is recorded on a straight-line basis over
the initial lease term and those renewal periods that are
reasonably assured. The initial lease term includes the
build-out period of our leases, which is typically
before rent payments are due under the terms of the lease. The
difference between rent expense and rent paid is recorded as
deferred rent and is included in the Consolidated Balance Sheets.
Impairment Of Long-Lived Assets. We assess the
potential impairment of identifiable intangibles, long-lived
assets and goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Recoverability of assets is measured by comparing the carrying
value of the asset to the future cash flows expected to be
generated by the asset. In evaluating long-lived restaurant
assets for impairment, we consider a number of factors such as:
a) Restaurant sales and cash flow trends;
b) Local competition;
c) Changing demographic profiles;
d) Local economic conditions;
172
e) New laws and government regulations that adversely
affect sales and profits; and
f) The ability to recruit and train skilled restaurant
employees.
If the aforementioned factors indicate that we should review the
carrying value of the restaurants long-lived assets, we
perform an impairment analysis. Identifiable cash flows that are
largely independent of other assets and liabilities typically
exist for land and buildings and for combined fixtures,
equipment and improvements for each restaurant. If the total
future cash flows are less than the carrying amount of the
asset, the carrying amount is written down to the estimated fair
value, and a loss resulting from value impairment is recognized
by a charge to earnings.
Judgments and estimates made by us related to the expected
useful lives of long-lived assets are affected by factors such
as changes in economic conditions and changes in operating
performance. As we assess the ongoing expected cash flows and
carrying amounts of our long-lived assets, these factors could
cause us to realize a material impairment charge.
Goodwill. Goodwill represents the residual
purchase price after allocation of the purchase price to the
individual fair values of assets acquired. On an annual basis,
we review the recoverability of goodwill based primarily upon an
analysis of discounted cash flows of the related reporting unit
as compared to the carrying value or whenever events or changes
in circumstances indicate that the carrying amounts may not be
recoverable. Generally, we perform our annual assessment for
impairment during the third quarter of the fiscal year, unless
facts and circumstances require differently.
Insurance Reserves. We self-insure a
significant portion of expected losses under our workers
compensation, general liability, health and property insurance
programs. We purchase insurance for individual claims that
exceed the amounts listed in the following table:
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2006
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2007
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Workers Compensation
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$
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1,000,000
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$
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1,500,000
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General Liability(1)
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1,500,000
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1,500,000
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Health(2)
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300,000
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300,000
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Property Coverage
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7,500,000
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5,000,000
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(3)
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(1) |
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For claims arising from liquor liability, there is an additional
$1,000,000 deductible until a $2,000,000 aggregate has been met.
At that time, any claims arising from liquor liability revert to
the general liability deductible. |
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(2) |
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We are self-insured for all aggregate health benefits claims,
limited to $300,000 per covered individual per year. In
2007, we retain the first $100,000 of payable losses under the
plan as an additional deductible. |
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(3) |
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In 2007, we have a 25% quota share participation of any loss
excess of $5,000,000 up to $20,000,000 each occurrence and a 50%
quota share participation of any loss excess of $20,000,000 up
to $50,000,000 each occurrence. |
We record a liability for all unresolved claims and for an
estimate of incurred but not reported claims at the anticipated
cost to us based on estimates provided by a third party
administrator and insurance company. Our accounting policies
regarding insurance reserves include certain actuarial
assumptions and management judgments regarding economic
conditions, the frequency and severity of claims and claim
development history and settlement practices. Unanticipated
changes in these factors or future adjustments to these
estimates may produce materially different amounts of expense
that would be reported under these programs.
Revenue Recognition. We record revenues for
normal recurring sales upon the performance of services.
Revenues from the sales of franchises are recognized as income
when we have substantially performed all of our material
obligations under the franchise agreement. Continuing royalties,
which are a percentage of net sales of franchised restaurants,
are accrued as income when earned. These revenues are included
in the line Other revenues in the Consolidated
Statements of Income.
Unearned revenue represents our liability for gift cards and
certificates that have been sold but not yet redeemed and is
recorded at the redemption value. We recognize restaurant sales
and reduce the related deferred
173
liability when gift cards and certificates are redeemed or the
likelihood of the gift card or certificate being redeemed by the
customer is remote (gift card breakage). Gift card breakage is
recognized as a component of Restaurant sales in the
Consolidated Statements of Income.
Employee Partner Stock Buyout Expense. Area
operating partners are required to purchase a 4% to 9% interest
in the restaurants they develop for an initial investment of
$50,000. This interest gives the area operating partner the
right to receive a percentage of his or her restaurants
annual cash flows for the duration of the agreement. Under the
terms of these partners employment agreements, we have the
option to purchase their interest after a five-year period under
the conditions of the agreement. We estimate future purchases of
area operating partners interests using current
information on restaurant performance to calculate and record an
accrued buyout liability in the line item Partner deposit
and accrued buyout liability in the Consolidated Balance
Sheets. Expenses associated with recording the buyout liability
are included in the line General and administrative
expenses in our Consolidated Statements of Income. When partner
buyouts occur, they are completed primarily through cash and
issuance of our common stock to the partner equivalent to the
fair value of their interest. In the period we complete the
buyout, an adjustment is recorded to recognize any remaining
expense associated with the purchase and reduce the related
accrued buyout liability.
Principles Of Consolidation. The Consolidated
Financial Statements include the accounts and operations of OSI
Restaurant Partners, Inc. and our affiliated partnerships in
which we are a general partner and own a controlling financial
interest. We consolidate variable interest entities in which we
absorb a majority of the entitys expected losses, receive
a majority of the entitys expected residual returns, or
both, as a result of ownership, contractual or other financial
interests in the entity. We consolidate a limited liability
company affiliated with our California franchisees that holds a
line of credit that we guarantee. The consolidated financial
statements also include the accounts and operations of our
Roys consolidated venture in which we have a less than
majority ownership. We consolidate this venture because we
control the executive committee (which functions as a board of
directors) through representation on the board by related
parties, and we are able to direct or cause the direction of
management and operations on a
day-to-day
basis. Additionally, the majority of capital contributions made
by our partner in the Roys consolidated venture have been
funded by loans to the partner from a third party where we are
required to be a guarantor of the debt, which provides us
control through our collateral interest in the joint venture
partners membership interest. As a result of our
controlling financial interest in this venture, it is included
in our consolidated financial statements. The portion of income
or loss attributable to the minority interests, not to exceed
the minority interests equity in the subsidiary, is
eliminated in the line item in our Consolidated Statements of
Income entitled Elimination of minority interest.
All material intercompany balances and transactions have been
eliminated.
Recently Issued Financial Accounting
Standards. In June 2006, the FASB ratified the
consensus reached by the EITF on EITF Issue
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation)
(EITF
06-3).
A consensus was reached that entities may adopt a policy of
presenting sales taxes in the income statement on either a gross
or net basis. If taxes are significant, an entity should
disclose its policy of presenting taxes and the amounts of
taxes. EITF
06-3 is
effective for periods beginning after December 15, 2006. We
present sales taxes collected from customers on a net basis. We
do not expect the adoption of EITF
06-3 to
impact our method for presenting sales taxes in our financial
statements.
In June 2006, the EITF reached a consensus on EITF Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements (EITF
06-4),
which requires the application of the provisions of
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions to endorsement
split-dollar life insurance arrangements. This would require
recognition of a liability for the discounted future benefit
obligation owed to an insured employee by the insurance carrier.
EITF 06-4 is
effective for fiscal years beginning after December 15,
2007. We may have certain policies subject to the provisions of
EITF 06-4
and are currently evaluating the impact that EITF
06-4 would
have on our financial statements.
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109 (FIN 48), which clarifies
the accounting for and disclosure of
174
uncertainty in tax positions. FIN 48 prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition associated with tax
positions. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006. We are
currently evaluating the impact that FIN 48 will have on
our financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
establishes a framework for measuring fair value and expands the
related disclosure requirements. The provisions of
SFAS No. 157 are effective for fiscal years beginning
after November 15, 2007. We are currently evaluating the
impact that SFAS No. 157 will have on our financial
statements.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each
financial statement and related financial statement disclosure
using both the rollover approach and the iron curtain approach,
as those terms are defined in SAB 108. The rollover
approach quantifies misstatements based on the impact of the
misstatement, whereas the iron curtain approach quantifies
misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the
current year, irrespective of the reversing effect of prior year
misstatements on the income statement. Financial statements
would require adjustment when either approach results in
quantifying a misstatement that is material. Correcting prior
year financial statements for immaterial errors would not
require previously filed reports to be amended. If a company
determines that an adjustment to prior year financial statements
is required upon adoption of SAB 108 and does not elect to
restate its previous financial statements, then it must
recognize the cumulative effect of applying SAB 108 in
fiscal 2006 beginning balances of the affected assets and
liabilities with a corresponding adjustment to the fiscal 2006
opening balance in retained earnings. SAB 108 is effective
for the first fiscal year ending after November 15, 2006.
The adoption of SAB 108 did not have a material impact on
our financial statements.
Impact of Inflation. In the last three years
we have not operated in a period of high general inflation;
however, we have experienced material increases in specific
commodity costs and utilities. Our restaurant operations are
subject to federal and state minimum wage laws governing such
matters as working conditions, overtime and tip credits.
Significant numbers of our food service and preparation
personnel are paid at rates related to the federal
and/or state
minimum wage and, accordingly, increases in the minimum wage
have increased our labor costs in the last three years. To the
extent permitted by competition, we have mitigated increased
costs by increasing menu prices and may continue to do so if
deemed necessary in future years.
Quantitative
and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates on
debt, changes in foreign currency exchange rates and changes in
commodity prices.
Our exposure to interest rate fluctuations is limited to our
outstanding bank debt. At December 31, 2006, outstanding
borrowings under our revolving lines of credit bear interest at
45 to 65 basis points over the 30, 60, 90 or
180-day
London Interbank Offered Rate. The weighted average effective
interest rate on the $154,000,000 outstanding balance under
these lines at December 31, 2006 was 6.00%. At
December 31, 2006, outstanding borrowings under our
Japanese lines of credit bear interest at either 45 to
65 basis points over LIBOR or LIBOR divided by a percentage
equal to 1.00 minus the Eurocurrency Reserve Percentage. The
weighted average effective interest rate on the approximately
$13,017,000 outstanding balance at December 31, 2006 was
1.18%. Notes payable of approximately $5,114,000 to Japanese
banks bear interest at 1.40%. Notes payable of approximately
$50,329,000 to South Korean banks bear interest at rates ranging
from 5.27% to 6.29% at December 31, 2006.
At December 31, 2006 and 2005, our total debt, excluding
consolidated guaranteed debt, was approximately $235,378,000 and
$154,065,000, respectively. Should interest rates based on our
average borrowings through December 31, 2006 increase by
one percentage point, our estimated annual interest expense
would increase by approximately $2,277,000 over amounts reported
for the year ended December 31, 2006.
175
Our exposure to foreign currency exchange fluctuations relates
primarily to our direct investment in restaurants in South
Korea, Hong Kong, Japan, the Philippines and Brazil, our
outstanding debt to Japanese and South Korean banks of
approximately $18,131,000 and $50,329,000, respectively, at
December 31, 2006 and to our royalties from international
franchisees. We do not use financial instruments to hedge
foreign currency exchange rate changes. Our investments in these
countries totaled approximately $42,211,000 and $24,802,000 as
of December 31, 2006 and 2005, respectively.
Many of the ingredients used in the products sold in our
restaurants are commodities that are subject to unpredictable
price volatility. Although we attempt to minimize the effect of
price volatility by negotiating fixed price contracts for the
supply of key ingredients, there are no established fixed price
markets for certain commodities such as produce and wild fish,
and we are subject to prevailing market conditions when
purchasing those types of commodities. Other commodities are
purchased based upon negotiated price ranges established with
vendors with reference to the fluctuating market prices. The
related agreements may contain contractual features that limit
the price paid by establishing certain price floors and caps.
Extreme changes in commodity prices
and/or
long-term changes could affect our financial results adversely,
although any changes in commodity prices would affect our
competitors at about the same time as us. We expect that in most
cases increased commodity prices could be passed through to our
consumers via increases in menu prices. However, if there is a
time lag between the increasing commodity prices and our ability
to increase menu prices or, if we believe the commodity price
increase to be short in duration and we choose not to pass on
the cost increases, our short-term financial results could be
negatively affected. Additionally, from time to time,
competitive circumstances could limit menu price flexibility,
and in those cases margins would be negatively impacted by
increased commodity prices.
Our restaurants are dependent upon energy to operate and are
impacted by changes in energy prices, including natural gas. We
utilized derivative instruments to mitigate our exposure to
material increases in natural gas prices between November 2006
and October 2007. We are not applying hedge accounting, as
defined by SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and any
changes in fair value of the derivative instruments are
marked-to-market
through earnings in the period of change. The effects of these
derivative instruments were immaterial to our financial
statements for all periods presented.
In addition to the market risks identified above and to the
risks discussed in Managements Discussion and
Analysis of Financial Condition and Results of Operations,
we are subject to business risk as our beef supply is highly
dependent upon five vendors. We currently purchase approximately
65% of our beef from two beef suppliers. If these vendors were
unable to fulfill their obligations under their contracts, we
would encounter supply shortages and incur higher costs to
secure adequate supplies.
This market risk discussion contains forward-looking statements.
Actual results may differ materially from the discussion based
upon general market conditions and changes in domestic and
global financial markets.
176
MARKET
PRICE OF OUR COMMON STOCK
Our common stock is listed on the NYSE under the trading symbol
OSI. The following table sets forth the high and low
sales prices for our common stock for, and the cash dividends
declared on our common stock during, each of the quarterly
periods presented.
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Dividends
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High
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Low
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Declared
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2007
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First Quarter (through
March 29, 2007)
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$
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[]
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$
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[]
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$
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[]
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2006
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Fourth Quarter
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$
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40.55
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$
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31.33
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$
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0.13
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Third Quarter
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$
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34.93
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$
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27.30
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$
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0.13
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Second Quarter
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$
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44.10
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$
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33.90
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$
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0.13
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First Quarter
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$
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48.28
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$
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38.34
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$
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0.13
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2005
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Fourth Quarter
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$
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42.03
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$
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34.45
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$
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0.13
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Third Quarter
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$
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46.75
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$
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35.54
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$
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0.13
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Second Quarter
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$
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46.35
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$
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40.34
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$
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0.13
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|
First Quarter
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$
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47.75
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$
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43.30
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$
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0.13
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The closing sale price of our common stock on the NYSE on
November 3, 2006, which was the last trading day before we
announced the merger, was $32.43. On March 29, 2007, the
last trading day before the date of this proxy statement, the
closing price of our common stock on the NYSE was $[]. You
are encouraged to obtain current market quotations for our
common stock in connection with voting your shares.
Our dividend policy is determined at the discretion of our board
of directors based on and affected by a number of factors,
including our operating results and financial requirements.
While we currently anticipate that quarterly cash dividends will
continue to be paid in the future, there can be no assurance
that payment of the dividend will continue or not be reduced.
As of March 29, 2007, the last trading day before the date
of this proxy statement, there were [75,521,662] shares of
our common stock outstanding.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the number of
shares of our common stock beneficially owned as of
March 28, 2007 (unless otherwise indicated), by:
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each person who is known to us to be the beneficial owner of
more than five percent of our common stock;
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each director;
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our chief executive officer at the end of our last completed
fiscal year and our four most highly compensated executive
officers who were serving as executive officers at the end of
our last completed fiscal year; and
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all current directors and executive officers as a group.
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Unless otherwise indicated by footnote, the beneficial owner
exercises sole voting and investment power over the shares noted
below. The business address of each individual listed below is
c/o OSI Restaurant Partners, Inc. 2202 North West Shore
Boulevard, Suite 500, Tampa, Florida 33607. The beneficial
ownership percentages reflected in the table below are based on
[75,521,662] shares of our common stock outstanding as of
March 28, 2007:
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Amount
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Beneficially
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Percent of
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Name of Beneficial Owner
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Position
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Owned(1)
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Class
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Chris T. Sullivan(2)
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Chairman of the Board of Directors
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2,464,680
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3.3
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%
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Robert D. Basham(3)
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Director
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4,328,204
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5.7
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%
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J. Timothy Gannon(4)
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Director Emeritus
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1,193,303
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1.6
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%
|
177
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Amount
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Beneficially
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Percent of
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Name of Beneficial Owner
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Position
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Owned(1)
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Class
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A. William Allen III(5)
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Chief Executive Officer &
Director
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650,000
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*
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Paul E. Avery(6)
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Chief Operating Officer
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726,700
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*
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John A. Brabson, Jr.(7)
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Director
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36,034
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*
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W. R. Carey, Jr.(8)
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Director
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0
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*
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Michael W. Coble(9)
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President of Outback Steakhouse
International, Inc.
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40,000
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*
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Debbi Fields(10)
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Director
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625
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*
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Gen. (Ret) Tommy Franks(11)
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Director
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2,603
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*
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Curt Glowacki
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President of Outback Steakhouse of
Florida, Inc.
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0
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*
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Thomas A. James(12)
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Director
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53,508
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*
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Joseph J. Kadow(13)
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Executive Vice President, Chief
Officer Legal and Corporate Affairs and Secretary
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195,000
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*
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|
Dirk A. Montgomery(14)
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Senior Vice President and Chief
Financial Officer
|
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100,000
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|
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*
|
|
Lee Roy Selmon(15)
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Director
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0
|
|
|
*
|
|
Steven T. Shlemon(16)
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President of Carrabbas
Italian Grill, Inc.
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76,008
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|
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*
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|
Toby S. Wilt(17)
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Director
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75,000
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*
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|
Capital Research and Management
Company(18)
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6,901,500
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9.1
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%
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FMR Corp.(19)
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6,092,880
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8.1
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%
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Lord, Abbett & Co. LLC(20)
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5,251,540
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7.0
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%
|
OSI Investors as a group (7
persons)(21)
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9,657,887
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12.7
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%
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|
|
All directors and executive
officers as a group (15 persons)(22)
|
|
|
|
8,748,362
|
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
The named stockholders have sole voting and dispositive power
with respect to all shares shown as being beneficially owned by
them, except as otherwise indicated. |
|
|
|
(2) |
|
Includes 2,434,990 shares owned by CTS Equities, Limited
Partnership, an investment partnership (CTSLP).
Mr. Sullivan is a limited partner of CTSLP and the sole
member of CTS Equities, LLC, the sole general partner of CTSLP.
Also includes 2,568 shares owned by
Mr. Sullivans children for whom Mr. Sullivan
serves as custodian. CTSLP has pledged all of its 2,434,990
shares as collateral for a loan. |
|
|
|
(3) |
|
Includes 2,886,878 shares owned by RDB Equities, Limited
Partnership, an investment partnership (RDBLP).
Mr. Basham is a limited partner of RDBLP and the sole
member of RDB Equities, LLC, the sole general partner of RDBLP.
RDBLP has pledged 1,526,301 of its shares as collateral for a
loan. Also includes 1,441,326 shares owned by the Robert D.
Basham Revocable Trust of 1992, of which Mr. Basham is the
sole beneficiary, all of which shares are pledged as collateral
for a loan. |
|
|
|
(4) |
|
Includes 347,329 shares over which Mr. Gannon has shared
voting and dispositive power. All of the shares that
Mr. Gannon may be deemed to beneficially own are owned by
JTG Equities, Limited Partnership, a Nevada limited partnership
(JTGLP). Mr. Gannon is a limited partner in
JTGLP and the sole member of JTG Equities, LLC, the sole general
partner of JTGLP. JTGLP has pledged 628,000 of its shares as
collateral for loans and 565,303 of its shares for a prepaid
forward. |
|
|
|
(5) |
|
Includes 300,000 shares of restricted stock that vest as
follows: (i) 90,000 shares vest on December 31,
2009; except that if, on December 31, 2009 the market
capitalization of OSI exceeds $6.06 billion, an additional |
178
|
|
|
|
|
30,000 shares will vest; (ii) 90,000 shares vest
on December 31, 2011; except that if, on December 31,
2011, the market capitalization of OSI exceeds
$8.06 billion, an additional 30,000 shares will vest;
and (iii) all remaining shares vest on December 31,
2014; and 150,000 shares of restricted stock will vest as
follows: (i) 75,000 shares vest on December 31,
2009; and (ii) 75,000 shares vest on December 31,
2011. Does not include 300,000 shares subject to stock
options that are not exercisable within 60 days of
March 28, 2007. |
|
|
|
(6) |
|
Includes (i) 83,000, 200,000, 300,000 and
120,000 shares subject to stock options that Mr. Avery
currently has the right to acquire at exercise prices of $15.00,
$24.94, $28.06 and $34.12 per share, respectively and
(ii) 5,600 shares held by the Avery Family Foundation of
which Mr. Avery has sole voting power. Does not include
180,000 shares subject to stock options that are not
exercisable within 60 days of March 28, 2007. |
|
|
|
(7) |
|
Includes 15,003 shares subject to stock options that
Mr. Brabson currently has the right to acquire at an
exercise price of $38.42 per share. Does not include share
equivalents representing value of notional shares held under the
Directors Deferred Compensation and Stock Plan, as amended. |
|
(8) |
|
Does not include share equivalents representing value of shares
held under the Directors Deferred Compensation and Stock
Plan, as amended. |
|
(9) |
|
Includes 40,000 shares subject to stock options that
Mr. Coble currently has the right to acquire at an exercise
price of $28.06 per share. |
|
(10) |
|
Does not include share equivalents representing value of shares
held under the Directors Deferred Compensation and Stock
Plan, as amended. |
|
(11) |
|
Includes 1,923 shares of restricted stock that vest in five
annual installments beginning on April 27, 2006, in the
respective amounts of 480 shares, 480 shares,
480 shares, 480 shares and 483 shares. Does not
include share equivalents representing value of shares held
under the Directors Deferred Compensation and Stock Plan,
as amended. |
|
(12) |
|
Includes 45,000 shares subject to stock options that
Mr. James currently has the right to acquire at an exercise
price of $30.60 per share. |
|
|
|
(13) |
|
Includes 100,000 and 20,000 shares subject to stock options
that Mr. Kadow currently has the right to acquire at
exercise prices of $24.875 and $28.39 per share,
respectively. Also includes (i) 50,000 shares of
restricted stock that vest in three annual installments
beginning on October 26, 2008, in the respective amounts of
10,000 shares, 10,000 shares and 30,000 shares
and (ii) 25,000 shares of restricted stock that vest
in three annual installments beginning on October 26, 2008,
in the respective amounts of 5,000 shares,
5,000 shares and 15,000 shares. Does not include
105,000 shares subject to stock options that are not
exercisable within 60 days of March 28, 2007. |
|
|
|
(14) |
|
Includes 100,000 shares of restricted stock of which 50,000
vest on the fifth anniversary of his employment, or
November 1, 2010; except that if, on November 1, 2010,
the market capitalization of OSI exceeds $6 billion, an
additional 10,000 shares will vest, and the balance of the
shares vest on the seventh anniversary of his employment, or
November 1, 2012. |
|
(15) |
|
Does not include share equivalents representing value of shares
held under the Directors Deferred Compensation and Stock
Plan, as amended. |
|
(16) |
|
Includes 1,608 shares owned by Mr. Shlemon as
custodian for a minor child. |
|
(17) |
|
Includes 45,000 shares subject to stock options that
Mr. Wilt currently has the right to acquire at an exercise
price of $15.00 per share. Does not include share
equivalents representing value of shares held under the
Directors Deferred Compensation and Stock Plan, as amended. |
|
(18) |
|
Based on a Schedule 13G/A filed by Capital Research and
Management Company, a Delaware corporation (CRMC),
with the SEC on February 12, 2007, reflecting beneficial
ownership as of December 29, 2006. These shares are owned
by various investment companies for which CRMC serves as
investment advisor with power to direct investments. CRMC has
sole power to vote 3,181,500 of the shares, has shared voting
power with respect to no shares and has sole dispositive power
with respect to all shares. The business address of CRMC is
333 South Hope Street, Los Angeles, California, 90071. |
|
(19) |
|
Based on a Schedule 13G/A filed by FMR Corp., a Delaware
corporation, with the SEC on February 14, 2006, reflecting
beneficial ownership as of December 31, 2005. Includes
(i) 5,837,940 shares beneficially owned by |
179
|
|
|
|
|
Management & Research Company;
(ii) 50,500 shares beneficially owned by Fidelity
Management Trust Company; (iii) 203,840 shares
beneficially owned by Fidelity International Limited and
(iv) 600 shares beneficially owned by Strategic
Advisers, Inc. FMR Corp. has the sole power to dispose of all
6,092,880 shares. The business address of FMR Corp. is
82 Devonshire Street, Boston, 02109. |
|
(20) |
|
Based on a Schedule 13G filed by Lord, Abbett &
Co. LLC, a Delaware corporation, with the SEC on
February 14, 2007, reflecting beneficial ownership as of
December 29, 2006. Lord, Abbett & Co. LLC has the
sole power to vote or direct the vote of 5,023,540 shares
and has the sole power to dispose of all 5,251,540 shares.
The business address of Lord, Abbett & Co. LLC is
90 Hudson Street Jersey City, New Jersey, 07302. |
|
|
|
(21) |
|
Filed as a group with the Securities Exchange Commission on
Schedule 13E-3
dated January 17, 2007. Includes 823,000 shares of
common stock which may be acquired upon the exercise of stock
options. Does not include options to purchase
585,000 shares of common stock that are not exercisable
within 60 days of March 28, 2007. |
|
|
|
(22) |
|
Includes 968,003 shares of common stock which may be
acquired upon the exercise of stock options. Does not include
options to purchase 585,000 shares of common stock that are
not exercisable within 60 days of March 28, 2007. |
MULTIPLE
STOCKHOLDERS SHARING ONE ADDRESS
In accordance with
Rule 14a-3(e)(1)
under the Exchange Act, we are sending only one copy of this
proxy statement to stockholders who share the same last name and
address unless they have notified us that they wish to continue
receiving multiple copies. This practice, known as
householding, is designed to reduce duplicate
mailings and save printing and postage costs as well as natural
resources.
If you received a householded mailing this year and you would
like to have additional copies mailed to you or you would like
to opt out of this practice for future mailings, please submit
your request (i) via
e-mail to
OSIs website: www.osirestaurantpartners.com under the
heading Investor Relations; (ii) in writing to OSI,
Attention: Investor Relations at 2202 North West Shore
Boulevard, Suite 500, Tampa, Florida 33607; or
(iii) telephonically to
(813) 282-1225.
You may also contact us if you received multiple copies of the
proxy materials and would prefer to receive a single copy in the
future.
SUBMISSION
OF STOCKHOLDER PROPOSALS
If the merger is not completed, you will continue to be entitled
to attend and participate in our stockholder meetings, and we
will hold a 2007 annual meeting of stockholders. Any stockholder
who intends to present a proposal at the 2007 annual meeting of
stockholders was required to deliver that proposal to OSI at its
principal executive offices not later than December 1, 2006
in order to have that proposal included in OSIs proxy
statement and form of proxy for that meeting. OSI is not
required to include in its proxy statement or form of proxy a
stockholder proposal that is received after December 1,
2006 or that otherwise fails to meet requirements for
stockholder proposals established by regulations of the SEC.
As to any proposal that a stockholder intends to present to
stockholders other than by inclusion in OSIs proxy
statement for the 2007 annual meeting of stockholders, the
proxies named in OSIs proxy for that meeting will be
entitled to exercise their discretionary voting authority on
that proposal unless OSI received notice of the matter to be
proposed not later than February 14, 2007. Even if proper
notice was received on or prior to February 14, 2007, the
proxies named in OSIs proxy for that meeting may
nevertheless exercise their discretionary authority with respect
to such matter by advising stockholders, in the proxy statement,
of that proposal and how they intend to exercise their
discretion to vote on such matter, unless the stockholder making
the proposal solicits proxies with respect to the proposal to
the extent required by
Rule 14a-4(c)(1)
under the Exchange Act.
Any stockholder who wishes to submit an individual for
consideration for nomination as a director may do so by writing
to our Corporate Secretary at 2202 North West Shore Boulevard,
Suite 500, Tampa, Florida 33607. Submissions must include
your name and address, the number of shares of OSI common stock
you own, the name, age, business and residence addresses, and
principal occupation of the individual and a written statement
of the
180
individual that he or she is willing to be considered and is
willing to serve as a director if nominated and elected. You
must also include a description of any relationship, arrangement
and understanding between you and the individual, and any
relationship known to you between the individual and any
supplier or competitor of OSI. The Corporate Secretary will
review submissions for completeness and forward complete
submissions to the Chair of the Nominating and Corporate
Governance Committee.
PROVISIONS
FOR UNAFFILIATED STOCKHOLDERS
No provision has been made to grant unaffiliated stockholders
access to the corporate files of OSI, any other party to the
proposed merger or any of their respective affiliates or to
obtain counsel or appraisal services at the expense of OSI or
any other such party or affiliate.
FINANCIAL
FORECAST
We include in this proxy statement two forecasts concerning
total revenue, gross profit, earnings before interest, taxes,
depreciation and amortization (EBITDA), earnings
before interest and taxes (EBIT), net income and
earnings per share (EPS) only because they were
provided by our management to Wachovia Securities, Piper
Jaffray, Bain Capital and Catterton. The forecasts are as of
October 18, 2006. The forecasts were developed from
historical financial statements and do not give effect to any
changes or expenses or corporate borrowings as a result of the
merger or any other effects of the merger. The forecasts were
not prepared with a view toward public disclosure or compliance
with published guidelines of the SEC or the American Institute
of Certified Public Accountants for preparation and presentation
of prospective financial information or GAAP. The prospective
financial information included in this proxy statement has been
prepared by, and is the responsibility of, OSI management. Our
independent registered certified public accounting firm,
PricewaterhouseCoopers, has neither examined nor compiled this
prospective financial information and, accordingly,
PricewaterhouseCoopers does not express an opinion or any other
form of assurance with respect thereto. The report of
PricewaterhouseCoopers included in this proxy statement relates
to our historical financial statement information. It does not
extend to the prospective financial information and should not
be read to do so. In addition, Wachovia Securities, Piper
Jaffray, Bain Capital and Catterton did not prepare the included
forecasts and have no responsibility therefore. Those parties
may have changed some of the assumptions underlying the
forecasts for purposes of their analyses. Furthermore, the
forecasts:
|
|
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|
necessarily make numerous assumptions, many of which are beyond
the control of OSI and may not prove to have been, or may no
longer be, accurate;
|
|
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|
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|
do not necessarily reflect revised prospects for OSIs
business, changes in general business or economic conditions, or
any other transaction or event that has occurred or that may
occur and that was not anticipated at the time the projections
were prepared;
|
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|
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|
are not necessarily indicative of current values or future
performance, which may be significantly more favorable or less
favorable than as set forth below; and
|
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|
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|
should not be regarded as a representation that either forecast
will be achieved.
|
OSI believes the assumptions its management used as a basis for
the forecasts were reasonable at the time the forecasts were
prepared, given the information its management had at the time.
Neither forecast is a guarantee of performance. They involve
risks, uncertainties and assumptions. The future financial
results and stockholder value of OSI may materially differ from
those expressed in the forecasts due to factors that are beyond
OSIs ability to control or predict. We cannot assure you
that either forecast will be realized or that OSIs future
financial results will not materially vary from the forecasts.
Since the forecasts cover multiple years, such information by
its nature becomes less reliable with each successive year. The
forecasts do not take into account any circumstances or events
occurring after the date they were prepared. We do not intend to
update or revise the forecasts.
181
The forecasts are forward-looking statements. For information on
factors which may cause OSIs future financial results to
materially vary, see Cautionary Statement Regarding
Forward-Looking Statements on page 15. The forecasts
have been prepared using accounting policies consistent with our
annual and interim financial statements, with the exception of
revenue recognition for gift cards and certificates, as well as
any changes to those policies known to be effective in future
periods. The impact of changes to revenue recognition for gift
cards and certificates is not estimated to be material to the
forecasted period. The forecasts do not reflect the effect of
any proposed or other changes in GAAP that may be made in the
future. Any such changes could have a material impact to the
information shown below.
EBITDA and EBIT are not measures of performance under GAAP, and
should not be considered as alternatives to net income as a
measure of operating performance or cash flows or as a measure
of liquidity.
The forecast of OSI Restaurant Partners, Inc. on page 184
(the Base Forecast) is based on the following
assumptions related to the net number of new restaurants opened
per restaurant concept per year and comparable store sales
increases or decreases:
Net New
Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Outback Steakhouse Domestic
|
|
|
16
|
|
|
|
16
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Outback Steakhouse International
|
|
|
23
|
|
|
|
25
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
Carrabbas Italian Grill
|
|
|
29
|
|
|
|
12
|
|
|
|
15
|
|
|
|
20
|
|
|
|
25
|
|
|
|
25
|
|
Bonefish Grill
|
|
|
28
|
|
|
|
22
|
|
|
|
25
|
|
|
|
26
|
|
|
|
29
|
|
|
|
31
|
|
Flemings Steakhouse
|
|
|
6
|
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
|
|
5
|
|
|
|
5
|
|
Roys
|
|
|
3
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
Cheeseburger
|
|
|
14
|
|
|
|
7
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Selmons
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
Blue Coral
|
|
|
1
|
|
|
|
1
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net New Units
|
|
|
122
|
|
|
|
94
|
|
|
|
90
|
|
|
|
95
|
|
|
|
100
|
|
|
|
100
|
|
Comparable
Store Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Outback Steakhouse Domestic
|
|
|
(2.9
|
)%
|
|
|
(0.9
|
)%
|
|
|
1.4
|
%
|
|
|
2.9
|
%
|
|
|
3.2
|
%
|
|
|
2.8
|
%
|
Outback Steakhouse International
|
|
|
(8.5
|
)%
|
|
|
0.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Carrabbas Italian Grill
|
|
|
(1.6
|
)%
|
|
|
(1.0
|
)%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Bonefish Grill
|
|
|
0.8
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Flemings Steakhouse
|
|
|
3.7
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Roys
|
|
|
0.2
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Cheeseburger
|
|
|
(2.2
|
)%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selmons
|
|
|
0.8
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Blue Coral
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
OSIs management developed the Base Forecast based on the
following additional significant assumptions:
Revenues
|
|
|
|
|
Restaurants opening from 2007 through 2011 are open for one-half
of the year of opening.
|
|
|
|
|
|
Average unit volumes for units opening from 2007 through 2011
are consistent with average unit volumes for 2005 for the same
concept, except for Blue Coral, for which average unit volumes
are forecasted at $4 million annually.
|
182
|
|
|
|
|
Changes in comparable store sales from 2007 through 2011
represent anticipated changes in restaurant traffic only. No
changes in menu prices are built into the revenue forecast.
|
|
|
|
|
|
A significant contributor to Outback Steakhouse comparable store
sales is the anticipated success of a refurbishment
program designed to improve the customer experience and
create incremental traffic. From 2007 through 2011, a total of
620 restaurants will participate in this program as follows: 35
restaurants in 2007, 105 in 2008, 200 in 2009, 200 in 2010 and
80 in 2011. Growth in Outback Steakhouse concept comparable
store sales resulting from this program is assumed to be 0.1% in
2007, 0.4% in 2008, 0.9% in 2009, 1.2% in 2010 and 0.8% in 2011.
|
Expenses
|
|
|
|
|
In general, expenses as a percentage of sales are assumed to
remain flat from 2007 through 2011. The Base Forecast does not
include consideration of any external or internal factors that
could influence expenses, such as utility inflation or commodity
inflation or changes in the Companys menu prices, which
are assumed to offset each other. The following are significant
exceptions to the above statements concerning expenses:
|
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|
|
|
|
because changes in comparable store sales are based on
anticipated changes in traffic, fixed expense leverage is
assumed to increase or decrease and contribute to EBIT at
historical rates;
|
|
|
|
|
|
as part of the Outback Steakhouse productivity improvement
initiative that was implemented in late 2006, Outback Steakhouse
is forecasted to have a 1.25% expense reduction (as a percentage
of sales) in 2007 and a 2.0% expense reduction (as a percentage
of sales) from that for 2006 for each of the years from 2008
through 2011; and
|
|
|
|
|
|
a 0.5% increase in Outback Steakhouse marketing expenses (as a
percentage of sales) as compared to 2006 marketing expenses (as
a percentage of sales) for each year from 2007 through 2011.
|
|
|
|
|
|
Restaurant concept-level forecasts include direct operating
expenses for restaurant operations, including cost of sales,
labor (except as noted below), depreciation/amortization, other
restaurant operating expenses, and general and administrative
expenses separately incurred by each concept. A portion of
corporate-level general and administrative and overhead costs
are also allocated to each concept, and such costs include, but
are not limited to, information technology, real estate
development and construction, and purchasing expenses. Certain
compensation-related expenses are not included in the restaurant
concept-level forecasts and are instead included as
non-core
business entity expenses. These expenses include certain
expenses related to the cost of stock-based compensation under
FAS123R, expenses related to the issuance of restricted stock
and the conversion costs associated with the PEP.
|
|
|
|
|
|
Ongoing expenses related to the PEP and the Companys Long
Term Incentive Plan are included in the restaurant concept-level
forecasts.
|
|
|
|
|
|
Interest expense is based upon average interest rates as stated
in the Companys
Form 10-K/A
for the year ended December 31, 2005, which are held
constant throughout the Base Forecast period. Interest expense
is assumed to decline over the Base Forecast period as the
outstanding balance is paid down with cash generated from
operations. In addition, cash and cash equivalent balances are
assumed to be invested and earn interest at a rate of 3% over
the forecast period.
|
General
|
|
|
|
|
The Base Forecast does not reflect any expenses related to the
merger.
|
|
|
|
|
|
A Base Forecast is not included for Cheeseburger after 2007
because the potential effect of concept improvement efforts for
Cheeseburger was difficult to estimate at the time
managements Base Forecast was prepared.
|
|
|
|
|
|
No restaurants will be closed from 2007 through 2011.
|
|
|
|
|
|
The effective tax rate is assumed to be 31.5% over the Base
Forecast period.
|
183
|
|
|
|
|
Gross Profit is calculated as total revenues less cost of sales.
|
The following table sets forth the Base Forecast for OSI
Restaurant Partners, Inc. for the fiscal years ending
December 31, 2006 through December 31, 2011:
OSI
Restaurant Partners, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands, except per share amounts)
|
|
|
Total Revenue
|
|
$
|
3,912,298
|
|
|
$
|
4,243,059
|
|
|
$
|
4,436,242
|
|
|
$
|
4,813,961
|
|
|
$
|
5,217,542
|
|
|
$
|
5,622,321
|
|
Gross Profit
|
|
$
|
2,511,207
|
|
|
$
|
2,754,671
|
|
|
$
|
2,891,642
|
|
|
$
|
3,141,042
|
|
|
$
|
3,407,618
|
|
|
$
|
3,674,800
|
|
EBITDA
|
|
$
|
314,477
|
|
|
$
|
401,412
|
|
|
$
|
478,109
|
|
|
$
|
533,537
|
|
|
$
|
602,329
|
|
|
$
|
654,884
|
|
EBIT
|
|
$
|
164,438
|
|
|
$
|
235,912
|
|
|
$
|
304,789
|
|
|
$
|
350,990
|
|
|
$
|
405,309
|
|
|
$
|
443,787
|
|
Net Income
|
|
$
|
105,514
|
|
|
$
|
146,477
|
|
|
$
|
195,574
|
|
|
$
|
227,902
|
|
|
$
|
266,788
|
|
|
$
|
294,984
|
|
EPS
|
|
$
|
1.38
|
|
|
$
|
1.91
|
|
|
$
|
2.56
|
|
|
$
|
2.98
|
|
|
$
|
3.49
|
|
|
$
|
3.85
|
|
The Base Forecast for OSI Restaurant Partners, Inc. is based on
the following forecasts for each restaurant concept, plus
projected corporate general and administrative expenses:
Outback
Steakhouse Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
2,228,327
|
|
|
$
|
2,261,187
|
|
|
$
|
2,330,792
|
|
|
$
|
2,427,784
|
|
|
$
|
2,534,181
|
|
|
$
|
2,633,978
|
|
Gross Profit
|
|
$
|
1,376,981
|
|
|
$
|
1,419,696
|
|
|
$
|
1,477,156
|
|
|
$
|
1,538,427
|
|
|
$
|
1,605,640
|
|
|
$
|
1,668,683
|
|
EBITDA
|
|
$
|
247,439
|
|
|
$
|
260,892
|
|
|
$
|
298,430
|
|
|
$
|
316,211
|
|
|
$
|
345,794
|
|
|
$
|
358,028
|
|
EBIT
|
|
$
|
179,685
|
|
|
$
|
190,888
|
|
|
$
|
225,318
|
|
|
$
|
240,326
|
|
|
$
|
265,997
|
|
|
$
|
275,200
|
|
Outback
Steakhouse International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
330,228
|
|
|
$
|
419,039
|
|
|
$
|
492,346
|
|
|
$
|
558,921
|
|
|
$
|
627,146
|
|
|
$
|
695,624
|
|
Gross Profit
|
|
$
|
224,387
|
|
|
$
|
284,880
|
|
|
$
|
334,996
|
|
|
$
|
380,566
|
|
|
$
|
427,576
|
|
|
$
|
474,626
|
|
EBITDA
|
|
$
|
49,270
|
|
|
$
|
65,016
|
|
|
$
|
80,433
|
|
|
$
|
94,131
|
|
|
$
|
109,231
|
|
|
$
|
124,041
|
|
EBIT
|
|
$
|
32,105
|
|
|
$
|
43,936
|
|
|
$
|
55,678
|
|
|
$
|
68,417
|
|
|
$
|
81,794
|
|
|
$
|
94,950
|
|
Carrabbas
Italian Grill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
646,643
|
|
|
$
|
698,142
|
|
|
$
|
742,858
|
|
|
$
|
799,210
|
|
|
$
|
870,094
|
|
|
$
|
948,635
|
|
Gross Profit
|
|
$
|
437,536
|
|
|
$
|
472,379
|
|
|
$
|
502,633
|
|
|
$
|
540,760
|
|
|
$
|
588,719
|
|
|
$
|
641,859
|
|
EBITDA
|
|
$
|
55,209
|
|
|
$
|
64,543
|
|
|
$
|
71,989
|
|
|
$
|
78,229
|
|
|
$
|
85,336
|
|
|
$
|
94,245
|
|
EBIT
|
|
$
|
27,792
|
|
|
$
|
35,279
|
|
|
$
|
40,716
|
|
|
$
|
45,565
|
|
|
$
|
50,166
|
|
|
$
|
56,135
|
|
184
Bonefish
Grill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
314,873
|
|
|
$
|
392,800
|
|
|
$
|
467,084
|
|
|
$
|
548,082
|
|
|
$
|
635,892
|
|
|
$
|
732,055
|
|
Gross Profit
|
|
$
|
201,086
|
|
|
$
|
250,792
|
|
|
$
|
298,175
|
|
|
$
|
349,841
|
|
|
$
|
405,851
|
|
|
$
|
467,190
|
|
EBITDA
|
|
$
|
25,148
|
|
|
$
|
36,389
|
|
|
$
|
44,657
|
|
|
$
|
54,281
|
|
|
$
|
64,927
|
|
|
$
|
77,171
|
|
EBIT
|
|
$
|
14,630
|
|
|
$
|
23,360
|
|
|
$
|
29,241
|
|
|
$
|
37,769
|
|
|
$
|
46,131
|
|
|
$
|
55,697
|
|
Flemings
Steakhouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
189,459
|
|
|
$
|
219,805
|
|
|
$
|
254,207
|
|
|
$
|
287,068
|
|
|
$
|
314,541
|
|
|
$
|
336,630
|
|
Gross Profit
|
|
$
|
128,229
|
|
|
$
|
148,701
|
|
|
$
|
171,909
|
|
|
$
|
194,076
|
|
|
$
|
212,610
|
|
|
$
|
227,512
|
|
EBITDA
|
|
$
|
20,896
|
|
|
$
|
26,613
|
|
|
$
|
30,887
|
|
|
$
|
34,639
|
|
|
$
|
38,574
|
|
|
$
|
40,927
|
|
EBIT
|
|
$
|
12,729
|
|
|
$
|
17,069
|
|
|
$
|
19,951
|
|
|
$
|
23,054
|
|
|
$
|
25,957
|
|
|
$
|
27,531
|
|
Roys
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
82,080
|
|
|
$
|
90,464
|
|
|
$
|
98,971
|
|
|
$
|
111,334
|
|
|
$
|
123,822
|
|
|
$
|
134,529
|
|
Gross Profit
|
|
$
|
59,272
|
|
|
$
|
65,327
|
|
|
$
|
71,470
|
|
|
$
|
80,398
|
|
|
$
|
89,416
|
|
|
$
|
97,148
|
|
EBITDA
|
|
$
|
3,507
|
|
|
$
|
5,474
|
|
|
$
|
5,836
|
|
|
$
|
6,865
|
|
|
$
|
7,863
|
|
|
$
|
8,946
|
|
EBIT
|
|
$
|
(380
|
)
|
|
$
|
1,345
|
|
|
$
|
1,448
|
|
|
$
|
2,254
|
|
|
$
|
2,677
|
|
|
$
|
3,288
|
|
Cheeseburger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
99,538
|
|
|
$
|
131,909
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Gross Profit
|
|
$
|
68,723
|
|
|
$
|
91,534
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
EBITDA
|
|
$
|
(11,641
|
)
|
|
$
|
(761
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
EBIT
|
|
$
|
(17,486
|
)
|
|
$
|
(7,729
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Selmons
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
14,356
|
|
|
$
|
19,280
|
|
|
$
|
27,479
|
|
|
$
|
38,920
|
|
|
$
|
48,888
|
|
|
$
|
57,351
|
|
Gross Profit
|
|
$
|
9,588
|
|
|
$
|
12,799
|
|
|
$
|
18,242
|
|
|
$
|
25,838
|
|
|
$
|
32,455
|
|
|
$
|
38,073
|
|
EBITDA
|
|
$
|
(782
|
)
|
|
$
|
487
|
|
|
$
|
939
|
|
|
$
|
1,786
|
|
|
$
|
3,128
|
|
|
$
|
4,231
|
|
EBIT
|
|
$
|
(1,563
|
)
|
|
$
|
(755
|
)
|
|
$
|
(774
|
)
|
|
$
|
(156
|
)
|
|
$
|
790
|
|
|
$
|
1,534
|
|
185
Blue
Coral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands)
|
|
|
Total Revenue
|
|
$
|
2,384
|
|
|
$
|
6,022
|
|
|
$
|
18,095
|
|
|
$
|
38,231
|
|
|
$
|
58,568
|
|
|
$
|
79,108
|
|
Gross Profit
|
|
$
|
1,462
|
|
|
$
|
4,151
|
|
|
$
|
12,650
|
|
|
$
|
26,725
|
|
|
$
|
40,940
|
|
|
$
|
55,298
|
|
EBITDA
|
|
$
|
(3,086
|
)
|
|
$
|
(1,839
|
)
|
|
$
|
(1,655
|
)
|
|
$
|
1,155
|
|
|
$
|
3,311
|
|
|
$
|
5,865
|
|
EBIT
|
|
$
|
(3,201
|
)
|
|
$
|
(2,079
|
)
|
|
$
|
(2,381
|
)
|
|
$
|
(379
|
)
|
|
$
|
943
|
|
|
$
|
2,663
|
|
Because of the challenges involved in achieving the Base
Forecast, management developed an alternative conservative
growth view of the Base Forecast (the Downside
Forecast). The Downside Forecast represents another
outcome for OSI that could reasonably be expected to occur. The
Downside Forecast is based on the same assumptions as the Base
Forecast except for the following differences:
|
|
|
|
|
Lower comparable store sales in Outback Steakhouse Domestic,
Outback Steakhouse International and Carrabbas Italian
Grill restaurants. The comparable store sales assumptions in the
Downside Forecast are detailed below:
|
Comparable
Store Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Outback Steakhouse Domestic
|
|
|
(2.9
|
)%
|
|
|
(3.0
|
)%
|
|
|
0.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Outback Steakhouse International
|
|
|
(8.5
|
)%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Carrabbas Italian Grill
|
|
|
(1.6
|
)%
|
|
|
(3.0
|
)%
|
|
|
0.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Bonefish Grill
|
|
|
0.8
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Flemings Steakhouse
|
|
|
3.7
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Roys
|
|
|
0.2
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Cheeseburger
|
|
|
(2.2
|
)%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selmons
|
|
|
0.8
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Blue Coral
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
The benefits of the Outback Steakhouse Domestic
refurbishment program designed to improve the
customer experience and increase traffic are not included in the
2007 through 2011 forecast period. The growth in comparable
store sales that would result from this program is therefore not
included in the Downside Forecast. However, capital expenditures
of $15 million in 2007 and $33 million in 2008 are
included to reflect the capital expenditures planned as part of
the program, which has a negative impact on earnings due to
increased depreciation expense.
|
|
|
|
|
|
The Outback Steakhouse Domestic productivity improvement
initiative is forecasted to have a 0.5% expense reduction (as a
percentage of sales) in 2007 and 2008, and a 1.0% expense
reduction (as a percentage of sales) in 2009 through 2011 from
that in 2006. These projections are reduced from the Base
Forecast which assumes a 2.0% expense reduction (as a percentage
of sales) from that in 2006 beginning in 2008.
|
186
The following table sets forth the Downside Forecast for OSI
Restaurant Partners, Inc. for the fiscal years ending
December 31, 2006 through December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands, except per share amounts)
|
|
|
Total Revenue
|
|
$
|
3,912,298
|
|
|
$
|
4,184,835
|
|
|
$
|
4,335,648
|
|
|
$
|
4,667,482
|
|
|
$
|
5,016,284
|
|
|
$
|
5,373,400
|
|
Gross Profit
|
|
$
|
2,511,207
|
|
|
$
|
2,704,410
|
|
|
$
|
2,800,203
|
|
|
$
|
3,029,155
|
|
|
$
|
3,260,701
|
|
|
$
|
3,497,345
|
|
EBITDA
|
|
$
|
314,477
|
|
|
$
|
367,769
|
|
|
$
|
425,145
|
|
|
$
|
485,297
|
|
|
$
|
544,379
|
|
|
$
|
591,023
|
|
EBIT
|
|
$
|
164,438
|
|
|
$
|
202,269
|
|
|
$
|
251,825
|
|
|
$
|
304,399
|
|
|
$
|
352,309
|
|
|
$
|
387,177
|
|
Net Income
|
|
$
|
105,514
|
|
|
$
|
122,862
|
|
|
$
|
157,867
|
|
|
$
|
194,286
|
|
|
$
|
228,909
|
|
|
$
|
254,128
|
|
EPS
|
|
$
|
1.38
|
|
|
$
|
1.61
|
|
|
$
|
2.06
|
|
|
$
|
2.54
|
|
|
$
|
2.99
|
|
|
$
|
3.32
|
|
Earlier
Versions of Forecasts
As noted above, the foregoing forecasts are as of
October 18, 2006. However, in connection with presentations
made by Wachovia Securities to the members of the special
committee on August 18, 2006, September 15, 2006 and
October 9, 2006, OSI had prepared and provided to Wachovia
Securities earlier versions of the forecasts. The following
table shows the earlier versions of the forecasts for the line
items shown, and the related discussion describes the material
changes in assumptions and other factors that led to the
revisions of the forecasts.
Changes to August 18, 2006 Base
Forecast. The Base Forecast provided to and used
by Wachovia Securities for its presentation at the
September 15, 2006 special committee meeting reflected
changes from the forecast presented on August 18 as a result of
the following material factors (no Downside Forecast was
presented on August 18):
|
|
|
|
|
OSIs actual results for July 2006 and managements
revised outlook for the balance of 2006 were incorporated into
managements 2006 full year estimate, resulting in a
$1.4 million reduction in forecasted 2006 net income,
driven primarily by a reduction in the comparable store sales
estimate for Outback (−3.0% to −3.5%). This
reduction was partially offset by an improvement in estimated
2006 comparable store sales for Carrabbas (−2.0% to
−1.6%), Bonefish (0.8% to 1.0%) and Flemings (2.0%
to 3.9%). These comparable store sales changes impacted the 2006
sales base and therefore impact sales and earnings throughout
the forecast period.
|
|
|
|
|
|
The depreciable lives of the assets in OSIs refurbishment
program were reduced from an average of 14 to 10 years,
resulting in an increase in depreciation expense throughout the
forecast period and a resulting decrease in forecasted earnings
in 2007 through 2011.
|
Changes to September 15, 2006 Base and Downside
Forecasts. The Base Forecast provided to and used
by Wachovia Securities for its presentation at the
October 9, 2006 special committee meeting reflected changes
from the forecast presented on September 15 as a result of
the following material factors:
|
|
|
|
|
Comparable store sales growth assumptions for domestic Outback
Steakhouses were revised to fully reflect the estimated benefits
of OSIs refurbishment plan. These revisions included
increases in estimated comparable store sales for domestic
Outback Steakhouses of 0.1% in 2007, 0.4% in 2008, 0.9% in 2009,
1.2% in 2010 and 0.8% in 2011. These comparable store sales
changes impact the sales base throughout the forecast period and
therefore impact sales and earnings throughout the forecast
period.
|
|
|
|
|
|
The timing and amount of capital expenditures for the Outback
refurbishment plan were changed to $15 million in 2007,
$33 million in each of 2008 through 2010 and
$13 million in 2011, from $15 million in 2007,
$35 million in 2008, $60 million in 2009,
$65 million in 2010 and $0 in 2011. These changes increased
profitability for 2008 through 2011 by decreasing depreciation
expense in the forecast period.
|
|
|
|
|
|
Comparable store sales estimates were increased for domestic
Outback Steakhouses in 2006 (−3.5% to −2.9%) and
2007 (−2.0% to −0.9%) and Carrabbas in 2008
(−2.0% to −1.0%). Comparable store sales assumptions
for Outback International in 2006 were lowered (from −5.0%
to −8.0%) to reflect a declining
|
187
|
|
|
|
|
trend in the business but were raised in 2008 (from 0.0% to
1.0%) based on managements revised expectations. In
addition, comparable store sales estimates for 2006 decreased
slightly for Bonefish (1.0% to 0.8%) and Flemings (3.9% to
3.7%). These comparable store sales changes impact the sales
base throughout the forecast period and therefore impact
earnings throughout the forecast period.
|
|
|
|
|
|
The impact of Outback Steakhouses efficiency initiative
was changed from a cumulative expense reduction (as a percentage
of sales) for Outback Steakhouse of 0.5% in 2007, 1.0% in 2008
and 2.0% in 2009 through 2011 to 1.25% in 2007 and 2.0% in 2008
through 2011.
|
|
|
|
|
|
Operating expense trends for 2006 were updated to reflect an
improved outlook in cost of goods sold as a percentage of
revenues and anticipated higher operating expenses.
|
|
|
|
|
|
The impact of Cheeseburger was removed from the forecast for the
periods 2008 to 2011, which reduced EBITDA for each of those
years.
|
|
|
|
|
|
The 2006 new unit opening projection was updated to reflect
seven fewer projected openings. The 2007 new unit openings were
reduced by one. The reduction in new unit openings reduced sales
and earnings throughout the forecast period.
|
The Downside Forecast provided to and used by Wachovia
Securities for its presentation at the October 9, 2006
special committee meeting reflected changes from the Downside
Forecast presented on September 15, 2006 as a result of the
following material factors:
|
|
|
|
|
The impact of the Outback refurbishment plan was changed to
reflect a discontinuation of that plan from 2009 to 2011 based
on managements view that, if the plan did not result in
incremental returns, it would be cancelled after 2008. No
incremental comparable store sales for the refurbishment program
had been built into the Downside Forecast, as a result of which
the only impact to profitability was lower depreciation expenses.
|
|
|
|
|
|
Comparable store sales estimates for domestic Outback
Steakhouses in 2006 were increased (−3.5% to −2.9%).
Comparable store sales estimates for 2006 Outback International
were lowered (−5.0% to −8.0%) to reflect a declining
trend in the business, and 2006 comparable store sales estimates
were lowered slightly for Bonefish (1.0% to 0.8%) and
Flemings (3.9% to 3.7%). These revisions in comparable
store sales estimates impact the 2006 sales base and therefore
impact earnings throughout the forecast period.
|
|
|
|
|
|
Operating expense trends for 2006 were updated to reflect an
improved outlook in cost of goods sold as a percentage of sales
and anticipated higher operating expenses.
|
|
|
|
|
|
The impact of Cheeseburger was removed from the forecast for the
periods 2008 to 2011, which reduced EBITDA for each of those
years.
|
|
|
|
|
|
The 2006 new unit opening projection was updated to reflect
seven fewer projected openings. The 2007 new unit openings were
reduced by one. The reduction in new unit openings reduced sales
and earnings throughout the forecast period.
|
Changes to October 9, 2006 Base and Downside
Forecasts. The final October 18, 2006 Base
and Downside Forecasts provided to and used by Wachovia
Securities and Piper Jaffray for their presentations to the
special committee on October 29, 2006 and November 5,
2006 reflected changes from the forecasts presented on October 9
as a result of the following material factors:
|
|
|
|
|
Sales and operating expense trends were updated with preliminary
September 2006 results and a revised outlook for the balance of
2006. The changes were primarily driven by lower EBITDA
forecasts for Outback International and Cheeseburger. In
addition, comparable store sales assumptions for Outback
International in 2006 were lowered (from −8.0% to
−8.5%) to reflect a declining trend in the business.
|
188
The following table sets forth a comparison of the different
versions of the Base Forecast for OSI for the fiscal years
ending December 31, 2006 through December 31, 2011:
Comparison
of Financial Forecasts Base Forecast
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands, except per share amounts)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 18, 2006 Presentation
|
|
$
|
3,905,676
|
|
|
$
|
4,219,237
|
|
|
$
|
4,545,646
|
|
|
$
|
4,901,955
|
|
|
$
|
5,276,215
|
|
|
$
|
5,659,797
|
|
September 15, 2006 Presentation
|
|
$
|
3,892,411
|
|
|
$
|
4,206,559
|
|
|
$
|
4,532,834
|
|
|
$
|
4,888,897
|
|
|
$
|
5,262,906
|
|
|
$
|
5,646,233
|
|
October 9, 2006 Presentation
|
|
$
|
3,900,521
|
|
|
$
|
4,231,096
|
|
|
$
|
4,424,324
|
|
|
$
|
4,801,669
|
|
|
$
|
5,204,829
|
|
|
$
|
5,609,228
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
3,912,298
|
|
|
$
|
4,243,059
|
|
|
$
|
4,436,242
|
|
|
$
|
4,813,961
|
|
|
$
|
5,217,542
|
|
|
$
|
5,622,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 18, 2006 Presentation
|
|
$
|
2,503,167
|
|
|
$
|
2,721,945
|
|
|
$
|
2,947,027
|
|
|
$
|
3,200,620
|
|
|
$
|
3,448,332
|
|
|
$
|
3,701,757
|
|
September 15, 2006 Presentation
|
|
$
|
2,495,551
|
|
|
$
|
2,714,963
|
|
|
$
|
2,940,011
|
|
|
$
|
3,193,463
|
|
|
$
|
3,441,158
|
|
|
$
|
3,694,587
|
|
October 9, 2006 Presentation
|
|
$
|
2,504,505
|
|
|
$
|
2,747,281
|
|
|
$
|
2,884,143
|
|
|
$
|
3,133,253
|
|
|
$
|
3,399,512
|
|
|
$
|
3,666,403
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
2,511,207
|
|
|
$
|
2,754,671
|
|
|
$
|
2,891,642
|
|
|
$
|
3,141,042
|
|
|
$
|
3,407,618
|
|
|
$
|
3,674,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 18, 2006 Presentation
|
|
$
|
332,467
|
|
|
$
|
381,994
|
|
|
$
|
462,315
|
|
|
$
|
541,887
|
|
|
$
|
606,530
|
|
|
$
|
657,584
|
|
September 15, 2006 Presentation
|
|
$
|
327,845
|
|
|
$
|
375,085
|
|
|
$
|
454,877
|
|
|
$
|
534,380
|
|
|
$
|
598,969
|
|
|
$
|
650,048
|
|
October 9, 2006 Presentation
|
|
$
|
325,518
|
|
|
$
|
399,903
|
|
|
$
|
476,683
|
|
|
$
|
532,191
|
|
|
$
|
600,947
|
|
|
$
|
653,536
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
314,477
|
|
|
$
|
401,412
|
|
|
$
|
478,109
|
|
|
$
|
533,537
|
|
|
$
|
602,329
|
|
|
$
|
654,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 18, 2006 Presentation
|
|
$
|
182,830
|
|
|
$
|
216,729
|
|
|
$
|
282,433
|
|
|
$
|
352,572
|
|
|
$
|
401,615
|
|
|
$
|
439,080
|
|
September 15, 2006 Presentation
|
|
$
|
178,156
|
|
|
$
|
209,656
|
|
|
$
|
274,141
|
|
|
$
|
342,856
|
|
|
$
|
390,061
|
|
|
$
|
426,622
|
|
October 9, 2006 Presentation
|
|
$
|
175,402
|
|
|
$
|
234,206
|
|
|
$
|
303,064
|
|
|
$
|
349,341
|
|
|
$
|
403,624
|
|
|
$
|
442,142
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
164,438
|
|
|
$
|
235,912
|
|
|
$
|
304,789
|
|
|
$
|
350,990
|
|
|
$
|
405,309
|
|
|
$
|
443,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 18, 2006 Presentation
|
|
$
|
115,232
|
|
|
$
|
132,775
|
|
|
$
|
179,524
|
|
|
$
|
228,173
|
|
|
$
|
262,986
|
|
|
$
|
290,402
|
|
September 15, 2006 Presentation
|
|
$
|
113,820
|
|
|
$
|
127,838
|
|
|
$
|
173,653
|
|
|
$
|
221,267
|
|
|
$
|
254,728
|
|
|
$
|
281,431
|
|
October 9, 2006 Presentation
|
|
$
|
111,578
|
|
|
$
|
145,298
|
|
|
$
|
194,393
|
|
|
$
|
226,788
|
|
|
$
|
265,670
|
|
|
$
|
293,921
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
105,514
|
|
|
$
|
146,477
|
|
|
$
|
195,574
|
|
|
$
|
227,902
|
|
|
$
|
266,788
|
|
|
$
|
294,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 18, 2006 Presentation
|
|
$
|
1.51
|
|
|
$
|
1.75
|
|
|
$
|
2.37
|
|
|
$
|
3.01
|
|
|
$
|
3.47
|
|
|
$
|
3.83
|
|
September 15, 2006 Presentation
|
|
$
|
1.49
|
|
|
$
|
1.68
|
|
|
$
|
2.29
|
|
|
$
|
2.92
|
|
|
$
|
3.36
|
|
|
$
|
3.71
|
|
October 9, 2006 Presentation
|
|
$
|
1.46
|
|
|
$
|
1.90
|
|
|
$
|
2.54
|
|
|
$
|
2.96
|
|
|
$
|
3.47
|
|
|
$
|
3.84
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
1.38
|
|
|
$
|
1.91
|
|
|
$
|
2.56
|
|
|
$
|
2.98
|
|
|
$
|
3.49
|
|
|
$
|
3.85
|
|
189
The following table sets forth a comparison of the different
versions of the Downside Forecast for OSI for the fiscal years
ending December 31, 2006 through December 31, 2011:
Comparison
of Financial Forecasts Downside Forecast
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Fiscal Year Ending December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
($ in thousands, except per share amounts)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2006 Presentation
|
|
$
|
3,892,411
|
|
|
$
|
4,178,986
|
|
|
$
|
4,476,789
|
|
|
$
|
4,810,032
|
|
|
$
|
5,160,258
|
|
|
$
|
5,518,812
|
|
October 9, 2006 Presentation
|
|
$
|
3,900,521
|
|
|
$
|
4,173,160
|
|
|
$
|
4,324,186
|
|
|
$
|
4,655,904
|
|
|
$
|
5,004,590
|
|
|
$
|
5,361,589
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
3,912,298
|
|
|
$
|
4,184,835
|
|
|
$
|
4,335,648
|
|
|
$
|
4,667,482
|
|
|
$
|
5,016,284
|
|
|
$
|
5,373,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2006 Presentation
|
|
$
|
2,495,551
|
|
|
$
|
2,697,568
|
|
|
$
|
2,895,660
|
|
|
$
|
3,125,181
|
|
|
$
|
3,357,470
|
|
|
$
|
3,594,864
|
|
October 9, 2006 Presentation
|
|
$
|
2,504,505
|
|
|
$
|
2,697,265
|
|
|
$
|
2,793,129
|
|
|
$
|
3,021,898
|
|
|
$
|
3,253,312
|
|
|
$
|
3,489,823
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
2,511,207
|
|
|
$
|
2,704,410
|
|
|
$
|
2,800,203
|
|
|
$
|
3,029,155
|
|
|
$
|
3,260,701
|
|
|
$
|
3,497,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2006 Presentation
|
|
$
|
327,845
|
|
|
$
|
367,197
|
|
|
$
|
432,565
|
|
|
$
|
498,731
|
|
|
$
|
559,166
|
|
|
$
|
606,231
|
|
October 9, 2006 Presentation
|
|
$
|
325,518
|
|
|
$
|
366,434
|
|
|
$
|
424,033
|
|
|
$
|
484,258
|
|
|
$
|
543,383
|
|
|
$
|
590,130
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
314,477
|
|
|
$
|
367,769
|
|
|
$
|
425,145
|
|
|
$
|
485,297
|
|
|
$
|
544,379
|
|
|
$
|
591,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2006 Presentation
|
|
$
|
178,156
|
|
|
$
|
201,768
|
|
|
$
|
251,829
|
|
|
$
|
307,208
|
|
|
$
|
350,258
|
|
|
$
|
382,806
|
|
October 9, 2006 Presentation
|
|
$
|
175,402
|
|
|
$
|
200,737
|
|
|
$
|
250,414
|
|
|
$
|
303,058
|
|
|
$
|
351,010
|
|
|
$
|
385,986
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
164,438
|
|
|
$
|
202,269
|
|
|
$
|
251,825
|
|
|
$
|
304,399
|
|
|
$
|
352,309
|
|
|
$
|
387,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2006 Presentation
|
|
$
|
113,820
|
|
|
$
|
122,294
|
|
|
$
|
157,819
|
|
|
$
|
195,920
|
|
|
$
|
226,129
|
|
|
$
|
249,440
|
|
October 9, 2006 Presentation
|
|
$
|
111,578
|
|
|
$
|
121,804
|
|
|
$
|
156,920
|
|
|
$
|
193,404
|
|
|
$
|
228,072
|
|
|
$
|
253,397
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
105,514
|
|
|
$
|
122,862
|
|
|
$
|
157,867
|
|
|
$
|
194,286
|
|
|
$
|
228,909
|
|
|
$
|
254,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2006 Presentation
|
|
$
|
1.49
|
|
|
$
|
1.61
|
|
|
$
|
2.08
|
|
|
$
|
2.58
|
|
|
$
|
2.98
|
|
|
$
|
3.29
|
|
October 9, 2006 Presentation
|
|
$
|
1.46
|
|
|
$
|
1.59
|
|
|
$
|
2.05
|
|
|
$
|
2.53
|
|
|
$
|
2.98
|
|
|
$
|
3.31
|
|
October 18, 2006 (Final)
Forecast
|
|
$
|
1.38
|
|
|
$
|
1.61
|
|
|
$
|
2.06
|
|
|
$
|
2.54
|
|
|
$
|
2.99
|
|
|
$
|
3.32
|
|
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
reports, proxy statements or other information that we file with
the SEC at its Public Reference Room, 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms. You may
also obtain copies of this information by mail from the Public
Reference Section of the SEC, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. Our public
filings are also available to the public from document retrieval
services and the Internet website maintained by the SEC at
www.sec.gov.
Reports, proxy statements or other information concerning us may
also be inspected at the offices of the NYSE at 20 Broad
Street, New York, NY 10005.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of this proxy
statement and any other information concerning us, without
charge, by written or telephonic request directed to us at OSI
Restaurant Partners, Inc., 2202 North West Shore Boulevard,
Suite 500, Tampa, Florida 33607, Attention: Investor
Relations, Telephone:
(813) 282-1225.
Information concerning us can also be obtained through our
website (www.osirestaurantpartners.com) or from the SEC through
the SECs website at the address provided
190
above. The information contained on our website is not part of,
or incorporated into, this proxy statement. If you would like to
request documents, please do so by April 18, 2007 in order
to receive them before the special meeting.
We have supplied all information in this proxy statement
relating to us and our subsidiaries, and each of the OSI
Investors has supplied all information in this proxy relating to
such individuals position concerning the transaction and
his relationship with Parent. Parent has supplied all such
information relating to Parent and Merger Sub.
This proxy statement does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any offer or
solicitation in that jurisdiction.
No persons have been authorized to give any information or to
make any representations other than those contained in this
proxy statement and, if given or made, such information or
representations must not be relied upon as having been
authorized by us or any other person. This proxy statement is
dated March 30, 2007. You should not assume that the
information contained in this proxy statement is accurate as of
any date other than that date, and the mailing of this proxy
statement to stockholders shall not create any implication to
the contrary.
191
ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
among
KANGAROO HOLDINGS, INC.,
KANGAROO ACQUISITION, INC.
and
OSI RESTAURANT PARTNERS, INC.
Dated as of November 5, 2006
Table
of Contents
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE I
THE MERGER
|
Section 1.1
|
|
The Merger
|
|
|
A-1
|
|
Section 1.2
|
|
Closing
|
|
|
A-1
|
|
Section 1.3
|
|
Effective Time
|
|
|
A-1
|
|
Section 1.4
|
|
Effects of the Merger
|
|
|
A-2
|
|
Section 1.5
|
|
Certificate of Incorporation and
Bylaws of the Surviving Corporation
|
|
|
A-2
|
|
Section 1.6
|
|
Directors
|
|
|
A-2
|
|
Section 1.7
|
|
Officers
|
|
|
A-2
|
|
|
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
|
Section 2.1
|
|
Effect on Capital Stock
|
|
|
A-2
|
|
Section 2.2
|
|
Exchange of Certificates
|
|
|
A-4
|
|
|
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
Section 3.1
|
|
Qualification, Organization,
Subsidiaries, etc.
|
|
|
A-6
|
|
Section 3.2
|
|
Capital Stock
|
|
|
A-7
|
|
Section 3.3
|
|
Corporate Authority Relative to
This Agreement; No Violation
|
|
|
A-8
|
|
Section 3.4
|
|
Reports and Financial Statements
|
|
|
A-9
|
|
Section 3.5
|
|
Internal Controls and Procedures
|
|
|
A-9
|
|
Section 3.6
|
|
No Undisclosed Liabilities
|
|
|
A-10
|
|
Section 3.7
|
|
Compliance with Law; Permits
|
|
|
A-10
|
|
Section 3.8
|
|
Environmental Laws and Regulations
|
|
|
A-10
|
|
Section 3.9
|
|
Employee Benefit Plans
|
|
|
A-11
|
|
Section 3.10
|
|
Absence of Certain Changes or
Events
|
|
|
A-12
|
|
Section 3.11
|
|
Investigations; Litigation
|
|
|
A-12
|
|
Section 3.12
|
|
Schedule 13E-3/Proxy
Statement; Other Information
|
|
|
A-12
|
|
Section 3.13
|
|
Tax Matters
|
|
|
A-13
|
|
Section 3.14
|
|
Labor Matters
|
|
|
A-13
|
|
Section 3.15
|
|
Intellectual Property
|
|
|
A-14
|
|
Section 3.16
|
|
Real Property
|
|
|
A-14
|
|
Section 3.17
|
|
Opinion of Financial Advisor
|
|
|
A-15
|
|
Section 3.18
|
|
Required Vote of the Company
Stockholders
|
|
|
A-15
|
|
Section 3.19
|
|
Material Contracts
|
|
|
A-15
|
|
Section 3.20
|
|
Finders or Brokers
|
|
|
A-15
|
|
Section 3.21
|
|
Insurance
|
|
|
A-16
|
|
Section 3.22
|
|
Takeover Statutes
|
|
|
A-16
|
|
Section 3.23
|
|
Affiliate Transactions
|
|
|
A-16
|
|
Section 3.24
|
|
Indebtedness
|
|
|
A-16
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB
|
Section 4.1
|
|
Qualification; Organization,
Subsidiaries, etc.
|
|
|
A-16
|
|
Section 4.2
|
|
Corporate Authority Relative to
This Agreement; No Violation
|
|
|
A-17
|
|
Section 4.3
|
|
Investigations; Litigation
|
|
|
A-17
|
|
Section 4.4
|
|
Schedule 13E-3/Proxy
Statement; Other Information
|
|
|
A-17
|
|
Section 4.5
|
|
Financing
|
|
|
A-18
|
|
Section 4.6
|
|
Capitalization of Merger Sub
|
|
|
A-18
|
|
Section 4.7
|
|
No Vote of Parent Stockholders
|
|
|
A-18
|
|
Section 4.8
|
|
Finders or Brokers
|
|
|
A-19
|
|
Section 4.9
|
|
Lack of Ownership of Company
Common Stock
|
|
|
A-19
|
|
Section 4.10
|
|
Interest in Competitors
|
|
|
A-19
|
|
Section 4.11
|
|
WARN Act
|
|
|
A-19
|
|
Section 4.12
|
|
No Additional Representations
|
|
|
A-19
|
|
Section 4.13
|
|
Solvency
|
|
|
A-19
|
|
Section 4.14
|
|
Management Agreements
|
|
|
A-20
|
|
|
ARTICLE V
CERTAIN AGREEMENTS
|
Section 5.1
|
|
Conduct of Business by the Company
and Parent
|
|
|
A-20
|
|
Section 5.2
|
|
Investigation
|
|
|
A-23
|
|
Section 5.3
|
|
No Solicitation
|
|
|
A-23
|
|
Section 5.4
|
|
Filings; Other Actions
|
|
|
A-25
|
|
Section 5.5
|
|
Stock Options and Other
Stock-Based Awards; Employee Matters
|
|
|
A-26
|
|
Section 5.6
|
|
Reasonable Best Efforts
|
|
|
A-28
|
|
Section 5.7
|
|
Takeover Statute
|
|
|
A-30
|
|
Section 5.8
|
|
Public Announcements
|
|
|
A-30
|
|
Section 5.9
|
|
Indemnification and Insurance
|
|
|
A-30
|
|
Section 5.10
|
|
Control of Operations
|
|
|
A-31
|
|
Section 5.11
|
|
Financing
|
|
|
A-31
|
|
|
ARTICLE VI
CONDITIONS TO THE MERGER
|
Section 6.1
|
|
Conditions to Each Partys
Obligation to Effect the Merger
|
|
|
A-33
|
|
Section 6.2
|
|
Conditions to Obligation of the
Company to Effect the Merger
|
|
|
A-33
|
|
Section 6.3
|
|
Conditions to Obligation of Parent
to Effect the Merger
|
|
|
A-33
|
|
Section 6.4
|
|
Frustration of Closing Conditions
|
|
|
A-34
|
|
|
ARTICLE VII
TERMINATION
|
Section 7.1
|
|
Termination or Abandonment
|
|
|
A-34
|
|
Section 7.2
|
|
Termination Fees
|
|
|
A-35
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE VIII
MISCELLANEOUS
|
Section 8.1
|
|
No Survival of Representations and
Warranties
|
|
|
A-37
|
|
Section 8.2
|
|
Expenses
|
|
|
A-37
|
|
Section 8.3
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Counterparts; Effectiveness
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Section 8.4
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Governing Law
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Section 8.5
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Jurisdiction; Enforcement
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Section 8.6
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WAIVER OF JURY TRIAL
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Section 8.7
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Notices
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Section 8.8
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Assignment; Binding Effect
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Section 8.9
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Severability
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Section 8.10
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Entire Agreement; No Third-Party
Beneficiaries
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Section 8.11
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Amendments; Waivers
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Section 8.12
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Headings
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Section 8.13
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Interpretation
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Section 8.14
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Definitions
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A-iii
AGREEMENT AND PLAN OF MERGER, dated as of
November 5, 2006 (this Agreement), among
Kangaroo Holdings, Inc., a Delaware corporation
(Parent), Kangaroo Acquisition, Inc., a
Delaware corporation and a direct wholly owned subsidiary of
Parent (Merger Sub), and OSI Restaurant
Partners, Inc., a Delaware corporation (the
Company).
WHEREAS, a committee (the Special Committee)
of the board of directors of the Company (the Board of
Directors) formed for the purpose of, among other
matters, evaluating and making a recommendation to the full
Board of Directors with respect to the merger of Merger Sub with
and into the Company (the Merger) upon the
terms and subject to the conditions set forth in this Agreement
in accordance with the General Corporation Law of the State of
Delaware (the DGCL) has determined, and the
Board of Directors has determined, that it is in the best
interests of the Company and its stockholders, and declared it
advisable, to enter into this Agreement with Parent and Merger
Sub providing for the Merger, upon the terms and subject to the
conditions set forth in this Agreement, and each of the Special
Committee and the Board of Directors has, as of the date of this
Agreement, approved and adopted this Agreement in accordance
with the DGCL, upon the terms and subject to the conditions set
forth in this Agreement, and recommended its approval and
adoption by the stockholders of the Company;
WHEREAS, the board of directors of Merger Sub has approved and
adopted this Agreement and approved the Merger and the other
transactions contemplated by this Agreement;
WHEREAS, the board of directors of Parent, and Parent, as the
sole stockholder of Merger Sub, in each case, have approved and
adopted this Agreement and approved the Merger and the other
transactions contemplated by this Agreement; and
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties and agreements specified in
this Agreement in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements contained in this
Agreement, and intending to be legally bound hereby, Parent,
Merger Sub and the Company agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The
Merger . At the Effective Time, upon the
terms and subject to the conditions set forth in this Agreement,
and in accordance with the applicable provisions of the DGCL,
Merger Sub shall be merged with and into the Company, whereupon
the separate corporate existence of Merger Sub shall cease and
the Company shall continue as the surviving corporation in the
Merger (the Surviving Corporation) and a
wholly owned subsidiary of Parent.
Section 1.2. Closing. The
closing of the Merger (the Closing) shall
take place at the offices of Wachtell, Lipton, Rosen &
Katz, 51 West 52nd Street, New York, New York at
9:00 a.m., local time, on a date to be specified by the
parties (the Closing Date) which shall be no
later than the third business day after the satisfaction or
waiver (to the extent permitted by applicable Law) of the
conditions set forth in Article VI (other than those
conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of such
conditions) (the Satisfaction Date), or at
such other place, date and time as the Company and Parent may
agree in writing; provided, however, that if the
Marketing Period has not ended by the Satisfaction Date, the
Closing shall occur on the date following the Satisfaction Date
that is the earliest to occur of (a) a date during the
Marketing Period to be specified by Parent on no less than three
business days notice to the Company, (b) the final
day of the Marketing Period, and (c) if the Core Financial
Information shall have been furnished pursuant to
Section 5.11(b) on or prior to April 2, 2007, the End
Date.
Section 1.3. Effective
Time. On the Closing Date, immediately after
the Closing, the parties shall cause the Merger to be
consummated by executing and filing a certificate of merger (the
Certificate of Merger) with the Secretary of
State of the State of Delaware and make all other filings or
recordings required under the DGCL in connection with the
Merger. The Merger shall become effective at such time as the
Certificate of Merger is duly
A-1
filed with the Secretary of State of the State of Delaware, or
at such later time as the parties shall agree and as shall be
set forth in the Certificate of Merger (such time as the Merger
becomes effective, the Effective Time).
Section 1.4. Effects
of the Merger. The effects of the Merger
shall be as provided in this Agreement and in the applicable
provisions of the DGCL. Without limiting the generality of the
foregoing, at the Effective Time, all the property, 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, all as provided under the DGCL and the other
applicable Laws of the State of Delaware. At and after the
Effective Time, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the
name and on behalf of the Company or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in
the name and on behalf of the Company or Merger Sub, any other
actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title
and interest in, to and under any of the rights, properties or
assets of the Company.
Section 1.5. Certificate
of Incorporation and Bylaws of the Surviving Corporation.
(a) The certificate of incorporation of Merger Sub as in
effect at the Effective Time, in a form reasonably acceptable to
the Special Committee, shall be the certificate of incorporation
of the Surviving Corporation until thereafter amended in
accordance with the provisions thereof and the provisions of
this Agreement and applicable Law, in each case consistent with
the obligations set forth in Section 5.9; provided,
however, that Article I of the certificate of
incorporation of the Surviving Corporation shall be amended in
its entirety to read as follows: The name of the
corporation is OSI Restaurant Partners, Inc.
(b) The bylaws of Merger Sub as in effect at the Effective
Time, in a form reasonably acceptable to the Special Committee,
shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with the provisions thereof and
the provisions of this Agreement and applicable Law, in each
case consistent with the obligations set forth in
Section 5.9.
Section 1.6. Directors. Subject
to applicable Law, the directors of Merger Sub immediately prior
to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their
earlier death, resignation or removal.
Section 1.7. Officers. The
officers of the Company immediately prior to the Closing Date
shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly
elected and qualified, or their earlier death, resignation or
removal.
ARTICLE II
CONVERSION
OF SHARES; EXCHANGE OF CERTIFICATES
Section 2.1. Effect
on Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the
Company, Merger Sub or the holders of any securities of the
Company or Merger Sub:
(a) Conversion of Company Common
Stock. Subject to Sections 2.1(b),
2.1(d), 2.1(e) and 5.5(a)(iii), each issued and outstanding
share of common stock, par value $0.01 per share, of the
Company outstanding immediately prior to the Effective Time
(such shares, collectively, Company Common
Stock, and each, a Share), other
than any Cancelled Shares (to the extent provided in
Section 2.1(c)) and any Dissenting Shares (to the extent
provided for in Section 2.1(f)) shall thereupon be
converted automatically into and shall thereafter represent the
right to receive $40.00 in cash (the Merger
Consideration). All Shares that have been converted
into the right to receive the Merger Consideration as provided
in this Section 2.1 shall be automatically cancelled and
shall cease to exist, and the holders of certificates which
immediately prior to the Effective Time represented such Shares
shall cease to have any rights with respect to such Shares other
than the right to receive the Merger Consideration.
(b) Rollover
Shares. Notwithstanding anything in this
Agreement to the contrary, each Share (including a Restricted
Share, as defined in Section 5.5(a)(iii) below) that is
issued and outstanding immediately prior to the Effective Time
and that is owned, beneficially or of record, by any person that
is a party to an Employee Rollover Agreement or a Founder
Rollover Agreement (each as hereinafter defined) and that is
expressly designated in such
A-2
Employee Rollover Agreement or Founder Rollover Agreement as a
Rollover Share (each such share, a Rollover
Share and each such person, a Participating
Holder), shall be cancelled immediately prior to the
Effective Time and converted into the number of validly issued,
fully paid and nonassessable shares of common stock of Parent as
described on Schedule A to this Agreement (the
Parent Common Stock), and shall be subject to
terms and conditions as set forth in (A) agreements to be
entered into between certain employees of the Company who will
be Participating Holders and Parent (the Employee
Rollover Agreements) and (B) agreements to be
entered into between certain stockholders of the Company who
will be Participating Holders and Parent (the Founder
Rollover Agreements). As of immediately prior to the
Effective Time, the Rollover Shares shall cease to exist, and
each holder of a certificate representing any such Rollover
Shares shall cease to have any rights with respect thereto,
except the right to receive the shares of Parent Common Stock as
set forth in this Section 2.1(b).
(c) Company, Parent and Merger
Sub-Owned
Shares. Each Share that is owned, directly or
indirectly, by Parent or Merger Sub immediately prior to the
Effective Time or held by the Company, or any Subsidiary of the
Company, immediately prior to the Effective Time (in each case,
other than any such Shares held on behalf of third parties) (the
Cancelled Shares) shall, by virtue of the
Merger and without any action on the part of the holder thereof,
be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(d) Conversion of Merger Sub Common
Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder
thereof, each share of common stock, par value $0.01 per
share, 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 $0.01 per share, of the Surviving
Corporation with the same rights, powers and privileges as the
shares so converted and shall constitute the only outstanding
shares of capital stock of the Surviving Corporation. From and
after the Effective Time, all certificates representing the
common stock of Merger Sub shall be deemed for all purposes to
represent the number of shares of common stock of the Surviving
Corporation into which they were converted in accordance with
the immediately preceding sentence.
(e) Adjustments. If at any time
during the period between the date of this Agreement and the
Effective Time, any change in the outstanding shares of capital
stock of the Company shall occur as a result of any
reclassification, recapitalization, stock split (including a
reverse stock split) or combination, exchange or readjustment of
shares, or any stock dividend or stock distribution with a
record date during such period (excluding, in each case, normal
quarterly cash dividends), the Merger Consideration shall be
equitably adjusted to reflect such change.
(f) Dissenting
Shares. (i) Notwithstanding anything
contained in this Agreement to the contrary, no Shares issued
and outstanding immediately prior to the Effective Time, the
holder of which (A) has not voted in favor of the Merger or
consented thereto in writing, (B) has demanded its rights
to appraisal in accordance with Section 262 of the DGCL,
and (C) has not effectively withdrawn or lost its rights to
appraisal (the Dissenting Shares), shall be
converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.1(a). By virtue of the
Merger, all Dissenting Shares shall be cancelled and shall cease
to exist and shall represent the right to receive only those
rights provided under the DGCL. From and after the Effective
Time, a holder of Dissenting Shares shall not be entitled to
exercise any of the voting rights or other rights of a
stockholder, member or equity owner of the Surviving
Corporation. Any portion of the Merger Consideration made
available to the Paying Agent pursuant to Section 2.2 to
pay for shares of Company Common Stock for which appraisal
rights have been perfected shall be returned to Parent upon
demand.
(ii) Notwithstanding the provisions of this
Section 2.1(f), if any holder of Shares who demands
dissenters rights shall effectively withdraw or lose
(through failure to perfect or otherwise) the right to dissent
or its rights of appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such
holders Shares shall no longer be Dissenting Shares and
shall automatically be converted into and represent only the
right to receive the Merger Consideration, without any interest
thereon and less any required withholding Taxes.
(iii) The Company shall give Parent (A) notice of any
written demands for dissenters rights of any Shares,
withdrawals of such demands, and any other instruments served
pursuant to the DGCL and received by the Company which relate to
any such demand for dissenters rights and (B) the
opportunity reasonably to
A-3
direct all negotiations and proceedings (subject to the
Companys right to object to any actions or positions taken
by Parent that it deems, in its sole discretion, unreasonable)
with respect to demands for dissenters rights under the
DGCL. The Company shall not, except with the prior written
consent of Parent (which shall not be unreasonably withheld or
delayed), make any payment with respect to any demands for
dissenters rights or offer to settle or settle any such
demands.
Section 2.2. Exchange
of Certificates.
(a) Paying Agent. Prior to the
Effective Time, Parent shall deposit, or shall cause to be
deposited, with a bank or trust company that is organized and
doing business under the Laws of the United States or any state
thereof, and has a combined capital and surplus of at least
$500 million, that shall be appointed to act as a paying
agent hereunder and approved in advance by the Company in
writing (and pursuant to an agreement in form and substance
reasonably acceptable to Parent and the Company) (the
Paying Agent), in trust for the benefit of
holders of the Shares, the Company Stock Options and the
Director Award Accounts (collectively, the Option and
Stock-Based Award Consideration), cash in
U.S. dollars sufficient to pay (i) the aggregate
Merger Consideration in exchange for all of the Shares
outstanding immediately prior to the Effective Time (other than
the Cancelled Shares, the Rollover Shares and the Dissenting
Shares), payable upon due surrender of the certificates that
immediately prior to the Effective Time represented Shares
(Certificates) (or effective affidavits of
loss in lieu thereof) or non-certificated Shares represented by
book-entry (Book-Entry Shares) pursuant to
the provisions of this Article II and (ii) the Option
and Stock-Based Award Consideration payable pursuant to
Section 5.5 (such cash referred to in subsections (a)(i)
and (a)(ii) being hereinafter referred to as the
Exchange Fund).
(b) Payment Procedures.
(i) As soon as reasonably practicable after the Effective
Time and in any event not later than the second business day
following the Effective Time, the Paying Agent shall mail
(x) to each holder of record of Shares whose Shares were
converted into the Merger Consideration pursuant to
Section 2.1(a), (A) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss
and title to Certificates shall pass, only upon delivery of
Certificates (or effective affidavits of loss in lieu thereof)
or Book-Entry Shares to the Paying Agent and shall be in such
form and have such other provisions as Parent and the Company
may mutually agree), and (B) instructions for use in
effecting the surrender of Certificates (or effective affidavits
of loss in lieu thereof) or Book-Entry Shares in exchange for
the Merger Consideration, (y) to each holder of a Company
Stock Option or a Director Award Account, a check in an amount,
if any, due and payable to such holder pursuant to
Section 5.5(a)(i) or Section 5.5(a)(iii),
respectively, in respect of such Company Stock Option or
Director Award Account and (z) to each holder of a
certificate representing Rollover Shares who is party to a
Founder Rollover Agreement or an Employee Rollover Agreement,
upon surrender to the Surviving Corporation of such certificate
and such other documents as may reasonably be required by the
Surviving Corporation and Parent, a certificate or certificates
representing the number of shares of Parent Common Stock to
which such holder is entitled pursuant to Section 2.1(b),
subject to the terms and conditions of the holders
Employee Rollover Agreement or Founder Rollover Agreement, as
the case may be. No interest shall be paid or accrued on such
amounts. In the event that any Certificate represents both
Rollover Shares and Shares entitled to receive the Merger
Consideration, the Paying Agent shall take such action as
necessary to split the Certificates accordingly.
(ii) Upon surrender of Certificates (or effective
affidavits of loss in lieu thereof) or Book-Entry Shares to the
Paying Agent together with such letter of transmittal, duly
completed and validly executed in accordance with the
instructions thereto, and such other documents as may
customarily be required thereby or by the Paying Agent, the
holder of such Certificates or Book-Entry Shares shall be
entitled to receive in exchange therefor a check in an amount
equal to the product of (x) the number of Shares
represented by such holders properly surrendered
Certificates (or effective affidavits of loss in lieu thereof)
or Book-Entry Shares multiplied by (y) the Merger
Consideration. No interest will be paid or accrued on any amount
payable upon due surrender of Certificates or Book-Entry Shares.
In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a check for
any cash to be paid upon due surrender of the Certificate may be
paid to such a transferee if the Certificate formerly
representing such Shares is presented to the Paying Agent,
accompanied by all documents required to evidence and effect
such transfer and to
A-4
evidence to the reasonable satisfaction of the Surviving
Corporation that any applicable stock transfer Taxes have been
paid or are not applicable. Until surrendered as contemplated by
this Section 2.2(b), each Certificate and each Book-Entry
Share shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the
applicable Merger Consideration as contemplated by this
Article II.
(iii) The Paying Agent shall be entitled to deduct and
withhold from the consideration otherwise payable under this
Agreement to any holder of Shares or holder of Company Stock
Options, such amounts as are required to be withheld or deducted
under the Internal Revenue Code of 1986 (the
Code) or any provision of state, local or
foreign Tax Law with respect to the making of such payment. To
the extent that amounts are so withheld or deducted and paid
over to the applicable Governmental Entity, such withheld or
deducted amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares or
holder of the Company Stock Options, in respect of which such
deduction and withholding were made.
(c) Closing of Transfer Books. At
the Effective Time, the stock transfer books of the Company
shall be closed, and there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, any
Certificates or any certificates representing any Rollover
Shares are presented to the Surviving Corporation or Parent for
transfer, they shall be cancelled and exchanged in accordance
with and subject to the procedures set forth in this
Article II.
(d) Termination of Exchange
Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) that remains
undistributed to the former holders of Shares for eighteen
(18) months after the Effective Time shall be delivered to
the Surviving Corporation upon demand, and any former holders of
Shares who have not surrendered their Shares in accordance with
this Section 2.2 shall thereafter look only to the
Surviving Corporation for payment of their claim for the Merger
Consideration, without any interest thereon, upon due surrender
of their Shares.
(e) No Liability. Notwithstanding
anything herein to the contrary, none of the Company, Parent,
Merger Sub, the Surviving Corporation, the Paying Agent or any
other person shall be liable to any former holder of Shares for
any amount properly delivered to a public official pursuant to
any applicable abandoned property, escheat or similar Law. Any
portion of the Exchange Fund remaining unclaimed as of a date
which is immediately prior to such time as such amounts would
otherwise escheat to or become property of any Governmental
Entity shall, to the extent permitted by applicable Law, become
the property of Parent, free and clear of any claims or
interests of any person previously entitled thereto.
(f) Investment of Exchange
Fund. The Paying Agent shall invest all cash
included in the Exchange Fund as reasonably directed by Parent;
provided, however, that any investment of such
cash shall be limited to direct short-term obligations of, or
short-term obligations fully guaranteed as to principal and
interest by, the U.S. government or in commercial paper
obligations rated
A-1 or
P-1 or
better by Moodys Investors Service, Inc. or
Standard & Poors Corporation, respectively, or in
certificates of deposit, bank repurchase agreements or
bankers acceptances of commercial banks with capital
exceeding $1 billion (based on the most recent financial
statements of such bank which are then publicly available). Any
interest and other income resulting from such investments shall
be paid to the Surviving Corporation pursuant to
Section 2.2(d).
(g) Lost Certificates. In the case
of any Certificate or any certificate representing any Rollover
Shares that 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, (i) except
as provided in clause (ii), if required by the Paying
Agent, the posting by such person of a bond in customary amount
as indemnity against any claim that may be made against it with
respect to such certificate, the Paying Agent will issue in
exchange for such lost, stolen or destroyed Certificate a check
in the amount of the number of Shares represented by such lost,
stolen or destroyed Certificate multiplied by the Merger
Consideration or (ii) in the case of a certificate
representing a Rollover Share held by a person who is party to a
Founder Rollover Agreement or an Employee Rollover Agreement,
and subject to the terms of such agreement, Parent shall issue a
certificate or certificates representing the number of shares of
Parent Common Stock to which such the Rollover Shares
represented by such lost, stolen or destroyed certificate are
convertible as provided in Section 2.1(b).
A-5
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company SEC Documents (other than
risk factor and similarly cautionary and forward looking
disclosure contained in the Company SEC Documents under the
headings Risk Factors, Forward Looking
Statements or Future Operating Results), or in
the disclosure schedule delivered by the Company to Parent
immediately prior to the execution of this Agreement (the
Company Disclosure Schedule), the Company
represents and warrants to Parent and Merger Sub as follows:
Section 3.1. Qualification,
Organization, Subsidiaries, etc. Each of the
Company and its Subsidiaries, and each Company Joint Venture, is
a legal entity duly organized, validly existing and in good
standing under the Laws of its respective jurisdiction of
organization and has all requisite corporate or similar power
and authority to own, lease and operate its properties and
assets and to carry on its business as presently conducted and
is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the ownership, leasing or
operation of its assets or properties or conduct of its business
requires such qualification, except where the failure to be so
organized, validly existing, qualified or in good standing, or
to have such power or authority, would not have, individually or
in the aggregate, a Company Material Adverse Effect. As used in
this Agreement, Company Joint Venture means
any entity (other than Kentucky Speedway) (including
partnerships, limited liability companies and other business
associations and joint ventures) that is not a Subsidiary in
which the Company or a Subsidiary of the Company, directly or
indirectly, owns an equity or ownership interest and
(i) does not have voting power under ordinary circumstances
to elect a majority of the board of directors, board of
managers, executive committee or other person or body performing
similar functions but in which the Company or a Subsidiary of
the Company has rights with respect to the management of such
person
and/or
(ii) which is a general partner or managing partner or
equivalent of an entity which operates, or receives the
financial benefits of operating, one or more restaurants. As
used in this Agreement, any reference to any facts,
circumstances, events or changes having a Company
Material Adverse Effect means any facts,
circumstances, events or changes that are materially adverse to
the business, financial condition or long-term profitability of
the Company and its Subsidiaries, taken as a whole, but shall
not include facts, circumstances, events or changes
(a) generally affecting the casual dining or restaurant
industries in the United States or the economy or the financial
or securities markets in the United States or elsewhere in the
world, including regulatory and political conditions or
developments (including any outbreak or escalation of
hostilities or acts of war or terrorism) or changes in interest
rates or (b) to the extent resulting from (i) the
announcement or the existence of, or compliance with, this
Agreement or the announcement of the Merger or any of the other
transactions contemplated by this Agreement (provided
that compliance by the Company with the requirement to operate
in the ordinary course of business as required by
Section 5.1(a) shall not be excluded), (ii) any
litigation arising from allegations of a breach of fiduciary
duty or other violation of applicable Law relating to this
Agreement or the transactions contemplated by this Agreement,
(iii) changes in applicable Law, GAAP or accounting
standards, (iv) changes in the market price or trading
volume of the Company Common Stock, (v) changes in any
analysts recommendations, any financial strength rating or
any other recommendations or ratings as to the Company or its
Subsidiaries (including, in and of itself, any failure to meet
analyst projections) or (vi) the failure of the Company to
meet any expected or projected financial or operating
performance target publicly announced prior to the date of this
Agreement, as well as any change by the Company in any expected
or projected financial or operating performance target as
compared with any target publicly announced prior to the date of
this Agreement, provided, however, that any
change, effect, development, event or occurrence described in
the foregoing clause (a) above shall not constitute or give
rise to a Company Material Adverse Effect only if and to the
extent that such change, effect, development, event or
occurrence does not have a disproportionate effect on the
Company and its Subsidiaries as compared to other persons in the
casual dining or restaurant industries and provided
further that the facts, circumstances or events
underlying the change or failure in each of clauses (b)(iv),
(b)(v) or (b)(vi) shall not be excluded to the extent such
facts, circumstances or events would otherwise constitute a
Company Material Adverse Effect. The Company has made available
to Parent prior to the date of this Agreement a true and
complete copy of the Companys amended and restated
certificate of incorporation and bylaws, each as amended through
the date of this Agreement. Such amended and restated
certificate of incorporation and bylaws are in full force and
effect. The certificate of incorporation and bylaws or similar
organizational documents of each Subsidiary of the Company and
each Company Joint Venture are in full force and effect, except
as would not have,
A-6
individually or in the aggregate, a Company Material Adverse
Effect. Neither the Company, any Subsidiary, nor any Company
Joint Venture is in violation of any provisions of its
certificate of incorporation or bylaws or similar organizational
documents, other than such violations as would not have,
individually or in the aggregate, a Company Material Adverse
Effect.
Section 3.2. Capital
Stock.
(a) The authorized capital stock of the Company consists of
200,000,000 shares of Company Common Stock and
2,000,000 shares of preferred stock, par value
$0.01 per share (Company Preferred
Stock). As of October 25, 2006,
(i) 74,664,974 shares of Company Common Stock were
issued and outstanding (which number includes
1,227,923 shares of Company Common Stock subject to
transfer restrictions or subject to forfeiture back to the
Company or repurchase by the Company),
(ii) 4,083,648 shares of Company Common Stock were
held in treasury, (iii) 15,201,571 shares of Company
Common Stock were reserved for issuance under the employee and
director stock plans of the Company (the Company Stock
Plans), and (iv) no shares of Company Preferred
Stock were issued or outstanding or held as treasury shares. All
outstanding shares of Company Common Stock, and all shares of
Company Common Stock reserved for issuance as noted in
clause (iii), when issued in accordance with the respective
terms thereof, are or will be duly authorized, validly issued,
fully paid and non-assessable and free of pre-emptive or similar
rights.
(b) Except as set forth in subsection (a) above,
as of the date of this Agreement, (i) the Company does not
have any shares of its capital stock or other voting securities
issued or outstanding other than shares of Company Common Stock
that have become outstanding after October 25, 2006, but
were reserved for issuance as set forth in
subsection (a) above, and (ii) there are no
outstanding subscriptions, options, warrants, calls, convertible
securities or other similar rights, agreements or commitments
relating to the issuance of capital stock or voting securities
to which the Company or any of its Subsidiaries is a party
obligating the Company or any of its Subsidiaries to
(A) issue, transfer or sell any shares of capital stock or
other equity interests of the Company or any Subsidiary of the
Company or securities convertible into or exchangeable for such
shares or equity interests, (B) grant, extend or enter into
any such subscription, option, warrant, call, convertible
securities or other similar right, agreement or arrangement,
(C) redeem or otherwise acquire, or vote or dispose of, any
such shares of capital stock or other equity interests, or
(D) provide a material amount of funds to, or make any
material investment (in the form of a loan, capital contribution
or otherwise) in, any Subsidiary.
(c) The Company Disclosure Schedule lists or, in the case
of clause (iii), describes, as of October 25, 2006
(the Measurement Date), (i) each
outstanding Company Stock Option, (ii) each Company
Stock-Based Award and (iii) each right of any kind,
contingent or accrued, to receive shares of Company Common Stock
or benefits measured in whole or in part by the value of a
number of shares of Company Common Stock granted under the
Company Stock Plans, Company Benefit Plans or otherwise
(including restricted stock units, phantom units, deferred stock
units and dividend equivalents) (Other Incentive
Awards), the number of Shares issuable thereunder or
with respect thereto, the vesting schedule, the expiration date
and the exercise price (if any) thereof. From the close of
business on the Measurement Date, until the date of this
Agreement, no options to purchase shares of Company Common Stock
or Company Preferred Stock have been granted, no Company
Stock-Based Awards have been granted, no Other Incentive Awards
have been granted and no shares of Company Common Stock or
Company Preferred Stock have been issued, except for Shares
issued pursuant to the exercise of Company Stock Options
outstanding on the Measurement Date and Shares issued pursuant
to the settlement of Company Stock-Based Awards outstanding on
the Measurement Date, in each case in accordance with their
terms. Except for awards to acquire or receive shares of Company
Common Stock under any equity incentive plan of the Company and
its Subsidiaries, neither the Company nor any of its
Subsidiaries has outstanding bonds, debentures, notes or other
obligations, the holders of which have the right to vote (or
which are convertible into or exercisable for securities having
the right to vote) with the stockholders of the Company on any
matter.
(d) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries
is a party with respect to the voting or disposition of the
capital stock or other equity interest of the Company or any of
its Subsidiaries.
(e) All the outstanding shares of capital stock of, or
other equity interests in, each Subsidiary of the Company are
duly authorized, validly issued, fully paid and nonassessable,
and were not issued in violation of any preemptive
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or similar rights, purchase option, call or right of first
refusal or similar rights. All the outstanding shares of capital
stock of, or other equity interests in, each Subsidiary of the
Company are owned by the Company or a wholly owned Subsidiary of
the Company free and clear of all Liens (other than Permitted
Liens and those that are immaterial).
(f) All of the outstanding ownership interests in each of
the Company Joint Ventures are duly authorized, validly issued,
fully paid and nonassessable, and were not issued in violation
of any preemptive or similar rights, purchase option, call or
right of first refusal or similar rights. All the outstanding
shares of capital stock of, or other equity interests in, each
Company Joint Venture are owned by the Company or a wholly owned
Subsidiary of the Company free and clear of all Liens (other
than Permitted Liens and those that are immaterial).
Section 3.3. Corporate
Authority Relative to This Agreement; No Violation.
(a) The Company has requisite corporate power and authority
to enter into this Agreement and, subject to receipt of the
Company Stockholder Approval, to consummate the transactions
contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly and validly
authorized by the Board of Directors and, to the extent
required, by the Special Committee (acting unanimously) and,
except for (i) the Company Stockholder Approval, and
(ii) the filing of the Certificate of Merger with the
Secretary of State of Delaware, no other corporate proceedings
on the part of the Company are necessary to authorize this
Agreement or the consummation of the transactions contemplated
by this Agreement. The Special Committee has unanimously
determined and resolved, and the Board of Directors has
determined and resolved (i) that the Merger is fair to, and
in the best interests of, the Company and its stockholders,
(ii) to propose this Agreement for adoption by the
Companys stockholders and to declare the advisability of
this Agreement and (iii) to recommend that the
Companys stockholders approve this Agreement and the
transactions contemplated by this Agreement (collectively, the
Recommendation), all of which determinations
and resolutions have not been rescinded, modified or withdrawn
in any way as of the date of this Agreement. This Agreement has
been duly and validly executed and delivered by the Company and,
assuming this Agreement constitutes the valid and binding
agreement of Parent and Merger Sub, constitutes the valid and
binding agreement of the Company, enforceable against the
Company in accordance with its terms.
(b) Other than in connection with or in compliance with
(i) the DGCL, (ii) the Securities Exchange Act of 1934
(the Exchange Act), (iii) the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the HSR
Act) and (iv) the approvals set forth on
Section 3.3(b) of the Company Disclosure Schedule
(collectively, the Company Approvals), and
subject to the accuracy of the representations and warranties of
Parent and Merger Sub in Section 4.9, no authorization,
consent, permit, action or approval of, or filing with, or
notification to, any United States federal, state or local or
foreign governmental or regulatory agency, commission, court,
body, entity or authority (each, a Governmental
Entity) is necessary, under applicable Law, for the
consummation by the Company of the transactions contemplated by
this Agreement, except for such authorizations, consents,
permits, actions, approvals, notifications or filings that, if
not obtained or made, would not have, individually or in the
aggregate, a Company Material Adverse Effect.
(c) The execution and delivery by the Company of this
Agreement does not, and, except as described in
Section 3.3(b), the consummation of the transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not (i) result in any
violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any material
obligation or to the loss of a material benefit under any loan,
guarantee of Indebtedness or credit agreement, note, bond,
mortgage, indenture, lease, agreement, contract, instrument,
permit, franchise or license agreement (collectively,
Contracts) binding upon the Company or any of
its Subsidiaries, or to which any of them is a party or any of
their respective properties are bound, or result in the creation
of any liens, claims, mortgages, encumbrances, pledges, security
interests, equities or charges of any kind (each, a
Lien), other than any such Lien (A) for
Taxes or governmental assessments, charges or claims of payment
not yet due, being contested in good faith or for which adequate
accruals or reserves have been established, (B) which is a
carriers, warehousemens, mechanics,
materialmens, repairmens or other similar lien
arising in the ordinary course of business, (C) which is
disclosed on the most recent consolidated balance sheet of the
Company (or notes thereto or securing liabilities reflected on
such balance sheet) or (D) which was incurred in the
ordinary course of business since the date of the most recent
consolidated balance sheet of the Company (each of the
foregoing, a Permitted Lien), upon any of the
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properties or assets of the Company or any of its Subsidiaries
or any Company Joint Venture, (ii) conflict with or result
in any violation of any provision of the certificate of
incorporation or bylaws or other equivalent organizational
document, in each case as amended, of the Company or any of its
Subsidiaries or (iii) conflict with or violate any
applicable Laws, other than, in the case of clauses (i) and
(iii), any such violation, conflict, default, termination,
cancellation, acceleration, right, loss or Lien that would not
have, individually or in the aggregate, a Company Material
Adverse Effect.
(d) Section 3.3(d) of the Company Disclosure Schedule
sets forth a list of any consent, approval, authorization or
permit of, action by, registration, declaration or filing with
or notification to any person under any (i) Company
Material Contract or (ii) material lease, material
sublease, material assignment of lease or material occupancy
agreement (each a Material Lease) to which
the Company, any of its Subsidiaries or any Company Joint
Venture is a party which is required in connection with the
consummation of the Merger and the other transactions
contemplated by this Agreement, other than those the failure of
which to obtain would not have, individually or in the
aggregate, a Company Material Adverse Effect.
Section 3.4. Reports
and Financial Statements.
(a) The Company has filed or furnished all forms, documents
and reports (including exhibits) required to be filed or
furnished prior to the date of this Agreement by it with the
Securities and Exchange Commission (the SEC)
since December 31, 2003 (the Company SEC
Documents). As of their respective dates, or, if
amended, as of the date of the last such amendment, the Company
SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933 and the Exchange Act,
as the case may be, and the applicable rules and regulations
promulgated thereunder, and none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to
state or incorporate by reference any material fact required to
be stated or incorporated by reference therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading. No Subsidiary of the
Company is required to file any form or report with the SEC.
(b) The consolidated financial statements (including all
related notes and schedules) of the Company included in the
Company SEC Documents have been prepared in accordance with GAAP
and fairly present in all material respects the consolidated
financial position of the Company and its consolidated
Subsidiaries, as at the respective dates thereof, and the
consolidated results of their operations and their consolidated
cash flows for the respective periods then ended (subject, in
the case of the unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein,
including the notes thereto) in conformity with United States
GAAP (except, in the case of the unaudited statements, as
permitted by the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the
notes thereto). Since January 1, 2006, there has been no
material change in the Companys accounting methods or
principles that would be required to be disclosed in the
Companys financial statements in accordance with GAAP,
except as described in the notes to such Company financial
statements.
Section 3.5. Internal
Controls and Procedures. The Company has
established and maintains disclosure controls and procedures and
internal control over financial reporting (as such terms are
defined in paragraphs (e) and (f), respectively, of
Rule 13a-15
under the Exchange Act) as required by
Rule 13a-15
under the Exchange Act. The Companys disclosure controls
and procedures are reasonably designed to ensure that all
material information required to be disclosed by the Company in
the reports that it files or furnishes under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC, and that
all such material information is accumulated and communicated to
the Companys management as appropriate to allow timely
decisions regarding required disclosure and to make the
certifications required pursuant to Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley
Act). The Companys management has completed
assessment of the effectiveness of the Companys internal
control over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act for
the year ended December 31, 2005, and such assessment
concluded that such controls were effective. The Company has
disclosed, based on its most recent evaluation prior to the date
of this Agreement, to the Companys auditors and the audit
committee of the Board of Directors and Parent (A) any
significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect in any material
respect the Companys ability to record, process, summarize
and report financial information and (B) any fraud, whether
or not
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material, that involves executive officers or employees who have
a significant role in the Companys internal controls over
financial reporting. As of the date of this Agreement, to the
knowledge of the Company, the Company has not identified any
material weaknesses in the design or operation of internal
controls over financial reporting. There are no outstanding
loans made by the Company or any of its Subsidiaries to any
executive officer (as defined in
Rule 3b-7
under the Exchange Act) or director of the Company.
Section 3.6. No
Undisclosed Liabilities. Except (a) as
reflected or reserved against in the Companys consolidated
balance sheets (or the notes thereto) included in the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006 (other than risk factor
and similarly cautionary and forward looking disclosure under
the headings Risk Factors, Forward Looking
Statements or Future Operating Results)
(b) for liabilities permitted or contemplated by this
Agreement, (c) for liabilities and obligations incurred in
the ordinary course of business since June 30, 2006 and
(d) for liabilities or obligations which have been
discharged or paid in full in the ordinary course of business,
as of the date of this Agreement, neither the Company nor any
Subsidiary of the Company or, to the knowledge of the Company,
any Company Joint Venture, has any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise,
that would be required by GAAP to be reflected on a consolidated
balance sheet of the Company and its Subsidiaries (or in the
notes thereto), other than those which would not have,
individually or in the aggregate, a Company Material Adverse
Effect.
Section 3.7. Compliance
with Law; Permits.
(a) The Company and each of its Subsidiaries and each of
the Company Joint Ventures are, and since January 1, 2005,
have been, in compliance with and are not in default under or in
violation of any applicable federal, state, local or foreign
law, statute, ordinance, rule, regulation, judgment, order,
injunction, decree or agency requirement of any Governmental
Entity (collectively, Laws and each, a
Law), except where such non-compliance,
default or violation would not have, individually or in the
aggregate, a Company Material Adverse Effect. Notwithstanding
anything contained in this Section 3.7(a), no
representation or warranty shall be deemed to be made in this
Section 3.7(a) in respect of the matters referenced in
Section 3.4 or Section 3.5, or in respect of
environmental, Tax, employee benefits or labor Law matters.
(b) The Company and its Subsidiaries and each of the
Company Joint Ventures are in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Entity necessary for the Company and each of its
Subsidiaries to own, lease and operate their respective
properties and assets or to carry on their respective businesses
as they are now being conducted (the Company
Permits), except where the failure to have any of the
Company Permits would not have, individually or in the
aggregate, a Company Material Adverse Effect. All Company
Permits are in full force and effect, except where the failure
to be in full force and effect would not have, individually or
in the aggregate, a Company Material Adverse Effect. Each of the
Company, its Subsidiaries and each of the Company Joint Ventures
have made all filings with all state, provincial and foreign
authorities and obtained all registrations and authorizations
required for the offer and sale of franchises in all states and
provinces in the United States and Canada, and all foreign
jurisdictions, where it offers or has offered or sold
franchises, including all amendment and renewal filings, and the
Uniform Franchise Offering Circulars and any other franchise
disclosure document (UFOCs) used in
connection with the offer and sale of franchises for the brands
comply in all material respects with the requirements of
applicable Laws, rules and regulations, except where the failure
to make such filings, obtain such registrations and
authorizations or to so comply would not have, individually or
in the aggregate, a Company Material Adverse Effect.
Section 3.8. Environmental
Laws and Regulations.
(a) Except as would not, individually or in the aggregate,
have a Company Material Adverse Effect, (i) the Company and
its Subsidiaries have conducted their respective businesses in
compliance with all applicable Environmental Laws, (ii) to
the knowledge of the Company, none of the properties owned,
leased or operated by the Company or any of its Subsidiaries
contains any Hazardous Substance as a result of any activity of
the Company or any of its Subsidiaries in amounts exceeding the
levels permitted by applicable Environmental Laws,
(iii) since December 31, 2005, as of the date of this
Agreement, neither the Company nor any of its Subsidiaries has
received any notices, demand letters or requests for information
from any federal, state, local or foreign Governmental Entity
indicating that the Company or any of its Subsidiaries may be in
violation of, or liable under, any Environmental
A-10
Law in connection with the ownership or operation of their
respective businesses or any of their respective properties or
assets, (iv) to the knowledge of the Company, no Hazardous
Substance has been disposed of, released or transported in
violation of any applicable Environmental Law, or in a manner
giving rise to any liability under Environmental Law, from any
properties presently or formerly owned, leased or operated by
the Company or any of its Subsidiaries as a result of any
activity of the Company or any of its Subsidiaries during the
time such properties were owned, leased or operated by the
Company or any of its Subsidiaries and (v) neither the
Company, its Subsidiaries nor any of their respective properties
are subject to any liabilities relating to any suit, settlement,
court order, administrative order, regulatory requirement,
judgment or written claim asserted or arising under any
Environmental Law. It is agreed and understood that no
representation or warranty is made in respect of environmental
matters in any Section of this Agreement other than this
Section 3.8. The Company has made available to Parent true
and complete copies of all material environmental records,
reports, notifications, certificates of need, permits,
engineering studies, and environmental studies or assessments,
in each case as requested by Parent and in the Companys
possession, and in each case as amended and in effect.
(b) As used herein, Environmental Law
means any Law relating to (x) the protection, preservation
or restoration of the environment (including air, water vapor,
surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural
resource), or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous
Substances, in each case as in effect at the date of this
Agreement.
(c) As used herein, Hazardous Substance
means any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive, or dangerous, or
otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated
by any Governmental Entity or any Environmental Law including
any toxic waste, pollutant, contaminant, hazardous substance
(including toxic mold), toxic substance, hazardous waste,
special waste, industrial substance or petroleum or any
derivative or byproduct thereof, radon, radioactive material,
asbestos, or asbestos-containing material, urea formaldehyde,
foam insulation or polychlorinated biphenyls.
Section 3.9. Employee
Benefit Plans.
(a) Section 3.9(a) of the Company Disclosure Schedule
sets forth a true and complete list of each material employee or
director benefit plan, arrangement or agreement, whether or not
written, including, without limitation, any employee welfare
benefit plan within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974
(ERISA), any employee pension benefit plan
within the meaning of Section 3(2) of ERISA (whether or not
such plan is subject to ERISA) and any material bonus,
incentive, deferred compensation, vacation, stock purchase,
stock option or other equity-based plan or arrangement,
severance, employment, change of control or fringe benefit plan,
program or agreement (the Company Benefit
Plans) that is or has been sponsored, maintained or
contributed to by the Company or any of its Subsidiaries or any
Company Joint Venture.
(b) The Company has made available to Parent true and
complete copies of each of the Company Benefit Plans and
material related documents, including, but not limited to,
(i) each writing constituting a part of such Company
Benefit Plan, including all amendments thereto; (ii) the
three most recent Annual Reports (Form 5500 Series) and
accompanying schedules, if any; and (iii) the most recent
determination letter from the IRS (if applicable) for such
Company Benefit Plan.
(c) (i) Each of the Company Benefit Plans has been
operated and administered in all material respects in compliance
with applicable Laws, including, but not limited to, ERISA, the
Code and in each case the regulations thereunder; (ii) each
of the Company Benefit Plans intended to be
qualified within the meaning of Section 401(a)
of the Code is so qualified, and to the knowledge of the Company
there are no existing circumstances or any events that have
occurred that could reasonably be expected to adversely affect
the qualified status of any such plan that would, individually
or in the aggregate, result in any material liability for the
Company and its Subsidiaries taken as a whole; (iii) no
Company Benefit Plan is subject to Title IV or
Section 302 of ERISA or Section 412 or 4971 of the
Code; (iv) no Company Benefit Plan provides benefits,
including, without limitation, death or medical benefits
(whether or not insured), with respect to current or former
employees or directors of the Company or its Subsidiaries beyond
their retirement or other termination of service, other than
(A) coverage mandated by applicable Law or (B) death
benefits or retirement benefits under any employee pension
plan (as such term is defined in Section 3(2)
A-11
of ERISA); (v) no material liability under Title IV of
ERISA has been incurred by the Company, its Subsidiaries or any
ERISA Affiliate of the Company that has not been satisfied in
full, and, to the knowledge of the Company, no condition exists
that presents a material risk to the Company, its Subsidiaries
or any ERISA Affiliate of the Company of incurring a liability
thereunder; (vi) no Company Benefit Plan is a
multiemployer pension plan (as such term is defined
in Section 3(37) of ERISA) or a plan that has two or more
contributing sponsors, at least two of whom are not under common
control, within the meaning of Section 4063 of ERISA;
(vii) all material contributions or other amounts payable
by the Company or its Subsidiaries as of the date of this
Agreement with respect to each Company Benefit Plan in respect
of current or prior plan years have been paid or accrued in
accordance with GAAP; (viii) neither the Company nor its
Subsidiaries has engaged in a transaction in connection with
which the Company or its Subsidiaries reasonably could be
subject to either a material civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a material tax imposed
pursuant to Section 4975 or 4976 of the Code; and
(ix) there are no pending, or to the knowledge of the
Company, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the
Company Benefit Plans or any trusts related thereto which could
individually or in the aggregate reasonably be expected to
result in any material liability of the Company and its
Subsidiaries taken as a whole. ERISA
Affiliate means, with respect to any entity, trade or
business, any other entity, trade or business that is a member
of a group described in Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b)(1) of ERISA that
includes the first entity, trade or business, or that is a
member of the same controlled group as the first
entity, trade or business pursuant to Section 4001(a)(14)
of ERISA.
(d) Neither the execution, delivery, performance of this
Agreement nor the consummation of the transactions contemplated
by this Agreement (either alone or in conjunction with any other
event) will (i) result in any material payment (including,
without limitation, severance, unemployment compensation and
forgiveness of Indebtedness or otherwise) becoming due to any
director or any employee of the Company or any of its
Subsidiaries from the Company or any of its Subsidiaries under
any Company Benefit Plan or otherwise, (ii) result in any
excess parachute payment (within the meaning of
Section 280G of the Code), (iii) materially increase
any benefits otherwise payable under any Company Benefit Plan,
(iv) result in any acceleration of any material benefits or
the time of payment or vesting of any such benefits,
(v) require the funding of any such benefits or
(vi) limit the ability to amend or terminate any Company
Benefit Plan or related trust.
Section 3.10. Absence
of Certain Changes or Events.
(a) From December 31, 2005 through the date of this
Agreement, (i) the businesses of the Company and its
Subsidiaries have been conducted, in all material respects, in
the ordinary course of business consistent with past practice
and (ii) there has not been any event, development or state
of circumstances that has had, individually or in the aggregate,
a Company Material Adverse Effect.
(b) Since the date of this Agreement, there has not been
any event, development or state of circumstances that has had,
individually or in the aggregate, a Company Material Adverse
Effect.
Section 3.11. Investigations;
Litigation. As of the date of this Agreement,
(a) there is no investigation or review pending (or, to the
knowledge of the Company, threatened) by any Governmental Entity
with respect to the Company or any of its Subsidiaries or any
Company Joint Venture which would have, individually or in the
aggregate, a Company Material Adverse Effect, and (b) there
are no actions, suits, inquiries, investigations, arbitration,
mediation or proceedings pending (or, to the knowledge of the
Company, threatened) against or affecting the Company or any of
its Subsidiaries or any Company Joint Venture, or any of their
respective properties at law or in equity before, and there are
no orders, judgments or decrees of, or before, any Governmental
Entity, in each case of clause (a) or (b), which would
have, individually or in the aggregate, a Company Material
Adverse Effect.
Section 3.12. Schedule 13E-3/Proxy
Statement; Other Information. None of the
information provided by the Company to be included in
(a) the
Rule 13e-3
transaction statement on
Schedule 13E-3
(the
Schedule 13E-3)
or (b) the Proxy Statement will, in the case of the
Schedule 13E-3,
as of the date of its filing and of each amendment or supplement
thereto and, in the case of the Proxy Statement, (i) at the
time of the mailing of the Proxy Statement or any amendments or
supplements thereto and (ii) at the time of the Company
Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Each of the Proxy
A-12
Statement and the
Schedule 13E-3,
as to information supplied by the Company, will comply as to
form in all material respects with the provisions of the
Exchange Act. The letter to stockholders, notice of meeting,
proxy statement and forms of proxy to be distributed to
stockholders in connection with the Merger to be filed with the
SEC are collectively referred to herein as the Proxy
Statement. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to the
information supplied by Parent or Merger Sub or any of their
respective Representatives that is contained or incorporated by
reference in the Proxy Statement or the
Schedule 13E-3.
Section 3.13. Tax
Matters.
(a) Except as would not have, individually or in the
aggregate, a Company Material Adverse Effect, (i) the
Company and each of its Subsidiaries have prepared and timely
filed (taking into account any extension of time within which to
file) all Tax Returns required to be filed by any of them and
all such filed Tax Returns are complete and accurate,
(ii) the Company and each of its Subsidiaries have paid all
Taxes that are required to be paid by any of them, (iii) as
of the date of this Agreement, there are not pending or, to the
knowledge of the Company, threatened in writing, any audits,
examinations, investigations, actions, suits, claims or other
proceedings in respect of Taxes nor has any deficiency for any
Tax been assessed by any Governmental Entity in writing against
the Company or any of its Subsidiaries (except, in the case of
clause (i), (ii) or (iii) above or
clause (iv) or (v) below, with respect to matters
contested in good faith or for which adequate reserves have been
established in accordance with GAAP), (iv) neither the
Company nor any of its Subsidiaries has made any compensatory
payments or has been or is a party to any compensatory
agreement, contract, arrangement, or plan that provides for
compensatory payments that were not deductible or could
reasonably be expected to be nondeductible under Code
section 162(m), (v) all Taxes required to be withheld
by the Company and its Subsidiaries have been withheld and paid
over to the appropriate Tax authority, (vi) the Company has
not been a controlled corporation or a
distributing corporation in any distribution
occurring during the two-year period ending on the date of this
Agreement that was intended to be governed by Section 355
of the Code, and (vii) neither the Company nor any of its
Subsidiaries has entered into any transaction defined under
Sections 1.6011-4(b)(2),
-4(b)(3) or -4(b)(4) of the Treasury Regulations promulgated
under the Code.
(b) As used in this Agreement,
(i) Taxes means any and all domestic or
foreign, federal, state, local or other taxes of any kind
(together with any and all interest, penalties, additions to tax
and additional amounts imposed with respect thereto) imposed by
any Governmental Entity, including taxes on or with respect to
income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment,
unemployment, social security, workers compensation or net
worth, and taxes in the nature of excise, withholding, ad
valorem or value added, and (ii) Tax
Return means any return, report or similar filing
(including the attached schedules) required to be filed with
respect to Taxes, including any information return or
declaration of estimated Taxes.
Section 3.14. Labor
Matters.
(a) Neither the Company nor any of its Subsidiaries nor, to
the Companys knowledge, any of the Company Joint Ventures
is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union
or labor organization. To the Companys knowledge, there
are no labor unions or other organizations attempting to
represent any employees of the Company or any of its
Subsidiaries or any of the Company Joint Ventures. There are no
pending material representation petitions involving either the
Company or any of its Subsidiaries or, to the Companys
knowledge, any of the Company Joint Ventures before the National
Labor Relations Board or any state labor board, except in each
case that would not, individually or in the aggregate, be
material to the Company and its Subsidiaries taken as a whole.
Neither the Company nor any of its Subsidiaries nor, to the
Companys knowledge, any of the Company Joint Ventures is
subject to any material unfair labor practice charge or
complaint, dispute, strike or work stoppage. To the knowledge of
the Company, there are no material organizational efforts with
respect to the formation of a collective bargaining unit
presently being made or threatened involving employees of the
Company or any of its Subsidiaries or any of the Company Joint
Ventures.
(b) The Company, each of its Subsidiaries and, to the
knowledge of the Company, each of the Company Joint Ventures is
in compliance, in all material respects, with all employment
agreements, consulting and other service contracts, written
employee or human resources personnel policies (to the extent
they contain enforceable obligations), handbooks or manuals, and
severance or separation agreements, except in each case that
would
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not, individually or in the aggregate, be material to the
Company and its Subsidiaries taken as a whole. The Company, its
Subsidiaries and, to the knowledge of the Company, the Company
Joint Ventures are in compliance in all material respects with
applicable Laws related to employment, employment practices,
wages, hours and other terms and conditions of employment,
except in each case that would not, individually or in the
aggregate, be material to the Company and its Subsidiaries taken
as a whole. As of the date of this Agreement, neither the
Company nor any of its Subsidiaries has a material labor or
employment dispute currently subject to any grievance procedure,
arbitration or litigation, or to the knowledge of the Company,
threatened against it.
Section 3.15. Intellectual
Property. Except as would not have,
individually or in the aggregate, a Company Material Adverse
Effect, either the Company or its Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to
use, free and clear of all Liens (other than Permitted Liens),
intellectual property of any type, registered or unregistered
and however denominated, including all material trademarks,
trade names, service marks, service names, mark registrations,
logos, assumed names, and other brand or source identifiers,
together with the goodwill associated therewith, registered and
unregistered copyrights, patents or applications and
registrations, know-how, trade secrets and other confidential
and proprietary information, and rights to sue and other choses
of action arising from any of the foregoing (collectively, the
Intellectual Property), as such Intellectual
Property is used in their respective businesses as currently
conducted. Except as would not have, individually or in the
aggregate, a Company Material Adverse Effect, (a) as of the
date of this Agreement, there are no pending or, to the
knowledge of the Company, threatened claims by any person
alleging infringement, dilution or misappropriation by the
Company or any of its Subsidiaries for their use of the
Intellectual Property of the Company or any of its Subsidiaries,
(b) to the knowledge of the Company, the conduct of the
business of the Company and its Subsidiaries does not infringe
any intellectual property rights of any person and neither the
Company nor any of its Subsidiaries has received an
invitation to license or other communication from
any third party asserting that the Company or any of its
Subsidiaries is or will be obligated to take a license under any
Intellectual Property owned by any third party in order to
continue to conduct their respective businesses as they are
currently conducted, (c) as of the date of this Agreement,
neither the Company nor any of its Subsidiaries has made any
claim of a violation or infringement by others of its rights to
or in connection with the Intellectual Property of the Company
or any of its Subsidiaries, (d) to the knowledge of the
Company, no person is infringing, diluting or misappropriating
any Intellectual Property of the Company or any of its
Subsidiaries, (e) the execution and delivery of this
Agreement and the consummation of the transactions contemplated
by this Agreement shall not result in the loss or reduction in
scope of Intellectual Property rights licensed to the Company or
any of its Subsidiaries, whether by termination or expiration of
such license, the performance of such license pursuant to its
terms, or other means. The Company and its Subsidiaries have
taken commercially reasonable actions required to protect and
preserve, and maintain the validity and effectiveness of, all
material Intellectual Property, including without limitation
paying all applicable fees related to the registration,
maintenance and renewal of such owned Intellectual Property.
Section 3.16. Real
Property.
(a) Section 3.16(a) of the Company Disclosure Schedule
contains a list of the addresses and the store numbers, if
applicable, of all real property owned by the Company or any
Subsidiary of the Company (the Owned Real
Properties). Except as would not have, individually or
in the aggregate, a Company Material Adverse Effect, the Company
or a Subsidiary of the Company has good and valid title in fee
simple to each of the Owned Real Properties free and clear of
all leases, tenancies, options to purchase or lease, rights of
first refusal, claims, liens, charges, security interests or
encumbrances of any nature whatsoever (collectively,
Property Encumbrances), except
(A) leases to a Subsidiary of the Company or a Company
Joint Venture that the Company or a Subsidiary of the Company
may freely amend or terminate without the consent of any other
person, (B) statutory liens securing payments not yet due,
(C) Property Encumbrances that do not materially affect the
continued use of the property for the purposes for which the
property is currently being used, (D) mortgages, or deeds
of trust, security interest or other encumbrances on title
related to Indebtedness reflected on the consolidated financial
statements of the Company, and (E) Permitted Liens.
(b) Section 3.16(b) of the Company Disclosure Schedule
contains a list of all leases, with reference to the addresses
and the store numbers, if applicable, for all real property
leased to the Company or any Subsidiary of the Company (the
Leased Real Properties, and together with the
Owned Real Properties, the Real Properties).
Except as would not have, individually or in the aggregate, a
Company Material Adverse Effect, (i) the Company or
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a Subsidiary of the Company has good leasehold title with
respect to each of the Leased Real Properties, subject only to
(A) subleases to a Subsidiary of the Company or a Company
Joint Venture that the Company or a Subsidiary of the Company
may freely amend or terminate without the consent of any other
person, (B) statutory liens securing payments not yet due,
(C) Property Encumbrances that do not materially affect the
continued use of the property for the purposes for which the
property is currently being used, (D) mortgages, or deeds
of trust, security interest or other encumbrances on title
related to Indebtedness reflected on the consolidated financial
statements of the Company, and (E) Permitted Liens;
(ii) to the knowledge of the Company, each lease of the
Leased Real Properties is the legal, valid, binding obligation
of the Company or a Subsidiary of the Company, enforceable in
accordance with its terms; and (iii) neither the Company
nor, to the knowledge of the Company, a Subsidiary of the
Company has received a notice of default under any of such
leases.
Section 3.17. Opinion
of Financial Advisor. The Special Committee
has received the separate opinions of Wachovia Securities LLC
and Piper Jaffray & Co. (the
Advisors) dated the date of this Agreement,
to the effect that, as of such date, the Merger Consideration to
be received by the holders of the Company Common Stock (other
than Participating Holders) is fair to such holders from a
financial point of view. An executed copy of each such opinion
has been made available to Parent. The Company has been
authorized by the Advisors to permit the inclusion in full of
each such opinion in the Proxy Statement. As of the date of this
Agreement, no such opinion has been withdrawn, revoked or
modified.
Section 3.18. Required
Vote of the Company Stockholders. Subject to
the accuracy of the representations and warranties of Parent and
Merger Sub in Section 4.9, the affirmative vote of the
holders of a majority of the outstanding shares of Company
Common Stock on the record date of the Company Meeting, voting
together as a single class, is the only vote of holders of
securities of the Company which is required to approve this
Agreement and the Merger (the Company Stockholder
Approval).
Section 3.19. Material
Contracts.
(a) Except for this Agreement, the Company Benefit Plans or
as filed with the SEC, as of the date of this Agreement, neither
the Company nor any of its Subsidiaries is a party to or bound
by any Contract (i) constituting a material
contract (as such term is defined in Item 601(b)(10)
of
Regulation S-K
of the SEC); (ii) containing covenants binding upon the
Company or any of its affiliates that materially restricts the
ability of the Company or any of its affiliates (or which,
following the consummation of the Merger, could materially
restrict the ability of the Surviving Corporation or its
affiliates) to compete in any business that is material to the
Company and its affiliates, taken as a whole, as of the date of
this Agreement, or that restricts the ability of the Company or
any of its affiliates (or which, following the consummation of
the Merger, would restrict the ability of the Surviving
Corporation or its affiliates) to compete with any person or in
any geographic area; (iii) relating to the lease or license
of any material asset, including material Intellectual Property;
(iv) constituting a franchise agreement entered into
between a franchisee and the Company and one or more of its
Subsidiaries; or (v) that would prevent, materially delay
or materially impede the Companys ability to consummate
the Merger or the other transactions contemplated by this
Agreement (all contracts of the type described in this
Section 3.19(a), together with all Material Leases and all
material employment agreements being referred to herein as
Company Material Contracts).
(b) Neither the Company nor any Subsidiary of the Company
is in breach of or default under the terms of any Company
Material Contract where such breach or default would have,
individually or in the aggregate, a Company Material Adverse
Effect. To the knowledge of the Company, no other party to any
Company Material Contract is in breach of or default under the
terms of any Company Material Contract where such breach or
default would have, individually or in the aggregate, a Company
Material Adverse Effect. Each Company Material Contract is a
valid and binding obligation of the Company or the Subsidiary of
the Company which is party thereto and, to the knowledge of the
Company, of each other party thereto, and is in full force and
effect, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws, now or hereafter in effect, relating to
creditors rights generally and (ii) equitable
remedies of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor
may be brought.
Section 3.20. Finders
or Brokers. Except for the Advisors, neither
the Company nor any of its Subsidiaries has employed any
investment banker, broker or finder in connection with the
transactions contemplated by this
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Agreement who is entitled to any fee or any commission in
connection with or upon consummation of the Merger. The Company
has made available to Parent a complete and correct copy of any
Contract with the Advisors pursuant to which any fees may be
payable by the Company in connection with this Agreement and the
transactions contemplated by this Agreement.
Section 3.21. Insurance. The
Company, its Subsidiaries and the Company Joint Ventures own or
hold policies of insurance, or are self-insured, in amounts
providing reasonably adequate coverage against all risks
customarily insured against by companies and subsidiaries in
similar lines of business as the Company, its Subsidiaries or
the Company Joint Ventures, and in amounts sufficient to comply
with all Material Contracts to which the Company, its
Subsidiaries or any Company Joint Venture are parties or are
otherwise bound. The annual premium amount of the current
policies of directors and officers liability
insurance and fiduciary liability insurance maintained by the
Company and its Subsidiaries is set forth on Section 3.21
of the Company Disclosure Schedule.
Section 3.22. Takeover
Statutes. Assuming the accuracy of the
representations and warranties of Parent and Merger Sub set
forth in Section 4.9, no fair price,
moratorium, control share acquisition,
business combination or other similar antitakeover
statute or regulation enacted under state or federal laws in the
United States applicable to the Company is applicable to the
Merger or the other transactions contemplated by the date of
this Agreement.
Section 3.23. Affiliate
Transactions. There are no material
transactions, agreements, arrangements or understandings between
(i) the Company or any of its Subsidiaries, on the one
hand, and (ii) any affiliate of the Company (other than any
of its Subsidiaries), on the other hand, of the type that would
be required to be disclosed under Item 404 of
Regulation S-K
under the Securities Act which have not been so disclosed prior
to the date hereof (such transactions referred to herein as
Affiliate Transactions).
Section 3.24. Indebtedness. Section 3.24
of the Company Disclosure Schedule sets forth, as of the date of
this Agreement or such other date as is set forth in such
schedule, all of the outstanding indebtedness for borrowed money
of, and all the outstanding guarantees of indebtedness for
borrowed money of any person by, the Company, each of its
Subsidiaries and each of the Company Joint Ventures. As of the
date of this Agreement there is not, and as of the Effective
Time there will not be, any indebtedness for borrowed money of,
or guarantees of indebtedness for borrowed money of any person
by, the Company, each of its Subsidiaries and each of the
Company Joint Ventures except as set forth on Section 3.24
of the Company Disclosure Schedule and except as may be incurred
in accordance with Section 5.1 hereof.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in the disclosure schedule delivered by
Parent to the Company immediately prior to the execution of this
Agreement (the Parent Disclosure Schedule),
Parent and Merger Sub represent and warrant to the Company as
follows:
Section 4.1. Qualification;
Organization, Subsidiaries, etc. Each of
Parent and Merger Sub is a legal entity duly organized, validly
existing and in good standing under the Laws of its respective
jurisdiction of organization and has all requisite corporate or
similar power and authority to own, lease and operate its
properties and assets and to carry on its business as presently
conducted and is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the
ownership, leasing or operation of its assets or properties or
conduct of its business requires such qualification, except
where the failure to be so organized, validly existing,
qualified or in good standing, or to have such power or
authority, would not, individually or in the aggregate, prevent
or materially delay or materially impair the ability of Parent
or Merger Sub to consummate the Merger and the other
transactions contemplated by this Agreement (a Parent
Material Adverse Effect). Parent has made available to
the Company prior to the date of this Agreement a true and
complete copy of the certificate of incorporation and bylaws or
other equivalent organizational documents of Parent and Merger
Sub, each as amended through the date of this Agreement. The
certificate of incorporation and bylaws or similar
organizational documents of Parent and Merger Sub are in full
force and effect, except as would not have, individually or in
the aggregate, a Parent Material Adverse
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Effect. Neither Parent nor Merger Sub is in violation of any
provisions of its certificate of incorporation or bylaws or
similar organizational documents, other than such violations as
would not have, individually or in the aggregate, a Parent
Material Adverse Effect.
Section 4.2. Corporate
Authority Relative to This Agreement; No Violation.
(a) Each of Parent and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement
have been duly and validly authorized by the Boards of Directors
of Parent and Merger Sub and by Parent, as the sole stockholder
of Merger Sub, and, except for the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, no
other corporate proceedings on the part of Parent or Merger Sub
are necessary to authorize this Agreement or the consummation of
the transactions contemplated by this Agreement. This Agreement
has been duly and validly executed and delivered by Parent and
Merger Sub and, assuming this Agreement constitutes the valid
and binding agreements of the Company, this Agreement
constitutes the valid and binding agreement of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in
accordance with its terms.
(b) Other than in connection with or in compliance with
(i) the provisions of the DGCL, (ii) the Exchange Act,
state securities, takeover and blue sky laws and
(iii) the HSR Act (collectively, the Parent
Approvals), no authorization, consent, permit, action
or approval of, or filing with, or notification to, any
Governmental Entity is necessary for the consummation by Parent
or Merger Sub of the transactions contemplated by this
Agreement, except for such authorizations, consents, permits,
actions, approvals, notifications or filings, that, if not
obtained or made, would not have, individually or in the
aggregate, a Parent Material Adverse Effect.
(c) The execution and delivery by Parent and Merger Sub of
this Agreement does not, and, except as described in
Section 4.2(b), the consummation of the transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not (i) result in any
violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any material
obligation or to the loss of a material benefit under any loan,
guarantee of Indebtedness or credit agreement, note, bond,
mortgage, indenture, lease, agreement, contract, instrument,
permit, franchise or license agreement binding upon Parent or
any of its Subsidiaries, or to which any of them is a party or
any of their respective properties are bound, or result in the
creation of any Lien (other than Permitted Liens) upon any of
the properties or assets of Parent or any of its Subsidiaries,
(ii) conflict with or result in any violation of any
provision of the certificate of incorporation or bylaws or other
equivalent organizational document, in each case as amended, of
Parent or any of its Subsidiaries or (iii) conflict with or
violate any applicable Laws, other than, in the case of
clauses (i) and (iii), any such violation, conflict,
default, termination, cancellation, acceleration, right, loss or
Lien that would not have, individually or in the aggregate, a
Parent Material Adverse Effect.
Section 4.3. Investigations;
Litigation. There is no investigation or
review pending (or, to the knowledge of Parent, threatened) by
any Governmental Entity with respect to Parent or any of its
Subsidiaries which would have, individually or in the aggregate,
a Parent Material Adverse Effect, and there are no actions,
suits, inquiries, investigations or proceedings pending (or, to
Parents knowledge, threatened) against or affecting Parent
or its Subsidiaries, or any of their respective properties at
law or in equity before, and there are no orders, judgments or
decrees of, or before, any Governmental Entity, in each case,
which would have, individually or in the aggregate, a Parent
Material Adverse Effect.
Section 4.4. Schedule 13E-3/Proxy
Statement; Other Information. None of the
information provided by Parent or its Subsidiaries to be
included in the
Schedule 13E-3
or the Proxy Statement will, in the case of the
Schedule 13E-3,
as of the date of its filing and of each amendment or supplement
thereto and, in the case of the Proxy Statement, (i) at the
time of the mailing of the Proxy Statement or any amendments or
supplements thereto and (ii) at the time of the Company
Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, neither Parent nor Merger Sub
makes any representation or warranty with respect to any
information supplied by the Company or any of its
Representatives that is contained or incorporated by reference
in the Proxy Statement or the
Schedule 13E-3.
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Section 4.5. Financing. Section 4.5
of the Parent Disclosure Schedule sets forth true, accurate and
complete copies of (a) executed equity commitment letters
to provide equity financing to Parent
and/or
Merger Sub and (b) an executed debt commitment letter and
related term sheets (the Debt Commitment
Letter and together with the equity commitment letters
described in clause (a), the Financing
Commitments) pursuant to which, and subject to the
terms and conditions thereof, certain lenders and their
affiliates have committed to provide and arrange the financings
described therein, the proceeds of which may be used to
consummate the Merger and the other transactions contemplated by
this Agreement (the Debt Financing and
together with the equity financing referred to in
clause (a), the Financing). As of the
date of this Agreement, (i) the Financing Commitments are
in full force and effect and have not been withdrawn or
terminated or otherwise amended or modified in any respect
(except as permitted by this Agreement) and (ii) neither
Parent nor Merger Sub is in breach of any of the terms or
conditions set forth therein and no event has occurred which,
with or without notice, lapse of time or both, could reasonably
be expected to constitute a breach or failure to satisfy a
condition precedent set forth in the Financing Commitments. As
of the date of this Agreement, subject to the accuracy of the
representations and warranties of the Company set forth in
Article III hereof, and the satisfaction of the conditions
set forth in Sections 6.1 and 6.3 hereof, neither Parent
nor Merger Sub has any reason to believe that it will be unable
to satisfy the conditions of closing to be satisfied by it set
forth in the Financing Commitments on the Closing Date. Assuming
the funding of the Financing in accordance with the Financing
Commitments, the proceeds from such Financing constitute all of
the financing required for the consummation of the transactions
contemplated by this Agreement, and, together with cash on hand
from operations of the Company (assuming for such purposes that,
as of the Closing Date, such cash on hand will equal
$50 million and outstanding indebtedness for borrowed money
(excluding guarantees) will equal $308 million), are
sufficient for the satisfaction of all of Parents and
Merger Subs obligations under this Agreement, including
the payment of the Merger Consideration and the Option and
Stock-Based Award Consideration (and any fees and expenses of or
payable by Parent, Merger Sub or the Surviving Corporation). All
of the conditions precedent to the obligations of the lenders
under the Debt Commitment Letter to make the Debt Financing
available to Parent
and/or
Merger Sub are set forth in the Debt Commitment Letter, and the
equity commitment letter contains all of the conditions
precedent to the obligations of the funding party to make the
equity financing thereunder available to Parent
and/or
Merger Sub on the terms therein. Notwithstanding anything in
this Agreement to the contrary, one or more Debt Commitment
Letters may be amended, modified, supplemented, restated or
superseded at the option of Parent and Merger Sub after the date
hereof but prior to the Effective Time (the New
Financing Commitments); provided that the terms
of any New Financing Commitment shall not (i) reduce the
aggregate amount of the Financing, (ii) expand upon the
conditions precedent to the Financing as set forth in the Debt
Commitment Letter in any respect that would reasonably be
expected to make such conditions less likely to be satisfied, or
(iii) reasonably be expected to delay the Closing. In such
event, the terms Debt Commitment Letter and
Financing Commitments as used herein shall be deemed
to include the Debt Commitment Letters that are not so amended,
modified, supplemented, restated or superseded at the time in
question and the New Financing Commitments to the extent then in
effect. Parent has also delivered to the Company a guarantee
(each, a Guarantee) addressed to the Company
from each of (x) Catterton Partners VI, L.P. and Catterton
Partners VI, Offshore, L.P. and (y) Bain Capital
Fund IX, L.P. (collectively, the
Guarantors) with respect to certain matters
on the terms specified therein. Each Guarantee is in full force
and effect and is a legal, valid and binding obligation of the
Guarantor subject thereto.
Section 4.6. Capitalization
of Merger Sub. As of the date of this
Agreement, the authorized capital stock of Merger Sub consists
of 1,000 shares of common stock, par value $0.01 per
share, all of which are validly issued and outstanding. All of
the issued and outstanding capital stock of Merger Sub is, and
at the Effective Time will be, owned by Parent or a direct or
indirect wholly owned Subsidiary of Parent. Merger Sub has
outstanding no option, warrant, right, or any other agreement
pursuant to which any person other than Parent may acquire any
equity security of Merger Sub. Merger Sub has not conducted any
business prior to the date of this Agreement and has, and prior
to the Effective Time will have, no assets, liabilities or
obligations of any nature other than those incident to its
formation and pursuant to this Agreement and the Merger and the
other transactions contemplated by this Agreement.
Section 4.7. No
Vote of Parent Stockholders. No vote of the
stockholders of Parent or the holders of any other securities of
Parent (equity or otherwise) is required by any applicable Law,
the certificate of incorporation or
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bylaws or other equivalent organizational documents of Parent or
the applicable rules of any exchange on which securities of
Parent are traded, in order for Parent to consummate the
transactions contemplated by this Agreement.
Section 4.8. Finders
or Brokers. Neither Parent nor any of its
Subsidiaries has employed any investment banker, broker or
finder in connection with the transactions contemplated by this
Agreement who is entitled to any fee or any commission in
connection with or upon consummation of the Merger.
Section 4.9. Lack
of Ownership of Company Common Stock. Neither
Parent nor any of its Subsidiaries beneficially owns, directly
or indirectly, any shares of Company Common Stock or other
securities convertible into, exchangeable into or exercisable
for shares of Company Common Stock. There are no voting trusts
or other agreements, arrangements or understandings to which
Parent or any of its Subsidiaries is a party with respect to the
voting of the capital stock or other equity interest of the
Company or any of its Subsidiaries nor are there any agreements,
arrangements or understandings to which Parent or any of its
Subsidiaries is a party with respect to the acquisition,
divestiture, retention, purchase, sale or tendering of the
capital stock or other equity interest of the Company or any of
its Subsidiaries.
Section 4.10. Interest
in Competitors. Neither Parent nor Merger Sub
owns any interest(s), nor do any of their respective affiliates
insofar as such affiliate-owned interests would be attributed to
Parent or Merger Sub under the HSR Act, in any entity or person
that derives a substantial portion of its revenues from a line
of business within the Companys principal lines of
business.
Section 4.11. WARN
Act. Parent and Merger Sub are neither
planning nor contemplating, and Parent and Merger Sub have
neither made nor taken, any decisions or actions concerning the
Company Employees after the Closing that would require the
service of notice under the WARN Act or similar local laws.
Section 4.12. No
Additional Representations.
(a) Parent acknowledges that, to its knowledge, as of the
date hereof, it and its Representatives have received access to
such books and records, facilities, equipment, contracts and
other assets of the Company which it and its Representatives, as
of the date hereof, have requested to review, and that it and
its Representatives have had full opportunity to meet with the
management of the Company and to discuss the business and assets
of the Company.
(b) Parent acknowledges that neither the Company nor any
person has made any representation or warranty, express or
implied, as to the accuracy or completeness of any information
regarding the Company furnished or made available to Parent and
its Representatives except as expressly set forth in
Article III (which includes the Company Disclosure Schedule
and the Company SEC Documents), and neither the Company nor any
other person shall be subject to any liability to Parent or any
of its affiliates resulting from the Companys making
available to Parent or Parents use of such information
provided or made available to Parent or its Representatives, or
any information, documents or material made available to Parent
in the due diligence materials provided to Parent, other
management presentations (formal or informal) or in any other
form in connection with the transactions contemplated by this
Agreement. Without limiting the foregoing, the Company makes no
representation or warranty to Parent with respect to any
financial projection or forecast relating to the Company or any
of its Subsidiaries, whether or not included in any management
presentation.
Section 4.13. Solvency. Assuming
(a) satisfaction of the conditions to the obligation of
Parent and Merger Sub to consummate the Merger, (b) the
accuracy of the representation as warranties of the Company set
forth in Article III hereof and (c) the Required
Financial Information fairly present the consolidated financial
condition of the Company and its Subsidiaries as at the end of
the periods covered thereby and the consolidated results of
operations of the Company and its Subsidiaries for the periods
covered thereby, then immediately after giving effect to the
transactions contemplated by this Agreement (including any
financing in connection with the transactions contemplated by
this Agreement), as of the Closing Date, (i) the aggregate
fair saleable value of the assets of the Surviving
Corporation and its consolidated Subsidiaries, taken as a whole,
as of such date, exceeds (A) the value of all
liabilities of the Surviving Corporation and its
consolidated Subsidiaries, taken as a whole, including
contingent and other liabilities, as of such date, as such
quoted terms are generally determined in accordance with
applicable federal laws governing determinations of the
insolvency of debtors, and (B) the amount that will be
required to pay the probable liabilities of the Surviving
Corporation and its consolidated Subsidiaries, taken as a whole,
on their existing debts (including contingent liabilities) as
such debts become absolute and matured, (ii) the Surviving
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Corporation and its consolidated Subsidiaries, taken as a whole,
do not have, as of such date, an unreasonably small amount of
capital for the operation of their businesses in which they are
engaged or proposed to be engaged following such date, and
(iii) the Surviving Corporation and its consolidated
Subsidiaries, taken as a whole, will be able to pay its
liabilities, including contingent and other liabilities, as they
mature.
Section 4.14. Management
Agreements. Other than this Agreement, there
are no contracts, undertakings, commitments, agreements or
obligations or understandings between Parent or Merger Sub or
any of their affiliates, on the one hand, and any member of the
Companys management or the Board of Directors or any
Participating Holders, on the other hand relating to the
transactions contemplated by this Agreement or the operations of
the Company after the Effective Time.
ARTICLE V
CERTAIN
AGREEMENTS
Section 5.1. Conduct
of Business by the Company and Parent.
(a) From and after the date of this Agreement and prior to
the Effective Time or the date, if any, on which this Agreement
is earlier terminated pursuant to Section 7.1 (the
Termination Date), and except (i) as may
be required by applicable Law, (ii) as may be agreed in
writing by Parent (which consent shall not be unreasonably
withheld, delayed or conditioned), (iii) as may be
required, permitted or expressly contemplated by this Agreement
or (iv) as set forth in Section 5.1 of the Company
Disclosure Schedule, the Company agrees with Parent that
(A) the business of the Company and its Subsidiaries shall
be conducted in, and such entities shall not take any action
except in, the ordinary course of business and (B) the
Company shall use commercially reasonable efforts to direct the
business of the Company Joint Ventures to be conducted in the
ordinary course of business; provided, however,
that no action by the Company or its Subsidiaries or the Company
Joint Ventures with respect to matters specifically addressed by
any provision of Section 5.1(b) shall be deemed a breach of
this sentence unless such action would constitute a breach of
such other provision.
(b) The Company agrees with Parent, on behalf of itself and
its Subsidiaries, that between the date of this Agreement and
the Effective Time or the Termination Date, without the prior
written consent of Parent (which consent shall not be
unreasonably withheld, delayed or conditioned), the Company:
(i) except in the ordinary course of business consistent
with past practice, shall not, and shall not permit any of its
Subsidiaries that is not wholly owned to, authorize, declare or
pay any dividends on or make any distribution with respect to
its outstanding shares of capital stock (whether in cash,
assets, stock or other securities of the Company or its
Subsidiaries), except (A) dividends and distributions paid
or made on a pro rata basis by Subsidiaries and (B) that
the Company may continue to pay regular quarterly cash
dividends, which are declared, announced and paid prior to the
Closing Date, on the Company Common Stock consistent with past
practice (not to exceed $0.13 per share per quarter);
(ii) shall not, and shall not permit any of its
Subsidiaries to, split, combine or reclassify any of its capital
stock or other equity securities 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
other equity securities, except for any such transaction by a
wholly owned Subsidiary of the Company which remains a wholly
owned Subsidiary after consummation of such transaction;
(iii) except as required by existing written agreements or
Company Benefit Plans, or as otherwise required by applicable
Law (including Section 409A of the Code), shall not, and
shall not permit any of its Subsidiaries to (A) except in
the ordinary course of business or as may be required by
contract, increase the compensation or other benefits payable or
provided to the Companys present or former directors or
officers, (B) except in the ordinary course of business,
approve or enter into any employment, change of control,
severance or retention agreement with any employee of the
Company (except (1) to the extent necessary to attract a
new employee to replace an agreement with a departing employee,
(2) for employment agreements terminable on less than
thirty (30) days notice without penalty or severance
obligation or (3) for severance agreements entered into
with employees (other than officers) in the ordinary course of
business in connection
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with terminations of employment), or (C) except as
permitted pursuant to clause (B) above, establish,
adopt, enter into, amend, terminate or waive any rights with
respect to any (x) collective bargaining agreement or
(y) any plan, trust, fund, policy or arrangement for the
benefit of any current or former directors or officers or any of
their beneficiaries, except, in the case of
clause (y) only, as would not, individually or in the
aggregate, result in a material increase in cost to the Company;
(iv) shall not, and shall not permit any of its
Subsidiaries to, change in any material respects any financial
accounting policies or procedures or any of its methods of
reporting income, deductions or other material items for
financial accounting purposes, except as required by GAAP, SEC
rule or policy or applicable Law;
(v) shall not, and shall not permit any of its Subsidiaries
to, adopt any amendments to its certificate of incorporation or
bylaws or similar applicable charter documents;
(vi) except for transactions among the Company and its
wholly owned Subsidiaries or among the Companys wholly
owned Subsidiaries, shall not, and shall not permit any of its
Subsidiaries to, issue, sell, pledge, dispose of or encumber, or
authorize the issuance, sale, pledge, disposition or encumbrance
of, any shares of its capital stock or other ownership interest
in the Company or any Subsidiaries or any securities convertible
into or exchangeable for any such shares or ownership interest,
or any rights, warrants or options to acquire or with respect to
any such shares of capital stock, ownership interest or
convertible or exchangeable securities or take any action to
cause to be exercisable any otherwise unexercisable option under
any existing stock option plan (except as otherwise provided by
the terms of this Agreement or the express terms of any
unexercisable options outstanding on the date of this
Agreement), other than (A) issuances of shares of Company
Common Stock in respect of any exercise of Company Stock Options
and settlement of any Company Stock-Based Awards in each case
outstanding on the date of this Agreement or as set forth on
Section 5.1(b)(vi) of the Company Disclosure Schedule,
(B) issuances of shares of Company Common Stock in the
ordinary course of business pursuant to the Company Benefits
Plans, (C) the sale of shares of Company Common Stock
pursuant to the exercise of options to purchase Company Common
Stock if necessary to effectuate an optionee direction upon
exercise or for withholding of Taxes, and (D) the grant of
equity compensation awards in the ordinary course of business
consistent with past practice and as set forth in
Section 5.1(b)(vi) of the Company Disclosure Schedule;
(vii) except for transactions among the Company and its
wholly owned Subsidiaries or among the Companys wholly
owned Subsidiaries and except in the ordinary course of business
consistent with past practice, shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, purchase,
redeem or otherwise acquire any shares of its capital stock or
any rights, warrants or options to acquire any such shares;
(viii) shall not, and shall not permit any of its
Subsidiaries to, incur, assume, guarantee, prepay or otherwise
become liable for, modify in any material respect the terms of,
any indebtedness for borrowed money or become responsible for
the obligations of any person (directly, contingently or
otherwise), other than in the ordinary course of business
consistent with past practice and except for (A) any
intercompany indebtedness for borrowed money among the Company
and its wholly owned Subsidiaries or among the Companys
wholly owned Subsidiaries, (B) indebtedness for borrowed
money incurred to replace, renew, extend, refinance or refund
any existing indebtedness for borrowed money set forth on
subsections 1(c), 2, 3, 4, 5 or 6 of Section 3.24
of the Company Disclosure Schedule without increasing the amount
of such permitted borrowings or incurring breakage costs,
provided that any road shows or similar
marketing efforts of the Company, or syndication by its
financing sources, in connection with the replacement, renewal,
extension or refinancing of the existing indebtedness for
borrowed money set forth on subsection 1(c) of
Section 3.24 of the Company Disclosure Schedule shall not
occur during the Marketing Period and during the period
commencing five business days immediately prior to the Marketing
Period, (C) guarantees by the Company of indebtedness for
borrowed money of the Company, which indebtedness for borrowed
money is incurred in compliance with this
Section 5.1(b)(viii), (D) indebtedness for borrowed
money incurred pursuant to the terms of agreements in effect
prior to the execution of this Agreement, including amounts
available but not borrowed as of the date of this Agreement, to
the extent such agreements are set forth on Section 3.24 of
the Company Disclosure Schedule and (E) indebtedness for
borrowed money not to exceed $25 million in aggregate
principal amount
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outstanding at any time incurred by the Company or any of its
Subsidiaries other than in accordance with clauses (A)-(E),
inclusive;
(ix) except for transactions among the Company and its
wholly owned Subsidiaries or among the Companys wholly
owned Subsidiaries, shall not, and shall cause its Subsidiaries
not to, sell, lease, license, transfer, exchange or swap,
mortgage or otherwise encumber (including securitizations), or
subject to any Lien (other than Permitted Liens) or otherwise
dispose of (whether by merger, consolidation or acquisition of
stock or assets, license or otherwise, and including by way of
formation of a Company Joint Venture) any material portion of
its or its Subsidiaries material properties or assets,
including the capital stock of Subsidiaries, other than in the
ordinary course of business consistent with past practice and
other than (A) pursuant to existing agreements in effect
prior to the execution of this Agreement or (B) as may be
required by applicable Law or any Governmental Entity in order
to permit or facilitate the consummation of the transactions
contemplated by this Agreement;
(x) shall not, and shall not permit any of its Subsidiaries
to, modify, amend, terminate or waive any rights under any
Company Material Contract, or any Contract that would be a
Company Material Contract if in effect on the date of this
Agreement, in any material respect in a manner which is adverse
to the Company other than in the ordinary course of business;
(xi) shall not, and shall not permit any of its
Subsidiaries to, enter into any Company Material Contracts other
than in the ordinary course of business; and
(xii) shall not, and shall not permit any of its
Subsidiaries to, acquire (whether by merger, consolidation or
acquisition of stock or assets, license or otherwise)
(A) any corporation, partnership or other business
organization or division thereof or any assets, having a value
in excess of $3 million individually or $10 million in
the aggregate, other than purchases of inventory and other
assets in the ordinary course of business or (B) any direct
or indirect interest in any existing partnership, joint venture
or restaurant from any other holder of an interest in any of the
foregoing or any franchisee, other than in the case of this
clause (B) such acquisitions as are disclosed in
Section 5.1(xii) of the Company Disclosure Schedule;
(xiii) shall not, and shall not permit any of its
Subsidiaries to, open or close, or commit to open or close, any
restaurant locations or enter into any partnership or joint
venture, or authorize or make any other capital expenditures, in
each case other than in the ordinary course of business;
(xiv) shall not, and shall not permit any of its
Subsidiaries to, make any loans, advances or capital
contributions to, or investments in, any person, in each case
other than (A) in the ordinary course of business,
(B) pursuant to actions permitted by Section 5.1(xiii)
or (C) loans, advances and capital contributions to, and
investments in, the Company or a wholly owned Subsidiary of the
Company;
(xv) shall not, and shall not permit any of its
Subsidiaries to, enter into, amend, waive or terminate (other
than terminations in accordance with their terms) any Affiliate
Transaction, other than continuing any Affiliate Transactions in
existence on the date of this Agreement;
(xvi) shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Parent,
make any material amendment in any Tax Return other than in the
ordinary course of business or make or change any material Tax
election except in the ordinary course of business;
(xvii) shall not, and shall not permit any of its
Subsidiaries to, adopt or enter into a plan of complete or
partial liquidation, dissolution, restructuring,
recapitalization or other reorganization of the Company, or any
of its Subsidiaries (other than the Merger);
(xviii) shall not, and shall not permit any of its
Subsidiaries to, write up, write down or write off the book
value of any assets that are, individually or in the aggregate,
material to the Company and its Subsidiaries, taken as a whole,
other than (A) in the ordinary course of business or
(B) as may be required by GAAP or applicable Law;
(xix) shall not, and shall not permit any of its
Subsidiaries to, pay, discharge, waive, settle or satisfy any
claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than
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(A) in the ordinary course of business or (B) any
claim, liability or obligation not in excess of $3 million
individually or $10 million in the aggregate;
(xx) shall not, and shall not permit any of its
Subsidiaries to, agree, in writing or otherwise, or announce an
intention, to take any of the foregoing actions;
(xxi) shall not consent to or otherwise voluntarily agree
to guarantee or become liable for any indebtedness for borrowed
money in excess of amounts outstanding as of the date of this
Agreement of, or increase its obligations to make capital
contributions to, Kentucky Speedway; and
(xxii) shall use commercially reasonable efforts to direct
the business of the Company Joint Ventures to be conducted in
compliance with the provisions of this Section 5.1 as if
the Company Joint Ventures were Subsidiaries of the Company.
(c) Parent agrees with the Company, on behalf of itself and
its Subsidiaries and affiliates, that, between the date of this
Agreement and the Effective Time, Parent shall not, and shall
not permit any of its Subsidiaries or affiliates to, take or
agree to take any action (including entering into agreements
with respect to any acquisitions, mergers, consolidations or
business combinations) which would reasonably be expected to
result in, individually or in the aggregate, a Parent Material
Adverse Effect.
Section 5.2. Investigation.
(a) The Company shall afford to Parent and to its officers,
employees, accountants, consultants, legal counsel, financial
advisors, prospective financing sources and agents and other
representatives (collectively,
Representatives) reasonable access during
normal business hours, throughout the period prior to the
earlier of the Effective Time and the Termination Date, to its
and its Subsidiaries officers, employees, properties,
contracts, commitments, books and records and any report,
schedule or other document filed or received by it pursuant to
the requirements of applicable Laws and shall furnish Parent
with financial, operating and other data and information as
Parent, through its officers, employees or other authorized
representatives, may from time to time reasonably request in
writing. Notwithstanding the foregoing, the Company shall not be
required to afford such access if it would unreasonably disrupt
the operations of the Company or any of its Subsidiaries, would
cause a violation of any agreement to which the Company or any
of its Subsidiaries is a party, would cause a reasonable risk of
a loss of privilege to the Company or any of its Subsidiaries or
would constitute a violation of any applicable Law, nor shall
Parent or any of its Representatives be permitted to perform any
onsite procedure (including any onsite environmental study) with
respect to any property of the Company or any of its
Subsidiaries, except, with respect to any on site procedure,
with the Companys prior written consent (which consent
shall not be unreasonably withheld, delayed or conditioned if
such procedure is necessary for the Debt Financing).
(b) Parent hereby agrees that all information provided to
it or its Representatives in connection with this Agreement and
the consummation of the transactions contemplated by this
Agreement shall be deemed to be Evaluation Material, as such
term is used in, and shall be treated in accordance with, the
Confidentiality Agreement, dated as of June 9, 2006,
between the Company, Bain Capital Partners, LLC and Catterton
Partners (the Confidentiality Agreement).
Section 5.3. No
Solicitation.
(a) During the period beginning on the date of this
Agreement and continuing until 11:59 p.m. (New York time)
on the date that is fifty (50) days after the date of the
public announcement of this Agreement (the Solicitation
Period End Date), the Company, its Subsidiaries, and
their respective Representatives shall be permitted to, and
shall have the right to, directly or indirectly (acting under
the direction of the Special Committee) (i) solicit,
initiate or encourage any inquiry with respect to, or the
making, submission or announcement of, any Alternative Proposal
and (ii) participate in discussions or negotiations
regarding, and furnish to any person information with respect
to, and take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may lead to, an
Alternative Proposal; provided, however, that the
Company shall not, and shall not authorize or permit any of its
Subsidiaries or any Representative of the Company or its
Subsidiaries to, provide to any third party any material
non-public information unless the Company receives from such
third party an executed confidentiality agreement with
confidentiality provisions in form no more favorable to such
person than those confidentiality provisions
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contained in the Confidentiality Agreement. Parent agrees that
neither it nor any affiliate or Subsidiary of Parent shall, and
that it shall use its reasonable best efforts to cause its and
their respective Representatives not to, directly or indirectly,
contact, discourage, interfere with or participate in
discussions with, any person that, to Parents knowledge,
has made, or is considering or participating in discussions or
negotiations with the Company, its Subsidiaries or their
respective Representatives regarding, an Alternative Proposal.
(b) Subject to
Sections 5.3(c)-(e),
and except as it may relate to any person or group of related
persons from whom the Company has received, prior to the
Solicitation Period End Date, a written indication of interest
that the Special Committee or the Board of Directors reasonably
believes is bona fide and could reasonably be expected to result
in a Superior Proposal (each such person or group, an
Excluded Party), (A) on the Solicitation
Period End Date, the Company shall, and shall cause its
Subsidiaries to, and shall direct its and their respective
Representatives to, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect
to any Alternative Proposal and (B) during the period
beginning on the Solicitation Period End Date and continuing
until the Effective Time or, if earlier, the termination of this
Agreement in accordance with Article VII, the Company
agrees that neither it nor any Subsidiary of the Company shall,
and that it shall direct its and their respective
Representatives not to, directly or indirectly,
(i) solicit, initiate or knowingly facilitate or encourage
any inquiry with respect to, or the making, submission or
announcement of, any Alternative Proposal, (ii) participate
in any negotiations regarding an Alternative Proposal with, or
furnish any non-public information or access to its properties,
books, records or personnel to, any person that has made or, to
the Companys knowledge, is considering making an
Alternative Proposal, (iii) engage in discussions regarding
an Alternative Proposal with any person that has made or, to the
Companys knowledge, is considering making an Alternative
Proposal, except to notify such person as to the existence of
the provisions of this Section 5.3, (iv) approve,
endorse or recommend any Alternative Proposal, (v) enter
into any letter of intent or agreement in principle or any
agreement providing for any Alternative Proposal (except for
confidentiality agreements permitted under Section 5.3(c)),
(vi) otherwise cooperate with, or assist or participate in,
or knowingly facilitate or encourage any effort or attempt by
any person (other than Parent, Merger Sub or their
Representatives) with respect to, or which would reasonably be
expected to result in, an Alternative Proposal, or
(vii) exempt any person from the restrictions contained in
any state takeover or similar laws, including Section 203
of the DGCL or otherwise cause such restrictions not to apply.
The Company shall promptly inform its Representatives, and shall
cause its Subsidiaries promptly to inform their respective
Representatives, of the obligations under this
Section 5.3(b).
(c) Notwithstanding the limitations set forth in
Section 5.3(b), at any time from the Solicitation Period
End Date and continuing until the earlier of the receipt of the
Company Stockholder Approval and the Termination Date, if the
Company receives an unsolicited bona fide written Alternative
Proposal (A) which (i) constitutes a Superior Proposal
or (ii) which the Special Committee or the Board of
Directors determines in good faith could reasonably be expected
to result in a Superior Proposal and (B) the Special
Committee or the Board of Directors determines in good faith,
after consultation with the Special Committees or the
Companys legal counsel that the failure of the Special
Committee or the Board of Directors to take the actions set
forth in clauses (x) and (y) below with respect to
such Alternative Proposal would be inconsistent with the
directors exercise of their fiduciary obligations to the
Companys stockholders under applicable Law, then the
Company may take the following actions: (x) furnish
non-public information to the third party making such
Alternative Proposal (if, and only if, prior to so furnishing
such information, the Company receives from the third party an
executed confidentiality agreement with confidentiality
provisions in form no more favorable to such person than those
confidentiality provisions contained in the Confidentiality
Agreement) and (y) engage in discussions or negotiations
with such third party with respect to such Alternative Proposal.
(d) Other than in accordance with Section 5.3, neither
the Special Committee nor Board of Directors shall
(i) withdraw or modify, or propose publicly to withdraw or
modify in a manner adverse to Parent, the approval or
recommendation by the Special Committee or the Board of
Directors of the Merger or this Agreement or the other
transactions contemplated by this Agreement; (ii) approve,
adopt or recommend, or propose publicly to approve, adopt or
recommend, any Alternative Proposal; (iii) make any
recommendation in connection with a tender offer or exchange
offer other than a recommendation against such offer or
(iv) exempt any person from the restrictions contained in
any state takeover or similar laws, including Section 203
of the DGCL (each of the foregoing, a Change of
Recommendation); provided, however,
that, in response to the receipt of a Superior Proposal that has
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not been withdrawn or abandoned, the Special Committee or the
Board of Directors may, at any time, make a Change of
Recommendation if the Special Committee or the Board of
Directors has concluded in good faith, after consultation with
the Companys or the Special Committees legal and
financial advisors, that the failure of the Special Committee or
the Board of Directors to effect a Change of Recommendation
would be inconsistent with the directors exercise of their
fiduciary obligations to the Companys stockholders under
applicable Law. No Change of Recommendation shall change the
approval of the Special Committee or the Board of Directors for
purposes of causing any state takeover statute or other state
law to be inapplicable to the transactions contemplated by this
Agreement.
(e) Nothing in this Agreement shall prohibit or restrict
the Special Committee or the Board of Directors from making a
Change of Recommendation to the extent that the Special
Committee or the Board of Directors determines in good faith,
after consultation with the Companys or the Special
Committees legal counsel, that the failure of the Special
Committee or the Board of Directors to effect a Change of
Recommendation would be inconsistent with the directors
exercise of their fiduciary obligations to the Companys
stockholders under applicable Law.
(f) Nothing contained in this Agreement shall prohibit the
Company or its Board of Directors from disclosing to its
stockholders a position contemplated by
Rules 14d-9
and 14e-2(a)
promulgated under the Exchange Act.
(g) As used in this Agreement, Alternative
Proposal shall mean any bona fide proposal or offer
made by any person or group of persons (other than a proposal or
offer by Parent or any of its Subsidiaries) for (i) a
merger, reorganization, share exchange, consolidation, business
combination, recapitalization, dissolution, liquidation or
similar transaction involving the Company, (ii) the direct
or indirect acquisition in a single transaction or series of
related transactions by any person of twenty-five percent (25%)
or more of the assets of the Company and its Subsidiaries, taken
as a whole, (iii) the direct or indirect acquisition in a
single transaction or series of related transactions by any
person of twenty-five percent (25%) or more of the outstanding
shares of Company Common Stock, (iv) any tender offer or
exchange offer that if consummated would result in any person
beneficially owning twenty-five percent (25%) or more of the
Shares then outstanding, or (v) all or a substantial
portion of any Specified Concept (as defined below).
Specified Concept means each of the
restaurant chains known by the following names: Outback
Steakhouse, Bonefish Grill, Carrabbas Italian Grill,
Flemings Prime Steakhouse and Wine Bar and Roys.
(h) As used in this Agreement Superior
Proposal shall mean an Alternative Proposal (with all
percentages, in the definition of Alternative Proposal increased
to 50%) on terms that the Special Committee or the Board of
Directors determines in good faith, after consultation with the
Companys or the Special Committees financial
advisors and legal counsel, and considering such factors as the
Special Committee or the Board of Directors, as applicable,
consider to be appropriate (including the timing, ability to
finance, financial and regulatory aspects and likelihood of
consummation of such proposal, and any alterations to this
Agreement agreed to in writing by Parent in response thereto),
is more favorable to the Company and its stockholders than the
transactions contemplated by this Agreement.
Section 5.4. Filings;
Other Actions.
(a) The Company, Parent and Merger Sub shall each use all
reasonable efforts to take or cause to be taken such actions as
may be required to be taken under the Exchange Act any other
federal securities Laws, and under any applicable state
securities or blue sky Laws in connection with the
Merger and the other transactions contemplated by this
Agreement, including the Proxy Statement and the
Schedule 13E-3.
In connection with the Merger and the Company Meeting, the
Company shall prepare and file with the SEC the Proxy Statement
and the
Schedule 13E-3
relating to the Merger and the other transactions contemplated
by this Agreement, and the Company and Parent shall use all
reasonable efforts to respond to the comments of the SEC and to
cause the Proxy Statement to be mailed to the Companys
stockholders, all as promptly as reasonably practicable;
provided, however, that prior to the filing of the
Proxy Statement and the
Schedule 13E-3,
the Company shall consult with Parent with respect to such
filings and shall afford Parent or its Representatives
reasonable opportunity to comment thereon. Parent and Merger Sub
shall provide the Company with any information for inclusion in
the Proxy Statement and the
Schedule 13E-3
which may be required under applicable Law
and/or which
is reasonably requested by the Company. The Company shall notify
Parent of the receipt of comments of the SEC and of any
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request from the SEC for amendments or supplements to the Proxy
Statement or the
Schedule 13E-3
or for additional information, and will promptly supply Parent
with copies of all correspondence between the Company 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,
the
Schedule 13E-3
or the Merger. Each of the Company, Parent and Merger Sub shall
use its respective reasonable best efforts to resolve all SEC
comments with respect to the Proxy Statement and the
Schedule 13E-3
and any other required filings as promptly as practicable after
receipt thereof. Each of the Company, Parent and Merger Sub
agree to correct any information provided by it for use in the
Proxy Statement which shall have become false or misleading. If
at any time prior to the Company Meeting any event should occur
which is required by applicable Law to 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. In such case, the
Company, with the cooperation of Parent, will, upon learning of
such event, promptly prepare and file such amendment or
supplement with the SEC to the extent required by applicable Law
and shall mail such amendment or supplement to the
Companys stockholders to the extent required by applicable
Law; provided, however, that prior to such filing,
the Company shall consult with Parent with respect to such
amendment or supplement and shall afford Parent or its
Representatives reasonable opportunity to comment thereon.
Notwithstanding the forgoing, the Company shall have no
obligation to notify Parent of any matters to the extent that
the Special Committee or the Board of Directors determines in
good faith, after consultation with the Companys or the
Special Committees legal counsel, that to do so would be
inconsistent with the directors exercise of their
fiduciary obligations to the Companys stockholders under
applicable Law.
(b) Prior to the earlier of the Effective Time or the
Termination Date, the Company and Parent shall cooperate with
each other in order to lift any injunctions or remove any other
legal impediment to the consummation of the transactions
contemplated by this Agreement.
(c) Subject to the other provisions of this Agreement, the
Company shall (i) take all action necessary in accordance
with the DGCL and its amended and restated certificate of
incorporation and bylaws to duly call, give notice of, convene
and hold a meeting of its stockholders as promptly as reasonably
practicable following the mailing of the Proxy Statement for the
purpose of obtaining the Company Stockholder Approval (the
Company Meeting) (including mailing the Proxy
Statement as soon as reasonably practicable after the SEC has
cleared the Proxy Statement and holding the Company Meeting no
later than 30 days after mailing the Proxy Statement,
unless a later date is mutually agreed by the Company and by
Parent), (ii) include in the Proxy Statement the
recommendation of the Board of Directors, based on the unanimous
recommendation of the Special Committee, that the stockholders
of the Company vote in favor of the adoption of this Agreement
and, subject to the approval of the Advisors, as applicable, the
written opinions of the Advisors, dated as of the date of this
Agreement, that, as of such date, the Merger Consideration is
fair, from a financial point of view, to the holders of the
Company Common Stock and (iii) use all reasonable efforts
to solicit from its stockholders proxies in favor of the
approval of this Agreement and the transactions contemplated by
this Agreement.
(d) Notwithstanding anything herein to the contrary, unless
this Agreement is terminated in accordance with
Article VII, the Company will take all of the actions
contemplated by Section 5.4(a) and Section 5.4(c)
regardless of whether the Board of Directors (acting through the
Special Committee, if then in existence) has approved, endorsed
or recommended an Alternative Proposal or has withdrawn,
modified or amended the Recommendation, and will submit this
Agreement for adoption by the stockholders of the Company at the
Company Meeting. Notwithstanding anything to the contrary
contained in this Agreement, the Company shall not be required
to hold the Company Meeting if this Agreement is terminated in
accordance with Article VII.
Section 5.5. Stock
Options and Other Stock-Based Awards; Employee Matters.
(a) Stock Options and Other Stock-Based
Awards. Except as otherwise agreed to in
writing between the Company, Parent, Merger Sub and certain
members of management of the Company listed in Schedule A
to this Agreement, and solely with respect to such members of
management of the Company and to the extent specified in such
Section of the Parent Disclosure Schedules:
(i) Each option to purchase shares of Company Common Stock
(each, a Company Stock Option) granted under
the Company Stock Plans or otherwise, whether vested or
unvested, that is outstanding immediately prior to the Effective
Time shall, as of the Effective Time, become fully vested and be
converted into the right to receive at the Effective Time an
amount in cash in U.S. dollars equal to the product of
(x) the
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total number of shares of Company Common Stock subject to such
Company Stock Option and (y) the excess, if any, of the
amount of the Merger Consideration over the exercise price per
share of Company Common Stock subject to such Company Stock
Option, with the aggregate amount of such payment rounded down
to the nearest cent (the aggregate amount of such cash
hereinafter referred to as the Option
Consideration) less such amounts as are required to be
withheld or deducted under the Code or any provision of state,
local or foreign Tax Law with respect to the making of such
payment.
(ii) At the Effective Time, each account under the
Companys Directors Deferred Compensation Plan, as
amended, (each, a Directors Award
Account), shall become fully vested and payable and
shall entitle the holder thereof to receive, at the Effective
Time, an amount in cash equal to the Merger Consideration in
respect of each notional Share credited to the holder under his
or her Director Award Account.
(iii) Immediately prior to the Effective Time, each award
of restricted Company Common Stock (the Restricted
Shares) shall be converted into the right to receive
the Merger Consideration in an amount as determined under
Section 2.1(a), payable on a deferred basis at the time
that the underlying Restricted Shares would have vested under
their terms as in effect immediately prior to the Effective Time
plus earnings thereon (as described below), less such amounts as
are required to be withheld or deducted under the Code or any
provision of state, local or foreign Tax Law with respect to the
making of such payment and subject to the satisfaction by the
holder of such Restricted Shares of all terms and conditions to
which such vesting was subject under the terms of the Restricted
Shares as in effect immediately prior to the Effective Time,
including without limitation all forfeiture provisions,
provided, however, that the holders deferred
cash account will become immediately vested and payable upon
termination of such holders employment by the Company
without cause or upon the individuals death or disability.
If the holder of such Restricted Shares fails to satisfy such
terms and conditions (as modified hereby), such holder shall
forfeit his or her right to such Merger Consideration and any
earnings thereon, and such amounts shall revert and be forfeited
to Parent. Effective as of the Effective Time, Parent shall
establish a grantor trust and shall deposit therein the Merger
Consideration attributable to the Restricted Shares. From and
after the Effective Time, Parent shall cause such amounts to be
invested at the option of the account holder in a money market
fund or an S&P 500 Index Fund and shall cause the earnings
on such amounts to be credited to the accounts under such
grantor trust of the former holders of the Restricted Shares.
(iv) At the Effective Time, all amounts held in the
accounts denominated in shares of Company Common Stock under the
Partner Equity Deferred Compensation Stock Plan component of the
OSI Restaurant Partners, Inc. Partner Equity Plan (the
PEP) (each, a Deferred Unit
Account) shall be converted into an obligation to pay
cash with a value equal to the product of (A) the Merger
Consideration and (B) the number of shares of Company
Common Stock deemed held in such Deferred Unit Account, in
accordance with the payment schedule and consistent with the
terms of the PEP as in effect from time to time. For purposes of
this Agreement, Company Stock-Based Awards
means the obligations denominated in and measured by reference
to shares of Company Common Stock that are credited to the
accounts under the Directors Deferred Compensation Plan,
as amended, and the Partner Equity Deferred Compensation Stock
Plan component of the PEP.
(v) Prior to the Effective Time, the Board of Directors or
the Compensation Committee of the Board of Directors, as
applicable, shall adopt amendments to the Company Stock Plans
and the applicable Company Benefit Plans with respect to Company
Stock Options, Company Stock-Based Awards and Restricted Shares
to implement the foregoing provisions of
Sections 5.5(a)(i), 5.5(a)(ii), 5.5(a)(iii) and 5.5(a)(iv).
(b) Employee Matters.
(i) From and after the Effective Time, Parent shall honor
all Company Benefit Plans and compensation arrangements and
agreements in accordance with their terms as in effect
immediately before the Effective Time. For a period of two years
following the Effective Time, Parent shall provide or cause to
be provided, to each current employee of the Company and its
Subsidiaries (Company Employees) total
compensation and benefits that are substantially comparable in
the aggregate to the total compensation and benefits provided to
Company Employees immediately before the Effective Time (giving
consideration to equity-based compensation, equity-based
benefits and nonqualified deferred compensation programs;
provided, however, that Parent shall not be
required to provide
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equity-based compensation, equity-based benefits and
nonqualified deferred compensation programs); provided,
however, that nothing herein shall prevent the amendment
or termination of any Company Benefit Plan or interfere with
Parents or any of its Subsidiaries right or
obligation to make such changes as are necessary to conform with
applicable Law or shall cause or require the extension, renewal
or amendment of, or prevent the expiration of, any employment
agreement which shall expire, terminate or fail to renew
pursuant to its terms during such period.
(ii) For all purposes (including purposes of vesting,
eligibility to participate and level of benefits) under the
employee benefit plans providing benefits to any Company
Employees after the Effective Time (the New
Plans), each Company Employee shall be credited with
his or her years of service with the Company and its
Subsidiaries and their respective predecessors before the
Effective Time, to the same extent as such Company Employee was
entitled, before the Effective Time, to credit for such service
under any similar Company employee benefit plan in which such
Company Employee participated or was eligible to participate
immediately prior to the Effective Time, provided that
the foregoing shall not apply with respect to benefit accrual
under any defined benefit pension plan or to the extent that its
application would result in a duplication of benefits with
respect to the same period of service. In addition, and without
limiting the generality of the foregoing, (A) each Company
Employee shall be immediately eligible to participate, without
any waiting time, in any and all New Plans to the extent
coverage under such New Plan is comparable to a Company Benefit
Plan in which such Company Employee participated immediately
before the consummation of the Merger (such plans, collectively,
the Old Plans), and (B) for purposes of
each New Plan providing medical, dental, pharmaceutical
and/or
vision benefits to any Company Employee, Parent shall cause all
pre-existing condition exclusions and
actively-at-work
requirements of such New Plan to be waived for such employee and
his or her covered dependents, unless such conditions would not
have been waived under the comparable Old Plans of the Company
or its Subsidiaries in which such employee participated
immediately prior to the Effective Time and Parent shall cause
any eligible expenses incurred by such employee and his or her
covered dependents during the portion of the plan year of the
Old Plan ending on the date such employees participation
in the corresponding New Plan begins to be taken into account
under such New Plan for purposes of satisfying all deductible,
coinsurance and maximum
out-of-pocket
requirements applicable to such employee and his or her covered
dependents for the applicable plan year as if such amounts had
been paid in accordance with such New Plan.
(iii) The parties hereto agree to the additional matters
set forth on Section 5.5(b)(iii) to the Company Disclosure
Schedule.
Section 5.6. Reasonable
Best Efforts.
(a) Subject to the terms and conditions set forth in this
Agreement, each of the parties hereto shall use (and cause its
affiliates to use) its reasonable best efforts (subject to, and
in accordance with, applicable Law) to take promptly, or cause
to be taken promptly, all actions, and to do promptly, or cause
to be done promptly, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable
under applicable Laws to consummate and make effective the
Merger and the other transactions contemplated by this
Agreement, including (i) obtaining all necessary actions or
nonactions, waivers, consents and approvals, including the
Company Approvals and the Parent Approvals, from Governmental
Entities and making all necessary registrations and filings and
taking all steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) obtaining all necessary consents,
approvals or waivers from third parties and all consents,
approvals and waivers from third parties reasonably requested by
Parent to be obtained in respect of the Company Material
Contracts in connection with the Merger, this Agreement or the
transactions contemplated by this Agreement,
(iii) defending any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement
or the consummation of the Merger and the other transactions
contemplated by this Agreement and (iv) executing and
delivering any additional instruments necessary to consummate
the Merger and the other transactions contemplated by this
Agreement; provided, however, that prior to the
Effective Time in no event shall the Company or any of its
Subsidiaries be required to pay or, absent the prior written
consent of Parent (such consent not to be unreasonably withheld,
conditioned or delayed), pay or commit to pay any material fee,
material penalties or other material consideration to any
landlord or other third party to obtain any consent, approval or
waiver required for the consummation of the Merger under any
real estate leases or Company Material Contracts.
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(b) Subject to the terms and conditions herein provided and
without limiting the foregoing, the Company and Parent shall
(i) promptly, but in no event later than fifteen
(15) business days after the date of this Agreement, make
their respective filings and thereafter make any other required
submissions under the HSR Act; (ii) use reasonable best
efforts to cooperate with each other in (x) determining
whether any filings are required to be made with, or consents,
permits, authorizations, waivers or approvals are required to be
obtained from, any third parties or other Governmental Entities
in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated by this
Agreement and (y) timely making all such filings and timely
seeking all such consents, permits, authorizations or approvals;
(iii) use reasonable best efforts to take, or cause to be
taken, all other actions and do, or cause to be done, all other
things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement,
including taking all such further action as reasonably may be
necessary to resolve such objections, if any, as the United
States Federal Trade Commission, the Antitrust Division of the
United States Department of Justice, state antitrust enforcement
authorities or competition authorities of any other nation or
other jurisdiction or any other person may assert under
Regulatory Law with respect to the transactions contemplated by
this Agreement, and to avoid or eliminate each and every
impediment under any Law that may be asserted by any
Governmental Entity with respect to the Merger so as to enable
the Closing to occur as soon as reasonably possible (and in any
event no later than the End Date), including (x) proposing,
negotiating, committing to and effecting, by consent decree,
hold separate order or otherwise, the sale, divestiture or
disposition of such assets or businesses of Parent or its
Subsidiaries or affiliates or of the Company or its Subsidiaries
and (y) otherwise taking or committing to take actions that
after the Closing Date would limit the freedom of Parent or its
Subsidiaries (including the Surviving Corporations)
or affiliates freedom of action with respect to, or its
ability to retain, one or more of its or its Subsidiaries
(including the Surviving Corporations) businesses, product
lines or assets, in each case as may be required in order to
avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order in any
suit or proceeding which would otherwise have the effect of
preventing or materially delaying the Closing;
(iv) promptly inform the other party upon receipt of any
material communication from the United States Federal Trade
Commission, the Antitrust Division of the United States
Department of Justice or any other Governmental Entity regarding
any of the transactions contemplated by this Agreement; and
(v) subject to applicable legal limitations and the
instructions of any Governmental Entity, keep each other
apprised of the status of matters relating to the completion of
the transactions contemplated thereby, including promptly
furnishing the other with copies of notices or other
communications received by the Company or Parent, as the case
may be, or any of their respective Subsidiaries, from any third
party and/or
any Governmental Entity with respect to such transactions. The
Company and Parent shall permit legal counsel for the other
party reasonable opportunity to review in advance, and consider
in good faith the views of the other party in connection with,
any proposed written communication to any Governmental Entity.
Each of the Company and Parent agrees not to
(A) participate in any substantive meeting or discussion,
either in person or by telephone, with any Governmental Entity
in connection with the proposed transactions unless it consults
with the other party in advance and, to the extent not
prohibited by such Governmental Entity, gives the other party
the opportunity to attend and participate, (B) extend any
waiting period under the HSR Act without the prior written
consent of the other party (such consent not to be unreasonably
withheld, conditioned or delayed) and (C) enter into any
agreement with any Governmental Entity not to consummate the
transactions contemplated by this Agreement without the prior
written consent of the other party (such consent not to be
unreasonably withheld, conditioned or delayed).
(c) In furtherance and not in limitation of the agreements
of the parties contained in this Section 5.6, if any
administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to
be instituted) challenging any transaction contemplated by this
Agreement as violative of any Regulatory Law, each of the
Company and Parent shall cooperate in all respects with each
other and shall use their respective reasonable best efforts to
contest and resist any such action or proceeding and to have
vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or
restricts consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing or any other provision
of this Agreement, nothing in this Section 5.6 shall limit
a partys right to terminate this Agreement pursuant to
Section 7.1(b) or 7.1(c) so long as such party has, prior
to such termination, complied with its obligations under this
Section 5.6.
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(d) For purposes of this Agreement, Regulatory
Law means the Sherman Act of 1890, the Clayton
Antitrust Act of 1914, the HSR Act, the Federal Trade Commission
Act of 1914 and all other federal, state or foreign statutes,
rules, regulations, orders, decrees, administrative and judicial
doctrines and other Laws, including any antitrust, competition
or trade regulation Laws, that are designed or intended to
(i) prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade or
lessening competition through merger or acquisition,
(ii) preserve or promote diversity of media ownership or
(iii) protect the national security or the national economy
of any nation.
Section 5.7. Takeover
Statute. If any fair price,
moratorium, control share acquisition or
other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated by this Agreement,
each of the Company and Parent and the members of their
respective Boards of Directors shall grant such approvals and
take such actions as are reasonably necessary so that the
transactions contemplated by this Agreement may be consummated
as promptly as practicable on the terms contemplated by this
Agreement and otherwise act to eliminate or minimize the effects
of such statute or regulation on the transactions contemplated
by this Agreement.
Section 5.8. Public
Announcements. The Company and Parent will
consult with and provide each other the reasonable opportunity
to review and comment upon any press release or other public
statement or comment prior to the issuance of such press release
or other public statement or comment relating to this Agreement
or the transactions contemplated by this Agreement and shall not
issue any such press release or other public statement or
comment prior to such consultation except as may be required by
applicable Law or by obligations pursuant to any listing
agreement with any national securities exchange. Parent and the
Company agree to issue a joint press release announcing this
Agreement.
Section 5.9. Indemnification
and Insurance.
(a) Parent and Merger Sub agree that all rights to
exculpation, indemnification and advancement of expenses now
existing in favor of the current or former directors, officers
or employees, as the case may be, of the Company or its
Subsidiaries as provided in their respective certificate of
incorporation or bylaws or other organization documents or in
any agreement shall survive the Merger and shall continue in
full force and effect. For a period of six (6) years from
the Effective Time, Parent and the Surviving Corporation shall
maintain in effect exculpation, indemnification and advancement
of expenses provisions no less favorable in the aggregate than
those of the Companys and any Company Subsidiarys
certificate of incorporation and bylaws or similar organization
documents in effect immediately prior to the Effective Time or
in any indemnification agreements of the Company or its
Subsidiaries with any of their respective directors, officers or
employees in effect immediately prior to the Effective Time, and
shall not amend, repeal or otherwise modify any such provisions,
for a period of six (6) years from the Effective Time, in
any manner that would adversely affect the rights thereunder of
any individuals who at the Effective Time were current or former
directors, officers or employees of the Company or any of its
Subsidiaries; provided, however, that all rights
to indemnification in respect of any Action pending or asserted
or any claim made within such period shall continue until the
disposition of such Action or resolution of such claim. From and
after the Effective Time, Parent shall assume, be jointly and
severally liable for, and honor, guaranty and stand surety for,
and shall cause the Surviving Corporation and its Subsidiaries
to honor, in accordance with their respective terms, each of the
agreements contained in this Section 5.9 without limit as
to time.
(b) Each of Parent and the Surviving Corporation shall, to
the fullest extent permitted under applicable Law, indemnify and
hold harmless (and advance funds in respect of each of the
foregoing) each current and former director or officer of the
Company or any of its Subsidiaries and each person who served as
a director, officer, member, trustee or fiduciary of another
corporation, partnership, joint venture, trust, pension or other
employee benefit plan or enterprise at the request of the
Company, in and to the extent of their capacities as such and
not as stockholders
and/or
equity holders of the Company or its Subsidiaries or otherwise
(each, together with such persons heirs, executors or
administrators, an Indemnified Party) against
any costs or expenses (including advancing attorneys fees
and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to
the fullest extent permitted by law), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in
connection with any actual or threatened claim, action, suit,
proceeding or investigation, whether civil, criminal,
administrative or investigative (an Action),
arising out of, relating to or in connection with any action or
omission occurring or alleged to have occurred whether before or
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after the Effective Time (including acts or omissions in
connection with such persons serving as an officer, director or
other fiduciary in any entity if such service was at the request
or for the benefit of the Company); provided,
however, that the Surviving Corporation will not be
liable for any settlement effected without the Surviving
Corporations prior written consent (such consent not to be
unreasonably withheld, conditioned or delayed). In the event of
any such Action, Parent and the Surviving Corporation shall
cooperate with the Indemnified Party in the defense of any such
Action.
(c) For a period of six (6) years from the Effective
Time, Parent shall cause to be maintained in effect the current
policies of directors and officers liability
insurance and fiduciary liability insurance maintained by the
Company and its Subsidiaries with respect to matters arising on
or before the Effective Time; provided, however,
that after the Effective Time, Parent shall not be required to
pay annual premiums in excess of 300% of the last annual premium
paid by the Company prior to the date of this Agreement in
respect of the coverages required to be obtained pursuant
hereto, but in such case shall purchase as much coverage as
reasonably practicable for such amount.
(d) Parent shall pay all reasonable expenses, including
reasonable attorneys fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other
obligations provided in this Section 5.9.
(e) The rights of each Indemnified Party hereunder shall be
in addition to, and not in limitation of, any other rights such
Indemnified Party may have under the certificate of
incorporation or bylaws or other organization documents of the
Company or any of its Subsidiaries or the Surviving Corporation,
any other indemnification arrangement, the DGCL or otherwise.
The provisions of this Section 5.9 shall survive the
consummation of the Merger and expressly are intended to
benefit, and are enforceable by, each of the Indemnified Parties.
(f) In the event Parent, the Surviving Corporation or any
of their respective successors or assigns (i) consolidates
with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person,
then, and in either such case, proper provision shall be made so
that the successors and assigns of Parent or the Surviving
Corporation, as the case may be, shall assume the obligations
set forth in this Section 5.9.
Section 5.10. Control
of Operations. Nothing contained in this
Agreement shall give Parent, directly or indirectly, the right
to control or direct the Companys operations prior to the
Effective Time. Prior to the Effective Time, the Company shall
exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its operations.
Section 5.11. Financing.
(a) Parent and Merger Sub shall use its reasonable best
efforts to obtain the Financing on the terms and conditions
described in the Financing Commitments, including using its
reasonable best efforts (i) to negotiate definitive
agreements with respect thereto on the terms and conditions
contained in the Financing Commitments, (ii) to satisfy all
conditions on a timely basis to obtaining the Financing
applicable to Parent and Merger Sub set forth in such definitive
agreements that are within its control, (iii) to comply
with its obligations under the Debt Commitment Letter and
(iv) to enforce its rights under the Debt Commitment
Letter. Parent shall give the Company prompt notice upon
becoming aware of any material breach by any party of the
Financing Commitments or any termination of the Financing
Commitments. Parent shall keep the Company informed on a
reasonable basis and in reasonable detail of the status of its
efforts to arrange the Debt Financing and shall not permit any
amendment or modification to be made to, or any waiver of any
material provision or remedy under, the Debt Commitment Letter
except as expressly permitted by Section 4.5. In the event
that Parent becomes aware of any event or circumstance that
makes procurement of any portion of the Financing unlikely to
occur in the manner or from the sources contemplated in the
Financing Commitments, Parent shall immediately notify the
Company and Parent and Merger Sub shall use their respective
reasonable best efforts to arrange any such portion from
alternative sources (such portion from alternate sources, the
Alternative Financing) on terms and
conditions, taken as a whole, no less favorable to Parent or
Merger Sub (as determined in the reasonable judgment of Parent
and Merger Sub). The Marketing Period for the
Debt Financing shall mean a period of 20 consecutive business
days after the Initiation Date throughout which (1) Parent
and Merger Sub shall have all the Required Financial Information
and all such information and data remains current, and
(2) the conditions set forth in Sections 6.1(b) and
6.1(c)(i) are and remain
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satisfied and nothing has occurred and no condition exists that
would reasonably be expected to cause any of the conditions set
forth in Section 6.3 to fail to be satisfied assuming the
Closing were to be scheduled for any time during such 20
consecutive business day period. For purposes of this Agreement,
Initiation Date shall mean the fifth business
day after the date that the Proxy Statement is first mailed to a
stockholder of the Company. For the avoidance of doubt, in the
event that (x) all or any portion of the Debt Financing
structured as high yield financing or real estate securitization
financing has not been consummated notwithstanding that the last
day of the Marketing Period shall have occurred, (y) all
closing conditions contained in Article VI (other than
those contained in Sections 6.2(c) and 6.3(c)) shall have
been satisfied or waived and (z) the bridge facilities
contemplated by the Debt Commitment Letter (or alternative
bridge financing obtained in accordance with this Agreement) and
the proceeds thereof are available on the terms and conditions
described in the Debt Commitment Letter (or replacement
thereof), then Parent and Merger Sub shall cause the proceeds of
such bridge financing to be used to replace such high yield
financing or real estate financing on the Closing pursuant to
the proviso to Section 1.2.
(b) The Company shall provide, shall cause its Subsidiaries
to provide, and shall use its reasonable best efforts to cause
its and their Representatives (including legal and accounting)
to provide, at Parents sole expense, all cooperation
reasonably requested by Parent and Merger Sub in connection with
the Financing or any Alternative Financing, including using
reasonable best efforts to (i) cause, upon reasonable
advance notice by Parent and on a reasonable number of
occasions, appropriate officers and employees to be available on
a customary basis for meetings, including management and other
presentations and road show appearances,
participation in drafting and due diligence sessions, and the
preparation of disclosure documents in connection with any such
financing, provided that any private placement memoranda
or prospectuses in relation to high yield debt securities need
not be issued by the Company or any of its Subsidiaries prior to
the Effective Time, provided further that any such
memoranda or prospectuses shall contain disclosure and financial
statements with respect to the Company or the Surviving
Corporation reflecting the Surviving Corporation
and/or its
Subsidiaries as the obligor; (ii) cause its independent
accountants and legal counsel to provide assistance to Parent
and Merger Sub (including providing customary comfort) for fees
consistent with the Companys existing arrangements with
such accountants and legal counsel; (iii) furnish Parent
and Merger Sub (which they may furnish to, and share with, their
financing sources) as promptly as practicable with such
financial and other pertinent information as may be reasonably
requested by Parent or Merger Sub, including the Core Financial
Information (collectively, the Required Financial
Information) (for purposes hereof, Core
Financial Information shall mean all financial
statements and financial data of the type required by
Regulation S-X
and
Regulation S-K
under the Securities Act (other than
Rule 3-10
of
Regulation S-X)
and of the type and form, and for the periods, customarily
included in private placements under Rule 144A of the
Securities Act to consummate the offerings of high yield debt
securities contemplated by the Debt Commitment Letter (including
replacements or restatements thereof, and supplements thereto,
if any such information would go stale or otherwise being
unusable for such purpose and in the case of annual financial
statements, the auditors report thereon) at the time
during the Companys fiscal year such offerings will be
made); (iv) cooperate with the marketing efforts of Parent,
Merger Sub and their financing sources for any portion of the
financings contemplated by the Debt Commitment Letter and assist
Parent, Merger Sub and their financing sources in the timely
preparation of offering documents and similar documents and
materials for lender and rating agency presentations;
(v) in connection with any real estate financing
contemplated by the Debt Commitment Letter, allow Parent, Merger
Sub and their financing sources to perform reasonable and
customary due diligence related to such properties, including
appropriate appraisals, surveys, and Phase 1 environmental
assessments and other reasonable inspections and diligence (and
documentation), including as shall be necessary to comply with
any necessary rating agencies requirements;
(vi) satisfy the conditions precedent set forth in the Debt
Commitment Letter (to the extent within the control of the
Company or requiring action or cooperation by the Company); and
(vii) obtain accountants comfort letters, surveys and
title insurance as reasonably requested by Parent;
provided that (x) none of the Company or any of its
subsidiaries shall be required to pay any commitment or other
similar fee or incur any other liability in connection with the
Debt Financing prior to the Effective Time, and (y) such
requested cooperation does not unreasonably interfere with the
ongoing operations of the Company and its subsidiaries. For
purposes of this Section 5.11, the term Debt
Financing shall also be deemed to include any Alternative
Financing and the term Debt Commitment Letter shall
also be deemed to include any commitment letter (or similar
agreement) with respect to such Alternative Financing.
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ARTICLE VI
CONDITIONS
TO THE MERGER
Section 6.1. Conditions
to Each Partys Obligation to Effect the
Merger. The respective obligations of each
party to effect the Merger shall be subject to the fulfillment
(or waiver by all parties) at or prior to the Effective Time of
the following conditions:
(a) The Company Stockholder Approval shall have been
obtained (without consideration as to the vote of any Company
Common Stock by the Participating Holders).
(b) No Law, judgment, injunction, order or decree by any
court or other tribunal of competent jurisdiction which
prohibits the consummation of the Merger shall have been entered
and shall continue to be in effect.
(c) (i) Any applicable waiting period (and any
extension thereof) under the HSR Act shall have expired or been
earlier terminated and (ii) any other Company Approvals
required to be obtained for the consummation, as of the
Effective Time, of the transactions contemplated by this
Agreement, other than any Company Approvals the failure to
obtain which would not have, individually or in the aggregate, a
Company Material Adverse Effect, shall have been obtained.
Section 6.2. Conditions
to Obligation of the Company to Effect the
Merger. The obligation of the Company to
effect the Merger is further subject to the fulfillment of the
following conditions:
(a) (i) The representations and warranties of Parent
and Merger Sub set forth in this Agreement which are qualified
by a Parent Material Adverse Effect qualification
shall be true and correct in all respects as so qualified at and
as of the date of this Agreement and at and as of the Closing
Date as though made at and as of the Closing Date and
(ii) the representations and warranties of Parent and
Merger Sub set forth in this Agreement which are not qualified
by a Parent Material Adverse Effect qualification
shall be true and correct at and as of the date of this
Agreement and at and as of the Closing Date as though made at
and as of the Closing Date, except for such failures to be true
and correct as would not have, in the aggregate, a Parent
Material Adverse Effect; provided, however, that,
with respect to clauses (i) and (ii) above,
representations and warranties that are made as of a particular
date or period shall be true and correct (in the manner set
forth in clauses (i) or (ii), as applicable) only as of
such date or period.
(b) Parent shall have in all material respects performed
all obligations and complied with all the agreements required by
this Agreement to be performed or complied with by it prior to
the Effective Time.
(c) Parent shall have delivered to the Company a
certificate, dated the Effective Time and signed by its Chief
Executive Officer or another senior officer, certifying to the
effect that the conditions set forth in Sections 6.2(a) and
6.2(b) have been satisfied.
(d) Consistent with Section 2.2(a), Parent shall have
caused to be deposited with the Paying Agent cash in an
aggregate amount sufficient to pay the Merger Consideration in
respect of all Company Common Stock plus cash to pay for the
Company Stock Options and the Directors Award Accounts
pursuant to Section 5.5.
Section 6.3. Conditions
to Obligation of Parent to Effect the
Merger. The obligation of Parent to effect
the Merger is further subject to the fulfillment of the
following conditions:
(a) (i) Other than with respect to
Sections 3.2(a), 3.2(b), 3.2(c), 3.10(a)(ii), 3.10(b), 3.20
and 3.24, the representations and warranties of the Company set
forth in this Agreement which are qualified by a Company
Material Adverse Effect qualification shall be true and
correct in all respects as so qualified at and as of the date of
this Agreement and at and as of the Closing Date as though made
at and as of the Closing Date and (ii) other than with
respect to Sections 3.2(a), 3.2(b), 3.2(c), 3.10(a)(ii),
3.10(b), 3.20 and 3.24, the representations and warranties of
the Company set forth in this Agreement which are not qualified
by a Company Material Adverse Effect qualification
shall be true and correct at and as of the date of this
Agreement and at and as of the Closing Date as though made at
and as of the Closing Date, except for such failures to be true
and correct as would not have, in the aggregate, a Company
Material Adverse Effect, (iii) the representations and
warranties of the Company set forth in Sections 3.2(a),
3.2(b), 3.2(c), 3.20 and 3.24 shall be true and correct in all
respects at and as of the date of this Agreement and at and as
of the Closing Date as though made at and as of
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the Closing Date (subject, in the case of each of the
representations and warranties set out in Sections 3.2(a),
3.2(b), 3.2(c), 3.20 and 3.24, to such inaccuracies as do not
individually or in the aggregate exceed $18,000,000), and
(iv) the representations and warranties of the Company set
forth in Sections 3.10(a)(ii) and 3.10(b), shall be true
and correct in all respects at and as of the date of this
Agreement and at and as of the Closing Date as though made at
and as of the Closing Date; provided, however,
that, with respect to clauses (i), (ii), (iii) and
(iv) above, representations and warranties that are made as
of a particular date or period shall be true and correct (in the
manner set forth in clauses (i), (ii), (iii) or (iv),
as applicable) only as of such date or period.
(b) The Company shall have in all material respects
performed all obligations and complied with all the agreements
required by this Agreement to be performed or complied with by
it prior to the Effective Time.
(c) The Company shall have delivered to Parent a
certificate, dated the Effective Time and signed by its Chief
Executive Officer or another senior officer, certifying to the
effect that the conditions set forth in Sections 6.3(a) and
6.3(b) have been satisfied.
Section 6.4. Frustration
of Closing Conditions. Neither the Company
nor Parent may rely, either as a basis for not consummating the
Merger or for terminating this Agreement and abandoning the
Merger, on the failure of any condition set forth in
Section 6.1, Section 6.2 or Section 6.3, as the
case may be, to be satisfied if such failure was caused by such
partys breach of any provision of this Agreement or
failure to use its reasonable best efforts to consummate the
Merger and the other transactions contemplated by this
Agreement, as required by and subject to Section 5.6.
ARTICLE VII
TERMINATION
Section 7.1. Termination
or Abandonment. Notwithstanding anything
contained in this Agreement to the contrary, this Agreement may
be terminated and abandoned 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 the mutual written consent of the Company and Parent;
(b) by either the Company or Parent if (i) the
Effective Time shall not have occurred on or before
April 30, 2007 (the End Date) and
(ii) the party seeking to terminate this Agreement pursuant
to this Section 7.1(b) shall not have breached in any
material respect its obligations under this Agreement in any
manner that shall have proximately caused the failure to
consummate the Merger on or before such date;
(c) by either the Company or Parent if an injunction,
order, decree or ruling shall have been entered permanently
restraining, enjoining or otherwise prohibiting the consummation
of the Merger and such injunction shall have become final and
non-appealable, provided that the party seeking to
terminate this Agreement pursuant to this Section 7.1(c)
shall have used its reasonable best efforts to remove such
injunction, order, decree or ruling as and to the extent
required by this Agreement;
(d) by either the Company or Parent if the Company Meeting
(including any adjournments thereof) shall have concluded and
the Company Stockholder Approval contemplated by this Agreement
shall not have been obtained; provided, however,
that the right to terminate this Agreement pursuant to this
Section 7.1(d) shall not be available to any party whose
breach of a representation or warranty or failure to fulfill any
obligation under this Agreement caused the failure to obtain
such stockholder approval;
(e) by the Company, if Parent shall have breached or failed
to perform in any material respect any of its representations,
warranties or agreements contained in this Agreement, which
breach or failure to perform (i) would result in a failure
of a condition set forth in Section 6.1 or 6.2 and
(ii) cannot be cured by the End Date, provided that
the Company shall have given Parent written notice, delivered at
least thirty (30) days prior to such termination, stating
the Companys intention to terminate this Agreement
pursuant to this Section 7.1(e) and the basis for such
termination;
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(f) by Parent, if the Company shall have breached or failed
to perform in any material respect any of its representations,
warranties or agreements contained in this Agreement, which
breach or failure to perform (i) would result in a failure
of a condition set forth in Section 6.1 or 6.3 and
(ii) cannot be cured by the End Date, provided that
Parent shall have given the Company written notice, delivered at
least thirty (30) days prior to such termination, stating
Parents intention to terminate this Agreement pursuant to
this Section 7.1(f) and the basis for such termination;
(g) by the Company, if the Special Committee or the Board
of Directors has concluded in good faith, after consultation
with the Special Committees or the Companys legal
counsel and financial advisors, that, in light of a Superior
Proposal, it would be inconsistent with the directors
exercise of their fiduciary obligations to the Companys
stockholders under applicable Law to (x) make or not
withdraw the Recommendation or (y) fail to effect a Change
of Recommendation in a manner adverse to Parent; and
(h) by the Company, if Parent does not (i) satisfy the
condition set forth in Section 6.2(d) within five
(5) business days after notice by the Company to Parent
that the conditions set forth in Sections 6.1 and 6.3 are
satisfied (or, upon an immediate Closing, would be satisfied as
of such Closing) and (ii) proceed immediately thereafter to
give effect to a Closing; provided, however, that
the Company shall have no right to terminate this Agreement
pursuant to this Section 7.1(h)(i) based upon a notice
which is delivered prior to the final day of the Marketing
Period or (ii) if the Core Financial Information shall not
have been furnished on or prior to April 2, 2007.
In the event of termination of this Agreement pursuant to this
Section 7.1, this Agreement shall terminate (except for the
Confidentiality Agreement referred to in Section 5.2 and
the provisions of Sections 7.2 and 8.2 through 8.14), and
there shall be no other liability on the part of the Company or
Parent to the other except, subject to Section 7.2(d),
liability arising out of an intentional breach of this Agreement
or as provided for in the Confidentiality Agreement, in which
case the aggrieved party shall be entitled to all rights and
remedies available at law or in equity.
Actions taken by the Company pursuant to this Section 7.1
shall be taken by the Special Committee if then in existence.
Section 7.2. Termination
Fees.
(a) Notwithstanding any provision in this Agreement to the
contrary if:
(i) (A) this Agreement is terminated by the Company
pursuant to Section 7.1(b) and (B) concurrently with
or within nine (9) months after such termination, any
definitive agreement providing for a Qualifying Transaction
shall have been entered into that provides a value per Share not
less than the Merger Consideration,
(ii) (A) prior to the termination of this Agreement,
any Alternative Proposal (substituting 50% for the 25% threshold
set forth in the definition of Alternative Proposal) or the bona
fide intention of any Person to make an Alternative Proposal (a
Qualifying Transaction) is publicly proposed
or publicly disclosed or otherwise made known to the Company
prior to, and not withdrawn at the time of, the Company Meeting,
(B) this Agreement is terminated by Parent or the Company
pursuant to Section 7.1(d) and (C) concurrently with
or within nine (9) months after such termination, any
definitive agreement providing for a Qualifying Transaction
shall have been entered into and in any instance such Qualifying
Transaction shall have been consummated,
(iii) this Agreement is terminated by the Company pursuant
to Section 7.1(g) on or prior to the Solicitation Period
End Date, or
(iv) this Agreement is terminated by the Company pursuant
to Section 7.1(g) after the Solicitation Period End Date,
then the Company shall (a) in the case of clause (i),
reimburse Parent for the documented
out-of-pocket
fees and expenses reasonably incurred by it in connection with
this Agreement and the transactions contemplated by this
Agreement in an aggregate amount not to exceed $7.5 million
in cash; (b) in the case of clause (ii), pay to (or as
directed by) Parent a fee of $45 million in cash;
(c) in the case of clause (iii), pay to (or as
directed by) Parent a fee of
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$25 million in cash and reimburse Parent for the documented
out-of-pocket
fees and expenses reasonably incurred by it in connection with
this Agreement and the transactions contemplated by this
Agreement in an aggregate amount not to exceed $7.5 million
in cash; or (d) in the case of clause (iv), pay to (or
as directed by) Parent a fee of $45 million in cash (each
of such payments, the Company Termination
Fee).
The Company Termination Fee shall be paid: (a) in the case
of clause (i), on the date such definitive agreement is
entered into; (b) in the case of clause (ii), on the date
such Qualifying Transaction is consummated; and (c) in the
case of clauses (iii) and (iv), on the date this Agreement
is terminated by the Company, in each case by wire transfer of
same day funds as directed by Parent reasonably in advance. Upon
payment of the Company Termination Fee, the Company shall have
no further liability with respect to this Agreement or the
transactions contemplated by this Agreement to Parent or its
stockholders. Notwithstanding any provision in this Agreement to
the contrary, in no event shall the Company be required to pay
the Company Termination Fee referred to in this Section 7.2
on more than one occasion.
(b) In the event that this Agreement is terminated by the
Company pursuant to (i) Section 7.1(b) and the
conditions set forth in Sections 6.1 and 6.3 would have
been satisfied had the Closing been scheduled on the End Date or
(ii) Section 7.1(h), then Parent or its affiliates
shall pay $45 million (the Parent Termination
Fee) to the Company or as directed by the Company as
promptly as reasonably practicable (and, in any event, within
two (2) business days following such termination), payable
by wire transfer of same day funds. Under no circumstances shall
the Parent Termination Fee be payable more than once pursuant to
this Section 7.2(b).
(c) Any payment made pursuant to this Section 7.2
shall be net of any amounts as may be required to be deducted or
withheld therefrom under the Code or under any provision of
state, local or foreign Tax Law.
(d) Each of the Company, Parent and Merger Sub acknowledge
that the agreements contained in this Section 7.2 are an
integral part of the transactions contemplated by this
Agreement, and that, without these agreements, neither the
Company nor Parent would have entered into this Agreement, and
that any amounts payable pursuant to this Section 7.2 do
not constitute a penalty. If the Company fails to pay as
directed in writing by Parent any amounts due to accounts
designated by Parent pursuant to this Section 7.2 within
the time periods specified in this Section 7.2 or Parent
fails to pay the Company any amounts due to the Company pursuant
to this Section 7.2 within the time periods specified in
this Section 7.2, the Company or Parent, as applicable,
shall pay the costs and expenses (including reasonable legal
fees and expenses) incurred by Parent or the Company, as
applicable, in connection with any action, including the filing
of any lawsuit, taken to collect payment of such amounts,
together with interest on such unpaid amounts at the prime
lending rate prevailing during such period as published in
The Wall Street Journal, calculated on a daily basis from
the date such amounts were required to be paid until the date of
actual payment. Notwithstanding anything to the contrary in this
Agreement, the Company agrees that (other than in the case of
fraud) (i) the Companys right to receive payment of
the Parent Termination Fee from Parent pursuant to the terms of
this Section 7.2 (and the Guaranteed Amount from the
Guarantors pursuant to the Guarantees) shall be the sole and
exclusive remedy available to the Company, its affiliates and
its Subsidiaries against Parent, Merger Sub, the Guarantors and
any of their respective former, current, or future general or
limited partners, stockholders, managers, members, directors,
officers, affiliates or agents in the event that it has incurred
any losses or damages, or suffered any harm, with respect to
this Agreement or the transactions contemplated by this
Agreement (including any loss suffered as a result of the
failure of the Merger to be consummated), and upon payment of
the Parent Termination Fee, none of Parent, Merger Sub, the
Guarantors or any of their respective former, current, or future
general or limited partners, stockholders, managers, members,
directors, officers, affiliates or agents shall have any further
liability or obligation relating to or arising out of this
Agreement or the transactions contemplated by this Agreement
under any theory for any reason (except for intentional breach
of this Agreement, as set forth in subclause (ii)),
(ii) in the case of any intentional breach of this
Agreement (and irrespective of whether the Parent Termination
Fee has been paid), Parent and Guarantors shall in no event
collectively (whether or not this Agreement shall have been
terminated) be directly or indirectly liable for losses and
damages arising from or in connection with such intentional
breach in an aggregate amount in excess of $215,000,000 (the
Guaranteed Amount) (for the avoidance of
doubt, if Parent (or the Guarantors) pay a Parent Termination
Fee, such fee shall be included in the calculation of such
aggregate amount), (iii) the maximum liability of each
Guarantor, directly or indirectly, shall be limited to the
express obligations of such Guarantor under its Guarantee, and
(iv) in no event (other than in the case of fraud) shall
the Company, its affiliates or Subsidiaries seek or be entitled
to recover any money damages in the
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aggregate in excess of the Guaranteed Amount from Parent, Merger
Sub, the Guarantor, or any of their respective former, current,
or future general or limited partners, stockholders, managers,
members, directors, officers, affiliates or agents.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. No
Survival of Representations and
Warranties. None of the representations and
warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger or the
termination of this Agreement.
Section 8.2. Expenses. Except
as set forth in Section 7.2, whether or not the Merger is
consummated, all costs and expenses incurred in connection with
the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring or required
to incur such expenses, except expenses incurred in connection
with the printing, filing and mailing of the Proxy Statement
(including applicable SEC filing fees) and all fees paid in
respect of any HSR Act or other regulatory filing shall be borne
by Parent.
Section 8.3. Counterparts;
Effectiveness. This Agreement may be executed
in two or more consecutive counterparts (including by
facsimile), each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the
same instrument, and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered (by telecopy,
e-mail or
otherwise) to the other parties.
Section 8.4. Governing
Law. This Agreement, and the rights of the
parties and all Actions arising in whole or in part under or in
connection herewith, shall be governed by and construed in
accordance with the laws of the State of Delaware, without
giving effect to any choice or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
Section 8.5. Jurisdiction;
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 an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement exclusively in the Delaware Court of Chancery, or in
the event (but only in the event) that such court does not have
subject matter jurisdiction over such action or proceeding, in
the United States District Court for the District of Delaware.
In addition, each of the parties hereto irrevocably agrees that
any legal action or proceeding with respect to this Agreement
and the rights and obligations arising hereunder, or for
recognition and enforcement of any judgment in respect of this
Agreement and the rights and obligations arising hereunder
brought by the other party hereto or its successors or assigns,
shall be brought and determined exclusively in the Delaware
Court of Chancery, or in the event (but only in the event) that
such court does not have subject matter jurisdiction over such
action or proceeding, in the United States District Court for
the District of Delaware. Each of the parties hereto hereby
irrevocably submits with regard to any such action or proceeding
for itself and in respect of its property, generally and
unconditionally, to the personal jurisdiction of the aforesaid
courts and agrees that it will not bring any action relating to
this Agreement or any of the transactions contemplated by this
Agreement in any court other than the aforesaid courts. Each of
the parties hereto hereby irrevocably waives, and agrees not to
assert, by way of motion, as a defense, counterclaim or
otherwise, in any action or proceeding with respect to this
Agreement, (a) any claim that it is not personally subject
to the jurisdiction of the above-named courts for any reason
other than the failure to serve in accordance with this
Section 8.5, (b) any claim that it or its property is
exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service
of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise) and
(c) to the fullest extent permitted by the applicable Law,
any claim that (i) the suit, action or proceeding in such
court is brought in an inconvenient forum, (ii) the venue
of such suit, action or proceeding is improper or
(iii) this Agreement, or the subject matter of this
Agreement, may not be enforced in or by such courts. Each of the
Company, Parent and Merger Sub hereby consents to service being
made through the notice procedures set forth in Section 8.7
and agrees that service of any process, summons, notice or
document by registered mail (return receipt requested and
first-class
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postage prepaid) to the respective addresses set forth in
Section 8.7 shall be effective service of process for any
suit or proceeding in connection with this Agreement or the
transactions contemplated by this Agreement.
Section 8.6. WAIVER
OF JURY TRIAL. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
Section 8.7. Notices. Any
notice required to be given hereunder shall be sufficient if in
writing, and sent by facsimile transmission, with confirmation
(provided that any notice received by facsimile
transmission or otherwise at the addressees location not
on a business day or on any business day after 5:00 p.m.
(addressees local time) shall be deemed to have been
received at 9:00 a.m. (addressees local time) on the
next business day), by reliable overnight delivery service (with
proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid),
addressed as follows:
To Parent or Merger Sub:
c/o Bain Capital Partners, LLC
111 Huntington Avenue
Boston, MA 02199
Attention: Andrew Balson and Philip Loughlin
Facsimile:
(617) 516-2010
with copies to:
Bain Capital Partners
111 Huntington Avenue
Boston, MA 02199
Attention: Andrew Balson and Philip Loughlin
Facsimile:
(617) 516-2010
and
Catterton Partners VI, L.P. and Catterton Partners VI, Offshore,
L.P.
599 West Putnam Avenue
Greenwich, CT 06830
Facsimile:
(203) 629-4903
Attention: J. Michael Chu
and
Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
Telecopy:
(617) 951-7050
Attention: Jane D. Goldstein, Esq.
To the Company:
OSI Restaurant Partners, Inc.
2202 N. West Shore Blvd., Suite 500
Tampa, FL 33607
Telecopy:
(813) 281-2114
Attention: Chairmen of the Special Committee
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with copies to:
OSI Restaurant Partners, Inc.
2202 N. West Shore Blvd., Suite 500
Tampa, FL 33607
Telecopy:
(813) 281-2114
Attention: Joseph J. Kadow
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy:
(212) 403-2000
Attention: David A. Katz, Esq.
and
Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio
44114-3485
Telecopy:
(216) 696-0740
Attention: John M. Gherlein, Esq.
or to such other address as any party shall specify by written
notice so given, and such notice shall be deemed to have been
delivered as of the date so telecommunicated, personally
delivered or mailed. Any party to this Agreement may notify any
other party of any changes to the address or any of the other
details specified in this paragraph; provided,
however, that such notification shall only be effective
on the date specified in such notice or five (5) business
days after the notice is given, whichever is later. Rejection or
other refusal to accept or the inability to deliver because of
changed address of which no notice was given shall be deemed to
be receipt of the notice as of the date of such rejection,
refusal or inability to deliver.
Section 8.8. Assignment;
Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the other
parties; provided, however, that Merger Sub may
designate, by written notice to the Company, a Subsidiary that
is wholly owned by Merger Sub to be merged with and into the
Company in lieu of Merger Sub, in which event this Agreement
will be amended such that all references in this Agreement to
Merger Sub will be deemed references to such Subsidiary, and in
that case, and pursuant to such amendment, all representations
and warranties made in this Agreement with respect to Merger Sub
will be deemed representations and warranties made with respect
to such Subsidiary as of the date of such designation and Parent
and Merger Sub may, without the prior written consent of the
other parties, assign any or all of their respective rights and
interests hereunder to one or more of its affiliates, designate
one or more of its affiliates to perform its obligations
hereunder, in each case, so long as Parent is not relieved of
any of its obligations hereunder. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective
successors and assigns.
Section 8.9. Severability. Any
term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement in any other
jurisdiction; provided that, if any provision of this
Agreement is so broad as to be unenforceable, such provision
shall be interpreted to be only so broad as is enforceable and,
provided, further that upon a 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 to
the end that the transactions contemplated hereby are fulfilled
to the fullest extent possible
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Section 8.10. Entire
Agreement; No Third-Party Beneficiaries. This
Agreement (including the exhibits and schedules hereto), the
Guarantees and the Confidentiality Agreement constitute the
entire agreement, and supersede all other prior agreements and
understandings, both written and oral, between the parties or
their affiliates, or any of them, with respect to the subject
matter of this Agreement and thereof and, except for the
provisions of Sections 2.1 (after such time as the Exchange
Fund has been returned to the Company from the Paying Agent) and
5.9 (which in each case shall inure to the benefit of the
persons benefiting therefrom who are intended to be third-party
beneficiaries thereof), is not intended to and shall not confer
upon any person other than the parties hereto any rights or
remedies hereunder. No representation, warranty, inducement,
promise, understanding or condition not set forth in this
Agreement has been made or relied upon by any of the parties
hereto.
Section 8.11. Amendments;
Waivers. At any time prior to the Effective
Time, any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Company (acting
through the Special Committee, if then in existence), Parent and
Merger Sub, or in the case of a waiver, by the party against
whom the waiver is to be effective; provided,
however, that after receipt of Company Stockholder
Approval, if any such amendment or waiver shall by applicable
Law or in accordance with the rules and regulations of the New
York Stock Exchange require further approval of the stockholders
of the Company, the effectiveness of such amendment or waiver
shall be subject to the approval of the stockholders of the
Company. Notwithstanding the foregoing, no failure or delay by
the Company or Parent in exercising any right hereunder shall
operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise of any
other right hereunder.
Section 8.12. Headings. Headings
of the Articles and Sections of this Agreement are for
convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever. The table of
contents to this Agreement is for reference purposes only and
shall not affect in any way the meaning or interpretation of
this Agreement.
Section 8.13. Interpretation. When
a reference is made in this Agreement to an Article or Section,
such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. 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 words hereof,
herein and hereunder and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document
made or delivered pursuant thereto unless otherwise defined
therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such
terms and to the masculine as well as to the feminine and neuter
genders of such term. Each of the parties has participated in
the drafting and negotiation of this Agreement. If an ambiguity
or question of intent or interpretation arises, this Agreement
must be construed as if it is drafted by all the parties, and no
presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of authorship of any of the
provisions of this Agreement.
Section 8.14. Definitions.
(a) References in this Agreement to
Subsidiaries of any party shall mean any
corporation, partnership, association, trust or other form of
legal entity of which (i) more than 50% of the outstanding
voting securities are on the date of this Agreement directly or
indirectly owned by such party, or (ii) such party or any
Subsidiary of such party is a general partner (excluding
partnerships in which such party or any Subsidiary of such party
does not have a majority of the voting interests in such
partnership). References in this Agreement (except as
specifically otherwise defined) to affiliates
shall mean, as to any person, any other person which, directly
or indirectly, controls, or is controlled by, or is under common
control with, such person. As used in this definition,
control (including, with its correlative
meanings, controlled by and under common
control with) shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of
management or policies of a person, whether through the
ownership of securities or partnership or other ownership
interests, by contract or otherwise. References in this
Agreement (except as specifically otherwise defined) to
person shall mean an individual, a
corporation, a partnership, a limited liability company, an
association, a trust or any other entity, group (as such term is
used in Section 13 of the Exchange Act) or organization,
including, a Governmental Entity, and any permitted successors
and assigns of such person. As used in this Agreement,
knowledge means (i) with respect to
Parent, the
A-40
actual knowledge after reasonable investigation of the executive
officers of Parent and (ii) with respect to the Company,
the actual knowledge after reasonable investigation of the
Chairman, the Chief Executive Officer, the Chief Financial
Officer, General Counsel and the Chief Operating Officer of the
Company. As used in this Agreement, business
day shall mean any day other than a Saturday, Sunday
or a day on which the banks in New York or Florida are
authorized by law or executive order to be closed. As used in
this Agreement, GAAP means United States
generally accepted accounting principles. As used in this
Agreement, Indebtedness means, with respect
to any person, all obligations (including all obligations in
respect of principal, accrued interest, penalties, fees and
premiums) of such person (i) for borrowed money (including
overdraft facilities), (ii) evidenced by notes, bonds,
debentures or similar instruments, (iii) for the deferred
purchase price of property, goods or services (other than trade
payables or accruals incurred in the ordinary course of
business), (iv) under capital leases (in accordance with
generally accepted accounting principles), (v) in respect
of letters of credit and bankers acceptances,
(vi) for Contracts relating to interest rate protection,
swap agreements and collar agreements and (vii) in the
nature of guarantees of the obligations described in
clauses (i) through (vi) above of any other person.
References in this Agreement to specific laws or to specific
provisions of laws shall include all rules and regulations
promulgated thereunder. Any statute defined or referred to
herein or in any agreement or instrument referred to herein
shall mean such statute as from time to time amended, modified
or supplemented, including by succession of comparable successor
statutes.
(b) Each of the following terms is defined on the pages set
forth opposite such term:
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Action
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42
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Advisors
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20
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Affiliate Transactions
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22
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affiliates
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55
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Agreement
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1
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Alternative Financing
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43
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Alternative Proposal
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34
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Board of Directors
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1
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Book-Entry Shares
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5
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business day
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55
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Cancelled Shares
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3
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Certificate of Merger
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2
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Certificates
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5
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Change of Recommendation
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34
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Closing
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1
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Closing Date
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1
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Code
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6
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Company
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1
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Company Approvals
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11
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Company Benefit Plans
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15
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Company Common Stock
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3
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Company Disclosure Schedule
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8
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Company Employees
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38
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Company Joint Venture
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8
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Company Material Adverse Effect
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8
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Company Material Contracts
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21
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Company Meeting
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36
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Company Permits
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14
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Company Preferred Stock
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9
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Company SEC Documents
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12
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Company Stock Option
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36
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A-41
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Company Stock Plans
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9
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Company Stock-Based Award
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37
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Company Stockholder Approval
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21
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Company Termination Fee
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49
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Confidentiality Agreement
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32
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Contracts
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11
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control
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55
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Core Financial Information
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44
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Debt Commitment Letter
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24
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Debt Financing
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24
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Deferred Unit Amount
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37
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DGCL
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1
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Directors Award Account
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37
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Dissenting Shares
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4
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Effective Time
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2
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Employee Rollover Agreements
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3
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End Date
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47
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Environmental Law
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15
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ERISA
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15
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ERISA Affiliate
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16
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excess parachute payment
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15
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Exchange Act
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11
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Exchange Fund
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5
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Excluded Party
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33
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Financing
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24
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Financing Commitments
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24
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Founder Rollover Agreements
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3
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GAAP
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55
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Governmental Entity
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11
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Guarantee
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25
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Guaranteed Amount
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50
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Guarantors
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25
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Hazardous Substance
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15
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HSR Act
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11
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Indebtedness
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55
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Indemnified Party
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42
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Intellectual Property
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19
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Initiation Date
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44
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knowledge
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55
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Law
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13
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Laws
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13
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Leased Real Properties
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20
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Lien
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11
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Marketing Period
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43
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Material Lease
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12
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Matters
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16
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Measurement Date
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10
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Merger
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1
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Merger Consideration
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3
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A-42
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Merger Sub
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1
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New Financing Commitments
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25
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New Plans
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38
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Old Plans
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38
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Option and Stock-Based Award
Consideration
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5
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Option Consideration
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37
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Owned Real Properties
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20
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Parent
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1
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Parent Approvals
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23
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Parent Common Stock
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3
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Parent Disclosure Schedule
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22
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Parent Material Adverse Effect
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23
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Parent Termination Fee
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49
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Participating Holder
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3
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Paying Agent
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5
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PEP
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37
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Permitted Lien
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11
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person
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55
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Property Encumbrances
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20
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Proxy Statement
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17
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Qualifying Transaction
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48
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Real Properties
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20
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Recommendation
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11
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Regulatory Law
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41
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Representatives
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32
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Required Financial Information
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44
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Restricted Shares
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37
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Rollover Share
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3
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Sarbanes-Oxley Act
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13
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Satisfaction Date
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2
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Schedule 13E-3
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17
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SEC
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12
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Share
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3
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Solicitation Period End Date
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32
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Special Committee
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1
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Specified Concept
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34
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Subsidiaries
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58
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Superior Proposal
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35
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Surviving Corporation
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1
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Tax Return
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18
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Taxes
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18
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Termination Date
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27
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UFOCs
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14
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A-43
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first
above written.
Kangaroo Holdings, Inc.
Name: Philip Loughlin
Kangaroo Acquisition, Inc.
Name: Philip Loughlin
OSI Restaurant Partners, Inc.
Name: Toby S. Wilt
A-44
ANNEX
B
November 5, 2006
Special Committee of the Board of Directors
OSI Restaurant Partners, Inc.
2202 North West Shore Boulevard
Suite 500
Tampa, FL 33607
Ladies and Gentlemen:
You have asked Wachovia Capital Markets, LLC (Wachovia
Securities) to advise you with respect to the fairness,
from a financial point of view, to the holders of Company Common
Shares, par value $0.01 per share (the Company Common
Shares), of OSI Restaurant Partners, Inc., a Delaware
corporation (the Company), of the Merger
Consideration (as hereinafter defined) to be received by the
holders of Company Common Shares pursuant to that certain
Agreement and Plan of Merger, dated as of November 5, 2006
(the Merger Agreement), by and among the Company,
Kangaroo Holdings, Inc., a Delaware corporation
(Parent) and Kangaroo Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent
(MergerSub, and together with Parent, the
Buyer Parties). This opinion does not address the
fairness of the consideration to be received by certain members
of management and the Board of Directors of the Company (the
Participating Holders) whose names are listed on
Schedule A of the Merger Agreement.
Pursuant to the Merger Agreement, the Company will be merged
with and into Merger Sub and the separate existence of the
Company will thereupon cease and the Company will be the entity
surviving such merger (the Merger). Pursuant to the
Merger, each Company Common Share (other than those owned by
Merger Sub and any subsidiary of the Company which will be
cancelled in accordance with the terms of the Agreement and
other than those held by the Participating Holders) will be
converted into, and cancelled in exchange for, the right to
receive an amount in cash equal to $40.00 (the Merger
Consideration).
In arriving at our opinion, we have, among other things:
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Reviewed a draft of the Merger Agreement dated November 5,
2006.
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Reviewed certain publicly available business, financial and
other information regarding the Company.
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Reviewed certain business, financial and other information
regarding the Company and its prospects that was furnished to us
by management of the Company, and have discussed with management
of the Company this information as well as the business, past
and current operations, financial condition and future prospects
of the Company, including internal financial forecasts of the
Company prepared by the management of the Company, and the risks
and uncertainties of the Company continuing to pursue an
independent strategy.
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Reviewed the current and historical market prices and trading
activity of the Company Common Shares.
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Compared certain business, financial and other information
regarding the Company with similar information regarding certain
other publicly traded companies that we deemed to be relevant.
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Compared the proposed financial terms of the Agreement with the
financial terms of certain other business combinations and
transactions that we deemed to be relevant.
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Participated in discussions and negotiations among
representatives of the Company and Parent, and their respective
financial and legal advisors.
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Considered other information such as financial studies, analyses
and investigations, as well as financial and economic market
criteria that we deemed to be relevant.
|
B-1
Special Committee of the Board of Directors
OSI Restaurant Partners, Inc.
2202 North West Shore Boulevard
Suite 500
Tampa, FL 33607
Page 2
In connection with our review, we have relied upon the accuracy
and completeness of the foregoing financial and other
information we have obtained and reviewed for the purpose of our
opinion, and we have not assumed any responsibility for any
independent verification of such information. We have relied
upon assurances of the management of the Company that it is not
aware of any facts or circumstances that would make such
information about the Company inaccurate or misleading. With
respect to the Companys financial forecasts, we have
assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments
of management as to the expected future financial performance of
the Company. We have discussed such forecasts and estimates, as
well as the assumptions upon which they are based, with
management of the Company, but we assume no responsibility for
and express no view as to the Companys financial forecasts
or the assumptions upon which they are based. In arriving at our
opinion, we have not conducted any physical inspection of the
facilities of the Company and have not made or been provided
with any evaluations or appraisals of the assets or liabilities
of the Company. Our investigation in connection with rendering
this opinion is limited to whether the Merger Consideration to
be received by the holders of the Company Common Shares (other
than the Participating Holders) pursuant to the Merger is fair
to such holders (other than the Participating Holders), from a
financial point of view. We have relied on advice of counsel to
the Company as to all legal matters with respect to the Company
and the transactions contemplated by the Merger Agreement.
In rendering our opinion, we have assumed that the transactions
contemplated by the Merger Agreement will be consummated on the
terms described in the Merger Agreement, without waiver of any
material terms or conditions. Our opinion is necessarily based
on economic, market, financial and other conditions as they
exist on and can be evaluated as of the date hereof. Although
subsequent developments may affect this opinion, we do not have
any obligation to update, revise or reaffirm our opinion.
Wachovia Securities is a trade name of Wachovia Capital Markets,
LLC, an investment banking subsidiary and affiliate of Wachovia
Corporation. We have been engaged to render financial advisory
services, including the rendering of this opinion, to the
Special Committee of the Board of Directors of the Company in
connection with the transactions contemplated by the Agreement
and will receive a fee for rendering our opinion and an
additional fee for such services, a significant portion of which
is contingent upon the consummation of the transactions
contemplated by the Agreement. In addition, the Company has
agreed to reimburse Wachovia Securities, expenses and indemnify
us against certain liabilities that may arise out of this
engagement. Wachovia Securities and our affiliates provide a
full range of financial advisory, securities and lending
services in the ordinary course of business for which we receive
customary fees. In the past, we have provided certain banking
services to the Company for which we have been paid fees. We
have $199.5 million in total credit exposure to the Company
and its subsidiaries, of which $164.5 million is currently
funded (inclusive of a $24.5 million off balance sheet
guarantee of the Company). As of October 2006, Wachovia has
$30.6 million in committed loans to and guarantees of
executives and board members of which $25.6 million is
currently outstanding. We served as Lead Arranger and
Administrative Agent on the Companys renewed
$225.0 million revolver closed on March 10, 2006.
Wachovia also acted as the sole lender on a $50.0 million
line of credit closed on October 12, 2006. In the ordinary
course of our business, we and our affiliates may actively trade
or hold the securities (including derivative securities) of the
Company and certain affiliates of the Parent for our own account
or for the account of our customers and, accordingly, may at any
time hold a long or short position in such securities. Wachovia
has executed advisory and financing transactions on behalf of
Bain Capital, LLC (Bain) and executed financing
transactions on behalf of Catterton Partners
(Catterton). Wachovia is not a limited partner in
the funds of Bain or Catterton.
It is understood that our opinion is directed for the
information and use of the Special Committee of the Board of
Directors of the Company in connection with its consideration of
the transactions contemplated by the Merger Agreement. We also
understand that our opinion may be provided to the Board of
Directors of the Company for its
B-2
Special Committee of the Board of Directors
OSI Restaurant Partners, Inc.
2202 North West Shore Boulevard
Suite 500
Tampa, FL 33607
Page 3
information and use in connection with its consideration of the
transactions contemplated by the Merger Agreement. Our opinion
does not address the relative merits of the transactions
contemplated by the Merger Agreement compared with other
business strategies that have been considered by the
Companys management or Board of Directors and does not
address the underlying decision by the Company to enter into the
Merger Agreement and does not and shall not constitute a
recommendation to any holder of the Company Common Shares as to
how such holder should vote in connection with the transactions
contemplated by the Merger Agreement. We have not considered for
the purposes of our opinion the prices at which the Company
Common Shares will trade following the announcement of the
Merger.
Based upon and subject to the foregoing, and other factors we
deem to be relevant, we are of the opinion that, as of the date
hereof, the Merger Consideration to be received by the holders
of the Company Common Shares (other than the Participating
Holders) pursuant to the Agreement is fair, from a financial
point of view, to such holders (other than Participating
Holders).
Very truly yours,
WACHOVIA CAPITAL MARKETS, LLC
B-3
ANNEX C
November 5, 2006
Special Committee of the Board of Directors
OSI Restaurant Partners, Inc.
2202 North Westshore Boulevard, Suite 500
Tampa, Florida 33607
Members of the Special Committee of the Board of Directors:
You have requested our opinion as to whether the consideration
to be paid to the holders of shares of common stock, par value
$0.01 per share (the Company Common Stock) of
OSI Restaurant Partners, Inc. (the Company) (other
than the Participating Holders) pursuant to the Agreement and
Plan of Merger (the Agreement), dated as of the date
of this letter, among the Company, Kangaroo Acquisition, Inc.
(Merger Sub) and Kangaroo Holdings, Inc.
(Parent) is fair to such holders from a financial
point of view. The Agreement provides for the merger (the
Merger) of Merger Sub with and into the Company, as
a result of which the Company will become a wholly-owned
subsidiary of Parent. As set forth in the Agreement, in
connection with the Merger, each issued and outstanding share of
common stock of the Company (other than shares, if any, held by
Parent or Merger Sub, held in treasury by the Company, held by
the Participating Holders, or as to which dissenters
rights have been perfected, none of which are covered by this
opinion) will be converted into the right to receive $40.00 in
cash (the Merger Consideration). The terms and
conditions of the Merger are more fully set forth in the
Agreement. Capitalized terms used but not defined herein have
the meanings set forth in the Agreement.
We are engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
underwriting and secondary distributions of securities, private
placements and valuations for estate, corporate and other
purposes as a customary part of our investment banking business.
We will receive a fee from the Company upon delivery of this
opinion. No portion of this opinion fee is contingent upon the
consummation of the Merger or upon the conclusions expressed in
this opinion. The Company has also agreed to indemnify us
against certain liabilities and reimburse us for certain
expenses in connection with our services. We have performed
investment banking services for one or more of the Parents
principal equity holders (or affiliates of such equity holders),
and we have received customary fees for such services. In the
ordinary course of our business, we and our affiliates may
actively trade securities of the Company for our own account or
the accounts of our customers and, accordingly, we may at any
time hold a long or a short position in such securities.
In arriving at our opinion, we have undertaken such review,
analyses and inquiries as we have deemed necessary and
appropriate under the circumstances. In particular, we have
reviewed:
(1) the financial terms of the Agreement;
(2) certain publicly available financial, business and
operating information related to the Company, including the
Companys most recent
Form 10-K
(containing the Companys audited financial statements for
the fiscal years ended December 31, 2005, 2004 and 2003);
and the Companys most recent
Form 10-Q
(containing unaudited financial statements for the six month
periods ended June 30, 2006 and 2005);
(3) certain internal financial, accounting, operating and
other data and analyses with respect to the Company on a
stand-alone basis prepared and furnished to us by management of
the Company;
(4) certain internal financial projections for the Company
on a stand-alone basis that were prepared for financial planning
purposes and furnished to us by the management of the Company;
C-1
(5) certain publicly available market and securities data
of the Company;
(6) certain financial data and the reported prices and
trading activity for certain other publicly-traded companies
that we deemed relevant for purposes of our opinion;
(7) the financial terms, to the extent publicly available,
of certain other transactions that we deemed relevant for
purposes of our opinion; and
(8) other information, financial studies, analyses and
investigations and other factors that we deemed relevant for
purposes of our opinion.
In addition, we have performed a discounted cash flow analysis
for the Company on a stand-alone basis. We have also conducted
discussions with members of the senior management of the Company
and representatives of Wachovia Securities, LLC, the
Companys financial advisor, concerning the financial
condition, historical and current operating results, business
and prospects for the Company on a stand-alone basis.
We have relied upon and assumed the accuracy, completeness and
fair presentation of the financial, accounting and other
information provided to us by the Company or otherwise made
available to us, and have not assumed responsibility
independently to verify such information. The Company has
advised us that they do not publicly disclose internal financial
information of the type provided to us and that such information
was prepared for financial planning purposes and not with the
expectation of public disclosure. We have further relied upon
the assurances of the management of the Company that the
information provided has been prepared on a reasonable basis in
accordance with industry practice, and, with respect to
financial forecasts, projections and other estimates and
business outlook information, reflects the best currently
available estimates and judgments of the management of the
Company, is based on reasonable assumptions and that there is
not (and 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 express no opinion as to such
financial forecasts, projections and other estimates and
business outlook information or the assumptions on which they
are based. We have relied, with your consent, on advice of the
outside counsel and the independent accountants to the Company,
and on the assumptions of the management of the Company, as to
all accounting, legal, tax and financial reporting matters with
respect to the Company and the Agreement. Without limiting the
generality of the foregoing, for the purpose of this opinion, we
have assumed that the Company is not party to any material
pending transaction, including any external financing,
recapitalization, acquisition or merger, divestiture or
spin-off, other than the Merger.
We have assumed the Merger will be consummated pursuant to the
terms of the Agreement without amendments thereto and with full
satisfaction of all covenants and conditions without any waiver
thereof. We express no opinion regarding whether the necessary
approvals or other conditions to the consummation of the Merger
will be obtained or satisfied.
In arriving at our opinion, we have not performed any appraisals
or valuations of any specific assets or liabilities (fixed,
contingent or other) of the Company, and have not been furnished
with any such appraisals or valuations. The analyses performed
by Piper Jaffray in connection with this opinion were
going-concern analyses. We express no opinion regarding the
liquidation value or solvency of any entity. Without limiting
the generality of the foregoing, we have undertaken no
independent analysis of any pending or threatened litigation,
regulatory action, possible unasserted claims or other
contingent liabilities, to which the Company or any of its
affiliates is a party or may be subject, and at the direction of
the Special Committee and the Board of Directors and with their
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.
We have not been requested to, and did not, (a) initiate
any discussions with, or solicit any indications of interest
from, third parties with respect to the Merger or any
alternatives to the Merger, (b) negotiate the terms of the
Merger, (c) provide any financing or any advice with
respect to any financing for the Merger or any alternative to
the Merger or (d) advise the Special Committee or the Board
of Directors with respect to alternatives to the Merger. This
opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made
available to us as of, the date hereof. We have not undertaken,
and are under no obligation, to update, revise, reaffirm or
withdraw this opinion, or otherwise comment on or consider
events occurring after the date hereof. We
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have not considered, nor are we expressing any opinion herein
with respect to, the prices at which the common stock of the
Company has traded or may trade following announcement of the
Merger or at any future time.
It is understood that our opinion is directed for the
information and use of the Special Committee in connection with
its consideration of the transactions contemplated by the
Agreement. We also understand that our opinion may be provided
to the Board of Directors for its information and use in
connection with its consideration of the transactions
contemplated by the Agreement. This opinion is not intended to
be and does not constitute a recommendation to any stockholder
of the Company as to how such stockholder should vote or
otherwise act with respect to the Merger, and should not be
relied upon by any stockholder as such. This opinion is not
intended to confer rights and remedies upon (i) Parent,
(ii) any stockholders of Parent or any affiliates thereof,
(iii) any holder of a Company Stock Option, (iv) any
person entitled to receive Option and Stock-Based Consideration,
(v) any holder of Restricted Shares, (vi) any holder
of a Deferred Unit Account, or (vii) any holder of any
other stock-based compensation of the Company. Except as
contemplated in the October 22, 2006 engagement letter
between us, this opinion shall not be published or otherwise,
nor shall any public references to us be made, without our prior
written approval.
This opinion addresses solely the fairness of the proposed
Merger Consideration to the holders of Company Common Stock
(other than the Participating Holders) from a financial point of
view, and does not address any other terms or agreements
relating to the Merger. We were not requested to opine as to,
and this opinion does not address, the basic business decision
to proceed with or effect the Merger, or the merits of the
Merger relative to any alternative transaction or business
strategy that may be available to the Company. We express no
opinion as to whether any alternative transaction might produce
consideration for the holders of Company Common Stock (other
than the Participating Holders) in excess of the amount
contemplated in the Merger.
Based upon and subject to the foregoing and such other factors
as we consider relevant, it is our opinion that, as of the date
hereof, the Merger Consideration is fair to the holders of
Company Common Stock (other than the Participating Holders) from
a financial point of view.
Sincerely,
C-3
ANNEX D
GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
§ 262.
APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this
section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to
§ 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the
stockholders 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
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 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
§ 251 of this title.
(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
§ § 251, 252, 254, 257, 258, 263 and 264 of
this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 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
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incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders 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 stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 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. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders 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 holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders 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 date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within
60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw
such stockholders demand for appraisal
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and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholders
written request for such a statement is received by the
surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section
and who has submitted such stockholders 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 Courts 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 attorneys fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
D-3
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in
subsection (e) of this section or thereafter with the
written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms
as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
D-4
ANNEX E
Information
Relating to Parent, Merger Sub and the Funds
Kangaroo
Holdings, Inc.: Directors and Executive Officers
The names and material occupations, positions, offices or
employment during the past five years of the current executive
officers and directors of Kangaroo Holdings, Inc. are set forth
below:
Andrew B. Balson, Director and
President. Refer to Bain
Capital (OSI) IX, L.P. below.
Phil Loughlin, Director and Vice
President. Refer to Bain
Capital (OSI) IX, L.P. below.
Ian Blasco, Director, Vice President, Treasurer and
Secretary. Ian Blasco is a principal of Bain
Capital Partners, LLC, a private investment firm
(Bain), the current business address of which is 111
Huntington Avenue, Boston, Massachusetts 02199 and has been at
Bain since 1998. Mr. Blasco is a United States citizen.
J. Michael Chu, Director and Vice
President. Refer to Catterton
Partners VI, L.P. and Catterton Partners VI, Offshore,
L.P. below.
David Humphrey, Assistant Secretary. David
Humphrey is a senior associate of Bain Capital Partners, LLC, a
private investment firm (Bain), the current business
address of which is 111 Huntington Avenue, Boston Massachusetts
02199 and has been at Bain since 2001. Mr. Humphrey is a
United States citizen.
During the last five years, no person or entity described above
has been (i) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) a party
to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of
any violation of federal or state securities laws.
Kangaroo
Acquisition, Inc.: Directors and Executive Officers
The names and material occupations, positions, offices or
employment during the past five years of the current executive
officers and directors of Kangaroo Acquisition, Inc. are set
forth below:
Andrew B. Balson, Director and
President. Refer to Bain
Capital (OSI) IX, L.P. below.
Phil Loughlin, Director and Vice
President. Refer to Bain
Capital (OSI) IX, L.P. below.
Ian Blasco, Director, Vice President, Treasurer and
Secretary. Refer to Kangaroo
Holdings, Inc. above.
J. Michael Chu, Director and Vice
President. Refer to Catterton
Partners VI, L.P. and Catterton Partners VI, Offshore,
L.P. below.
David Humphrey, Assistant Secretary. Refer to
Kangaroo Holdings, Inc. above.
During the last five years, no person or entity described above
has been (i) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) a party
to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of
any violation of federal or state securities laws.
Bain Capital (OSI) IX, L.P.
Bain Capital (OSI) IX, L.P. (Bain (OSI) IX) is a
newly-formed Delaware limited partnership formed for the purpose
of investing in Parent.
Bain Capital Partners IX, L.P. (Bain Partners IX) is
the general partner of Bain (OSI) IX. Bain Partners IX is a
Cayman Islands exempted limited partnership, the principal
business of which is acting as a general partner of Bain (OSI)
IX and related funds.
E-1
Bain Capital Investors, LLC (Bain Capital Investors)
is the general partner of Bain Partners IX. Bain Capital
Investors is a Delaware limited liability company engaged in the
business of acting as the general partner of persons primarily
engaged in the business of making private equity and other types
of investments.
The business address of each of Bain (OSI) IX, Bain Partners IX,
Bain Capital Investors and the managing directors listed below
(collectively, the Bain Parties) is c/o Bain
Capital Partners, LLC, 111 Huntington Avenue, Boston,
Massachusetts 02199, except that the address of the Bain Parties
working in the New York office is c/o Bain Capital NY, LLC,
745 5th Avenue, New York, New York 10151.
The names and material occupations, positions, offices or
employment during the past five years of each managing director
of Bain Capital Investors are set forth below. Each is a
U.S. citizen.
Andrew B. Balson is a managing director of Bain Capital
Investors. He joined Bain in 1996 and became a managing director
in 2000.
Steven W. Barnes is a managing director of Bain Capital
Investors. He has been associated with Bain since 1988 and
became a managing director in 2000.
Joshua Bekenstein is a managing director of Bain Capital
Investors. He joined Bain at its inception in 1984 and became a
managing director in 1986.
Edward W. Conard is a managing director of Bain Capital
Investors. He joined Bain and became a managing director in
1993. Mr. Conard works in Bain Capitals New York
office.
John P. Connaughton is a managing director of Bain
Capital Investors. He joined Bain in 1989 and became a managing
director in 1997.
Paul B. Edgerley is a managing director of Bain Capital
Investors. He joined Bain in 1988 and became a managing director
in 1990.
Michael F. Goss is a managing director COO of
Bain Capital Investors. He joined Bain in 2001 as a managing
director.
S. Jordan Hitch is a managing director of Bain
Capital Investors. He joined Bain in 1997 and became a managing
director in 2005.
Matthew S. Levin is a managing director of Bain Capital
Investors. He joined Bain in 1992 and became a managing director
in 2000.
Ian K. Loring is a managing director of Bain Capital
Investors. He joined Bain in 1996 and became a managing director
in 2000.
Phil Loughlin is a managing director of Bain Capital
Investors. He joined Bain in 1996 and became a managing director
in 2004.
Mark E. Nunnelly is a managing director of Bain Capital
Investors. He joined Bain and became a managing director in 1990.
Stephen G. Pagliuca is a managing director of Bain
Capital Investors. He joined Bain and became a managing director
in 1989.
Michael Ward is a managing director of Bain Capital
Investors. He joined Bain in 2002 and became a managing director
in 2005. Prior to joining Bain Capital, Mr. Ward was
President and Chief Operating Officer of Digitas, located at
Prudential Center, 800 Boylston Street, Prudential Tower,
Boston, MA 02199.
Stephen M. Zide is a managing director of Bain Capital
Investors. He joined Bain in 1997 and became a managing director
in 2001. Mr. Zide works in Bain Capitals New York
office.
During the last five years, no person or entity described above
has been (i) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) a party
to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final
E-2
order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state
securities laws.
Catterton
Partners VI, L.P. and Catterton Partners VI, Offshore,
L.P.
Catterton Partners VI, L.P. (Catterton Partners VI)
is a Delaware limited partnership engaged in the business of
making private equity and other types of investments.
Catterton Partners VI, Offshore, L.P. (Catterton Partners
VI, Offshore) is a Cayman Islands exempted limited
partnership engaged in the business of making private equity and
other types of investments.
Catterton Managing Partner VI, L.L.C. (Catterton Managing
Partner VI) is the general partner of Catterton Partners
VI and Catterton Partners VI, Offshore. Catterton Managing
Partner VI is a Delaware limited liability company, the
principal business of which is acting as a general partner of
Catterton Partners VI and Catterton Partners VI, Offshore.
CP6 Management, L.L.C. (CP6 Management) is the
managing member of Catterton Managing Partner VI. CP6 Management
is a Delaware limited liability company engaged in the business
of acting as the general partner of persons primarily engaged in
the business of making private equity and other types of
investments.
The business address of each of Catterton Partners VI, Catterton
Partners VI, Offshore, Catterton Managing Partner VI, CP6
Management and the managing members listed below (collectively,
the Catterton Parties) is
c/o Catterton
Partners, 599 West Putnam Avenue, Greenwich, Connecticut
06830.
The names and material occupations, positions, offices or
employment during the past five years of each managing member of
CP6 Management are set forth below. Each is a U.S. citizen.
J. Michael Chu is a managing member of CP6
Management. He co-founded Catterton Partners in 1990.
Scott A. Dahnke is a managing member of CP6 Management.
He joined Catterton Partners as a managing partner in 2003.
Prior to joining Catterton Partners, Mr. Dahnke was a
managing director of Deutsche Bank Capital.
Craig H. Sakin is a managing member of CP6 Management. He
joined Catterton Partners as a managing partner in 1996.
During the last five years, no person or entity described above
has been (i) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) a party
to any judicial or administrative proceeding (except for matters
that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of
any violation of federal or state securities laws.
E-3