UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

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:

 

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

þ  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):

 

þ  No fee required.

 

 

 

 

 

 

 

 

 

 

 

 

(1)  Amount Previously Paid:

 

 

(2)  Form, Schedule or Registration Statement No.:

 

 

(3)  Filing Party:

 

 

(4)  Date Filed:

 

 

 

SUPPLEMENT TO PROXY STATEMENT

Amendment to Agreement and Plan of Merger — Your Vote is Very Important

 

May 23, 2007

 

Dear Stockholder:

 

On or about April 2, 2007, we mailed to you a definitive proxy statement dated March 30, 2007 relating to a special meeting of stockholders of OSI Restaurant Partners, Inc. (“OSI,” “we” or the “Company”) originally scheduled for May 8, 2007 to consider a proposal to adopt the Agreement and Plan of Merger, dated as of November 5, 2006 by and among the Company, Kangaroo Holdings, Inc. (“Parent”) and Kangaroo Acquisition, Inc., a wholly owned subsidiary of Parent.

 

As you may know, on May 21, 2007, the parties to the merger agreement amended the merger agreement to increase the consideration payable to OSI stockholders to $41.15 per share in cash, without interest, from $40.00 per share. As further discussed in the enclosed proxy supplement, the May 21 amendment also, among other things, amends the vote required to adopt the merger agreement and prohibits us from paying our regular quarterly cash dividend prior to closing of the transactions contemplated by, or the termination of, the amended merger agreement.

 

In order to permit the solicitation of additional votes in favor of the adoption of the merger agreement, we have postponed the special meeting several times. The special meeting will now be held on Friday, May 25, 2007, at 11:00 a.m., Eastern Daylight Time, at the A La Carte Pavilion, 4050-B Dana Shores Drive, Tampa, Florida 33634; however, we expect to convene the special meeting for the sole purpose of adjourning it in order to permit the solicitation of additional votes and to provide stockholders with additional time to consider the changes to the merger effectuated by the May 21 amendment, including the revised merger consideration, and to review the enclosed proxy supplement. We expect to reconvene the special meeting on Tuesday, June 5, 2007, at 11:00 a.m., Eastern Daylight Time, at the A La Carte Pavilion, 4050-B Dana Shores Drive, Tampa, Florida 33634.

 

After careful consideration, 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 comprised of all of our independent directors, determined that the amended merger agreement is advisable and in the best interests of OSI and its stockholders, including its unaffiliated stockholders, and approved and adopted the amended merger agreement. Accordingly, our board of directors recommends that you vote “FOR” the adoption of the amended merger agreement.

 

Attached to this letter is a supplement to the definitive proxy statement containing additional and updated information about OSI and the amended merger agreement. Please read this document carefully and in its entirety. We also encourage you, if you have not done so already, to review carefully the definitive proxy statement that was previously sent to you.

 

The record date for the postponed meeting has not changed and will not change when the meeting is adjourned on May 25, 2007 to June 5, 2007. The record date will remain March 28, 2007. This means that only stockholders of record of OSI common stock at the close of business on March 28, 2007 are entitled to vote on the merger proposal at the rescheduled special meeting.

 

YOUR VOTE IS VERY IMPORTANT, regardless of the number of shares you own. For your convenience, we have enclosed a proxy card with the proxy supplement. If you have already delivered a properly executed proxy card on the merger proposal, you do not need to do anything unless you wish to change your vote. If you have not previously voted or if you wish to revoke or change your vote, please complete, sign, date and return the enclosed proxy in the envelope provided. If you are a registered voter and have already submitted a properly executed proxy, you can also attend the reconvened meeting and vote in person to change your vote.

 

If your shares are held in “street name” by your bank, brokerage firm or other nominee, and if you have already provided instructions to your bank, brokerage firm or other nominee but wish to change those instructions, you should provide new instructions following the procedures provided by your bank, brokerage firm or other nominee.

 

If you have any questions, please contact our proxy solicitor, MacKenzie Partners, Inc., at (800) 322-2885 (toll-free) or (212) 929-5500 (collect) or via email at proxy@mackenziepartners.com. If your bank, brokerage firm or other nominee holds your shares in “street name,” you should also call your brokerage firm, bank or other nominee for additional information.

 

On behalf of the board of directors, we thank you for your support as a stockholder of OSI.

 

Sincerely,

 

 

This supplement is dated May 23, 2007 and is first being mailed to stockholders on or about May 24, 2007.

 

TABLE OF CONTENTS

 

 

This supplement to proxy statement (this “supplement”), and the documents to which we refer you in this supplement, contain not only historical information, but also “forward-looking statements.” Forward-looking statements represent our expectations or beliefs concerning future events, including the following: any projections or forecasts included in the definitive proxy statement dated March 30, 2007 (the “definitive proxy statement”) or referred to in this supplement, 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 that may cause actual results to differ materially from the forward-looking statements. Those risks include, without limitation:

 

 

 

 

 

 

 

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 supplement 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 supplement. 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.

 

This supplement is being sent to you because we have amended our merger agreement with Kangaroo Holdings, Inc. and Kangaroo Acquisition, Inc., and our stockholders are being asked to adopt the amended merger agreement. This supplement provides information about the amended transaction and updates the definitive proxy statement. The information provided in the definitive proxy statement previously mailed to our stockholders on or about April 2, 2007, continues to apply, except as described in this supplement. To the extent information in this supplement differs from, updates or conflicts with information contained in the definitive proxy statement, the information in this supplement is the more current information. If you need another copy of the definitive proxy statement or this supplement, you may obtain it free of charge from the Company by directing such request to OSI Restaurant Partners, Inc., 2202 North West Shore Boulevard, Tampa, Florida 33607, Attention: Investor Relations; telephone: 813-282-1225. The definitive proxy statement may also be found on the Internet at http://www.sec.gov. See “Where You Can Find Additional Information” beginning on page S-71 of this supplement.

 

In this supplement, the terms “OSI,” the “Company,” “we,” “us” and “our” refer to OSI Restaurant Partners, Inc.; the term “Parent” refers to Kangaroo Holdings, Inc.; the term “Merger Sub” refers to Kangaroo Acquisition, Inc., a wholly owned subsidiary of Kangaroo Holdings, Inc; the term “OSI Investors” refers to our founders, certain holders associated with Mr. Sullivan (other than for purposes of the section “Update to Special Factors — Position of the OSI Investors Regarding the Fairness of the Merger”) and members of our management who are expected to exchange shares of our common stock for shares of common stock of Parent in connection with the merger; the term “Bain Capital” refers to Bain Capital Partners, LLC; the term “Catterton” refers to Catterton Management Company, LLC; the term “Bain/Catterton” refers, collectively, to Bain Capital and Catterton; the term “Bain Capital Funds” refers to Bain Capital and Bain Capital Fund IX, L.P., an investment fund sponsored by Bain Capital, together with associated collective investment vehicles, including Bain Capital (OSI) IX, L.P.; the term “Catterton VI Funds” refers to Catterton Partners VI, L.P. and Catterton Partners VI, Offshore, L.P., investment funds managed by Catterton; the term “Catterton Partners Funds” refers to Catterton and the Catterton VI Funds, together with affiliated investment vehicles; and the term the “Funds” refers to, collectively, the Catterton VI Funds, Bain Capital Fund IX, L.P., and Bain Capital (OSI) IX, L.P.

 

This updated summary term sheet, together with the updated question and answer section contained in this supplement, highlights important information about the proposed merger discussed in more detail elsewhere in this supplement and in the definitive proxy statement. This updated summary term sheet does not contain all of the information you should consider before voting on the adoption of the amended merger agreement and the transactions contemplated thereby. To understand the merger more fully, you are urged to read carefully this entire supplement and all of its annexes, including the amendment to the original merger agreement, a copy of which is attached as Annex A to this supplement, and the definitive proxy statement and all of its annexes before voting on the proposal to adopt the amended merger agreement and the transactions contemplated thereby. The amended merger agreement is the legal document that governs the merger.

 

Amendment to Original Merger Agreement

 

On May 21, 2007, we, together with Parent and Merger Sub, amended the original merger agreement to increase the consideration payable to OSI stockholders to $41.15 per share in cash, without interest, from $40.00 per share. The May 21 amendment also revises the closing condition that required a majority of the outstanding shares of our common stock entitled to vote at the special meeting to vote for the adoption of the original merger agreement, without consideration as to the vote of the OSI Investors. The May 21 amendment provides that, in addition to the affirmative vote of a majority of the outstanding shares of our common stock required under Delaware law, we must obtain the affirmative vote of the holders, as of the record date, of a majority of the number of shares of our common stock held by holders that are not OSI Investors, voting together as a single class, to adopt the amended merger agreement and the merger.

 

Under the May 21 amendment, we have agreed not to pay our regular quarterly cash dividend prior to the closing of the transactions contemplated by the amended merger agreement or termination of the amended merger agreement. In addition, the parties have agreed not to terminate the amended merger agreement under Section 7.1(b) of the amended merger agreement prior to the close of business on June 19, 2007.

 

The May 21 amendment also provides customary representations and warranties of the parties in connection with the execution of the amendment. See “Summary of Amendment to the Merger Agreement” beginning on page S-27.

 

Stockholder Vote Required to Approve the Merger

 

You are being asked to consider and vote upon a proposal to adopt the amended merger agreement. Under Delaware law, adoption of the amended merger agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock entitled to vote at the special meeting. Also, the amended merger agreement requires, as a condition to the merger, the affirmative vote of the holders, as of the record date, of a majority of the number of shares of our common stock held by holders that are not OSI Investors, voting together as a single class, to adopt the amended merger agreement and the merger. Abstentions and broker non-votes will have the same effect as a vote against the amended merger agreement and the merger. On the record date, March 28, 2007, there were 75,520,662 shares of our common stock outstanding and entitled to be voted at the special meeting, 66,760,600 of which were held by persons other than the OSI Investors.

 

Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors

 

After careful consideration, 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 the special committee, comprised of all of OSI’s independent directors, has determined that the amended merger agreement is both procedurally and substantively fair to OSI’s unaffiliated stockholders, and in the best interests of our stockholders, and approved and adopted the amended merger agreement. 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. Accordingly, our board of directors recommends that you vote “FOR” the adoption of the amended merger agreement at the special meeting. See “Update to Special Factors — Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors” beginning on page S-12.

 

Interests of Our Directors and Executive Officers in the Merger

 

In considering the recommendation of our board of directors with respect to the amended merger agreement, you should be aware that some of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. The board of directors was aware of these interests and considered them, among other matters, in approving the amended merger agreement. See “Update to Special Factors — Interests of Our Directors and Executive Officers in the Merger” beginning on page S-25.

 

Messrs. Sullivan, Basham and Gannon, OSI’s founders, have agreed with Parent that they will receive only $40 per share in cash for their shares (other than the shares they will be contributing to Parent in exchange for Parent common stock, which will be exchanged at a per share valuation of $40.00 per share) in a sale transaction with a member of the investor group to be consummated immediately prior to, but expressly conditioned upon, the consummation of the merger.

 

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 $3.71 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 $1.28 billion, (ii) debt financing totaling approximately $2.43 billion (of which approximately one-quarter 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 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, Carrabba’s 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. The closing of the merger is not conditioned on the receipt of the debt or equity financing by Parent.

 

Opinion of Wachovia Capital Markets, LLC

 

In connection with the merger, the special committee received a written opinion from Wachovia Securities, as to the fairness, from a financial point of view and as of the date of such opinion, of the $41.15 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 amended merger agreement. The full text of Wachovia Securities’ written opinion, dated May 21, 2007, is attached to this supplement 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 “Update to Special Factors — Opinion of Wachovia Capital Markets, LLC” beginning on page S-16.

UPDATE TO QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 

The following questions and answers address briefly some questions you may have regarding the merger, the merger agreement, as amended by the May 21 amendment, and the rescheduled special meeting. These questions and answers may not address all questions that may be important to you as a stockholder of OSI. We urge you to read carefully this entire supplement, including the annexes, the definitive proxy statement and the other documents referred to in this supplement and the definitive proxy statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Background of the Merger

 

The definitive proxy statement describes the background of the proposed transaction with Bain/Catterton up to and including March 30, 2007. The discussion below supplements that description.

 

During the first half of April, the Company as well as its proxy solicitor, MacKenzie Partners, Inc. (“MacKenzie”), communicated with OSI’s stockholders regarding the proposed transaction with Bain/Catterton and monitored the votes cast by stockholders who had submitted their proxies.

 

On April 23, 2007, the special committee held a telephonic meeting to discuss the Company’s proxy solicitation efforts. At the meeting, a representative from Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”), the special committee’s independent counsel, described the Company’s and MacKenzie’s communications with OSI’s stockholders and updated the committee as to the number of OSI’s stockholders who had submitted proxies both for and against the proposed Bain/Catterton transaction.

 

On April 26, 2007, Institutional Shareholder Service Inc. (“ISS”), a shareholder advisory firm, issued a recommendation to its clients that they vote for adoption of the merger agreement. In recommending that OSI’s stockholder’s vote for adoption of the merger agreement, ISS stated in part:

 

 

On April 30, 2007, Glass Lewis & Co. (“Glass Lewis”), another shareholder advisory firm, recommended that OSI’s stockholders vote for adoption of the merger agreement. In recommending that OSI’s stockholders vote for adoption of the merger agreement, Glass Lewis stated in part:

 

 

 

 

On May 7, 2007, a telephonic meeting was held to discuss the Company’s and MacKenzie’s proxy solicitation efforts. In attendance were A. William Allen, III, OSI’s Chief Executive Officer, Joseph J. Kadow, OSI’s Executive Vice President, Dirk A. Montgomery, OSI’s Senior Vice President and Chief Financial Officer and Toby S. Wilt, co-chairman of the special committee. Also in attendance were representatives from MacKenzie, Wachtell Lipton and Baker & Hostetler LLP, outside counsel to the Company (“Baker Hostetler”). A representative from Wachtell Lipton explained that, based on preliminary vote tallies, it appeared unlikely that, as of such date, the proposed Bain/Catterton transaction would be approved on May 8, 2007, the previously scheduled date for the Company’s special meeting of stockholders. After discussion, Mr. Allen and Mr. Wilt, to whom the authority to set the meeting date had been delegated, agreed to postpone the special meeting of stockholders until May 15, 2007 to permit the solicitation of additional votes. The next morning, the Company issued a press release announcing the postponement of the special meeting to May 15, 2007.

 

On May 11, 2007, the special committee held a telephonic meeting to further discuss the Company’s and MacKenzie’s proxy solicitation efforts. At the meeting, a representative from Wachtell Lipton described the Company’s, MacKenzie’s and Bain/Catterton’s communications with OSI’s stockholders, and updated the

 

 

committee as to the number of OSI’s stockholders who had submitted proxies both for and against the proposed merger. The special committee discussed, among other topics, the possible need to further postpone the special meeting of stockholders to permit the solicitation of additional votes.

 

A follow-up telephonic meeting of the special committee was held on May 14, 2007. At the meeting, Wachtell Lipton updated the special committee on the Company’s and MacKenzie’s proxy solicitation efforts, including communications with OSI’s stockholders. After discussion, the special committee reached a consensus to further postpone the special meeting of stockholders until May 22, 2007 to permit the solicitation of additional votes. Later that day, the Company issued a press release announcing that it had further postponed the special meeting of stockholders to May 22, 2007. The Company also announced that it had agreed with Parent that neither party would exercise the termination right under section 7.1(b) of the merger agreement prior to the close of business on May 31, 2007, and that it had been advised that this later date would facilitate Parent’s financing of the proposed merger.

 

An additional telephonic meeting of the special committee was held on May 16, 2007. At the meeting, a representative from Wachtell Lipton described the Company’s and MacKenzie’s communications with OSI’s stockholders and updated the committee as to the number of OSI’s stockholders who had submitted proxies both for and against the proposed merger.

 

On May 20, 2007, a representative of Ropes & Gray LLP (“Ropes & Gray”), Bain/Catterton’s counsel, contacted Wachtell Lipton and indicated that Bain/Catterton was considering making a proposal to the special committee that (i) the merger consideration be increased to $41.15 per share, (ii) only the vote required under Delaware law be a condition to the closing of the merger agreement (which would allow the votes of OSI Investors to be counted), and (iii) the Company agree not to pay its regular quarterly cash dividend prior to the earlier of closing or the termination of the merger agreement. In addition, the special committee was informed that in connection with the increase in merger consideration, Bain/Catterton would seek agreements from Messrs. Sullivan, Basham and Gannon, OSI’s founders, to receive only $40 per share in cash for their shares (other than the shares they will be contributing to Parent in exchange for Parent common stock).

 

On May 20, 2007, the special committee held a telephonic meeting to discuss Bain/Catterton’s potential proposal. At the meeting, Wachtell Lipton also updated the special committee on the Company’s and MacKenzie’s proxy solicitation efforts, including communications with OSI’s stockholders. Following extensive discussion, in which Wachtell Lipton and Wachovia Securities participated, the special committee reached a consensus that Wachtell Lipton should inform Ropes & Gray that Bain/Catterton’s proposal to eliminate any vote other than the vote required under Delaware law would not be acceptable. Wachtell Lipton was further instructed to inquire as to whether $41.15 per share would be Bain/Catterton’s best and final offer.

 

On May 20, 2007, a representative of Wachtell Lipton held a discussion with representatives of Ropes & Gray. Wachtell Lipton informed Ropes & Gray that Bain/Catterton’s proposal to eliminate any vote other than the vote required under Delaware law would not be acceptable and that the votes of the OSI Investors should not be counted. Ropes & Gray conveyed that Bain/Catterton would not propose a revised purchase price above $41.15 per share.

 

On May 21, 2007, at 10:00 a.m., the special committee held a telephonic meeting to further discuss Bain/Catterton’s potential proposal. At the meeting, a representative of Wachtell Lipton explained that Bain/Catterton was unwilling to propose a purchase price above $41.15 per share. After discussion, Wachovia Securities was asked to be prepared to render a fairness opinion at a special committee meeting scheduled for 4:00 p.m. that day.

 

On May 21, 2007, at 3:39 p.m., the special committee received a written proposal from Bain/Catterton that (i) the merger consideration be increased to $41.15 per share, (ii) the stockholder vote required under the merger agreement to adopt the merger agreement should be the affirmative vote of the holders, as of the record date, of a majority of the number of shares of Company Common Stock held by holders that are not OSI Investors, voting together as a single class, and (iii) the Company agree not to pay its regular quarterly cash dividend prior to the earlier of closing or the termination of the merger agreement. In addition, the special committee was informed that in connection with the increase in merger consideration, Bain/Catterton would seek agreements from Messrs. Sullivan, Basham and Gannon, OSI’s founders, to receive only $40 per share in cash for their shares (other than the shares they will be contributing to Parent in exchange for Parent common stock).

 

On May 21, 2007, at 4:00 p.m., the special committee held a telephonic meeting. Representatives from Wachtell Lipton, Wachovia Securities and Potter Anderson & Corroon LLP, Delaware counsel to the special committee (“Potter Anderson”), were also in attendance. At the meeting, a representative of Wachtell Lipton summarized the terms of the proposal received by Bain/Catterton and discussed various issues related to the proposal. The special committee then received a presentation from Wachovia Securities on the financial aspects of the proposal. After consideration and deliberation in which Wachtell Lipton, Wachovia Securities and Potter Anderson participated, the special committee reached a consensus that Wachtell Lipton should be instructed to negotiate with Ropes & Gray a potential amendment to the merger agreement. An additional special committee meeting was scheduled for May 21, 2007, at 7:00 p.m., and, subsequent to the special committee meeting, the general counsel of OSI was asked to arrange a meeting of the board of directors should one be necessary following conclusion of the 7:00 p.m. special committee meeting.

 

On May 21, 2007, at 7:00 p.m., the special committee convened telephonically, together with representatives of Wachovia Securities, Wachtell Lipton and Potter Anderson. Wachtell Lipton explained the terms of the proposed amendment to the merger agreement and Wachovia Securities delivered to the special committee its oral opinion, confirmed by delivery of a written opinion dated May 21, 2007, to the effect that, as of such date and based on and subject to the various factors, assumptions and limitations set forth in its opinion, the $41.15 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.

 

After consideration and deliberation in which Wachtell Lipton, Wachovia Securities and Potter Anderson participated, the special committee voted unanimously to declare it both procedurally and substantively fair to OSI’s unaffiliated stockholders, and in the best interests of our stockholders, and approved and adopted the amendment to the merger agreement and determined to recommend the approval and adoption of the amended merger agreement by the board of directors and by the stockholders of OSI.

 

Following the special committee meeting, a meeting of the entire board of directors was held. Representatives from Wachtell Lipton, Wachovia Securities, Potter Anderson and Baker Hostetler were also in attendance. At the meeting, Wachtell Lipton explained that the special committee had voted unanimously to declare it advisable and in the best interests of OSI and its stockholders for OSI to amend the merger agreement, approved and adopted the amendment to the merger agreement and determined to recommend the approval and adoption of the amended merger agreement by the board of directors and by the stockholders of OSI. Baker Hostetler then summarized the terms of the proposed merger agreement amendment and discussed various other issues. The board then received a presentation from Wachovia Securities on the financial aspects of the proposed amendment. Wachovia Securities also described its fairness opinion that had been delivered to the special committee. Wachtell Lipton explained that although the fairness opinion had been delivered to the special committee, the board was entitled to rely upon such opinion in connection with its evaluation of the proposed amendment. After consideration and deliberation, 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 declared the merger agreement both procedurally and substantively fair to OSI’s unaffiliated stockholders, and in the best interests of our stockholders, and approved and adopted the amendment to the merger agreement and determined to recommend the approval and adoption of the amended merger agreement by the stockholders of OSI.

 

Following the board meeting, the parties executed the amendment to the merger agreement and, on May 22, 2007, issued a press release announcing the amended transaction.

 

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 amended merger agreement and merger, as the “Board.” The Board believes that the amended merger agreement and merger (which is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement has been filed with the SEC) are both procedurally and substantively fair to OSI’s unaffiliated stockholders and in the best interests of OSI’s 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 OSI’s stockholders approve and adopt the merger agreement. On May 21, 2007, the special committee and the Board separately approved and adopted the May 21 amendment and recommended that OSI’s stockholders adopt the amended merger agreement.

 

In reaching their respective determinations and recommendations, the special committee and the Board re-examined and reconsidered the matters described in “Special Factors — Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors” beginning on page 32 of the definitive proxy statement and, in addition, considered, in consultation with their financial and legal advisors, the following additional factors and potential benefits of the merger, each of which the Board believed supported its decision:

 

 

 

 

 

 

 

 

 

 

In addition, the Board considered the unanimous determinations and recommendations of the special committee in favor of the merger.

 

In view of the large number of factors considered by the special committee and the Board in connection with the evaluation of the amended 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 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 OSI’s management and its financial and legal advisors, and reached the conclusion that the merger is both procedurally and substantively fair to OSI’s unaffiliated stockholders and in the best interests of OSI’s stockholders. THEREFORE, THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE AMENDED MERGER AGREEMENT.

 

Other than as described in this supplement, 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 OSI’s assets or a purchase of OSI’s securities that would enable such person to exercise control of OSI.

 

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 OSI’s unaffiliated stockholders. 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 and on May 21, 2007 approving the amended merger agreement and the transactions contemplated thereby although they abstained from the vote of the board. In such capacity, they received advice from the special committee’s legal and financial advisors, including advice from the special committee’s financial advisors as to the substantive and procedural fairness of the transaction to OSI’s unaffiliated stockholders, from a financial point of view. See “— Opinion of Wachovia Capital Markets, LLC” on page S-16 of this supplement, “Special Factors — Opinion of Wachovia Capital Markets, LLC” on page 41 of the definitive proxy statement and “Special Factors — Opinion of Piper Jaffray & Co.” on page 50 of the definitive proxy statement. 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 OSI’s unaffiliated stockholders, 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 committee’s 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 amended merger agreement and merger (which is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement has been filed with the SEC) are both procedurally and substantively fair to OSI’s unaffiliated stockholders and in the best interests of OSI’s stockholders 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 OSI’s unaffiliated stockholders. In making their determination that the merger is substantively fair to OSI’s

unaffiliated stockholders, the OSI Investors expressly adopted the unanimous recommendation and determinations of the special committee and the Board in favor of the merger, reexamined and reconsidered the matters described in “Special Factors — Position of the OSI Investors Regarding the Fairness of the Merger” beginning on page 37 of the definitive proxy statement and considered the following material positive factors, among others:

 

 

 

 

 

 

 

 

 

 

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 OSI’s unaffiliated stockholders of the amended merger agreement and the transactions contemplated by the amended 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 OSI’s unaffiliated stockholders of the amended merger agreement and the transactions contemplated by the amended 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 OSI’s unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any OSI stockholder to vote to adopt the amended 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 amended merger agreement. See “Update to Special Factors — Fairness of the Merger; Recommendations of the Special Committee and Our Board of Directors” beginning on page S-12.

 

Position of Parent, Merger Sub and the Funds Regarding the Fairness of the Merger

 

Parent, Merger Sub and the Funds are making the statements included in this section solely for the purposes of complying with the applicable 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 amended 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 or the May 21 amendment to 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 supplement, 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 OSI’s unaffiliated stockholders, nor did they undertake any independent evaluation of the fairness of the merger or engage any financial advisor for such purposes.

 

While 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 OSI’s unaffiliated stockholders as set forth in the definitive proxy statement under “Fairness of the Merger — Recommendations of the Special Committee and Our Board of Directors” and this supplement, they did not base their determination expressed below on the special committee’s analyses of factors. In addition, Parent, Merger Sub and the Funds believe the proposed merger is substantively and procedurally fair to OSI’s unaffiliated stockholders based on the following other factors:

 

 

 

 

 

 

 

 

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 $41.15 per share cash merger consideration. Parent, Merger Sub and the Funds did not establish a going concern value for the OSI common stock as a public company to determine the fairness of the merger consideration to the unaffiliated stockholders as they believe there is no single method for determining going concern value and did not base their valuation on a concept subject to various interpretations.

 

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 amended 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 amended 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 substantively and procedurally fair to OSI’s unaffiliated stockholders.

 

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 board’s 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 committee’s 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 OSI’s stockholders, other than the OSI Investors. Wachovia Securities was not retained to act solely on behalf of unaffiliated stockholders of the Company. The special committee did not impose any limitation on Wachovia Securities in preparing its analysis or opinion. At the meeting of the special committee, on May 21, 2007, Wachovia Securities rendered its oral opinion, which opinion was later confirmed in writing, as of May 21, 2007, and based on and subject to the various factors, assumptions and limitations set forth in its opinion, that the $41.15 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 May 21, 2007, 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 supplement 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:

 

 

 

 

 

 

 

 

 

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 OSI’s management that it is not aware of any facts or circumstances that would make such information about OSI inaccurate or misleading. With respect to OSI’s 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 OSI’s management, but assumes no responsibility for and expresses no view as to OSI’s 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.

 

In rendering the opinion, Wachovia Securities assumed that the transactions contemplated by the merger agreement, as amended by the May 21 amendment, will be consummated on the terms described in the merger agreement, as amended, 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 May 21, 2007. 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 May 21, 2007, 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 tables 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 supplement 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 OSI’s 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 OSI’s 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 OSI’s 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 the special committee, on behalf of OSI, and Parent, and the decision to enter into the merger was solely that of 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 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 discounted cash flow analysis, an analysis of the present value of OSI’s 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.

 

 

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 as determined by reviewing the sales and earnings growth and other financial characteristics detailed in the projections provided by OSI’s 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:

 

(In millions, except per share values)

 

 

 

 

 

 

 

 

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 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:

 

 

 

 

Based in part on the multiples described above and the multiples calculated for all of the companies mentioned on page S-22, Wachovia Securities derived indications of the aggregate value of OSI by applying multiples ranging from 7.6x to 9.8x OSI’s Adjusted EBITDA as of March 31, 2007 of $369,400,000. 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

$34.60 to $43.75, as compared to the merger consideration of $41.15 per share. The financial data considered as part of this analysis included, among other things:

 

 

 

 

 

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 Company’s 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 estimated future free cash flows were based on OSI’s management’s estimates for both a base and downside plan for the years 2007 through 2011 (see “Financial Forecast” on page 182 of the definitive proxy statement) with the referenced 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 Company’s 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 Company’s 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 $32.61 to $44.09, as compared to the merger consideration of $41.15 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 OSI’s present or future value or results.

 

MANAGEMENT’S DOWNSIDE CASE

 

 

MANAGEMENT PLAN

 

 

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 trading share price of $32.43 as of November 3, 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 Company’s 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 Company’s 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 OSI’s future share price, Wachovia Securities utilized OSI’s management’s 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 OSI’s historical P/E range, and by applying a discount rate of 10.9% 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 $29.53 to $43.61, as compared to the merger consideration of $41.15 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 OSI management’s estimates for both a base and downside plan for the years 2007 through 2011 (see “Financial Forecast” on page 182 of the definitive proxy statement) 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 buyer’s 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 buyer’s expected return on equity and (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 $32.37 to $41.85 per share, as compared to the merger consideration of $41.15 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:

 

($ in millions)

 

 

 

 

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 8.1x. 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 Securities derived indicative aggregate values of OSI by applying multiples ranging from 6.5x to 8.5x to OSI’s Adjusted EBITDA as of March 31, 2007, of $369,400,000. The resulting range of per share values based on the analysis of comparable transactions was $29.50 to $38.30 per share, as compared to the merger consideration of $41.15 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 Company’s 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 330 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 19.3%, 21.0% and 24.5%, respectively. Wachovia Securities applied the median premiums paid or payable to OSI’s unaffected stock price and historical stock prices prior to November 6, 2006. The analysis resulted in a range of implied values per share of OSI common stock of $38.65 to $41.50, as compared to the merger consideration of $41.15 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 $13 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. 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 committee’s 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.

 

Certain Effects of the Merger

 

The table below sets forth the interest in voting shares of OSI and the interest in OSI’s net book value and net earnings for certain of 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.

 

 

 

 

Financing

 

Equity Financing

 

Bain Capital Fund IX, L.P. has delivered an equity commitment letter for $925,000,000 to Parent, and Catterton VI Funds has delivered an equity commitment letter for $150,000,000 to Parent. 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 amended 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 earliest to occur of (i) the termination of the amended 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 investor’s limited guaranty, the amended merger agreement or any of the transactions contemplated by them or the amended merger agreement; or (iii) June 19, 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

 

In connection with the amendment of the merger agreement, on May 21, 2007, Merger Sub and the Financing Sources (defined below) have amended the November 5, 2006 debt commitment letter (the “Original Debt Commitment Letter”) from 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 LLLC, and Banc of America Securities LLC (collectively, the “Financing Sources”), which letter provided committed financing for (i) $1.35 billion in senior secured credit facilities, (ii) $800,000,000 under a senior unsecured bridge facility and (iii) $530,000,000 under a new senior real estate bridge facilities. The May 21, 2007 amendment extends the financing debt commitments in the Original Debt Commitment Letter to coincide with the termination date set forth in the amended merger agreement. The May 21, 2007 amendment did not otherwise amend or modify the debt financings contemplated by the Original Debt Commitment Letter or the amount of the committed debt financings as described in the definitive proxy statement. The final terms of the debt financing remain subject to agreement and accordingly, the terms and amounts of the debt financing arrangements may differ from those set forth in the definitive proxy statement and, in certain cases, such differences may be significant. Except as described herein and in the definitive proxy statement, there is no current plan or arrangement to finance or repay the debt financing arrangements.

 

As of the date of this supplement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in the definitive proxy statement is not available as anticipated.

 

Interests of Our Directors and Executive Officers in the Merger

 

The following information reflects the effects of the May 21 amendment and updates certain information presented in “Special Factors — Interests of Our Directors and Executive Officers in the Merger” beginning on page 65 of the definitive proxy statement.

 

Stock Options, Restricted Stock and Other Equity-Based Awards

 

As of the effective time of the merger:

 

 

 

 

We estimate the amounts that will be payable to each OSI named executive officer in settlement of stock options as follows: Mr. Allen, $3,828,000, Mr. Avery, $11,448,450 and Mr. Kadow, $2,384,000. 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 $22,013,561. Mr. Allen, Mr. Kadow and Mr. Montgomery will contribute their restricted OSI stock to Parent in exchange for common stock of Parent.

 

Arrangements with Mr. Sullivan, Mr. Basham and Mr. Gannon

 

Immediately prior to the effective time of the merger, Mr. Sullivan (and certain holders associated with Mr. Sullivan), Mr. Basham and Mr. Gannon are expected to exchange approximately 1,550,692, 2,151,163 and 300,000 shares of OSI common stock, respectively, for Parent common stock representing approximately 4.70%, 6.49% and 0.91%, respectively, of the fully-diluted outstanding common stock of Parent immediately following the closing. Messrs. Sullivan, Basham and Gannon have agreed with Parent that their shares (excluding shares held by associates of Mr. Sullivan) will be exchanged at a per share valuation of $40.00 per share.

 

Messrs. Sullivan, Basham and Gannon have agreed with Parent that they will receive only $40 per share in cash for their shares (other than the shares they will be contributing to Parent in exchange for Parent common stock) in a sale transaction with a member of the investor group to be consummated immediately prior to, but expressly conditioned upon, the consummation of the merger.

 

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 based on their holdings as of the record date: