prem14a
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 x
Filed by a Party other than the Registrant o
Check the appropriate box:
ý 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
Applebees International, 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.
x Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: Common Stock, par value
$.01 per share.
2) Aggregate number of securities to which transaction applies: 75,163,967 shares of common
stock outstanding as of August 20, 2007, (including 211,937 shares of restricted stock that
will be issued on September 4, 2007), options to purchase 3,293,718 shares, 1,365,731 stock
appreciation rights; 9,775 restricted stock units (including only in-the-money stock options
and stock appreciation rights and an estimated 115,289 stock appreciation rights and
restricted stock units to be issued on September 4, 2007).
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined): The proposed maximum aggregate value of the transaction for purposes of
calculating the filing fee is $1,946,765,168. The filing fee was based upon the sum of (A)
$1,916,681,159 (75,163,967 common shares multiplied by $25.50 per share) and (B) $30,084,009
(the aggregate amount payable upon cancellation of stock options, stock appreciation rights
and restricted stock units, calculated based on the difference between $25.50 and the weighted
average exercise price of options and stock appreciation rights, $17.81 and $22.19,
respectively, and $25.50 multiplied by the number of outstanding restricted stock units) (the
Total Consideration). The filing fee equals the product of 0.0000307 multiplied by the
Total Consideration.
4) Proposed maximum aggregate value of transaction: $1,946,765,168.
5) Total fee paid: $59,766.
o Fee paid previously with preliminary materials.
o Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
PRELIMINARY
PROXY STATEMENT, SUBJECT TO COMPLETION
Applebees International,
Inc.
4551 W. 107th Street
Overland Park, KS
66207
,
2007
Dear Stockholder:
We invite you to attend a special meeting of the stockholders of
Applebees International, Inc., a Delaware corporation, to
be held
on ,
2007
at
local time. The meeting will be held
at .
At the special meeting, you will be asked to adopt the agreement
and plan of merger, dated July 15, 2007, among
Applebees, IHOP Corp. (IHOP) and CHLH Corp.
(Merger Sub), a wholly-owned subsidiary of IHOP,
providing for the merger of Merger Sub with and into
Applebees. If the merger is completed, each holder of
shares of our common stock will be entitled to receive $25.50 in
cash in exchange for each share of our common stock held, as
more fully described in the enclosed proxy statement, and
Applebees will become a wholly-owned subsidiary of
IHOP.
After careful consideration, our board of directors approved the
merger agreement and the merger and has declared the merger
agreement and the merger advisable and in the best interests of
Applebees and our stockholders. Our board of directors
recommends that you vote FOR the adoption of the merger
agreement and the approval of the merger.
The merger agreement must be adopted and the merger approved by
the affirmative vote of holders of a majority of the outstanding
shares of common stock that are entitled to vote at the special
meeting. The completion of the merger is also subject to the
satisfaction or waiver of other conditions. More information
about the merger is contained in the enclosed proxy statement.
We urge you to read carefully the enclosed proxy statement and
the merger agreement, a copy of which is included in the proxy
statement as Exhibit A.
Your vote is very important. Whether you plan to attend the
special meeting or not, please either complete the enclosed
proxy card and return it as promptly as possible or submit your
proxy or voting instructions by telephone or
Internet. The enclosed proxy card contains instructions
regarding voting. If you attend the special meeting, you may
continue to have your shares voted as instructed in the proxy or
you may withdraw your proxy at the special meeting and vote your
shares in person. If you fail to vote by proxy or in person,
or fail to instruct your broker on how to vote, it will have the
same effect as a vote against adoption of the merger
proposal.
This Proxy Statement is
dated ,
2007 and is first being mailed, along with the enclosed proxy
card, to our stockholders on or
about ,
2007.
Sincerely,
Rebecca R. Tilden
Secretary
APPLEBEES
INTERNATIONAL, INC.
4551 W. 107th Street
Overland Park, KS 66207
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO BE
HELD ,
2007
To Our Stockholders:
NOTICE IS HEREBY GIVEN that Applebees International, Inc.
will hold a Special Meeting of Stockholders
at
on ,
2007, at a.m. local time for the following
purposes:
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(1)
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to consider and vote upon a proposal to adopt the agreement and
plan of merger, dated July 15, 2007, among Applebees
International, Inc. (Applebees), IHOP Corp., a
Delaware corporation (IHOP), and CHLH Corp., a
Delaware corporation (Merger Sub), a wholly-owned
subsidiary of IHOP (the merger agreement) providing
for the merger of Merger Sub with and into Applebees (the
merger), pursuant to which each holder of shares of
our common stock (other than shares of our common stock owned by
Applebees, IHOP, Merger Sub or any subsidiary of
Applebees or shares held by stockholders who properly
demand appraisal rights under Delaware law) will be entitled to
receive $25.50 in cash, without interest, in exchange for each
share held, and approve the merger;
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(2)
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to consider and vote upon any proposal to vote for the
adjournment of the special meeting for the purpose of soliciting
additional proxies because there are insufficient votes at the
time of the meeting to adopt the merger proposal; and
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(3)
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to consider and act upon any other business properly presented
at the special meeting or any adjournment or postponement
thereof.
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All holders of record of shares of our common stock as of the
close of business
on ,
2007 are entitled to notice of and to vote at the special
meeting or any postponements or adjournments of the special
meeting. Regardless of the number of shares you own, your
vote is important. If you do not plan to attend the meeting
and vote your shares of common stock in person, please submit
your proxy by either marking, signing, dating and promptly
returning the enclosed proxy card in the postage-paid envelope
or by submitting your proxy or voting instructions by telephone
or Internet. Any proxy may be revoked at any time prior to its
exercise by delivery of a written notice of revocation, or a
later-dated proxy card or by voting in person at the special
meeting.
A stockholders list will be available at our executive
offices at 4551 W. 107th Street, Overland Park,
KS 66207 for inspection by any stockholder entitled to vote at
the special meeting for any purpose germane to the meeting
beginning no later than ten days before the date of the special
meeting and continuing through the special meeting.
We encourage you to read this proxy statement carefully. If you
have any questions or need assistance, please call Innisfree
M&A Incorporated, toll free at
877-687-1866.
These documents may also be obtained for free from
Applebees by directing a request to Applebees
International, Inc., Investor Relations,
4551 W. 107th Street, Overland Park, Kansas 66207.
By Order of the Board of Directors,
Rebecca R. Tilden, Secretary
Overland Park, Kansas
,
2007
IMPORTANT:
Whether or not you plan to attend the special meeting, please
promptly either complete, sign, date and mail the enclosed form
of proxy or submit your proxy or voting instructions by
telephone or Internet. A self-addressed envelope is enclosed for
your convenience. Details are outlined in the enclosed proxy
card. If you hold your shares through a broker, dealer, trustee,
bank or other nominee, you may also be able to submit your proxy
or voting instructions by telephone or by Internet in accordance
with the instructions your broker, dealer, trustee, bank or
other nominee provides. Returning a signed proxy will not
prevent you from attending the meeting and voting in person, if
you wish to do so. Please note that if you execute multiple
proxies for the same shares, the last proxy you execute revokes
all previous proxies.
TABLE OF
CONTENTS
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EXHIBITS
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Exhibit A
Agreement and Plan of Merger
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Exhibit B Opinion
of Citigroup Global Markets Inc.
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Exhibit C
Delaware General Corporation Law Section 262
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This summary highlights material information in this proxy
statement relating to the merger contemplated by the merger
agreement, which we refer to in this proxy statement as the
merger, and may not contain all of the information
that is important to you. To understand the merger and the
related transactions fully and for a more complete description
of the legal terms of the transactions contemplated by the
merger agreement, you should carefully read this entire document
as well as the additional documents to which it refers,
including the merger agreement, which is attached to this proxy
statement as Exhibit A and incorporated herein by
reference. In this proxy statement, the terms
Applebees, we, us and
our refer to Applebees International, Inc.
The
Parties (Page 13)
Applebees International, Inc.
4551 W. 107th Street
Overland Park Kansas 66207
(913) 967-4000
Applebees is a Delaware corporation that develops
franchises and operates restaurants in the bar and grill segment
of the casual dining industry under the name
Applebees Neighborhood Grill &
Bar®.
With over 1,900 Applebees restaurants, (over 1,400
franchises operated and over 500 company owned),
Applebees is the largest casual dining concept in the
world in terms of the number of restaurants and market share.
IHOP Corp.
450 North Brand Boulevard
Glendale, California 91203
IHOP Corp. is a Delaware corporation. The IHOP family restaurant
chain has been serving a wide variety of breakfast, lunch and
dinner selections for more than 45 years. IHOP restaurants
are franchised and operated by Glendale, California-based IHOP
Corp. As of June 30, 2007, the end of IHOPs second
quarter, there were 1,319 IHOP restaurants in
49 states, Canada, Mexico and the U.S. Virgin Islands.
IHOP Corp. common stock is listed and traded on the NYSE under
the symbol IHP.
CHLH Corp.
450 North Brand Boulevard
Glendale, California 91203
CHLH Corp., or Merger Sub, is a Delaware corporation and was
organized solely for the purpose of acquiring Applebees
pursuant to the merger agreement. Merger Sub has not conducted
any activities to date other than activities incidental to its
formation and in connection with the proposed merger. Merger Sub
is wholly-owned by IHOP.
The
Merger (Page 13)
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If the merger is completed, Merger Sub will be merged with and
into Applebees with the result that Applebees will
become a wholly-owned subsidiary of IHOP. We sometimes use the
term surviving corporation in this proxy statement
to describe Applebees as the surviving entity following
the merger.
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The merger will become effective when we file the certificate of
merger with the Secretary of State of the State of Delaware, or
at such later time that we and IHOP specify in the certificate
of merger. We sometimes use the term effective time
in this proxy statement to describe the time the merger becomes
effective under Delaware law.
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When the
Merger Will be Completed
We are working to complete the merger as soon as possible. We
anticipate completing the merger in the fourth quarter of 2007,
subject to adoption of the merger agreement by our stockholders
and the satisfaction of the other closing conditions. In
addition, IHOP is not obligated to complete the merger until the
expiration of a 15 consecutive business day marketing
period throughout which IHOP shall have certain specified
financial
1
information of Applebees, IHOPs closing conditions
are satisfied and Applebees auditors have not withdrawn
their audit opinions for any applicable required financial
information. We expect the marketing period to begin to run on
the third business day after the adoption of the merger
agreement by our stockholders.
Merger
Consideration (Page 13)
If the merger is completed, each share of our common stock that
is issued and outstanding immediately prior to the effective
time of the merger, including shares of restricted stock (other
than shares of our common stock owned by Applebees, IHOP,
Merger Sub or any subsidiary of Applebees or shares held
by stockholders who properly demand statutory appraisal rights
under Delaware law), will be cancelled and automatically
converted into the right to receive an amount in cash equal to
$25.50, without interest, less any required withholding taxes.
Each outstanding option to purchase shares of common stock
granted under our equity incentive plans, whether vested or
unvested, will be cancelled and will entitle the holder to
receive a cash payment equal to the excess, if any, of the per
share merger consideration over the per share exercise price of
the applicable stock option, multiplied by the number of shares
subject to the stock option, less any applicable taxes required
to be withheld and without interest. Each outstanding stock
appreciation right granted under our equity incentive plans,
whether vested or unvested, will be cancelled and will entitle
the holder to receive a cash payment equal to the excess, if
any, of the per share merger consideration over the per share
exercise price of the applicable stock appreciation right,
multiplied by the number of shares subject to the stock
appreciation right, less any applicable taxes required to be
withheld and without interest. Each outstanding restricted stock
unit granted under our equity incentive plans, whether vested or
unvested, will be cancelled and will entitle the holder to
receive a cash payment equal to the per share merger
consideration multiplied by the number of shares of common stock
issuable pursuant to the restricted stock unit, less any
applicable taxes required to be withheld and without interest.
Our employee stock purchase plans will terminate upon the
earlier of the date the merger closes and the end of the third
quarter offering period. Each share of our common stock
purchased on the last day of the offering periods will be
converted into the right to receive the per share merger
consideration.
The
Special Meeting
Place,
Date and Time of the Special Meeting
The special meeting will be held
at ],
on ,
2007, at a.m. local time.
Purpose
(Page 10)
The purpose of the special meeting is for you to consider and
vote upon a proposal to adopt the merger agreement and approve
the merger and to vote upon any proposal to vote for adjournment
of the special meeting for the purpose of soliciting additional
proxies because there are insufficient votes at the special
meeting to approve the merger proposal.
Record
Date and Quorum (Page 10)
The holders of record of Applebees common stock as of the
close of business on the record date, which
was [ ],
2007 are entitled to receive notice of, and to vote at, the
special meeting. On the record date, there
were shares
of Applebees common stock outstanding. The holders of a
majority of the outstanding shares of our common stock 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. For purposes of
determining whether a quorum exists, broker non-votes and
abstentions will be counted. You will have one vote at the
special meeting for each share of Applebees common stock
held on the record date.
Required
Vote; Abstentions and Broker Non-Votes
(Page 10)
Completion of the merger requires adoption of the merger
agreement and approval of the merger by the affirmative vote of
the holders of a majority of the outstanding shares of
Applebees common stock that are entitled to vote at the
special meeting. Because the required vote is based on the
number of shares of Applebees
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common stock outstanding rather than on the number of votes
cast, failure to vote your shares (including as a result of
broker non-votes) and abstentions will have the same effect as
voting against adoption of the merger agreement and approval of
the merger.
Approval of any proposal to adjourn the meeting requires that
the votes cast in favor exceed the votes cast against.
Abstentions and broker non-votes will have no effect on this
proposal.
Share
Ownership of Directors and Executive Officers
(Page 56)
As of August 29,2007, our executive officers and directors
beneficially owned an aggregate of approximately
9,571,673 shares of Applebees common stock (in the
form of 7,715,093 shares and stock options (vested or that
vest within 60 days) with respect to an additional
1,856,580 shares), representing 12.5% of the total
beneficial ownership of Applebees common stock and
entitling them to exercise approximately 12.5% of the voting
power of Applebees common stock entitled to vote at the
special meeting.
Interests
of Applebees Directors and Executive Officers in the
Merger (Page 34)
When you consider the recommendation of Applebees board of
directors that you vote for the adoption of the merger agreement
and approval of the merger, you should be aware that certain of
our directors and executive officers may have interests in the
merger that are different from, or in addition to, yours,
including the following:
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Applebees executive officers and directors hold restricted
stock, stock options and stock appreciation rights with respect
to Applebees common stock (with respect to
4,091,212 shares in the aggregate), and the restricted
stock will be converted into the right to receive the merger
consideration and the options, and stock appreciation rights,
whether vested or unvested, will be cancelled at the effective
time of the merger and converted into the right to receive the
difference between $25.50 and the exercise price, for an
aggregate of approximately $26.2 million in cash
consideration under the merger agreement;
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each of our executive officers is a party to change in control
agreement or an employment agreement that provides for payment
of certain benefits upon termination of employment after a
change in control;
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the merger agreement provides for indemnification and liability
insurance arrangements for each of our current and former
directors and officers.
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Our board of directors was aware of these interests and
considered them, among other matters, in making its decisions.
Opinion
of Citigroup Global Markets Inc. (Page 27 and
Exhibit B)
In connection with the merger, our board of directors received a
written opinion, dated July 15, 2007, from Citigroup Global
Markets Inc., which we refer to as Citi, as to the fairness,
from a financial point of view and as of the date of the
opinion, of the $25.50 per share consideration to be received in
the merger by holders of our common stock. The full text of
Citis written opinion is attached to this proxy statement
as Exhibit B. Holders of our common stock 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 review undertaken. Citis opinion
was provided to our board of directors in connection with its
evaluation of the merger consideration from a financial point of
view and does not address any other aspects or implications of
the merger. Citis opinion does not address Applebees
underlying business decision to effect the merger, the relative
merits of the merger as compared to any alternative business
strategies that might exist for Applebees or the effect of
any other transaction in which Applebees might engage.
Citis opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote or act on any
matters relating to the proposed merger.
Financing
(Page 33)
IHOP estimates the total amount of funds necessary to complete
the merger and the related transactions to be approximately
$2.3 billion, which includes approximately
$1.9 billion to be paid out to our stockholders and holders
of other equity based interests in Applebees, with the
remainder to be applied to refinance our outstanding debt and
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pay related fees and expenses in connection with the merger, the
financing arrangements and the related transactions. These
payments are expected to be funded by a combination of preferred
equity and debt financing.
IHOPs debt financing is expected to consist of two
separate securitization transactions consisting of an additional
issuance of asset-backed notes under the existing IHOP
securitization program and the issuance of asset-backed notes
under a securitization program to be established for
Applebees assets.
In connection with the execution and delivery of the merger
agreement, IHOP has obtained bridge facility commitments to
provide up to $2.139 billion in bridge credit facilities to
fund the transaction pending completion of both securitizations.
IHOP and Merger Sub have agreed to use reasonable best efforts
to arrange the debt financing on the terms and conditions
described in the commitments. In addition, IHOP has obtained an
aggregate of $168.8 million in equity commitments from MSD
Capital, L.P. and Chilton Investment Company, LLC, and their
respective affiliates.
IHOPs bridge facility commitments are subject to the
satisfaction of certain customary conditions, including the
execution of satisfactory documentation, the consummation of
IHOPs equity financing, receipt of IHOPs and
Applebees interim financial statements and other financial
information, the satisfaction of the conditions in the merger
agreement that are material to the interests of the lenders
under the bridge facilities, the accuracy of certain specified
representations and warranties, the granting of liens for the
benefit of the lenders under the bridge facilities and the
obtaining by IHOP of waivers and amendments to the existing IHOP
securitization program.
The closing of the merger is not conditioned on the receipt
of the financing by IHOP. IHOP, however, is not required to
consummate the merger until after the completion of the
marketing period, as described in further detail under
The Merger Agreement Effective Time; The
Marketing Period beginning on page 42.
Limitation
on Considering other Takeover Proposals (Page 49)
The merger agreement contains restrictions on our ability to
solicit or engage in discussions or negotiations with a third
party regarding specified transactions involving Applebees
or our subsidiaries. Notwithstanding these restrictions, under
certain limited circumstances required for our board to comply
with its fiduciary duties, our board of directors may respond to
an unsolicited written bona fide proposal for an alternative
acquisition or terminate the merger agreement and enter into an
acquisition agreement with respect to a superior proposal.
Conditions
to Merger (Page 51)
Completion of the merger is subject to the satisfaction or
waiver of a number of conditions, such as:
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the affirmative vote of the holders of a majority of the
outstanding shares of Applebees common stock entitled to
vote at the special meeting to adopt the merger agreement and
approve the merger;
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since the date of the merger agreement, there has not been, nor
would there reasonably be expected to be, a material adverse
effect with respect to Applebees.
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there must be no order, injunction or other judgment by any
Federal or state court of competent jurisdiction enjoining,
making illegal, or otherwise prohibiting the consummation of the
merger;
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the waiting period under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (referred to in
this proxy statement as the HSR Act), must have
expired or been terminated (early termination was granted
effective as of August 23, 2007);
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the representations and warranties of Applebees in the
merger agreement (disregarding all qualifications or limitations
as to materiality, material adverse
effect and words of similar import) must be true and
correct in all respects as of the date of the merger agreement
and as of the date the merger closes (except to the extent such
representations and warranties expressly relate to an earlier
date, in which case as of such earlier date), except for any
failures of such representations and warranties (other than with
respect to capitalization) to be true and correct that,
individually or in the aggregate, has not had and would not
reasonably be expected to have a material adverse effect on
Applebees and except that the representations and
warranties with respect to Applebees capitalization must
be true and correct in all material respects; and
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Applebees must have performed or complied with, in all
material respects, all obligations under the merger agreement at
or prior to the effective time of the merger.
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In addition, IHOP is not obligated to complete the merger until
the expiration of a 15 consecutive business day marketing
period throughout which IHOP shall have certain specified
financial information of Applebees, IHOPs closing
conditions are satisfied and Applebees auditors have not
withdrawn their audit opinions for any applicable required
financial information. We expect the marketing period to begin
to run on the third business day after the adoption of the
merger agreement by our stockholders.
Termination
of the Merger Agreement (Page 52)
We and IHOP may agree in writing to terminate the merger
agreement at any time without completing the merger whether
before or after the adoption of the merger agreement and
approval of the merger by Applebees stockholders. Under
certain circumstances, prior to the closing of the merger,
either we or IHOP may terminate the merger agreement without the
consent of the other party.
Termination
Fees and Expenses (Page 53)
Under certain circumstances in connection with the termination
of the merger agreement, we will be required to pay to IHOP an
aggregate termination fee of $60 million.
Specific
Performance (Page 54)
The parties to the merger agreement are entitled to an
injunction or injunctions to prevent breaches of merger
agreement and to enforce specifically the terms and provisions
of the merger agreement in any court of the State of Delaware or
any Federal court sitting in the State of Delaware.
Certain
Material United States Federal Income Tax Consequences
(Page 40)
If you are a U.S. holder of our common stock, receipt of
the merger consideration will be a taxable transaction to you
for federal income tax purposes. Although your tax consequences
will depend on your particular situation, most U.S. holders
generally recognize gain or loss measured by the difference, if
any, between the cash received in the merger and their adjusted
tax basis in their shares of Applebees common stock. If
you are a
non-U.S. holder
of our common stock, the merger will generally not be a taxable
transaction to you under federal income tax laws unless you have
certain connections to the United States. You should
consult your own tax advisor for a full understanding of the tax
consequences of the merger to you.
Regulatory
Approvals (Page 37)
Other than approval pursuant to the HSR Act, no other material
federal or state regulatory approvals are required to be
obtained by us, IHOP or Merger Sub in connection with the
merger. On August 9, 2007, Applebees and IHOP each
filed a Notification and Report Form with the Antitrust Division
of the Department of Justice and the Federal Trade Commission.
Under the HSR Act and related rules, the merger may not be
completed until the expiration or termination of the statutory
waiting period. Early termination was granted effective as of
August 23, 2007.
Market
Price of Applebees Common Stock (Page 55)
Our common stock is listed on the Nasdaq Global Select Market
under the trading symbol APPB. The closing sale
price of our common stock on February 12, 2007, which was
the last trading day before we announced that our board of
directors was exploring strategic alternatives, including a
potential sale of Applebees, was $24.23 per share. On
July 13, 2007, which was the last trading day before we
made a public announcement about the merger, the closing price
of Applebees common stock was $24.38 per share.
On ,
2007, which was the last trading day before this proxy statement
was finalized, the closing price of Applebees common stock
was $ per share.
5
Procedure
for Receiving Merger Consideration (Page 43)
Within two business days after the effective time of the merger,
a paying agent will mail a letter of transmittal and
instructions to you and the other Applebees 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.
Appraisal
Rights (Page 37)
Under Delaware law, you are entitled to appraisal rights in
connection with the merger. As a result, you will have the right
under Delaware law to have the fair value of your
Applebees common shares determined by the Delaware
Chancery Court. This right to appraisal is subject to a number
of restrictions and procedural requirements. Generally, in order
to exercise your appraisal rights, you must:
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Send a written demand to Applebees for appraisal in
compliance with the General Corporation Law of the State of
Delaware before the vote on the adoption of the merger agreement;
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Not vote in favor of the adoption of the merger
agreement; and
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Continuously hold your Applebees common shares from the
date you make the demand for appraisal through the effective
date of the merger.
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Merely voting against the adoption of the merger agreement will
not protect your rights to an appraisal, which requires you to
take all the steps provided under Delaware law. Delaware law
requirements for exercising appraisal rights are described in
further detail in this proxy statement. See Appraisal
Rights beginning on page 37. In addition,
Section 262 of the General Corporation Law of the State of
Delaware, which is the section of Delaware law regarding
appraisal rights, is reproduced and attached as Exhibit C
to this proxy statement.
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers address briefly some
questions you may have regarding the special meeting and the
proposed merger. These questions and answers may not address all
questions that may be important to you as a stockholder of
Applebees. Please refer to the more detailed information
contained elsewhere in this proxy statement, as well as the
additional documents to which it refers or which it incorporates
by reference, including the merger agreement, a copy of which is
attached to this proxy statement as Exhibit A.
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Why am I receiving this proxy statement? |
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You are receiving this proxy statement because you were a
stockholder of Applebees on the record date and are being
asked to vote to adopt the merger agreement and approve the
merger contemplated by the merger agreement and to vote for any
adjournment of the special meeting for the purpose of soliciting
additional proxies if there are insufficient votes at the time
of the meeting to approve the merger proposal. |
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What is the proposed transaction? |
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The proposed transaction is the acquisition of Applebees
by IHOP under an agreement and plan of merger, dated
July 15, 2007, among IHOP, Merger Sub, a wholly-owned
subsidiary of IHOP, and Applebees. Once the merger
agreement has been adopted by Applebees stockholders and
the other closing conditions under the merger agreement have
been satisfied or waived, Merger Sub will merge with and into
Applebees. Applebees will be the surviving
corporation in the merger and will become a wholly-owned
subsidiary of IHOP, and Applebees shares of common stock
will not be publicly traded after the merger. |
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What will I receive in the merger? |
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You will be entitled to receive $25.50 in cash, without
interest, less any required withholding taxes, for each
outstanding share of Applebees common stock that you own
as of the effective time of the merger. |
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How does Applebees board of directors recommend that I
vote? |
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Our board of directors, by a vote of nine to five, recommends
that our stockholders vote FOR the adoption
of the merger agreement and approval of the merger and
FOR any proposal for adjournment of the
special meeting for the purpose of soliciting additional proxies
if there are insufficient votes to approve the merger proposal
at the time of the special meeting. For a description of the
factors considered by the nine directors who voted for approval
of the merger, please see The MergerBackground of
the Merger and The MergerReasons for
the Merger and Recommendation of Our Board of
Directors beginning on page 14 and 26,
respectively. |
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Was the board vote in favor of the merger unanimous? |
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No. Our board approved the merger by a nine to five vote.
Mr. David Goebel, our chief executive officer,
Mr. Steve Lumpkin, our chief financial and strategy
officer, Mr. Lloyd Hill, chairman of our Board and our
former chief executive officer, Ms. Erline Belton and
Mr. Burton Sack voted against approval of the merger. See
The Merger Background of the Merger
beginning on page 14. |
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Have any stockholders already agreed to approve the
merger? |
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No. There are no agreements between the Merger Sub or IHOP
and any Applebees stockholder in which that stockholder
has agreed to vote in favor of adopting the merger agreement and
approval of the merger. |
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Is the merger contingent upon IHOP obtaining financing? |
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No. The merger agreement does not have a financing
contingency. |
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What are the financial interests of Applebees
directors, officers and employees in the merger? |
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Our directors and executive officers hold shares of
Applebees common stock and hold restricted stock, stock
options to purchase shares of Applebees common stock,
stock appreciation rights and rights under our employee stock
purchase plans, all of which will be converted in the same
manner as the common stock, restricted stock, stock options,
stock appreciation rights and rights under our employee stock
purchase plans held by other Applebees employees. For more
information on what our directors and executive officers will
receive in the merger, see Interests of Certain Persons
in the Merger, beginning on page 34. In addition,
the merger agreement provides for certain indemnification and
insurance arrangements for our current and former directors and
officers, and our executive officers could be entitled to
severance payments under certain circumstances if their
employment with Applebees or the surviving corporation
ends at or following the merger. |
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Will I owe taxes as a result of the merger? |
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The receipt of cash in exchange for shares of Applebees
common stock or options to purchase Applebees common stock
pursuant to the merger will generally be a taxable transaction
for U.S. federal income tax purposes. Although your tax
consequences will depend on your particular situation, most U.S.
holders will recognize a gain or loss equal to the difference
between the amount of merger consideration received for their
shares and the adjusted tax basis of their shares. See
Material U.S. Federal Income Tax
Consequences, beginning on page 40. You should
consult your tax advisor for a complete understanding of the
specific tax consequences of the merger to you. |
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When do you expect to complete the merger? |
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We are working toward completing the merger as promptly as
practicable. If our stockholders vote to adopt the merger
agreement and approve the merger, and the other conditions to
the merger are satisfied or waived, then we intend to complete
the merger as soon as possible after the special meeting and
after the marketing period has expired. The merger agreement
provides that the closing will occur at 10:00 a.m., New
York time, on the second business day after the later to occur
of (1) satisfaction, or to the extent permitted by law,
waiver of the closing conditions set forth in the merger
agreement (other than those conditions that by their terms are
to be satisfied at the closing, but subject to the satisfaction
or, to the extent permitted by law, waiver of those conditions)
and (2) the date of completion of the bridge marketing
period. We expect to complete the merger in the fourth quarter
of 2007. |
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If I hold restricted stock, stock options, restricted stock
units or stock appreciation rights relating to common stock
issued by Applebees, how will these be treated in the
merger? |
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Holders of restricted stock will receive the merger
consideration of $25.50 for each share of restricted stock that
they hold, less any applicable withholding taxes and without
interest. Our stock options and stock appreciation rights,
whether vested or unvested, will be cancelled and holders will
receive the excess, if any, of $25.50 per share over the
exercise price for each of their options or rights, less any
applicable withholding taxes and without interest. Holder of
restricted stock units, whether vested or unvested, will receive
$25.50 times the number of shares of common stock issuable
pursuant to each restricted stock unit, less any applicable
withholding taxes and without interest. |
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What vote of our stockholders is required to adopt the merger
agreement and approve the merger? |
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Adoption of the merger agreement and approval of the merger
requires the affirmative vote of a majority of the shares of
Applebees common stock that are outstanding and entitled
to vote at the special meeting. Because the required vote is
based on the number of shares of Applebees common stock
outstanding and not the number of votes cast, failure to vote
your shares (including as a result of broker non-votes) and
abstentions will have the same effect as voting against adoption
of the merger agreement. We urge you either to complete,
sign and return the enclosed proxy card or to submit your proxy
or voting instructions by telephone or Internet to assure the
representation of your shares of Applebees common stock at
the special meeting. |
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Will I have appraisal rights in connection with the
merger? |
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Yes. You will have the right under Delaware law to have the
fair value of your Applebees common shares
determined by the Delaware Chancery Court. This right to
appraisal is subject to a number of restrictions and procedural
requirements. Merely voting against the adoption of the merger
agreement will not protect your rights to an appraisal, which
requires you to take all the steps provided under Delaware law.
Delaware law requirements for exercising appraisal rights are
described in further detail in this proxy statement. See
Appraisal Rights beginning on page 37.
In addition, Section 262 of the General Corporation Law of
the State of Delaware, which is the section of Delaware law
regarding appraisal rights, is reproduced and attached as
Exhibit C to this proxy statement. |
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Should I send in my Applebees stock certificates
now? |
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No. You should not send in your Applebees stock
certificates now. After we complete the merger, you will receive
a letter of transmittal and instructions describing how you may
exchange your Applebees stock certificates for the merger
consideration. At that time, you must send in your share
certificates or execute an appropriate instrument of transfer of
your shares of Applebees common stock, as applicable, with
your completed letter of transmittal to receive the merger
consideration. If you do not hold any physical share
certificates, you must execute a properly completed letter of
transmittal and arrange to electronically transfer your shares
of Applebees common stock. DO NOT SEND ANY STOCK
CERTIFICATES WITH YOUR PROXY. |
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If my Applebees shares are held in street
name by my broker, will my broker vote my shares for me if
I do not give instructions? |
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If you hold your shares in street name through a
broker or other nominee, your broker or nominee will not vote
your shares unless you provide instructions on how to vote. You
should instruct your broker or nominee how to vote your shares
by following the directions your broker or nominee will provide
to you. If you do not provide instructions to your broker or
nominee with respect to the merger proposal, your shares will
not be voted and this will have the same effect as a vote
against the proposal to adopt the merger agreement and approve
the merger. If a quorum is present, but you did not provide
instructions to your broker or nominee with respect to the vote
on adjournment for the purpose of soliciting additional proxies,
your shares will not be voted and this will have no effect on
the outcome of the adjournment proposal. |
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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 $25.50 per share in cash to be
received by our stockholders in the merger. In order to receive
the $25.50 per share, you must hold your shares through
completion of the merger. |
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What should I do now? |
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This proxy statement contains important information regarding
the special meeting, the merger agreement and the merger, as
well as information about Applebees, IHOP and Merger Sub.
It also contains important information about some of the factors
our board of directors considered in approving the merger
agreement and the merger. We urge you to carefully read this
proxy statement, including its exhibits, and to consider how the
merger affects you. Then mark, sign, date and promptly mail the
enclosed proxy card in the postage paid envelope provided.
Should you prefer, you may deliver your voting instructions via
telephone or via the Internet in accordance with the
instructions on the enclosed proxy card or the voting
instructions received from your broker or other nominee that may
hold shares of Applebees common stock on your behalf. You
may also want to review the documents referenced in the section
captioned Where You Can Find More Information
beginning on page 57. |
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Can I change my vote? |
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Yes. You may change your vote at any time before the shares
reflected on your proxy are voted at the special meeting. If you
own your shares in your name, you can do this in one of three
ways. First, you can send a written notice of revocation to our
secretary at our principal executive offices. Second, you can
either mark, sign, date and return a new proxy card or submit
your proxy or voting instructions by telephone or Internet at a
later date than your previously submitted proxy. Third, you can
attend the meeting and vote in person. Your attendance alone
will not revoke your proxy. If you have instructed a broker,
dealer, trustee, bank or other nominee to vote your shares, you
must follow the directions received from the broker, dealer,
trustee, bank or other nominee to change your instructions. |
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Where can I find more information about Applebees? |
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We file certain information with the SEC under the Exchange Act.
You may read and copy this information at the SECs public
reference facilities. You may call the SEC at
1-800-SEC-0330
for information about these facilities. This information is also
available at the Internet site the SEC maintains at www.sec.gov
and at our Investor Relations page on our corporate website at
www.applebees.com. Information contained on our website is not
part of, or incorporated in, this proxy statement. You can also
request copies of these documents from us. See Where
You Can Find More Information beginning on
page 57. |
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Who will solicit and pay the cost of soliciting proxies? |
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Applebees board of directors is soliciting your proxy.
Applebees will bear the cost of soliciting proxies. In
addition to solicitation by mail and, without additional
compensation for these services, proxies may be solicited by
telephone and facsimile, by mail, on the Internet or in person.
We have also retained Innisfree M&A Incorporated
(Innisfree) to assist us in soliciting proxies. We
will pay Innisfree up to $75,000. We will also request that
banking institutions, brokerage firms, custodians, directors,
nominees, fiduciaries and other like parties forward the
solicitation materials to the beneficial owners of shares of
common stock held of record by such person, and we will, upon
request of such record holders, reimburse reasonable forwarding
charges and out-of-pocket expenses. |
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What if I have additional questions? |
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If you have questions about the merger agreement, the special
meeting or where to send your proxy, or if you would like
additional copies of this proxy statement, you should contact
our proxy solicitor, Innisfree, at
877-687-1866. |
9
This proxy statement is being furnished to our stockholders in
connection with the solicitation of proxies by the
Applebees board of directors for use at a special meeting
to be held
at on ,
at a.m. local time. The
purpose of the special meeting is for you to consider and vote
upon a proposal to adopt the merger agreement and approve the
merger of Merger Sub with and into Applebees with the
result that Applebees will become a wholly-owned
subsidiary of IHOP, to consider and vote upon any proposal to
adjourn the special meeting for the purpose of soliciting
additional proxies and to transact any other business that may
properly come before the special meeting or any adjournment or
postponement thereof. A copy of the merger agreement is attached
as Exhibit A to this proxy statement.
Record
Date; Stock Entitled to Vote; Quorum
The holders of record of our common stock as of the close of
business
on ,
2007 which is 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 shares
of our common stock outstanding held by
approximately stockholders
of record. The holders of a majority of the outstanding shares
of our common stock 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. Each
holder of our common stock is entitled to one vote per share of
our common stock held. Both abstentions and broker
non-votes will be counted as present for purposes of
determining the existence of a quorum. In the event that a
quorum is not present at the special meeting, we currently
expect that we will adjourn or postpone the meeting to solicit
additional proxies. If a new record date is set for an adjourned
or postponed special meeting, then a new quorum must be
established. Broker non-votes result when the
beneficial owners of shares of common stock do not provide
specific voting instructions to their brokers with respect to a
particular matter.
Completion of the merger requires adoption of the merger
agreement and approval of the merger by the affirmative vote of
the holders of a majority of Applebees outstanding common
stock entitled to vote at the special meeting. Approval of any
proposal to adjourn the special meeting for the purpose of
soliciting additional proxies requires that the votes cast in
favor of the proposal exceed the votes cast against the
proposal. Abstentions and broker non-votes will have no effect
on this proposal.
Each holder of shares of Applebees common stock that was
outstanding on the record date is entitled to one vote at the
special meeting for each share held. Because the required
vote with respect to the merger is based on the number of shares
of Applebees common stock outstanding rather than on the
number of votes cast, failure to vote your shares (including as
a result of broker non-votes) and abstentions with respect to
the merger proposal will have the same effect as voting
against adoption of the merger agreement and approval of
the merger. Accordingly, in order for your shares of common
stock to be included in the vote, you must either have your
shares voted by returning the enclosed proxy card or by
following voting instructions by telephone or Internet, or you
must vote in person at the special meeting.
Our board of directors recommends by a vote of nine to five
that you vote FOR the adoption of the merger agreement and the
approval of the merger and FOR any proposal to adjourn the
special meeting for the purpose of soliciting additional proxies
if there are insufficient votes at the special meeting to adopt
the merger proposal.
Record holders may cause their shares of Applebees common
stock to be voted using one of the following methods:
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mark, sign, date and return the enclosed proxy card by mail;
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submit your proxy or voting instructions by telephone or
Internet by following the instructions included with your proxy
card; or
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appear and vote in person by ballot at the special meeting.
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Regardless of whether you plan to attend the special meeting, we
request that you complete and return a proxy for your shares of
Applebees common stock as described above as promptly as
possible.
If you hold your shares of Applebees common stock through
a bank, brokerage firm or nominee (i.e., in street
name), you must provide voting instructions in accordance
with the instructions on the voting instruction card that your
bank, brokerage firm or nominee provides to you. You should
instruct your bank, brokerage firm or nominee as to how to vote
your shares, following the directions contained in such voting
instruction card. If you have not received such voting
instructions or require further information regarding such
voting instructions, contact your broker, who can give you
directions on how to vote your shares of Applebees common
stock.
As of August 29, 2007, our executive officers and directors
beneficially owned an aggregate of approximately
9,571,673 shares of Applebees common stock (in the
form of 7,715,093 shares and stock options (vested or that
vest within 60 days) with respect to an additional
1,856,580 shares), representing 12.5% of the total
beneficial ownership of Applebees common stock and
entitling them to exercise approximately 12.5% of the voting
power of Applebees common stock entitled to vote at the
special meeting. The five directors who voted against approval
of the merger, who beneficially own an aggregate of 3,851,740
(5.0%) shares of our common stock (including 819,870 stock
options vested or that vest within 60 days) have informed
the company that they intend to vote all of their shares which
are entitled to vote at the meeting against the merger.
Stockholders who have questions or requests for assistance in
completing and submitting proxy cards should contact our proxy
solicitor, Innisfree at
877-687-1866.
If you submit a proxy, your shares will be voted at the special
meeting as you indicate on your proxy. If no instructions are
indicated on your signed proxy card, your shares of
Applebees common stock will be voted FOR
the adoption of the merger agreement and approval of the
merger, FOR the proposal to vote for
adjournment of the special meeting for the purpose of soliciting
additional proxies if there are insufficient votes at the
special meeting to approve the merger proposal and
FOR the authorization of the proxies to vote
on such other matters as may properly come before the special
meeting or any adjournment or postponement thereof.
You may revoke your proxy at any time, but only before the proxy
is voted at the special meeting, in any of three ways:
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by delivering a written revocation dated after the date of the
proxy that the proxy is being revoked to the Secretary of
Applebees at Applebees International, Inc.,
4551 W. 107th Street, Overland Park,
Kansas 66207;
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by delivering to the Secretary of Applebees a later-dated,
duly executed proxy or by submitting your proxy or voting
instructions by telephone or Internet at a date after the date
of the previously submitted proxy relating to the same
shares; or
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by attending the special meeting and voting in person by ballot.
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Attendance at the special meeting will not, in itself,
constitute revocation of a previously granted proxy. If you hold
your shares of Applebees common stock in street name, you
may revoke or change a previously given proxy by following the
instructions provided by the bank, brokerage firm, nominee or
other party that is the registered owner of the shares.
Applebees will pay the costs of soliciting proxies for the
special meeting. In addition, our officers and directors and
employees may solicit proxies by telephone,
e-mail,
telegram or personal interview for no additional compensation.
We will also request that individuals and entities holding
shares in their names, or in the names of
11
their nominees, that are beneficially owned by others, send
proxy materials to and obtain proxies from those beneficial
owners, and will reimburse those holders for their reasonable
expenses in performing those services. We have engaged Innisfree
to solicit proxies and distribute materials to brokerage houses,
banks, custodians, nominees and fiduciaries for a fee not to
exceed $75,000. We will reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding solicitation materials to
stockholders.
Adjournments
and Postponements; Other Business
Adjournments may be made for the purpose of, among other things,
soliciting additional proxies because there are insufficient
votes at the time the meeting to adopt the merger agreement.
Such adjournment to solicit additional votes requires that
holders of more of Applebees common stock vote in favor of
adjournment than vote against adjournment without further notice
other than by an announcement made at the special meeting of the
date, time and place at which the meeting will be reconvened. If
no instructions are indicated on your proxy card, your shares of
our common stock will be voted FOR any
adjournment of the special meeting, if necessary or appropriate,
to solicit additional proxies. Any adjournment 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 adjourned
special meeting. We do not currently intend to seek an
adjournment of the special meeting.
We do not expect that any matter other than Proposals 1 and
2 will be brought before the special meeting. If, however, other
matters are properly presented at the special meeting, the
persons named as proxies will vote in accordance with their best
judgment with respect to those matters.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in
this proxy statement, contain forward-looking statements about
our plans, objectives, expectations and intentions.
Forward-looking statements include information concerning
possible or assumed future results of operations of our company,
the expected completion and timing of the merger and other
information relating to the merger. Generally these
forward-looking statements can be identified by the use of
forward-looking terminology such as anticipate,
believe, estimate, expect,
may, should, plan,
intend, project and similar expressions.
For each of these statements, we claim the protection of the
safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. 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;
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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 $60 million termination fee to IHOP;
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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 risk that we may be subject to litigation in connection with
the merger;
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risks related to diverting managements attention from our
ongoing business operations; and
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other risks detailed in our filings with the Securities and
Exchange Commission (the SEC), including
Item 1A. Risk Factors in our Annual Report on
Form 10-K
for our fiscal year ended December 31, 2006. See
Where You Can Find More Information on
page 57.
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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.
PROPOSAL 1
ADOPTION OF THE MERGER AGREEMENT
This discussion of the merger is qualified by reference to
the merger agreement, which is attached to this proxy statement
as Exhibit A. You should read the entire merger agreement
carefully as it is the legal document that governs the
merger.
The
Parties to the Merger
Applebees
Applebees International, Inc. is a Delaware corporation
that develops, franchises and operates restaurants in the bar
and grill segment of the casual dining industry under the name
Applebees Neighborhood Grill &
Bar®.
With 1,950 Applebees restaurants in operation as of
August 26, 2007 (1,441 franchised and 509 company
owned), Applebees is the largest casual dining concept in
the world in terms of the number of restaurants and market share.
IHOP
IHOP Corp. is a Delaware corporation. The IHOP family
restaurant chain has been serving a wide variety of breakfast,
lunch and dinner selections for more than 45 years. IHOP
restaurants are franchised and operated by Glendale,
California-based IHOP Corp. As of June 30, 2007, the end of
IHOPs second quarter, there were 1,319 IHOP
restaurants in 49 states, Canada, Mexico and the
U.S. Virgin Islands. IHOP Corp. common stock is listed and
traded on the NYSE under the symbol IHP.
Merger
Sub
Merger Sub is a Delaware corporation and was organized solely
for the purpose of effecting the proposed transaction. Merger
Sub has not conducted any activities to date other than
activities incidental to its formation and in connection with
the proposed transaction. Merger Sub is wholly-owned by IHOP. If
the transaction is consummated, Merger Sub would cease to exist
after it merges with Applebees.
Structure
of the Transaction
The proposed transaction is a merger of Merger Sub with and into
Applebees, with Applebees surviving the merger as a
wholly-owned subsidiary of IHOP. The following will occur in
connection with the merger:
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Each share of our common stock issued and outstanding
immediately before the effective time of the merger (other than
those shares owned by IHOP or Merger Sub, shares owned by us or
any of our subsidiaries; and shares held by stockholders who
properly demand statutory appraisal rights in compliance with
all of the required procedures under Delaware law) will be
converted into the right to receive $25.50 per share in cash,
without interest;
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All shares so converted will, by virtue of the merger and
without any action on the part of the holder, be automatically
cancelled and will cease to exist, and each certificate formerly
representing any of the common shares will thereafter represent
only the right to receive the per share merger consideration,
without interest;
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Each share of common stock owned by IHOP or Merger Sub or owned
by us or any of our subsidiaries, will automatically be
cancelled and cease to exist, without payment of any
consideration;
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Each common share of Merger Sub issued and outstanding
immediately prior to the effective time of the merger will be
converted into one common share, par value $0.01 per share, of
the surviving corporation;
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Holders of restricted stock will receive the per share merger
consideration for each share of restricted stock they hold, less
any applicable taxes required to be withheld and without
interest;
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Each outstanding option to purchase common stock under our
equity incentive plans, whether vested or unvested, will be
cancelled and will entitle the holder to receive a cash payment
equal to the excess, if any, of the per share merger
consideration over the per share exercise price of the
applicable stock option, multiplied by the number of shares
subject to the stock option, less any applicable taxes required
to be withheld and without interest;
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Each stock appreciation right granted pursuant to our equity
incentive plans, whether vested or unvested, will be cancelled
and will entitle the holder to receive a cash payment equal to
the excess, if any, of the per share merger consideration over
the per share exercise price of the applicable stock
appreciation right, multiplied by the number of shares of common
stock subject to such stock appreciation right, less any
applicable taxes required to be withheld and without interest;
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Each restricted stock unit granted pursuant to our equity
incentive plans, whether vested or unvested, will be cancelled
and will entitle the holder to receive a cash payment equal to
the per share merger consideration multiplied by the number of
shares issuable pursuant to such restricted stock unit, less any
applicable taxes required to be withheld and without interest;
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Our stockholders will no longer have any interest in, and will
no longer be stockholders of, Applebees, and will not
participate in any of our future earnings or growth;
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Our employee stock purchase plans will terminate upon the
earlier of the date the merger closes and the end of the third
quarter offering periods, and each share of our common stock
purchased on the last day of the offering periods will be
converted into the right to receive the per share merger
consideration, less any applicable taxes required to be withheld
and without interest;
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Our common stock will no longer be listed on the Nasdaq Global
Select Market and price quotations with respect to our common
stock in the public market will no longer be available; and
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The registration of our common stock under the Exchange Act will
be terminated.
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Beginning in August 2004 and continuing through 2005, we saw
evidence of weakening trends in the casual dining segment as
well as our results, including weaker same-store sales and
negative traffic trends. For example, same-store sales at
company restaurants, which had increased by more than
4.5 percent for six consecutive quarters through the second
quarter of 2004, were up only 1.1 percent and guest traffic at
our company owned stores was flat in the third quarter of 2004.
Same-store sales increased 0.1 percent and guest traffic at
our company owned stores declined by 1.0 to 1.5 percent in
the fourth quarter of 2004, and same-store sales increased
0.3 percent and guest traffic at our company owned stores
declined by 0.5 to 1.0 percent in the first quarter of
2005. The magnitude of traffic declines accelerated markedly
beginning in June 2005 with guest traffic at our company owned
stores declining by more than 4.5 percent in the last half of
2005, and the streak of 31 consecutive quarters of system-wide
same-store sales growth ended in the second quarter of 2006.
Because of these developments, in the summer of 2005, we began a
focused effort to analyze the macro-economic and company and
system specific causes of our weaker results. Our 2006 business
plan focused on operational changes, like menu improvements, in
an effort to
14
improve the key drivers of earnings growth: unit growth,
same-store sales growth, improving restaurant margins, and
controlling general and administrative costs. Our management and
Board monitored these performance measures closely through the
early part of 2006, but despite our efforts, our sales and
traffic continued to weaken and, as a result, our restaurant
margins were lower than expected. For instance, while
system-wide comparable sales increased 4.8 percent for
fiscal year 2004, including a 3.8 percent increase for
company restaurants, system-wide comparable sales increased
1.8 percent for fiscal year 2005, including a 0.9 percent
decline for company restaurants. Further deterioration was seen
in fiscal year 2006 as system-wide comparable sales decreased
0.6 percent, including a 1.0 percent decline for company
restaurants. Comparable guest traffic in company owned
restaurants in fiscal year 2005 and fiscal year 2006 declined
3.0 percent and 3.5 percent, respectively, after
increasing during the prior several years.
In the summer of 2006, our Board became increasingly concerned
about the adverse conditions in the casual dining segment, our
operating results and our depressed stock price, and directed
management to work with a financial advisor to conduct a review
of our operating results, balance sheet, cash flows and growth
prospects in order to consider alternative ways to enhance
stockholder value, including the attractiveness of a stock
buyback program at the then-current trading prices of our stock.
Applebees retained Banc of America Securities LLC
(Banc of America Securities) to act as its financial
advisor in connection with this project. Prior to this time,
Banc of America Securities had reviewed with the Board a variety
of capital structure alternatives, including dividend policy and
share repurchases. From this initial work, we announced on
October 26, 2005, a 233 percent increase in our annual
dividend to $0.20 per share.
On July 27, 2006, representatives of Breeden Partners L.P.
(Breeden Partners) informed us that they had
acquired approximately 3 million shares of our common stock.
In early August, 2006, Mr. Lumpkin met with two financial
sponsors at an introductory meeting arranged by Banc of America
Securities to gauge their knowledge and views on the restaurant
industry and their history of doing transactions in our
industry. A third introductory meeting with a financial sponsor,
also arranged by Banc of America Securities, was held with
Mr. Lumpkin, Mr. Goebel and Mr. Hill (at the time
in his capacity as CEO).
Our Board held its annual strategic retreat on August
23-25, 2006.
The retreat focused on the competitive and consumer issues in
the casual dining restaurant segment, macro-economic issues
facing the restaurant industry, managements operating plan
and budgets, our ability to add significant amounts of debt and
ways to use debt proceeds and/or future cash flow to enhance
returns to our stockholders. Management and Banc of America
Securities also briefed the Board on stockholder activism and
M&A activity in the restaurant group. In addition,
management reviewed with the full Board the August meetings with
financial sponsors and what was learned in those meetings about
the individual firms and how they approached investing in the
restaurant industry. Further, Banc of America Securities
reviewed with the Board at the August strategic retreat an
overview of the industry as well as preliminary financial
analysis using different metrics based on managements then
five-year projections and discussed strategic alternatives to
enhance stockholder value. The strategic alternatives discussion
focused on two potential alternatives: (1) a leveraged
recapitalization involving an expanded share repurchase program
that would involve increasing the total debt to EBITDA leverage
ratio to approximately three times and (2) a confidential
market test for a possible sale of the company. It did not focus
on or include an analysis of a plan to refranchise our company
owned stores. Following this, the Board decided it needed a
detailed plan from management addressing the macro-economic and
industry specific issues facing Applebees before it could
thoughtfully evaluate value enhancing alternatives, and asked
management to provide such a plan prior to the next board
meeting.
Our stock price increased from $17.29 on August 1, 2006 to
$22.39 on October 9 even though our performance measures had not
significantly improved. The result of this price increase was
that the attractiveness of significantly increasing our stock
buyback program diminished.
Mr. Goebel, Mr. Lumpkin and other members of
management met with representatives of Breeden Partners on
September 20, 2006 to exchange perspectives. During this
meeting, representatives of Breeden Partners recommended, among
other things, that we sell nearly half of our owned stores to
franchisees, increase our leverage and aggressively buy back our
stock. On October 10, 2006, Breeden Partners filed a
Statement on Schedule 13D disclosing ownership of 5.24% of
our common stock and recommending that we take certain steps to
enhance
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stockholder returns by, among other things, refranchising a
substantial number of our owned restaurants, significantly
reducing capital expenditures and increasing cash returned to
our stockholders.
Throughout the Autumn of 2006, management and the Board
continued to consider potential changes in our business
operations and, with the assistance of Banc of America
Securities, the feasibility of an increase in our debt levels to
a range of two to three times EBITDA in order to fund a
leveraged recapitalization. On November 10, 2006, at a
special Board meeting in Chicago, management presented a
three-year strategic plan for restaging the Applebees
brand with a goal of returning to and exceeding our historic
levels of operating and financial performance. In addition, Banc
of America Securities updated their prior industry and company
reviews and discussed with the Board a potential share
repurchase program of not less than $200 million, a
potential increase of our readily-available financing and the
possibility of pursuing a highly confidential market test for a
possible sale of the company. Following this, we announced on
November 14, 2006 that we had increased our share
repurchase authority to a total of $250 million and planned
to implement a new revolving credit facility. Later that month,
on November 27, 2006, we reported that system wide domestic
comparable sales decreased 3.1 percent and that guest
traffic at our company owned stores declined by 3.0 to
3.5 percent for the four-week period ended
November 19, 2006, and on December 20, 2006, we
announced the implementation of a new $400 million credit
facility.
On December 11, 2006, in accordance with our bylaws,
Breeden Partners delivered a formal notice of its intention to
nominate four candidates for election to our Board at our 2007
Annual Meeting.
On December 16, 2006, a teleconference meeting of all the
non-management members of the Board of Directors was held to
discuss our 2007 outlook and available alternatives. At this
meeting, some of these directors noted the companys stock
price and its relationship to their view of the companys
intrinsic value. This led to a discussion of various strategic
alternatives for the company and resulted in a preliminary
decision to embark on a strategic review led solely by
non-management directors that would consider these alternatives,
including (1) a modest recapitalization of our company
involving a modest increase in our debt and return of cash to
our stockholders, (2) a significant recapitalization
involving a significant level of debt and return of cash to our
stockholders and (3) a sale of the entire company.
Based on the discussions described above between management and
private equity financial sponsors and following discussions with
Banc of America Securities, the Board and senior management
expected that most potential acquirers of our company would be
financial sponsors that might wish to offer management an
opportunity to participate in the buying group. In light of the
potential conflict of interest such a transaction might create,
the Board determined also that the process for evaluating
strategic alternatives should be conducted by non-management
directors.
On December 19, 2006, the Board unanimously formed a
strategy committee (the Committee), and
Messrs. Curran, Hansen, Helms, Sack and Volkema were chosen
as its members. The Committee was vested with the power and
authority to conduct an in-depth review of the desirability and
feasibility of certain potential transactions. The Committee
also was authorized to retain, at our expense, financial, legal
and other advisors, consultants or experts as the Committee
determined would be necessary or appropriate to assist the
Committee. Due to the potential impact of a proxy fight on the
Committees strategic review, the Committee also monitored
our response to the Breeden Partners announced plans for a
proxy contest.
On December 21, 2006, an organizational meeting of the
Committee was held by teleconference. At this meeting the
Committee selected the law firm of Cravath, Swaine &
Moore, LLP (Cravath) as its independent counsel,
also decided it would benefit from receiving advice from
Blackwell Sanders Peper Martin LLP (Blackwell
Sanders), the companys long time outside counsel,
and discussed the criteria for selecting a financial advisor. In
this regard, the Committee determined to interview several
investment banking firms. The Committee selected
Messrs. Helms and Hansen to serve as its
co-chairmen
and determined that the
co-chairmen
would keep management apprised of the Committees
activities as appropriate. The Committee discussed the potential
for conflicts of interest if we were to pursue a transaction in
which members of management might participate with a buyout
group. Messrs. Helms and Hansen discussed with senior
management these potential conflicts of interest in a sale and
directed management not to communicate with any potential buyer
on their own behalf or to solicit interest from potential buyers
without the Committees express permission. Management
acknowledged that they would follow this direction.
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On January 16, 2007, the Committee completed its interviews
of investment banking firms and selected Citigroup Global
Markets Inc. (Citi) as its independent financial
advisor, subject to negotiation of an acceptable fee. Banc of
America Securities continued to serve as financial advisor to
Applebees. The Committee believed this allocation of
responsibility would give the Committee access to independent
financial advice from an investment banking firm that did not
have a history of working closely with management (which might
be perceived as raising a conflict if management were to become
part of a buyout group) while maintaining access to the
experience Banc of America Securities had developed from its
prior work for the company, including its periodic reviews of
the market with the company and the Board, and its expertise in
the casual dining sector. Further, the Committee determined that
the process for a sale of the company may require the delivery
to potential bidders of a financing commitment, commonly
referred to as a stapled commitment. This allocation
of responsibility enabled us to request that Banc of America
Securities provide a stapled commitment without potential
conflict, which was a concern for the Committee. In addition,
the Committee instructed both investment banks to work together
in assisting Applebees in its preparation of the necessary
materials related to the evaluation process and in contacting
potential acquirers. In particular, the Committee informed both
investment banks that (1) Banc of America Securities
principal role would be to assist the company, jointly with
Citi, in preparing marketing materials and making contacts and
interfacing with certain potential bidders on behalf of
Applebees and (2) in addition to sharing the roles
assigned to Banc of America Securities, Citi would have the
primary role in assisting with the negotiation of any bids made
by potential acquirers and in assisting with the evaluation of
those bids and other alternatives and in evaluating the
fairness, from a financial point of view, of the consideration
proposed for any transaction. Throughout the remainder of this
month, Citi and Banc of America Securities coordinated with the
company in gathering and reviewing operational and financial
data.
On January 30, 2007, the Committee met with members of
management, Banc of America Securities, Citi, Cravath and
Blackwell Sanders to review and discuss our various operating
and financial strategic alternatives. Also at this meeting, the
Committee, following discussions with Citi and Banc of America
Securities, determined that it should develop more fully and
compare the potential values available to stockholders from
either a possible sale of our company or a significant revision
of our business plan and capital structure, including incurring
significantly higher levels of debt and selling a substantial
portion of our owned stores to franchisees. We refer to the
second of these alternatives as the standalone plan.
In that connection, the Committee instructed Citi and Banc of
America Securities to pursue an active solicitation of interest
in a purchase of Applebees and directed management,
working with the financial advisors, to complete work on the
standalone plan.
After this meeting our management directors proposed to the
Chairmen of the Committee that instead of a broad solicitation
of potential buyers at that time, management should be permitted
to organize a management led buyout group that would enter into
a definitive acquisition agreement, with a post-signing active
solicitation of alternative buyers through a
so-called
go-shop
period of approximately 45 days. Management pledged its
full cooperation in providing due diligence and access to
management as well as offering to continue as management if its
bid was not ultimately successful. The next day, the Committee,
after discussing this request with its advisors, unanimously
decided to reject this proposal because of its potential to
create conflicts of interest, the difficulty of assuring other
potential purchasers of a level playing field in the sale
process and its belief that a comprehensive auction process
would provide greater access to a greater number of qualified
private equity firms, thereby increasing the likelihood of more
favorable terms, including a better price, than the process
proposed by management.
On February 13, 2007, we publicly disclosed the formation
of the Committee and the ongoing consideration of strategic
alternatives for the company, including a possible sale.
During the next several weeks and in accordance with the
Committees instructions, Citi and Banc of America
Securities contacted 35 potential purchasers of Applebees.
The list of potential purchasers included other companies in the
restaurant business and sponsors of leveraged buyout
transactions. Twenty-six potential purchasers executed a
confidentiality agreement and received an offering memorandum
with non-public information during the week of March 18,
2007. Potential purchasers were asked to submit preliminary
indications of interest on April 12, 2007.
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Throughout February, March and April 2007, our advisors and
management updated the Committee and our Board on the progress
of the sale process and the development of the standalone plan.
With respect to the standalone plan, the Committee, after
discussions with the entire Board at a regularly scheduled Board
meeting, directed management to include a sale of a
significantly greater number of our company owned restaurants
than favored by management and increased leverage in our capital
structure significantly beyond the level favored by management.
In addition, the Committee and the full Board met several times
to discuss the status of Breeden Partners proxy contest.
Because decisions about the direction of the strategic review
process and the response to Breeden Partners activities
were becoming more interconnected, the Board agreed the
Committee should take a more active role in the conduct of the
proxy contest, including evaluating whether a settlement with
Breeden Partners should be pursued. During March, members of the
Committee and Mr. Goebel met with Breeden Partners to
negotiate a possible settlement, but those negotiations were not
successful.
In analyzing the financing for the standalone plan or a sale of
the company, the Committee determined that a stapled commitment
involving a whole company securitization had the potential to
yield higher value to stockholders than the more customary
senior secured/high yield financing commitment. This view was
based in part on the Committees understanding that
(1) whole company securitization enables suitable companies
to raise debt at a reduced cost, by isolating the companys
assets and associated revenues into special purpose entities to
obtain investment grade ratings from ratings agencies, and bond
insurance from monoline insurers and (2) the market for AAA
rated asset backed securitization financings is more liquid and
less volatile than the markets for customary senior secured/high
yield financings, thereby providing greater certainty of
completion. The Committee therefore directed management to work
with financing sources, other than Citi so as not to create any
conflict with respect to its role as financial advisor to the
Committee, that would provide a whole company securitization
stapled commitment. Based on the analysis of a whole company
securitization for Applebees which management had
conducted with Lehman Brothers Inc. (Lehman) since
August of 2006, the Committee determined that Lehman had unique
capabilities in structuring whole company securitization
financings, as demonstrated by its successful completion of
several of those transactions in our industry. We subsequently
began working with Lehman and Banc of America Securities to
deliver a whole company securitization stapled commitment to
potential bidders. Although Lehman was directed to analyze and
structure a securitization in the context of a sale of our
company, we also anticipated that this financing structure could
be adapted to be used as part of a standalone plan.
On April 14, 2007, Citi and Banc of America Securities
informed the Committee that we received four preliminary
indications of interest in purchasing our company. Citi reported
that these indications of interest had indicative per share
prices ranging from $26.50 to $30.50. IHOPs indication of
interest included a price range of $28 to $29 per share. Our per
share market price at the close of business on April 12,
the date the indications of interest were presented, was $25.03.
Five other potential bidders asked for additional time to submit
an indication of interest but, despite being given additional
time, did not do so. Some of these potential bidders had
indicated to Citi that a primary reason for their withdrawal
from the process was an inability to reach a valuation of our
company at a premium to (or in some cases even equal to) the
then current trading prices of our shares.
The Chairmen of the Committee updated the non-management
directors who were not members of the Committee about these
developments by telephone on April 16.
As is typical, these indications of interest were non-binding
and contained numerous conditions, including due diligence
conditions. The Committee discussed these price ranges, the
capability of the bidders to pursue a transaction and the
valuation implied by the bids. After reviewing the initial
indications of interest with Citis assistance, the
Committee decided to allow these four bidders, including IHOP,
to continue to the next phase of the sale process which involved
more detailed due diligence, including access to a data room and
participation in
multi-day
management presentations. Subsequently, on May 2, 2007, we
reported that system-wide domestic comparable sales decreased
4.0 percent and guest traffic at our company owned stores
declined 5.0 to 5.5 percent for the first quarter of 2007.
We had previously reported that system-wide domestic comparable
sales and guest traffic at our company owned stores had declined
5.8 percent and 8.0 percent, respectively, in January
and 4.0 percent and 5.5 to 6.0 percent, respectively,
in February; thus the May 2nd release reported a sequential
improvement in results for March and April as system-wide
domestic comparable sales declined 2.7 percent and
0.7 percent, respectively, and guest traffic at our company
owned stores for the same periods declined 2.5 to
3.0 percent and 2.0 to 2.5 percent, respectively.
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By mid April, our Board concluded following discussions with its
advisors that a number of potential bidders for Applebees
might become reluctant to continue expending significant effort
on due diligence, in part, because of uncertainty that the
Breeden Partners proxy fight created as to who would be
representing our interests in any future negotiations. This
conclusion was driven in large part by the fact that at that
point in time the contemplated deadline for final submission of
bids was shortly before the date of Applebees annual
meeting, at which some or all of Breeden Partners nominees
might be elected to the Board and replace certain members of our
Board who were on the Committee. In light of the concerns about
a potential adverse impact on the sale process, the need for our
management team to devote time to the proxy contest and the fact
that the Committee had already begun working with our management
on many of the business initiatives being advocated by Breeden
Partners, a majority of our Board endorsed a renewed effort by
the Committee to settle the proxy contest and the Committee
initiated renewed discussions with Breeden Partners. On
April 25, 2007, we reached an agreement with Breeden
Partners that ended its proxy contest and added Richard Breeden
and Laurence Harris to our Board of Directors and also added
Mr. Breeden as a member of the Committee. This agreement
was publicly disclosed the morning of April 26. This same
day, we provided publicly an update on the activities of the
Committee, including entering into a second round of detailed
due diligence discussions with parties that submitted
indications of interest and a concurrent evaluation of a
recapitalization alternative. The closing stock price on
April 25, 2007 was $25.84.
During April and May, all four remaining potential bidders
continued their due diligence activities. In addition, all four
received a draft merger agreement and were asked to submit
final, definitive offers, including a proposed contract, by
June 11. In response to an inquiry about how management
should react if a private equity buyer sought to induce
management to continue to serve as management with an equity
participation, the Committee reiterated that management was not
permitted to have any discussions with potential buyers about
their personal interests until they were released to do so by
the Committee. No financial sponsor ever asked the Committee or
its advisors for permission to speak with members of management
about participating in a buyout. We formally engaged Lehman for
its role in obtaining a whole company securitization financing
on May 21, 2007. Lehman was not retained as a financial
advisor by us or the Committee. On May 30, we reported that
system-wide domestic comparable sales declined 2.1 percent
and guest traffic at our company owned stores declined 3.0 to
3.5 percent for our May period illustrating a reversal of
improvements noted in April.
In meetings held May 29 and June 6, 2007, the Committee
focused on the standalone plan developed by management, which
remained preliminary at this time because (1) the
Committee, while having settled on the amount of refranchising,
was still considering, within relatively small ranges, the
extent of leverage and the size of the dividend that they
thought would be appropriate and (2) significant difference
of opinion between the Committee and management as to the
appropriate extent of refranchising, increased debt levels and
reductions in general and administrative expenses. The Committee
discussed various debt levels for a leveraged recapitalization,
possible cuts in our general and administrative expenses and
potential effects of significantly increased leverage and cost
cutting on our business, and directed management to continue
work on a more aggressive plan.
In accordance with the Committees directive and subsequent
to the June 6 meeting, management delivered a standalone
plan that contemplated refranchising of company owned stores to
get to a 5 percent ownership of the Applebees system
over a
24-36 month
period, increasing adjusted debt levels to 5.0 to 5.6 times
EBITDAR (which could yield a one-time dividend of $13 to
15 per share) and significantly reducing our general and
administrative expenses. Management was subsequently directed by
the Committee to reduce the time to refranchise the
companys stores to 18 months or less and to increase
the adjusted debt leverage assumptions to a range of 6 to 7
times EBITDAR in order to yield a larger dividend.
On June 11, 2007, Citi informed the Committee by telephone
that no bidder had submitted a definitive offer prior to our
deadline. Two of the remaining bidders had decided to drop out
of the sale process entirely. The other remaining bidder besides
IHOP, a consortium of a financial sponsor and a significant
franchisee of our restaurants that we call
Bidder B, had submitted a letter stating it had
concluded changes in the companys operating model would be
critical to the success of any investment, that it was unable to
make a proposal because it had not yet been able to evaluate the
refranchising and general and administrative expense reduction
plan recently developed by management, and needed a meeting with
management to discuss the changes reflected in that plan. Bidder
B indicated that its preferred alternative was to continue
working with us on an exclusive basis toward a cash purchase of
the company at a price that approximated our market price, which
on June 11 was $25.19. Bidder Bs interest was
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subject to satisfactory resolution of its business due diligence
and financing discussions, which it stated would be completed
within a few days. Bidder B also indicated that as an
alternative it would be willing to consider (1) making a
significant minority equity investment in us as part of a
recapitalization at price and terms described as
customary and consistent with prevailing
market levels or (2) buying up to all of the
Applebees restaurants owned by us for a value of
approximately five times the adjusted EBITDA of these stores,
which was described as the midpoint of the range articulated by
management. Bidder B did not provide any assurance of
financing and expressed a need for further study of the proposed
securitization. To our knowledge, Bidder B had not been
working actively with Lehman on a whole company securitization.
IHOP had not yet submitted a proposal, but had informed Citi it
was planning to do so. Later that night IHOP submitted a
non-binding proposal letter with a price of $27.00 per share.
IHOP indicated it would finance its bid through a combination of
an Applebees whole company securitization structured by
Lehman, borrowings raised on IHOPs existing balance sheet
and new equity capital privately placed by IHOP for which term
sheets were provided. This financing did not require approval of
IHOPs stockholders. This indication of interest was lower
than IHOPs initial indication of interest of $28 to
$29 per share. IHOPs proposal was further subject to
detailed financing term sheets from Lehman regarding a whole
company securitization that were acceptable to IHOP and not
materially different from the draft term sheets previously
supplied to IHOP, appropriate time and necessary access to our
management and records to complete confirmatory due diligence,
and permission to speak to certain of our franchisees. Orally,
IHOP indicated its willingness to proceed was conditioned upon
our agreeing to negotiate exclusively with IHOP for an
unspecified but limited period of time.
The Committee met with its legal and financial advisors on
June 15. After discussion, the Committee concluded that
IHOPs proposal was more attractive than
Bidder Bs and should be pursued, but that work on the
standalone plan should continue as well. In response to a
question as to whether management would recommend that the Board
accept an offer from IHOP of $27.50 per share over the
standalone plan, they stated that they would because of its
relatively greater degree of certainty as compared to the
standalone plan, primarily due to the challenges associated with
the accelerated timetable for refranchising to 5% ownership of
the system, the significantly higher level of debt contemplated
by the final standalone plan directed by the Committee, and the
accelerated reductions in general and administrative expenses.
Subsequently, at the direction of the Committee, Citi informed
IHOP that the Committee encouraged IHOP to raise its offer to at
least $28 per share and informed Bidder B that it
would need to enhance its proposal significantly before it would
be attractive to the Committee. Bidder B chose not to
revise its offer and ceased conducting due diligence or pursuing
financing and did not thereafter engage in any substantive
discussions regarding a bid. IHOP verbally presented a revised
offer of $27.50 per share, and based on this revised offer,
we entered into an exclusivity agreement with IHOP on
June 19, 2007 that expired by its terms on July 4,
2007. The exclusivity agreement would terminate immediately, by
its terms, if IHOP reduced their bid from $27.50 and was signed
only after satisfactory discussions between Cravath and counsel
for IHOP about the Committees expectations for limited
closing conditions in any definitive agreement. We did not
inform Bidder B or any other party that had participated in
the sale process of this exclusivity agreement.
At the June 15 meeting, the Committee also received a detailed
presentation from Lehman regarding a securitization financing
program that would be available either to IHOP in a sale of the
company or to the company in a standalone recapitalization.
Lehman advised the Committee that all aspects of the preparation
process were substantially complete and that a securitization
term sheet for a securitization relating to the sale of our
company had been approved by the rating agencies and by the
monoline bond insurers. Lehman also noted that market dynamics
as of June 15 were favorable for a successful securitization
financing. The securitization envisioned at that time was based
on a sale of the company with new equity being invested and
relied only on revenues generated by Applebees business
operations. Lehman informed the Committee that virtually all of
their work on the securitization prior to June 15 related
to a sale of the company alternative. Based on concerns that a
simultaneous offering of a whole company securitization for
financing of the merger and the standalone plan would create
confusion with the rating agencies, the monoline bond insurers
and the securitization market as a whole, Lehman was directed to
pursue and finalize only the former at that time. In addition,
Lehman noted that because the IHOP merger included additional
equity contributions, the market would accept greater leverage
for the IHOP merger than the standalone plan. However, at that
time Lehman indicated that they did not envision substantial
delay or difficulty
20
in converting the whole company securitization to finance the
merger into financing for the standalone plan, but Lehman did
indicate that certain elements of the securitization relating to
the standalone plan would need to be reviewed by the rating
agencies and monoline insurers prior to their approval. In
particular, these parties would need to review a different set
of projections than had been reviewed in connection with the
securitization for the IHOP merger and different from the
projections relating to a standalone plan initially provided by
the Company, which did not contemplate a refranchising of our
company owned stores. The Committee believed that focusing on
the securitization financing for the merger would enable the
financing for the standalone plan to be finalized within a few
weeks if the standalone plan became the preferred alternative
and instructed Lehman to continue working with IHOP on its
acquisition financing.
During the remainder of June and the first weeks of July, we
continued to negotiate a possible transaction with IHOP and to
work on refining the standalone plan and completing a
securitized financing. The exclusivity agreement with IHOP
expired, as scheduled, on July 4, 2007. IHOP did not
request an extension. No other potential purchasers approached
us during the exclusivity period or after it expired. We did not
approach any other potential purchasers after the exclusivity
period expired. The Committee met several times during this
period, principally to monitor work on the standalone plan and
related financing.
The Chairmen of the Committee updated the other directors about
the status of the strategic review process during telephonic
meetings on June 16 and June 26.
On July 6, the Committee met with its financial and legal
advisors, management and Banc of America Securities to review
the financial and cash flow analysis relating to the standalone
plan that would be presented to the entire Board as an
alternative to a sale to IHOP. The Committee determined that
further refinements would be required regarding the assumptions
underlying the standalone plan and asked the two advisors to
assist management in refining the standalone plan. Based on its
understanding at that time that securitization financing would
likely be available to us in connection with the standalone plan
within a few weeks, the Committee voted by majority vote to
recommend that any recapitalization include a special cash
dividend of a least $16 per share (2 members voted for
a dividend of $15 rather than $16).
On July 9, Citi and IHOPs financial advisor
discussed, among other things, certain matters relating to
IHOPs due diligence results, including IHOPs
discussions with some of our franchisees. IHOPs financial
advisor indicated that these due diligence results had not been
satisfactory, and from this discussion, Citi recognized that it
was likely that IHOP would be reducing their per share offer
price from $27.50 and that such reduction could be as low as
$25.00. IHOP, however, made no definitive proposal regarding a
purchase price reduction at that time. During the course of this
conversation and subsequent conversations during the week of
July 9, Citi informed IHOPs financial advisor, based
on instructions from the chairmen of the Committee, that
(1) any reduction, particularly a significant reduction,
would be difficult for the Committee to accept and would make
pursuing the standalone plan more attractive, (2) we were
working diligently to be prepared to announce a standalone plan
with a significant dividend as early as the following week and
(3) the Committee was scheduled to meet on July 13 and
the full Board was scheduled to meet on July 15 to finalize
either a standalone plan or the IHOP merger. Separately, Cravath
and Blackwell also substantially completed negotiation of a
merger agreement with IHOP except for a handful of open items,
including price.
On July 11, management held a conference call with
representatives of Lehman to confirm that the whole company
securitization financing available to the company under the
standalone plan was, in Lehmans view, going to support
debt leverage levels in the 6.0-6.5 times adjusted EBITDAR
range. Management was informed by Lehman that, while the credit
markets were becoming more difficult and more volatile due to
worsening subprime credit concerns as well as the lack of
liquidity for a number of recent LBO financings, the whole
company securitization form of financing was holding up in the
marketplace. Lehman indicated that they had been devoting their
efforts to the IHOP financing and that if we were to use the
securitization for our standalone plan, it would take two to
three weeks to obtain approval from the ratings agencies and
monoline bond insurers for a securitization for a standalone
plan and to negotiate a binding bridge commitment facility,
followed by some 90 days or more of additional work with
rating agencies and bond insurers to complete the financing.
On July 13, shortly after the meeting of the Committee
began, IHOP definitively informed Citi that IHOP would reduce
its proposed acquisition price to $25.50, a level it described
as final. During the meeting, the
21
Committee discussed what action to take in response to
IHOPs lowered offer. The Committee then reviewed the
standalone plan in a discussion led by Citi. The Committee also
reviewed with Citi the revised IHOP offer, based on (1) a
price of $25 because IHOP had not specified its actual proposed
price of $25.50 in advance of the meeting, and (2) the
companys recent operating performance. The Committee noted
that IHOPs revised bid was closer to the possible value
indicated in Bidder Bs June 11 letter, but also
noted that Bidders Bs June 11 letter was
not a definitive offer and that as of June 11 Bidder B
had neither completed its due diligence or delivered a financing
commitment with its letter. Citi noted that Bidder B had
not performed due diligence in several weeks and would therefore
need additional time to prepare a definitive, financed proposal
and that the due diligence issues identified by IHOPs
advisor may also cause Bidder B to reduce its valuation.
After considering the foregoing as well as Cravaths
description of the Boards right to consider superior
proposals in the merger agreement that had been negotiated with
IHOPs counsel, the Committee decided not to resolicit
Bidder B. After discussion, the Committee instructed Citi to
respond to IHOP with a counter-offer of $26.75 and to state that
a $26.75 transaction would be recommended unanimously by the
Committee. IHOP did not communicate further about the price of
its offer on July 13 or July 14.
Our full Board met on July 15 with representatives of
Cravath, Blackwell, Citi and management to address the proposed
IHOP merger and the standalone plan. Shortly before the Board
meeting began, IHOPs financial advisor advised Citi that
IHOP was unwilling to raise its offer from $25.50 and that this
offer was final.
Our Board meeting began with an update from Citi and a
presentation by Cravath on certain matters related to Delaware
law. Citi then described the history of the negotiations with
IHOP in more detail and Cravath summarized the terms of the
proposed merger agreement with IHOP.
Citi provided the Board with an overview of the standalone plan
prepared at the direction of the Committee, which reflected the
following elements:
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a large borrowing through a whole company securitization,
similar to IHOPs financing proposal, of $1.4 to
$1.5 billion;
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a special dividend of approximately $16 per share in four
to six weeks, using a bridge financing, as the whole company
securitization described above would take several months to
complete;
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selling approximately 425 owned stores to franchisees over a
period of 18 to 24 months, resulting in approximately 95%
of the systems stores being operated under franchise
arrangements;
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reducing our general and administrative costs over time by
approximately $52 million, principally through headcount
reductions, to reflect, among other things, this refranchising;
and
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continuing to own the underlying real estate of our stores but
retaining the flexibility to sell this real estate at attractive
values and leasing it back.
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Citi outlined the potential financial and cash flow impact of
the standalone plan using various illustrative scenarios. In the
July 15 overview, Citi illustrated a means of analyzing the
standalone plan using pro forma 2007 EBITDA of
$182.4 million and a multiple range to 8.0x to 10.0x, which
generated an indicative range for the standalone plan of $19.08
to $23.87 per share. This discussion was not intended as a
valuation of the standalone plan. Instead, it was intended to
illustrate how an analyst covering our company might analyze an
announcement of the standalone plan. Citi also pointed out that
the near term trading prices of our shares after a large special
cash dividend could be volatile and were impossible to predict.
This illustrative discussion was similar to preliminary
discussions with the Committee on July 6, 2007, except that
the pro forma EBITDA of $182.4 million was based on
estimated EBITDA for 2007 that was supported by management,
rather than a projected EBITDA for 2009 of $200 to
$210 million, discussed on July 6. Because the 2007
EBITDA estimate was more certain than a 2009 EBITDA estimate, it
was determined that it would potentially be more representative
of how an analyst covering our company might analyze the
standalone plan. This resulted in a lower indicative per share
range of $19.08 to $23.87 (revised from $24.25 to $27.50
discussed on July 6). In addition, the range of EBITDA
multiples was widened from 9.0x to 10.0x to 8.0x to 10.0x to
correlate more closely with the trading multiples of selected
companies in our industry.
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Citi also noted that if the Board rejected IHOPs bid it
would be desirable to announce promptly the standalone plan. In
particular, Citi expressed its view that a public commitment to
a specified large cash dividend and an aggressive refranchising
plan could mitigate the risk of a significant market price
reduction in our stock upon an announcement that we had
terminated efforts to sell our company.
Following this discussion, a representative of Lehman updated
the Board on the potential securitization financing.
Lehmans presentation contained two pages that
provided updated and more negative information than the
June 15 presentation to the Committee and the July 11
call with management on the same subject. In particular, Lehman
noted that a combination of, among other things,
(1) heightened sensitivity by the ratings agencies and
monoline bond insurers to enterprise valuation, reflected by
ratios of enterprise value to EBITDA, in light of these
deteriorating market dynamics, and that the enterprise valuation
under the standalone plan alternative would likely be
significantly lower than under the sale of the company
alternative, (2) significant recent volatility in the
interest rate and credit market, punctuated by a significant
increasing of treasury yields and widening credit spreads
resulting from the downgrade of the subprime market and the
building difficulties in the high yield/LBO credit markets and
(3) the need to review with ratings agencies and monoline
bond insurers the updated standalone plan, which would take two
to three weeks, made the amount and terms of the securitization
we could obtain in connection with the standalone plan much less
certain than on June 15. Lehman advised the Board that it
was firmly committed to financing an IHOP transaction but noted
that due to recent adverse developments in the debt markets, the
terms of the IHOP financing had become more expensive for IHOP.
In addition, Lehman informed the Board that IHOP had determined
it was necessary to rely on cash generated by IHOPs
existing operations in addition to our credit in order to obtain
a commitment satisfactory to IHOP. Furthermore, Lehman told our
Board that because of the foregoing it was no longer confident
we could successfully obtain the amount of a securitized
indebtedness that had been anticipated at the time the Committee
voted to recommended a recapitalization that included a
$16 per share special dividend in the event that the
standalone alternative was selected. In particular, Lehman noted
that in the event our stock price fell into the low $20 range
following an announcement that we had terminated efforts to sell
our company, our capacity to raise securitized debt could be
significantly reduced because of the adverse change in the
equity value to loan amount ratio in the financing, and that
prior to completing a two to three week analysis with ratings
agencies and monoline insurers, Lehman could not predict any
specific result for either stockholders or for us from the
securitization.
Following this, the Board received an update from Cravath on the
status of the other elements of IHOPs financing and a
potential recapitalization. Citi then reviewed with the Board
the efforts undertaken on behalf of the Committee with respect
to a potential sale of our company, focusing on the efforts
(1) to identify potential buyers and (2) to negotiate
with IHOP. Citi reviewed its financial analysis of the
consideration proposed by IHOP with the Board and stated that it
was prepared to render an oral opinion, which it formally
provided later in the meeting and confirmed by delivery of a
written opinion dated July 15, 2007, to the effect that, as
of that date and based on and subject to the matters described
in its opinion, the $25.50 per share merger consideration
was fair, from a financial point of view, to the holders of our
common stock. Citi was asked to make this presentation to the
entire Board because it had been the sole financial advisor to
the Committee in evaluating the indications of interest and
proposals we had received and in the conduct of the negotiations
with IHOP.
The management directors then presented their view that the
final standalone plan, including a refranchising program
targeting 95% of the system and based on a
$1.4-$1.5 billion
recapitalization, was preferable to the IHOP offer in the long
term. Mr. Goebel and Mr. Lumpkin stated that, as
directors, they would vote to reject the IHOP proposal due to
their belief that the price was not fair to stockholders in
comparison to the higher value they believed would be produced
by the standalone plan. They also stated that they were
committed to implementing the standalone plan and that they
believed the financing and other execution risks inherent in it
could be overcome. The management directors also asserted that
the credibility of the negative views presented by Lehman was
suspect in view of the change in those views and the fact that
Lehman would receive a larger total fee in the near term from a
combined Applebees and IHOP securitization. The management
directors currently maintain the view, although not expressed by
them until subsequent to the July 15 board meeting, that
further negotiations should have been conducted with IHOP to
increase the amount of their bid and that the projected EBITDA
used in the sensitized discounted cash flow analysis performed
by Citi in its financial analysis was too low. As described in
The Merger Opinion of Citigroup Global
Markets Inc., Citi applied certain sensitivities to
take into account the
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difference between our projected same-store sales and our
trailing three-year average same-store sales. The base case
discounted cash flow analysis utilized management same-store
estimates without any sensitivities.
As it completed its work, the Committee had anticipated it would
make a formal recommendation regarding the IHOP transaction and
the standalone plan. However, at its July 13 meeting, the
Committee was not able to do so because of uncertainty about a
number of relevant factors, including the price IHOP would agree
to pay after receiving the Committees counter offer and
the level of commitment management would make to a standalone
plan that had more refranchising and leverage than management
had recommended. Rather than delaying the meeting of the entire
Board for another Committee meeting on July 15, the
Committee did not make a formal recommendation and the Committee
Chairmen instead led an open and thorough discussion and
analysis of the IHOP transaction and the standalone plan with
the entire Board. As noted below, five of the six members of the
Committee voted in favor of the IHOP merger.
The Board discussed all of this information in detail, both as a
full Board and in an executive session excluding management
directors and our Chairman and former chief executive officer,
Mr. Hill. These discussions centered on:
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the price offered by IHOP, including its relationship to the
then current market price, the market price prior to the
announcement of the sale process and the market price prior to
some of our peers announcing recapitalizations in August, 2006,
which is the time we believe our market price was effected by
transactional expectations;
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the fact that only one definitive offer was received after a
comprehensive publicly announced sale process and no other
potential purchasers had continued to express interest in an
acquisition of Applebees;
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Citis opinion to the Board as to the fairness, from a
financial point of view and as of the date of the opinion, of
the $25.50 per share consideration to be received in the
merger by holders of Applebees common stock;
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the extent to which trading prices for our stock reflected a
higher price to earnings multiple and equity value to EBITDA
multiple than many of our casual dining peers, despite similar
or worse fundamental performance by us, due to expectations of a
sale or a significant recapitalization involving a large payment
of cash to our stockholders;
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the fact that the proposed merger agreement with IHOP contained
very few conditions, providing a reasonable degree of certainty
of closing if our stockholders vote to approve the transaction;
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the fact that the merger agreement with IHOP provided for a
termination right, subject to certain conditions and payment of
a termination fee, in the event a superior proposal was received;
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the preference of management and some of our directors for the
standalone plan over a sale at $25.50 per share and their
view that the standalone plan would generate greater value for
stockholders even in light of Lehmans latest views on the
availability of financing;
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the risks related to the standalone plan, including the risks
associated with obtaining debt on favorable terms or at all,
particularly in light of Lehmans presentation regarding
debt markets, the vulnerability of our business to factors
beyond our control, including gasoline prices, the lack of
operating flexibility that would be caused by a substantial
increase in our debt levels and the difficulty in executing a
refranchising program on a rapid timetable;
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the fact that Lehman was working with IHOP on its financing and
would receive a significant fee if the IHOP financing proceeded;
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our potentially being unable to announce a large cash dividend
in the near future due to uncertainty about our ability to
finance a special cash distribution;
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whether a short delay in the vote would provide us with more
definitive information about the standalone plan, including the
extent to which financing would be available to fund a special
dividend;
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the challenges in revitalizing our business in light of
deteriorating sales and customer traffic at our stores and
whether the casual dining sector would improve or continue to
deteriorate;
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the significant and novel challenges to our management created
by the standalone plan; and
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whether continuing negotiations with IHOP would lead to a higher
price.
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During these discussions, Mr. Sack, Mr. Hill and
Ms. Belton stated that they would join Mr. Goebel and
Mr. Lumpkin in voting against the merger with IHOP for the
reasons articulated by management and for the reasons noted
below. These directors indicated that they would oppose the
merger because they had confidence in our managements
ability to execute the standalone plan. These directors noted
their belief that the execution risks in the standalone plan
could be overcome, that the casual dining business would
improve, and that superior value could be returned for
stockholders in the long-term (which these directors accepted
was an undefined period) by remaining independent. These
directors also noted their belief that despite the adverse
conditions in the debt markets noted by Lehman, we could still
announce a special dividend in connection with the standalone
plan in the immediate future. We have been informed by these
directors that they presently intend to vote their shares
against the IHOP transaction. For a description of the number of
shares owned by our directors and management, see Security
Ownership of Management and Certain Beneficial Owners.
A majority of our Board, however, concluded that even though
management firmly believed a financial analysis of the
standalone plan showed it had the potential to produce greater
long term value if successfully executed on a timely basis, when
this potential was properly adjusted for risk, the more certain
value offered by the IHOP bid was a better alternative for our
stockholders. The Board noted that the value of the standalone
plan consisted of (1) a specified dollar value to be
distributed by dividend to stockholders and (2) the
unspecified value of the remaining equity following such
dividend. Because of the unspecified value of this remaining
equity value, the Board further noted that there could be no
guarantee, even if the standalone plan was fully successful, of
how long such a plan would take to return improved value to
stockholders, and that there was a significant risk the plan
would not be fully successful. In particular, the Board noted
adverse market trends, some of which were caused by factors
beyond our control, the long-term decline we had experienced in
same-store sales and customer traffic, the fact that over the
past year management had lowered its projected results for years
after 2007 due to continued challenges to our business, the
shortfall in sales for the first six months of 2007, the
difficulty in completing a rapid sale of 425 stores to
franchisees and, notwithstanding the Boards confidence in
management, the fact that management would be addressing
numerous challenges it had not faced in the past in an
environment of pressure from increased leverage. The Board
considered our experience in 1997 to 1999, when a franchisee
owning 279 Applebees stores took 16 months to divest
their restaurants. The Board also noted, as described above,
that the Committee and the Board had conducted a publicly
announced, comprehensive sale process of our company, and that
only one definitive offer was received as a result of that
process. Moreover, the Board believed that Lehmans revised
views and the tightening of the credit markets cast considerable
doubt on our ability to execute the more definitive, near-term
component of the standalone plan. In particular, the Board noted
that the risk on our ability to borrow sufficient funds to
complete the recapitalization contemplated by the standalone
plan would not allow us to announce a special dividend in the
range of $15 to $16 per share in the immediate future. The
Board also believed that this risk was exacerbated by its view
that our stock price likely would react highly negatively to an
announcement that we had terminated our sale process if we did
not concurrently announce a standalone plan with a dividend in
this range.
Mr. Sack moved to table the vote on the IHOP merger for
further analysis of the financing component of the standalone
plan. The motion did not carry. A majority of our Board decided
that it had sufficient information to evaluate the
attractiveness of the IHOP bid and the standalone plan, that the
matter was ready for a decision and that a delay might put the
IHOP transaction at risk. Mr. Sack then recommended that
before the Board accepted IHOPs proposal it should
continue negotiations and predicted that IHOP would raise its
price if it believed the Board was going to reject the proposal.
The Board then discussed this recommendation. Several directors
noted that (1) IHOP had refused to increase its bid,
despite several attempts to get them to do so, (2) there
was risk that IHOP might withdraw its proposal if it were not
accepted promptly, (3) no other definitive proposal had
been made to acquire the company, and (4) the fact that the
proposed merger agreement permitted the Board to pursue any
superior proposal that might emerge after announcement of an
IHOP transaction, subject to payment of a $60 million
termination fee and IHOPs right to match such a proposal.
Citi also expressed its view, when asked to do so, that IHOP
would likely not accept a counter-proposal unless we expressed
to IHOP that we would walk away from the
negotiations. In light of the foregoing, a majority of the
directors concluded that the IHOP proposal should be voted on at
that time.
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After taking into account all of the considerations described
above, the Board approved by a majority vote of nine to five the
merger with IHOP at $25.50 per share and recommended that
our stockholders adopt the merger agreement with IHOP.
Ms. Boswell, Mr. Breeden, Mr. Conant,
Mr. Curran, Mr. Hansen, Mr. Harris,
Mr. Helms, Mr. Rebolledo and Mr. Volkema voted in
favor of approving the merger with IHOP. Our chairman and former
chief executive officer, Mr. Hill, our current chief
executive officer, Mr. Goebel, our current chief financial
and strategy officer, Mr. Lumpkin, Ms. Belton and
Mr. Sack voted against approving the merger with IHOP, for
the reasons set forth above.
The merger agreement was then finalized, and executed during the
night of July 15, 2007, as disclosed in our Current Report
of
Form 8-K,
filed with the SEC on July 18, 2007, which contained a copy
of the executed merger agreement.
Reasons
for the Merger and Recommendation of Our Board of
Directors
The board of directors of Applebees determined by a
majority vote that the merger and the merger agreement are
advisable and are fair to, and in the best interest of,
Applebees and its stockholders and that the consideration
to be paid for each share of Applebees common stock in
connection with the merger is fair to Applebees
stockholders. Applebees board of directors recommends
that Applebees stockholders vote FOR the adoption of the
merger agreement.
In evaluating the merger, the members of the board of directors
consulted with management and legal and financial advisors and
considered a number of factors concerning the merger and the
stand-alone plan that are discussed in detail under
Background of the Merger.
The reasons for recommending the Merger and the potential
benefits of the Merger over the stand-alone plan included the
factors discussed below:
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the price offered by IHOP represented a premium to the then
current market price, the market price prior to the announcement
of the sale process and the market price prior to some of our
peers announcing recapitalizations in August, 2006, which is the
time we believe our market price was effected by transactional
expectations;
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the fact that only one definitive offer was received after a
comprehensive publicly announced sale process and no other
potential purchasers had continued to express interest in an
acquisition of Applebees;
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Citis opinion to the Board as to the fairness, from a
financial point of view and as of the date of the opinion, of
the $25.50 per share consideration to be received in the merger
by holders of Applebees common stock;
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the extent to which trading prices for our stock reflected a
higher price to earnings multiple and equity value to EBITDA
multiple than many of our casual dining peers, despite similar
or worse fundamental performance by us, due to expectations of a
sale or a significant recapitalization involving a large payment
of cash to our stockholders;
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the fact that the proposed merger agreement with IHOP contained
very few conditions, providing a reasonable degree of certainty
of closing if our stockholders vote to approve the transaction;
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the fact that the merger agreement with IHOP provided for a
termination right, subject to certain conditions and payment of
a termination fee, in the event a superior proposal was received;
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the risks related to the standalone plan, including the risks
associated with obtaining debt on favorable terms or at all,
particularly in light of Lehmans presentation regarding
debt markets, the vulnerability of our business to factors
beyond our control, including gasoline prices, the lack of
operating flexibility that would be caused by a substantial
increase in our debt levels and the difficulty in executing a
refranchising program on a rapid timetable;
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our potentially being unable to announce a large cash dividend
in the near future due to uncertainty about our ability to
finance a special cash distribution;
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26
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the challenges in revitalizing our business in light of
deteriorating sales and customer traffic at our stores and
whether the casual dining sector would improve or continue to
deteriorate;
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the significant and novel challenges to our management created
by the standalone plan; and
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the other terms and conditions of the merger agreement and the
fact that the merger agreement was the product of arms
length negotiations between representatives of IHOP and
representatives of Applebees.
|
The members of the board of directors also considered and
balanced against the foregoing factors a number of risks and
other countervailing factors concerning the merger, including
those described below:
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the preference of management and some of our directors for the
standalone plan over a sale at $25.50 per share and their view
that the standalone plan would generate greater value for
stockholders even in light of Lehmans latest views on the
availability of financing, as described in more detail under
The Merger Background of the
Merger, including their belief that (1) the execution
risks in the stand-alone plan could be overcome, (2) the casual
dining business would improve, (3) superior value could be
returned for stockholders in the long-term (which these
directors accepted was an undefined period) by remaining
independent, (4) despite adverse conditions in the debt market
noted by Lehman, Applebees could still announce a special
dividend in connection with the stand-alone plan in the
immediate future, and (5) the confidence in our
managements ability to execute the stand-alone plan
expressed by members of the board; and
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the risk that the merger might not be completed as a result of
the failure of the closing conditions to be satisfied or waived.
|
The foregoing discussion and the discussion under The
Merger Background of the Merger of the
factors considered by the board of directors are not intended to
be exhaustive, but rather include the material factors
considered by the board of directors. The board of directors did
not assign relative weights to the above factors or the other
factors considered by them. In addition, the board of directors
did not reach any specific conclusion on each factor considered,
but, with the assistance of management and their advisors,
conducted an overall review of these factors. Individual members
of the board of directors may have given different weights to
different factors.
Opinion
of Citigroup Global Markets Inc.
Applebees has retained Citi to act as financial advisor to
the Committee in connection with the merger. In connection with
this engagement, the Committee requested that Citi evaluate the
fairness, from a financial point of view, of the consideration
to be received in the merger by holders of Applebees
common stock. On July 15, 2007, at a meeting of
Applebees board of directors held to evaluate the merger,
Citi rendered to Applebees board of directors an oral
opinion, which was confirmed by delivery of a written opinion
dated July 15, 2007, to the effect that, as of that date
and based on and subject to the matters described in its
opinion, the $25.50 per share merger consideration was fair,
from a financial point of view, to the holders of
Applebees common stock.
The full text of Citis written opinion, dated
July 15, 2007, which describes the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken, is attached to this proxy statement as
Exhibit B and is incorporated into this proxy statement by
reference. Citis opinion was provided to Applebees
board of directors in connection with its evaluation of the per
share merger consideration from a financial point of view.
Citis opinion does not address any other aspects or
implications of the merger and does not constitute a
recommendation to any stockholder as to how such stockholder
should vote or act on any matters relating to the proposed
merger.
In arriving at its opinion, Citi:
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reviewed the merger agreement;
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held discussions with certain senior officers, directors and
other representatives and advisors of Applebees and
certain senior officers and other representatives and advisors
of IHOP concerning the business, operations and prospects of
Applebees;
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|
examined certain publicly available business and financial
information relating to Applebees;
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27
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|
examined certain financial forecasts and other information and
data relating to Applebees under alternative business
scenarios and certain sensitivities which were provided to or
otherwise discussed with Citi by Applebees management;
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reviewed the financial terms of the merger as set forth in the
merger agreement in relation to, among other things: current and
historical market prices and trading volumes of Applebees
common stock, historical and projected earnings and other
operating data of Applebees and capitalization and
financial condition of Applebees;
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analyzed certain financial, stock market and other publicly
available information relating to the businesses of other
companies whose operations Citi considered relevant in
evaluating those of Applebees;
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|
considered, to the extent publicly available, the financial
terms of certain other transactions which Citi considered
relevant in evaluating the merger; and
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conducted such other analyses and examinations and considered
such other information and financial, economic and market
criteria as Citi deemed appropriate in arriving at its opinion.
|
In rendering its opinion, Citi assumed and relied, without
assuming any responsibility for independent verification, on the
accuracy and completeness of all financial and other information
and data publicly available or provided to or otherwise reviewed
by or discussed with Citi and on the assurances of
Applebees management that it was not aware of any relevant
information that was omitted or remained undisclosed to Citi.
With respect to financial forecasts and other information and
data (including sensitivities) relating to Applebees
provided to or otherwise reviewed by or discussed with Citi,
Citi was advised by Applebees management, and Citi
assumed, with the consent of Applebees, that the forecasts
and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of Applebees management as to the future financial
performance of Applebees under the alternative business
scenarios and sensitivities reflected in such forecasts and
estimates. Citi assumed, with the consent of Applebees,
that the merger would be consummated in accordance with its
terms, without waiver, modification or amendment of any material
term, condition or agreement and that, in the course of
obtaining the necessary regulatory or third party approvals,
consents, releases and waivers for the merger, no delay,
limitation, restriction or condition would be imposed that would
have an adverse effect on Applebees or the merger.
Citi did not make, and it was not provided with, an independent
evaluation or appraisal of the assets or liabilities, contingent
or otherwise, of Applebees, and Citi did not make any
physical inspection of the properties or assets of
Applebees. In connection with Citis engagement and
at the direction of the Committee, Citi was requested to
approach, and held discussions with, third parties to solicit
indications of interest in the possible acquisition of
Applebees. Citis opinion does not address any terms
or other aspects or implications of the merger (other than the
$25.50 per share merger consideration to the extent expressly
specified in the opinion). Citi expressed no view as to, and its
opinion does not address, the underlying business decision of
Applebees to effect the merger, the relative merits of the
merger as compared to any alternative business strategies that
might exist for Applebees or the effect of any other
transaction in which Applebees might engage. Citis
opinion was necessarily based on information available to Citi,
and financial, stock market and other conditions and
circumstances existing and disclosed to Citi, as of the date of
its opinion. Except as described above, Applebees imposed
no other instructions or limitations on Citi with respect to the
investigations made or procedures followed by Citi in rendering
its opinion.
In preparing its opinion, Citi performed a variety of financial
and comparative analyses, including those described below. The
summary of these analyses is not a complete description of the
analyses underlying Citis opinion. The preparation of a
financial opinion is a complex analytical 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 and, therefore, a
financial opinion is not readily susceptible to summary
description. Citi arrived at its ultimate opinion based on the
results of all analyses undertaken by it and assessed as a
whole, and did not draw, in isolation, conclusions from or with
regard to any one factor or method of analysis for purposes of
its opinion. Accordingly, Citi believes that its analyses must
be considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in
tabular format, without considering all analyses and
28
factors or the narrative description of the analyses, could
create a misleading or incomplete view of the processes
underlying its analyses and opinion.
In its analyses, Citi considered industry performance, general
business, economic, market and financial conditions and other
matters existing as of the date of its opinion, many of which
are beyond the control of Applebees. No company, business
or transaction used in those analyses as a comparison is
identical or directly comparable to Applebees or the
merger, and an evaluation of those analyses is not entirely
mathematical. Rather, the analyses involve complex
considerations and judgments concerning financial and operating
characteristics and other factors that could affect the
acquisition, public trading or other values of the companies,
business segments or transactions analyzed.
The estimates contained in Citis analyses and the
valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
favorable than those suggested by its analyses. In addition,
analyses relating to the value of businesses or securities do
not necessarily purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold.
Accordingly, the estimates used in, and the results derived
from, Citis analyses are inherently subject to substantial
uncertainty.
The type and amount of consideration payable in the merger was
determined through negotiations between Applebees and IHOP
and the decision to enter into the merger was solely that of
Applebees board of directors. Citis opinion was only
one of many factors considered by Applebees board of
directors in its evaluation of the merger and should not be
viewed as determinative of the views of Applebees board of
directors or management with respect to the merger or the merger
consideration.
The following is a summary of the material financial analyses
presented to Applebees board of directors in connection
with Citis opinion. The financial analyses summarized
below include information presented in tabular format. In order
to fully understand Citis financial analyses, the tables
must be read together with the text of each summary. The tables
alone do not constitute a complete description of the financial
analyses. Considering the data below without considering the
full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of Citis financial
analyses.
Selected
Publicly Traded Companies
Analysis.
Citi reviewed financial and stock market information of
Applebees and 15 selected publicly held companies, three
of which are in the casual dining industry, two of which are in
the family dining industry and 10 of which are in the quick
service and fast-casual restaurant industry. Citi reviewed,
among other things, equity values of the selected companies
based on closing stock prices on July 12, 2007 as a
multiple of calendar year 2007 estimated earnings per share,
commonly referred to as EPS. Citi also reviewed enterprise
values of the selected companies, calculated as fully diluted
equity value based on closing stock prices on July 12,
2007, plus total debt and minority interests, less investments
in unconsolidated affiliates, cash and marketable securities, as
a multiple of calendar year 2007 estimated earnings before
interest, taxes, depreciation and amortization, commonly
referred to as EBITDA. These selected companies and multiples
were as follows (data which was not publicly available as of
July 12, 2007 has been designated as NM):
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Closing Stock
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Enterprise Value as
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Prices as Multiple
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Multiple of
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Casual Dining
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of CY2007E EPS
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CY2007E EBITDA
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Darden
Restaurants, Inc.
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15.1
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x
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8.7
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x
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Brinker
International, Inc.
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16.0
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x
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6.9
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x
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Ruby
Tuesday, Inc.
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14.3
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x
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6.9
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x
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Closing Stock
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Enterprise Value as
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Prices as Multiple
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Multiple of
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Family Dining
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of CY2007E EPS
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CY2007E EBITDA
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CBRL
Group, Inc.
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15.1
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x
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7.5
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x
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IHOP
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21.4
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x
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11.9
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x
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29
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Closing Stock
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Enterprise Value as
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Prices as Multiple
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Multiple of
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Quick Service and Fast Casual
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of CY2007E EPS
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CY2007E EBITDA
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McDonalds
Corporation
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19.0
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x
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10.8
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x
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Yum!
Brands, Inc.
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21.0
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x
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11.1
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x
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Tim
Hortons Inc.
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21.7
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x
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12.0
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x
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Burger
King Holdings, Inc.
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22.2
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x
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10.8
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x
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Wendys
International, Inc.
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33.0
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x
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12.2
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x
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Dominos
Pizza, Inc.
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15.8
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x
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12.1
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x
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Jack in
the Box Inc.
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19.3
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x
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8.9
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x
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Sonic
Corp.
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21.8
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x
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11.2
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x
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CKE
Restaurants, Inc.
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23.0
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x
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8.9
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x
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Papa
Johns International, Inc.
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18.1
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x
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NM
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Citi then applied a range of selected multiples of calendar year
2007 estimated EPS and EBITDA derived from the selected
companies to Applebees calendar year 2007 EPS and EBITDA
(after stock-based compensation expense in the case of EBITDA),
respectively. Estimated financial data of the selected companies
were based on research analysts mean consensus estimates
as compiled by Reuters, public filings and other publicly
available information. Estimated financial data of
Applebees were based on internal estimates of
Applebees management. This analysis indicated the
following implied per share equity reference ranges for
Applebees, as compared to the per share merger
consideration:
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Implied per Share Equity
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Reference Ranges for Applebees Based on:
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Per Share Merger
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2007E EPS
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2007E EBITDA
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Consideration
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$
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18.52 - $22.22
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$
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18.27 - $23.97
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$
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25.50
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Citi noted that the per share merger consideration of $25.50
implied a calendar year 2007 estimated EPS multiple for
Applebees of 20.7x (based on internal estimates of the
management of Applebees) and 21.6x (based on research
analysts mean consensus estimates for Applebees as
compiled by Reuters). Citi further noted that the per share
merger consideration of $25.50 implied a calendar year 2007
estimated EBITDA multiple for Applebees of 9.5x (based on
internal estimates of Applebees management, after
stock-based compensation expense).
Selected
Precedent Transactions
Analysis.
Using publicly available information, Citi reviewed 10 selected
transactions in the casual dining and quick service restaurant
industry. Citi reviewed transaction values, calculated as the
purchase price paid for the target companys equity, plus
debt, less cash, in the following as a multiple of latest
12 months EBITDA. These
30
transactions and multiples were as follows (data for which
information was not publicly available at the time of
announcement of the relevant transaction has been designated as
NA):
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Announcement
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Date
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Acquiror
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Target
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LTM EBITDA
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05/21/07
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Bain
Capital Partners, LLC and Catterton Management Company, LLC
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OSI
Restaurant Partners, Inc.
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8.7
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x
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12/07/06
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Seminole
Tribe of Florida
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Hard Rock
Café International, Inc.
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NA
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11/01/06
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Bruckmann,
Rosser, Sherrill & Co. Inc, Canyon Capital Advisors
LLC and Black Canyon Capital LLC
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Logans
Roadhouse, Inc.
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9.3
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x
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08/18/06
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Lone Star
Fund V (U.S.), L.P.
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Lone Star
Steakhouse & Saloon, Inc.
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13.1
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x
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07/25/06
|
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Buffets
Holdings, Inc.
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Ryans
Restaurant Group, Inc.
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9.8
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x
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12/12/05
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Thomas H.
Lee Partners, The Carlyle Group and Bain Capital Partners, LLC
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Dunkin
Brands, Inc.
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12.9
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x
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05/31/05
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Triarc
Companies, Inc. (Arbys)
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RTM
Restaurant Group, Inc.
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NA
|
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07/25/02
|
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TPG
Partners V, L.P.- led Investor Group
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Burger
King Corporation
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5.3
|
x
|
|
06/05/00
|
|
|
Caxton-Iseman
Capital Inc.
|
|
Buffets
Inc.
|
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|
4.7
|
x
|
|
12/18/98
|
|
|
Bain
Capital, Inc.
|
|
Dominos
Pizza, Inc.
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8.2
|
x
|
Citi then applied a range of selected multiples of latest
12 months EBITDA derived from the selected transactions to
Applebees latest 12 months (as of April 1,
2007) EBITDA, before stock-based compensation expense.
Financial data for the selected transactions were based on
public filings and publicly available financial information at
the time of announcement of the relevant transaction. Financial
data for Applebees were based on internal estimates of
Applebees management. This analysis indicated the
following implied per share equity reference range for
Applebees, as compared to the per share merger
consideration:
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Implied Per Share Equity
|
|
|
Per Share Merger
|
|
Reference Range for Applebees
|
|
|
Consideration
|
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|
$
|
22.47 - $28.29
|
|
|
$
|
25.50
|
|
Citi noted that the per share merger consideration of $25.50
implied a latest 12 months (as of April 1,
2007) EBITDA multiple for Applebees of 9.0x (based on
internal estimates of Applebees management, before
stock-based compensation expense).
Discounted
Cash Flow
Analysis.
Citi performed a discounted cash flow analysis of
Applebees to calculate the estimated present value of the
standalone unlevered, after-tax free cash flows that
Applebees could generate for the last quarter of fiscal
year 2007 through the full fiscal year 2011, based on internal
estimates of Applebees management under two cases
reflecting alternative business scenarios. One case, which we
refer to as the no refranchising case, was based on
Applebees current franchising structure, and the second
case, which we refer to as the refranchising case, assumed that
Applebees would sell a substantial portion of
Applebees company-operated facilities to new or existing
franchisees and halt development of new company-operated
facilities. Citi also evaluated these two cases after applying
certain sensitivities to take into account the difference
between Applebees projected same store sales performance
as reflected under these two cases and Applebees trailing
three-year average same store sales performance. Estimated
terminal values for Applebees were calculated by applying
a range of perpetuity growth rates of 1.5% to 2.5% to
Applebees fiscal year 2011 estimated free cash flows. The
cash flows and terminal values were then discounted to present
value as of September 30, 2007 using discount rates ranging
from 8.5% to 9.5%. This analysis indicated the following implied
per share equity reference ranges for Applebees based on
the no refranchising case
31
and the refranchising case, both before and after giving effect
to certain sensitivities, as compared to the per share merger
consideration:
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|
Implied Per Share Equity
|
|
|
|
|
Reference Ranges for Applebees Based on:
|
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|
|
|
|
|
|
No Refranchising
|
|
|
|
|
|
Refranchising
|
|
|
Per Share Merger
|
|
No Refranchising
|
|
|
(Sensitized)
|
|
|
Refranchising
|
|
|
(Sensitized)
|
|
|
Consideration
|
|
|
$
|
23.35 - $30.98
|
|
|
$
|
16.25 - $21.53
|
|
|
$
|
24.16 - $30.96
|
|
|
$
|
20.64 - $26.55
|
|
|
$
|
25.50
|
|
Miscellaneous.
Under the terms of Citis engagement, Applebees has
agreed to pay Citi for its financial advisory services in
connection with the merger an aggregate fee of approximately
$8 million, a portion of which was payable in connection
with the delivery of its opinion and a significant portion of
which is contingent upon consummation of the merger.
Applebees also has agreed to reimburse Citi for reasonable
travel and other expenses incurred by Citi in performing its
services, including reasonable fees and expenses of its legal
counsel, and to indemnify Citi and related persons against
liabilities, including liabilities under the federal securities
laws, arising out of its engagement.
Citi and its affiliates in the past have provided, currently are
providing and in the future may provide services to
Applebees unrelated to the proposed merger, for which
services Citi and its affiliates have received, and expect to
receive, compensation, including, among other things, having
acted or acting as syndication agent for,
and/or a
lender under, credit facilities of certain franchisees of
Applebees, borrowings under which, with respect to certain
such facilities, are partially guaranteed by Applebees. In
the ordinary course of business, Citi and its affiliates may
actively trade or hold the securities of Applebees and
IHOP for its own account or for the account of its customers
and, accordingly, may at any time hold a long or short position
in such securities. In addition, Citi and its affiliates
(including Citigroup Inc. and its affiliates) may maintain
relationships with Applebees, IHOP and their respective
affiliates.
The Committee selected Citi to act as its financial advisor in
connection with the merger based on Citis reputation and
experience. Citi is an internationally recognized investment
banking firm which regularly engages in the valuation of
businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and
other purposes.
Certain
Projected Financial Data
We do not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income
statement data, except for periodic guidance that we provided in
connection with the release of our quarterly results of
operations prior to the beginning of the strategic review
process described under The Merger
Background of the Merger. In connection with
performing its financial analysis, Citi requested financial
projections for fiscal years 2007 through 2011. These
projections were not prepared in the same manner or process in
which we would prepare projections for budgeting or other
planning purposes. The projections provided to Citi were
prepared using the same methodology as the projections delivered
to potential bidders with the delivery of a confidential
information memorandum during the week of March 18, 2007 as
described under The Merger Background of
the Merger. However, the projections provided to Citi,
which are set forth below, were updated to reflect actual
results through May 2007.
The projections set forth below do not reflect any of the
effects of the merger or other changes, including any
refranchising of our company owned restaurants, that may in the
future be appropriate concerning our assets, business,
operations, properties, policies, corporate structure,
capitalization and management in light of the circumstances then
existing.
These projections were not prepared with the view toward public
disclosure or compliance with published guidelines of the SEC or
the American Institute of Certified Public Accountants regarding
forward-looking information or generally accepted accounting
principles. Neither our registered public accounting firm
auditors, nor
32
any other independent accountants, have compiled, examined or
performed any procedures with respect to the prospective
financial information contained in these projections nor have
they expressed any opinion or given any form of assurance on
this information or its achievability.
In preparing these projections, numerous assumptions were made,
many of which are beyond our control and may prove not to have
been, or may no longer be, necessarily reflective of actual
future results. Except as otherwise indicated, this information
does not reflect changes in general business and economic
conditions since the date such projections were prepared or any
other transaction that has occurred since the date of
preparation, or that may occur in the future and that we did not
anticipate at the time we prepared this information.
Accordingly, this information is not necessarily indicative of
current values or future performance, which may be significantly
more favorable or less favorable than as set forth below, and
you should not regard our including these projections in this
proxy statement as a representation that such projections will
in fact be achieved.
THE PROJECTIONS SET FORTH BELOW ARE NOT GUARANTEES OF
PERFORMANCE. THEY INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
FUTURE FINANCIAL RESULTS AND STOCKHOLDER VALUE OF OUR COMPANY
MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR BASED ON THESE
PROJECTIONS. MANY OF THE FACTORS THAT WILL DETERMINE FUTURE
RESULTS AND VALUES ARE BEYOND OUR ABILITY TO CONTROL OR PREDICT.
Projections
(dollar amounts in millions)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
System-Wide Sales
|
|
$
|
4,744.3
|
|
|
$
|
5,023.7
|
|
|
$
|
5,327.8
|
|
|
$
|
5,656.8
|
|
|
$
|
6,000.2
|
|
Total Operating Revenue
|
|
$
|
1,324.0
|
|
|
$
|
1,371.1
|
|
|
$
|
1,434.8
|
|
|
$
|
1,507.5
|
|
|
$
|
1,582.4
|
|
EBITDA (after stock comp)
|
|
$
|
220.9
|
|
|
$
|
229.6
|
|
|
$
|
252.9
|
|
|
$
|
271.7
|
|
|
$
|
295.7
|
|
EBIT
|
|
$
|
142.2
|
|
|
$
|
152.4
|
|
|
$
|
171.9
|
|
|
$
|
187.3
|
|
|
$
|
207.8
|
|
IHOP estimates the total amount of funds necessary to complete
the merger and the related transactions to be approximately
$2.3 billion, which includes approximately
$1.9 billion to be paid out to our stockholders and holders
of other equity based interests in Applebees, with the
remainder to be applied to refinance our outstanding debt and
pay related fees and expenses in connection with the merger, the
financing arrangements and the related transactions. These
payments are expected to be funded by a combination of preferred
equity and debt financing.
IHOPs debt financing is expected to consist of two
separate securitization transactions consisting of an additional
issuance of asset-backed notes under the existing IHOP
securitization program and the issuance of asset-backed notes
under a securitization program to be established for
Applebees assets.
In connection with the execution and delivery of the merger
agreement, IHOP has obtained bridge facility commitments to
provide up to $2.139 billion in bridge credit facilities to
fund the transaction pending completion of both securitizations.
IHOP and Merger Sub have agreed to use reasonable best efforts
to arrange the debt financing on the terms and conditions
described in the commitments. In addition, IHOP has obtained an
aggregate of $168.8 million in equity commitments from MSD
Capital, L.P. and Chilton Investment Company, LLC, and their
respective affiliates.
IHOPs bridge facility commitments are subject to the
satisfaction of certain customary conditions, including the
execution of satisfactory documentation, the consummation of
IHOPs equity financing, receipt of IHOPs and
Applebees interim financial statements and other financial
information, the satisfaction of the conditions in the merger
agreement that are material to the interests of the lenders
under the bridge facilities, the accuracy of certain specified
representations and warranties, the granting of liens for the
benefit of the lenders under the bridge facilities and the
obtaining by IHOP of waivers and amendments to the existing IHOP
securitization program.
The closing of the merger is not conditioned on the receipt of
the financing by IHOP. IHOP, however, is not required to
consummate the merger until after the completion of the
marketing period, as described in further detail under The
Merger Agreement Effective Time; The Marketing
Period beginning on page 42.
33
Delisting
and Deregistration of Applebees Common Stock
If the merger is completed, our common stock will be delisted
from the Nasdaq Global Select Market and deregistered under the
Securities Exchange Act of 1934, and we will no longer file
periodic reports with the SEC.
Litigation
Concerning the Merger
On July 26, 2007, the New Jersey Building Laborers Pension
and Annuity Funds filed a class action complaint in the Court of
Chancery of the State of Delaware for New Castle County against
Applebees International, Inc., its directors, and IHOP
Corporation. The complaint alleges that the proposed transaction
with IHOP is unfair to Applebees stockholders. The
complaint seeks to enjoin the transaction and seeks monetary
damages. On August 20, 2007, IHOP filed a motion to dismiss
plaintiffs complaint. A hearing for that motion has not
been set. The time for the other defendants to respond to the
complaint has not yet run.
INTERESTS
OF CERTAIN PERSONS IN THE MERGER
Applebees
Restricted Stock, Stock Options, Stock Appreciation Rights and
Restricted Stock Units
As of August 29, 2007, an aggregate of 395,887 shares
of restricted stock and 3,695,325 shares of our common
stock subject to stock options and stock appreciation rights
were held by our directors and executive officers under our
equity incentive plans. None of our directors or executive
officers held restricted stock units as of such date.
Holders of restricted stock will receive the per share merger
consideration of $25.50 for each share of restricted stock that
they hold, without interest and less any required withholding
taxes. All outstanding options and stock appreciation rights
will be cancelled at the effective time of the merger. Each
holder of options or stock appreciation rights, whether vested
or unvested, will have the right to receive, as soon as
practicable after the effective time of the merger, with respect
to each option or stock appreciation right he or she holds, a
cash payment, without interest (less any required withholdings)
equal to the product of (1) the excess, if any, of $25.50
over the applicable exercise price per share of the option or
stock appreciation and (2) the number of shares of common
stock of Applebees issuable upon exercise of the option or
subject to the stock appreciation right.
The following table summarizes the restricted stock and vested
and unvested options and stock appreciation rights held by each
of our directors and executive officers as of August 29,
2007, and the consideration (calculated prior to any reduction
for any required withholding taxes) that each of them will
receive pursuant to the merger
34
agreement in connection with the conversion of restricted stock
and cancellation of options and stock appreciation rights in the
merger:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
Cash to be Received
|
|
|
|
Restricted
|
|
|
Appreciation
|
|
|
|
|
|
in Connection with
|
|
Name of Director or Executive
Officer
|
|
Stock
|
|
|
Rights
|
|
|
Stock Options
|
|
|
the Merger
|
|
|
Lloyd L. Hill
|
|
|
62,625
|
|
|
|
209,250
|
|
|
|
334,650
|
|
|
$
|
2,678,299
|
|
Erline Belton
|
|
|
7,306
|
|
|
|
|
|
|
|
105,425
|
|
|
$
|
892,539
|
|
Gina R. Boswell
|
|
|
4,762
|
|
|
|
|
|
|
|
18,632
|
|
|
$
|
167,100
|
|
Richard C.
Breeden(1)
|
|
|
7,306
|
|
|
|
|
|
|
|
|
|
|
$
|
186,303
|
|
Douglas R. Conant
|
|
|
7,306
|
|
|
|
|
|
|
|
164,012
|
|
|
$
|
1,689,568
|
|
D. Patrick Curran
|
|
|
7,306
|
|
|
|
|
|
|
|
165,837
|
|
|
$
|
1,926,991
|
|
David L. Goebel
|
|
|
93,000
|
|
|
|
229,375
|
|
|
|
276,373
|
|
|
$
|
4,356,169
|
|
Eric L. Hansen
|
|
|
7,306
|
|
|
|
|
|
|
|
66,750
|
|
|
$
|
553,027
|
|
Laurence E. Harris
|
|
|
7,306
|
|
|
|
|
|
|
|
|
|
|
$
|
186,303
|
|
Jack P. Helms
|
|
|
4,762
|
|
|
|
|
|
|
|
170,101
|
|
|
$
|
1,876,615
|
|
Steven K. Lumpkin
|
|
|
60,952
|
|
|
|
142,626
|
|
|
|
341,498
|
|
|
$
|
3,142,259
|
|
Rogelio Rebolledo
|
|
|
|
|
|
|
|
|
|
|
35,821
|
|
|
$
|
54,560
|
|
Burton M. Sack
|
|
|
|
|
|
|
|
|
|
|
219,545
|
|
|
$
|
1,916,480
|
|
Michael A. Volkema
|
|
|
7,306
|
|
|
|
|
|
|
|
39,650
|
|
|
$
|
237,479
|
|
Carin L. Stutz
|
|
|
12,500
|
|
|
|
106,000
|
|
|
|
171,248
|
|
|
$
|
1,641,715
|
|
Stanley M. Sword
|
|
|
28,250
|
|
|
|
59,660
|
|
|
|
48,840
|
|
|
$
|
987,978
|
|
George S. Williams
|
|
|
14,550
|
|
|
|
11,921
|
|
|
|
4,079
|
|
|
$
|
378,945
|
|
Rohan St. George
|
|
|
7,626
|
|
|
|
10,021
|
|
|
|
91,167
|
|
|
$
|
335,759
|
|
Philip R. Crimmins
|
|
|
12,620
|
|
|
|
14,000
|
|
|
|
110,498
|
|
|
$
|
540,036
|
|
Michael Czinege
|
|
|
7,750
|
|
|
|
9,314
|
|
|
|
127,185
|
|
|
$
|
279,900
|
|
David R. Parsley
|
|
|
11,188
|
|
|
|
6,000
|
|
|
|
116,793
|
|
|
$
|
619,391
|
|
Carol A. DiRaimo
|
|
|
5,126
|
|
|
|
7,000
|
|
|
|
79,154
|
|
|
$
|
434,232
|
|
Beverly O. Elving
|
|
|
5,376
|
|
|
|
10,000
|
|
|
|
101,901
|
|
|
$
|
734,138
|
|
Rebecca R. Tilden
|
|
|
13,658
|
|
|
|
10,000
|
|
|
|
80,999
|
|
|
$
|
425,661
|
|
|
|
|
(1)
|
|
The restricted stock was
distributed to Breeden Partners Ltd., Breeden Partners and
Breeden Partners L.P., affiliates of Breeden Capital Management
LLC. Mr. Breeden may be deemed the beneficial owner of
these shares.
|
Indemnification
of Officers and Directors
The merger agreement provides for indemnification and insurance
arrangements for Applebees current and former directors
and officers that will continue for six years following the
effective time of the merger. The merger agreement provides that
from and after the effective time of the merger, IHOP will, and
will cause Applebees as the surviving corporation in the
merger to, fulfill and honor in all respects, the obligations of
Applebees pursuant to any indemnification, exculpation or
advancement of expenses provisions in favor of the current or
former directors, officers, employees or agents of
Applebees or any of its subsidiaries, or any of their
respective predecessors, under the certificate of incorporation,
bylaws, organizational documents of Applebees or its
subsidiaries or any agreement between these indemnified persons
and Applebees or its subsidiaries in effect as of the date
of the merger agreement.
The merger agreement also provides that for a period of six
years after the effective time of the merger IHOP will cause to
be maintained the companys directors and officers
liability insurance policies in respect of the acts or omissions
occurring at or prior to the effective time of the merger. The
policies will cover each indemnified party on terms and amounts
no less favorable than those policies in effect prior to the
effective time. The surviving corporation may substitute the
policies of a reputable and financially sound insurance company
containing terms no less favorable to any indemnified party. The
merger agreement provides that IHOP will not be required to pay
for coverage for any twelve month period aggregate premiums for
insurance in excess of 250% of the last annual
35
premium paid by Applebees prior to the date of the merger
agreement, but IHOP will be required to provide as much coverage
as may be obtained for that amount.
Potential
Severance Payments to Executive Officers
We have employment agreements with Mr. Goebel and
Mr. Lumpkin which provide for certain payments if their
employment terminates after a change in control. The employment
agreements for Mr. Goebel and Mr. Lumpkin are
substantially the same with respect to payments upon a change in
control.
If, prior to expiration of the agreement, the executives
employment were terminated for any reason by us or by the
executive, and if such termination were to occur within
12 months following a change in control, which
will occur in connection with the merger, then:
(1) A lump sum payment will be made to the executive within
10 days of the termination equal to two times the sum of
(a) his base salary in effect immediately prior to the
change in control, plus (b) the greater of (i) the
average of his actual bonuses attributable to each of the
preceding three fiscal years or (ii) his target bonus
amount for the fiscal year in which the termination occurs
multiplied by the average percentage bonus attainment of the
executive over the preceding three fiscal years;
(2) We will pay health, life and disability plan premiums
and continue to credit our matching portion to the nonqualified
deferred compensation plan (or any replacement retirement
arrangement), in both cases for 24 months;
(3) All unvested stock options, stock appreciation rights
and other equity based awards will be immediately vested as of
the day immediately preceding the effective date of termination
and all restrictions on restricted share awards will be removed
and deemed satisfied and any vested periods will be accelerated;
(4) The executive will receive an accelerated payment under
our FlexPerx benefit for the year in which the termination
occurs, if such payment was earned by him at the effective time
of the termination; and
(5) The executive will be bound by non-competition
obligations for 24 months following the effective date of
termination of employment.
We currently value these benefits (excluding the acceleration of
equity awards) for Mr. Goebel at $2,051,675 and for
Mr. Lumpkin at $1,652,629.
Our other executive officers are each parties to a Change in
Control, Noncompete Agreement with us. The agreement provides
for a lump sum payment and other benefits in the event the
officer resigns with good reason (which includes reduction in
compensation or benefits, relocation of more than 50 miles
and reduction in responsibilities) or is terminated without
cause (as defined in the agreement) within eighteen months
following a change in control of the company. The payment equals
a multiple of the sum of (a) the officers
annual base salary plus (b) the greater of (i) the
officers average bonus for the three preceding fiscal
years or (ii) the officers target bonus for the
fiscal year in which his or her employment terminates. The
multiple is two for senior team members and one and
two-thirds for other executive officers. The other benefits are
(i) continued participation in our health plan at our
expense for the executive and his or her spouse (or eligible
domestic partner) and eligible dependents for a
period, and (ii) immediate vesting of any
unvested options, restricted shares and other equity
compensation issued after January 1, 2004. The
period is two years for senior team members and
20 months for other executive officers. We currently value
the aggregate amount of these benefits (excluding the
acceleration of equity awards) at $8,205,060.
If the total amount payable to an executive pursuant to the
employment agreements or any Change in Control, Noncompete
Agreement would create an excess parachute payment,
as defined in Section 280G of the Code, the
executives payments will be reduced to an amount $1 less
than the maximum amount allowed to be paid under the Code
without triggering the excise tax under Section 4999 of the
Code, if such reduction would result in a greater after-tax
payment to the executive.
In addition, executive officers who become eligible for and
fulfill the obligations imposed by our executive retirement plan
will receive certain additional benefits following retirement. A
termination that qualifies for
36
benefits under the employment agreements for Messrs. Goebel
or Lumpkin or under the Change in Control, Noncompete Agreements
may also qualify the individual for benefits under the executive
retirement plan. These benefits include (i) continued group
health, life and disability coverage for the executive and his
or her spouse (or eligible domestic partner) and eligible
dependents under a plan sponsored by the Company at the
officers expense following the period of company-covered
costs pursuant to the employment or Change in Control,
Noncompete Agreements (this generally ends on the date of
Medicare eligibility); (ii) payment of a prorated target
bonus for the year of retirement; (iii) waiver of any
requirement that the officer be employed on the bonus payment
date in order to be eligible to receive any bonus earned for the
year preceding retirement; (iv) payment of accrued
vacation; and (v) continued participation in certain
benefits of the FlexPerx plan for officers. Mr. Goebel,
Mr. Lumpkin, Mr. Parsley, Mr. Crimmins and
Ms. Elving are currently eligible for the executive
retirement plan or will be eligible by the end of 2007.
Consequently, the merger, combined with other circumstances,
could result in one or more executives becoming entitled to
receive severance payments under these agreements and plans.
Other than approval pursuant to the HSR Act, no other material
federal or state regulatory approvals are required to be
obtained by us, IHOP or Merger Sub in connection with the
merger. On August 9, 2007, Applebees and IHOP each
filed a Notification and Report Form with the Antitrust Division
of the Department of Justice and the Federal Trade Commission.
Under the HSR Act and related rules, the merger may not be
completed until the expiration or termination of the statutory
waiting period. Early termination was granted effective as of
August 23, 2007.
Under the General Corporation Law of the State of Delaware, or
DGCL, you have the right to demand an appraisal of
your shares in connection with the merger and to receive payment
in cash for the fair value of your Applebees common shares
as determined by the Delaware Court of Chancery, together with a
fair rate of interest, if any, as determined by the court, in
lieu of the consideration you would otherwise be entitled to
pursuant to the merger agreement. These rights are known as
appraisal rights. Our stockholders electing to exercise
appraisal rights must comply with the provisions of
Section 262 of the DGCL in order to perfect their rights.
Applebees will require strict compliance with the
statutory procedures in connection with the merger.
The following is intended as a brief summary of the material
provisions of the Delaware statutory procedures required to be
followed by a stockholder in order to perfect appraisal rights.
This summary, however, is not a complete statement of all
applicable requirements and should be read in conjunction with
Section 262 of the DGCL, the full text of which appears in
Exhibit C to this proxy statement. Failure to precisely
follow any of the statutory procedures set forth in
Section 262 of the DGCL may result in a termination or
waiver of your appraisal rights.
Section 262 requires that stockholders be notified that
appraisal rights will be available not less than 20 days
before the stockholders meeting to vote on the merger. A
copy of Section 262 must be included with such notice. This
proxy statement constitutes our notice to you of the
availability of appraisal rights in connection with the merger
in compliance with the requirements of Section 262. If you
wish to consider exercising your appraisal rights, you should
carefully review the text of Section 262 contained in
Exhibit C since failure to timely and properly comply with
the requirements of Section 262 will result in the loss of
your appraisal rights under Delaware law.
If you elect to demand appraisal of your shares, you must
satisfy each of the following conditions:
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|
|
You must deliver to Applebees a written demand for
appraisal of your shares before the vote with respect to the
merger is taken. This written demand for appraisal must be in
addition to and separate from any proxy or vote abstaining from
or voting against the adoption of the merger agreement. Voting
against or failing to vote for the adoption of the merger
agreement by itself does not constitute a demand for appraisal
within the meaning of Section 262.
|
37
|
|
|
|
|
You must not vote in favor of the adoption of the merger
agreement. A vote in favor of the adoption of the merger
agreement, by proxy, over the Internet, by telephone or in
person, will constitute a waiver of your appraisal rights in
respect of the shares so voted and will nullify any previously
filed written demands for appraisal.
|
If you fail to comply with either of these conditions and the
merger is completed, you will be entitled to receive the cash
payment for your Applebees common shares as provided for
in the merger agreement, but you will have no appraisal rights
with respect to your Applebees common shares.
All demands for appraisal should be addressed to Applebees
4551 W. 107th Street, Overland Park, Kansas 66207
Attention: Corporate Secretary, and must be delivered before the
vote on the merger agreement is taken at the special meeting,
and should be executed by, or on behalf of, the record holder of
the Applebees common shares. The demand must reasonably
inform Applebees of the identity of the stockholder and
the intention of the stockholder to demand appraisal of his, her
or its shares.
To be effective, a demand for appraisal by a holder of
Applebees common shares must be made by, or in the name
of, such registered stockholder, fully and correctly, as the
stockholders name appears on his or her stock
certificate(s). Beneficial owners who do not also hold the
shares of record may not directly make appraisal demands to
Applebees. The beneficial holder must, in such cases, have
the registered owner, such as a broker or other nominee, submit
the required demand in respect of those shares. If shares
are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for
appraisal should be made by or for the fiduciary; and if the
shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent,
including an authorized 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 executing the demand, he or
she is acting as agent for the record owner. A record owner,
such as a broker, who holds shares as a nominee for others, may
exercise his or her right of appraisal with respect to the
shares held for one or more beneficial owners, while not
exercising this right for other beneficial owners. In that case,
the written demand should state the number of shares as to which
appraisal is sought. Where no number of shares is expressly
mentioned, the demand will be presumed to cover all shares held
in the name of the record owner.
If you hold your Applebees common shares in a brokerage
account or in other nominee form and you wish to exercise
appraisal rights, you should consult with your broker or the
other nominee to determine the appropriate procedures for the
making of a demand for appraisal by the nominee.
Within 10 days after the effective time of the merger, the
surviving corporation must give written notice that the merger
has become effective to each Applebees stockholder who has
properly filed a written demand for appraisal and who did not
vote in favor of the merger agreement. At any time within
60 days after the effective time, any stockholder who has
demanded an appraisal has the right to withdraw the demand and
to accept the cash payment specified by the merger agreement for
his or her Applebees common shares. Within 120 days
after the effective date of the merger, any stockholder who has
complied with Section 262 shall, upon written request to
the surviving corporation, be entitled to receive a written
statement setting forth the aggregate number of shares not voted
in favor of the merger agreement and with respect to which
demands for appraisal rights have been received and the
aggregate number of holders of such shares. Within 120 days
after the effective time, any stockholder who has complied with
the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair
value of the shares held by all stockholders entitled to
appraisal. Upon the filing of the petition by a stockholder,
service of a copy of such petition shall be made upon the
surviving corporation. The surviving corporation has no
obligation to file, and has no intention to file, such a
petition in the event there are dissenting stockholders.
Accordingly, the failure of a stockholder to file such a
petition within the period specified could nullify the
stockholders previously written demand for appraisal.
If a petition for appraisal is duly filed by a stockholder and a
copy of the petition is delivered to the surviving corporation,
the surviving corporation will then be obligated, within
20 days after receiving service of a copy of the petition,
to provide the Register in Chancery with a duly verified list
containing the names and addresses of all stockholders who have
demanded an appraisal of their shares and with whom agreements
as to the value of their shares have not been reached by the
surviving corporation. After notice to dissenting stockholders
who demanded
38
appraisal of their shares, the Chancery Court is empowered to
conduct a hearing upon the petition, and to determine those
stockholders who have complied with Section 262 and who
have become entitled to the appraisal rights provided thereby.
The Chancery Court may require the stockholders who have
demanded payment for their shares to submit their stock
certificates to the Register in Chancery for notation thereon of
the pendency of the appraisal proceedings; and if any
stockholder fails to comply with that direction, the Chancery
Court may dismiss the proceedings as to that stockholder.
After determination of the stockholders entitled to appraisal of
their Companys common shares, the Chancery Court will
appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of
interest, if any. When the value is determined, the Chancery
Court will direct the payment of such value, with interest
thereon accrued during the pendency of the proceeding, if the
Chancery Court so determines, to the stockholders entitled to
receive the same, upon surrender by such holders of the
certificates representing those shares.
In determining fair value, the Chancery Court is required to
take into account all relevant factors. You should be aware
that the fair value of your shares as determined under
Section 262 could be more than, the same as, or less than
the value that you are entitled to receive under the terms of
the merger agreement. You should also be aware that investment
banking opinions as to the fairness, from a financial point of
view, of the consideration payable in a merger are not opinions
as to fair value under Section 262.
Costs of the appraisal proceeding may be imposed upon the
surviving corporation and the stockholders participating in the
appraisal proceeding by the Chancery Court as the Chancery Court
deems equitable in the circumstances. Upon the application of a
stockholder, the Chancery 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 shares entitled to
appraisal. Any stockholder who had demanded appraisal rights
will not, after the effective time of the merger, be entitled to
vote shares subject to that demand for any purpose or to receive
payments of dividends or any other distribution with respect to
those shares, other than with respect to payment as of a record
date prior to the effective time; however, if no petition for
appraisal is filed within 120 days after the effective time
of the merger, or if the stockholder delivers a written
withdrawal of his or her demand for appraisal and an acceptance
of the terms of the merger within 60 days after the
effective time of the merger, then the right of that stockholder
to appraisal will cease and that stockholder will be entitled to
receive the cash payment for shares of his, her or its
Applebees common shares pursuant to the merger agreement.
Any withdrawal of a demand for appraisal made more than
60 days after the effective time of the merger may only be
made with the written approval of the surviving corporation. In
addition, no appraisal proceeding may be dismissed as to any
stockholder without the approval of the Chancery Court, and such
approval may be conditioned upon such terms as the Chancery
Court deems just.
In view of the complexity of Section 262, if you wish to
pursue appraisal rights with respect to the merger, you should
consult your legal advisor.
39
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following describes generally the material United States
federal income tax consequences of the receipt of cash to
U.S. holders (i.e., an individual citizen or resident of
the United States or a domestic corporation) of our common stock
pursuant to the merger. The summary is based on the Internal
Revenue Code of 1986, as amended, which we refer to in this
proxy statement as the Code, applicable
current and proposed United States Treasury Regulations,
judicial authority, and administrative rulings and practice, all
of which are subject to change, possibly with retroactive
effect, and to differing interpretation. This discussion assumes
that U.S. holders hold the shares of our common stock as a
capital asset within the meaning of Section 1221 of the
Code. This discussion does not address all aspects of United
States federal income taxation that may be relevant to holders
in light of their particular circumstances, or that may apply to
holders that are subject to special treatment under the United
States federal income tax laws (including, for example, persons
who are not U.S. holders, insurance companies, dealers in
securities or foreign currencies, tax-exempt organizations,
financial institutions, mutual funds, partnerships or other
pass-through entities and persons holding our common stock
through a partnership or other pass-through entity, United
States expatriates, U.S. holders who hold shares of our
stock as part of a hedge, straddle, constructive sale or
conversion transaction, who are subject to the alternative
minimum tax or who acquired our common stock through the
exercise of employee stock options or other compensation
arrangements). In addition, the discussion does not address any
tax considerations under state, local or foreign laws or federal
laws other than United States federal income tax laws that may
be applicable to one of our stockholders.
If a partnership holds our common stock, the tax treatment of a
partner will generally depend on the status of the partners and
the activities of the partnership. If you are a U.S. holder
that is a partner in a partnership holding our common stock, you
should consult your tax advisor.
We urge you to consult your own tax advisor to determine the
particular tax consequences of the merger to you (including the
application and effect of any state, local or foreign income and
other tax laws), especially with respect to alternative minimum
tax.
The receipt of cash in the merger by U.S. holders of our
common stock will be a taxable transaction for United States
federal income tax purposes (and may also be a taxable
transaction under applicable state, local, foreign and other tax
laws). In general, for United States federal income tax
purposes, a U.S. holder of shares of our common stock will
be deemed to sell our shares of common stock and recognize
capital gain or loss equal to the difference, if any, between
(i) the amount of cash received in exchange for such shares
and (ii) the holders adjusted tax basis in such
shares. Such gain or loss will be long-term capital gain or loss
if the U.S. holders holding period of the shares of
our common stock is more than one year at the time the merger is
completed. Long-term gains recognized by U.S. holders that
are not corporations generally will be subject to a maximum
U.S. federal income tax rate of 15% (subject to application
of the alternative minimum tax). The deductibility of a capital
loss recognized on the exchange is subject to limitations. If a
U.S. holder acquired different blocks of our stock at
different times or different prices, such holder must determine
its tax basis and holding period separately with respect to each
block of our stock.
Under the Codes backup withholding rules, unless an
exemption applies, the surviving corporation generally is
required to and will withhold 28% of all payments to which a
stockholder or other payee is entitled in the merger, unless the
stockholder or other payee (i) is a corporation or comes
within other exempt categories and demonstrates this fact or
(ii) provides its correct tax identification number (social
security number, in the case of an individual, or employer
identification number in the case of other stockholders),
certifies under penalties of perjury that the number is correct
(or properly certifies that it is awaiting a taxpayer
identification number), certifies as to no loss of exemption
from backup withholding and otherwise complies with the
applicable requirements of the backup withholding rules. Each
stockholder of ours and, if applicable, each other payee, should
complete, sign and return to the paying agent for the merger the
substitute
Form W-9
that each stockholder of ours will receive with the letter of
transmittal following completion of the merger in order to
provide the information and certification necessary to avoid
backup withholding, unless an applicable exception exists and is
proved in a manner satisfactory to the paying agent. The
exceptions provide that certain stockholders of ours (including,
among others, all corporations and
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certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign
individual to qualify as an exempt recipient, however, he or she
must submit a signed
Form W-8BEN,
Certificate of Foreign Status of Beneficial Owner for
United States Tax Withholding. Backup withholding is not
an additional tax. Generally, any amounts withheld under the
backup withholding rules described above can be refunded or
credited against a holders United States federal income
tax liability, if any, provided that the required information is
furnished to the United States Internal Revenue Service in a
timely manner.
The foregoing discussion of certain material United States
income tax consequences is included for general information
purposes only and is not intended to be, and should not be
construed as, legal or tax advice to any holder of shares of our
common stock. We urge you to consult your own tax advisor to
determine the particular tax consequences of the merger to you
(including the application and effect of any state, local or
foreign income and other tax laws).
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The following is a summary of the material terms of the
merger agreement. However, because the merger agreement is the
primary legal document that governs the merger, you should
carefully read the complete text of the merger agreement for its
precise legal terms and other information that may be important
to you. The merger agreement is attached as Exhibit A to
this proxy statement to provide investors with information
concerning the terms of the merger agreement. Information on our
company is available in our Annual Reports on
Form 10-K,
our quarterly reports on
Form 10-Q
and other documents filed with the Securities and Exchange
Commission.
The merger agreement has been included to provide you with
information regarding its terms, and we recommend that you read
carefully the merger agreement in its entirety. Except for its
status as a contractual document that establishes and governs
the legal relations among the parties thereto with respect to
the merger, we do not intend for its text to be a source of
factual, business or operational information about
Applebees. The merger agreement contains representations,
warranties and covenants that are qualified by information in
the disclosure letter referenced in the merger agreement that
Applebees delivered to IHOP in connection with the
execution of the merger agreement. Representations and
warranties may be 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
establishing such matters as facts. Furthermore, the
representations and warranties may be subject to different
standards of materiality applicable to the contracting parties,
which may differ from what may be viewed as material to
stockholders. While we do not believe that the disclosure letter
contains non-public information that applicable securities laws
require us to publicly disclose (other than information that has
already been disclosed or is disclosed in this proxy statement),
the disclosure letter does contain information that modifies,
qualifies and creates exceptions to the merger agreement,
including to the representations and warranties of
Applebees. Accordingly, you should not rely on the
representations and warranties as characterizations of the
actual state of facts, because (i) they were only made as
of the date of the merger agreement or a prior, specified date,
(ii) in some cases they are subject to materiality,
material adverse effect or knowledge qualifiers, and
(iii) they are modified in important part by the
confidential disclosure letter. The confidential disclosure
letter contains information that has been included in
Applebees prior public disclosures, as well as non-public
information. Moreover, information concerning the subject matter
of the representations and warranties may have changed since the
date of the merger agreement, which subsequent information may
or may not be fully reflected in Applebees public
disclosures. Information about Applebees can be found
elsewhere in this proxy statement and in such other public
filings we make with the Securities and Exchange Commission,
which are available without charge at www.sec.gov.
The merger agreement provides that at the effective time of the
merger, Merger Sub will be merged with and into Applebees.
As a result of the merger, the separate corporate existence of
Merger Sub will cease and Applebees will continue as the
surviving corporation following the merger as a wholly-owned
subsidiary of IHOP. The surviving corporation will succeed to
all the properties, rights, privileges, powers, franchises and
assets, and all debts, liabilities and duties of Applebees
and Merger Sub.
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 the certificate of merger). The
closing date will occur on the second business day after all of
the conditions to the merger set forth in the merger agreement
have been satisfied or waived and the marketing period has been
completed (or such other date as we and IHOP may agree). In the
event that all conditions have been satisfied but the marketing
period has not expired, then the parties are not required to
effect the closing until the earlier of:
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a date during the marketing period specified by IHOP on no less
than three business days notice to us; and
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the final day of the marketing period.
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The marketing period is defined in the merger
agreement as the first period of 15 consecutive business days
following the third business day after the adoption of the
merger agreement by our stockholders (it being understood
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and agreed that IHOP will commence the marketing period on an
earlier date if reasonably practicable to do so in its good
faith judgment, but not more than 15 business days prior to the
date of the special meeting) throughout which:
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IHOP shall have in all material respects all readily available
historical financial and other pertinent information that, as of
any date, would be required to be contained in filings by
Applebees with the SEC on
Forms 10-Q
and 10-K as
of such date, in each case as may be reasonably requested by
IHOP, (collectively, the Required Financial
Information) provided, that such information required to
be filed with the SEC must be timely filed (or must be cured if
previously required to be filed) throughout the marketing period;
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the conditions set forth in the merger agreement shall be
satisfied (other than those conditions that by their terms are
to be satisfied at the effective time); and
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the applicable auditors shall not have withdrawn their audit
opinions for any applicable required financial information.
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Certificate
of Incorporation and Bylaws
The certificate of incorporation and bylaws of Applebees
will be amended at the closing to read the same as the
certificate of incorporation (with the name changed to
Applebees) and the bylaws of Merger Sub in effect
immediately prior to the closing.
The directors and officers of Merger Sub at the effective time
of the merger will be the initial directors and officers of the
surviving corporation. The directors and officers will serve in
accordance with the certificate of incorporation and bylaws of
the surviving corporation.
The merger agreement provides that each share of common stock of
Applebees (other than shares owned by Applebees,
IHOP or Merger Sub, or any subsidiary of Applebees or that
is held by stockholders who have properly demanded appraisal
rights under Delaware law) issued and outstanding immediately
prior to the effective time will be automatically cancelled and
cease to exist and will be converted into the right to receive
an amount in cash equal to $25.50, without interest, less any
required withholding taxes. Each share of common stock of
Applebees that is owned by Applebees, IHOP or Merger
Sub, or any of their respective subsidiaries, will automatically
be cancelled and cease to exist at the effective time of the
merger and no consideration will be delivered in exchange for
those shares.
Exchange
and Payment Procedures
At or prior to the effective time of the merger, IHOP will
deposit, or will cause the surviving corporation to deposit,
cash in an amount sufficient to pay the merger consideration and
the other equity amounts due to each holder of shares of our
common stock or other equity holders with a bank or trust
company (the paying agent) reasonably acceptable to
us. Within two business days after the effective time of the
merger, IHOP will cause the paying agent to mail a letter of
transmittal and instructions to you and the other stockholders.
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 either pay
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any fiduciary or surety bonds or any transfer or other similar
taxes or establish to the reasonable satisfaction of the
surviving corporation that such 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 surviving corporation or 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 amounts. Any sum which
is withheld and paid to a taxing authority by the surviving
corporation or the paying agent will be deemed to have been paid
to the person with regard to whom it is withheld.
At the close of business on the day on which the effective time
of the merger occurs, 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 close of
business on the day on which the effective time of the merger
occurs, certificates are presented to the surviving corporation
for transfer, they will be cancelled and exchanged for the
merger consideration.
None of Applebees, the surviving corporation, IHOP or the
paying agent will be liable to any person for any cash delivered
to a public official pursuant to any applicable abandoned
property, escheat or similar law. Any portion of the merger
consideration 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 the surviving corporation 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 surviving corporation, post a bond
or surety in such reasonable amount as the surviving corporation
may direct as indemnity against any claim that may be made
against it with respect to that certificate.
Effect on Restricted Stock, Stock Options, Stock-Based Awards
and Employee Stock Purchase Plans
At the effective time:
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Each outstanding share of restricted stock will be converted
into the right to receive the per share merger consideration,
less any applicable taxes required to be withheld and without
interest.
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Each outstanding option to purchase common stock under our
equity incentive plans, whether vested or unvested, will be
cancelled and each option holder will receive a cash payment
equal to the excess, if any, of the per share merger
consideration over the per share exercise price of the
applicable stock option, multiplied by the number of shares
subject to the stock option, less any applicable taxes required
to be withheld and without interest.
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Each stock appreciation right granted pursuant to our equity
incentive plans, whether vested or unvested, will be cancelled
and each holder will receive a cash payment equal to the excess,
if any, of the per share merger consideration over the exercise
price of the applicable stock appreciation right, multiplied by
the number of shares of common stock subject to the stock
appreciation right, less any applicable taxes required to be
withheld and without interest.
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Each restricted stock unit granted pursuant to our equity
incentive plans, whether vested or unvested, will be cancelled
and each holder will receive a cash payment equal to the per
share merger consideration multiplied by the number of shares
issuable pursuant to such restricted stock unit, less any
applicable taxes required to be withheld and without interest.
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The employee stock purchase plans will terminate upon the
earlier of the date the merger closes and the end of the third
quarter offering period.
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All payments with respect to common stock, restricted stock,
cancelled options, stock appreciation rights and restricted
stock units will be made by the surviving corporation as
promptly as reasonably practicable after the effective time of
the merger. No interest will be paid or accrued for the benefit
of holders of equity incentives on the consideration payable in
respect of their equity incentives.
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Representations and Warranties
We make various representations and warranties in the merger
agreement, including with respect to, among other things:
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our and our subsidiaries proper organization, good
standing and qualification to do business;
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our interests in our subsidiaries;
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our capitalization, including in particular the number of shares
of our common stock, stock options and other equity-based
interests;
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our outstanding indebtedness for borrowed money;
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our 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 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 our and our
subsidiaries 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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our SEC filings since January 1, 2005, including the
financial statements contained therein;
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the absence of undisclosed liabilities;
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the accuracy of this proxy statement;
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the absence of a material adverse effect and certain
other changes or events related to us or our subsidiaries since
December 31, 2006;
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legal proceedings and judgments;
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contracts to which we or our subsidiaries are a party;
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compliance with laws;
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possession of permits necessary to conduct our business;
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employment and labor matters affecting us or our subsidiaries,
including matters relating to our and our subsidiaries
employee benefit plans;
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taxes and environmental matters;
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real property;
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intellectual property;
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franchise matters;
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our and our subsidiaries insurance policies;
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the required vote of our stockholders in connection with the
adoption of the merger agreement;
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the inapplicability of anti-takeover statutes to the merger;
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the absence of undisclosed brokers fees; and
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the receipt by our board of directors of an opinion from Citi.
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For the purposes of the merger agreement, material adverse
effect means any change, effect, event, occurrence or
state of facts that individually or together with any other
change, effect, event, occurrence or state of
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facts is materially adverse to the business, financial condition
or results of operations of Applebees and our
subsidiaries, taken as a whole.
A material adverse effect will not have occurred,
however, as a result of any change, effect, event, or occurrence
resulting from:
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economic, financial market or geopolitical conditions in
general, except to the extent Applebees and its
subsidiaries taken as a whole, are disproportionately affected;
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changes in law or applicable accounting regulations or
principles or interpretations thereof;
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conditions in the casual dining or restaurant industries
generally, except to the extent Applebees and its
subsidiaries taken as a whole are disproportionately affected;
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any change in our stock price or trading volume, in and of
itself, or any failure, in and of itself, by us to meet
published revenue or earnings projections;
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any outbreak or escalation of hostilities or war or any act of
terrorism, except to the extent Applebees and its
subsidiaries taken as a whole, are disproportionately
affected; and
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the announcement of the merger agreement and the transactions
contemplated thereby and performance of obligations under the
merger agreement.
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The merger agreement also contains various representations and
warranties made by IHOP, including with respect to, among other
things:
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their organization, valid existence and good standing;
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their 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 required consents and approvals of governmental entities in
connection with the transactions contemplated by the merger
agreement;
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the accuracy of information supplied for inclusion or
incorporation by reference in this proxy statement;
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their debt and equity financing commitments;
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the purpose of formation and prior activities of Merger Sub;
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the lack of ownership of our common stock by IHOP and Merger
Sub; and
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the absence of undisclosed brokers fees.
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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 Applebees to IHOP or by IHOP to
Applebees, as the case may be, are 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 Business Pending the Merger
From the date of the merger agreement until the effective time
or the termination of the merger agreement, unless IHOP
otherwise agrees in writing, Applebees and its
subsidiaries will:
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conduct their operations in accordance with their ordinary
course of business; and
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use reasonable best efforts to preserve substantially intact
their current business organizations, to keep available the
services of their current officers and employees and to preserve
their relationships with
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significant franchisees, customers, suppliers, licensors,
licensees, distributors, wholesalers, lessors and others having
significant business dealings with them.
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Applebees also agreed that, until the effective time of
the merger, Applebees will not, and will cause its
subsidiaries not to, take any of the following actions (subject
to agreed exceptions) without the prior written consent of IHOP:
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declare, set aside or pay any dividend or distribution in
respect of its capital stock other than dividends or
distributions by a direct or indirect wholly-owned subsidiary of
Applebees to its parent;
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split, combine or reclassify any of its capital stock, or issue
or authorize the issuance of any other securities on behalf or
in substitution for shares of capital stock;
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purchase, redeem or otherwise acquire any shares of its capital
stock or any rights, warrants or options to acquire any such
shares, except in connection with certain equity incentive plan
transactions;
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issue, deliver or sell any shares of its capital stock, any
other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any shares, voting
securities or convertible securities or any phantom stock,
phantom stock rights, stock appreciation rights or stock based
performance units, except in connection with certain equity
incentive plan transactions;
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amend the Applebees certificate of incorporation or bylaws
or the comparable organizational documents of any subsidiary of
Applebees;
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merge or consolidate with or purchase an equity interest in or
substantial portion of the assets of any person or any division
of business, or adopt a plan of liquidation, dissolution,
recapitalization or reorganization of Applebees;
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abandon, fail to maintain and renew, or otherwise let lapse any
material intellectual property;
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sell, lease, license or otherwise dispose of any of its
properties or assets (tangible or intangible, including capital
stock of any subsidiary of Applebees), other than sales or
other dispositions of inventory and other assets in the ordinary
course of business;
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pledge, encumber or otherwise subject to a lien any of its
properties or assets, other than certain permitted liens;
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except as required by changes in law or GAAP, make any change in
accounting methods, principles or practices materially affecting
the consolidated assets, liabilities or results of operations of
Applebees;
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except in the ordinary course of business or as required
pursuant to the terms of existing benefit plans or agreements or
any other written agreement in effect on the date of the merger
agreement, and with certain exceptions for newly hired or
promoted employees, grant any officer, director or employee of
Applebees or any of its subsidiaries any increase in
compensation, severance or termination pay, enter into any
employment, consulting, severance or termination agreement with
such officer, director or employee where the total annual
compensation or the aggregate severance benefits exceed
$250,000, establish, adopt, enter into or amend in any material
respect any collective bargaining agreement or benefit plans, or
accelerate any rights or benefits under any benefit plan;
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make any capital expenditures, other than as agreed to in the
merger agreement;
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incur any indebtedness, other than in the ordinary course of
business or as agreed to in the merger agreement; or make any
loans or capital contributions to, or investments in, any other
person;
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redeem, repurchase, prepay, modify or cancel any material
indebtedness other than in the ordinary course of business;
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make any material tax election, file any amended tax return for
any material tax or change any annual tax accounting period;
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settle any claim or material litigation, other than as agreed to
in the merger agreement;
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47
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take certain actions with respect to franchisees and franchise
agreements;
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make any modification or amendment to certain specified
contracts;
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take any action that is intended to or would result in any of
the conditions to effecting the merger becoming incapable of
being satisfied; or
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authorize any of, or commit or agree to take any action
described above.
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Financing
Commitments; Cooperation of Applebees
IHOP has agreed to use, and to cause their respective affiliates
to use, reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things
necessary, proper or advisable to arrange the financing on the
terms and conditions described in the financing commitments,
including using reasonable best efforts to:
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negotiate and enter into the definitive agreements with respect
to the financing on the terms and conditions contained in the
financing commitments;
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satisfy (or to cause its affiliates to satisfy) on a timely
basis all conditions applicable to IHOP set forth in such
definitive agreements; and
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consummate the financing contemplated by the financing
commitments on the required closing date, including using
reasonable best efforts to cause the lenders and the other
persons providing financing to fund the debt and equity
financing required to consummate the merger.
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In the event any portion of the financing becomes unavailable on
the terms and conditions set forth in the financing commitments,
IHOP is required to promptly notify Applebees, and IHOP is
required to use its reasonable best efforts to obtain, as
promptly as practicable, alternative financing from alternative
sources on terms not materially less favorable, taken as a
whole, to IHOP than those contained in the financing commitments.
IHOP is required to keep us reasonably informed of the status of
their efforts to obtain the financing and to provide us with
copies of agreements pursuant to which any alternative source
shall have committed to provide IHOP with any portion of the
financing.
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 IHOP in connection
with the debt financing, including using reasonable best efforts
to:
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participate in meetings, presentations, due diligence sessions,
drafting sessions, road shows and sessions with rating agencies;
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furnish IHOP and its financing sources with readily available
historical financial and other pertinent information that, as of
any date, would be required to be contained in filings by
Applebees with the SEC on
Forms 10-Q
and 10-K as
of such date, in each case as may be reasonably requested by
IHOP, and any other historical financial statements and other
financial data of the type reasonably requested by IHOP;
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assist with the preparation of materials for rating agency
presentations, offering memoranda, private placement memoranda
or similar offering documents required in connection with the
debt financing;
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permit prospective lenders to evaluate assets;
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establish bank accounts;
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reasonably facilitate the pledging of collateral, in each case
so long as not effective until at or after the effective time of
the merger; and
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take corporate actions reasonably necessary to permit the
consummation of the debt financing and to permit the proceeds
thereof to be made available to Applebees.
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48
No
Solicitation of Transactions
We have agreed that we and our subsidiaries and our and their
directors, officers, employees and representatives will not
directly or indirectly:
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solicit, initiate or knowingly encourage, or take any other
action to knowingly facilitate, the making of any proposal that
constitutes or is reasonably likely to lead to a takeover
proposal; or
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enter into, continue or otherwise participate in any discussions
or negotiations regarding or furnish to any person any
confidential information with respect to any takeover
proposal.
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A takeover proposal means any inquiry, proposal or
offer (other than the transactions contemplated by the merger
agreement) from any person or group relating to:
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any direct or indirect acquisition or purchase, in a single
transaction or a series of transactions, of:
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20% or more (based on the fair market value thereof, as
determined by our board of directors) of assets (including
capital stock of our subsidiaries), cash flow, net income, or
net revenue of us and our subsidiaries, taken as a whole; or
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20% or more of the outstanding shares of our common stock;
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any tender offer or exchange offer that, if consummated, would
result in any person or group owning, directly or indirectly,
20% or more of the outstanding shares of our common
stock; or
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any merger, consolidation, business combination,
recapitalization, liquidation, dissolution, binding share
exchange or similar transaction involving us pursuant to which
any person or group (or the stockholders of any person) would
own, directly or indirectly, 20% or more of any class of equity
securities of us or of the surviving entity in a merger or the
resulting direct or indirect parent of us or such surviving
entity.
|
Prior to adoption of the merger agreement by our stockholders,
however, we may (and may authorize and permit our subsidiaries,
directors, officers, employees and representatives to), in
response to a bona fide written takeover proposal,
(1) furnish information with respect to us and our
subsidiaries to the person making such takeover proposal and its
representatives pursuant to a customary confidentiality
agreement containing confidentiality provisions substantially
similar to those set forth in the confidentiality agreement we
previously entered into with IHOP and (2) participate in
discussions and negotiations with such person and its
representatives regarding such takeover proposal if, prior to
taking any such actions, Applebees is in compliance with
its obligations described under this section, and our board of
directors determines in good faith, after consultation with its
independent financial advisor and outside counsel, that such
takeover proposal constitutes or is reasonably likely to lead to
a superior proposal.
For purposes of the merger agreement, superior
proposal means any bona fide takeover proposal that:
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if consummated, would result in a person or group (or the
stockholders of any person) owning, directly or indirectly,
(1) 50% or more of any class of equity securities of
Applebees or of the surviving entity in a merger or the
resulting direct or indirect parent of Applebees or such
surviving entity or (2) 50% or more (based on the fair
market value thereof, as determined by our board of directors)
of the assets of Applebees and our subsidiaries, taken as
a whole; and
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our board of directors determines would be more favorable to our
stockholders from a financial point of view than the merger and
other transactions contemplated by the merger agreement,
(x) after consultation with its independent financial
advisor (who shall be a nationally recognized investment banking
firm), (y) after taking into account the likelihood of
consummation of such transaction on the terms set forth therein,
and (z) after taking into account all appropriate legal
(after consultation with its outside counsel), financial
(including the financing terms of any such proposal) or other
aspects of such proposal, including the identity of the third
party making such proposal and the terms of any written proposal
by IHOP to amend or modify the terms of the merger and the other
transactions contemplated by the merger agreement.
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Neither our board of directors nor any committee thereof may
directly or indirectly make an adverse recommendation
change or approve or recommend, or publicly propose to
approve or recommend, or cause or
49
permit us or any of our subsidiaries to enter into, any letter
of intent, memorandum of understanding, agreement in principle,
merger agreement, acquisition agreement or other similar
agreement related to any takeover proposal. At any time prior to
the adoption of the merger agreement by our stockholders,
however, our board of directors may (subject to the payment of a
termination fee as described below), if it receives a takeover
proposal which it concludes in good faith constitutes a superior
proposal and it determines (after consultation with outside
counsel) that the failure to take such action would be
inconsistent with its fiduciary duties under applicable law,
make an adverse recommendation change or cause or permit
Applebees to terminate the merger agreement, but only:
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after the second business day following IHOPs receipt of
written notice from us advising them that our board of directors
intends to take such action and specifying the reasons therefor,
including the material terms and conditions of any superior
proposal that is the basis of the proposed action by our board
of directors and the identity of the person submitting the
superior proposal; and
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if, in determining whether to take such action, our board of
directors takes into account any changes to the financial terms
of the merger agreement proposed by IHOP to us in response to
such notice or otherwise.
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For purposes of the merger agreement, adverse
recommendation change means any action whereby our board
of directors or any committee thereof directly or indirectly:
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withdraws (or modifies in a manner adverse to IHOP), or publicly
proposes to withdraw (or modify in a manner adverse to IHOP),
the approval, recommendation or declaration of advisability by
the board or any such committee of the merger agreement or the
merger; or
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recommends the approval or adoption of, or approves or adopts,
or publicly proposes approve or adopt, or publicly propose to
recommend, approve or adopt, any takeover proposal.
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We have also agreed:
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to immediately cease and cause be terminated, and to cause our
subsidiaries and direct our representatives to terminate all,
discussions and negotiations with any person conducted prior to
signing the merger agreement with respect to any takeover
proposal, and request the prompt return or destruction of all
confidential information previously furnished in connection
therewith;
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to advise IHOP as promptly as practicable orally and in writing
of the receipt of any takeover proposal after July 15,
2007, the material terms and conditions of any such takeover
proposal and the identity of the person making any such takeover
proposal; and
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to keep IHOP reasonably informed of any material developments
with respect to any takeover proposal (including any material
changes thereto).
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The surviving corporation has agreed to provide cash
compensation (excluding severance) to each employee of
Applebees that is not less favorable than the cash
compensation provided to such employee prior to the effective
time.
The surviving corporation will also, subject to specified
limitations, recognize each employees service with
Applebees with respect to determining eligibility to
participate, level of benefits, vesting, benefit accruals and
early retirement subsidies under the surviving
corporations employee benefit plans.
50
Agreement
to Use Reasonable Best Efforts
Upon the terms and subject to the conditions set forth in the
merger agreement, each party has agreed to use its reasonable
best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most
expeditious manner practicable, the merger and the other
transactions contemplated by the merger agreement, including
using reasonable best efforts to accomplish the following:
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the taking of all acts necessary to cause the conditions to
closing to be satisfied as promptly as practicable;
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the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from governmental entities and the making
of all necessary registrations and filings and the taking of all
steps as may be necessary to obtain an approval or waiver from,
or to avoid an action or proceeding by, any governmental entity;
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the obtaining of consents, approvals and waivers from third
parties reasonably requested by IHOP to be obtained in
connection with the merger under certain contracts and
leases; and
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the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, the merger agreement.
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We and our subsidiaries are not required to pay, prior to the
effective time, to any person whose consent, approval or waiver
under certain contracts and leases with respect to the merger is
being solicited any fee, penalty or other consideration, other
than de minimis amounts or amounts advanced by IHOP.
We and our board of directors have also agreed to take all
action necessary to ensure that no state takeover statute is or
becomes applicable to the merger and if any state takeover
statute becomes applicable to the merger, to take all action
necessary to ensure that the merger may be consummated as
promptly as practicable on the terms contemplated by the merger
agreement and otherwise to minimize the effect of such statute
on the merger.
The merger agreement requires us, as promptly as reasonably
practicable after July 15, 2007, to establish a record date
for, duly call, give notice of and hold a meeting of our
stockholders to adopt the merger agreement. Except in limited
circumstances after receipt of a superior proposal, our board of
directors has agreed to recommend that our stockholders vote in
favor of adoption of the merger agreement. We have also agreed
to use commercially reasonable efforts to solicit proxies from
our stockholders in favor of adopting the merger agreement.
The respective obligations of each party to complete the merger
are subject to the satisfaction or written waiver of the
following conditions:
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Applebees stockholders must adopt the merger agreement;
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there must be no temporary restraining order, injunction,
judgment, or order issued by any Federal or state court of
competent jurisdiction or law enjoining, making illegal or
prohibiting the consummation of the merger; and
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the waiting period under the HSR Act must have expired or been
terminated;
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Applebees obligations to complete the merger are also
subject to satisfaction or written waiver of the following
conditions:
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the representations and warranties of IHOP and Merger Sub in the
merger agreement (disregarding all qualifications or limitations
as to materiality, material adverse
effect and words of similar import) must be true and
correct in all respects as of the date of the merger agreement
and as of the date the merger closes (except to the extent such
representations and warranties expressly relate to an earlier
date, in which case as of such earlier date), except for any
failures of such representations and warranties to be true and
correct that, individually or in the aggregate, has not had and
would not reasonably be expected to have a material adverse
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51
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effect on IHOPs ability to consummate the merger and the
other transactions contemplated by the merger agreement; and
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IHOP and Merger Sub must have performed in all material respects
all of their respective obligations and have complied in all
material respects with all of their respective covenants
required to be performed or complied with by it under the merger
agreement at or prior to the effective time of the merger, and
Applebees shall have received a certificate signed on
behalf of IHOP by the chief executive officer and chief
financial officer of IHOP to such effect.
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IHOPs and Merger Subs obligations to complete the
merger are also subject to satisfaction or written waiver of the
following conditions:
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the representations and warranties of Applebees in the
merger agreement (disregarding all qualifications or limitations
as to materiality, material adverse
effect and words of similar import) must be true and
correct in all respects as of the date of the agreement and as
of the date the merger closes (except to the extent such
representations and warranties expressly relate to an earlier
date, in which case as of such earlier date), except for any
failures of such representations and warranties to be true and
correct that, individually or in the aggregate, has not had, and
would not reasonably be expected to have a material adverse
effect on Applebees, and IHOP shall have received a
certificate signed on behalf of Applebees by the chief
executive officer and chief financial officer of Applebees
to that effect;
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Applebees must have performed or complied with in all
material respects all obligations required to be performed or
complied with by it under the merger agreement at or prior to
the effective time of the merger, and IHOP shall have received a
certificate signed on behalf of Applebees by the chief
executive officer and chief financial officer of Applebees
to that effect; and
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there must not have been nor would there reasonably be expected
to be a material adverse effect with respect to Applebees
since the date of the merger agreement.
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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 IHOP and Applebees;
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by either IHOP or Applebees, if:
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any temporary restraining order, preliminary or permanent
injunction or other judgment or order issued by any Federal or
state court shall have become final and non-appealable, so long
as the terminating party shall have used reasonable best efforts
to prevent the entry of and to remove such judgment or order;
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our stockholders do not adopt the merger agreement at the
special meeting or any postponement or adjournment thereof;
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the merger has not been consummated on or before April 15,
2008; provided that this right to terminate the merger agreement
is not available to any party if the failure of such party (or,
in the case of IHOP, Merger Sub) to perform any of its
obligations under the merger agreement, to act in good faith or
to use its reasonable best efforts to consummate the merger and
the other transactions contemplated by the merger agreement has
been a principal cause of or resulted in the failure of the
merger to be consummated on or before such date; or
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if the terminating party (or, in the case of IHOP, Merger Sub)
is not then in material breach and there is a breach by the
non-terminating party of any of its representations or
warranties or failure to perform any of its covenants or
agreements in the merger agreement such that the closing
conditions would not be satisfied and which cannot be cured
within 60 days written notice of such breach;
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by IHOP, if our board of directors withdraws or adversely
modifies its recommendation or approval of the merger agreement
or recommends or approves another takeover proposal, or if
Applebees or any of its
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52
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representatives willfully breaches their non-solicitation
obligations in any respect materially adverse to IHOP; or
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prior to adoption of the merger agreement by our stockholders if
we receive a takeover proposal which our board of directors
concludes in good faith constitutes a superior proposal, our
board of directors, after consultation with its outside counsel,
determines that the failure to take such action would be
inconsistent with its fiduciary duties under applicable law, but
only after (1) the second business day following
IHOPs receipt of written notice from us advising them that
our board of directors intends to take such action and
specifying the reasons therefor, including the material terms
and conditions of any superior proposal that is the basis of the
proposed action by our board of directors and the identity of
the person submitting such superior proposal and (2) our
board of directors has taken into account any changes to the
financial terms of the merger agreement proposed by IHOP to us
in response to such notice or otherwise (the right to terminate
in these circumstances is referred to as the fiduciary out
right to terminate).
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We have agreed to pay to IHOP a termination fee of
$60 million if:
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the merger agreement is terminated by Applebees pursuant
to the exercise of its fiduciary out right to terminate
described above;
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after July 15, 2007, and prior to the termination, a
takeover proposal has been publicly made to Applebees
generally or has other become publicly known; and
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the merger agreement is terminated by (A) IHOP because of
an adverse recommendation change by Applebees board of
directors or (B) by IHOP or Applebees due to the
failure to receive the approval of our stockholders at the
special meeting or any postponement or adjournment thereof or
(C) either IHOP or Applebees because the merger has
not been consummated on or before April 15, 2008 (but only
if the special meeting has not been held); and
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within nine months after the termination, we consummate the
transactions contemplated by any takeover proposal; or
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the merger agreement is terminated by IHOP because
Applebees or its representatives willfully breach their
non-solicitation obligations in any respect materially adverse
to IHOP.
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For purposes of determining whether a termination fee is payable
by us, a takeover proposal means any inquiry,
proposal or offer (other than the transactions contemplated by
the merger agreement) from any person or group relating to:
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any direct or indirect acquisition or purchase, in a single
transaction or a series of transactions, of:
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50% or more (based on the fair market value thereof, as
determined by our board of directors) of assets (including
capital stock of our subsidiaries) cash flow, net income or net
revenue of us and our subsidiaries, taken as a whole; or
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50% or more of the outstanding shares of our common stock;
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any tender offer or exchange offer that, if consummated, would
result in any person or group owning, directly or indirectly,
50% or more of the outstanding shares of our common
stock; or
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any merger, consolidation, business combination,
recapitalization, liquidation, dissolution, binding share
exchange or similar transaction involving us pursuant to which
any person or group (or the stockholders of any person) would
own, directly or indirectly, 50% or more of any class of equity
securities of us or of the surviving entity in a merger or the
resulting direct or indirect parent of us or such surviving
entity.
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53
The merger agreement may be amended by the parties at any time
before or after adoption of the merger agreement by our
stockholders. The merger agreement may not be amended except by
Applebees, IHOP and Merger Sub in writing, provided that
after adoption of the merger agreement by our stockholders, no
amendment may be made without the further approval of our
stockholders if and to the extent such approval is required
under applicable law.
The parties to the merger agreement are entitled to an
injunction or injunctions to prevent breaches of merger
agreement and to enforce specifically the terms and provisions
of the merger agreement in any court of the State of Delaware or
any Federal court sitting in the State of Delaware.
PROPOSAL 2
ADJOURNMENT OF THE SPECIAL MEETING
If at the special meeting the number of shares of
Applebees common stock present or represented and voting
in favor of the approval of the merger agreement is insufficient
to approve the merger agreement under Delaware law, we may move
to adjourn the special meeting in order to enable our Board of
Directors to continue to solicit additional proxies in favor of
the approval of the merger agreement. In that event, we will ask
you to vote only upon the adjournment proposal and not the
merger proposal.
In this proposal, we are asking you to authorize the holder of
any proxy solicited by our Board of Directors to vote in favor
of adjourning the special meeting and any later adjournments. If
the stockholders approve the adjournment proposal, we could
adjourn the special meeting, and any adjourned session of the
special meeting, to use the additional time to solicit
additional proxies in favor of the proposal to approve the
merger agreement, including the solicitation of proxies from
Applebees stockholders that have previously voted against
the merger proposal. Among other things, approval of the
adjournment proposal could mean that, even if we had received
proxies representing a sufficient number of votes against the
proposal to approve the merger agreement, we could adjourn the
special meeting without a vote on the proposal to approve the
merger agreement and seek to convince the holders of those
shares to change their votes to votes in favor of the approval
of the merger agreement.
The adjournment proposal requires that holders of more of
Applebees common stock vote in favor of the adjournment
proposal than vote against the proposal. Accordingly,
abstentions and broker non-votes will have no effect on the
outcome of this proposal. If no instructions are indicated on
your proxy card, your shares will be voted FOR
any adjournment of the special meeting, if necessary or
appropriate, to solicit additional proxies.
Our Board of Directors believes that if the number of shares of
Applebees common stock present or represented at the
special meeting and voting in favor of the proposal to approve
the merger agreement is insufficient to approve the merger
agreement, it is in the best interests of the Applebees
stockholders to enable the Board, for a limited period of time,
to continue to seek to obtain a sufficient number of additional
votes to approve the merger agreement.
The Board of Directors recommends that you vote
FOR any proposal to adjourn the special meeting.
54
MARKET
PRICE AND DIVIDEND DATA
Applebees common stock is listed on the Nasdaq Global
Select Market under the symbol APPB. The following
tables sets forth the high and low sale prices of our common
stock for the indicated part of our current fiscal year and for
our 2006 and 2005 fiscal years, as reported on the Nasdaq Global
Select Market.
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First
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Second
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Third
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Fourth
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Quarter
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Quarter
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Quarter
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Quarter
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2007
|
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High
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$
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27.32
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$
|
29.10
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$
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25.11
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*
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Low
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$
|
23.37
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$
|
23.88
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|
$
|
23.86
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*
|
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2006
|
|
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|
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|
|
|
|
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High
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$
|
26.47
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|
$
|
25.04
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$
|
23.07
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$
|
25.47
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Low
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$
|
21.62
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$
|
19.43
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$
|
17.29
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$
|
20.77
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2005
|
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High
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$
|
29.19
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$
|
28.65
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|
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$
|
26.79
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$
|
23.98
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Low
|
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$
|
24.69
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$
|
24.25
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$
|
19.95
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$
|
19.73
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*
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Through August 29, 2007
|
On February 12, 2007, which was the day before the public
announcement that we were exploring strategic alternatives,
including the possible sale of the company, the closing price of
our common stock was $24.23 per share. On July 13, 2007,
which was the last trading day before we made a public
announcement about the merger, the closing price of our common
stock was $24.38 per share.
On ,
2007, the latest practicable date before the date of this proxy
statement, the closing price of our common stock was
$ .
As
of ,
2007, there were
approximately
holders of record of our common stock. We declared an annual
dividend of $0.22 per common share on December 7, 2006 for
stockholders of record on December 22, 2006 and the
dividend was paid on January 22, 2007. We declared an
annual dividend of $.20 per common share in October 2005 for
stockholders of record on December 23, 2005 and the
dividend was paid on January 23, 2006.
If the merger is consummated, our common stock will be delisted
from the Nasdaq Global Select Market, there will be no further
public market for shares of our common stock, and each share of
our common stock will be automatically cancelled and cease to
exist and will be converted into the right to receive $25.50 in
cash, without interest.
55
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect
to the beneficial ownership of shares of our common stock
(including shares underlying options) as of August 29,
2007, by each of our directors, our executive officers named in
the summary compensation table of the proxy statement for our
annual meeting, all executive officers and directors as a group
and the beneficial owners of 5% or more of our outstanding
common stock. Unless otherwise specified, the address for each
holder is 4551 W. 107th Street, Overland Park,
Kansas, 66207.
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
Percent of
|
Name and Address of Beneficial
Owner(1)
|
|
Beneficial Ownership
|
|
Class
|
|
FMR
Corp.(2)
|
|
|
|
|
|
|
|
|
82 Devonshire Street
Boston, MA 02109
|
|
|
11,008,759
|
|
|
|
14.3
|
%
|
JP Morgan Chase &
Co.(3)
270 Park Avenue
New York, NY 10017
|
|
|
4,595,337
|
|
|
|
6.0
|
%
|
Breeden Capital Management
LLC(4)
100 Northfield Street
Greenwich, CT 06830
|
|
|
4,032,306
|
|
|
|
5.3
|
%
|
Burton M.
Sack(5)(6)
|
|
|
2,607,492
|
|
|
|
3.4
|
%
|
Lloyd L.
Hill(5)
|
|
|
487,882
|
|
|
|
0.6
|
%
|
D. Patrick
Curran(5)
|
|
|
326,705
|
|
|
|
0.4
|
%
|
Jack P.
Helms(5)
|
|
|
270,094
|
|
|
|
0.4
|
%
|
David L.
Goebel(5)
|
|
|
346,731
|
|
|
|
0.5
|
%
|
Steven K.
Lumpkin(5)
|
|
|
291,854
|
|
|
|
0.4
|
%
|
Carin L.
Stutz(5)
|
|
|
214,476
|
|
|
|
0.3
|
%
|
Douglas R.
Conant(5)
|
|
|
174,118
|
|
|
|
0.2
|
%
|
Erline
Belton(5)
|
|
|
117,781
|
|
|
|
0.2
|
%
|
Eric L.
Hansen(5)(7)
|
|
|
94,156
|
|
|
|
0.1
|
%
|
Michael A.
Volkema(5)
|
|
|
49,756
|
|
|
|
0.1
|
%
|
Stanley M.
Sword(5)
|
|
|
48,901
|
|
|
|
0.1
|
%
|
Rohan St.
George(5)
|
|
|
20,166
|
|
|
|
|
%
|
Gina R.
Boswell(5)
|
|
|
21,362
|
|
|
|
|
%
|
Rogelio
Rebolledo(5)
|
|
|
13,900
|
|
|
|
|
%
|
Richard C.
Breeden(8)
|
|
|
4,032,306
|
|
|
|
5.3
|
%
|
Laurence E. Harris
|
|
|
7,306
|
|
|
|
|
%
|
All executive officers and
directors as a group
(22 persons)(5)
|
|
|
9,571,673
|
|
|
|
12.5
|
%
|
|
|
|
(1)
|
|
The mailing address of each
individual is 4551 W. 107th Street, Overland Park,
Kansas 66207, unless otherwise shown.
|
|
(2)
|
|
Based on a Form 13F filed by
FMR Corp with the Securities and Exchange Commission as of
June 30, 2007. Includes 9,231,249 shares owned by
Fidelity Management and Research (sole voting power as to
5,449 shares and no voting power as to
9,225,800 shares) and 592,710 shares owned by Pyramis
Global Advisors LLC (sole voting power as to 536,410 shares
and no voting power as to 56,300 shares). Also includes
1,132,500 shares owned by Fidelity Investments
International as disclosed on a Form 13F as of
June 30, 2007, and 52,200 shares owned by Fidelity
Investments Japan Ltd. as disclosed in a Sum of Funds filing as
of January 31, 2007.
|
|
(3)
|
|
Based on a Form 13F filed by
JP Morgan Chase & Co. with the Securities and Exchange
Commission as of June 29, 2007, which indicates sole voting
power as to 3,750,480 shares, shared voting power as to
678,457 shares and no voting power as to
166,400 shares.
|
|
(4)
|
|
Based on a Form 13F filed by
Breeden Capital Management as of June 30, 2007 and a
Form 4 filed by Mr. Breeden as of April 26, 2007.
|
|
(5)
|
|
Includes certain shares subject to
options exercisable as of August 30, 2007 or within
60 days thereafter: 196,424 shares for Mr. Sack;
193,650 shares for Mr. Hill; 165,837 shares for
Mr. Curran; 162,469 shares for Mr. Helms;
189,373 shares for Mr. Goebel, 134,998 shares for
Mr. Lumpkin; 131,248 shares for Ms. Stutz;
164,012 shares for Mr. Conant; 105,425 shares for
Ms. Belton; 66,750 shares for Mr. Hansen;
39,650 shares for Mr. Volkema; 11,000 shares for
Ms. Boswell; 13,900 shares for Mr. Rebolledo; and
1,856,580 for all executive officers and directors as a group.
|
|
(6)
|
|
Includes 453,088 shares held
in family trusts or partnerships for which Mr. Sack
disclaims beneficial ownership.
|
|
(7)
|
|
Includes 17,300 shares held in
a family trust for which Mr. Hansen disclaims beneficial
ownership.
|
56
|
|
|
(8)
|
|
Mr. Breeden is managing member
and chairman and chief executive of Breeden Capital Management
LLC and may be deemed to be the beneficial owner of the common
stock owned by Breeden Capital Management LLC and its affiliates.
|
FUTURE
STOCKHOLDER PROPOSALS
If the merger agreement described in Proposal 1 is approved
and the merger is completed, we will no longer have any public
stockholders and we will not hold an annual meeting of
stockholders in 2008. However, if the merger is not completed
for any reason, we expect to hold a 2008 Annual Meeting of
Stockholders in the second quarter of 2008. Under the rules of
the Securities and Exchange Commission, if a stockholder wants
us to include a proposal in our proxy statement and form a proxy
for presentation at our 2008 Annual Meeting it must be received
by us at our principal executive offices by December 11,
2007. Under our bylaws, if a stockholder has a proposal that
they would like us to consider at the 2008 Annual Meeting or if
a stockholder would like to nominate an individual for a
position on the board of directors, the proposal must be
submitted not more than 165 days nor less than
120 days prior to the date on which we mailed our proxy
materials for the 2007 Annual Meeting, which for the 2008 Annual
Meeting is between October 27, 2007 and December 11,
2007.
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.
We incorporate by reference into this proxy statement any
Current Reports on
Form 8-K
filed by us pursuant to the Exchange Act after the date of this
proxy statement and prior to the date of the special meeting.
This means that we can disclose important information to you by
referring you to those documents. The information incorporated
by reference is considered to be a part of this proxy statement,
and later information that we file with the SEC will update and
supersede that information.
Information furnished under Items 2.02 and 7.01 of any
Current Report on
Form 8-K,
including related exhibits, is not and will not be incorporated
by reference into this proxy statement.
Any person, including any beneficial owner, to whom this proxy
statement is delivered may request copies of proxy statements,
reports and any of the documents incorporated by reference in
this document or other information concerning us, without
charge, by written or telephonic request directed to us at
Applebees International, Inc.,
4551 W. 107th Street, Overland Park, KS 66207,
(913) 967-4000
or from the SEC through the SECs website at the address
provided above. Documents incorporated by reference are
available without charge, excluding any exhibits to those
documents unless the exhibit is specifically incorporated by
reference into those documents.
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 [ ], 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.
This proxy statement is preliminary, and we intend to file a
definitive proxy statement. We encourage you to read the
definitive proxy statement carefully when it becomes available,
because it will contain important information and may contain
additions and revisions to the information contained in this
preliminary proxy statement. You may obtain free copies of the
definitive proxy statement (when it becomes available) and other
documents filed with the SEC from Applebees or from the
SEC as described above.
57
If you have any questions about this proxy statement, the
special meeting or the merger or need assistance with the voting
procedures, you should contact our proxy solicitor, Innisfree at
877-687-1866.
By Order of the Board of Directors,
Rebecca R. Tilden, Secretary
Applebees International, Inc.
4551 W. 107th Street
Overland Park, KS 66207
[Date]
Overland Park, Kansas
58
EXHIBIT
A
The merger agreement has been included to provide you with
information regarding its terms.
The merger agreement contains representations and
warranties made by Applebees and IHOP to each other as of
specific dates. The statements embodied in those representations
and warranties were made for purposes of the merger agreement
and are subject to qualifications and limitations agreed by the
parties in connection with negotiating the terms of the merger
agreement. In addition, some of those representations and
warranties were made as of a specific date, may be subject to a
contractual standard of materiality different from that
generally applicable to stockholders or may have been used for
the purpose of allocating risk between the parties to the merger
agreement rather than establishing matters as facts.
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
dated as of July 15, 2007,
among
IHOP CORP.,
CHLH CORP.
and
APPLEBEES INTERNATIONAL, INC.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE I
Definitions
|
Section 1.01.
|
|
Certain Defined Terms
|
|
|
A-1
|
|
Section 1.02.
|
|
Index of Defined Terms
|
|
|
A-2
|
|
Section 1.03.
|
|
Interpretation
|
|
|
A-5
|
|
|
ARTICLE II
The Merger
|
Section 2.01.
|
|
The Merger
|
|
|
A-5
|
|
Section 2.02.
|
|
Closing
|
|
|
A-5
|
|
Section 2.03.
|
|
Effective Time
|
|
|
A-5
|
|
Section 2.04.
|
|
Effects of the Merger
|
|
|
A-6
|
|
Section 2.05.
|
|
Certificate of Incorporation and
Bylaws
|
|
|
A-6
|
|
Section 2.06.
|
|
Directors
|
|
|
A-6
|
|
Section 2.07.
|
|
Officers
|
|
|
A-6
|
|
|
ARTICLE III
Effect of the Merger on the
Capital Stock of the Constituent Corporations; Exchange
Fund; Company Equity Awards
|
Section 3.01.
|
|
Effect on Capital Stock
|
|
|
A-6
|
|
Section 3.02.
|
|
Exchange Fund
|
|
|
A-7
|
|
Section 3.03.
|
|
Company Equity Awards
|
|
|
A-8
|
|
|
ARTICLE IV
Representations and
Warranties
|
Section 4.01.
|
|
Representations and Warranties of
the Company
|
|
|
A-9
|
|
Section 4.02.
|
|
Representations and Warranties of
Parent and Sub
|
|
|
A-25
|
|
|
ARTICLE V
Covenants Relating to
Conduct of Business
|
Section 5.01.
|
|
Conduct of Business
|
|
|
A-27
|
|
Section 5.02.
|
|
No Solicitation
|
|
|
A-30
|
|
Section 5.03.
|
|
WARN Act
|
|
|
A-31
|
|
|
ARTICLE VI
Additional Agreements
|
Section 6.01.
|
|
Preparation of the Proxy
Statement; Stockholders Meeting
|
|
|
A-32
|
|
Section 6.02.
|
|
Access to Information;
Confidentiality
|
|
|
A-32
|
|
Section 6.03.
|
|
Reasonable Best Efforts
|
|
|
A-32
|
|
Section 6.04.
|
|
Benefit Plans
|
|
|
A-33
|
|
Section 6.05.
|
|
Indemnification, Exculpation and
Insurance
|
|
|
A-34
|
|
Section 6.06.
|
|
Fees and Expenses
|
|
|
A-34
|
|
Section 6.07.
|
|
Public Announcements
|
|
|
A-35
|
|
Section 6.08.
|
|
Stockholder Litigation
|
|
|
A-35
|
|
Section 6.09.
|
|
Financing
|
|
|
A-35
|
|
A-i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE VII
Conditions Precedent
|
Section 7.01.
|
|
Conditions to Each Partys
Obligation to Effect the Merger
|
|
|
A-37
|
|
Section 7.02.
|
|
Conditions to Obligations of
Parent and Sub
|
|
|
A-37
|
|
Section 7.03.
|
|
Conditions to Obligation of the
Company
|
|
|
A-38
|
|
Section 7.04.
|
|
Frustration of Closing Conditions
|
|
|
A-38
|
|
|
ARTICLE VIII
Termination, Amendment and
Waiver
|
Section 8.01.
|
|
Termination
|
|
|
A-38
|
|
Section 8.02.
|
|
Effect of Termination
|
|
|
A-39
|
|
Section 8.03.
|
|
Amendment
|
|
|
A-39
|
|
Section 8.04.
|
|
Extension; Waiver
|
|
|
A-39
|
|
Section 8.05.
|
|
Procedure for Termination or
Amendment
|
|
|
A-39
|
|
|
ARTICLE IX
General Provisions
|
Section 9.01.
|
|
Nonsurvival of Representations and
Warranties
|
|
|
A-40
|
|
Section 9.02.
|
|
Notices
|
|
|
A-40
|
|
Section 9.03.
|
|
Consents and Approvals
|
|
|
A-40
|
|
Section 9.04.
|
|
Counterparts
|
|
|
A-40
|
|
Section 9.05.
|
|
Entire Agreement; No Third-Party
Beneficiaries
|
|
|
A-40
|
|
Section 9.06.
|
|
GOVERNING LAW
|
|
|
A-41
|
|
Section 9.07.
|
|
Assignment
|
|
|
A-41
|
|
Section 9.08.
|
|
Specific Enforcement; Consent to
Jurisdiction
|
|
|
A-41
|
|
Section 9.09.
|
|
Severability
|
|
|
A-41
|
|
A-ii
AGREEMENT AND PLAN OF MERGER (this Agreement)
dated as of July 15, 2007, among IHOP CORP., a Delaware
corporation (Parent), CHLH CORP., a Delaware
corporation and a wholly owned Subsidiary of Parent
(Sub), and APPLEBEES INTERNATIONAL,
INC., a Delaware corporation (the Company).
WHEREAS, the Board of Directors of each of the Company and Sub
has approved and declared advisable, and the Board of Directors
of Parent has approved, this Agreement and the merger of Sub
with and into the Company (the Merger), upon
the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common
stock, par value $0.01 per share, of the Company
(Company Common Stock), other than
(a) shares of Company Common Stock held by the Company, as
treasury stock, or otherwise owned by Parent, Sub or any
subsidiary of the Company and (b) the Appraisal Shares (as
defined herein), will be converted into the right to receive
$25.50 in cash; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this
Agreement, and subject to the conditions set forth herein, the
parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Certain Defined
Terms. As used in this Agreement, the following
terms shall have the following meanings:
Affiliate of any person means another person
that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with,
such first person.
business day means any day on which banks are
not required or authorized to be closed in the City of New York.
Company Disclosure Letter means the letter
dated as of the date of this Agreement delivered by the Company
to Parent and Sub.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Intellectual Property Rights shall mean all
intellectual property rights of any kind or nature throughout
the world, including all (i) U.S. and foreign patents,
patent applications, patent disclosures, and all continuations,
continuations-in-part,
divisionals, reissues, re-examinations, substitutions, and
extensions thereof (Patents),
(ii) U.S. and foreign trademarks, service marks,
company names, trade names, Internet domain names, logos,
slogans, trade dress, and other designations of source or
origin, together with the goodwill connected with the use of and
symbolized by any of the foregoing
(Trademarks), (iii) U.S. and
foreign copyrights and copyrighted subject matter (including, to
the extent applicable, Software and databases)
(Copyrights), (iv) rights of publicity,
(v) trade secrets and other know-how, inventions and
proprietary processes (including proprietary Software and
operating procedures), formulae, models and methodologies
(Trade Secrets) and (vi) applications,
registrations, renewals, and recordings for the foregoing.
Knowledge means (i) with respect to the
Company, the actual knowledge of any of the persons set forth in
Section 1.01 of the Company Disclosure Letter and
(ii) with respect to Parent or Sub, the actual knowledge of
the chief executive officer, chief financial officer and general
counsel of Parent.
Material Adverse Effect means any change,
effect, event, occurrence or state of facts that, individually
or together with any other change, effect, event, occurrence or
state of facts that is materially adverse to the business,
financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole, other than any change,
effect, event or occurrence resulting from (i) economic,
financial market or geopolitical conditions in general,
(ii) changes in Law or applicable accounting regulations or
principles or interpretations thereof,
A-1
(iii) conditions in the casual dining or restaurant
industries generally, (iv) any change in the Companys
stock price or trading volume, in and of itself, or any failure,
in and of itself, by the Company to meet published revenue or
earnings projections, (v) any outbreak or escalation of
hostilities or war or any act of terrorism and (vi) the
announcement of the Companys intention or desire to enter
into this Agreement or a similar agreement or the announcement
of this Agreement and the transactions contemplated hereby and
performance of obligations under this Agreement (including any
action or inaction as a result thereof by the Companys
franchisees, employees, vendors or competitors) except, in the
case of clauses (i), (iii) and (v), to the extent the
Company and its Subsidiaries, taken as a whole, are
disproportionately affected thereby as compared to other
companies in the casual dining and restaurant industries
generally.
Parent Material Adverse Effect means any
change, effect, event, occurrence or state of facts that
prevents or materially impedes, interferes with, hinders or
delays the consummation by Parent or Sub of the Merger or the
other transactions contemplated by this Agreement.
person means an individual, corporation,
partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity.
Software means computer programs and other
software (whether in source code, object code, or other form)
and related documentation, other than in each case shrink
wrap, click wrap, and other off the
shelf software commercially available to the public
generally.
Subsidiary of any person means another
person, an amount of the voting securities, other voting rights
or voting partnership interests of which is sufficient to elect
at least a majority of its board of directors or other governing
body (or, if there are no such voting interests, more than 50%
of the equity interests of which) is owned directly or
indirectly by such first person.
WARN Act shall mean the Worker Adjustment and
Retraining Notification Act of 1988, as amended.
SECTION 1.02. Index of Defined
Terms. Each of the following defined terms is
defined in the corresponding Section of this Agreement listed in
the following index:
|
|
|
|
|
Adverse Recommendation Change
|
|
|
Section 5.02(b)
|
|
Affiliate
|
|
|
Section 1.01
|
|
Agreement
|
|
|
Preamble
|
|
Annual Amount
|
|
|
Section 6.05(c)
|
|
Appraisal Shares
|
|
|
Section 3.01(d)
|
|
Bridge Financing
|
|
|
Section 4.02(d)
|
|
Bridge Marketing Period
|
|
|
Section 6.09(b)
|
|
business day
|
|
|
Section 1.01
|
|
Certificate
|
|
|
Section 3.01(c)
|
|
Certificate of Merger
|
|
|
Section 2.03
|
|
Claim
|
|
|
Section 6.05(b)
|
|
Closing
|
|
|
Section 2.02
|
|
Closing Date
|
|
|
Section 2.02
|
|
Code
|
|
|
Section 3.02(h)
|
|
Commonly Controlled Entity
|
|
|
Section 4.01(l)(i)
|
|
Company
|
|
|
Preamble
|
|
Company Benefit Agreement
|
|
|
Section 4.01(l)(i)
|
|
Company Benefit Plan
|
|
|
Section 4.01(l)(i)
|
|
Company Bylaws
|
|
|
Section 2.05(b)
|
|
Company Certificate of
Incorporation
|
|
|
Section 2.05(a)
|
|
Company Common Stock
|
|
|
Recitals
|
|
Company Disclosure Letter
|
|
|
Section 1.01
|
|
A-2
|
|
|
|
|
Company Employees
|
|
|
Section 6.04(a)
|
|
Company Preferred Stock
|
|
|
Section 4.01(c)(i)
|
|
Company Restricted Stock
|
|
|
Section 4.01(c)(i)
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Company RSU
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Section 4.01(c)
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Company SARs
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Section 4.01(c)(i)
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Company Stock Options
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Section 4.01(c)(i)
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Company Stock Plans
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Section 4.01(c)(i)
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Confidentiality Agreement
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Section 6.02
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Contract
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Section 4.01(d)
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Copyrights
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Section 1.01
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Corporation
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Section 2.05(a)
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Current IFOC
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Section 4.01(s)(xvi)
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Current Offering Period
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Section 3.03(c)
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Current UFOC
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Section 4.01(s)(xvi)
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DGCL
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Section 2.01
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Debt Financing
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Section 4.02(d)
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Earnings Claims
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Section 4.01(s)(vi)
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Effective Time
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Section 2.03
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Environmental Claims
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Section 4.01(j)(ii)(B)
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Environmental Law
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Section 4.01(j)(ii)(B)
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Equity Financing
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Section 4.02(d)
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ERISA
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Section 1.01
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ESPP Termination Date
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Section 3.03(c)
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ESPPs
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Section 4.01(c)(i)
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Exchange Act
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Section 4.01(d)
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Exchange Fund
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Section 3.02(a)
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Filed Exhibits
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Section 4.01(i)
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Filed SEC Documents
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Section 4.01
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Financing
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Section 4.02(d)
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Financing Commitments
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Section 4.02(d)
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Foreign Franchises
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Section 4.01(s)(iv)
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Franchise
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Section 4.01(s)(i)
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Franchise Agreements
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Section 4.01(s)(i)
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Franchised Restaurant
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Section 4.01(s)(i)
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Franchisee
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Section 4.01(s)(xvi)
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FTC Rule
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Section 4.01(s)(xvi)
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GAAP
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Section 4.01(e)
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Governmental Entity
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Section 4.01(d)
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Hazardous Materials
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Section 4.01(j)(ii)(B)
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HSR Act
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Section 4.01(d)
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Indebtedness
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Section 4.01(c)(iv)
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Indemnified Party
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Section 6.05(a)
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Intellectual Property Rights
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Section 1.01
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Judgment
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Section 4.01(d)
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Knowledge
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Section 1.01
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A-3
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Law
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Section 4.01(d)
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Leased Real Property
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Section 4.01(n)(ii)
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Liens
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Section 4.01(b)
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Material Adverse Effect
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Section 1.01
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Merger
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Recitals
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Merger Consideration
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Section 3.01(c)
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Multiemployer Plan
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Section 4.01(l)(vi)
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Notice of Superior Proposal
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Section 5.02(b)
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Offering Period Last Day
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Section 3.03(c)
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Option/SAR Amount
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Section 3.03(a)
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Outside Date
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Section 8.01(b)(i)
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Owned Real Property
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Section 4.01(n)(i)
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Parent
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Preamble
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Parent Material Adverse Effect
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Section 1.01
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Paying Agent
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Section 3.02(a)
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Patents
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Section 1.01
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Permits
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Section 4.01(j)(i)
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Permitted Liens
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Section 4.01(n)(iii)
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person
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Section 1.01
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Proxy Statement
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Section 4.01(d)
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Real Property Leases
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Section 4.01(n)(ii)
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Real Property Subleases
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Section 4.01(n)(v)
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Rebates
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Section 4.01(s)(xvi)
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Recommendation
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Section 4.01(d)
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Registered Intellectual Property
Rights
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Section 4.01(o)
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Registration Laws
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Section 4.01(s)(xvi)
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Relationship Laws
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Section 4.01(s)(xiv)
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Release
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Section 4.01(j)(ii)(B)
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Representatives
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Section 5.02(a)
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Restraints
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Section 7.01(c)
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RSU Amount
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Section 3.03(b)
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SEC
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Section 4.01
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SEC Documents
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Section 4.01(e)
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Section 262
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Section 3.01(d)
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Securities Act
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Section 4.01(e)
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Securitization
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Section 4.02(d)
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Software
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Section 1.01
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SPD
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Section 4.01(l)(i)
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Specified Contract
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Section 4.01(i)
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Stockholder Approval
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Section 4.01(q)
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Stockholders Meeting
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Section 6.01(b)
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Sub
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Preamble
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Subsidiary
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Section 1.01
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Superior Proposal
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Section 5.02(a)
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Surviving Corporation
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Section 2.01
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Takeover Proposal
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Section 5.02(a)
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tax return
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Section 4.01(m)(viii)
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taxes
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Section 4.01(m)(viii)
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Termination Fee
|
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Section 6.06(b)
|
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Trademarks
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Section 1.01
|
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Trade Secrets
|
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Section 1.01
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UFOC
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Section 4.01(s)(xvi)
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UFOC Guidelines
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Section 4.01(s)(xvi)
|
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United States Jurisdictions
|
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Section 4.01(s)(xvi)
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Voting Company Debt
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Section 4.01(c)(i)
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WARN Act
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Section 1.01
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SECTION 1.03. Interpretation. When
a reference is made in this Agreement to an Article, a Section
or Exhibit, such reference shall be to an Article or a Section
of, or an Exhibit to, this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the
words include, includes or
including are used in this Agreement, they shall be
deemed to be followed by the words without
limitation. The 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. The word or when used in this Agreement
is not exclusive. All terms defined in this Agreement shall have
the defined meanings when used in any certificate or other
document made or delivered pursuant hereto 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. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument
that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver
or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments
thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
ARTICLE II
The
Merger
SECTION 2.01. The Merger. Upon
the terms and subject to the conditions set forth in this
Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the DGCL), Sub shall
be merged with and into the Company at the Effective Time.
Following the Effective Time, the separate corporate existence
of Sub shall cease, and the Company shall continue as the
surviving corporation in the Merger (the Surviving
Corporation).
SECTION 2.02. Closing. The
closing of the Merger (the Closing) will take
place at 10:00 a.m., New York time, on the second business
day after the later to occur of (i) satisfaction or, to the
extent permitted by Law, waiver of the conditions set forth in
Article VII (other than those conditions that by their
terms are to be satisfied at the Closing, but subject to the
satisfaction or, to the extent permitted by Law, waiver of those
conditions) and (ii) the date of completion of the Bridge
Marketing Period (or, if Parent so notifies the Company, a date
during the Bridge Marketing Period not less than three business
days following such notice to the Company), at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times
Square, New York, New York 10036, unless another time, date or
place is agreed to in writing by Parent and the Company. The
date on which the Closing occurs is referred to in this
Agreement as the Closing Date.
SECTION 2.03. Effective
Time. Subject to the provisions of this
Agreement, as promptly as practicable on the Closing Date, the
parties shall file a certificate of merger (the
Certificate of Merger) in such form as is
required by, and executed and acknowledged in accordance with,
the relevant provisions of the DGCL and shall make all other
filings and recordings required under the DGCL. The Merger shall
become effective at such date and time as
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the Certificate of Merger is filed with the Secretary of State
of the State of Delaware or at such subsequent date and time as
Parent and the Company shall agree and specify in the
Certificate of Merger. The date and time at which the Merger
becomes effective is referred to in this Agreement as the
Effective Time.
SECTION 2.04. Effects of the
Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 2.05. Certificate of Incorporation
and Bylaws. (a) The Certificate of
Incorporation of the Company, as amended (as in effect on the
date hereof, the Company Certificate of
Incorporation), shall be amended at the Effective Time
to read the same as the certificate of incorporation of Sub as
in effect immediately prior to the Effective Time, and shall be
the certificate of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable Law; provided, however, that Article First
thereof shall read as follows: The name of the Corporation
is Applebees International, Inc. (hereinafter, the
Corporation).
(b) The Amended and Restated Bylaws of the Company (as in
effect on the date hereof, the Company
Bylaws) shall be amended at the Effective Time to read
the same as the bylaws of Sub as in effect immediately prior to
the Effective Time, and shall be the bylaws of the Surviving
Corporation until thereafter changed or amended as provided
therein or by applicable Law.
SECTION 2.06. Directors. The
directors of Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation until the earlier
of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
SECTION 2.07. Officers. The
officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the
case may be.
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange Fund;
Company Equity Awards
SECTION 3.01. Effect on Capital
Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any
shares of Company Common Stock or any shares of capital stock of
Parent or Sub:
(a) Capital Stock of Sub. Each share of
capital stock of 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.
(b) Cancellation of Treasury Stock and Parent-Owned
Stock. Each share of Company Common Stock that is
held by the Company, as treasury stock, or otherwise owned by
Parent, Sub or any subsidiary of the Company immediately prior
to the Effective Time shall automatically be canceled and shall
cease to exist, and no consideration shall be delivered in
exchange therefor.
(c) Conversion of Company Common
Stock. Each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time or
issuable pursuant to any outstanding options, warrants or other
rights (including shares of Company Restricted Stock, but
excluding shares to be canceled in accordance with
Section 3.01(b) and, except as provided in
Section 3.01(d), the Appraisal Shares) shall be converted
into the right to receive $25.50 in cash, without interest (the
Merger Consideration). At the Effective Time,
all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and shall cease
to exist, and each holder of a certificate that immediately
prior to the Effective Time represented any such shares of
Company Common Stock (each, a Certificate)
shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration.
(d) Appraisal Rights. Notwithstanding
anything in this Agreement to the contrary, shares (the
Appraisal Shares) of Company Common Stock
issued and outstanding immediately prior to the Effective
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Time that are held by any holder who is entitled to demand and
properly demands appraisal of such shares pursuant to, and who
complies in all respects with, the provisions of
Section 262 of the DGCL
(Section 262) shall not be converted
into the right to receive the Merger Consideration as provided
in Section 3.01(c), but instead such holder shall be
entitled to payment of the fair value of such shares in
accordance with the provisions of Section 262. At the
Effective Time, the Appraisal Shares shall no longer be
outstanding and shall automatically be canceled and shall cease
to exist, and each holder of Appraisal Shares shall cease to
have any rights with respect thereto, except the right to
receive the fair value of such shares in accordance with the
provisions of Section 262. Notwithstanding the foregoing,
if any such holder shall fail to perfect or otherwise shall
waive, withdraw or lose the right to appraisal under
Section 262 or a court of competent jurisdiction shall
determine that such holder is not entitled to the relief
provided by Section 262, then the right of such holder to
be paid the fair value of such holders Appraisal Shares
under Section 262 shall cease and such Appraisal Shares
shall be deemed to have been converted at the Effective Time
into, and shall have become, the right to receive the Merger
Consideration as provided in Section 3.01(c). The Company
shall give prompt notice to Parent of any demands for appraisal
of any shares of Company Common Stock, withdrawals of such
demands and any other instruments served pursuant to the DGCL
received by the Company, and Parent shall have the right to
participate in and direct all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the
Company shall not, without the prior written consent of Parent,
voluntarily make any payment with respect to, or settle or offer
to settle, any such demands, or agree to do or commit to do any
of the foregoing.
SECTION 3.02. Exchange
Fund. (a) Paying
Agent. Prior to the Closing Date, Parent shall
appoint a bank or trust company reasonably acceptable to the
Company to act as paying agent (the Paying
Agent) for the payment of the Merger Consideration,
the Option/SAR Amounts and the RSU Amounts in accordance with
this Article III and, in connection therewith, shall enter
into an agreement with the Paying Agent in a form reasonably
acceptable to the Company. At or prior to the Effective Time,
Parent shall deposit, or shall cause the Surviving Corporation
to deposit, with the Paying Agent, cash in an amount sufficient
to pay the aggregate Merger Consideration, the aggregate
Option/SAR Amount and the RSU Amount, in each case as required
to be paid pursuant to this Agreement (such cash being
hereinafter referred to as the Exchange Fund).
(b) Certificate Exchange Procedures. As
promptly as practicable after the Effective Time, but in any
event within two business days thereafter, Parent shall cause
the Paying Agent to mail to each holder of record of a
Certificate (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Paying Agent and which shall
otherwise be in customary form) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Each holder of record of a
Certificate shall, upon surrender to the Paying Agent of such
Certificate, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required
by the Paying Agent, be entitled to receive in exchange therefor
the amount of cash which the number of shares of Company Common
Stock previously represented by such Certificate shall have been
converted into the right to receive pursuant to
Section 3.01(c), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership
of Company Common Stock which is not registered in the transfer
records of the Company, payment of the Merger Consideration may
be made to a person other than the person in whose name the
Certificate so surrendered is registered if such Certificate
shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any
fiduciary or surety bonds or any transfer or other similar taxes
required by reason of the payment of the Merger Consideration to
a person other than the registered holder of such Certificate or
establish to the reasonable satisfaction of Parent that such tax
has been paid or is not applicable. Until surrendered as
contemplated by this Section 3.02(b), each Certificate
shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the
Merger Consideration which the holder thereof has the right to
receive in respect of such Certificate pursuant to this
Article III. No interest shall be paid or will accrue on
any cash payable to holders of Certificates pursuant to the
provisions of this Article III.
(c) No Further Ownership Rights in Company Common
Stock. All cash paid upon the surrender of
Certificates in accordance with the terms of this
Article III shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company
Common Stock formerly represented by such Certificates. At the
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close of business on the day on which the Effective Time occurs,
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 of
Company Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, any
Certificate is presented to the Surviving Corporation for
transfer, it shall be canceled against delivery of cash to the
holder thereof as provided in this Article III.
(d) Termination of the Exchange Fund. Any
portion of the Exchange Fund that remains undistributed to the
holders of the Certificates for nine months after the Effective
Time shall be delivered to Parent, upon demand, and any holders
of the Certificates who have not theretofore complied with this
Article III shall thereafter look only to Parent for, and
Parent shall remain liable for, payment of their claims for the
Merger Consideration pursuant to the provisions of this
Article III.
(e) No Liability. None of Parent, Sub,
the Company, the Surviving Corporation or the Paying Agent shall
be liable to any person in respect of any cash from the Exchange
Fund delivered to a public official in compliance with any
applicable state, Federal or other abandoned property, escheat
or similar Law. If any Certificate shall not have been
surrendered prior to the date on which the related Merger
Consideration would escheat to or become the property of any
Governmental Entity, any such Merger Consideration shall, to the
extent permitted by applicable Law, immediately prior to such
time become the property of Parent, free and clear of all claims
or interest of any person previously entitled thereto.
(f) Investment of Exchange Fund. The
Paying Agent shall invest the cash in the Exchange Fund as
directed by Parent; provided, however, that such
investments shall be in obligations of or guaranteed by the
United States of America or any agency or instrumentality
thereof and backed by the full faith and credit of the United
States of America, 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 $1.0 billion (based on the most recent financial
statements of such bank that are then publicly available). Any
interest and other income resulting from such investments shall
be paid solely to Parent. Nothing contained herein and no
investment losses resulting from investment of the Exchange Fund
shall diminish the rights of any holder of Certificates to
receive the Merger Consideration or any holder of a Company
Stock Option or Company SAR to receive the Option/SAR Amount or
any holder of a Company RSU to receive the RSU Amount, in each
case as provided herein.
(g) Lost Certificates. If any Certificate
shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond or surety in such reasonable
amount as Parent may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the
Paying Agent shall deliver in exchange for such lost, stolen or
destroyed Certificate the applicable Merger Consideration with
respect thereto.
(h) Withholding Rights. Parent, the
Surviving Corporation or the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company
Common Stock or any holder of a Company Stock Option, Company
SAR or Company RSU such amounts as Parent, the Surviving
Corporation or the Paying Agent are required to deduct and
withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the
Code), or any provision of state, local or
foreign tax Law. To the extent that amounts are so withheld and
paid over to the appropriate taxing authority by Parent, the
Surviving Corporation or the Paying Agent, such withheld amounts
shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock or
the holder of the Company Stock Option, Company SAR or Company
RSU, as the case may be, in respect of which such deduction and
withholding was made by Parent, the Surviving Corporation or the
Paying Agent.
SECTION 3.03. Company Equity
Awards. (a) As soon as reasonably
practicable following the date of this Agreement the Board of
Directors of the Company (or, if appropriate, any committee
administering any Company Stock Plan) shall adopt such
resolutions or take such other actions as may be required to
provide that, at the Effective Time, each unexercised Company
Stock Option and each unexercised Company SAR, whether vested or
unvested and whether or not any applicable performance
conditions have been satisfied, in each case that is outstanding
immediately prior to the Effective Time, shall be canceled, with
the holder of each such Company Stock Option or Company SAR
becoming entitled to receive an amount in cash equal to
(i) the excess, if any, of (A) the
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Merger Consideration over (B) the exercise price per share
of Company Common Stock subject to such Company Stock Option or
Company SAR, multiplied by (ii) the number of shares of
Company Common Stock subject to such Company Stock Option or
Company SAR (such amount, the Option/SAR
Amount). All amounts payable pursuant to this
Section 3.03(a) shall be paid as promptly as practicable
following the Effective Time, without interest.
(b) As soon as reasonably practicable following the date of
this Agreement the Board of Directors of the Company (or, if
appropriate, any committee administering any Company Stock Plan)
shall adopt such resolutions or take such other actions as may
be required to provide that, at the Effective Time, each Company
RSU that is outstanding immediately prior to the Effective Time
shall vest in full and shall be converted into the right to
receive the Merger Consideration in accordance with
Section 3.01(c) (such amount, the RSU
Amount).
(c) With respect to the ESPPs, each share of Company Common
Stock purchased thereunder shall be canceled at the Effective
Time and converted into the right to receive the Merger
Consideration pursuant to Section 3.01(c). As soon as
reasonably practicable following the date of this Agreement, the
Company shall take any and all actions with respect to the ESPPs
as are necessary to provide that (i) participants may not
increase their payroll deductions from those in effect on the
date of this Agreement, (ii) no offerings shall be
commenced after the date of this Agreement and (iii) the
offerings that are in effect on the date of this Agreement (the
Current Offering Periods) shall continue in
accordance with the applicable terms of the ESPPs, and each
share of Company Common Stock purchased by a participant on the
last day of either ESPPs Current Offering Period (each, an
Offering Period Last Day) shall be converted
into the right to receive the Merger Consideration in accordance
with Section 3.01(c); provided that, notwithstanding the
foregoing, if the Closing occurs prior to an ESPPs
Offering Period Last Day, each participants payroll
deductions accumulated as of the Effective Time for the Current
Offering Period of such ESPP shall be applied to the purchase of
a number of whole shares of Company Common Stock, at a purchase
price determined as if the Closing Date were such ESPPs
Offering Period Last Day, which number of shares shall be
canceled and converted into the right to receive the Merger
Consideration in accordance with Section 3.01(c). Each ESPP
shall terminate immediately following the earlier of its
Offering Period Last Day or the Closing Date (the ESPP
Termination Date). Any excess payroll deductions not
used to purchase shares or determine payment amounts pursuant to
this Section 3.03(c) as a result of ESPP share limitations
or fractional share limitations shall be distributed to the
applicable participant immediately following the ESPP
Termination Date, without interest.
ARTICLE IV
Representations
and Warranties
SECTION 4.01. Representations and Warranties
of the Company. Except as disclosed in any
report, schedule, form, statement or other document filed with,
or furnished to, the Securities and Exchange Commission (the
SEC) by the Company and publicly available
prior to the date of this Agreement (collectively, the
Filed SEC Documents) or as set forth in the
Company Disclosure Letter (it being understood that any
information set forth in one section or subsection of the
Company Disclosure Letter shall be deemed to apply to and
qualify the Section or subsection of this Agreement to which it
corresponds in number and each other Section or subsection of
this Agreement to the extent that it is reasonably apparent that
such information is relevant to such other Section or
subsection, the Company represents and warrants to Parent and
Sub as follows:
(a) Organization, Standing and Corporate
Power. Each of the Company and its Subsidiaries
is duly organized and validly existing under the Laws of its
jurisdiction of organization and has all requisite corporate,
company or partnership power and authority to carry on its
business as currently conducted. Each of the Company and its
Subsidiaries is duly qualified or licensed to do business and is
in good standing (where such concept is recognized under
applicable Law) in each jurisdiction where the nature of its
business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary,
other than where the failure to be so qualified, licensed or in
good standing, individually or in the aggregate, has not had or
would not reasonably be expected to have a Material Adverse
Effect. The Company has made available to Parent prior to the
execution of this Agreement a true and complete copy of the
Company Certificate of Incorporation and the Company Bylaws and
the comparable organizational documents of each of its
Subsidiaries, in each case as in effect on the date of this
Agreement.
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(b) Subsidiaries. Section 4.01(b) of
the Company Disclosure Letter lists each Subsidiary of the
Company and the jurisdiction of organization thereof. All
outstanding shares of capital stock of, or other equity
interests in, each Subsidiary of the Company are owned by the
Company or any Subsidiary of the Company and have been (to the
extent such concepts are relevant with respect to such ownership
interests) validly issued and are fully paid and nonassessable
and are owned, directly or indirectly, by the Company free and
clear of all pledges, liens, charges, mortgages, encumbrances or
security interests of any kind or nature whatsoever
(collectively, Liens), other than Permitted
Liens. Except for its interests in its Subsidiaries, the Company
does not own, directly or indirectly, any capital stock of, or
other equity interests in, any corporation, partnership, joint
venture, association or other entity.
(c) Capital Structure. (i) The
authorized capital stock of the Company consists of
125,000,000 shares of Company Common Stock and
1,000,000 shares of preferred stock, par value $0.01 per
share (the Company Preferred Stock). At the
close of business on July 11, 2007, (A)
(1) 74,946,095 shares of Company Common Stock were
issued and outstanding (which number includes
771,887 shares of Company Common Stock subject to vesting
or other forfeiture conditions or repurchase by the Company
(such shares, together with any similar shares issued after
July 11, 2007 in accordance with the terms of this
Agreement, the Company Restricted Stock)) and
(2) 33,557,148 shares of Company Common Stock are held
by the Company in its treasury, (B) 11,668,500 shares
of Company Common Stock were reserved and available for issuance
pursuant to the Amended and Restated 1995 Equity Incentive Plan,
the 1999 Employee Incentive Plan, the Employee Stock Purchase
Plan and the Executive Nonqualified Stock Purchase Plan (such
employee stock purchase plans, the ESPPs; the
foregoing plans, collectively, the Company Stock
Plans), of which (1) 6,369,335 shares of
Company Common Stock were subject to outstanding options (other
than rights under the ESPPs) to acquire shares of Company Common
Stock from the Company (such options, together with any similar
options granted after July 11, 2007 in accordance with the
terms of this Agreement, the Company Stock
Options), (2) 1,362,222 shares of Company
Common Stock were subject to outstanding stock appreciation
rights (such stock appreciation rights, together with any
similar stock appreciation rights granted after July 11,
2007, the Company SARs) and
(3) 6,595 shares of Company Common Stock were subject
to outstanding restricted stock units (such restricted stock
units, together with any similar restricted stock units granted
after July 11, 2007 in accordance with the terms of this
Agreement, the Company RSUs) (4) no
shares of Company Common Stock were subject to outstanding
rights under the ESPPs (assuming that the closing price for the
Company Common Stock as reported on the NASDAQ Stock Market on
the last day of the offering periods in effect under the ESPPs
on July 11, 2007 was equal to the Merger Consideration) and
(C) no shares of Company Preferred Stock were issued or
outstanding or held by the Company in its treasury. Except as
set forth above, at the close of business on July 11, 2007,
no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding. Since
July 11, 2007 to the date of this Agreement, (x) there
have been no issuances by the Company of shares of capital stock
or other voting securities of the Company, other than issuances
of shares of Company Common Stock pursuant to the exercise of
the Company Stock Options or Company SARs or rights under the
ESPPs, in each case outstanding as of July 11, 2007, and
(y) there have been no issuances by the Company of options,
warrants, other rights to acquire shares of capital stock of the
Company or other rights that give the holder thereof any
economic interest of a nature accruing to the holders of Company
Common Stock, except for rights under the ESPPs. All outstanding
shares of Company Common Stock are, and all such shares that may
be issued prior to the Effective Time will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures,
notes or other indebtedness of the Company having the right to
vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which holders of
Company Common Stock may vote (Voting Company
Debt). Except for any obligations pursuant to this
Agreement or as otherwise set forth above, as of July 11,
2007, there are no options, warrants, rights, convertible or
exchangeable securities, stock-based performance units,
Contracts or undertakings of any kind to which the Company or
any of its Subsidiaries is a party or by which any of them is
bound (1) obligating the Company or any such Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other equity
interests in, or any security convertible or exchangeable for
any capital stock of or other equity interest in, the Company or
of any of its Subsidiaries or any Voting Company Debt,
(2) obligating the Company or any such Subsidiary to issue,
grant or enter into any such
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option, warrant, right, security, unit, Contract or undertaking
or (3) that give any person the right to receive any
economic interest of a nature accruing to the holders of Company
Common Stock. As of the date of this Agreement, there are no
outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or any such Subsidiary,
other than pursuant to the Company Stock Plans.
(ii) There are no voting trusts or other agreements to
which the Company is a party with respect to the voting of the
Company Common Stock.
(iii) Following the Effective Time, no holder of Company
Stock Options will have any right to receive shares of Company
Common Stock upon exercise of Company Stock Options.
(iv) Except as disclosed in Section 4.01(c)(iv) of the
Company Disclosure Letter, no Indebtedness of the Company or any
of its Subsidiaries contains any restriction upon (A) the
prepayment of any of such Indebtedness, (B) the incurrence
of Indebtedness by the Company or any of its Subsidiaries, or
(C) the ability of the Company or any of its Subsidiaries
to grant any lien on its properties or assets. As used in this
Agreement, Indebtedness means (1) all
indebtedness for borrowed money, (2) any other indebtedness
that is evidenced by a note, bond, debenture or similar
instrument, (3) all obligations under capital leases,
(4) all obligations in respect of outstanding letters of
credit and (5) all guarantee obligations.
(v) The Company has made available to Parent a list of all
Company Stock Options, Company RSUs and Company SARs outstanding
as of the date hereof and the name of the holder thereof, the
exercise price thereof, and the number of units, rights or
shares of Company Common Stock which are the subject of each
such Company Stock Option, Company RSU and Company SAR, as
applicable.
(vi) Section 4.01(c)(vii) of the Company Disclosure
Letter lists all Indebtedness outstanding as of the date of this
Agreement.
(vii) No agreement or understanding requires consent or
approval from the holder of any Company Stock Option to
effectuate the terms of this Agreement.
(d) Authority; Noncontravention. The
Company has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement, subject, in the
case of the Merger, to receipt of the Stockholder Approval. The
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by
this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the
case of the Merger, to receipt of the Stockholder Approval. This
Agreement has been duly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by
each of the other parties hereto, constitutes a legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency and other Laws of
general applicability relating to or affecting creditors
rights and to general equity principles. The Board of Directors
of the Company, at a meeting duly called and held at which all
directors of the Company were present, duly adopted resolutions
(i) approving and declaring advisable this Agreement, the
Merger and the other transactions contemplated by this
Agreement, (ii) declaring that it is in the best interests
of the stockholders of the Company that the Company enter into
this Agreement and consummate the Merger and the other
transactions contemplated by this Agreement on the terms and
subject to the conditions set forth herein, (iii) directing
that the adoption of this Agreement be submitted to a vote at a
meeting of the stockholders of the Company and
(iv) recommending that the stockholders of the Company
adopt this Agreement (the Recommendation),
which resolutions, as of the date of this Agreement, have not
been rescinded, modified or withdrawn in any way. The execution
and delivery by the Company of this Agreement do not, and the
consummation of the Merger and the other transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or 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,
cancellation or acceleration of any obligation or to the loss of
a benefit under, or result in the creation of any Lien upon any
of the properties or assets of the Company or any of its
Subsidiaries under (other than any such Lien created from any
action taken by Parent or Sub), any provision of (A) the
Company Certificate of Incorporation, the Company Bylaws or the
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comparable organizational documents of any of its Subsidiaries
or (B) subject to the filings and other matters referred to
in the immediately following sentence, (1) any contract,
lease, license agreement, indenture, note, bond or other
agreement (a Contract) to which the Company
or any of its Subsidiaries is a party or by which any of their
respective properties or assets are bound, other than any lease
of real property under which the Company or any of its
Subsidiaries is a tenant or a subtenant, or (2) any
constitution, statute, law, ordinance, rule or regulation of any
Governmental Entity (Law) or any judgment,
order or decree of any Governmental Entity
(Judgment), in each case applicable to the
Company or any of its Subsidiaries or their respective
properties or assets, other than, in the case of clause (B)
above, any such conflicts, violations, defaults, rights, losses
or Liens that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. No
consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any Federal, state,
local or foreign government, any court of competent jurisdiction
or any administrative, regulatory (including any stock exchange)
or other governmental agency, commission or authority (each, a
Governmental Entity) is required to be
obtained or made by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of
this Agreement by the Company or the consummation by the Company
of the Merger or the other transactions contemplated by this
Agreement, except for (I) the filing of a premerger
notification and report form by the Company under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), and the filings and receipt, termination or
expiration, as applicable, of such other approvals or waiting
periods as may be required under any other applicable
competition, merger control, antitrust or similar Law,
(II) the filing with the SEC of (x) a proxy statement
relating to the adoption by the stockholders of the Company of
this Agreement (as amended or supplemented from time to time,
the Proxy Statement) and (y) such
reports under the Securities Exchange Act of 1934, as amended
(the Exchange Act), as may be required in
connection with this Agreement and the transactions contemplated
by this Agreement, (III) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and
of appropriate documents with the relevant authorities of other
jurisdictions in which the Company or any of its Subsidiaries is
qualified to do business, (IV) any filings required under
the rules and regulations of the NASDAQ Stock Market,
(V) the consents, approvals, orders, authorizations,
registrations, declarations, filings and notices set forth in
Section 4.01(d) of the Company Disclosure Schedule and
(VI) such other consents, approvals, orders,
authorizations, registrations, declarations, filings and notices
the failure of which to be obtained or made would not,
individually or in the aggregate, reasonably be expected
(x) to have a Material Adverse Effect or (y) to
prevent or materially delay the Company from consummating the
Merger or from observing or performing its material obligations
hereunder.
(e) SEC Documents. The Company has filed
all reports, schedules, forms, statements and other documents
with the SEC required to be filed by the Company since
January 1, 2005 (the SEC Documents). As
of their respective dates of filing, the SEC Documents complied
as to form in all material respects with the requirements of the
Securities Act of 1933, as amended (the Securities
Act), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder
applicable thereto, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
audited consolidated financial statements and the unaudited
quarterly financial statements (including, in each case, the
notes thereto) of the Company included in the SEC Documents when
filed complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto,
have been prepared in all material respects in accordance with
generally accepted accounting principles
(GAAP) (except, in the case of unaudited
quarterly statements, as permitted by
Form 10-Q
of the SEC or other rules and regulations of the SEC) applied on
a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end adjustments).
Except for matters reflected or reserved against in the audited
consolidated balance sheet of the Company as of
December 31, 2006 (or the notes thereto) included in the
Filed SEC Documents, neither the Company nor any of its
Subsidiaries has any liabilities or obligations (whether
absolute, accrued, contingent, fixed or otherwise) of any nature
that would
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be required under GAAP, as in effect on the date of this
Agreement, to be reflected on a consolidated balance sheet of
the Company (including the notes thereto), except liabilities
and obligations that (i) were incurred since
December 31, 2006 in the ordinary course of business
consistent with past practice, (ii) are incurred in
connection with the transactions contemplated by this Agreement
or (iii) would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. To the
Knowledge of the Company, none of the Companys Filed SEC
Documents is the subject of ongoing SEC review, outstanding SEC
comments or outstanding SEC investigation.
(f) Information Supplied. The Proxy
Statement will not, at the date it is first mailed to the
stockholders of the Company and at the time of the
Stockholders 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 are
made, not misleading, except that no representation or warranty
is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied
by Parent or Sub for inclusion or incorporation by reference in
the Proxy Statement.
(g) Absence of Certain Changes or
Events. From December 31, 2006 through the
date of this Agreement, there has not been or would reasonably
be expected to be a Material Adverse Effect, and the Company and
its Subsidiaries have conducted their businesses only in the
ordinary course of business consistent with past practice, and
during such period there has not been:
(i) any declaration, setting aside or payment of any
dividend on, or making of any other distribution (whether in
cash, stock or property) with respect to, any capital stock of
the Company;
(ii) any split, combination or reclassification of any
capital stock of the Company or any issuance or the
authorization of any issuance of any other securities in lieu of
or in substitution for shares of capital stock of the Company;
(iii) any purchase, redemption or other acquisition by the
Company or any of its Subsidiaries of any shares of capital
stock of the Company or any of its Subsidiaries or any rights,
warrants or options to acquire any such shares, other than
(A) the acquisition by the Company of shares of Company
Common Stock in connection with the surrender of shares of
Company Common Stock by holders of Company Stock Options in
order to pay the exercise price thereof, (B) the
withholding of shares of Company Common Stock to satisfy tax
obligations with respect to awards granted pursuant to the
Company Stock Plans, and (C) the acquisition by the Company
of Company Stock Options, Company SARs and Company RSUs and
shares of Company Restricted Stock in connection with the
forfeiture of such awards;
(iv) any (A) granting to any director or executive
officer of the Company or any of its Subsidiaries of any
material increase in compensation, (B) granting to any
director or executive officer of the Company or any of its
Subsidiaries of any increase in severance or termination pay or
(C) entry by the Company or any of its Subsidiaries into
any employment, consulting, severance or termination agreement
with any director, executive officer or employee of the Company
or any of its Subsidiaries pursuant to which the total annual
compensation or the aggregate severance benefits exceed $500,000
per person;
(v) any change in accounting methods, principles or
practices by the Company or any of its Subsidiaries materially
affecting the consolidated assets, liabilities or results of
operations of the Company, except as required (A) by GAAP
(or any interpretation thereof), including as may be required by
the Financial Accounting Standards Board or any similar
organization, or (B) by Law, including
Regulation S-X
under the Securities Act;
(vi) any material tax election by the Company or any of its
Subsidiaries; or
(vii) any sales of real estate or restaurants, or any
Contract with respect to any such sale.
(h) Litigation. There is no suit, action
or proceeding pending or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries that,
individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect or to prevent the Company from
consummating the Merger. There is no Judgment outstanding
against the Company or any of its Subsidiaries that,
individually or
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in the aggregate, would reasonably be expected to have a
Material Adverse Effect or to prevent the Company from
consummating the Merger. This Section 4.01(h) does not
relate to environmental matters, which are the subject of
Section 4.01(j)(ii).
(i) Contracts. Except for (A) this
Agreement, (B) Contracts filed as exhibits to the Filed SEC
Documents (the Filed Exhibits) (C) the
Franchise Agreements and (D) purchase orders entered into
in the ordinary course of business, Section 4.01(i) of the
Company Disclosure Letter sets forth a true and complete list,
as of the date of this Agreement, and the Company has made
available to Parent true and complete copies, of:
(i) each Contract that would be required to be filed by the
Company as a material contract pursuant to
Item 601(b)(10) of
Regulation S-K
under the Securities Act;
(ii) each Franchise Agreement that is a master franchise
agreement, development agreement or market development agreement;
(iii) each loan and credit agreement, note, debenture,
bond, indenture and other similar Contract pursuant to which any
Indebtedness of the Company or any of its Subsidiaries, in each
case in excess of $10.0 million is outstanding or may be
incurred, other than any such Contract between or among any of
the Company and any of its Subsidiaries and any letters of
credit; and
(iv) any Contract pursuant to which the Company or any of
its Subsidiaries (A) licensed any material Intellectual
Property Rights from any person, or (B) materially
restricted its, or its Affiliates, rights to own or use,
exploit, or license any registered or material unregistered
Intellectual Property Rights owned by the Company or an
Affiliate of the Company.
Each Filed Exhibit, Franchise Agreement and such Contract
described in clauses (i) through (iv) above is
referred to herein as a Specified Contract.
Each of the Specified Contracts is valid and binding on the
Company or the Subsidiary of the Company party thereto and, to
the Knowledge of the Company, each other party thereto, and is
in full force and effect, except for such failures to be valid
and binding or to be in full force and effect that, individually
or in the aggregate, have not had or would not reasonably be
expected to have a Material Adverse Effect. There is no default
under any Specified Contract by the Company or any of its
Subsidiaries or, to the Knowledge of the Company, by any other
party thereto, and no event has occurred that with the lapse of
time or the giving of notice or both would constitute a default
thereunder by the Company or any of its Subsidiaries or, to the
Knowledge of the Company, by any other party thereto, in each
case except as, individually or in the aggregate, has not had or
would not reasonably be expected to have a Material Adverse
Effect. This Section 4.01(i) does not relate to real
property leases, which are the subject of Section 4.01(n).
(j) Compliance with Laws; Environmental
Matters. (i) Each of the Company and its
Subsidiaries is in compliance with all Laws applicable to its
business or operations (including the Sarbanes-Oxley Act of
2002), except for instances of possible noncompliance that,
individually or in the aggregate, have not had or would not
reasonably be expected to have a Material Adverse Effect. Each
of the Company and its Subsidiaries has in effect all approvals,
authorizations, certificates, franchises, licenses, permits and
consents of Governmental Entities (collectively,
Permits) necessary for it to conduct its
business as currently conducted, and all such Permits are in
full force and effect, except for such Permits the absence of
which, or the failure of which to be in full force and effect,
individually or in the aggregate, has not had or would not
reasonably be expected to have a Material Adverse Effect. This
Section 4.01(j)(i) does not relate to environmental
matters, which are the subject of Section 4.01(j)(ii),
employee benefit matters, which are the subject of
Section 4.01(l), and taxes, which are the subject of
Section 4.01(m).
(ii) (A) Except for those matters that, individually
or in the aggregate, have not had or would not reasonably be
expected to have a Material Adverse Effect, (1) each of the
Company and its Subsidiaries is in compliance with all
applicable Environmental Laws, and neither the Company nor any
of its Subsidiaries has received any written communication
alleging that the Company is in violation of, or has any
liability under, any Environmental Laws, (2) each of the
Company and its Subsidiaries validly possesses and is in
compliance with all Permits required under Environmental Laws to
conduct its business as currently conducted, and all such
Permits are valid and in good standing, (3) there are no
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Environmental Claims pending or, to the Knowledge of the
Company, threatened against the Company, any of its Subsidiaries
or, to the Knowledge of the Company, any person whose liability
for such Environmental Claim the Company has retained or assumed
either contractually or by operation of Law, (4) none of
the Company or any of its Subsidiaries has Released any
Hazardous Materials at, on, under or from any of the Owned Real
Property, the Leased Real Property or any other property in a
manner that would reasonably be expected to result in an
Environmental Claim against the Company, any of its Subsidiaries
or any person whose liability for any Environmental Claim the
Company has retained or assumed either contractually or by
operation of Law, and (5) to the Knowledge of the Company,
there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any
Hazardous Materials that are reasonably expected to form the
basis of any Environmental Claim against the Company or against
any person whose liability for any Environmental Claim the
Company has retained or assumed either contractually or by
operation of Law.
(B) Each of the Company and its Subsidiaries has provided
to Parent all material assessments, reports, data, results of
investigations or audits, and other information that is in the
possession of or reasonably available to the Company and its
Subsidiaries regarding environmental matters pertaining to the
business of each of the Company and its Subsidiaries, or the
compliance (or noncompliance) by the Company and its
Subsidiaries with any Environmental Laws.
(C) The Company is not required by virtue of the
transactions set forth herein and contemplated hereby, or as a
condition to the effectiveness of any transactions contemplated
hereby, (i) to perform a site assessment for Hazardous
Materials, (ii) to remove or remediate Hazardous Materials,
(iii) to give notice to or receive approval from any
governmental authority under Environmental Laws, or (iv) to
record or deliver to any person or entity any disclosure
document or statement pertaining to environmental matters.
(D) The term Environmental Claims means
any administrative or judicial actions, suits, orders, claims,
proceedings or written or oral notices of noncompliance by or
from any person alleging liability arising out of the Release of
or exposure to any Hazardous Material or the failure to comply
with any Environmental Law. The term Environmental
Law means any Law relating to pollution, the
environment or natural resources. The term Hazardous
Materials means (1) petroleum and petroleum
by-products, asbestos in any form that is or could reasonably
become friable, radioactive materials, medical or infectious
wastes, or polychlorinated biphenyls, and (2) any other
chemical, material, substance or waste that may have an adverse
effect on human health or the environment or is prohibited,
limited or regulated because of its hazardous, toxic or
deleterious properties or characteristics. The term
Release means any release, spill, emission,
leaking, pumping, emitting, discharging, injecting, escaping,
leaching, dumping, disposing or migrating into or through the
environment.
(k) Labor and Employment Matters.
(i) No employees of the Company or any of its Subsidiaries
are represented by any labor union, labor organization, trade
union or works council with respect to their employment with the
Company or any of its Subsidiaries. The Company, each of its
Subsidiaries, and their respective employees, agents or
representatives have not committed any material unfair labor
practice as defined in the National Labor Relations Act or other
applicable Law. The Company and each of its Subsidiaries are
neither party to nor bound by (and none of their respective
properties or assets is bound by or subject to) any labor
agreement, collective bargaining agreement, work rules or
practices, or any other labor-related agreements or arrangements
with any labor union, labor organization, trade union or works
council. There are no labor agreements, collective bargaining
agreements, work rules or practices, or any other labor-related
agreements or arrangements that pertain to any of the employees
of the Company or any of its Subsidiaries.
(ii) To the knowledge of the Company, (A) no labor
union, labor organization, trade union, works council, or group
of employees of the Company or any of its Subsidiaries has made
a pending demand
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before the National Labor Relations Board or any other labor
relations tribunal or authority for recognition or
certification, and (B) there are no representation or
certification proceedings or petitions seeking a representation
or certification proceeding currently pending or threatened in
writing to be brought or filed with the National Labor Relations
Board or any other labor relations tribunal or authority. To the
Knowledge of the Company, there are no labor union organizing
activities with respect to any employees of the Company or any
of its Subsidiaries. There are no actual or, to the Knowledge of
the Company, threatened material arbitrations, material
grievances, material labor disputes, strikes, lockouts, material
slowdowns or material work stoppages against or affecting the
Company or any of its Subsidiaries nor has there been any of the
foregoing during the
3-year
period immediately preceding the date of this Agreement.
(iii) The Company and each of its Subsidiaries are and have
been in material compliance with all applicable Laws respecting
employment and employment practices, including, without
limitation, all Laws respecting terms and conditions of
employment, health and safety, wages and hours, child labor,
immigration, employment discrimination, disability rights or
benefits, equal opportunity, plant closures and layoffs,
affirmative action, workers compensation, labor relations,
employee leave issues and unemployment insurance. The Company
and each of its Subsidiaries are not in any material respect
delinquent in payments to any employees or former employees for
any services or amounts required to be reimbursed or otherwise
paid. Neither the Company nor any of its Subsidiaries is a party
to, or otherwise bound by, any order of any Governmental Entity
relating to employees or employment practices.
(iv) The Company and each of its Subsidiaries have not
received notice of (A) any material unfair labor practice
charge or complaint pending or threatened before the National
Labor Relations Board or any other Governmental Entity against
them, (B) any material complaints, material grievances or
material arbitrations against them arising out of any collective
bargaining agreement, (C) any material charge or material
complaint with respect to or relating to them pending before the
Equal Employment Opportunity Commission or any other
Governmental Entity responsible for the prevention of unlawful
employment practices, (D) the intent of any Governmental
Entity responsible for the enforcement of labor, employment,
wages and hours of work, child labor, immigration, or
occupational safety and health Laws to conduct a material
investigation with respect to or relating to them or notice that
such investigation is in progress, or (E) any material
complaint, material lawsuit or other material proceeding pending
or threatened in any forum by or on behalf of any present or
former employee of such entities, any applicant for employment
or classes of the foregoing alleging breach of any express or
implied contract of employment, any applicable Law governing
employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment
relationship.
(v) Neither the Company nor any of its Subsidiaries is, as
of the date of this Agreement, engaged in any layoffs or
employment terminations sufficient in number to trigger
application of the WARN Act or any similar state, local or
foreign Law.
(l) Employee Benefit Matters.
(i) Section 4.01(l)(i)(A) of the Company Disclosure
Letter sets forth a complete and accurate list of each
(A) pension plan (as defined in Section 3(2) of ERISA)
or post-retirement or employment health or medical plan,
program, policy or arrangement, (B) bonus, incentive or
deferred compensation or equity or equity-based compensation
plan, program, policy or arrangement, (C) severance, change
in control, retention or termination plan, program, policy or
arrangement or (D) other material compensation or benefit
plan, program, policy or arrangement, in each case, sponsored,
maintained, contributed to or required to be maintained or
contributed to by the Company, any of its Subsidiaries or any
other person or entity that, together with the Company, is
treated as a single employer under Section 414 of the Code
(each, a Commonly Controlled Entity) for the
benefit of any current or former director, officer, employee or
independent contractor of the Company or any of its
Subsidiaries, other than any plan, program, policy or
arrangement mandated by applicable Law (each, a Company
Benefit Plan). Section 4.01(l)(i)(B) of the
Company Disclosure Letter sets forth a complete and accurate
list of each employment, consulting, bonus, incentive or
deferred compensation, equity or equity-based
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compensation, severance, change in control, retention,
termination or other Contract between the Company or any of its
Subsidiaries, on the one hand, and any current or former
director, officer, employee or independent contractor of the
Company or any of its Subsidiaries, on the other hand, other
than any Contract mandated by applicable Law (each, a
Company Benefit Agreement). With respect to
each Company Benefit Plan and each Company Benefit Agreement,
the Company has provided to Parent complete and accurate copies
of each of the following documents, as applicable (A) such
Company Benefit Plan or Company Benefit Agreement (including all
amendments thereto) for each any such Company Benefit Plan or
Company Benefit Agreement that is written or a written
description of any such Company Benefit Plan or Company Benefit
Agreement that is not otherwise in writing; (B) a copy of
the annual reports or Internal Revenue Service Form 5500
Series, if required under ERISA, for the last three plan years
ending prior to the date of this Agreement for which such a
report was filed; (C) a copy of the actuarial report, if
required under ERISA, for the last three plan years ending prior
to the date of this Agreement; (D) a copy of the most
recent Summary Plan Description (SPD),
together with all Summaries of Material Modification issued with
respect to such SPD, if required under ERISA, and all other
material employee communications relating to each Company
Benefit Plan and Company Benefit Agreement; (E) if such
Company Benefit Plan or Company Benefit Agreement is funded
through a trust or any other funding vehicle, a copy of the
trust or other funding agreement (including all amendments
thereto) and the latest financial statements thereof, if any;
(F) all contracts relating to such Company Benefit Plans or
Company Benefit Agreements with respect to which the Company,
any of its Subsidiaries or any Commonly Controlled Entity may
have any liability, including insurance contracts, investment
management agreements, subscription and participation agreements
and record keeping agreements; and (G) the most recent
determination letter received from the Internal Revenue Service
with respect to any such Company Benefit Plan that is intended
to be qualified under Section 401(a) of the Code.
(ii) Each Company Benefit Plan and Company Benefit
Agreement (and any related trust or other funding vehicle) has
been administered in accordance with its terms and is in
compliance with ERISA, the Code and all other applicable Laws,
other than instances of noncompliance that, individually or in
the aggregate, have not had or would not reasonably be expected
to have a Material Adverse Effect. Each of the Company and its
Subsidiaries is in compliance with ERISA, the Code and all other
Laws applicable to Company Benefit Plans and Company Benefit
Agreements, other than instances of noncompliance that,
individually or in the aggregate, have not had or would not
reasonably be expected to have a Material Adverse Effect.
(iii) None of the Company, any of its Subsidiaries or any
Commonly Controlled Entity has sponsored, maintained,
contributed to or been required to maintain or contribute to, or
has any actual or contingent liability under, any Company
Benefit Plan that is subject to Section 302 or Title IV of
ERISA or Section 412 of the Code or is otherwise a defined
benefit plan. No Company Benefit Plan or Company Benefit
Agreement provides health, medical or other welfare benefits
after retirement or other termination of employment (other than
for continuation coverage required under Section 4980(B)(f)
of the Code or other similar applicable Law), and no
circumstances exist that could result in the Company or any of
its Subsidiaries becoming obligated to provide any such benefits.
(iv) None of the execution and delivery of this Agreement,
the obtaining of the Stockholder Approval or the consummation of
the Merger or any other transaction contemplated by this
Agreement (alone or in conjunction with any other event,
including any termination of employment on or following the
Effective Time) will (A) entitle any current or former
director, officer, employee or independent contractor of the
Company or any of its Subsidiaries to any compensation or
benefits, (B) accelerate the time of payment or vesting, or
trigger any payment or funding, of any compensation or benefits
or trigger any other material obligation under any Company
Benefit Plan or Company Benefit Agreement or (C) result in
any breach or violation of or default under, or limit the
Companys right to amend, modify or terminate, any
collective bargaining agreement, Company Benefit Plan or Company
Benefit Agreement.
(v) No amounts payable under any of the Company Benefit
Plans, Company Benefit Agreements, or any other contract,
agreement or arrangement with respect to which the Company or
any of its
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Subsidiaries may have liability could fail to be deductible for
federal income tax purposes by virtue of Section 162(m) or
Section 280G of the Code.
(vi) None of the Company, any of its Subsidiaries or any
Commonly Controlled Entity has ever maintained, administered,
contributed to or is currently required to contribute to any
multiemployer plan as defined in
sections 4001(a)(3) and 3(37) of ERISA that covers one or
more employees (each a Multiemployer Plan).
None of the Company, any of its Subsidiaries, or any Commonly
Controlled Entity has, at any time, withdrawn from a
Multiemployer Plan in a complete withdrawal or a
partial withdrawal as defined in Sections 4203
and 4205 of ERISA, respectively, so as to result in a liability
of the Company or any of its Subsidiaries. All contributions
required to be made by the Company, any of its Subsidiaries or
any Commonly Controlled Entity to each Multiemployer Plan on
behalf of one or more current or former employees have been made
when due in all material respects. The Company has received no
written notice that: (A) a Multiemployer Plan has been
terminated or has been in reorganization under ERISA so as to
result in any liability of the Company or any of its
Subsidiaries under Title IV of ERISA; or (B) any
proceeding has been initiated by any person (including the
Pension Benefit Guaranty Corporation) to terminate any
Multiemployer Plan.
(vii) Each Company Benefit Plan and Company Benefit
Agreement that is a nonqualified deferred compensation
plan (as defined in Code Section 409A(d)(1)) subject
to Code Section 409A has been operated since
January 1, 2005 in good faith compliance with Code
Section 409A, the regulations and guidance promulgated
thereunder.
(viii) No Company Benefit Plan provides benefits, including
without limitation death or medical benefits (whether or not
insured), with respect to current or former employees of the
Company, its Subsidiaries or any Commonly Controlled Entity
after retirement or other termination of service (other than
(A) coverage mandated by applicable Laws, (B) death
benefits or retirement benefits under any employee pension
plan, as such term is defined in Section 3(2) of
ERISA, (C) deferred compensation benefits accrued as
liabilities on the books of the Company, any of its Subsidiaries
or a Commonly Controlled Entity, or (D) benefits the full
direct cost of which is borne by the current or former employee
(or beneficiary thereof)).
(ix) To the Knowledge of the Company, there are no pending
or threatened material claims, individually or in the aggregate,
by or on behalf of any Company Benefit Plan, by any employee or
beneficiary under any Company Benefit Plan or otherwise
involving any such Company Benefit Plan (other than routine
claims for benefits).
(m) Taxes. (i) Each of the Company
and its Subsidiaries has filed or has caused to be filed all
material tax returns required to be filed by it (or requests for
extensions, which requests have been granted and have not
expired), and all such returns are complete and accurate in all
material respects. Each of the Company and its Subsidiaries has
either paid or caused to be paid all material taxes due and
owing by the Company and its Subsidiaries to any Governmental
Entity, or the most recent financial statements contained in the
Filed SEC Documents reflect an adequate reserve (excluding any
reserves for deferred taxes), if such a reserve is required by
GAAP, for all material taxes payable by the Company and its
Subsidiaries, for all taxable periods and portions thereof
ending on or before the date of such financial statements.
(ii) No deficiencies, audit examinations, refund
litigation, proposed adjustments or matters in controversy for
any material taxes (other than taxes that are not yet due and
payable or for amounts being contested in good faith) have been
proposed, asserted or assessed in writing against the Company or
any of its Subsidiaries which have not been settled and paid.
All assessments for material taxes due and owing by the Company
or any of its Subsidiaries with respect to completed and settled
examinations or concluded litigation have been paid. There is no
currently effective agreement or other document with respect to
the Company or any of its Subsidiaries extending the period of
assessment or collection of any material taxes.
(iii) Neither the Company nor any of its Subsidiaries has
constituted either a distributing corporation or a
controlled corporation in a distribution of stock
qualifying for tax-free treatment under
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Section 355 of the Code (A) in the two years prior to
the date of this Agreement or (B) which could otherwise
constitute part of a plan or series of related
transactions (within the meaning of Section 355(e) of
the Code) in conjunction with the Merger.
(iv) None of the Company or any of its Subsidiaries has
entered into any transaction defined in Treasury
Regulation Sections 1.6011-4(b)(2), - 4(b)(3) or -4(b)(4),
or has entered into a potentially abusive tax
shelter (as defined in Treasury
Regulation Section 301.6112-1(b)).
(v) Neither the Company nor any of its Subsidiaries is
party to any material tax sharing, tax allocation or similar
agreement with any other party except each other.
(vi) None of the Company nor any of its Subsidiaries is or
has been a member of a consolidated, combined, unitary or
similar group with any party except the other since
January 1, 2004.
(vii) Neither the Company nor any of its Subsidiaries is
bound by any closing agreement, offer in compromise or other
agreement with any Governmental Entity, in each case, involving
a material amount of taxes.
(viii) The Company has made available to Parent and Sub
complete and correct copies of all United States federal tax
returns and material state income or franchise tax returns filed
by or on behalf of the Company or any of its Subsidiaries for
all taxable periods beginning on or after January 1, 2004.
(ix) The term taxes means all income,
profits, capital gains, goods and services, branch, payroll,
unemployment, customs duties, premium, compensation, windfall
profits, franchise, gross receipts, capital, net worth, sales,
use, withholding, turnover, value added, ad valorem,
registration, general business, employment, social security,
disability, occupation, real property, personal property
(tangible and intangible), stamp, transfer (including real
property transfer or gains), conveyance, severance, production,
excise, withholdings, duties, levies, imposts, license,
registration and other taxes (including any and all fines,
penalties and additions attributable to or otherwise imposed on
or with respect to any such taxes and interest thereon) imposed
by or on behalf of any Governmental Entity. The term
tax return means any return, statement,
report, form, filing, customs entry, customs reconciliation and
any other entry or reconciliation, including in each case any
amendments, schedules or attachments thereto, required to be
filed with any Governmental Entity or with respect to taxes of
the Company or its Subsidiaries.
(n) Title to
Properties. (i) Section 4.01(n)(i) of
the Company Disclosure Letter sets forth, as of the date of this
Agreement, a true and complete list of all real property owned
by the Company and its Subsidiaries (individually, an
Owned Real Property), including whether any
Owned Real Properties are currently on the market for sale.
(ii) Section 4.01(n)(ii) of the Company Disclosure
Letter sets forth, as of the date of this Agreement, a true and
complete list of all leases of real property (the Real
Property Leases) under which the Company or any of its
Subsidiaries is a tenant or a subtenant and has annual rent
obligations in excess of $50,000 (individually, a
Leased Real Property).
(iii) (A) the Company or a Subsidiary of the Company
has good and valid fee simple title to each Owned Real Property,
in each case free and clear of all Liens and defects in title,
except for (1) mechanics, carriers,
workmens, warehousemens, repairmens or other
like Liens arising or incurred in the ordinary course of
business, (2) Liens for taxes, assessments and other
governmental charges and levies that are not due and payable or
that may thereafter be paid without interest or penalty,
(3) Liens affecting the interest of the grantor of any
easements benefiting Owned Real Property, (4) Liens (other
than liens securing indebtedness for borrowed money), minor
defects or irregularities in title, easements, rights-of-way,
covenants, restrictions, and other, similar matters which would
have been disclosed by a current title report that would not,
individually or in the aggregate, reasonably be expected to
materially impair or materially interfere with the continued use
and operation of the assets to which they relate in the business
of the Company and its Subsidiaries as currently conducted, or
materially detract from the value or marketability of the Owned
Real Property for substantially similar uses and operations,
(5) zoning,
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building and other similar codes and regulations and
(6) any conditions that would be disclosed by a current,
accurate survey and which do not materially interfere with the
continued use and operation of the assets to which they relate
in the business of the Company and its Subsidiaries as currently
conducted (collectively, Permitted Liens);
(B) the Owned Real Property is not subject to any leases or
tenancies of any kind other than the Real Property Subleases and
leases or tenancies that do not provide for annual rent
obligations in excess of $50,000; and (C) each Owned Real
Property is not subject to any rights of purchase, offer or
first refusal that are not recorded.
(iv) (A) the Company or a Subsidiary of the Company
has a good and valid title to a leasehold estate in each Leased
Real Property, in each case free and clear of all Liens and
defects in title, other than Permitted Liens, pursuant to the
Real Property Leases, true and complete copies of which have
been made available to Parent, (B) all Real Property Leases
are in full force and effect, (C) neither the Company nor
any of its Subsidiaries that is party to such Real Property
Leases has received or given any written notice of any material
default thereunder which default continues on the date of this
Agreement, (D) there is no material default under any Real
Property Lease by the Company or any of its Subsidiaries or, to
the Knowledge of the Company, by any other party thereto, and no
event has occurred that with the lapse of time or the giving of
notice or both could reasonably be expected to constitute a
material default, result in a loss of any material rights or
result in the creation of any Lien thereunder or pursuant
thereto, (E) the Leased Real Property is not subject to any
leases or tenancies of any kind, other than the Real Property
Leases, the Real Property Subleases and leases or subleases that
do not provide for annual rent obligations in excess of $50,000,
(F) each Real Property Lease is valid and binding on the
Company or the Subsidiary of the Company party thereto and, to
the Knowledge of the Company, each other party thereto, and is
in full force and effect and (G) the execution and delivery
by the Company of this Agreement do not, and the consummation of
the Merger and the other transactions contemplated by this
Agreement and compliance with the provisions of this Agreement
will not, conflict with, or 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, cancellation or
acceleration of any obligation or to the loss of a benefit
under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries
under (other than any such Lien created from any action taken by
Parent or Sub), any provision of any Real Property Lease.
(v) Section 4.01(n)(v) of the Company Disclosure
Letter sets forth, as of the date of this Agreement, a true and
complete list of all leases, subleases or similar agreements
under which the Company or any of its Subsidiaries is the
landlord or the sublandlord other than leases, subleases and
similar agreements that do not provide for annual rent in excess
of $50,000 (such leases, subleases and similar agreements,
collectively, the Real Property Subleases). Each
Real Property Sublease is valid and binding on the Company or
the Subsidiary of the Company party thereto.
(vi) The Owned Real Property and the Leased Real Property
are used in a manner permitted by applicable zoning ordinances
and planning laws and constitute all of the real property owned
and leased by the Company and its Subsidiaries to operate its
business as currently conducted.
(vii) There is no tax assessment pending or, to the
Knowledge of the Company, threatened with respect to any portion
of the Owned Real Property or the Leased Real Property. There
are no condemnation or compulsory purchase proceedings pending
or, to the Knowledge of the Company, threatened with respect to
any portion of the Owned Real Property or Leased Real Property
that would reasonably be expected to materially impair or
materially interfere with the continued use and operation of
Leased Real Property in the business of the Company and its
Subsidiaries as currently conducted, or materially detract from
the value or marketability of the Leased Real Property for
substantially similar uses and operations
(o) Intellectual
Property. (i) Section 4.01(o) of the
Company Disclosure Letter sets forth, as of the date of this
Agreement, a true and complete list of all (A) issued
Patents, Patent applications, registered Trademarks (including
internet domain names) and applications therefor, and registered
Copyrights and applications therefor (collectively,
Registered Intellectual Property Rights) and
(B) Software that are material to the conduct of the
business of the Company and its Subsidiaries as currently
conducted, in each case, that are owned by the Company or its
Subsidiaries. The Company or a Subsidiary of the Company is the
sole beneficial
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and record owner of the Registered Intellectual Property Rights,
all Registered Intellectual Property Rights are subsisting and
in full force and effect, and, to the Companys Knowledge,
all material Intellectual Property Rights owned by the Company
are valid and enforceable.
(ii) Except as, individually or in the aggregate, has not
had or would not reasonably be expected to have a Material
Adverse Effect, the Company or a Subsidiary of the Company owns,
or is licensed or otherwise has the right to use free and clear
of Liens each Intellectual Property Right that is used or held
for use in the conduct of the business of the Company and its
Subsidiaries as currently conducted. Except for the Specified
Contracts, neither the Company, nor any Subsidiary thereof, has
licensed or sublicensed to any person any material Intellectual
Property Rights.
(iii) To the Knowledge of the Company, the conduct of the
business of the Company and its Subsidiaries as currently
conducted (including the use of Intellectual Property Rights by
the Company, its Subsidiaries and their licensees in the
manner authorized under their respective agreements with the
Company and Subsidiaries), does not infringe or otherwise
violate in any material respect any persons Intellectual
Property Rights. No claims are pending or, to the Knowledge of
the Company, threatened that (A) the Company or any of its
Subsidiaries is infringing or otherwise violating the rights of
any person with regard to any Intellectual Property Right or
(B) seeks to limit, cancel, or question the validity of any
Intellectual Property Rights of the Company or its Subsidiaries,
in each case, which claims, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect.
(iv) To the Knowledge of the Company, there is no
jurisdiction in which the APPLEBEES mark is not available
for use and registration by the Company and its Subsidiaries in
connection with the operation of restaurants.
(v) To the Knowledge of the Company, no person is
infringing or otherwise violating the rights of the Company or
any of its Subsidiaries with respect to any Intellectual
Property Right, and no such claims have been asserted or
threatened by the Company or any of its Subsidiaries against any
person within the last three (3) years which remain
unresolved, in each case in a manner that, individually or in
the aggregate, would reasonably be expected to have a Material
Adverse Effect.
(vi) To the Knowledge of the Company, there has not been
any unauthorized use or disclosure of its or its
Subsidiaries material Trade Secrets.
(vii) To the Knowledge of the Company, the Company and each
of its Subsidiaries has complied with all applicable Laws, as
well as its own rules, policies, and procedures relating to the
collection and use of personal information collected and used by
the Company or its Subsidiaries. No material claim is pending,
or to the Knowledge of the Company, threatened with respect to
the Companys or any Subsidiaries use of personal
information.
(viii) The Company and its Subsidiaries have not entered
into, or are not otherwise bound by, any orders, judgments or
Contracts with third parties (other than Franchise Agreements)
which impose any material restriction on the Companys or
any of its Affiliates right to use, exploit, enforce, or
license any Registered Intellectual Property Rights or material
unregistered Intellectual Property Rights.
(p) Insurance. Section 4.01(p) of
the Company Disclosure Letter sets forth, as of the date hereof,
a true and complete list of the insurance policies held by, or
for the benefit of, the Company or any of its Subsidiaries,
including the underwriter of such policies and the amount of
coverage thereunder. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect, (i) the Company and its Subsidiaries maintain
insurance in such amounts and against such risks as is
sufficient to comply with applicable Law, (ii) all material
insurance policies of the Company and its Subsidiaries are in
full force and effect, except for any expiration thereof in
accordance with the terms thereof, (iii) neither the
Company nor any of its Subsidiaries is in breach of, or default
under, any such material insurance policy and (iv) no
written notice of cancellation or termination has been received
with respect to any such material insurance policy, other than
in connection with ordinary renewals.
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(q) Voting Requirements. The affirmative
vote of holders of a majority of the outstanding shares of
Company Common Stock entitled to vote thereon at the
Stockholders Meeting or any adjournment or postponement
thereof to adopt this Agreement (the Stockholder
Approval) is the only vote of the holders of any class
or series of capital stock of the Company necessary for the
Company to adopt this Agreement and approve the transactions
contemplated hereby.
(r) State Takeover Statutes. The approval
of the Board of Directors of the Company of this Agreement, the
Merger and the other transactions contemplated by this Agreement
represents all the action necessary to render inapplicable to
this Agreement, the Merger and the other transactions
contemplated by this Agreement, the provisions of
Section 203 of the DGCL to the extent, if any, such Section
would otherwise be applicable to this Agreement, the Merger and
the other transactions contemplated by this Agreement, and no
other state takeover statute applies to this Agreement, the
Merger or the other transactions contemplated by this Agreement.
(s) Franchise Matters.
(i) Section 4.01(s)(i) of the Company Disclosure
Letter sets forth a true and complete list of all franchise
agreements, license agreements, subfranchise agreements,
sublicense agreements, master franchise agreements, development
agreements, market development agreements, and reserved area
agreements (each a Franchise Agreement and,
collectively, the Franchise Agreements) that
are effective as of the date of this Agreement to which the
Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or its or their properties is
bound (other than any such agreements between a person and its
Subsidiaries or among its Subsidiaries) and which grant or
purport to grant to a Franchisee the right to operate or license
others to operate or to develop within a specific geographic
area or at a specific location any of the following (each a
Franchise): Applebees
Neighborhood Grill & Bar restaurants,
Applebees Grill & Bar restaurants,
Applebees Grill restaurants, T.J.
Applebees restaurants, T.J. Applebees
Grill & Bar restaurants, T.J.
Applebees Rx for Edibles & Elixirs
restaurants, and T.J. Applebees Edibles &
Elixirs restaurants (each a Franchised
Restaurant). True, correct and complete copies of all
Franchise Agreements (or documents purporting to contain
substantially the content of each such Franchise Agreement
(except as to the date of the Franchise Agreement and location
of the Franchised Restaurant)) have been made available to
Parent.
(ii) All the Franchise Agreements are in full force and
effect and are valid and binding obligations of the Company and
its Subsidiaries and enforceable against the Company and its
Subsidiaries and the other parties thereto in accordance with
their respective terms, subject, as to enforceability, to
bankruptcy, insolvency and other Laws of general applicability
relating to or affecting creditors rights and to general
equity principles. All Franchise Agreements comply in all
material respects with all applicable Laws. The execution and
delivery by the Company of this Agreement do not, and the
consummation of the Merger and the other transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or 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,
cancellation or acceleration of any obligation or to the loss of
a benefit under, or result in the creation of any Lien upon any
of the properties or assets of the Company or any of its
Subsidiaries under (other than any such Lien created from any
action taken by Parent or Sub) or any right of rescission or
set-off under, any provision of any Franchise Agreement other
than any such conflicts, violations, defaults, rights, losses or
Liens that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Except
by operation of Law, no Franchise Agreement expressly grants any
Franchisee any right of rescission or set-off; and no Franchisee
has asserted in writing any such right of rescission or set-off.
There is no default under any Franchise Agreement by the Company
or any of its Subsidiaries or, to the Knowledge of the Company,
by any other party thereto, and no event has occurred that with
the lapse of time or the giving of notice or both would
constitute a default thereunder by the Company or any of its
Subsidiaries or, to the Knowledge of the Company, by any other
party thereto, in each case except as, individually or in the
aggregate, has not had or would not reasonably be expected to
have a Material Adverse Effect.
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(iii) Section 4.01(s)(iii) of the Company Disclosure
Letter sets forth a true and correct list of: (i) the
United States Jurisdictions in which the Company and its
Subsidiaries since March 31, 2002, have been, and are
currently, registered or authorized to offer and sell franchises
(under a Registration Law) and the jurisdictions in which the
Company or any of its Subsidiaries sold a Franchise since
March 31, 2002 under a Registration Law and under the FTC
Rule and (ii) the
non-United
States Jurisdictions in which the Company or any of its
Subsidiaries has sold or entered into, or since January 1,
2004, offered, Franchise Agreements.
(iv) Since March 31, 2002, (i) the Company and
its Subsidiaries have prepared and maintained each UFOC in
compliance, in all material respects, with: (A) the UFOC
Guidelines; (B) the FTC Rule; and (C) the Registration
Laws; and (ii) the Company and its Subsidiaries have
offered and sold each Franchise Agreement for a Franchised
Restaurant to be located in any
non-United
States Jurisdiction (the Foreign Franchises)
in compliance, in all material respects, with applicable Laws,
including pre-sale registration and disclosure laws.
(v) Since March 31, 2002, the Company and its
Subsidiaries have not, in any UFOC, other franchise disclosure
document, in applications
and/or
filings with states under the Registration Laws, or in any
applications or filings with any
non-United
States Jurisdictions, made any untrue statement of a material
fact, omitted to state a material fact required to be stated
therein, or omitted to state any fact necessary to make the
statements made therein, taken as a whole, not misleading.
(vi) The Company and its Subsidiaries have not, and have
not authorized any Person to furnish: (i) to prospective
franchisees in any United States Jurisdiction any materials or
information that could be construed as earnings
claim information in violation of the requirements
specified in Item 19 of the UFOC Guidelines
and/or
16 CFR § 436.1(b) (together, Earnings
Claim(s)), and no Earnings Claim has been made since
March 31, 2002 to any prospective Franchisee in any United
States Jurisdiction; or (ii) to prospective franchisees in
any
non-United
States Jurisdiction any materials or information from which a
specific level or range of actual or potential sales, costs,
income or profit from franchised or non-franchised units may be
easily ascertained, except as set forth in
Section 4.01(s)(vi)(ii) of the Company Disclosure Letter.
(vii) Neither the Company nor any of its Subsidiaries or
Affiliates is a party to any Contract pursuant to which the
Company or any of its Subsidiaries or Affiliates receives
Rebates as a result of transactions between the Franchisees and
suppliers selling products or services to the Franchisees. When
the Company or any of its Subsidiaries or Affiliates buys
products, goods and services from a supplier, such supplier
charges the Company or its Subsidiaries or Affiliates for these
items on the same basis as the supplier charges a Franchisee
operating a Franchised Restaurant in the United States for
similar products, goods and services purchased for use in
connection with such Franchised Restaurant. No Contract pursuant
to which the Company or its Subsidiaries or Affiliates receives
a Rebate is (i) prohibited by any Franchise Agreement,
(ii) not disclosed in accordance with the UFOC Guidelines
in the relevant UFOC, if applicable or (iii) not disclosed
in accordance with applicable Law with respect to Foreign
Franchises.
(viii) Since March 31, 2002, the Company and its
Subsidiaries have made on a timely and accurate basis all
required additional filings under the Registration Laws,
including filings with respect to material changes, advertising,
broker and salesperson registrations, amendments, and renewals,
and the Company and its Subsidiaries have not offered or
executed a Franchise Agreement or offered or sold the rights
granted therein in any jurisdiction in which such offer and sale
was not duly registered (if registration was required by a
Registration Law) or exempt from registration at the time the
offer was made and the sale occurred, and the Company and its
Subsidiaries have otherwise complied with all applicable
franchise offering circular and Franchise Agreement delivery
requirements under applicable United States Jurisdiction Laws
(including, the Registration Laws), and, in each case, obtained
receipts evidencing delivery and receipt thereof. Since
March 31, 2002, the Company and its Subsidiaries have not
otherwise engaged in the offer, sale, or execution of Franchise
Agreements in violation of applicable Registration Laws, or
unfair or deceptive trade practices law or regulation or similar
Law or regulation.
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(ix) Except as disclosed in the Current UFOC or the Current
IFOC, neither the Company nor any of its Subsidiaries is subject
to any currently effective order, injunction, or similar mandate
with respect to the offer or sale of Franchise Agreements in any
jurisdiction. There are no proceedings pending (or to the
Knowledge of the Company, threatened) against the Company or any
of its Subsidiaries alleging failure to comply with any
Registration Laws or Relationship Laws, or any similar Law of
any other jurisdiction, foreign or domestic.
(x) The Franchise Agreements grant exclusive development
territories to Franchisees that have development rights, and
protected radiuses to Franchisees; except for those grants and
except as provided by operation of Law, no Franchisee has a
protected territory, exclusive territory, right of first
refusal, option, or other similar arrangement with respect to a
Franchised Restaurant and no person currently holds any right or
option to operate, develop, or locate a Franchised Restaurant,
or to exclude the Company, any of its Subsidiaries or
Affiliates, or others from operating or licensing a third party
to operate a Franchised Restaurant, in any geographic area or at
any location.
(xi) Except as disclosed in the Current UFOC or Current
IFOC, none of Companys Subsidiaries or Affiliates
presently offer or sell franchises or business opportunities in
any line of business, and no Subsidiary or Affiliate of Company
that has offered or sold franchises or business opportunities in
any line of business (other than Franchises) is obligated or
liable in any respect under or in connection with such
franchises or business opportunities.
(xii) Section 4.01(s)(xii) of the Company Disclosure
Letter lists the Contracts that are in effect as of the date
hereof with any formal or informal franchisee association or
group of Franchisees regarding any Franchise Agreement or
franchise operational matter.
(xiii) Section 4.01(s)(xiii) of the Company Disclosure
Letter lists the Franchisees, if any, that to the Knowledge of
the Company are currently the subject of a bankruptcy or similar
proceeding.
(xiv) With respect to all expirations, terminations and
non-renewals of Franchisees
and/or
Franchise Agreements since March 31, 2002, the Company and
its Subsidiaries have complied in all material respects with all
applicable franchise termination, non-renewal, unfair practices,
and/or
relationship Laws, including those Laws requirements with
respect to the proper notice of default, time to cure, and the
actual termination of any Franchisee or business opportunity
operator (Relationship Laws).
(xv) Neither the Company nor any of its Subsidiaries
operates a restaurant within any protected territory, exclusive
territory or reserved area granted to any Franchisee. No
Franchisee has a right of first refusal, right of first
negotiation or similar right to acquire any restaurant from the
Company or any of its Subsidiaries.
(xvi) For purposes of this Agreement:
Current IFOC means the Franchise Offering
Circulars in use in connection with the offer or sale of
franchises in
non-United
States Jurisdictions as of the date of this Agreement.
Current UFOC means the Uniform Franchise
Offering Circular in use in connection with the offer or sale of
franchises in a United States Jurisdiction (or to a person
domiciled in a United States Jurisdiction) as of the date of
this Agreement.
Franchisee means a person other than the
Company or any of its Subsidiaries that is granted a right
(whether directly by the Company or any of its Subsidiaries or
by another Franchisee) to develop or operate,
and/or is
granted a right to license others to develop or operate a
Franchised Restaurant within a specific geographic area or at a
specific location.
FTC Rule means the Trade Regulation Rule
on Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures promulgated by the
Federal Trade Commission, 16 CFR Part 436.
IFOC means a Franchise Offering Circular for
use in connection with the offer or sale of franchises in
non-United
States Jurisdictions.
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Rebates means rebates as defined
for purposes of the UFOC and applicable United States
Jurisdiction Law with respect to Franchises in United States
Jurisdictions and rebates and similar payments regulated or
required to be disclosed under applicable
non-United
States Jurisdiction Law with respect to
non-United
States Jurisdictions, as applicable.
Registration Laws means any and all Laws of
the various states of the United States that require disclosure
and/or
registration before a company may offer
and/or sell
franchises or business opportunities.
UFOC means a Franchise Offering Circular for
use in connection with the offer or sale of a franchise in a
United States Jurisdiction (or to a person domiciled in a United
States Jurisdiction)
UFOC Guidelines means the Uniform Franchise
Offering Circular Guidelines adopted by the North American
Securities Administrators Association on April 25, 1993.
United States Jurisdictions means the United
States of America, its territories and possessions.
(t) Brokers and Other Advisors. No
broker, investment banker, financial advisor or other person,
other than Banc of America Securities LLC and Citigroup Global
Markets Inc., the fees and expenses of which will be paid by the
Company, is entitled to any brokers, finders or
financial advisors fee or commission in connection with
the Merger and the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
(u) Opinion of Financial Advisor. The
Board of Directors of the Company has received the opinion of
Citigroup Global Markets Inc., dated the date of this Agreement,
to the effect that, as of the date of such opinion, the Merger
Consideration is fair, from a financial point of view, to the
holders of shares of Company Common Stock, a signed copy of
which opinion will promptly be delivered to Parent, solely for
informational purposes, after receipt thereof by the Board of
Directors of the Company.
(v) No Other Representations or
Warranties. Except for the representations and
warranties contained in this Section 4.01, each of Parent
and Sub acknowledges that neither the Company nor any person on
behalf of the Company makes any other express or implied
representation or warranty with respect to the Company or any of
its Subsidiaries or with respect to any other information
provided to Parent or Sub in connection with the transactions
contemplated by this Agreement. Neither the Company nor any
other person will have or be subject to any liability or
indemnification obligation to Parent, Sub or any other person
resulting from the distribution to Parent or Sub, or
Parents or Subs use of, any such information,
including any information, documents, projections, forecasts or
other material made available to Parent or Sub in certain
data rooms or management presentations in
expectation of the transactions contemplated by this Agreement,
unless and then only to the extent that any such information is
expressly included in a representation or warranty contained in
this Section 4.01.
Section 4.02. Representations
and Warranties of Parent and Sub. Parent and Sub
jointly and severally represent and warrant to the Company as
follows:
(a) Organization, Standing and Corporate
Power. Each of Parent and Sub is duly organized,
validly existing and in good standing under the Laws of its
jurisdiction of organization and has all requisite corporate
power and authority to carry on its business as currently
conducted.
(b) Authority; Noncontravention. Each of
Parent and Sub has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement, including the
Merger. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement,
including the Merger, have been duly authorized by all necessary
corporate action on the part of each of Parent and Sub, and no
other corporate proceedings (including no shareholder action) on
the part of Parent or Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby,
including the Merger. This Agreement has been duly executed and
delivered by each of Parent and Sub and, assuming the due
authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of
Parent and Sub, enforceable
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against each of Parent and Sub in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency and
other Laws of general applicability relating to or affecting
creditors rights and to general equity principles. The
execution and delivery of this Agreement do not, and the
consummation of the Merger and the other transactions
contemplated by this Agreement, and compliance with the
provisions of this Agreement will not, conflict with, or result
in any violation or breach of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any obligation
or to the loss of a benefit under, or result in the creation of
any Lien upon any of the properties or assets of Parent or Sub
under, any provision of (i) the certificate of
incorporation or bylaws of Parent or the certificate of
incorporation or bylaws of Sub or (ii) subject to the
filings and other matters referred to in the immediately
following sentence, (A) any Contract to which Parent or Sub
is a party or by which any of their respective properties or
assets are bound or (B) any Law or Judgment, in each case
applicable to Parent or Sub or their respective properties or
assets, other than, in the case of clause (ii), any such
conflicts, violations, breaches, defaults, rights, losses or
Liens that would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
No consent, approval, order or authorization of, registration,
declaration or filing with, or notice to, any Governmental
Entity is required to be obtained or made by or with respect to
Parent or Sub in connection with the execution and delivery of
this Agreement by Parent and Sub or the consummation by Parent
and Sub of the Merger or the other transactions contemplated by
this Agreement, except for (I) the filing of a premerger
notification and report form by Parent and Sub under the HSR Act
and the filings and receipt, termination or expiration, as
applicable, of such other approvals or waiting periods as may be
required under any other applicable competition, merger control,
antitrust or similar Law, (II) the filing of the
Certificate of Merger with the Secretary of State of the State
of Delaware and (III) such other consents, approvals,
orders, authorizations, registrations, declarations, filings and
notices the failure of which to be obtained or made would not,
individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect.
(c) Information Supplied. None of the
information supplied or to be supplied by Parent or Sub for
inclusion or incorporation by reference in the Proxy Statement
will, at the date it is first mailed to the stockholders of the
Company and at the time of the Stockholders 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 are made, not misleading.
(d) Available Funds. The financing of the
transactions contemplated hereby will consist of a combination
of equity financing (the Equity Financing) to
be funded at Closing and debt financing (the Debt
Financing and, together with the Equity Financing, the
Financing). The Debt Financing includes a
commitment from a financial institution with respect to bridge
financing (the Bridge Financing) and a
commitment from a syndicate of bond insurers to provide surety
policies for asset backed securities issued in respect of a
whole company securitization financing (the
Securitization) that will either be in place
at Closing or be used to refinance the Bridge Financing after
Closing (it being understood and agreed that for purposes hereof
the transactions contemplated by this Agreement and
phrases of similar import shall be deemed to include the Equity
Financing and Bridge Financing but not the Securitization).
Parent has delivered to the Company true and complete copies of
all agreements pursuant to which the parties thereto have
committed to provide Parent and Sub with the Financing (such
agreements, as modified pursuant to Section 6.09(a), the
Financing Commitments). Each of the Financing
Commitments, in the form so delivered, is in full force and
effect and is a legal, valid and binding obligation of each of
Parent and Sub and, to the Knowledge of Parent, the other
parties thereto. The Financing Commitments have not been
amended, supplemented or otherwise modified in any respect,
except, in each case, in a manner that is in compliance with
Section 6.09(a), and the financing commitments thereunder
have not been withdrawn or terminated. As of the date of this
Agreement, no event has occurred that, with or without notice,
lapse of time or both, would constitute a default or breach on
the part of Parent or Sub under any term or condition of the
Financing Commitments, and, to the Knowledge of Parent,
(i) Parent and Sub will be able to satisfy on a timely
basis all terms and conditions of closing to be satisfied by
them or their Affiliates set forth in the Financing Commitments,
and (ii) the Financing to be made thereunder will otherwise
be available to Parent and Sub on a timely basis to consummate
the Merger and the other transactions contemplated by the
Financing Commitments. As of the date of this Agreement, Parent
and Sub have fully paid any and all commitment fees or other
A-26
fees required by the Financing Commitments to be paid by them on
or prior to the date of this Agreement. The Financing, when
funded in accordance with the Financing Commitments, will
provide Parent and Sub with funds sufficient to satisfy all of
Parents and Subs obligations under this Agreement,
including the payment of the Merger Consideration, the
Option/SAR Amounts, the RSU Amounts and all associated costs and
expenses. The obligations to make the Financing available to
Parent and Sub pursuant to the terms of the Financing
Commitments are not subject to any conditions other than the
conditions set forth in the Financing Commitments. No vote of
any holders of the capital stock of Parent is required under any
Law or the rules of the New York Stock Exchange to consummate
the Equity Financing on the terms set forth in the Financing
Commitments or to otherwise approve the transactions
contemplated hereby.
(e) Operations and Assets of Sub. Sub has
been formed solely for the purpose of engaging in the
transactions contemplated hereby and, prior to the Effective
Time, will not have incurred liabilities or obligations of any
nature, other than pursuant to or in connection with this
Agreement and the Merger and the other transactions contemplated
by this Agreement. Parent owns, beneficially and of record, all
of the outstanding shares of capital stock of Sub, free and
clear of all Liens.
(f) Ownership of Company Common
Stock. Neither Parent nor Sub beneficially own
(within the meaning of Section 13 of the Exchange Act and
the rules and regulations promulgated thereunder), or will prior
to the Closing Date beneficially own, any shares of Company
Common Stock, or is a party, or will prior to the Closing Date
become a party, to any Contract, arrangement or understanding
(other than this Agreement) for the purpose of acquiring,
holding, voting or disposing of any shares of Company Common
Stock.
(g) Brokers and Other Advisors. No
broker, investment banker, financial advisor or other person,
other than Greenhill & Co., LLC, the fees and expenses
of which will be paid by Parent, is entitled to any
brokers, finders or financial advisors fee or
commission in connection with the Merger and the transactions
contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Sub.
(h) No Other Representations or
Warranties. Except for the representations and
warranties contained in this Section 4.02, the Company
acknowledges that none of Parent, Sub or any other person on
behalf of Parent or Sub makes any other express or implied
representation or warranty with respect to Parent or Sub or with
respect to any other information provided to the Company in
connection with the transactions contemplated hereby.
ARTICLE V
Covenants
Relating to Conduct of Business
Section 5.01. Conduct
of Business. (a) Except as set forth in
Section 5.01 of the Company Disclosure Letter, required by
or specifically provided in this Agreement, required by Law or
consented to in writing by Parent (such consent not to be
unreasonably withheld or delayed), during the period from the
date of this Agreement to the Effective Time, the Company shall,
and shall cause each of its Subsidiaries to, carry on its
business in the ordinary course and, to the extent consistent
therewith, use reasonable best efforts to preserve substantially
intact its current business organizations, to keep available the
services of its current officers and employees and to preserve
its relationships with significant franchisees, customers,
suppliers, licensors, licensees, distributors, wholesalers,
lessors and others having significant business dealings with it.
Without limiting the generality of the foregoing, except as set
forth in Section 5.01 of the Company Disclosure Letter,
required by or specifically provided in this Agreement, required
by Law, required in order to comply with Section 409A of
the Code or consented to in writing by Parent (such consent not
to be unreasonably withheld or delayed), during the period from
the date of this Agreement to the Effective Time, the Company
shall not, and shall not permit any of its Subsidiaries to:
(i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in
respect of, any of its capital stock, other than dividends or
distributions by a direct or indirect wholly owned Subsidiary of
the Company to its parent;
(ii) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in
lieu of or in substitution for shares of its capital stock;
A-27
(iii) purchase, redeem or otherwise acquire any shares of
its capital stock or any rights, warrants or options to acquire
any such shares, other than (A) the acquisition by the
Company of shares of Company Common Stock in connection with the
surrender of shares of Company Common Stock by holders of
Company Stock Options in order to pay the exercise price of the
Company Stock Options, (B) the withholding of shares of
Company Common Stock to satisfy tax obligations with respect to
awards granted pursuant to the Company Stock Plans, and
(C) the acquisition by the Company of Company Stock
Options, Company SARs and Company RSUs and shares of Company
Restricted Stock in connection with the forfeiture of such
awards;
(iv) issue, deliver or sell any shares of its capital
stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities, or any
phantom stock, phantom stock rights,
stock appreciation rights or stock based performance units,
other than (A) upon the exercise of Company Stock Options
and Company SARs and rights under the ESPPs and upon the vesting
of Company RSUs, in each case outstanding on the date of this
Agreement and in accordance with their present terms, and
(B) as required to comply with any grants or awards as in
effect on the date of this Agreement under any Company Benefit
Plan or Company Benefit Agreement;
(v) amend the Company Certificate of Incorporation or the
Company Bylaws or the comparable organizational documents of any
Subsidiary of the Company;
(vi) merge or consolidate with, or purchase an equity
interest in or a substantial portion of the assets of, any
person or any division or business thereof, other than any such
action solely between or among the Company and its Subsidiaries,
or adopt a plan of liquidation, dissolution, recapitalization or
reorganization of the Company;
(vii) sell, lease, license or otherwise dispose of any of
its properties or assets (tangible or intangible, including
capital stock of any Subsidiary of the Company), other than
sales or other dispositions of inventory and other assets in the
ordinary course of business, including in connection with store
relocations and closings set forth on Section 5.01(a)(vii)
of the Company Disclosure Letter and store remodels,
refurbishments and resets;
(viii) abandon, fail to maintain and renew, or otherwise
let lapse, any material Intellectual Property Rights;
(ix) pledge, encumber or otherwise subject to a Lien (other
than a Permitted Lien) any of its properties or assets
(including capital stock of any Subsidiary of the Company);
(x) (A) incur any Indebtedness other than Indebtedness
incurred, assumed or otherwise entered into in the ordinary
course of business (including any borrowings under the
Companys existing revolving credit facility, any letters
of credit and guarantees of loans to franchisees pursuant to the
Master Agreement and Limited Guaranty, dated as of May 27,
2004, from the Company, as Guarantor, in favor of Citicorp
Leasing, Inc.) or (B) make any loans or capital
contributions to, or investments in, any other person, other
than (1) to any of the Subsidiaries of the Company or
(2) to Franchisees upon the default of such Franchisee in
making a required payment to the Company or any of its
Subsidiaries, provided that no cash is loaned or
contributed to or invested in such Franchisee in connection
therewith;
(xi) make any capital expenditures, other than (A) in
accordance with the Companys capital expenditures plan
previously provided to Parent in writing, (B) in connection
with the repair or replacement of facilities destroyed or
damaged due to casualty or accident (whether or not covered by
insurance) and (C) otherwise in an aggregate amount for all
such capital expenditures made pursuant to this clause (C)
not to exceed $10.0 million;
(xii) settle any claim or litigation, including any
employment-related claim or litigation, in each case made or
pending against the Company or any of its Subsidiaries, other
than (A) the settlement of claims or litigation in the
ordinary course of business in an amount not to exceed, for any
such settlement individually, $1.0 million (or, in the case
of employment-related claims or litigation, $100,000) and
(B) the settlement of claims or litigation disclosed,
reflected or reserved against in the most recent financial
statements (or the notes
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thereto) of the Company included in the Filed SEC Documents for
an amount not materially in excess of the amount so disclosed,
reflected and reserved;
(xiii) redeem, repurchase, prepay or cancel any material
Indebtedness of the type described in clauses (1), (2) and
(3) of the definition of the term Indebtedness
(in each case other than revolving debt of any nature and other
than at the applicable stated maturity or as otherwise required
by the terms of such Indebtedness), or modify in any material
respect the terms thereof; or waive any claims or rights of
substantial value, other than in the ordinary course of business;
(xiv) except (A) in the ordinary course of business or
(B) as required pursuant to the terms of any Company
Benefit Plan or Company Benefit Agreement or other written
agreement in effect on the date of this Agreement,
(1) grant to any officer, director or employee of the
Company or any of its Subsidiaries any increase in compensation,
(2) grant to any officer, director or employee of the
Company or any of its Subsidiaries any increase in severance or
termination pay, (3) enter into any employment, consulting,
severance or termination agreement with any officer, director or
employee of the Company or any of its Subsidiaries pursuant to
which the total annual compensation or the aggregate severance
benefits exceed $250,000, (4) establish, adopt, enter into
or amend in any material respect any collective bargaining
agreement or Company Benefit Plan or (5) accelerate any
rights or benefits under any Company Benefit Plan;
provided, however, that the foregoing clauses (1),
(2), and (3) shall not restrict the Company or any of its
Subsidiaries from entering into or making available to newly
hired employees or to employees in the context of promotions
based on job performance or workplace requirements, in each case
in the ordinary course of business, plans, agreements, benefits
and compensation arrangements (including incentive grants other
than equity based grants) that have a value of $300,000 or less
per such employee and that is consistent with the past practice
of making compensation and benefits available to newly hired or
promoted employees in similar positions;
(xv) make any change in accounting methods, principles or
practices materially affecting the consolidated assets,
liabilities or results of operations of the Company, other than
as required (A) by any changes in GAAP (or any
interpretation thereof) applicable after the date hereof,
including as may be required by the Financial Accounting
Standards Board or any similar organization, or (B) by any
changes in Law applicable after the date hereof, including
Regulation S-X
under the Securities Act;
(xvi) make any material tax election, file any amended tax
return with respect to any material tax or change any annual tax
accounting period;
(xvii) make any modification or amendment to, or waive any
term of, any Specified Contract other than Franchise Agreements
(which are the subject of clause (xix) below);
(xviii) enter into any Franchise Agreement for an
individual Franchised Restaurant, except (A) pursuant to
the form Franchise Agreement attached to the Companys
then-current UFOC, (B) substantially in the form of the
form Franchise Agreements attached to the Companys
then-current IFOCs, (C) substantially in the form of a
Franchise Agreement previously signed by such Franchisee and
(D) in connection with the transfer of such Franchised
Restaurant from one Franchisee to another Franchisee; enter into
any Franchise Agreement which is an area development agreement;
amend its current UFOC, except in compliance with applicable
Law; enter into any Contract with a franchise broker in any
United States Jurisdiction; or terminate a Franchisee;
(xix) (A) waive, modify, supplement, or otherwise
amend any Franchisees obligation to develop Franchised
Restaurants during any Initial Development Period or Subsequent
Development Period (as such terms are defined in the Franchise
Agreements), (B) waive, modify, supplement, or otherwise
amend any Franchisees Subsequent Development Schedule (as
such term is defined in the Franchise Agreement),
(C) establish the Minimum Development Potential
and/or the
Subsequent Development Schedule (as such terms are defined in
the Franchise Agreements) under any Franchise Agreement, or
(D) waive, modify, supplement or otherwise amend any other
material term of any Franchise Agreement;
(xx) (A) subject to any applicable exemptions in any
United States Jurisdiction Law, offer or sell any Franchise in a
United States Jurisdiction unless and until its franchise
registrations, current UFOC and other franchise disclosure
documents have been amended to include a disclosure, in form
reasonably acceptable to Parent, disclosing, among other things,
this Agreement, the Merger and the other transactions
contemplated by
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this Agreement or (B) offer or sell any Franchise in a
non-United
States Jurisdiction except in compliance with applicable
disclosure requirements under
non-United
States Jurisdiction Laws;
(xxi) take any action that is intended to or would result
in any of the conditions to effecting the Merger set forth in
Section 7.01 and 7.02 becoming incapable of being
satisfied; or
(xxii) authorize any of, or commit or agree to take any of,
the foregoing actions.
(b) Advice of Changes. The Company and
Parent shall promptly give written notice to the other party
upon becoming aware of any material event, development or
occurrence that would reasonably be expected to give rise to a
failure of condition precedent set forth in Section 7.02
(in the case of the Company) or Section 7.03 (in the case
of Parent).
Section 5.02. No
Solicitation. (a) The Company shall not, nor
shall any of its Subsidiaries or any of its or their respective
directors, officers, employees, investment bankers, financial
advisors, attorneys, accountants or other advisors, agents or
representatives (collectively,
Representatives) retained by it or any of its
Subsidiaries to, directly or indirectly, (i) solicit,
initiate or knowingly encourage, or take any other action to
knowingly facilitate, the making of any proposal that
constitutes or is reasonably likely to lead to a Takeover
Proposal or (ii) enter into, continue or otherwise
participate in any discussions or negotiations regarding or
furnish to any person any confidential information with respect
to any Takeover Proposal. The Company shall, and shall cause its
Subsidiaries and direct its Representatives to, immediately
cease and cause to be terminated all existing discussions and
negotiations with any person conducted heretofore with respect
to any Takeover Proposal, and shall request the prompt return or
destruction of all confidential information previously furnished
in connection therewith. Notwithstanding the foregoing or
anything else in this Agreement to the contrary, at any time
prior to obtaining the Stockholder Approval, in response to a
bona fide written Takeover Proposal, if the Board of Directors
of the Company determines in good faith, after consultation with
its independent financial advisor and outside counsel, that such
Takeover Proposal constitutes or is reasonably likely to lead to
a Superior Proposal and the Company has otherwise complied in
all material respects with its obligations under this
Section 5.02, the Company may (and may authorize and permit
its Subsidiaries, directors, officers, employees and
Representatives to), subject to compliance with
Section 5.02(c), (A) furnish information with respect
to the Company and its Subsidiaries to the person making such
Takeover Proposal (and its Representatives) pursuant to a
confidentiality agreement containing confidentiality provisions
substantially similar to those set forth in the Confidentiality
Agreement and (B) participate in discussions and
negotiations with the person making such Takeover Proposal (and
its Representatives) regarding such Takeover Proposal.
The term Takeover Proposal means any inquiry,
proposal or offer from any person or group relating to
(a) any direct or indirect acquisition or purchase, in a
single transaction or a series of transactions, of (1) 20%
or more (based on the fair market value thereof, as determined
by the Board of Directors of the Company) of assets (including
capital stock of the Subsidiaries of the Company), cash flow,
net income or net revenue of the Company and its Subsidiaries,
taken as a whole, or (2) 20% or more of outstanding shares
of the Company Common Stock, (b) any tender offer or
exchange offer that, if consummated, would result in any person
or group owning, directly or indirectly, 20% or more of
outstanding shares of the Company Common Stock or (c) any
merger, consolidation, business combination, recapitalization,
liquidation, dissolution, binding share exchange or similar
transaction involving the Company pursuant to which any person
or group (or the shareholders of any person) would own, directly
or indirectly, 20% or more of any class of equity securities of
the Company or of the surviving entity in a merger or the
resulting direct or indirect parent of the Company or such
surviving entity, other than, in each case, the transactions
contemplated by this Agreement.
The term Superior Proposal means any bona
fide Takeover Proposal that if consummated would result in a
person or group (or the shareholders of any person) owning,
directly or indirectly, (a) 50% or more of any class of
equity securities of the Company or of the surviving entity in a
merger or the resulting direct or indirect parent of the Company
or such surviving entity or (b) 50% or more (based on the
fair market value thereof, as determined by the Board of
Directors of the Company) of the assets of the Company and its
Subsidiaries, taken as a whole, which the Board of Directors of
the Company determines would be more favorable to the
stockholders of the Company from a financial point of view than
the Merger and the other transactions contemplated by this
Agreement (x) after consultation with its independent
financial advisor (who shall be a nationally recognized
investment banking firm),
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(y) after taking into account the likelihood of
consummation of such transaction on the terms set forth therein,
and (z) after taking into account all appropriate legal
(after consultation with its outside counsel), financial
(including the financing terms of any such proposal) or other
aspects of such proposal, including, without limitation the
identity of the third party making such proposal and the terms
of any written proposal by Parent to amend or modify the terms
of the Merger and the other transactions contemplated by this
Agreement.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall directly or indirectly (i)(A) withdraw
(or modify in a manner adverse to Parent), or publicly propose
to withdraw (or modify in a manner adverse to Parent), the
approval, recommendation or declaration of advisability by such
Board of Directors or any such committee of this Agreement or
the Merger or (B) recommend the approval or adoption of, or
approve or adopt, or publicly propose to recommend, approve or
adopt, any Takeover Proposal (any action described in this
clause (i) being referred to as an Adverse
Recommendation Change) or (ii) approve or
recommend, or publicly propose to approve or recommend, or cause
or permit the Company or any of its Subsidiaries to execute or
enter into, any letter of intent, memorandum of understanding,
agreement in principle, merger agreement, acquisition agreement
or other similar agreement related to any Takeover Proposal,
other than any confidentiality agreement referred to in
Section 5.02(a). Notwithstanding the foregoing or anything
else in this Agreement to the contrary, at any time prior to
obtaining the Stockholder Approval and subject to compliance
with Section 6.06(b), if the Company receives a Takeover
Proposal which the Board of Directors of the Company concludes
in good faith constitutes a Superior Proposal, the Board of
Directors of the Company may, if it determines (after
consultation with outside counsel) that the failure to take such
action would be inconsistent with its fiduciary duties under
applicable Law, (1) make an Adverse Recommendation Change
or (2) cause or permit the Company to terminate this
Agreement; provided, however, that the Board of
Directors of the Company shall not make an Adverse
Recommendation Change, and the Company may not terminate this
Agreement pursuant to clause (2) above, until after the
second business day following Parents receipt of written
notice (a Notice of Superior Proposal) from
the Company advising Parent that the Board of Directors of the
Company intends to take such action and specifying the reasons
therefor, including the material terms and conditions of any
Superior Proposal that is the basis of the proposed action by
such Board of Directors and the identity of the person
submitting such Superior Proposal (it being understood and
agreed that (I) any amendment to the financial terms of
such Superior Proposal shall require a new Notice of Superior
Proposal and a new two business day period and (II) in
determining whether to make an Adverse Recommendation Change or
to cause or permit the Company to so terminate this Agreement,
the Board of Directors of the Company shall take into account
any changes to the financial terms of this Agreement proposed by
Parent to the Company in response to a Notice of Superior
Proposal or otherwise).
(c) In addition to the obligations of the Company set forth
in Sections 5.02(a) and 5.02(b), the Company shall as
promptly as practicable advise Parent orally and in writing of
the receipt of any Takeover Proposal after the date of this
Agreement, the material terms and conditions of any such
Takeover Proposal and the identity of the person making any such
Takeover Proposal. The Company shall keep Parent reasonably
informed of any material developments with respect to any such
Takeover Proposal (including any material changes thereto).
(d) Nothing contained in this Section 5.02 or
elsewhere in this Agreement shall prohibit the Company from
(i) taking and disclosing to its stockholders a position
contemplated by
Rule 14d-9
or
Rule 14e-2(a)
promulgated under the Exchange Act or (ii) making any
disclosure to its stockholders if the Board of Directors of the
Company determines (after consultation with outside counsel)
that failure to do so would be inconsistent with its fiduciary
duties under applicable Law; provided, any such disclosure made
pursuant to clause (i) or (ii) (other than a stop,
look and listen letter or similar communication of the
type contemplated by
Rule 14d-9(f)
under the Exchange Act) shall be deemed to be an Adverse
Recommendation Change unless the Board of Directors of the
Company expressly reaffirms in such disclosure the
Recommendation.
Section 5.03. WARN
Act. The Company shall not, and shall cause each of
its Subsidiaries not to, effectuate (1) a plant
closing (as defined in the WARN Act) affecting any single
site of employment or one or more facilities or operating units
within any single site of employment of the Company or any of
its Subsidiaries; or (2) a mass layoff (as
defined in the WARN Act) at any single site of employment or one
or more facilities or operating units within any single site of
employment of the Company or any of its Subsidiaries. Neither
the Company nor any of its Subsidiaries shall otherwise
terminate or lay off employees in the United States in such
numbers as to give rise to material liability to the Company
under any applicable Laws respecting the payment of
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severance pay, separation pay, termination pay, pay in lieu of
notice of termination, redundancy pay, or the payment of any
other compensation, premium or penalty upon termination of
employment, reduction of hours, or temporary or permanent
layoffs. For purposes of the WARN Act and this Agreement, the
Effective Time is and shall be the same as the effective
date within the meaning of the WARN Act.
ARTICLE VI
Additional
Agreements
Section 6.01. Preparation
of the Proxy Statement; Stockholders
Meeting. (a) As promptly as reasonably
practicable following the date of this Agreement, the Company
shall prepare (in consultation with Parent) and file with the
SEC the Proxy Statement. Parent shall provide to the Company all
information concerning Parent and Sub as may be reasonably
requested by the Company in connection with the Proxy Statement
and shall otherwise assist and cooperate with the Company in the
preparation of the Proxy Statement and resolution of comments
referred to below. The Company shall promptly notify Parent upon
the receipt of any comments from the SEC or the staff of the SEC
or any request from the SEC or the staff of the SEC for
amendments or supplements to the Proxy Statement, and shall
provide Parent with copies of all correspondence between the
Company and its Representatives, on the one hand, and the SEC or
the staff of the SEC, on the other hand. The Company shall use
its reasonable best efforts to respond as promptly as
practicable to any comments of the SEC or the staff of the SEC
with respect to the Proxy Statement and to cause the Proxy
Statement to be mailed to the stockholders of the Company as
promptly as reasonably practicable following the date of this
Agreement. Prior to filing or mailing the Proxy Statement (or
any amendment or supplement thereto) or responding to any
comments of the SEC or the staff of the SEC with respect
thereto, the Company shall provide Parent a reasonable
opportunity to review and to propose comments on such document
or response.
(b) The Company shall, as promptly as reasonably
practicable following the date of this Agreement, establish a
record date for, duly call, give notice of, convene and hold a
meeting of its stockholders (the Stockholders
Meeting) for the purpose of obtaining the Stockholder
Approval. Subject to the ability of the Board of Directors of
the Company to make an Adverse Recommendation Change pursuant to
Section 5.02(b), the Company shall, through its Board of
Directors include the Recommendation in the Proxy Statement.
Subject to Section 5.02(b), the Company will use
commercially reasonable efforts to solicit from its stockholders
proxies in favor of the Stockholder Approval. The Company shall
keep Parent updated with respect to proxy solicitation results
as reasonably requested by Parent.
Section 6.02. Access
to Information; Confidentiality. The Company
shall afford to Parent, and to Parents officers,
employees, accountants, counsel, consultants, financial advisors
and other Representatives, reasonable access during normal
business hours during the period prior to the Effective Time or
the termination of this Agreement to all of its and its
Subsidiaries properties, books and records and to those
employees of the Company to whom Parent reasonably requests
access, and, during such period, the Company shall furnish, as
promptly as practicable, to Parent all information concerning
its and its Subsidiaries business, properties and
personnel as Parent may reasonably request (it being agreed,
however, that the foregoing shall not permit Parent or any such
Representatives to conduct any soil or groundwater or other
invasive environmental testing or sampling without the
Companys consent). Notwithstanding the foregoing, neither
the Company nor any of its Subsidiaries shall be required to
provide access to or disclose information where the Company
reasonably determines that such access or disclosure would
jeopardize the attorney-client privilege of the Company or any
of its Subsidiaries or contravene any Law or any Contract to
which the Company or any of its Subsidiaries is a party. Except
for disclosures expressly permitted by the terms of the
confidentiality letter agreement dated as of March 30,
2007, between Parent and the Company (as it may be amended from
time to time, the Confidentiality Agreement),
Parent shall hold, and shall cause its officers, employees,
accountants, counsel, consultants, financial advisors and other
Representatives to hold, all information received from the
Company or its Representatives, directly or indirectly, in
confidence in accordance with the Confidentiality Agreement.
Section 6.03. Reasonable
Best Efforts. (a) Upon the terms and subject
to the conditions set forth in this Agreement, each of the
parties hereto agrees to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in
doing, all things
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necessary, proper or advisable to consummate and make effective,
in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement, including
using reasonable best efforts to accomplish the following:
(i) the taking of all acts necessary to cause the
conditions to Closing to be satisfied as promptly as
practicable, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and
filings (including filings with Governmental Entities) and the
taking of all steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by, any
Governmental Entity, including the issuance or reissuance of any
and all required state, county or licenses or permits required
for the operation of the Companys business as currently
conduct, (iii) the obtaining of consents, approvals and
waivers from third parties reasonably requested by Parent to be
obtained in connection with the Acquisition under any Contracts
or leases, provided, however, that in no event
shall the Company or any of its Subsidiaries be required to pay
prior to the Effective Time any fee, penalty or other
consideration to any person to obtain any such consent, approval
or waiver other than de minimus amounts or amounts
that are advanced by Parent, and (iv) the execution and
delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the
purposes of, this Agreement. In connection with and without
limiting the foregoing, the Company and its Board of Directors
shall (A) take all action necessary to ensure that no fair
price, moratorium, control share acquisition or other state
takeover statute is or becomes applicable to this Agreement, the
Merger or any of the other transactions contemplated by this
Agreement and (B) if any fair price, moratorium, control
share acquisition or other state takeover statute becomes
applicable to this Agreement, the Merger or any of the other
transactions contemplated by this Agreement, take all action
necessary to ensure that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation
on this Agreement, the Merger and the other transactions
contemplated by this Agreement.
(b) In furtherance and not in limitation of the foregoing,
each party hereto agrees to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with
respect to the transactions contemplated by this Agreement as
promptly as reasonably practicable after the date hereof and to
supply as promptly as reasonably practicable any additional
information and documentary material that may be requested
pursuant to the HSR Act and use its reasonable best efforts to
take or cause to be taken all other actions necessary, proper or
advisable consistent with this Section 6.03 to cause the
expiration or termination of the applicable waiting periods, or
receipt of required authorizations, as applicable, under the HSR
Act; provided that in no event shall Parent be required to
divest any stock, partnership, membership or other ownership
interest in any entity, or agree to undertake any divestiture or
restrict its conduct with regard to any business. Without
limiting the foregoing, the parties shall request and shall use
their respective reasonable best efforts to obtain early
termination of the waiting period under the HSR Act. No party
shall voluntarily extend any waiting period under the HSR Act or
enter into any agreement with any Governmental Entity to delay
or not to consummate the Merger or any of the other transactions
contemplated by this Agreement except with the prior written
consent of the other party (such consent not to be unreasonably
withheld or delayed and which reasonableness shall be determined
in light of each partys obligation to do all things
necessary, proper or advisable to consummate and make effective,
in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement).
Section 6.04. Benefit
Plans. (a) The Surviving Corporation shall
provide cash compensation (excluding severance) to each Company
Employee that is not less favorable than the cash compensation
provided to such Company Employee immediately prior to the
Effective Time.
(b) With respect to any employee benefit plan,
as defined in Section 3(3) of ERISA, and any vacation, paid
time-off or severance plan maintained by Parent or any of its
Subsidiaries for all purposes, including determining eligibility
to participate, level of benefits, vesting, benefit accruals and
early retirement subsidies, each Company Employees service
with the Company or any of its Subsidiaries (as well as service
with any predecessor employer of the Company or any such
Subsidiary, to the extent service with the predecessor employer
is recognized by the Company or such Subsidiary) shall be
treated as service with Parent or any of its Subsidiaries;
provided, however, that such service need not be
recognized to the extent that such recognition would result in
any duplication of benefits.
(c) Parent shall waive, or cause to be waived, any
pre-existing condition limitations, exclusions, actively-at-work
requirements and waiting periods under any welfare benefit plan
maintained by Parent or any of its Affiliates
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in which Company Employees (and their eligible dependents) will
be eligible to participate from and after the Effective Time,
except to the extent that such pre-existing condition
limitations, exclusions, actively-at-work requirements and
waiting periods would not have been satisfied or waived under
the comparable Company Benefit Plan immediately prior to the
Effective Time. Parent shall recognize, or cause to be
recognized, the dollar amount of all co-payments, deductibles
and similar expenses incurred by each Company Employee (and his
or her eligible dependents) during the calendar year in which
the Effective Time occurs for purposes of satisfying such
years deductible and co-payment limitations under the
relevant welfare benefit plans in which they will be eligible to
participate from and after the Effective Time.
Section 6.05. Indemnification,
Exculpation and Insurance. (a) All rights to
indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time and rights
to advancement of expenses relating thereto now existing in
favor of any person who is or prior to the Effective Time
becomes, or has been at any time prior to the date of this
Agreement, a director, officer, employee or agent (including as
a fiduciary with respect to an employee benefit plan) of the
Company, any of its Subsidiaries or any of their respective
predecessors (each, an Indemnified Party) as
provided in the Company Certificate of Incorporation, the
Company Bylaws, the organizational documents of any Subsidiary
of the Company or any indemnification agreement between such
Indemnified Party and the Company or any of its Subsidiaries (in
each case, as in effect on the date hereof or, with respect to
any indemnification agreement entered into after the date
hereof, to the extent the terms thereof are no more favorable in
any material respect to the Indemnified Party that is the
beneficiary thereof than the terms of any indemnification
agreement included as an exhibit in the Filed SEC Documents)
shall survive the Merger and shall not be amended, repealed or
otherwise modified in any manner that would adversely affect any
right thereunder of any such Indemnified Party.
(b) The Company may obtain, at or prior to the Effective
Time, prepaid (or tail) directors and
officers liability insurance policies in respect of acts
or omissions occurring at or prior to the Effective Time for six
years from the Effective Time, covering each Indemnified Party
on terms with respect to such coverage and amounts no less
favorable than those of such policies in effect on the date of
this Agreement; provided, however, that, without
the prior written consent of Parent, the Company may not expend
therefor in excess of 250% of the amount (the Annual
Amount) paid by the Company for coverage for the
period of 12 months beginning on December 15, 2006. In
the event the Company does not obtain such tail
insurance policies, then, for a period of six years from the
Effective Time, Parent shall cause the Surviving Corporation to
maintain in effect the Companys current directors
and officers liability insurance policies in respect of
acts or omissions occurring at or prior to the Effective Time,
covering each Indemnified Party on terms with respect to such
coverage and amounts no less favorable than those of such
policies in effect on the date of this Agreement;
provided, however, that the Surviving Corporation
may substitute therefor policies of a reputable and financially
sound insurance company containing terms, including with respect
to coverage and amounts, no less favorable to any Indemnified
Party; provided further, however, that in
satisfying its obligation under this Section 6.05(c) the
Surviving Corporation shall not be obligated to pay for coverage
for any
12-month
period aggregate premiums for insurance in excess of 250% of the
Annual Amount, it being understood and agreed that the Surviving
Corporation shall nevertheless be obligated to provide such
coverage as may be obtained for the Annual Amount.
(c) In the event that either Parent or the Surviving
Corporation or any of their respective successors or assigns
(i) consolidates with or merges into any other person and
is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or
a substantial portion of its properties and other assets to any
person, or if Parent dissolves the Surviving Corporation, then,
and in each such case, Parent shall cause proper provision to be
made so that the applicable successors and assigns or
transferees expressly assume the obligations set forth in this
Section 6.05.
(d) The provisions of this Section 6.05 are intended
to be for the benefit of, and will be enforceable by, each
Indemnified Party, his or her heirs and his or her
representatives, and are in addition to, and not in substitution
for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
Section 6.06. Fees
and Expenses. (a) Except as provided in
Section 6.06(b), all fees and expenses incurred in
connection with this Agreement, the Merger and the other
transactions contemplated by this Agreement shall be paid by the
party incurring such fees or expenses, whether or not the Merger
is consummated.
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(b) In the event that (i) this Agreement is terminated
by the Company pursuant to Section 8.01(f), (ii)
(A) after the date of this Agreement, a Takeover Proposal
shall have been publicly made to the Company generally or shall
have otherwise become publicly known, (B) thereafter, this
Agreement is terminated by Parent pursuant to
Section 8.01(e)(i) or by either Parent or the Company
pursuant to Section 8.01(b)(i) (but only if the
Stockholders Meeting has not been held) or
Section 8.01(b)(iii) and (C) within nine months after
such termination, the Company consummates the transactions
contemplated by any Takeover Proposal, or (iii) this
Agreement is terminated by Parent pursuant to
Section 8.01(e)(ii), then the Company shall pay Parent a
fee equal to $60,000,000 (the Termination
Fee) by wire transfer of
same-day
funds (1) in the case of a payment required by
clause (i) above, on the date of termination of this
Agreement, (2) in the case of a payment required by
clause (ii) above, on the date of the consummation referred
to in clause (ii)(C), and (3) in the case of a payment
required by clause (iii) above, as promptly as possible
(but in any event within four business days). For purposes of
this Section 6.06(b), the term Takeover
Proposal shall have the meaning assigned to such term in
Section 5.02(a), except that all references to 20% therein
shall be deemed to be references to 50%.
(c) The Company acknowledges and agrees that the agreements
contained in Section 6.06(b) are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, Parent would not have entered into this
Agreement; accordingly, if the Company fails promptly to pay the
amount due pursuant to Section 6.06(b), and, in order to
obtain such payment, Parent commences a suit that results in a
judgment against the Company for the Termination Fee, the
Company shall pay to Parent its costs and expenses (including
attorneys fees and expenses) in connection with such suit,
together with interest on the amount of the Termination Fee from
the date such payment was required to be made until the date of
payment at the prime rate of Citibank, N.A. in effect on the
date such payment was required to be made.
Section 6.07. Public
Announcements. Parent and the Company shall
consult with each other before issuing, and give each other the
opportunity to review and comment upon, any press release or
other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public
statement prior to such consultation, except as may be required
by applicable Law, court process or the rules and regulations of
any national securities exchange or national securities
quotation system and except for any matters referred to in
Section 5.02. The parties agree that the initial press
release to be issued with respect to the transactions
contemplated by this Agreement shall be in the form heretofore
agreed to by the parties.
Section 6.08. Stockholder
Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any
stockholder litigation against the Company
and/or its
directors relating to the transactions contemplated by this
Agreement, and no such settlement shall be agreed to without
Parents prior written consent (such consent not to be
unreasonably withheld or delayed).
Section 6.09. Financing. (a) Prior
to the Effective Time, 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 such reasonable cooperation in
connection with the arrangement of the Debt Financing as may be
reasonably requested in writing by Parent with reasonable notice
in connection with the obtaining of the Debt Financing,
including using reasonable best efforts to (i) participate
in meetings, presentations, due diligence sessions, drafting
sessions, road shows and sessions with rating agencies,
(ii) assist with the preparation of materials for rating
agency presentations, offering memoranda, private placement
memoranda or similar offering documents required in connection
with the Debt Financing, (iii) reasonably facilitate the
pledging of collateral, in each case so long as not effective
until at or after the Effective Time, (iv) furnish Parent
and its Financing sources with (A) readily available
historical financial and other pertinent information that, as of
any date, would be required to be contained in filings by the
Company with the SEC on Forms 10 Q and 10 K as of such
date, in each case as may be reasonably requested by Parent
(collectively, the Required Financial
Information), and (B) any other historical
financial statements and other financial data of the type
reasonably requested by Parent, (v) permit the prospective
lenders involved in the Debt Financing to evaluate the
Companys current assets, cash management and accounting
systems, policies and procedures relating thereto for the
purpose of establishing collateral arrangements,
(vi) establish bank and other accounts and blocked account
agreements and lock box arrangements in connection with the
foregoing, and (vii) take corporate actions reasonably
necessary to permit the consummation of the Debt Financing and
to permit the proceeds thereof to be made available to the
Company. The Company shall use commercially
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reasonable efforts to (1) provide monthly financial
statements (excluding footnotes) within 25 days of the end
of each month prior to the Closing Date, if and in the form
currently prepared by the Company, (2) obtain
accountants comfort letters, legal opinions, surveys and
title insurance as may be requested by Parent or the prospective
lenders in the Debt Financing, (3) cause its officers, in
their capacities as officers, to deliver such customary
management representation letters as any audit firm may request
in connection with any comfort letters or similar documents
required in connection with the Debt Financing, (4) obtain
the issuance or reissuance of required state, county or city
licenses or permits required for the operation after the Closing
Date of the Companys business and (5) obtain estoppel
certificates from landlords under Real Property Leases and from
tenants under Real Property Subleases. It is understood and
agreed that nothing contained in this Section 6.09 shall
require such cooperation to the extent that it would interfere
unreasonably with the business or operations of the Company or
its Subsidiaries. The Company hereby consents to the use of its
and its Subsidiaries Trademarks in connection with the
Financing, provided that such Trademarks are used solely in a
manner that is not intended to nor reasonably likely to harm or
disparage the Company or the reputation or goodwill of the
Company and its Trademarks. Neither the Company nor any of its
Subsidiaries shall be required, under the provisions of this
Section 6.09 or otherwise in connection with the Financing
(x) to pay any commitment or other similar fee prior to the
Effective Time that is not advanced by Parent or (y) to
incur any out-of-pocket expense unless such expense is advanced
by Parent. Parent and Sub shall, on a joint and several basis,
indemnify and hold harmless the Company, its Subsidiaries and
their respective Representatives from and against any and all
losses suffered or incurred by them in connection with
(1) any action taken by them in compliance with this
Section 6.09, or at the request of Parent pursuant to this
Section 6.09, or otherwise in connection with the
arrangement of the Financing or (2) any information
utilized in connection therewith (other than the information
provided by the Company or its Subsidiaries). Nothing contained
in this Section 6.09 or otherwise shall require the Company
to be an issuer or other obligor with respect to the Financing
prior to the Effective Time. All material, non-public
information regarding the Company and its Subsidiaries provided
to Parent or its Representatives pursuant to this
Section 6.09 shall be kept confidential by them in
accordance with the Confidentiality Agreement except for
disclosure to potential investors as required in connection with
the Financing subject to customary confidentiality protection.
(b) For purposes of this Agreement, Bridge
Marketing Period shall mean the first period of 15
consecutive business days after the date hereof throughout which
(A) Parent shall have in all material respects the Required
Financial Information that the Company is required to use its
reasonable best efforts to provide to Parent pursuant to this
Section 6.09, provided, that the Required Financial
Information required to be filed with the SEC must be timely
filed (or must be cured if previously required to be filed)
throughout the Bridge Marketing Period, (B) the conditions
set forth in Section 7.01 and Section 7.02 shall be
satisfied (other than those conditions that by their terms are
to be satisfied at the Closing, but subject to the satisfaction
or, to the extent permitted by Law, waiver of those conditions),
and (C) the applicable auditors shall not have withdrawn
their audit opinions for any applicable Required Financial
Information; provided, that such 15 business day period
shall commence no earlier than three business days after the
condition set forth in Section 7.01(a) has been satisfied
(it being understood and agreed that Parent will commence such
period on an earlier date if reasonably practicable to do so in
its good faith judgment, provided that in such event the period
shall not commence more than 15 business days prior to the date
of the Stockholders Meeting and the Bridge Marketing
Period shall extend until the third business day after
satisfaction of the condition set forth in
Section 7.01(a)); and, provided, further, that
notwithstanding the foregoing, the Bridge Marketing Period shall
end on any earlier date that is the date on which the Financing
is consummated.
(c) Each of Parent and Sub shall use, and shall cause their
Affiliates to use, their reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done,
all things necessary, proper or advisable to arrange the
Financing on the terms and conditions described in the Financing
Commitments, including using its reasonable best efforts to
(i) negotiate and enter into the definitive agreements with
respect thereto on the terms and conditions contained in the
Financing Commitments, (ii) satisfy (or cause its
Affiliates to satisfy) on a timely basis all conditions
applicable to Parent or Sub (or their Affiliates) set forth
therein and (iii) to consummate the Financing contemplated
by the Financing Commitments on the date described in
Section 2.02, including using its reasonable best efforts
to cause the lenders and other persons providing such Financing
to fund the Bridge Financing and Equity Financing required to
consummate the Merger at such time. In the event that any
portion of the Financing becomes unavailable on the terms and
conditions set forth in the Financing Commitments, Parent and
Sub shall promptly notify the Company and shall use their
reasonable best efforts to obtain alternative financing from
alternative
A-36
sources, on terms not materially less favorable, taken as a
whole, to Parent and Sub (as determined in the reasonable
judgment of Parent), as promptly as practicable following the
occurrence of such event. Parent shall deliver to the Company
true and complete copies of all agreements pursuant to which any
such alternative source shall have committed to provide Parent
and Sub with any portion of the Financing. Each of Parent and
Sub shall refrain (and shall use its reasonable best efforts to
cause its Affiliates to refrain) from taking, directly or
indirectly, any action that would reasonably be expected to
result in a failure of any of the conditions contained in the
Financing Commitments or in any definitive agreement related to
the Financing. Neither Parent nor Sub shall agree to or permit
any amendment, supplement or other modification of, or waive any
of its rights under, any Financing Commitments or the definitive
agreements relating to the Financing, in each case, without the
Companys prior written consent (which consent shall not be
unreasonably withheld or delayed), if such amendment,
modification or waiver would impose new or additional conditions
or otherwise amend, modify or waive any of the conditions to the
receipt of the Financing in any manner that would be reasonably
likely to cause a material delay in the ability of Parent to
consummate the Financing. In such event, the term
Financing Commitments as used herein shall be deemed
to include the Financing Commitments that are not so superseded
at the time in question and the new Financing Commitments to the
extent then in effect. Parent and Sub shall keep the Company
reasonably informed of the status of their efforts to obtain the
Financing.
ARTICLE VII
Conditions
Precedent
Section 7.01. Conditions
to Each Partys Obligation to Effect the
Merger. The respective obligation of each party
to effect the Merger is subject to the satisfaction or (to the
extent permitted by Law) waiver at or prior to the Effective
Time of the following conditions:
(a) Stockholder Approval. The Stockholder
Approval shall have been obtained.
(b) HSR Act. The waiting period (and any
extension thereof) applicable to the Merger under the HSR Act
shall have been terminated or shall have expired.
(c) No Injunctions or Restraints;
Illegality. No temporary restraining order,
preliminary or permanent injunction or other judgment or order
issued by any Federal or state court of competent jurisdiction
(collectively, Restraints) or Law shall be in
effect enjoining, making illegal or otherwise prohibiting the
consummation of the Merger; provided, however, that the party
claiming such failure of condition shall have used its
reasonable best efforts to prevent the entry of any such
injunction or order, including taking such action as is required
to comply with Section 6.03, and to appeal as promptly as
possible any injunction or other order that may be entered.
Section 7.02. Conditions
to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are further subject to
the satisfaction or (to the extent permitted by Law) waiver at
or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The
representations and warranties of the Company set forth in this
Agreement shall be true and correct (disregarding all
qualifications or limitations as to materiality,
Material Adverse Effect and words of similar import
set forth therein) as of the date of this Agreement and as of
the Closing Date as though made on such dates (except to the
extent such representations and warranties expressly relate to
an earlier date, in which case as of such earlier date), except
where the failure of such representations and warranties to be
so true and correct, individually or in the aggregate, has not
had, or would not reasonably be expected to have a Material
Adverse Effect; provided, however, that the
representations and warranties of the Company set forth in
Section 4.01(c)(i) with respect to the number of
outstanding shares of Company Common Stock and number of shares
of Company Common Stock subject to outstanding Company Stock
Options, Company SARs and ESPPs shall be true and correct in all
material respects as of the date of this Agreement and as of the
Closing Date as though made on such dates (except to the extent
such representations and warranties expressly relate to an
earlier date, in which case as of such earlier date). Parent
shall have received a certificate signed on behalf of the
Company by the chief executive officer and chief financial
officer of the Company to such effect.
A-37
(b) Performance of Obligations of the
Company. The Company shall have, in all material
respects, performed or complied with all obligations required to
be performed or complied with by it under this Agreement by the
time of the Closing, and Parent shall have received a
certificate signed on behalf of the Company by the chief
executive officer and chief financial officer of the Company to
such effect.
(c) No Material Adverse Effect. Since the
date of this Agreement, there has not been nor would there
reasonably be expected to be a Material Adverse Effect.
Section 7.03. Conditions
to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the
satisfaction or (to the extent permitted by Law) waiver at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The
representations and warranties of Parent and Sub set forth in
this Agreement shall be true and correct (disregarding all
qualifications or limitations as to materiality,
Parent Material Adverse Effect and words of similar
import set forth therein) as of the date of this Agreement and
as of the Closing Date as though made on such dates (except to
the extent such representations and warranties expressly relate
to an earlier date, in which case as of such earlier date),
except where the failure of such representations and warranties
to be so true and correct, individually or in the aggregate, has
not had, or would not reasonably be expected to have a Parent
Material Adverse Effect. The Company shall have received a
certificate signed on behalf of Parent by the chief executive
officer and chief financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and
Sub. Each of Parent and Sub shall have, in all
material respects, performed or complied with all obligations
required to be performed or complied with by it under this
Agreement by the time of the Closing, and the Company shall have
received a certificate signed on behalf of Parent by the chief
executive officer and chief financial officer of Parent to such
effect.
Section 7.04. Frustration
of Closing Conditions. None of the Company,
Parent or Sub may rely on the failure of any condition set forth
in Section 7.01, 7.02 or 7.03, as the case may be, to be
satisfied if such failure was caused by such partys
failure to perform any of its obligations under this Agreement,
to act in good faith or 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 6.03.
ARTICLE VIII
Termination,
Amendment and Waiver
Section 8.01. Termination. This
Agreement may be terminated at any time prior to the Effective
Time, whether before or after receipt of the Stockholder
Approval:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated on or
before April 15, 2008 (the Outside
Date); provided, however, that the right
to terminate this Agreement under this Section 8.01(b)(i)
shall not be available to any party if the failure of such party
(or in the case of Parent, Sub) to perform any of its
obligations under this Agreement, the failure to act in good
faith or the 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 6.03,
has been a principal cause of or resulted in the failure of the
Merger to be consummated on or before such date;
(ii) if any Restraint having any of the effects set forth
in Section 7.01(c) shall have become final and
nonappealable; provided that the party seeking to
terminate this Agreement pursuant to this
Section 8.01(b)(ii) shall have used reasonable best efforts
to prevent the entry of and to remove such Restraint; or
A-38
(iii) if the Stockholder Approval shall not have been
obtained at the Stockholders Meeting duly convened
therefor or at any adjournment or postponement thereof;
(c) by Parent, if the Company shall have breached any of
its representations or warranties or failed to perform any of
its covenants or agreements set forth in this Agreement, which
breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 7.02(a) or
7.02(b) and (ii) is incapable of being cured or is not
cured within 60 days of written notice of such breach or
failure; provided that Parent shall not have the right to
terminate this Agreement pursuant to this Section 8.01(c)
if Parent or Sub is then in material breach of any of its
representations, warranties, covenants or agreements hereunder;
(d) by the Company, if Parent shall have breached any of
its representations or warranties or failed to perform any of
its covenants or agreements set forth in this Agreement, which
breach or failure to perform (i) would give rise to the
failure of a condition set forth in Section 7.03(a) or
7.03(b) and (ii) is incapable of being cured or is not
cured within 60 days of written notice of such breach or
failure; provided that the Company shall not have the
right to terminate this Agreement pursuant to this
Section 8.01(d) if the Company is then in material breach
of any of its representations, warranties, covenants or
agreements hereunder;
(e) by Parent:
(i) in the event that an Adverse Recommendation Change
shall have occurred; or
(ii) the Company or any of its Representatives shall have
willfully breached Section 5.02 in any respect materially
adverse to Parent; or
(f) by the Company, in accordance with Section 5.02(b).
Section 8.02. Effect
of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in
Section 8.01, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the
part of Parent, Sub or the Company, other than the provisions of
the last sentence of Section 6.02, Section 6.06, this
Section 8.02 and Article IX, which provisions shall
survive such termination; provided, however that
nothing herein shall relieve the Company, Parent or Sub from
liability for any willful and material breach of any of its
representations, warranties, covenants or agreements set forth
in this Agreement.
Section 8.03. Amendment. This
Agreement may be amended by the parties hereto at any time
before or after receipt of the Stockholder Approval;
provided, however, that after such approval has
been obtained, there shall be made no amendment that by Law
requires further approval by the stockholders of the Company
without such approval having been obtained. This Agreement may
not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 8.04. Extension;
Waiver. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of
any of the obligations or other acts of the other parties,
(b) to the extent permitted by Law, waive any inaccuracies
in the representations and warranties contained herein or in any
document delivered pursuant hereto or (c) subject to the
proviso to the first sentence of Section 8.03 and to the
extent permitted by Law, waive compliance with any of the
agreements or conditions contained herein. Any agreement on the
part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf
of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
Section 8.05. Procedure
for Termination or Amendment. A termination of
this Agreement pursuant to Section 8.01 or an amendment of
this Agreement pursuant to Section 8.03 shall, in order to
be effective, require, in the case of Parent or the Company,
action by its Board of Directors or, with respect to any
amendment of this Agreement pursuant to Section 8.03, the
duly authorized committee of its Board of Directors to the
extent permitted by Law.
A-39
ARTICLE IX
General
Provisions
Section 9.01. Nonsurvival
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 Effective Time. This Section 9.01 shall not limit any
covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 9.02. Notices. Except
for notices that are specifically required by the terms of this
Agreement to be delivered orally, all notices, requests, claims,
demands and other communications hereunder shall be in writing
and shall be deemed given if delivered personally, faxed (with
confirmation) or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to Parent or Sub, to:
IHOP CORP.
450 North Brand Boulevard
Glendale, California 91203
Fax No.:
(818) 637-5361
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Fax No.:
(213) 687-5600
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Attention:
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Rod A. Guerra, Jr.
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Joseph J. Giunta
if to the Company, to:
Applebees International, Inc.
4551 West 107th Street
Overland Park, KS 66207
Fax No.:
(913) 967-2329
Attention: General Counsel
with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax No.:
(212) 474-3700
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Attention:
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Philip A. Gelston, Esq.
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Ronald Cami, Esq.
Section 9.03. Consents
and Approvals. For any matter under this
Agreement requiring the consent or approval of any party to be
valid and binding on the parties hereto, such consent or
approval must be in writing.
Section 9.04. Counterparts. This
Agreement may be executed in one or more counterparts (including
by facsimile), all of which shall be considered one and the same
agreement and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other parties.
Section 9.05. Entire
Agreement; No Third-Party Beneficiaries. This
Agreement and the Confidentiality Agreement (a) constitute
the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and the
Confidentiality Agreement, provided that the
Confidentiality Agreement shall survive the execution and
delivery of this Agreement, and
A-40
(b) except for the provisions of Section 3.02 after
the Effective Time and Section 6.05, are not intended to
confer upon any person other than the parties any legal or
equitable rights or remedies.
Section 9.06. GOVERNING
LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 9.07. Assignment. Neither
this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned, in whole or in part, by operation
of law or otherwise by any of the parties without the prior
written consent of the other parties, and any assignment without
such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their
respective successors and assigns. Notwithstanding the
foregoing, Parent and Sub may assign this Agreement or any of
its rights, interests or obligations hereunder to any wholly
owned Subsidiary of Parent, provided that any such assignment
shall not relieve Parent or Sub of its obligations hereunder.
Section 9.08. Specific
Enforcement; Consent to Jurisdiction. The parties
agree that irreparable damage would occur and that the parties
would not have any adequate remedy at law 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 in any court of the State of Delaware or any
Federal court sitting in the State of Delaware, this being in
addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto
(a) consents to submit itself to the personal jurisdiction
of the Delaware Court of Chancery, any other court of the State
of Delaware and any Federal court sitting in the State of
Delaware in the event any dispute arises out of this Agreement
or the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from
any such court and (c) agrees that it will not bring any
action relating to this Agreement or the transactions
contemplated by this Agreement in any court other than the
Delaware Court of Chancery (or, if the Delaware Court of
Chancery shall be unavailable, any other court of the State of
Delaware or any Federal court sitting in the State of Delaware).
Section 9.09. Severability. If
any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect.
Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable Law in an
acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
A-41
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
IHOP CORP.,
Name: Julia Stewart
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Title:
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Chairman and Chief Executive Officer
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CHLH CORP.,
Name: Julia Stewart
APPLEBEES INTERNATIONAL, INC.,
Name: David L. Goebel
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Title:
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Chief Executive Officer and President
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A-42
EXHIBIT B
[LETTERHEAD
OF CITIGROUP GLOBAL MARKETS INC.]
July 15, 2007
The Board of Directors
Applebees International, Inc.
4551 West 107th Street
Overland Park, Kansas 66207
Members of the Board:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of the common stock of
Applebees International, Inc.
(Applebees) of the Merger Consideration (as
defined below) provided for pursuant to the terms and subject to
the conditions set forth in the Agreement and Plan of Merger,
dated as of July 15, 2007 (the Merger
Agreement), among IHOP Corp. (IHOP), CHLH
Corp., a wholly owned subsidiary of IHOP (Merger
Sub), and Applebees. As more fully described in the
Merger Agreement, (i) Merger Sub will be merged with and
into Applebees (the Merger) and (ii) each
outstanding share of the common stock, par value $0.01 per
share, of Applebees (Applebees Common
Stock) will be converted into the right to receive $25.50
in cash (the Merger Consideration).
In arriving at our opinion, we reviewed the Merger Agreement and
held discussions with certain senior officers, directors and
other representatives and advisors of Applebees and
certain senior officers and other representatives and advisors
of IHOP concerning the business, operations and prospects of
Applebees. We examined certain publicly available business
and financial information relating to Applebees as well as
certain financial forecasts and other information and data
relating to Applebees under alternative business scenarios
and certain sensitivities thereto which were provided to or
otherwise discussed with us by the management of
Applebees. We reviewed the financial terms of the Merger
as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes
of Applebees Common Stock; the historical and projected
earnings and other operating data of Applebees; and the
capitalization and financial condition of Applebees. We
analyzed certain financial, stock market and other publicly
available information relating to the businesses of other
companies whose operations we considered relevant in evaluating
those of Applebees and considered, to the extent publicly
available, the financial terms of certain other transactions
which we considered relevant in evaluating the Merger. In
connection with our engagement and at the direction of the
Strategy Committee of the Board of Directors of Applebees
(the Strategy Committee), we were requested to
approach, and we held discussions with, third parties to solicit
indications of interest in the possible acquisition of
Applebees. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other
information and financial, economic and market criteria as we
deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without
assuming any responsibility for independent verification, upon
the accuracy and completeness of all financial and other
information and data publicly available or provided to or
otherwise reviewed by or discussed with us and upon the
assurances of the management of Applebees that it is not
aware of any relevant information that has been omitted or that
remains undisclosed to us. With respect to financial forecasts
and other information and data relating to Applebees
(including sensitivities thereto) provided to or otherwise
reviewed by or discussed with us, we have been advised by the
management of Applebees, and we have assumed, with your
consent, that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of
Applebees as to the future financial performance of
Applebees under the alternative business scenarios and
sensitivities reflected therein. We have assumed, with your
consent, that the Merger will be consummated in accordance with
its terms, without waiver, modification or amendment of any
material term, condition or agreement and that, in the course of
obtaining the necessary regulatory or third party approvals,
consents, releases and waivers for the Merger, no delay,
limitation, restriction or condition will be imposed that would
have an adverse effect on Applebees or the Merger. We have
not made or been provided with an independent evaluation or
appraisal of the
B-1
Board of Directors
Applebees International, Inc.
July 15, 2007
Page 2
assets or liabilities (contingent or otherwise) of
Applebees nor have we made any physical inspection of the
properties or assets of Applebees. Our opinion does not
address any terms or other aspects or implications of the Merger
(other than the Merger Consideration to the extent expressly
specified herein). We express no view as to, and our opinion
does not address, the underlying business decision of
Applebees to effect the Merger, the relative merits of the
Merger as compared to any alternative business strategies that
might exist for Applebees or the effect of any other
transaction in which Applebees might engage. Our opinion
is necessarily based upon information available to us, and
financial, stock market and other conditions and circumstances
existing and disclosed to us, as of the date hereof.
Citigroup Global Markets Inc. has acted as financial advisor to
the Strategy Committee in connection with the proposed Merger
and will receive a fee for such services, a portion of which is
payable in connection with the delivery of this opinion and a
significant portion of which is contingent upon the consummation
of the Merger. One of our affiliates in the past has acted and
currently is acting as syndication agent for,
and/or a
lender under, credit facilities of certain franchisees of
Applebees, borrowings under which, with respect to certain
such facilities, are partially guaranteed by Applebees,
for which services such affiliate has received, and expects to
receive, compensation. In the ordinary course of our business,
we and our affiliates may actively trade or hold the securities
of Applebees and IHOP 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. In addition, we and
our affiliates (including Citigroup Inc. and its affiliates) may
maintain relationships with Applebees, IHOP and their
respective affiliates.
The opinion expressed herein is provided for the information of
the Board of Directors of Applebees in its evaluation of
the proposed Merger, and our opinion is not intended to be and
does not constitute a recommendation to any stockholder as to
how such stockholder should vote or act on any matters relating
to the proposed Merger.
Based upon and subject to the foregoing, our experience as
investment bankers, our work as described above and other
factors we deemed relevant, we are of the opinion that, as of
the date hereof, the Merger Consideration is fair, from a
financial point of view, to the holders of Applebees
Common Stock.
Very truly yours,
/s/ Citigroup
Global Markets Inc.
CITIGROUP GLOBAL MARKETS INC.
B-2
EXHIBIT C
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.
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(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. (8 Del. C. 1953,
§ 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186,
§ 24; 57 Del. Laws, c. 148,
§§ 27-29;
59 Del. Laws, c. 106, § 12; 60 Del. Laws, c. 371,
§§ 3-12; 63 Del. Laws, c. 25, § 14; 63
Del. Laws, c. 152, §§ 1, 2; 64 Del. Laws, c. 112,
§§ 46-54;
66 Del. Laws, c. 136,
§§ 30-32;
66 Del. Laws, c. 352, § 9; 67 Del. Laws, c. 376,
§§ 19, 20; 68 Del. Laws, c. 337,
§§ 3, 4; 69 Del. Laws, c. 61, § 10; 69
Del. Laws, c. 299, §§ 2, 3; 70 Del. Laws, c. 349,
§ 22; 71 Del. Laws, c. 120, § 15; 71 Del.
Laws, c. 339,
§§ 49-52;
73 Del. Laws, c. 82, § 21.)
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YOUR VOTE IS IMPORTANT Please take a moment now to vote your shares of Applebees
International, Inc. common stock for the upcoming Special Meeting of Stockholders. PLEASE REVIEW
THE PROXY STATEMENT AND SUBMIT YOUR PROXY TODAY IN ONE OF THREE WAYS: 1. Submit your Proxy by
Telephone Please call toll-free in the U.S. or Canada at 1-866-855-9703, on a touch-tone
telephone. If outside the U.S. or Canada, call 1-215-521-1341. Please follow the simple
instructions. You will be required to provide the unique control number indicated below. OR 2.
Submit your Proxy by Internet Please access https://www.proxyvotenow.com/appb, and follow the
simple instructions. Please note you must type an s after http. You will be required to provide
the unique control number indicated below. You may submit your proxy by telephone or Internet 24
hours a day, 7 days a week. Your telephone or Internet submission authorizes the named proxies
to vote your shares in the same manner as if you had marked, signed and returned a proxy card.
OR 3. Submit your Proxy by Mail If you do not wish to submit your proxy by telephone or over
the Internet, please complete, sign, date and return the proxy card in the envelope provided, or
mail to: Applebees International, Inc., c/o Innisfree M&A Incorporated, FDR Station, P.O. Box
5155, New York, NY 10126-2377. ? TO SUBMIT YOUR PROXY BY MAIL PLEASE DETACH PROXY CARD HERE AND
RETURN IN THE ENVELOPE PROVIDED ? - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - The
Board of Directors Recommends a Vote FOR Proposals 1 and 2. FOR
AGAINST ABSTAIN 1. Approve the adoption of the Agreement and Plan of Merger, dated July
15, 2007, among Applebees International, Inc., IHOP Corp. and CHLH
Corp. and the merger. 2. Approve any proposal to adjourn the Special Meeting, if necessary, to
solicit additional proxies if there are not sufficient
votes in favor of Proposal 1. The undersigned acknowledges receipt from Applebees International,
Inc. prior to execution of this proxy, of the Notice of the Special Meeting and accompanying
Proxy Statement. Address Change: Mark Box
Indicate changes to left: Date___, 2007
___Signature ___Signature
Please sign name(s) exactly as shown at left. When signing as executor,
administrator, trustee, guardian or corporate officer, give full title as such; when
shares have been issued in names of two or more persons, all should sign. [This proxy, if
properly executed and delivered, will revoke all previous proxies.] |
PLEASE SUBMIT YOUR PROXY TODAY! SEE REVERSE SIDE FOR THREE EASY WAYS TO SUBMIT YOUR PROXY. ? TO
SUBMIT YOUR PROXY BY MAIL PLEASE DETACH PROXY CARD HERE AND RETURN IN THE ENVELOPE PROVIDED ? - -
- - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - APPLEBEES INTERNATIONAL, INC. SPECIAL MEETING OF
STOCKHOLDERS ___, 2007 ___a.m. (Local Time) This Proxy is solicited by the
Board of Directors for use at the Special Meeting on ___, 2007. The undersigned hereby
appoints Eric L. Hansen and Rebecca R. Tilden, and either of them, Proxies with full power of
substitution to vote all shares of Common Stock of Applebees International, Inc. which the
undersigned is entitled to vote at the Special Meeting of Stockholders of Applebees International,
Inc. to be held at ___on ___, 2007, or at any adjournment or
postponement thereof. This proxy will be voted as directed herein. If no direction is specified
with regard to a proposal, this proxy will be voted FOR any such proposal. In their discretion,
the Proxies are authorized to vote upon such other business as may properly come before the meeting
or any adjournment or postponement thereof. Continued on reverse side. |