BKC Burger King Holdings

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.      )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ   Preliminary Proxy Statement

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

o   Definitive Proxy Statement

o   Definitive Additional Materials

o   Soliciting Material Pursuant to § 240.14a-12

 

BURGER KING HOLDINGS, 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):

 

 

 

 

 

 

 

Solely for purposes of calculating the registration fee, the maximum aggregate value of the transaction was calculated as the sum of (A) 136,465,856 shares of common stock multiplied by $24.00, plus (B) 6,579,653 options to acquire common stock with an exercise price below $24.00 multiplied by $24.00 minus such exercise price, plus (C) 1,651,767 restricted stock units multiplied by $24.00.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

 

 

BURGER KING HOLDINGS, INC.
5505 BLUE LAGOON DRIVE
MIAMI, FLORIDA 33126

 

[ • ], 2010

 

Dear Shareholder:

 

On behalf of the board of directors of Burger King Holdings, Inc. (the “Company”), I cordially invite you to attend a special meeting of shareholders of the Company, to be held on [ • ], 2010 at [ • ] a.m. Eastern Standard Time, at [ • ].

 

On September 2, 2010, the Company entered into a definitive Merger Agreement to be acquired by an affiliate of 3G Capital. 3G Capital is a global investment firm focused on long-term value creation, with a particular emphasis on maximizing the potential of brands and businesses. At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Merger Agreement.

 

If the merger contemplated by the Merger Agreement is completed, you will be entitled to receive $24.00 in cash, without interest, less any applicable withholding taxes, for each share of our common stock owned by you (unless you have properly exercised your appraisal rights with respect to such shares).

 

After careful consideration, the Company’s board of directors has unanimously determined that the merger is advisable, fair to and in the best interests of the shareholders of the Company, and approved the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement. Accordingly, the Company’s board of directors recommends that you vote “FOR” approval of the proposal to adopt the Merger Agreement and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Approval of the proposal to adopt the Merger Agreement requires the affirmative vote of holders of a majority of the outstanding shares of our common stock entitled to vote thereon. Your vote is very important. Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote your shares of our common stock will have the same effect as a vote “AGAINST” approval of the proposal to adopt the Merger Agreement.

 

If your shares of our common stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of our common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares of our common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of our common stock “FOR” approval of the proposal to adopt the Merger Agreement will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement.

 

The accompanying proxy statement provides you with detailed information about the special meeting, the Merger Agreement and the merger. A copy of the Merger Agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and its annexes, including the Merger Agreement, carefully. You may also obtain additional information about the Company from documents we have filed with the Securities and Exchange Commission.

 

On behalf of the board of directors and management of the Company, we thank you for your support.

 

Best regards,

 

John W. Chidsey

Chairman and Chief Executive Officer

 

The proxy statement is dated [ • ], 2010, and is first being mailed to our shareholders on or about [ • ], 2010.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

 

BURGER KING HOLDINGS, INC.
5505 BLUE LAGOON DRIVE
MIAMI, FLORIDA 33126

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held • , 2010

 

A special meeting of shareholders of Burger King Holdings, Inc., a Delaware corporation (the “Company”), will be held on [ • ], 2010 at [ • ] a.m. Eastern Standard Time, at [ • ].

 

The meeting will be held for the following purposes:

 

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of September 2, 2010, as it may be amended from time to time, by and among the Company, Blue Acquisition Holding Corporation, a Delaware corporation (“Parent”), and Blue Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (the “Merger Agreement”). A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement.

 

2. To consider and vote on a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the Merger Agreement.

 

3. To transact any other business that may properly come before the special meeting, or any adjournment or postponement of the special meeting, by or at the direction of the board of directors of the Company.

 

The board of directors has fixed the close of business on • , 2010 as the record date for determining shareholders entitled to notice of and to vote at the meeting.

 

Your vote is very important, regardless of the number of shares of Company common stock you own. The merger cannot be completed unless the Merger Agreement is adopted by the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares of Company common stock will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by phone or the Internet, your shares of Company common stock will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.

 

After careful consideration, the Company’s board of directors has unanimously determined that the merger is advisable, fair to and in the best interests of the shareholders of the Company, and approved the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement. Accordingly, the Company’s board of directors recommends that you vote “FOR” approval of the proposal to adopt the Merger Agreement and “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. IF YOU ATTEND THE SPECIAL MEETING AND VOTE IN PERSON, YOUR VOTE BY BALLOT WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED.

 

By Order of the Board of Directors,

 

Anne Chwat

General Counsel and Secretary

Miami, Florida

 • , 2010

 

TABLE OF CONTENTS

 

 

This proxy statement and a proxy card are first being mailed on or about [ • ], 2010 to shareholders who owned shares of Company common stock as of the close of business on [ • ], 2010.

 

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page [ • ].

 

• Parties to the Merger (Page [ • ])

 

Burger King Holdings, Inc. , or the Company, we, our, or us, is a Delaware corporation formed on July 23, 2002, and is headquartered in Miami, Florida. Our restaurant system includes restaurants owned by the Company and by franchisees. We are the world’s second largest fast food hamburger restaurant chain as measured by the total number of restaurants and system-wide sales. As of June 30, 2010, we owned or franchised a total of 12,174 restaurants in 76 countries and U.S. territories, of which 1,387 restaurants were Company restaurants and 10,787 were owned by our franchisees. Of these restaurants, 7,258 or 60% were located in the United States and 4,916 or 40% were located in our international markets. Our restaurants feature flame-broiled hamburgers, chicken and other specialty sandwiches, french fries, soft drinks and other affordably-priced food items. During our more than 50 years of operating history, we have developed a scalable and cost-efficient quick service hamburger restaurant model that offers customers fast food at affordable prices.

 

Blue Acquisition Holding Corporation , or Parent, is a Delaware corporation that was formed solely for the purpose of acquiring the Company and has not engaged in any business except for activities related to its formation, completing the transactions contemplated by the merger agreement and arranging the related financing. Parent is controlled by 3G Special Situations Fund II, L.P., a Cayman exempted limited partnership, which we sometimes refer to as 3G. 3G is a private equity fund principally engaged in the business of making investments in securities. Upon completion of the merger, the Company will be a direct wholly-owned subsidiary of Parent.

 

Blue Acquisition Sub, Inc. , or Merger Sub, is a Delaware corporation and a wholly-owned subsidiary of Parent that was formed by Parent solely for the purpose of facilitating the acquisition of the Company. To date, Merger Sub has not carried on any activities other than those related to its formation, completing the transactions contemplated by the merger agreement and arranging the related financing. Upon completion of the merger, Merger Sub will cease to exist.

 

In this proxy, we refer to the Agreement and Plan of Merger, dated September 2, 2010, as it may be amended from time to time, among the Company, Parent and Merger Sub, as the merger agreement, and the merger of Merger Sub with and into the Company, as the merger.

 

• Tender Offer

 

On September 16, 2010, Merger Sub commenced a tender offer, which we refer to as the offer, for all of the outstanding shares of Company common stock at a price of $24.00 per share, net to the seller in cash without interest. The offer contemplated that, after completion of the offer and the satisfaction or waiver of all conditions, we will merge with Merger Sub and all outstanding shares of Company common stock, other than shares held by Parent, Merger Sub or the Company or shares held by the Company’s shareholders who have and validly exercised appraisal rights under Delaware law, will be canceled and converted into the right to receive cash equal to the $24.00 offer price per share. The offer was commenced pursuant to the merger agreement.

Under the terms of the merger agreement, the parties agreed to complete the merger whether or not the offer is completed. If the offer is not completed, the parties agreed that the merger could only be completed after the receipt of shareholder approval of the adoption of the merger agreement that will be considered at the special meeting. We are soliciting proxies for the special meeting to obtain shareholder approval of the adoption of the merger agreement to be able to consummate the merger regardless of the outcome of the offer.

 

We refer in this proxy statement to the offer and to terms of the merger agreement applicable to the offer, however, the offer is being made separately to the holders of shares of Company common stock and is not applicable to the special meeting.

 

• The Special Meeting (Page [ • ])

 

Time, Place and Purpose of the Special Meeting (Page [ • ])

 

The special meeting will be held on [ • ], 2010 at [ • ] a.m. EST, at [ • ].

 

At the special meeting, holders of common stock of the Company, par value $0.01 per share, which we refer to as Company common stock, will be asked to approve the proposal to adopt the merger agreement and to approve the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

 

Record Date and Quorum (Page [ • ])

 

You are entitled to receive notice of, and to vote at, the special meeting if you owned shares of Company common stock at the close of business on [ • ], 2010, which the Company has set as the record date for the special meeting and which we refer to as the record date. You will have one vote for each share of Company common stock that you owned on the record date. As of the record date, there were [ • ] shares of Company common stock outstanding and entitled to vote at the special meeting. A majority of the shares of Company common stock outstanding at the close of business on the record date and entitled to vote, present in person or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting.

 

Vote Required (Page [ • ])

 

Approval of the proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon.

 

Approval of the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies requires the affirmative vote of holders of a majority of the shares of Company common stock present in person or represented by proxy and entitled to vote on the matter at the special meeting.

 

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, [ • ] shares of Company common stock (excluding (1) shares issuable upon the exercise of options to purchase Company common stock, which we refer to as stock options, (2) shares issuable upon vesting of Company restricted stock units, which we refer to as restricted stock units, (3) shares issuable upon vesting of Company performance-based stock units, which we refer to as performance-based restricted stock units, and (4) vested and unvested deferred stock awards granted to members of the board of directors of the Company, which we refer to as director stock units (collectively representing [ • ]% of the outstanding shares of Company common stock on the record date). The directors and executive officers have informed the Company that they currently intend to vote all of their shares of Company common stock (other than shares of Company common stock as to which such holder does not have discretionary authority) “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

In addition, concurrently with the execution of the merger agreement, certain private equity funds affiliated with TPG Capital, Bain Capital Partners and the Goldman Sachs Funds, who we refer to as the

Sponsors, entered into stockholder tender agreements with the Company. It is anticipated that, pursuant to the terms of such stockholder tender agreements, such Sponsors will each enter into customary voting agreements with Parent to vote their shares of Company common stock in favor of the merger. The shares of Company common stock collectively held by such Sponsors comprise approximately 31% of the outstanding shares of Company common stock.

 

Proxies and Revocation (Page [ • ])

 

Any shareholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person by appearing at the special meeting. If your shares of Company common stock are held in “street name” through a bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Company common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or to vote in person at the special meeting, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of Company common stock will not be voted on the proposal to adopt the merger agreement, which will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, and your shares of Company common stock will not have an effect on approval of the proposal to adjourn the special meeting.

 

You may change your vote or revoke your proxy at any time before it is voted at the special meeting by:

 

 

If you hold your shares of Company common stock in street name, you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.

 

• The Merger (Page [ • ])

 

The merger agreement provides that Merger Sub will merge with and into the Company. The Company will be the surviving corporation in the merger and will continue to do business following the merger. As a result of the merger, the Company will cease to be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation.

 

Merger Consideration (Page [ • ])

 

In the merger, each outstanding share of Company common stock (except for certain shares owned by Parent or Merger Sub, and shares held by shareholders who have perfected their statutory dissenters rights of appraisal under Delaware law, which we refer to collectively as the excluded shares) will be converted into the right to receive $24.00 in cash, without interest, which amount we refer to as the per share merger consideration, less any applicable withholding taxes.

 

• Reasons for the Merger; Recommendation of the Board of Directors (Page [ • ])

 

After careful consideration of various factors described in the section entitled “The Merger — Reasons for the Merger; Recommendation of the Board of Directors,” the board of directors of the Company, which we refer to as the board of directors, unanimously (i) authorized and approved the execution, delivery and performance of the merger agreement and the transactions contemplated by the merger agreement, (ii) approved and declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement, (iii) declared that the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger and the other transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth therein, are fair to and in the best interests of the

shareholders of the Company, (iv) directed that the adoption of the merger agreement be submitted to a vote at a meeting of the shareholders of the Company, (v) recommended that the shareholders of the Company vote their shares of Company common stock in favor of adoption of the merger agreement and (vi) approved for all purposes Merger Sub, Parent and their affiliates, the merger agreement and the transactions contemplated by the merger agreement to exempt such persons, agreements and transactions from any anti-takeover laws.

 

In considering the recommendation of the board of directors with respect to the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the shareholders of the Company. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page [ • ].

 

The board of directors recommends that you vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate.

 

• Opinions of the Company’s Financial Advisors (Page [ • ])

 

Opinion of Morgan Stanley & Co. Incorporated (Page [ • ])

 

Morgan Stanley & Co. Incorporated, or Morgan Stanley, was engaged by the Company to provide it with financial advisory services in connection with the potential sale of the Company. At the meeting of the board of directors on September 1, 2010, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that, as of that date, based upon and subject to the limitations, qualifications and assumptions set forth in the written opinion, the $24.00 per share to be received by holders of shares of Company common stock pursuant to the merger agreement, was fair from a financial point of view to such holders.

 

The full text of the written opinion of Morgan Stanley, dated September 1, 2010, which sets forth among other things, assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion, is attached as Annex B hereto. Shareholders are urged to, and should, read the opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the Company board of directors and addresses only the fairness, from a financial point of view, of the consideration to be received by the holders of shares of Company common stock pursuant to the merger agreement, as of the date of the opinion. Morgan Stanley’s opinion does not address any other aspect of the transactions contemplated by the merger agreement and does not constitute a recommendation as to how any such holder should vote at the special meeting or whether any such holder should take any other action with respect to the merger. The summary of the opinion of Morgan Stanley set forth below under “The Merger — Opinions of the Company’s Financial Advisors — Opinion of Morgan Stanley & Co. Incorporated” is qualified in its entirety by reference to the full text of the opinion.

 

We encourage you to read the opinion of Morgan Stanley described above carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken in connection with such opinion.

 

Opinion of Goldman, Sachs & Co. (Page [ • ])

 

Goldman, Sachs & Co., or Goldman Sachs, a financial advisor to the board of directors, rendered its opinion to the board of directors that, as of September 2, 2010, and based upon and subject to the factors and assumptions set forth therein, the $24.00 per share of Company common stock to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated September 2, 2010, which sets forth among other things, assumptions made, procedures followed, matters considered and limitations on the review undertaken by Goldman Sachs in rendering its opinion, is attached as Annex C to this proxy statement and is incorporated by reference herein in its entirety. Goldman Sachs provided its opinion

for the information and assistance of the board of directors in connection with its consideration of the transactions contemplated by the merger agreement. Goldman Sachs’ opinion does not address any other aspect of the merger and does not constitute a recommendation to any shareholder as to how any holder of shares of Company common stock should vote with respect to the merger or any other matter. The summary of the written opinion of Goldman Sachs set forth below under “The Merger — Opinions of the Company’s Financial Advisors — Opinion of Goldman, Sachs & Co.” is qualified in its entirety by reference to the full text of such opinion.

 

We encourage you to read the opinion of Goldman Sachs described above carefully in its entirety for a description of the assumptions made, procedures followed, factors considered and limitations on the review undertaken in connection with such opinion.

 

• Financing of the Merger (Page [ • ])

 

We anticipate that the total funds needed to complete the merger, including the funds needed to:

 

 

will be funded through a combination of:

 

 

Parent has obtained the equity commitment letter and the debt commitment letter described below, which we refer to collectively as the commitment letters. The funding under those commitment letters is subject to certain conditions, including conditions that do not relate directly to the merger agreement. We believe the amounts committed under the commitment letters and the proceeds from the senior notes will be sufficient to complete the merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, one or more of the parties to the commitment letters fails to fund the committed amounts in breach of such commitment letters or if the conditions to such commitments are not met. If the merger agreement is terminated in the circumstances in which Merger Sub does not receive the proceeds of the debt commitment letter, Parent may be obligated to pay the Company a fee of $175 million, or the Parent Termination Fee, as described under “The Merger Agreement — Terms of the Merger Agreement — Termination Fees” beginning on page [ • ]. The obligation of Parent to pay the Parent Termination Fee is guaranteed by 3G as discussed below.

 

Equity Financing (Page [ • ])

 

Parent has entered into a letter agreement, which we refer to as the equity commitment letter, with 3G dated September 2, 2010, pursuant to which 3G has committed to purchase, or cause the purchase of, equity interests in Parent simultaneously with the effective time of the merger, up to a maximum of $1.5 billion in the aggregate, to fund the merger consideration and related expenses.

 

3G’s obligation to fund the financing contemplated by the equity commitment letter is generally subject to the satisfaction of the conditions to Parent’s and Merger Sub’s obligations to consummate the transactions contemplated by the merger agreement, the funding of the debt financing pursuant to the terms and conditions of the debt commitment letter or any alternative financing that Parent and Merger Sub are required or

permitted to accept from alternative sources pursuant to the merger agreement and the substantially contemporaneous closing of the merger.

 

Debt Financing (Page [ • ])

 

In connection with the entry into the merger agreement, Merger Sub received a debt commitment letter, dated September 2, 2010, which we refer to as the debt commitment letter, from JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and Barclays Bank PLC, which along with JPMorgan Chase Bank, N.A., we refer to as the lenders. Pursuant to the debt commitment letter, the lenders have committed to provide the aggregate of $1.9 billion in debt financing to Merger Sub, consisting of (i) a senior secured term loan facility in an aggregate principal amount of $1.75 billion, (ii) a senior secured revolving credit facility with a maximum availability of $150 million and (iii) $900 million of senior unsecured bridge loans to the extent that some or all of the senior unsecured notes referred to in the next sentence are unable to be issued at or prior to the closing of the merger or such offering does not yield at least $900 million in gross cash proceeds. It is expected that at the closing of the merger, $900 million principal amount of senior unsecured notes will be issued pursuant to Rule 144A of the Securities Act of 1933, as amended, or the Securities Act, or another private placement exemption in lieu of the senior unsecured bridge loans.

 

The debt commitment letter is not subject to due diligence or a “market out” condition, which would allow lenders not to fund their commitments if the financial markets are materially adversely affected, but such financing may not be considered assured. There is a risk that the conditions to the debt financing will not be satisfied and the debt financing may not be funded when required. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in this proxy statement is not available as anticipated.

 

• Limited Guaranty (Page [ • ])

 

Pursuant to a limited guaranty, which we refer to as the limited guaranty, delivered by 3G in favor of the Company, dated September 2, 2010, 3G has agreed to guarantee:

 

 

in each case, if, as and when due, provided, however , in no case shall the liability of 3G pursuant to the limited guaranty exceed $175 million. See “The Merger Agreement — Terms of the Merger Agreement — Termination Fees” beginning on page [ • ].

 

• Interests of Certain Persons in the Merger (Page [ • ])

 

When considering the recommendation of the board of directors that you vote to approve the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, your interests as a shareholder. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the shareholders of the Company. These interests include the following:

 

 

 

In addition, if the proposal to adopt the merger agreement is approved by our shareholders, the vested shares of Company common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of Company common stock held by other shareholders of the Company.

 

• Material U.S. Federal Income Tax Consequences of the Merger (Page [ • ])

 

The exchange of shares of Company common stock for cash in the merger will generally be a taxable transaction to United States holders for United States federal income tax purposes. In general, a United States holder whose shares of Company common stock are converted into the right to receive cash in the merger will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received with respect to such shares (determined before the deduction of any applicable withholding taxes) and its adjusted tax basis in such shares. Backup withholding may also apply to the cash payments made pursuant to the merger unless the United States holder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. Payments made to a non-United States holder with respect to shares of Company common stock exchanged for cash pursuant to the merger will generally be exempt from United States federal income tax. A non-United States holder may, however, be subject to backup withholding with respect to the cash payments made pursuant to the merger, unless the holder certifies that it is not a United States person or otherwise establishes a valid exemption from backup withholding tax. You should read “The Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page [ • ] for definitions of “United States Holder” and “Non-United States Holder,” and for a more detailed discussion of the United States federal income tax consequences of the merger. You should also consult your tax advisor with respect to the specific tax consequences to you in connection with the merger in light of your own particular circumstances, including federal estate, gift and other non-income tax consequences, and tax consequences under state, local or foreign tax laws.

 

• Regulatory Approvals and Notices (Page [ • ])

 

Under the terms of the merger agreement, the merger cannot be completed until the waiting period applicable to the consummation of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, or the HSR Act, has expired or been terminated.

 

Under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission, or the FTC, the merger cannot be completed until each of the Company and Parent files a notification and report form with the FTC and the Antitrust Division of the Department of Justice, or the DOJ, and the applicable waiting period has expired or been terminated. Parent filed such a notification and report form on September 16, 2010 and requested early termination of the waiting period. The Company filed such a notification and report form on September 17, 2010. The applicable waiting period will expire at 11:59 pm on October 1, 2010, unless earlier terminated.

 

The merger may also trigger antitrust notifications in Mexico and Turkey. Under Mexican law, certain acquisition transactions may not be consummated unless certain information has been furnished to the Federal Competition Commission, or the Mexican FCC, and certain waiting period requirements have been satisfied. The Company and Parent filed the notification and report form with the Mexican FCC on September 21, 2010. Consequently, the required waiting period under Mexican law is expected to expire on October 12, 2010. Under Turkish law, certain acquisition transactions may not be consummated unless certain information has been furnished to the Turkish Competition Authority, or the TCA, and certain waiting period requirements

have been satisfied. The Company and Parent filed the notification and report with the TCA on September 17, 2010. Consequently, the required waiting period under Turkish law is expected to expire on October 17, 2010.

 

• Litigation Relating to the Merger (Page [ • ])

 

In connection with the offer and the merger, on September 3, 2010, four purported class action complaints were filed in the Circuit Court for the County of Miami-Dade, Florida against the Company, each member of its board of directors and 3G Capital Partners Ltd., or 3G Capital. In addition, on September 8, 2010, a purported class action complaint was filed in the Delaware Court of Chancery against the Company, its board members, 3G, 3G Capital, Parent, and Merger Sub. The complaints generally allege, among other things, that the board of directors breached their fiduciary duties in connection with the merger and that 3G, Parent, Merger Sub and 3G Capital and the Company aided and abetted the purported breaches of fiduciary duty.

 

We believe the complaints are completely without merit, and intend to vigorously defend them.

 

• The Merger Agreement (Page [ • ])

 

Treatment of Common Stock, Options and Restricted Stock Units (Page [ • ])

 

 

Solicitation of Takeover Proposals (Page [ • ])

 

The merger agreement provides that until 11:59 p.m., Eastern time, on October 12, 2010, which we refer to as the “go shop” period, we are permitted to solicit any inquiry or the making of any takeover proposals from third parties and to participate in any negotiations or discussions with third parties with respect to any takeover proposals. From and after 12:00 a.m., Eastern time, on October 13, 2010 and until the effective time of the merger or, if earlier, the termination of the merger agreement, we are not permitted to solicit any inquiry or the making of any takeover proposals or engage in any negotiations or discussions with any person

relating to an takeover proposal. Notwithstanding these restrictions, under certain circumstances, we may, from and after 11:59 a.m., Eastern time, on October 13, 2010, which we refer to as the no-shop period start date, and prior to the time that our shareholders adopt the merger agreement, respond to a written takeover proposal or engage in discussions or negotiations with the person making such an takeover proposal. In addition, the restrictions applicable to us following the no-shop period start date do not apply to our activities with any person who made a written takeover proposal prior to the no-shop period start date that our board of directors believed in good faith (after consultation with its financial advisor and outside legal counsel) could reasonably be expected to result in a superior proposal. At any time before the merger agreement is adopted by our shareholders, if our board of directors determines that an takeover proposal is a superior proposal, we may terminate the merger agreement and enter into any acquisition, merger or similar agreement, which we refer to as an acquisition agreement, with respect to such superior proposal, so long as we comply with certain terms of the merger agreement, including paying a termination fee to Parent. See “The Merger Agreement — Terms of the Merger Agreement — Termination Fees” beginning on page [ • ].

 

Conditions to the Merger (Page [ • ])

 

The respective obligations of the Company, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of certain customary conditions, including the adoption of the merger agreement by our shareholders, receipt of required antitrust approvals, the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the merger agreement. The obligation of Parent and Merger Sub to consummate the merger is also subject to the absence of any change, event or occurrence, from the date of the merger agreement until the effective time of the merger, that has had or is reasonably likely to have a Company material adverse effect, as described under “The Merger Agreement — Terms of the Merger Agreement — Representations and Warranties” beginning on page [ • ].

 

Termination (Page [ • ])

 

We and Parent may, by mutual written consent, terminate the merger agreement and abandon the merger at any time prior to the effective time of the merger, whether before or after the adoption of the merger agreement by our shareholders.

 

The merger agreement may be terminated and the merger abandoned at any time prior to the effective time of the merger, whether before or after the adoption of the merger agreement by our shareholders:

 

 

 

 

 

 

 

 

 

Termination Fees (Page [ • ])

 

If the merger agreement is terminated in certain circumstances described under “The Merger Agreement — Terms of the Merger Agreement — Termination Fees” beginning on page [ • ], the terminating party may be required to pay a termination fee.

 

 

Limitations of Liability (Page [ • ])

 

The maximum aggregate liability of 3G, Parent and Merger Sub (including the debt and equity financing) for damages or otherwise is limited to the amount of the Parent Termination Fee of $175 million.

 

Our maximum aggregate liability for damages or otherwise in connection with the merger agreement or any of the transactions contemplated by the merger agreement is limited to $175 million.

 

The parties are entitled to equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms of the merger agreement in addition to any other remedy to which they are entitled at law or in equity. Neither Parent and Merger Sub or the Company will be entitled to receive both the fee payable by the other party and a grant of specific performance. Our right to seek specific performance of Parent’s and Merger Sub’s obligations to cause the equity financing for the merger to be funded is subject to the satisfaction of the following conditions:

 

 

Our right to seek specific performance of Parent’s and Merger Sub’s obligations to cause a bridge take-down is subject to the adoption of the merger agreement by our shareholders, receipt of required antitrust approvals, no injunctions or restraints, the accuracy of our representations and warranties in the merger agreement, subject to certain materiality qualifications, the performance of our obligations under the merger agreement in all material respects, no material adverse effect, and our solvency.

 

• Market Price of Company Common Stock (Page [ • ])

 

The per share merger consideration of $24.00 per share of Company common stock:

 

 

• Appraisal Rights (Page [ • ])

 

Shareholders are entitled to appraisal rights under the Delaware General Corporation Law, or the DGCL, in connection with the merger, provided that shareholders meet all of the conditions set forth in Section 262 of the DGCL. This means that you are entitled to have the fair value of your shares of Company common stock determined by the Delaware Court of Chancery and to receive payment based on that valuation. The ultimate amount you receive in an appraisal proceeding may be less than, equal to or more than the amount you would have received under the merger agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to the Company before the vote is taken on the merger agreement and you must not submit a proxy or otherwise vote in favor of the proposal to adopt the merger agreement. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page [ • ] and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex D to this proxy statement. If you hold your shares of Company common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such bank, brokerage firm or nominee. In view of the complexity of the DGCL, shareholders who may wish to pursue appraisal rights should consult their legal and financial advisors promptly.

 

• Delisting and Deregistration of Company Common Stock (Page [ • ])

 

If the merger is completed, Company common stock will be delisted from the New York Stock Exchange, or the NYSE, and deregistered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. As such, we would no longer file periodic reports with the SEC on account of Company common stock.

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should read carefully and in their entirety. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page [ • ].

 

 

 

 

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us, contain statements that, in our opinion, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “project,” “estimate,” “will,” “may,” “should,” “future,” “predicts,” “potential,” “continue” and similar expressions identify these forward-looking statements, which appear in a number of places in this proxy statement (and the documents to which we refer you in this proxy statement) and include, but are not limited to, all statements relating directly or indirectly to the timing or likelihood of completing the merger to which this proxy statement relates, plans for future growth and other business development activities as well as capital expenditures, financing sources and the effects of regulation and competition and all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers. You are cautioned that such forward-looking statements are not assurances for future performance or events and involve risks and uncertainties that could cause actual results and developments to differ materially from those covered in such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including our most recent filings on Forms 10-K and 10-Q, factors and matters contained or incorporated by reference in this document, and the following factors:

 

 

Consequently, all of the forward-looking statements we make in this document are qualified by the information contained or incorporated by reference herein, including, but not limited to (a) the information contained under this heading and (b) the information contained under the headings “Business” and “Risk Factors” and information in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-K and 10-Q (see “Where You Can Find More Information” beginning on page [ • ]). We are under no obligation to publicly release any revision to any forward-looking statement contained or incorporated herein to reflect any future events or occurrences.

 

You should carefully consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf.

 

Burger King Holdings, Inc.

5505 Blue Lagoon Drive

Miami, Florida 33126

(305) 378-7696

 

The Company is a Delaware corporation formed on July 23, 2002, and its headquarters are located in Miami, Florida. Our restaurant system includes restaurants owned by the Company and by franchisees. We are the world’s second largest fast food hamburger restaurant chain as measured by the total number of restaurants and system-wide sales. For more information about the Company, please visit our website at http://www.bk.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also “Where You Can Find More Information” beginning on page [ • ]. Company common stock is publicly traded on the NYSE under the symbol “BKC”.

 

Blue Acquisition Holding Corporation

c/o 3G Capital Partners Ltd.

600 Third Avenue, 37 ^th Floor

New York, New York 10016

(212) 893-6727

 

Blue Acquisition Holding Corporation, or Parent, is a Delaware corporation which was formed by an affiliate of, and is controlled by, 3G Special Situations Fund II, L.P, a Cayman exempted limited partnership, which we sometimes refer to as 3G, solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and the related financing transactions. Parent has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement. Upon completion of the merger, the Company will be a direct wholly-owned subsidiary of Parent.

 

3G is a private equity fund principally engaged in the business of making investments in securities.

 

Blue Acquisition Sub, Inc.

c/o 3G Capital Partners Ltd.

600 Third Avenue, 37 ^th Floor

New York, New York 10016

(212) 893-6727

 

Blue Acquisition Sub, Inc., or Merger Sub, is a Delaware corporation that was formed by Parent solely for the purpose of facilitating the acquisition of the Company. Merger Sub is a wholly-owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement and the related financing transactions. Upon the completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving corporation.

 

This proxy statement is being furnished to our shareholders as part of the solicitation of proxies by the board of directors for use at the special meeting to be held on [ • ], 2010, starting at [ • ] a.m., Eastern Standard Time, at [ • ], or at any postponement or adjournment thereof. At the special meeting, holders of Company common stock will be asked to approve the proposal to adopt the merger agreement and to approve the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

 

Our shareholders must approve the proposal to adopt the merger agreement in order for the merger to occur. If our shareholders fail to approve the proposal to adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement, which we encourage you to read carefully in its entirety.

 

We have fixed the close of business on [ • ], 2010 as the record date for the special meeting, and only holders of record of Company common stock on the record date are entitled to vote at the special meeting. You are entitled to receive notice of, and to vote at, the special meeting if you owned shares of Company common stock at the close of business on the record date. On the record date, there were [ • ] shares of Company common stock outstanding and entitled to vote. Each share of Company common stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

A majority of the shares of Company common stock outstanding at the close of business on the record date and entitled to vote, present in person or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting. Shares of Company common stock represented at the special meeting but not voted, including shares of Company common stock for which a shareholder directs an “abstention” from voting, as well as broker non-votes, will be counted for purposes of establishing a quorum. A quorum is necessary to transact business at the special meeting. Once a share of Company common stock is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and any adjournment of the special meeting. However, if a new record date is set for the adjourned special meeting, then a new quorum will have to be established. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned or postponed.

 

Only shareholders of record or their duly authorized proxies have the right to attend the special meeting. To gain admittance, you must present a valid photo identification, such as a driver’s license or passport. If your shares of Company common stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of Company common stock and a valid photo identification. If you are the representative of a corporate or institutional shareholder, you must present valid photo identification along with proof that you are the representative of such shareholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

 

Approval of the proposal to adopt the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon. For the proposal to adopt the merger agreement, you may vote FOR , AGAINST or ABSTAIN . Abstentions will not be counted as votes cast in favor of the proposal to adopt the merger agreement but will count for the purpose of determining whether a quorum is present. If you fail to submit a proxy or to vote in person at the special meeting, or abstain, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

If your shares of Company common stock are registered directly in your name with our transfer agent, The Bank of New York Mellon, you are considered, with respect to those shares of Company common stock, the “shareholder of record.” This proxy statement and proxy card have been sent directly to you by the Company.

 

If your shares of Company common stock are held through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares of Company common stock held in street name. In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of Company common stock, the shareholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote your shares by following their instructions for voting.

 

Under the rules of the NYSE, banks, brokerage firms or other nominees who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, such as the proposal to adopt the merger agreement, and, as a result, absent specific instructions from the beneficial owner of such shares of Company common stock, banks, brokerage firms or other nominees are not empowered to vote those shares of Company common stock on non-routine matters, which we refer to generally as broker non-votes. These broker non-votes will be counted for purposes of determining a quorum, but will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

The proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of the holders of a majority of the shares of Company common stock present in person or represented by proxy and entitled to vote on the matter at the special meeting. For the proposal to adjourn the special meeting, if necessary or appropriate, you may vote FOR , AGAINST or ABSTAIN . For purposes of this proposal, if your shares of Company common stock are present at the special meeting but are not voted on this proposal, or if you have given a proxy and abstained on this proposal, this will have the same effect as if you voted “AGAINST” the proposal. If you fail to submit a proxy or vote in person at the special meeting, or there are broker non-votes on the issue, as applicable, the shares of Company common stock not voted, will not be counted in respect of, and will not have an effect on, the proposal to adjourn the special meeting.

 

If you are a shareholder of record, you may have your shares of Company common stock voted on matters presented at the special meeting in any of the following ways:

 

Telephone Voting:   You may vote by calling the toll-free telephone number indicated on your proxy card. Please follow the voice prompts that allow you to vote your shares and confirm that your instructions have been properly recorded.

 

Internet Voting:   You may vote by logging on to the website indicated on your proxy card. Please follow the website prompts that allow you to vote your shares of Company common stock and confirm that your instructions have been properly recorded.

 

Return Your Proxy Card By Mail:   You may vote by completing, signing and returning the proxy card in the postage-paid envelope provided with this proxy statement. The proxy holders will vote your shares of Company common stock according to your directions. If you sign and return your proxy card without specifying choices, your shares of Company common stock will be voted by the persons named in the proxy in accordance with the recommendations of the board of directors as set forth in this proxy statement.

 

Vote at the Meeting:   You may cast your vote in person at the special meeting. Written ballots will be passed out to shareholders or legal proxies who want to vote in person at the meeting.

 

If you are a beneficial owner, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of Company common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted.

Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

 

Please refer to the instructions on your proxy or voting instruction card to determine the deadlines for voting over the Internet or by telephone. If you choose to vote by mailing a proxy card, your proxy card must be filed with our General Counsel and Secretary by the time the special meeting begins. Please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the per share merger consideration in exchange for your stock certificates.

 

If you vote by proxy, regardless of the method you choose to vote, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, or your proxies, will vote your shares of Company common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of Company common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

 

If you properly sign your proxy card but do not mark the boxes showing how your shares of Company common stock should be voted on a matter, the shares of Company common stock represented by your properly signed proxy will be voted “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

If you have any questions or need assistance voting your shares, please call [ • ] toll-free at [ • ].

 

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF COMPANY COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

 

As of [ • ], 2010, the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, [ • ] shares of Company common stock (excluding any shares of Company common stock deliverable upon exercise or conversion of any options or restricted stock units), representing [ • ]% of the outstanding shares of Company common stock on the record date. The directors and executive officers have informed the Company that they currently intend to vote all of their shares of Company common stock “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

Any shareholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person at the special meeting. If your shares of Company common stock are held in “street name” by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Company common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or vote in person at the special meeting, or abstain, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of Company common stock will not be voted on the proposal to adopt the merger agreement, which will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

If you are a shareholder of record, you have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is voted at the special meeting by:

 

 

If you hold your shares in street name, you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.

 

Although it is not currently expected, the special meeting may be adjourned or postponed, including for the purpose of soliciting additional proxies, if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement or if a quorum is not present at the special meeting. Other than an announcement to be made at the special meeting of the time, date and place of an adjourned meeting, an adjournment generally may be made without notice. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

We are working towards completing the merger as soon as possible. If the merger is approved at the shareholders meeting, then, assuming timely satisfaction of the other necessary closing conditions, we anticipate that the merger will be completed promptly thereafter.

 

Shareholders that do not vote for the adoption of the merger agreement are entitled to appraisal rights under the DGCL in connection with the merger. This means that you are entitled to have the fair value of your shares of Company common stock determined by the Delaware Court of Chancery and to receive payment based on that valuation in lieu of the right to receive $24.00 per share of Company common stock in cash, without interest. The ultimate amount you receive in an appraisal proceeding may be less than, equal to or more than the amount you would have received under the merger agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to the Company before the vote is taken on the merger agreement and you must not vote in favor of the proposal to adopt the merger agreement. Your failure to follow exactly the procedures specified under the DGCL may result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page [ • ] and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex D to this proxy statement. If you hold your shares of Company common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or nominee. In view of the complexity of the DGCL, shareholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

 

The Company may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of Company common stock for their expenses in forwarding soliciting materials to beneficial owners of Company common stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call [ • ] toll-free at [ • ].

 

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A . You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

The merger agreement provides that Merger Sub will merge with and into the Company. The Company will be the surviving corporation in the merger and will continue to do business following the merger. As a result of the merger, the Company will cease to be a publicly traded company. You will not own any shares of the capital stock of the surviving corporation.

 

In the merger, each outstanding share of Company common stock (except for the excluded shares) will be converted into the right to receive the per share merger consideration of $24.00 in cash, less any applicable withholding taxes.

 

Since our initial public offering in 2006, as part of our ongoing strategic planning process, the board of directors and members of our senior management have regularly reviewed and evaluated our business and operations, competitive position, strategic plans and alternatives with a goal of enhancing shareholder value. Although we have achieved many financial and operating performance goals since our initial public offering, certain initiatives that management considered important to our long-term success, including (1) the recent roll-out of the new flexible broiler and point-of-sale system, (2) the on-going reimaging and remodeling of our restaurants, (3) our portfolio management strategies, including the refranchising of half of our restaurant portfolio over the next three to five years, and (4) other operating initiatives designed to enhance overall efficiencies and profitability, could take several years to yield any direct monetary benefits to us and our shareholders and may depress the market price of our common stock in the interim. Furthermore there are significant internal and external risks that could result in us not recognizing all of the anticipated benefits of these initiatives. In addition, our refranchising strategy, although designed to position us for stronger net restaurant growth and reduce our future required capital expenditure obligations, could exacerbate the operational risks associated with our highly franchised business model.

 

In late 2009 and early 2010, Alexandre Behring, Managing Partner at 3G Capital, the investment advisor of 3G, taking action on behalf of 3G, Parent and Merger Sub, other representatives of 3G Capital and certain representatives of Lazard Freres & Co. LLC, or Lazard, financial advisor to 3G Capital, contacted representatives of certain private equity funds affiliated with TPG Capital, Bain Capital Partners and Goldman, Sachs & Co. (the “Goldman Sachs Funds”), who we refer to as the Sponsors, on an unsolicited basis to express 3G Capital’s preliminary interest in exploring a potential transaction involving the Company. The representatives of the Sponsors informed the representatives of 3G Capital and Lazard that any inquiries regarding the Company should be raised directly with Mr. John Chidsey, our Chief Executive Officer and Executive Chairman.

 

In early March 2010, Mr. Behring contacted Mr. Chidsey to express 3G Capital’s preliminary interest in exploring a potential acquisition of the Company. During this discussion, Mr. Behring suggested that the consideration payable in such transaction would be entirely paid in cash, but Mr. Behring did not propose a purchase price for the acquisition of the Company. Mr. Chidsey informed Mr. Behring that the Company was not for sale, but that the Company and the board of directors would consider any proposal that would enhance shareholder value. Mr. Chidsey informed Mr. Behring that, if 3G Capital was serious about exploring a potential acquisition of the Company, then 3G Capital should deliver a written acquisition proposal to the Company based on publicly available information, which Mr. Chidsey would then discuss with the board of directors.

 

On March 29, 2010, we received a letter from 3G Capital and a third party private equity firm with whom 3G Capital was discussing the transaction containing a non-binding indication of interest to acquire all of the

outstanding shares of Company common stock for $24.00 in cash per share, which we refer to as the March 29th Proposal.

 

Following receipt of the March 29th Proposal, Mr. Chidsey contacted Mr. Behring to confirm that he had received the proposal and would discuss it with the board of directors at a special meeting to be held on April 6, 2010.

 

On April 6, 2010, the board of directors held a special meeting, at which certain members of our senior management were present. At the meeting, the terms and conditions of the March 29th Proposal were discussed and it was noted, among other matters, that the March 29th Proposal:

 

 

The board of directors and management also discussed our prospects as a stand-alone company, including our strategic plan, the historical operating and financial results and the short-term and long-term outlook for us, as well as macroeconomic factors. With a view towards maximizing shareholder value, the board of directors and management then discussed whether, if the board of directors were to decide to explore a possible sale of the Company, any third parties other than 3G Capital, including any potential strategic buyers, should be contacted regarding their potential interest in the Company. The board of directors noted that the most likely strategic acquirer had not shown an interest in pursuing a business combination with the Company.

 

In addition, the board of directors discussed the advisability of hiring an investment bank as its financial advisor to conduct an independent assessment and valuation of the Company. The board of directors authorized our senior management team to retain a financial advisor to perform such valuation and otherwise assist us in its evaluation of strategic alternatives. At this meeting, the board of directors unanimously approved the appointment of Ronald Dykes as the independent lead director of the board. After further discussion of the March 29th Proposal, the board of directors decided to not pursue a potential sale to 3G Capital at that time. The board of directors requested that Mr. Chidsey communicate the board of director’s position to 3G Capital. Following the meeting, Mr. Chidsey contacted a representative of Lazard to convey the board of director’s position that the offer price contained in the March 29th Proposal was not sufficient to warrant further discussions at this time unless 3G Capital was willing to increase its offer price.

 

On or about April 12, 2010, representatives of Lazard contacted Mr. Chidsey and indicated that 3G Capital might be willing to increase the price of its offer above $24.00 per share but would need to meet with our management to further understand our business and its short-term and long-term prospects. No alternative prices were discussed in these conversations. Based on these discussions, Mr. Chidsey said he was willing to meet with representatives of 3G Capital to discuss additional information about us that might be helpful to 3G Capital’s analysis if 3G Capital entered into an acceptable confidentiality agreement.

 

On April 14, 2010, we distributed to 3G Capital a draft of a non-disclosure and standstill agreement, or a Non-Disclosure Agreement. We, 3G Capital, Holland & Knight, LLP, or Holland & Knight, our outside corporate counsel, and Kirkland & Ellis LLP, or Kirkland, outside counsel to 3G Capital, negotiated the terms of the Non-Disclosure Agreement over the next several weeks. On April 26, 2010, we and 3G Capital executed

the Non-Disclosure Agreement. The Non-Disclosure Agreement contained customary provisions, including standstill and non-solicitation of employees provisions. The other private equity firm that had initially participated in the March 29th Proposal did not execute a Non-Disclosure Agreement and we had no further contact with such firm.

 

In addition, beginning on April 14, 2010, we began discussions with representatives of Morgan Stanley and Goldman Sachs regarding their potential role as financial advisors to the Company. During the next few weeks, our representatives held discussions with each of Morgan Stanley and Goldman Sachs regarding preparing a financial analysis of the Company. On April 21, 2010, we entered into a Non-Disclosure Agreement with Morgan Stanley in connection with Morgan Stanley’s engagement to conduct a valuation of the Company.

 

On April 27, 2010, Mr. Chidsey and Ben Wells, our Chief Financial Officer, met with representatives of 3G Capital at the Miami offices of Holland & Knight. At such meeting, Mr. Chidsey and Mr. Wells provided information regarding our business and prospects that had recently been presented to investors and analysts and that were publicly available. At the conclusion of the meeting, representatives of 3G Capital requested certain additional due diligence information from us. In addition, representatives of 3G Capital indicated that they would deliver an updated proposal to us within a few weeks after receiving the requested additional information. Following the April 27, 2010 discussion, Mr. Wells provided representatives of 3G Capital with the information requested by 3G Capital.

 

On May 11, 2010, we received a revised proposal from 3G Capital to acquire all of the outstanding shares of Company common stock for $25.00 per share in cash, which we refer to as the May 11th Proposal , subject to results of its due diligence investigation. The May 11th Proposal indicated that the $25.00 per share offer price represented a value of the Company equal to 9.4x our trailing twelve month EBITDA as of March 31, 2010. In the May 11th Proposal, 3G Capital stated its commitment to contribute all of the equity capital required to finance the transaction and indicated that JP Morgan and Barclays Capital had committed to provide all of the debt financing required to consummate the transaction. 3G Capital also indicated that it was working on firm commitment papers with those lenders. In the May 11th Proposal, 3G Capital requested further meetings with us to complete its due diligence review as soon as possible and indicated that it would be able to finalize its confirmatory due diligence and financing commitments within two to three weeks. Finally, 3G Capital indicated in the May 11th Proposal that it expected to enter into exclusive negotiations with us for a period of 30 days following the start of its due diligence. We did not agree to any exclusivity arrangement with 3G Capital and the discussions and negotiations continued on a non-exclusive basis throughout the period until the signing of the merger agreement. On May 12, 2010, representatives of Morgan Stanley contacted representatives of Lazard by telephone to convey that the board of directors would review the May 11th Proposal in detail at its regularly scheduled board of directors meeting on June 3, 2010.

 

From mid-April 2010 until early June 2010, Mr. Chidsey and Mr. Wells had several in-person and telephonic meetings with representatives of Morgan Stanley in connection with Morgan Stanley’s preparation of preliminary financial analyses relating to us. We also interviewed several national law firms specializing in public company mergers and acquisitions to provide additional assistance to the board of directors and us in connection with its evaluation of 3G Capital’s interest in a potential transaction with us.

 

On May 20, 2010, the board of directors held a special meeting, at which certain members of our senior management were present. During the meeting, Mr. Chidsey updated the board of directors on the status of our activities in response to the acquisition proposal received from 3G Capital and reviewed the terms and conditions of the May 11th Proposal. Mr. Chidsey informed the board of directors that (i) representatives of Morgan Stanley would attend the regularly scheduled board of directors meeting on June 3, 2010 to review their preliminary financial analyses relating to us detail and (ii) representatives of an outside special legal counsel, or Outside Special Counsel, would attend the June 3rd board of directors meeting to discuss the fiduciary duties of the directors in general and specifically in connection with their consideration of 3G Capital’s interest in a potential transaction. The board of directors determined to defer further consideration of the May 11th Proposal until it had received the preliminary financial analyses from Morgan Stanley and further discussed with management and our advisors potential responses to the May 11th Proposal. The board

of directors instructed representatives of Morgan Stanley to advise 3G Capital that we would respond to the May 11th Proposal following the board of directors meeting on June 3, 2010.

 

On June 3, 2010, the board of directors held a regularly scheduled meeting, at which certain members of our senior management were present and, for portions of the meeting, representatives of Morgan Stanley and Outside Special Counsel were present. During this meeting, our management provided the board of directors with a forecast of the fourth quarter 2010 financial results and the proposed annual operating plan for fiscal year 2011. During the review of the fourth quarter forecasted financial results and the forecasted fiscal 2010 results generally, our management indicated that our results were adversely impacted by a generally weak consumer environment, including continued high unemployment, and commodity price increases, which have contributed to an erosion of margins as well as uncertainties created by fluctuations in currency exchange rates. Mr. Chidsey then reviewed the proposed annual operating plan for fiscal year 2011. Mr. Chidsey also reviewed the macroeconomic and business challenges facing us, including global economic uncertainty, high unemployment, potential as well as current commodity price increases, unpredictable currency exchange rates, competitive pressures and the negative impact of refranchisings on sales and EBITDA. Mr. Chidsey then reviewed the proposed capital expenditure plan for fiscal year 2011, including our re-imaging program and new restaurant development. Mr. Wells then discussed the need to refinance our existing credit facility before the end of September 2010 since the term loan under that facility would become a current liability in the fourth quarter of calendar 2010 and the revolver was scheduled to mature in June 2011.

 

Mr. Chidsey and Mr. Wells then reviewed with the board of directors our five year plan, including key strategic imperatives, the key assumptions underlying the plan and various growth scenarios. Representatives of Outside Special Counsel reviewed the legal duties of the directors generally and specifically in connection with a proposed acquisition transaction. Representatives of Morgan Stanley presented and reviewed with the board of directors their preliminary financial analyses of the Company. Representatives of Morgan Stanley discussed with the board of directors the terms of the May 11th Proposal and other potential strategic alternatives. Representatives of Morgan Stanley also reviewed certain background information relating to 3G Capital, including its involvement in other transactions. The board of directors, along with representatives of Morgan Stanley, Outside Special Counsel and members of senior management, discussed the terms of the May 11th Proposal in light of the preliminary valuation analyses of the Company performed by Morgan Stanley and the state of the financing markets. At the conclusion of these discussions, the board of directors instructed representatives of Morgan Stanley to inform Lazard that if 3G Capital would confirm the $25.00 per share price in its May 11th Proposal, then the board of directors would permit our management to meet with 3G Capital and its representatives and provide additional due diligence materials to allow 3G Capital to further improve its proposal, including to potentially decrease uncertainty in its offer and potentially improve its offer price.

 

Following the board of directors meeting on June 3, 2010, a representative of Morgan Stanley contacted a representative of Lazard to inform Lazard that the board of directors authorized us to have a due diligence meeting with 3G Capital and its debt financing sources if 3G Capital confirmed that there had been no change to the $25.00 per share price contained in the May 11th Proposal and a representative of Lazard stated that 3G Capital had not changed its price from the May 11th Proposal.

 

On June 14, 2010, Mr. Chidsey, Mr. Wells and Anne Chwat, our General Counsel, met with representatives of 3G Capital, its debt financing sources and another private equity firm considering participating in the transaction. Our and 3G Capital’s financial and legal advisors also attended the meeting. During this meeting, Mr. Chidsey and Mr. Wells gave a detailed presentation regarding our business and prospects for the remaining portion of fiscal year 2010 as well as the budget for fiscal year 2011 and the issues and opportunities for fiscal year 2012 and beyond.

 

On June 16, 2010, representatives of Lazard contacted representatives of Morgan Stanley to express 3G Capital’s continued interest in pursuing a transaction and indicated that 3G Capital would respond to us no later than July 1, 2010 with a proposal that included fully committed financing.

During the last two weeks of June 2010, representatives of Outside Special Counsel and Holland & Knight had a few discussions with representatives of Kirkland to confirm that the new proposal to be delivered by 3G Capital would also address other significant deal provisions and conditions.

 

On June 25, 2010, representatives of Lazard contacted representatives of Morgan Stanley to provide an update on 3G Capital’s discussions with the lenders that would be providing the debt financing for the proposed transaction. The representatives of Lazard indicated that the lenders remained willing to fully commit the debt financing, but that the credit markets had tightened and worsened significantly since the May 11th Proposal and such adjustment in market conditions had resulted in reduced availability of leverage and significantly higher financing costs. The representatives of Lazard indicated that due to the less favorable market conditions and certain financial information provided by us during the June 14, 2010 meeting, 3G Capital expected to propose an offer price to acquire the Company that was lower than the price in the May 11th Proposal.

 

On June 29, 2010, we received a proposal from 3G Capital to acquire all of the outstanding shares of Company common stock for $23.00 in cash per share, which we refer to as the June 29th Proposal. The key elements of the June 29th Proposal included, among other things:

 

 

In addition, the June 29th Proposal included a request that we grant 3G Capital a 30-day period of exclusivity. We did not grant 3G Capital’s request for exclusivity and the parties continued discussions on a non-exclusive basis.

 

On June 30, 2010, representatives of Outside Special Counsel and representatives of Kirkland held a teleconference to discuss the proposed terms of the merger agreement included with the June 29th Proposal.

 

On July 1, 2010, the board of directors held a special meeting, at which certain members of our senior management were present and, for portions of the meeting, representatives of Morgan Stanley, Holland & Knight and Outside Special Counsel were present. Representatives of Morgan Stanley and Outside Special Counsel presented the board of directors with a detailed summary of the June 29th Proposal. Representatives of Morgan Stanley then reviewed with the board of directors our recent share price performance relative to other participants and competitors in its industry over a range of historical short-term and long-term periods, as well as a description of the current debt financing market conditions and changes in the market since the

May 11th Proposal and the board of directors meeting on June 3, 2010. The board of directors, in consultation with representatives of Morgan Stanley, noted that although the leveraged loan markets had weakened considerably during these periods, the market had recently showed some improvement. Finally, representatives of Morgan Stanley presented their preliminary valuation analyses of the Company. At the conclusion of the meeting and following an extensive discussion of the June 29th Proposal, the board of directors determined that pursuing a potential acquisition by 3G Capital on the terms of the June 29th Proposal was not in the best interest of the Company and its shareholders at that time. The board of directors instructed representatives of Morgan Stanley to inform Lazard that the board of directors was not willing to pursue a transaction on the basis of the June 29th Proposal at that time. Following the meeting, representatives of Morgan Stanley contacted a representative of Lazard to convey the board of director’s position.

 

On July 26, 2010, the board of directors held a special meeting, at which certain members of our senior management, and representatives of Morgan Stanley, Holland & Knight and Outside Special Counsel were present. Mr. Chidsey provided the board of directors with an update of our financial results and forecast since the July 1, 2010 board of directors meeting. Representatives of Morgan Stanley informed the board of directors of the discussions between Morgan Stanley and Lazard on July 1, 2010 following the board of directors meeting. Representatives of Morgan Stanley further indicated that neither Lazard nor 3G Capital had contacted us or Morgan Stanley since the July 1, 2010 call between representatives of Morgan Stanley and Lazard. The board of directors and its advisors discussed the June 29th Proposal, our stand-alone prospects and whether any further action should be taken with respect to the June 29th Proposal. After discussion, the board of directors determined not to initiate any further discussions with 3G Capital at that time.

 

On July 27, 2010, Mr. Behring contacted a member of the board of directors to discuss 3G Capital’s interest in the transaction and the amount of work that had been done to support the June 29th Proposal. The director suggested that it might be productive for 3G Capital to discuss these topics directly with Mr. Chidsey. Thereafter, a representative of Lazard contacted a representative of Morgan Stanley to schedule a meeting among them, Mr. Behring and Mr. Chidsey to take place within a few days.

 

On July 29, 2010, Mr. Chidsey and a representative of Morgan Stanley met with Mr. Behring and a representative of Lazard. At the meeting, Mr. Behring indicated that 3G Capital wished to continue discussions with us in a collaborative process regarding the appropriate price at which a transaction may be completed. Mr. Chidsey and the representative of Morgan Stanley indicated at the meeting that they could not commit to any additional discussions without further guidance from the board of directors.

 

On July 30, 2010, a representative of Morgan Stanley informed a representative of Lazard that the board of directors planned to meet the following week to discuss the July 29, 2010 meeting.

 

On August 3, 2010, the board of directors held a special meeting, at which certain members of our senior management and representatives of Morgan Stanley, Holland & Knight and Outside Special Counsel were present. Mr. Chidsey and representatives of Morgan Stanley updated the board of directors on the discussions that had occurred with 3G Capital and Lazard since July 26, 2010, including the discussion during the in-person meeting on July 29, 2010. Representatives of Morgan Stanley and Outside Special Counsel reminded the board of directors that the non-price terms of the June 29th Proposal had not yet been discussed between the parties. Following discussion, the board of directors determined that its legal advisors should engage in discussions and negotiations with Kirkland regarding the non-price terms of the potential transaction, particularly to decrease the conditionality of the proposed terms. At the conclusion of the meeting, the board of directors instructed representatives of Morgan Stanley to inform representatives of Lazard that we would provide 3G Capital with updated due diligence materials and organize a meeting between Outside Special Counsel and Kirkland to negotiate certain material non-price terms and conditions of the June 29th Proposal. Following the meeting, representatives of Morgan Stanley contacted a representative of Lazard to convey the board of director’s position.

 

Later in the day on August 3, 2010, Outside Special Counsel distributed to Kirkland a revised version of the summary terms of the merger agreement that was included in the June 29th Proposal. The revised terms deleted all conditions to the consummation of the transaction related to 3G Capital’s debt financing and required that 3G Capital enter into definitive financing for the transaction prior to signing the merger

agreement. In addition, the revised terms proposed that 3G Capital would complete the transaction through a tender offer directly to the Company’s shareholders and a back-end merger, which representatives of Outside Special Counsel explained would be favorable to us because it could be completed more quickly and therefore with greater certainty of closing. In addition, the revised terms proposed expansions to our “go shop” rights to solicit superior proposals, including a lower termination fee and more limited matching and information rights.

 

Between August 3, 2010 and August 16, 2010, representatives of Outside Special Counsel, Holland & Knight and Kirkland held meetings and discussions regarding the summary terms of a merger agreement. During this period, the parties also discussed the terms under which 3G Capital would intend for certain members of our management to continue to be employed following the closing of the transaction and other management transition and retention matters.

 

In addition, during early August, 3G Capital and its representatives were provided with information in response to due diligence requests. Commencing on August 10, 2010, 3G Capital and its representatives were advised that an online data room that contained various legal and financial due diligence materials was available for representatives of 3G Capital and its advisors to access. Throughout the process leading to the execution of the merger agreement the data room was updated with new information, including specific information requested by 3G Capital and its advisors.

 

Between August 3, 2010 and August 13, 2010, representatives of Morgan Stanley and Lazard had a number of conversations to discuss the process that would be followed in the next few weeks to allow 3G Capital to make a definitive offer. Representatives of Lazard and Morgan Stanley discussed the mutual desire to finalize the due diligence and work through any other key issues in the proposed transaction through a negotiation of the merger agreement terms.

 

On August 12, 2010, representatives of Morgan Stanley, Outside Special Counsel and Holland & Knight, on our behalf, and representatives of Lazard and Kirkland, on behalf of 3G Capital, held a call to review the status of the discussions and open issues in advance of a meeting of the board of directors. Later that day, a subset of this group met to recap their mutual understanding on the remaining open items regarding the proposed terms of the merger agreement based on the discussions that had taken place over the course of the prior days of negotiations. In particular, the parties agreed that the merger agreement would initially contemplate a tender offer followed by a back-end merger with a minimum tender condition of approximately 78-80%, but that the merger agreement would provide that we would simultaneously proceed with filing a proxy statement for a single-step merger to prevent delay to the transaction if a majority but less than a supermajority of our shareholders tendered their shares in the tender offer.

 

On August 13, 2010, the board of directors held a special meeting, at which certain members of our senior management and representatives of Morgan Stanley, Holland & Knight and Outside Special Counsel were present. Mr. Chidsey updated the board of directors on our fourth quarter and full year 2010 results as well as results for July 2010 and indicated that he would be presenting an updated forecast for the full year and the five-year plan at the upcoming board of directors meeting on August 19, 2010. Representatives of Morgan Stanley updated the board of directors on their discussions with representatives of Lazard since August 3, 2010 regarding the proposed process and timeline to get to a definitive agreement for a proposed transaction. In that regard, it was noted that progress on the deal had been made (other than on the price of the transaction, on which the parties had agreed to delay further negotiation). Following discussion, the board of directors determined that our management and advisors should continue to furnish due diligence materials to 3G Capital and its advisors and deliver a draft merger agreement to 3G Capital and Kirkland. Representatives of Morgan Stanley informed the board of directors that Mr. Behring had requested a meeting with Mr. Chidsey to review the transition and retention issues with respect to members our management team. Following a discussion, the board of directors determined that Mr. Chidsey should meet with Mr. Behring to discuss the management retention and transition issues, but that Mr. Chidsey should not discuss any of the terms of his own retention arrangements until later in the process.

 

On August 16, 2010, Mr. Chidsey met with Mr. Behring at 3G Capital’s offices to discuss our senior management organizational structure and management retention and transition issues generally, although no specific individual arrangements were discussed at this meeting.

Also on August 16, 2010, Outside Special Counsel distributed to Kirkland an initial draft of the merger agreement that reflected the most recent discussions between the parties, as well as our proposal to resolve certain of the remaining open issues.

 

On August 18, 2010, the Compensation Committee of the board of directors met to discuss proposed changes to the severance arrangements for Mr. Chidsey, members of the Global Executive Team, other Senior Vice Presidents and Vice Presidents. The Compensation Committee received advice from Mercer Inc., or Mercer, its compensation consultant, and CAP Partners, our compensation consultant, that the level of severance in connection with a change in control of the Company provided at the time of our initial public offering was currently below market as compared to industry peers. The Compensation Committee then discussed the potential changes that should be made to such provisions in order to bring them more in line with industry peers, including for Mr. Chidsey by adding a pro-rata bonus in addition to his current severance benefit and increasing the benefits for other members of the Global Executive Team, other Senior Vice Presidents and Vice Presidents, who we collectively refer to as the Company Officers. In addition, the Compensation Committee discussed our regular, annual grant of long-term incentive compensation to our employees and officers under our Equity Incentive Plan, including the fact that such grant was a standard component of compensation for certain of our employees and officers as well as the pros and cons of making such grant in light of a possible transaction with 3G Capital. Following such discussion, the Compensation Committee approved such grant of long-term incentive compensation under our Equity Incentive Plan, such grant to be made and priced as of August 25, 2010, generally, in the form of 50% stock options and 50% restricted stock awards.

 

On August 19, 2010, the board of directors held a regular meeting, at which certain members of our senior management were present and, for portions of the meeting, representatives of Morgan Stanley, Holland & Knight and Outside Special Counsel were present. Mr. Chidsey updated the board of directors on our results for the 2010 fiscal year. Mr. Chidsey then provided an update on the proposed transaction with 3G Capital and indicated that we were still awaiting an updated proposal, with a revised offer price, from 3G Capital. Our senior management team then reviewed with the board of directors the refinancing options that existed with respect to our term loan facility, including the amendment and extension of our existing credit facility, and reported to the board of directors that we would need to capitalize on any favorable conditions in the debt markets to effect the refinancing if a transaction could not be finalized with 3G Capital. Representatives of Outside Special Counsel then gave a presentation regarding the board of directors’ fiduciary duties, the current transaction terms proposed by 3G Capital and compensation and equity-related matters. The board of directors also discussed the terms of the draft merger agreement, including the “go-shop” provision which allows for a formal marketing process after the signing of a definitive merger agreement to explore whether any third parties would be interested in acquiring the Company on more favorable terms. The board of directors also reviewed the current transaction terms and conditions proposed by 3G Capital, including a two-step tender offer structure with a fall back one-step merger, the status of the debt financing, the proposed termination fees (including the amounts and circumstances in which such fees would be payable), the reverse termination fees payable by 3G Capital and other matters. The board of directors then discussed the principal outstanding open issues between the parties, our position with respect to these matters and the potential risks to us. Representatives of the Sponsors indicated that they would be prepared to enter into tender agreements, with customary fiduciary out provisions, to support a transaction with 3G Capital that was approved by the board of directors. The board of directors then reviewed the change in control severance enhancements for our officers that were discussed with the Compensation Committee on August 18, 2010 at a meeting of the Compensation Committee, as described in the paragraph immediately above. After carefully considering the implications of the equity grant in light of the potential, but not definite, transaction with 3G Capital and the impact of deviating from our standard practice with respect to such grants, the board of directors ratified the fiscal year 2011 annual equity grant previously approved by the Compensation Committee. In addition, the board of directors approved management moving forward with the refinancing in the event the transaction with 3G Capital did not occur, in order to take advantage of a window of opportunity in the credit markets.

 

Also at the August 19, 2010 meeting, representatives of Morgan Stanley summarized for the board of directors the recent developments with respect to the 3G Capital proposal, including the expectation that 3G

Capital seek to put in place fully negotiated financing agreements before signing. Representatives of Morgan Stanley discussed the recent share price performance of the Company and our peers and again reviewed Morgan Stanley’s preliminary financial analyses.

 

In order to efficiently manage the process of reviewing the new proposal that was expected from 3G Capital and any alternatives thereto, the board of directors authorized the Executive Committee of the board of directors to provide advice and guidance to our management and advisors in reviewing the basic financial terms of any proposal received by 3G Capital but that no definitive steps relating to such proposal would be determined without the final approval of the entire board of directors. The Executive Committee of the board of directors is comprised of Richard Boyce, John W. Chidsey, Ronald M. Dykes, Sanjeev K. Mehra and Stephen G. Pagliuca.

 

Following the presentation from Morgan Stanley, the representatives of Morgan Stanley, Outside Special Counsel and Holland & Knight were excused from the meeting, and the board of directors discussed the fee proposals submitted by Morgan Stanley relating to its role as financial advisor in connection with a potential acquisition transaction and the potential role of Goldman Sachs as our co-financial advisor with Morgan Stanley. Mr. Mehra was then excused from the meeting. Representatives of Outside Special Counsel were invited back into the meeting, and together with the board of directors, reviewed the history of the Goldman Sachs Funds’ ownership interest in the Company, its board rights under the existing shareholders’ agreement between us and the Sponsors, any potential (or perceived) conflict of interest in Goldman Sachs acting as our co-financial advisor on the transaction, the depth of knowledge that Goldman Sachs had of the Company and the industry including through its role as an underwriter in various equity offerings and noted the benefit of receiving a second financial analysis of the transaction and opinion as to the fairness of the price that would be offered in the transaction. The board of directors noted that the financial advisor fees would be split between Morgan Stanley and Goldman Sachs. The board of directors also noted that the advice, analysis and fairness opinion provided by Goldman Sachs would be independent of any analysis prepared by Morgan Stanley and that Goldman Sachs’ financial advisory team would be separate from the persons affiliated with the Goldman Sachs Funds. Following such discussion, the Outside Special Counsel representatives were excused from the meeting and the board of directors (excluding Mr. Mehra) approved the engagement of Goldman Sachs as co-financial advisor in connection with the proposed transaction and the advisory fee to be paid to both Morgan Stanley and Goldman Sachs. The board of directors also discussed formally retaining legal counsel to provide advice and assistance in connection with the proposed transaction and instructed Ms. Chwat to retain such legal counsel to represent the Company.

 

Finally, Mr. Wells provided the board of directors with a summary of the financial results for fiscal year 2010 and the fiscal year 2011 plan, including the strategic initiatives regarding refranchising of our restaurants. Mr. Wells reviewed the assumptions in the forecasted plan, including comparable sales and traffic, commodity prices and currency impact. Mr. Wells advised the board of directors that, because our 2011 plan and five-year plans contained many risks and uncertainties, including macroeconomic factors outside of our control such as those regarding currency, commodities, unemployment rates, and general economic conditions, it was very difficult to forecast our potential results.

 

Later in the day on August 19, 2010, representatives of Morgan Stanley and Lazard had a detailed conversation regarding the status of the potential transaction, the issues discussed at the board of directors meeting earlier that day, and the process to move forward. Representatives of Morgan Stanley indicated during this discussion that the board of directors was reviewing the refinancing alternatives relating to our existing credit facility and that we needed to know whether or not there would be a mutually agreeable transaction by August 30, 2010. Representatives of Lazard indicated that 3G Capital hoped to conclude the discussions by August 30, 2010 and that it was in discussions with its banks to provide detailed debt commitment letters. They further discussed the status and remaining items needed to complete the legal and financial due diligence.

 

On August 20, 2010, Ms. Chwat contacted Skadden, Arps, Slate, Meagher & Flom LLP, or Skadden Arps, to engage the firm as legal counsel to provide advice and assistance in connection with the proposed transaction with 3G Capital. Thereafter, Skadden Arps served as our special transaction counsel. From

August 22, 2010 through August 25, 2010, representatives of Skadden Arps discussed certain outstanding open issues in the merger agreement with representatives of Kirkland, including transaction structure, certainty of financing, conditions to the closing, cooperation by us with 3G Capital’s debt financing efforts, obligations of 3G Capital to use bridge financing, specific performance rights, the “go-shop” period, termination fees and management retention and transition matters.

 

On August 22, 2010, representatives of Kirkland and representatives of Skadden Arps held a teleconference to discuss the status of the merger agreement and management retention arrangements and the open items on each. Following the call, Kirkland delivered to Skadden Arps a proposal setting forth 3G Capital’s expectations regarding the treatment of employee equity in the merger, the treatment of existing severance arrangements for our officers and transition arrangements with Mr. Chidsey, Mr. Wells and Ms. Chwat, who we collectively refer to as the Transition Executives, and Mr. Smith. The proposed terms included a cash out of all vested equity and a cash out and placement in trust of the proceeds with respect to all unvested equity for all employees, including management, which would then be released over the two year period following the completion of the merger. The proposal did not contemplate the issuance of any new equity for management or other employees post-closing, including pursuant to the rollover of existing Company equity awards. The proposal generally indicated 3G Capital’s acceptance of the severance terms discussed by the Compensation Committee at the August 18, 2010 meeting for members of the Global Executive Team and other Senior Vice Presidents. The proposal further contemplated transition agreements with Messrs. Chidsey, Wells and Smith and Ms. Chwat, pursuant to which the executives would perform transition services for a period of up to one year or, in the case of Mr. Chidsey, at least two years. Pursuant to the proposal, Mr. Chidsey would serve as Co-Chairman during the transition period, would no longer serve as our Chief Executive Officer upon the completion of the merger, would receive current salary and bonus levels during the transition period, would agree to the placement in trust of his unvested equity proceeds and severance entitlements at closing and would receive a payment of 1.5 times Mr. Chidsey’s equity proceeds placed in trust. With respect to Messrs. Wells and Smith and Ms. Chwat, the proposal provided that the executives would receive current salary and bonus levels during the transition period and would agree to the placement in trust of the executive’s equity amounts and severance entitlements at closing. Discussions between us and 3G Capital and their respective legal advisors regarding treatment of employee equity and severance arrangements and the retention and transition arrangements for the Transition Executives and Mr. Smith continued until the signing of the merger agreement.

 

On August 25, 2010, Kirkland distributed a revised draft of the merger agreement for the proposed transaction. From August 25, 2010 through August 29, 2010, our senior management and representatives of Skadden Arps, Holland & Knight and Morgan Stanley held numerous meetings and conference calls with representatives of 3G Capital, Lazard and Kirkland to discuss the open issues in the merger agreement and our position with respect to such issues, including the obligations of Merger Sub to use the bridge financing in lieu of placing the high-yield notes, the timing of the tender offer (and extensions thereto) and the filing and mailing of the proxy statement, the conditions to the tender offer and the merger, including with respect to solvency matters and financial performance criteria of the Company, the termination fees (including the amounts and the circumstances in which such fees would become payable) and the management retention and transition matters.

 

On August 26, 2010, Mr. Chidsey met with Mr. Behring to discuss (i) the treatment of employee equity in the transaction, including the Company’s standard equity grant on August 25, 2010 of approximately 2.2 million shares, (ii) the senior management team and retention issues, and (iii) the transition arrangements for the Transition Executives and Mr. Smith.

 

On August 27, 2010, representatives of 3G Capital, Lazard, Kirkland, the Company, Morgan Stanley, Skadden Arps and Holland & Knight met by teleconference to negotiate certain key terms of the merger agreement, including the terms of our “go shop” period and the closing conditions to the offer and the merger. In particular, we objected to the presence of a closing condition providing for the Company to have a minimum EBITDA of $100 million during the first fiscal quarter of fiscal 2011.

On August 28, 2010, Skadden Arps delivered a revised proposal to Kirkland reflecting management’s position regarding management retention and transition issues. The revised proposal, among other things, provided (i) that all Company equity awards, whether or not vested, would be cashed out in the merger, except that an amount equal to sixty percent (60%) of the proceeds (representing an after-tax amount) from the equity awards that were granted on August 25, 2010 to the Company’s officers who hold the position of vice president and above, including the executive officers (the “August Equity Grants”) (excluding Peter Smith), would be deposited in a trust, escrow or similar account for the benefit of such employees for subsequent release; (ii) for the payment at closing of pro rata bonuses in respect of the 2011 fiscal year to all of our bonus-eligible employees; (iii) for amendments to the severance provisions of our officers consistent with changes discussed at the August 18, 2010 compensation committee meeting; (iv) transition bonuses for the Transition Executives; and (v) for transition services to be performed by Messrs. Chidsey and Wells and Ms. Chwat for six months following completion of the merger, including a part-time consulting arrangement for Mr. Chidsey for an additional six-month period.

 

On August 29, 2010, Skadden Arps distributed a revised draft of the merger agreement relating to the proposed transaction and drafts of the stockholder tender agreements, whereby the Sponsors would, subject to customary exceptions, agree to tender their shares of Company common stock into the proposed tender offer. From this time until early in the morning on September 2, 2010, representatives of us and 3G Capital and their respective legal and financial advisors engaged in extensive discussions and negotiations regarding the terms of the merger agreement, the debt and equity commitment letters and the management retention and transition matters. In particular, the parties discussed the timing of the tender offer and mailing of the proxy statement, the terms of the “go-shop” period during which we could solicit interest in alternative transactions, our obligation to cooperate in the financing efforts of Parent and the closing conditions. During these negotiations, 3G Capital agreed to permit a 40-day “go-shop” period, lower the termination fee payable in connection with the termination of the merger agreement to accept a superior proposal to $50 million, and agreed to increase the termination fee payable by 3G Capital in connection with certain events of termination of the merger agreement where 3G Capital has failed to close the offer or the merger to $175 million. 3G Capital also agreed to eliminate its minimum EBITDA condition if we would agree that 3G would not have to draw on its bridge commitment under its debt financing commitment letters to complete the offer prior to November 18, 2010 unless it was commercially reasonable to do so.

 

On August 31, 2010, a representative of Lazard contacted a representative of Morgan Stanley and stated that 3G Capital proposed to acquire all of the outstanding shares of Company common stock at a price of $24.00 in cash per share. The representative of Lazard indicated that this was 3G Capital’s “best and final” offer.

 

On August 31, 2010, the Compensation Committee held a special meeting, with representatives of Skadden Arps, Mercer and CAP Partners, management’s compensation consultant, in attendance, to consider certain matters in connection with the proposed transaction. At this meeting, the Compensation Committee determined that the treatment of the Company’s equity awards provided in the merger agreement was consistent with the terms of the Company’s equity incentive plans and further approved, and recommended that the board of directors approve the cancellation of outstanding equity awards at the effective time of the merger in exchange for the consideration to be paid to holders of such equity awards in accordance with the terms of the merger agreement, as well as the placement in trust of the after tax amount of the proceeds with respect to the August Equity Grants made to our Vice Presidents and above. The Compensation Committee considered and approved, and recommended that the board of directors approve, the employment agreement amendments for Messrs. Chidsey, Wells and Smith and Ms. Chwat. The Compensation Committee also authorized amendments to the employment agreements for members of the Global Executive Team, other Senior Vice Presidents and Vice Presidents which modified the severance payments for such executives to be effective upon consummation of the merger. The Compensation Committee also authorized and approved the payment, upon effectiveness of the merger, of pro rata bonuses for the portion of our 2011 fiscal year occurring prior to such date at target level, as contemplated by the merger agreement. These transition and retention arrangements are described in “Interests of Certain Persons in the Merger” beginning on page [ • ].

On August 31, 2010, Kirkland distributed a revised draft of the equity commitment letter and an initial draft of the limited guaranty pursuant to which 3G would agree to guarantee the performance and discharge of the payment of the reverse termination fee when required to be paid under the merger agreement. Representatives of Skadden Arps and Kirkland subsequently discussed the issues regarding the limited guaranty and equity commitment letter, including the circumstances in which we would be permitted to specifically enforce, as a third party beneficiary, the obligations of 3G under the equity commitment letter.

 

On the evening of August 31, 2010, news articles ran reporting rumors that we were considering a sale of the Company.

 

On September 1, 2010, the board of directors held a special meeting, at which members of our senior management and representatives of Skadden Arps, Holland & Knight, Morgan Stanley and Goldman Sachs were present. Prior to this meeting, the members of the board of directors were provided with materials related to the proposed transaction. At the meeting:

 

 

Following an extensive discussion, the board of directors instructed us and our advisors to continue to pursue their due diligence with respect to the source of the funds for 3G to ensure that 3G could perform its obligations under the equity commitment letter and the limited guaranty, including satisfying its obligations to pay the reverse termination fee. The board of directors determined to adjourn the meeting until later in the evening on September 1, 2010 to allow for the due diligence and discussions on this issue to progress. Following the adjournment of the meeting, we and our advisors contacted 3G Capital and its advisors to discuss the source of the funds for 3G and to explore potential methods to provide reasonable assurances that 3G would have the funds to satisfy its obligations under the equity commitment letter and the limited guaranty.

Skadden Arps and Kirkland then discussed certain modifications to the equity commitment letter and limited guaranty to include provisions that would provide assurances on these matters.

 

Later in the evening of September 1, 2010, the board of directors reconvened the special meeting, at which members of our senior management and representatives of Skadden Arps, Morgan Stanley, Goldman Sachs and Holland & Knight were present. The board of directors reviewed discussions with 3G Capital and its advisors regarding the source of funds of 3G. The board of directors also discussed the assurances that 3G had agreed to provide to us. Following a detailed discussion of these matters and following careful consideration of the proposed merger agreement and the offer and the merger, the board of directors unanimously (1) approved and declared advisable the merger agreement, the offer, the merger and the other transactions contemplated by the merger agreement , and (2) declared that the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger, the offer and the other transactions contemplated by the merger agreement, on the terms and subject to the conditions set forth therein, are fair to and in the best interests of the shareholders of the Company. The board of directors unanimously resolved to recommend that the Company’s shareholders accept the offer and tender their shares into the offer and, if necessary, vote their shares in favor of adoption of the merger agreement to approve the merger. The board of directors authorized the appropriate officers of the Company to finalize and execute the merger agreement and related documentation. The board of directors also ratified the actions taken by the Compensation Committee on August 31, 2010.

 

During the course of the late evening of September 1, 2010 and early morning of September 2, 2010, representatives of Kirkland, Skadden Arps, Holland & Knight and us finalized the merger agreement and the other definitive transaction agreements.

 

On September 2, 2010, the parties executed the merger agreement and the appropriate parties executed and delivered the equity commitment letter, the debt commitment letter and the stockholder tender agreements and ancillary documents on September 2, 2010. On September 2, 2010, before the opening of trading on the NYSE, we and 3G Capital issued a joint press release announcing the execution of the merger agreement.

 

Beginning on September 3, 2010, the day following the execution of the merger agreement, at the direction of the board of directors and under the supervision of our executive officers, representatives of Morgan Stanley began the process of contacting parties to determine whether they might be interested in pursuing a transaction that would be superior to the proposed transaction with 3G Capital. Representatives of Morgan Stanley and, in one case, together with representatives of Goldman Sachs, contacted 21 parties, consisting of one potential strategic buyer and 20 potential financial sponsor buyers.

 

On September 16, 2010, Parent and Merger Sub commenced the offer, which has an initial expiration date of October 14, 2010.

 

As of September 23, 2010, none of the parties contacted during the go-shop process, on behalf of us and at the direction of the board of directors, had submitted an acquisition proposal for the Company. The process for the solicitation of other third party interest is ongoing, although there can be no assurance that such efforts will result in an alternative transaction being proposed or in a definitive agreement for such a transaction being entered into. We do not intend to announce further developments with respect to the solicitation process until the board of directors has made a decision regarding an alternative proposal, if any.

 

In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, the board of directors consulted with our senior management, outside legal counsel and independent financial advisors. In recommending that the Company’s shareholders vote their shares of Company

common stock in favor of adoption of the merger agreement, the board of directors also considered a number of factors, including the following:

 

Financial Terms; Fairness Opinions; Certainty of Value

 

 

 

 

 

 

Financial Condition; Prospects of the Company

 

 

 

 

Strategic Alternatives

 

 

 

 

Merger Agreement Terms (Go-Shop Period; Solicitation of Alternative Proposals)

 

 

 

 

 

Likelihood of Consummation

 

 

 

 

 

 

 

 

Financing-Related Terms

 

 

 

 

 

The board of directors also considered a number of uncertainties and risks in its deliberations concerning the merger and the other transactions contemplated by the merger agreement, including the following:

 

 

 

 

 

 

 

 

 

 

 

 

The board of directors believed that, overall, the potential benefits of the offer and the merger to the Company’s shareholders outweighed the risks and uncertainties of the offer and the merger.

The foregoing discussion of information and factors considered by the board of directors is not intended to be exhaustive. In light of the variety of factors considered in connection with its evaluation of the offer and the merger, the board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the board of directors applied his own personal business judgment to the process and may have given different weight to different factors. In arriving at their recommendation, the members of the board of directors were aware of the interests of our executive officers, directors and affiliates as described under the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page [ • ]. The board of directors believed it was appropriate to engage Goldman Sachs to provide financial advice and to undertake a study to render a fairness opinion in connection with the offer and merger, notwithstanding that certain of its affiliates have interests as described under the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page [ • ], as, among other things, (i) Goldman Sachs’ financial advisory team was separate from the persons affiliated with the Goldman Sachs Funds, which is a Sponsor, and Mr. Mehra, a member of the board of directors and a Managing Director of Goldman Sachs, (ii) the board of directors had also engaged Morgan Stanley to act as a financial advisor and (iii) Goldman Sachs would split the financial advisor fee with Morgan Stanley, therefore there would be no incremental advisor fees as a result of our engaging two financial advisors.

 

The board of directors recommends that you vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies.

 

In considering the recommendation of the board of directors with respect to the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the shareholders of the Company. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page [ • ].

 

Opinion of Morgan Stanley & Co. Incorporated

 

Morgan Stanley was engaged by the Company to provide it with financial advisory services in connection with the potential sale of the Company. At the meeting of the board of directors on September 1, 2010, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that, as of that date, based upon and subject to the limitations, qualifications and assumptions set forth in the written opinion, the $24.00 per share to be received by holders of shares of Company common stock pursuant to the merger agreement, was fair from a financial point of view to such holders.

 

The full text of the written opinion of Morgan Stanley, dated September 1, 2010, which sets forth among other things, assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion, is attached as Annex B hereto. Shareholders are urged to, and should, read the opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the board of directors and addresses only the fairness, from a financial point of view, of the consideration to be received by the holders of shares of Company common stock pursuant to the merger agreement, as of the date of the opinion. Morgan Stanley’s opinion does not address any other aspect of the transactions contemplated by the merger agreement and does not constitute a recommendation as to how any such holder should vote at the special meeting or whether any such holder should take any other action with respect to the merger. The summary of the opinion of Morgan Stanley set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. The summary of the opinion of Morgan Stanley set forth below is qualified in its entirety by reference to the full text of the opinion.

Summary of Morgan Stanley’s Opinion

 

In connection with rendering its opinion, Morgan Stanley, among other things:

 

 

In rendering its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by the Company, which formed a substantial basis for its opinion. With respect to the financial projections, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company.

 

In addition, Morgan Stanley assumed that the offer and the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions and that the Parent and Merger Sub will obtain financing in accordance with the terms set forth in the Commitment Letters. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the merger, no delays, limitations, conditions or restrictions would be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the merger. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of Parent, Merger Sub and the Company and their legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley did not express an opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares in the transaction. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was it furnished with any such appraisals.

 

Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it, as of September 1, 2010. Events occurring after September 1, 2010 may affect Morgan Stanley’s opinion and the assumptions used in preparing it. Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

 

In arriving at its opinion, Morgan Stanley was not authorized to solicit and did not solicit interest from any party with respect to the acquisition, business combination or other extraordinary transaction, involving the Company, nor did Morgan Stanley negotiate with any of the parties, other than Parent and Merger Sub,

which expressed interest to Morgan Stanley in the possible acquisition of the Company or certain of its constituent businesses.

 

Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

 

The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated September 1, 2010. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, 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.

 

Historical Share Price Performance.   Morgan Stanley reviewed the share price performance and compared various metrics to the per share merger consideration.

 

Morgan Stanley observed that the shares of Company common stock closed at $17.12 on June 29, 2010 (the day on which the Company received a written proposal from Parent and Merger Sub proposing an acquisition of the Company at $23.00 per share) and compared that to per share merger consideration to be received by holders of shares of Company common stock pursuant to the merger agreement of $24.00 per share. Morgan Stanley noted that the implied premium of the per share merger consideration to be received by holders of shares of Company common stock pursuant to the merger agreement of $24.00 per share when compared with the closing share price on June 29th was 40.2%.

 

Morgan Stanley also observed that the shares of Company common stock closed at $16.77 on August 30, 2010 (two trading days prior to the announcement of the execution of the merger agreement) and compared that to the per share merger consideration to be received by holders of shares of Company common stock pursuant to the merger agreement of $24.00 per share. Morgan Stanley noted that the implied premium of the per share merger consideration to be received by holders of shares of Company common stock pursuant to the merger agreement of $24.00 per share when compared with the closing share price on August 30 was 43.1%.

 

Morgan Stanley also observed that the range of closing share prices for the twelve months ending August 30, 2010 was from $16.41 to $22.06.

 

The following table presents various closing prices for the shares of Company common stock and the premium implied by the per share merger consideration when compared with such closing prices:

 

 

 

 

Securities Research Analysts’ Future Price Targets.   Morgan Stanley reviewed the public market trading price targets for the shares of Company common stock prepared and published by securities research analysts prior to August 30, 2010. These targets reflected each analyst’s estimate of the future public market trading price of the shares. The range of equity analyst price targets for the Company was $18.00 per share to $24.00 per share. Morgan Stanley discounted the analysts’ price targets to derive a range of present values of these price targets which resulted in a range of securities research analysts’ future price targets for the Company of approximately $16.50 per share to $22.00 per share.

 

The public market trading price targets published by securities research analysts do not necessarily reflect current market trading prices for the shares and these estimates are subject to uncertainties, including the future financial performance of the Company and future financial market conditions.

Peer Group Comparison.   Morgan Stanley compared certain financial information of the Company with publicly-available information for certain companies that operate in and are exposed to similar lines of business as the Company, namely companies in the quick service restaurant sector. The peer group included:

 

 

For this analysis, Morgan Stanley analyzed the following statistics for each of these companies, as of August 30, 2010 and based on estimates for the peer group companies provided by I/B/E/S and public filings:

 

 

Based on the analysis of the relevant metrics for each of the peer group companies, Morgan Stanley selected a range of multiples for the peer group companies and applied this range of multiples to the relevant Company financial statistics. For purposes of the Company’s estimated calendar year 2010 EBITDA, earnings and earnings growth, Morgan Stanley utilized estimates provided by I/B/E/S. Based on this analysis, the implied value per share of Company common stock is as of August 30, 2010 as follows:

 

 

Morgan Stanley also noted that applying McDonald’s Corporation and Yum! Brands, Inc., valuation metrics to the Company resulted in a per share price of $27.00 based on the AV to Estimated Calendar 2010 EBITDA ratio, a per share price of $22.50 based on the Price to Estimated Calendar 2010 Earnings ratio, and a per share price of $26.25 based on the Price to Estimated Calendar 2010 Earnings Growth ratio.

 

No company in the peer group comparison analysis is identical to the Company. In evaluating the peer group, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the business of the Company or the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of the Company or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using peer group data.

 

Discounted Equity Value Analysis.   Morgan Stanley performed an illustrative analysis of the present value of the Company’s theoretical implied future price per share of Company common stock. In performing the discounted equity value analysis, Morgan Stanley multiplied the earnings per share estimate for calendar years 2011-2013, based on Company management forecasts, to price-to-earnings, or P/E multiples of 12.0x

and 15.0x in order to estimate the future price per share. The estimated future price per share was then discounted to present value implying a price per share ranging from approximately $15.50 per share to $19.75 per share for a P/E multiple of 12.0x and a price per share ranging from approximately $19.25 per share to $24.75 per share for a P/E multiple of 15.0x.

 

Analysis of Selected Precedent Transactions.   Using publicly available information, Morgan Stanley reviewed the terms of selected transactions in which the targets were companies or divisions that operate in and/or were exposed to similar lines of business as the Company.

 

Morgan Stanley reviewed the price paid and calculated the ratio of Aggregate Value implied by the price paid to last twelve months, or LTM, EBITDA (based on publicly available information) in each of the selected transactions in the quick service restaurant and casual dining restaurant sectors since May 31, 2002 (listed below). Based on this analysis, Morgan Stanley selected a range of multiples implied by these transactions and applied this range of multiples to the Company’s LTM EBITDA to imply a value per share of Company common stock based on such multiples.

 

For this analysis Morgan Stanley reviewed the following transactions:

 

Domestic Transactions

 

International Transactions

 

 

The following table summarizes Morgan Stanley’s analysis:

 

 

Morgan Stanley also reviewed the premiums paid or proposed to be paid in acquisitions of U.S. public companies with capitalization greater than $1 billion during the 21-year period ended March 31, 2010. Morgan Stanley observed that the premiums paid or proposed to be paid in these transactions was between 30% to 40% of the target’s pre-announcement trading price, which implied a range of $21.75 to $23.50 per share based on the closing share price on August 30, 2010.

 

No company utilized in the selected precedent transactions analysis is identical to the Company, nor is any transaction listed identical to the transactions contemplated by the merger agreement. In evaluating the transactions listed above, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the business of the Company or the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of the Company or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable transaction data.

 

Discounted Cash Flow Analysis.   Morgan Stanley performed a discounted cash flow analysis as of August 30, 2010, which is an analysis of the present value of projected unlevered free cash flows using terminal year Aggregate Value to EBITDA multiples based on projected EBITDA for the Company. Morgan Stanley analyzed the Company’s business using information provided by Company management, including certain financial forecasts prepared by Company management for the fiscal years 2011 through 2015, under five scenarios. The first scenario assumes that the Company operates in a continued recessionary economic environment, or the Recessionary Case. The second scenario assumes that the Company operates in a moderately improved economic environment, or the Moderate Growth Case. The third scenario assumes that the Company operates in a significantly improved economic environment, or the Economic Expansion Case. The fourth scenario assumes that the Company implemented a re-franchising of its company-owned stores, or the Refranchise Case. The fifth scenario assumes that the Company operates in an economic environment without any macroeconomic risks to pricing and costs (e.g., commodities, labor, inflation, etc.), or the Risk Neutral Case. The terminal value was calculated by applying terminal multiples ranging from 6.5x to 8.5x fiscal year 2015 EBITDA, as estimated by Company management. For purposes of this analysis, Morgan Stanley calculated the Company’s discounted unlevered free cash flow value using discount rates ranging from 8.0% to 9.0%. The range of discount rates was selected based upon an analysis of the Company’s weighted average cost of capital and on the experience and judgment of Morgan Stanley. The discounted cash flow analysis implied a range of $20.50 per share to $27.25 per share using the Recessionary Case, $21.75 per share to $29.00 per share using the Moderate Growth Case and Refranchise Case and $24.00 per share to $32.50 per share using the Economic Expansion Case and Risk Neutral Case.

 

Leveraged Buyout Analysis.   Morgan Stanley performed an illustrative leveraged buyout analysis to estimate the theoretical purchase price that a financial buyer could pay in an acquisition of the Company. For purposes of this analysis, Morgan Stanley assumed that the capital structure of the Company that would result

from the theoretical transaction would be identical to the capital structure proposed by Parent and Merger Sub and that such a financial buyer would attempt to realize a return on its investment in fiscal year 2015. Estimated financial data for the Company was based on certain financial forecasts prepared by Company management for fiscal years 2011 through 2015, under the five scenarios described above. Estimated exit values for the Company were calculated by applying an exit value multiple of 8.5x to fiscal year 2015 EBITDA, as estimated by Company management. Morgan Stanley then derived a range of theoretical purchase prices based on an assumed required internal rate of return for a financial buyer of between 17.5% and 22.5%. This analysis implied a value range of $21.00 per share to $22.75 per share using the Recessionary Case, $22.00 per share to $24.00 per share using the Moderate Growth Case and Refranchise Case and $23.50 per share to $26.50 per share using the Economic Expansion Case and Risk Neutral Case.

 

In connection with the review of the transaction contemplated by the merger agreement by the board of directors, Morgan Stanley performed a variety of financial and comparative analyses for purposes of its opinion given in connection therewith. The preparation of a financial opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Furthermore, Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions, so that the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the Company.

 

In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Morgan Stanley’s analysis of the fairness from a financial point of view of the $24.00 per share to be received by the holders of shares of Company common stock pursuant to the merger agreement, and were conducted in connection with the delivery of Morgan Stanley’s opinion to the board of directors. These analyses do not purport to be appraisals or to reflect the prices at which the shares might actually trade. The per share merger consideration to be received by the holders of the shares of Company common stock and other terms of the merger agreement were determined through arm’s-length negotiations between the Company and Parent and Merger Sub and were approved by the board of directors. Morgan Stanley provided advice to the Company during such negotiations; however, Morgan Stanley did not recommend any specific consideration to the Company or that any specific consideration constituted the only appropriate consideration for the proposed transaction. In addition, as described above under the heading “—  Reasons for the Merger; Recommendation of the Board of Directors, ” Morgan Stanley’s opinion and presentation to the board of directors was one of many factors taken into consideration by the board of directors in making their decision to approve the merger agreement. Consequently, the Morgan Stanley analyses as described above should not be viewed as determinative of the opinion of the board of directors with respect to the consideration or the value of the Company, or of whether the board of directors would have been willing to agree to a different consideration.

 

The board of directors retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise and its knowledge of the business affairs of the Company. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Parent and Merger Sub or their affiliates, the Company, or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument.

In the two years prior to the date of its opinion, Morgan Stanley has provided financial advisory and financing services to the Company and has received fees in connection with such services. Morgan Stanley may also seek to provide such services to the Parent and Merger Sub and the Company in the future and expects to receive fees for the rendering of these services.

 

Pursuant to the terms of its engagement letter, Morgan Stanley provided financial advisory services and a financial fairness opinion to the board of directors in connection with the transaction, and the Company agreed to pay Morgan Stanley a customary fee, a substantial portion of which is contingent upon the consummation of the merger, in connection with the transaction. For a description of the engagement letter and the fees payable thereunder by the Company to Morgan Stanley, see “— Persons Retained, Employed, Compensated or Used”. The Company has also agreed to reimburse Morgan Stanley for its expenses incurred in performing its services. In addition, the Company has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement.

 

Opinion of Goldman, Sachs & Co.

 

Goldman Sachs rendered its opinion to the board of directors that, as of September 2, 2010, and based upon and subject to the factors and assumptions set forth therein, the $24.00 per share of Company common stock in cash to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

The full text of the written opinion of Goldman Sachs, dated September 2, 2010, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided its opinion for the information and assistance of the board of directors in connection with its consideration of the transactions contemplated by the merger agreement. Goldman Sachs’ opinion does not address any other aspect of the merger and does not constitute a recommendation as to how any shareholder of the Company should vote with respect to the merger or any other matter. The summary of the written opinion of Goldman Sachs set forth below is qualified in its entirety by reference to the full text of such opinion.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company. In addition, Goldman Sachs reviewed the reported price and trading activity for the shares of Company Common Stock, compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the restaurant industry specifically and in other

industries generally, and performed such other studies and analyses, and considered such other factors, as Goldman Sachs considered appropriate.

 

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, and Goldman Sachs does not assume any liability for any such information. In that regard, Goldman Sachs assumed with the consent of the Company that the Refranchise Case was reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance sheet assets and liabilities) of the Company or any of its subsidiaries, nor was any such evaluation or appraisal of the assets or liabilities of the Company or any of its subsidiaries furnished to Goldman Sachs. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transactions contemplated by the merger agreement will be obtained without any adverse effect on the expected benefits of such transactions in any way meaningful to its analysis. Goldman Sachs also assumed that the transactions contemplated by the merger agreement will be consummated on the terms set forth therein, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis. Goldman Sachs’ opinion does not address any legal, regulatory, tax or accounting matters.

 

Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the transactions contemplated by the merger agreement or the relative merits of such transactions as compared to any strategic alternatives that may be available to the Company. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of or other business combination with the Company. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of its opinion, of the $24.00 per share of Company common stock in cash to be paid to the holders (other than Parent and its affiliates) of such shares pursuant to the merger agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the transactions contemplated thereby or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the transactions contemplated thereby, including, without limitation, the fairness of such transactions to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons in connection with the transactions contemplated by the merger agreement, whether relative to the per share merger consideration to be paid to the holders (other than Parent and its affiliates) of such shares pursuant to the merger agreement or otherwise. In addition, Goldman Sachs did not express any opinion as to the impact of the transactions contemplated by the merger agreement on the solvency or viability of the Company or Parent or the ability of the Company or Parent to pay their respective obligations when they become due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of the opinion. The advisory services provided by Goldman Sachs and the opinion expressed in Goldman Sachs’ opinion were provided for the information and assistance of the board of directors in connection with its consideration of the transactions contemplated by the merger agreement and Goldman Sachs’ opinion does not constitute a recommendation as to whether or not any holder of shares of Company common stock should vote with respect to the merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to the board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables

must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 30, 2010 (the date on which Goldman Sachs completed its analyses) and is not necessarily indicative of current market conditions.

 

Historical Trading Analysis.   Goldman Sachs reviewed the historical trading prices for the shares of Company common stock and analyzed the consideration to be paid to holders of such shares pursuant to the merger agreement in relation to (1) the closing price of the shares of Company common stock on August 30, 2010; (2) the average closing prices of shares of Company common stock for the 30-calendar day and 60-calendar day periods ending August 30, 2010; (3) the high closing price of shares of Company common stock for the 52-week period ending August 30, 2010; and (4) the high closing price of shares of Company common stock for the period beginning with the date of the initial public offering of the shares of Company common stock and ending August 30, 2010.

 

This analysis indicated that the price per share to be paid to the Company’s shareholders in connection with the transactions contemplated by the merger agreement represented:

 

 

Selected Public Companies Analysis.   Goldman Sachs reviewed and compared certain financial information, ratios and public market multiples for the Company to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the quick service restaurant, or QSR, industry:

 

 

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of the Company.

 

Goldman Sachs calculated and compared various financial multiples and ratios based on the most recent publicly available financial data and I/B/E/S estimates and/or other Wall Street research. The multiples and ratios of the Company and the selected companies were calculated using the closing price of each company’s shares on August 30, 2010. With respect to the Company and the selected companies, Goldman Sachs calculated (1) enterprise value, which is the market value of common equity plus the book value of debt less cash, as a multiple of earnings before interest, taxes, depreciation and amortization, or EBITDA, for the latest twelve months ended August 30, 2010; and (2) enterprise value as a multiple of EBITDA for estimated calendar years 2010 and 2011, respectively, based on IBES estimates and/or other Wall Street research.

The following table presents the results of this analysis:

 

 

Goldman Sachs also calculated (1) the price-to-earnings ratios for estimated calendar years 2010 and 2011, respectively; (2) the price-to-earnings ratios for the latest twelve months ended August 30, 2010; (3) the price to earnings ratios estimated for the next twelve months ending August 30, 2011; and (4) the latest twelve months EBITDA margins, which is the last twelve months EBITDA as a percentage of the last twelve months revenue.

 

The following table presents the results of this analysis:

 

 

Selected Transactions Analysis.   Goldman Sachs analyzed certain information relating to the following selected transactions in the restaurant industry since 1998 with transaction equity values ranging from $570 million to $3 billion. These transactions (listed by acquirer/target and date of announcement) were:

 

 

 

For each of the selected transactions, Goldman Sachs calculated and compared the enterprise value as a multiple of latest twelve months EBITDA, using publicly available data, and then calculated the median of these multiple values for all transactions; however, for purposes of its analysis Goldman Sachs excluded transactions occurring during calendar years 2005 through 2007 because in its professional judgment, these transactions were not representative of the current market environment. While none of the companies that participated in the selected transactions are directly comparable to the Company, these companies were chosen because they are publicly traded companies with operations that, for the purposes of analysis, may be considered similar to certain of the Company’s results, market size and product profile.

 

The following table presents the results of this analysis:

 

 

Premia Paid Analysis.   Goldman Sachs also calculated the median price premia paid per share relative to the market closing price of target companies on the day prior to announcement of transactions for announced and completed cash transactions involving target companies in the United States in all industries since 2001 with transaction values over $1 billion, using publicly available historical data, but excluding transactions with undisclosed value, spinoffs, recapitalizations, self-tenders, stock repurchases, deals in which minority stakes in a target were acquired, deals involving acquisitions of the remaining minority stake in a target by a controlling shareholder and nationalization transactions. Based on this information, Goldman Sachs then calculated the median of these implied premia values for the multi-year period from 2001 to 2010.

 

The following table presents the results of this analysis:

 

 

Illustrative Present Value of Future Share Price Analysis.   Goldman Sachs performed an illustrative analysis of the implied present value of the future price per share of Company common stock, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s estimated future earnings and its assumed price to future earnings per share multiple. For this analysis, Goldman Sachs used the Refranchise Case provided by the Company’s management for the fiscal years 2011 to 2015. Goldman Sachs calculated the implied present values per share by applying price to forward earnings per share multiples ranging from 12.3x to 14.8x earnings per share of Company common stock for each of the fiscal years 2011 to 2015 based on the Refranchise Case, discounted to present value using a discount rate of 10%, reflecting an estimate of the Company’s cost of equity, and assuming a yearly dividend of $0.25 with a constant yield throughout such time period. This analysis resulted in a range of implied present values per share of Company common stock of $19.51 to $27.38.

 

Illustrative Discounted Cash Flow Analysis.   Goldman Sachs performed an illustrative discounted cash flow analysis on the Company using the Refranchise Case. Goldman Sachs calculated indications of the net present value of free cash flows for the Company for the years 2011 through 2015. Goldman Sachs calculated illustrative value indications per share of Company common stock using the Refranchise Case and illustrative terminal value indications in the year 2015 based on terminal multiples ranging from 6.0x 2015 EBITDA to 7.5x 2015 EBITDA and discounting these terminal values to illustrative present values using discount rates ranging from 8.0% to 10.0%, reflecting estimates of the Company’s weighted average cost of capital. This analysis resulted in a range of illustrative per share of Company common stock values of $20.73 to $27.74.

 

Goldman Sachs also performed a sensitivity analysis to illustrate the effect of different assumptions for changes in annual revenue growth rates and operating margins for the Company. The sensitivity adjustments to

the projected annual EBITDA growth rates ranged from 4.4%, which implies an estimated 2015 EBITDA of $550.0 million, to 12.8%, which implies an estimated 2015 EBITDA of $750.0 million. This analysis, assuming a 9% discount rate and 6.6x 2015 EBITDA multiple, resulted in an implied present value per share of Company common stock range of $17.76 to $26.59.

 

General.   The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the contemplated transactions.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the board of directors as to the fairness from a financial point of view of the $24.00 per share merger consideration to be paid to the holders (other than Parent and its affiliates) of shares pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The consideration for the transactions was determined through arms’-length negotiations between the Company and Parent and was approved by the board of directors. Goldman Sachs provided advice to the Company during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or the board of directors or that any specific amount of consideration constituted the only appropriate consideration for the transactions.

 

As described above, Goldman Sachs’ opinion to the board of directors was one of many factors taken into consideration by the board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex C.

 

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of the Company, Parent, any of their respective affiliates and third parties, including affiliates and portfolio companies of 3G Capital, TPG Capital and Bain Capital, LLC or any currency or commodity that may be involved in the transactions contemplated by the merger agreement for their own account and for the accounts of their customers. Goldman Sachs acted as financial advisor to the Company in connection with, and participated in certain of the negotiations leading to, the transactions contemplated by the merger. For a description of the engagement letter and the fees payable thereunder by the Company to Goldman Sachs, see “— Persons Retained, Compensated or Used.”

 

Goldman Sachs also has provided certain investment banking services to the Company and its affiliates from time to time. Goldman Sachs also has provided from time to time and is currently providing certain investment banking to Bain Capital and its affiliates and portfolio companies for which its Investment Banking Division has received, and may receive, compensation, including having acted as joint lead arranger for a new

term loan (aggregate principal amount of $250,000,000) for SunGard Data Systems Inc., a portfolio company of Bain Capital, in September 2008; as joint bookrunner on a high yield offering (aggregate principal amount of $1,100,000,000) for Warner Music Group, a portfolio company of Bain Capital, in May 2009; as joint bookrunner on high yield offerings (aggregate principal amount of $2,900,000,000) for HCA Inc., a portfolio company of Bain Capital, in April 2009 and March 2010; as joint bookrunner with respect to a high yield offering (aggregate principal amount of $2,500,000,000) for Clear Channel Communications Inc., a portfolio company of Bain Capital, in December 2009; and as joint lead arranger with respect to a term loan (aggregate principal amount of $1,500,000,000) for Warner Chilcott Plc, a portfolio company of Bain Capital, in August 2010. In addition, Goldman Sachs has provided from time to time and is currently providing certain investment banking services to TPG and its affiliates and portfolio companies for which its Investment Banking Division has received, and may receive, compensation, including having acted as joint bookrunner on a notes offering (aggregate principal amount of $1,500,000,000) by TXU Electric Delivery Company, a portfolio company of TPG, in September 2008; as a joint lead arranger for a term loan (aggregate principal amount of $250,000,000) for SunGard Data Systems Inc., a portfolio company of TPG, in September 2008; as financial advisor to ALLTEL Corporation, a former portfolio company of TPG, in connection with its sale in January 2009; and as co-manager of a high yield offering (aggregate principal amount of $1,000,000,000) by Harrah’s Entertainment Inc., a portfolio company of TPG, in May 2009. Goldman Sachs may also in the future provide investment banking services to the Company, its affiliates and Parent, TPG, Bain Capital and their respective affiliates and portfolio companies for which its Investment Banking Division may receive compensation. The Goldman Sachs Funds currently own, in the aggregate, approximately 10.3% of the outstanding shares of Company Common Stock. In connection with the transactions contemplated by the merger agreement, the Goldman Sachs Funds have entered into a stockholder tender agreement. Goldman Sachs may be deemed to directly or indirectly own the shares which are owned directly or indirectly by the Goldman Sachs Funds. Sanjeev K. Mehra, a Managing Director of Goldman Sachs, is a director of the Company. Affiliates of Goldman Sachs also may have co-invested with Parent, TPG, Bain Capital and their respective affiliates from time to time and may have invested in limited partnership units of affiliates of Parent, TPG and Bain Capital from time to time and may do so in the future.

 

We do not, as a matter of course, make public projections as to future performance, earnings or other results beyond the current fiscal year due to the unpredictability of the underlying assumptions and estimates. However, we provided to Parent, Merger Sub and Lazard in August 2010, in connection with their due diligence review, management’s internal non-public stand-alone fiscal 2011 financial forecasts, or the Fiscal 2011 P&L Projections , which are summarized below. We also provided to Morgan Stanley and Goldman Sachs for their use in connection with the rendering of their fairness opinions to the board of directors and performing their related financial analysis, as described under the section entitled “The Merger — Opinion of the Company’s Financial Advisors” beginning on page [ • ], non-public five-year standalone financial forecasts that had been prepared by management for internal planning purposes and that are subjective in many respects. We have included below a summary of a subset of these five-year forecast which assumes that we implement our previously announced plan to refranchise approximately half of our restaurant portfolio in the next three to five years, which we refer to as the Five-Year Projections. We believe that the Five-Year Projections, which incorporate the impact of the refranchising strategy, are the projections that reflect our current operating plan a go-forward standalone basis. The board of directors also considered other projections prepared by management, including those that excluded the impact of the refranchising strategy and those that applied alternative macroeconomic assumptions, but came to the conclusion that the Five-Year Projections were the most realistic. In addition, we provided to Morgan Stanley and Goldman Sachs certain stand-alone fiscal 2011 free cash flow forecasts which are summarized below, which we refer to as the Free Cash Flow Projections, and collectively, with the Fiscal 2011 P & L Projections and the Five-Year Projections, the Projections. The Fiscal 2011 P&L Projections were based on the 2011 fiscal plan adopted by the board of directors, and adjusted for one-month of actual results, while the Five-Year Projections and the Free Cash Flow Projections were not so adjusted.

The Projections have been prepared by, and are the responsibility of, our management. The Projections were not prepared with a view toward public disclosure; and, accordingly, do not necessarily comply with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or generally accepted accounting principles, or GAAP. KPMG LLP, our independent registered public accounting firm, has not audited, compiled or performed any procedures with respect to the Projections and does not express an opinion or any form of assurance related thereto. A summary of the Projections is not being included in this document to influence your decision whether to vote for or against the proposal to adopt the merger agreement, but is being included because (i) the Projections were made available to the board of directors and its advisors and (ii) the Fiscal 2011 P&L Projections were made available to Parent and Merger Sub and their advisors. The inclusion of this information should not be regarded as an indication that our board of directors or its advisors or any other person considered, or now considers, such financial forecasts to be material or to be a reliable prediction of actual future results, and these forecasts should not be relied upon as such. Our management’s internal financial forecasts, upon which the Projections were based, are subjective in many respects. There can be no assurance that the Projections will be realized or that actual results will not be significantly higher or lower than forecasted. The Projections cover multiple years and such information by its nature becomes subject to greater uncertainty with each successive year. As a result, the inclusion of the Projections in this proxy statement should not be relied on as necessarily predictive of actual future events.

 

The Projections, while presented with numerical specificity, necessarily were based on numerous variables and assumptions that are inherently uncertain and many of which are beyond the control of our management. Because the Five-Year Projections cover multiple years, by their nature, they become subject to greater uncertainty with each successive year. The assumptions upon which the Projections were based necessarily involve judgments with respect to, among other things, future economic, competitive and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. The Projections also reflect assumptions as to certain business decisions that are subject to change. In addition, the Projections may be affected by our ability to achieve strategic goals, objectives and targets over the applicable periods.

 

Accordingly, there can be no assurance that the Projections will be realized, and actual results may vary materially from those shown. The inclusion of the Projections in this document should not be regarded as an indication that we or any of our affiliates, advisors, officers, directors or representatives considered or consider the Projections to be predictive of actual future events, and the Projections should not be relied upon as such. Neither we nor any of our affiliates, advisors, officers, directors or representatives can give any assurance that actual results will not differ from the Projections, and none of them undertakes any obligation to update or otherwise revise or reconcile the Projections to reflect circumstances existing after the date the Projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Projections are shown to be in error. We do not intend to make publicly available any update or other revision to the Projections, except as otherwise required by law. Neither we nor any of our affiliates, advisors, officers, directors or representatives has made or makes any representation to any shareholder of the Company or other person regarding our ultimate performance compared to the information contained in the Projections or that the Projections will be achieved. We have made no representation to Parent, Merger Sub or their affiliates, in the merger agreement or otherwise, concerning the Projections.

 

In light of the foregoing factors and the uncertainties inherent in the Projections, shareholders are cautioned not to place undue, if any, reliance on the Projections.

 

The financial forecasts are forward-looking statements. For information on factors that may cause the Company’s future financial results to materially vary, see “Cautionary Statement Concerning Forward-Looking Information” on page [ • ].

Fiscal 2011 Projections

 

The following is a summary of the Fiscal 2011 Projections (dollars in millions, except per share information):

 

 

The key assumptions underlying the summary Fiscal 2011 Projections include:

 

 

Cash Flow Projections

 

The following is a summary of the Cash Flow Projections (dollars in millions):

 

Five-Year Projections

 

The following is a summary of the Five-Year Projections (dollars in millions, except per share information):

 

 

 

 

The key assumptions underlying the summary Five-Year Projections include:

 

 

The Projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained elsewhere in this proxy statement and the Company’s public filings with the SEC.

 

We anticipate that the total funds needed to complete the merger, including the funds needed to:

 

 

will be funded through a combination of:

 

 

 

The equity and debt financing commitments are subject to certain conditions. If the merger agreement is terminated in the circumstance in which Merger Sub does not receive the proceeds of the debt financing commitments, Merger Sub may be obligated to pay us a termination fee of $175 million.

 

Equity Financing

 

Parent has received the equity commitment letter from 3G, pursuant to which 3G has committed to invest up to $1.5 billion solely for the purpose of funding, and to the extent necessary to fund, a portion of the aggregate offer price and/or merger consideration pursuant to and in accordance with the merger agreement, together with related expenses. We refer to the financing contemplated by the equity commitment letter, as may be amended and restated, and any permitted replacement equity financing, as the equity financing. The Company is a third party beneficiary to the equity commitment letter for the limited purpose provided in the equity commitment letter to permit the Company to seek specific performance to cause Parent and Merger Sub to cause, or to directly cause, 3G to fund its equity commitment in certain limited circumstances in accordance with the terms of the equity commitment letter and the merger agreement.

 

Concurrently with the execution and delivery of the equity commitment letter, 3G executed and delivered to the Company the limited guaranty where 3G has agreed to guaranty:

 

 

In no event will 3G incur obligations totalling more than $175 million under the limited guaranty.

 

The funding of the equity financing is subject to (i) the satisfaction or waiver by Parent and Merger Sub of all conditions of the merger, (ii) pursuant to the terms and conditions of the debt commitment letter, the debt financing described below or any alternative financing that Parent and Merger Sub are required or permitted to accept from alternative sources pursuant to the merger agreement having been obtained, and (iii) the substantially contemporaneous consummation of the merger.

 

Debt Financing

 

Merger Sub has received the debt commitment letter from JPMorgan Chase Bank, N.A., which we refer to as JPMCB, J.P. Morgan Securities LLC, which we refer to as JPMSLLC, and Barclays Bank PLC, which we refer to as Barclays Bank and, together with JPMCB, the lenders, to provide the following, subject to the conditions set forth in the debt commitment letter:

 

 

Upon consummation of the merger, Burger King Corporation, or BKC, will assume all of the obligations under the senior secured facilities.

The commitment of the lenders with respect to the senior secured facilities and the bridge facility expires upon the earliest to occur of (i) the irrevocable termination of the merger agreement prior to the closing of the merger or (ii) March 2, 2011. The documentation governing the debt financings has not been finalized and, accordingly, the actual terms of the debt financing may differ from those described in this document. Each of Parent and Merger Sub has agreed to use its reasonable best efforts to arrange the debt financing on the terms and conditions described in the debt commitment letter. If any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letter, Parent must use its reasonable best efforts to arrange promptly to obtain alternative financing from alternative sources in an amount at least equal to the debt financing or such unavailable portion thereof on terms that are not materially less favorable in the aggregate to Parent and Merger Sub than as contemplated by the debt commitment letter.

 

Although the debt financing described in this document is not subject to a due diligence or “market out,” such financing may not be considered assured. As of the date hereof, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described herein is not available.

 

Credit Facilities

 

The availability of the senior secured facilities and the bridge facility is subject, among other things, to consummation of the merger in accordance with the merger agreement (without giving effect to any amendments or waivers to the provisions thereof, or any consents or requests by Parent or Merger Sub resulting in an action taken by the Company or its subsidiaries, in each case that are materially adverse to the lead arrangers or lenders under such facilities without the consent of the commitment parties thereunder), the achievement of a specified pro forma ratio of total debt of the Company and its consolidated subsidiaries to EBITDA for the four most recent fiscal quarters ended at least 45 days prior to closing, payment of required fees and expenses, the funding of the equity financing, the refinancing of certain of the Company’s existing debt and the absence of certain types of other debt, delivery of certain historical and pro forma financial information, the execution of certain guarantees and the creation of security interests and the negotiation, execution and delivery of definitive documentation.

 

Senior Secured Term and Revolving Credit Facilities

 

The senior secured facilities will consist of a (i) $1.75 billion term loan facility with a term of six years and (ii) a $150 million revolving credit facility with a term of five years.

 

Roles.   JPMSLLC and Barclays Capital have been appointed as joint lead arrangers and joint bookrunners for the senior secured facilities. JPMCB has been appointed as administrative agent for the senior secured facilities.

 

Interest Rate.   Loans under the senior secured facilities are expected to bear interest, at BKC’s option, at a rate equal to the adjusted Eurodollar rate or an alternate base rate, in each case, plus a spread. After the Company’s delivery of financial statements with respect to at least one full fiscal quarter ending after the effective date of the merger, interest rates under the revolving credit facility shall be subject to decreases based on a total leverage ratio as agreed upon between BKC and the lenders.

 

Prepayments and Amortization.   BKC will be permitted to make voluntary prepayments with respect to the senior secured facilities at any time, without premium or penalty (other than LIBOR breakage costs, if applicable). The term loans under the senior secured facilities will amortize 1% per annum in equal quarterly installments until the final maturity date.

 

Guarantors.   All obligations under the senior secured facilities will be guaranteed by the Company and each of the existing and future direct and indirect, material wholly-owned domestic subsidiaries of BKC.

 

Security.   The obligations of BKC and the guarantors under the senior secured facilities and under any swap agreements and cash management arrangements entered into with a lender or any of its affiliates, will be secured, subject to permitted liens and other agreed upon exceptions on a first priority basis by a perfected security interest in all of BKC’s and each guarantor’s tangible and intangible assets, including United States registered intellectual property, real property and all of the capital stock of BKC and each of its direct and

indirect subsidiaries (limited, in the case of foreign subsidiaries, to 65% of the capital stock of first tier foreign subsidiaries). If certain security is not provided at closing despite the use of commercially reasonable efforts to do so, the delivery of such security will not be a condition precedent to the availability of the senior secured facilities on the closing date, but instead will be required to be delivered following the closing date pursuant to arrangements to be mutually agreed.

 

Other Terms.   The senior secured facilities will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, investments, sales of assets, mergers and consolidations, prepayments of subordinated indebtedness, liens and dividends and other distributions. The senior secured facilities will also include customary events of defaults including a change of control to be defined.

 

Bridge Facility

 

Merger Sub is expected to issue up to $900 million aggregate principal amount of senior notes, as described below. If the offering of senior notes by Merger Sub is not completed on or prior to the closing of the senior secured facilities, the lenders have committed to provide a bridge facility of up to $900 million. Merger Sub would be the initial borrower under the bridge facility, and upon consummation of the merger, BKC would assume all of the obligations under the bridge facility. The bridge facility will be guaranteed by the persons that guarantee the senior secured facilities. JPMSLLC and Barclays Capital have been appointed as joint lead arrangers and joint bookrunners for the bridge facility. JPMCB has been appointed as administrative agent for the bridge facility. Subject to the satisfaction of certain conditions related to the merger, Merger Sub is obligated to take down and use the proceeds of the bridge facility if it has not completed the senior notes offering by November 18, 2010.

 

Senior Notes due 2018

 

Merger Sub plans to issue up to $900 million in aggregate principal amount of senior notes due in 2018. Merger Sub plans to issue the notes in transactions exempt from or not subject to registration under the Securities Act pursuant to Rule 144A and Regulation S under the Securities Act. If senior notes are issued, upon consummation of the merger, the Company will assume all of the obligations under the senior notes and the guarantees described below will become effective. The provisions below set forth the expected material terms for the senior notes.

 

Guarantees.   The Company’s obligations under the senior notes will be jointly and severally guaranteed on a senior unsecured basis by the Company and all of its existing and future direct and indirect domestic subsidiaries that guarantee its indebtedness or indebtedness of subsidiary guarantors.

 

Optional Redemption.   The Company may redeem any of the senior notes at any time on or after the fourth anniversary of the issuance date of the senior notes, in whole or in part, in cash at the redemption prices described in the indenture governing the senior notes, plus accrued and unpaid interest, if any, to the date of redemption. In addition, on or before the third anniversary of the issuance date, the Company may redeem up to 35% of the aggregate principal amount of senior notes with the net proceeds of certain equity offerings at a price of 100% of the principal amount of the senior notes, plus accrued and unpaid interest, if any, to the date of redemption. The Company may make that redemption only if, after the redemption, a specified minimum percentage of the aggregate principal amount of senior notes remains outstanding. The Company may redeem any of the senior notes at any time before the fourth anniversary of the issuance date of the senior notes, in cash at 100% of the principal amount plus accrued and unpaid interest, if any, to the date of redemption and a make-whole premium.

 

Change of Control.   Upon a change of control, the Company may be required to make an offer to purchase each holder’s senior notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase.

Certain Covenants.   The indenture governing the senior notes is expected to contain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:

 

 

These limitations are expected to be subject to a number of qualifications and exceptions that will be set forth in the indenture governing the senior notes.

 

If the merger is approved at the shareholders meeting then, assuming timely satisfaction of the other necessary closing conditions, we anticipate that the merger will be completed promptly thereafter. The effective time of the merger will occur as soon as practicable following the closing of the merger upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later date as we and Parent may agree and specify in the certificate of merger).

 

Each record holder of shares of Company common stock (other than holders of solely the excluded shares) will be sent a letter of transmittal describing how such holder may exchange its shares of Company common stock for the per share merger consideration promptly, and in any event within two business days, after the completion of the merger.

 

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 per share merger consideration until you deliver a duly completed and executed letter of transmittal to the paying agent. If your shares are certificated, you must also surrender your stock certificate or certificates to the paying agent. If ownership of your shares is not registered in the transfer records of the Company, a check for any cash to be delivered will only be issued if the applicable letter of transmittal is accompanied by all documents reasonably required by the Company to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable.

 

Overview

 

The vested shares of Company common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of Company common stock held by our other shareholders. As of September 13, 2010, our directors and executive officers and their affiliates owned in the aggregate 28,659,925 shares of Company common stock, excluding (1) shares issuable upon the exercise of stock options, (2) shares issuable upon vesting of Company restricted stock units, (3) shares issuable upon vesting of

the Company’s performance-based stock units and (4) vested and unvested director stock units. If the merger is completed, our directors and executive officers and their affiliates, including the Sponsors, would receive an aggregate amount of $687,838,200 net in cash, without interest thereon and less any required withholding taxes.

 

Aside from their interests as shareholders of the Company, our directors and employees, including our executive officers, have interests in the merger that may be different from, or in addition to, those of other shareholders of the Company generally. In considering the recommendation of the board of directors that you approve the proposal to adopt the merger agreement, you should be aware of these interests. The members of the board of directors were aware of and considered these interests, among other matters, in making their decision to recommend that you approve the proposal to adopt the merger agreement. The interests of the Company’s directors and employees, including its executive officers, in the merger that are different from, or in addition to, those of other shareholders of the Company are as follows:

 

 

The dates used below to quantify these interests have been selected for illustrative purposes only. They do not necessarily reflect the dates on which certain events will occur.

 

Equity Awards

 

Our officers, and certain of our employees, hold stock options, restricted stock units and/or performance-based stock units. All of our non-management directors hold director stock units. Under the merger agreement, each stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger will vest and be canceled in exchange for an amount in cash equal to (A) the excess, if any, of (x) $24.00 over (y) the exercise price per share of Company common stock subject to such option, multiplied by (B) the number of shares of Company common stock for which such option shall not have been exercised. Each restricted stock unit that is outstanding immediately prior to such time will vest and be converted into an amount in cash equal to $24.00. Each performance-based stock unit that is outstanding immediately prior to such time will vest and be converted into an amount in cash equal to (A) $24.00 multiplied by (B) the number of shares subject to the performance-based stock units assuming that the target level of performance had been attained. Each director stock unit, that has not yet vested, will vest and all director stock units outstanding immediately prior to such time, in connection with such director’s resignation, will be converted into an amount in cash equal to $24.00.

For our officers who hold the position of vice president and above, including the executive officers, the equity awards that were granted on August 25, 2010, which we refer to as the August equity grants, will be converted into the right to receive $24.00, however 60% of the cash amount attributable to the August equity grants for such officers, other than Mr. Smith (who will receive such amounts at the effective time of the merger), will be deposited into a trust account established with a third party for the officer’s benefit. The remaining 40% will be withheld for taxes. For those officers other than Messrs. Chidsey and Wells, and Ms. Chwat, if the officer is employed on each of August 25, 2011 and August 25, 2012, the officer will receive from the trust an amount equal to 25% of the portion of the trust account related to such officer’s stock options, which mirrors the vesting schedule of the original underlying option grant. If the officer is actively employed until the end of the two year anniversary following the effective time of the merger, the balance of the trust will be paid to the officer. If the officer is terminated without cause prior to any of these payment dates (or terminates for good reason prior to the payment date, for those officers who are a party to an employment agreement containing a definition of good reason) the balance will be paid to such officer upon such termination. However, if the officer voluntarily terminates his or her employment (other than for good reason, for those officers who are a party to an employment agreement containing a definition of good reason) or is terminated for cause prior to any of these payment dates, the officer will forfeit his or her remaining balance in the trust.

 

For Mr. Chidsey, Mr. Wells and Ms. Chwat, whom we refer to as the transition executives, the subsequent conditions to receive the payment of the trust amounts are as follows: (i) in the case of Mr. Chidsey (i) 50% of the amounts in the trust will be released and remitted on the six-month anniversary of the effective time of the merger and (ii) 50% of the amounts in the trust will be released and remitted on the twelve-month anniversary of the effective time of the merger, subject to Mr. Chidsey’s continued service until each such date except as provided below and (ii) in the case of each of Mr. Wells and Ms. Chwat, the amounts in the trust will be released in six substantially equal installments on the first business day of each of the first six months following the effective time of the merger, subject to such transition executive’s continued service through such date except as provided below. If the transition executive’s employment is terminated due to death or disability or without cause or if the transition executive terminates his or her employment for good reason prior to any of these payment dates, the balance of the transition executive’s trust will be paid to such transition executive upon termination. However, if the transition executive voluntarily terminates his or her employment (other than for good reason) or is terminated for cause prior to any of these payment dates, the transition executive will forfeit his or her remaining balance in the trust. For Mr. Chidsey, the merger agreement specifies that the expiration of the transition period and the commencement of the six-month consulting arrangement described below under “— Amendments to Employment Agreements” will not be deemed to be the termination of his employment without cause or voluntary resignation for good reason. Further, if Mr. Chidsey’s consulting arrangement is terminated without cause or by reason of his death or disability, the amount in trust will be immediately released to him upon such termination.

 

The following table shows the amount in cash that each executive officer is expected to receive pursuant to the merger agreement, based on equity awards held as of September 13, 2010, assuming the effective time of the merger occurs on October 15, 2010 as a result of the cancelation of all stock options, restricted stock units and performance-based stock units held by our executive officers.

 

The following table shows the amount in cash that each director is expected to receive pursuant to the merger agreement, based on equity awards held as of September 13, 2010, assuming the effective time of the merger occurs on October 15, 2010 as a result of the cancelation of all director stock units held by our directors.

 

 

 

 

Employment Agreements

 

We are a party to employment agreements with our executive officers that provide for certain payments and benefits upon a termination of employment by the Company (other than for cause) or a resignation for good reason (as such terms are defined in the respective employment agreements).

 

Amendments to Employment Agreements

 

On September 1, 2010, we entered into amendments to the employment agreements of Messrs. Chidsey, Wells and Smith and Ms. Chwat, effective upon the effective time of the merger, which add or modify certain terms of their existing agreements, including terms pursuant to which services will be performed following the effective time of the merger. The amendments provide that at the effective time of the merger, the transition executives will remain employed with the Company for a period of six months. With respect to the transition executives, the six-month transition period can be extended if the Company and the executive mutually agree. Mr. Smith’s employment will terminate at the effective time of the merger and he will receive the severance payments and benefits set forth in his employment agreement, as amended.

 

In exchange for performing services during the transition period, the transition executives will generally be compensated during the transition period as they were compensated prior to the transition period. If their employment is terminated during the transition period other than (i) for cause or (ii) the executive’s voluntary termination without good reason, in addition to the severance payments and benefits under the executive’s existing employment agreement, the executive will receive the remaining cash compensation that would have been paid to the executive had he or she performed services through the end of the transition period.

 

Following the six-month transition period, the employment of each of Messrs. Chidsey and Wells and Ms. Chwat will terminate and he or she will be entitled to the severance payments and benefits set forth in his or her employment agreement. In addition, Mr. Chidsey has agreed to perform part-time consulting services for the six-month period following the transition period. In exchange for performing consulting services, Mr. Chidsey will receive a monthly consulting fee of $100,000.

 

Each of Messrs. Chidsey, Wells and Smith and Ms. Chwat will receive a transition bonus ($3,021,000, $1,308,500, $1,097,518, and $1,130,619 for Messrs. Chidsey, Wells and Smith and Ms. Chwat, respectively) in respect of his or her contributions toward the successful completion of the Merger and, in the case of Messrs. Wells and Chidsey and Ms. Chwat, as an inducement for his or her agreement to perform services

following the effective time of the merger. The transition bonuses will be paid at the time the Merger closes except for Mr. Chidsey, who will receive $521,000 of his transition bonus at the effective time of the merger, $1,250,000 on the six-month anniversary of the effective time of the merger and $1,250,000 on the twelve-month anniversary of the effective time of the merger, subject to his continued service or earlier termination of employment without cause, for good reason, or by reason of his death or disability.

 

In connection with the employment agreement amendments, Messrs. Chidsey, Wells and Smith and Ms. Chwat have agreed to extend the non-competition and non-solicitation covenants from one year following their termination to two years following their termination and Messrs. Chidsey and Wells and Ms. Chwat have agreed to modify their right to terminate for good reason, including waiving that right due to any change in their duties resulting from consummation of the Merger. In the case of Messrs. Wells and Smith and Ms. Chwat, the welfare benefits continuation period in the event of a qualifying termination has been extended from one year to two years pursuant to their amended employment agreements.

 

Pursuant to the merger agreement, the Company is authorized to enter into amendments to the employment agreements of Messrs. Fallon, Ramirez and Higgins and Ms. Franco, effective upon the effective time of the merger, which will increase their severance payments to two times the sum of base salary, benefits or perquisite allowance (as applicable) and target bonus for the year of termination. In addition, the right of Messrs. Fallon and Ramirez and Ms. Franco to receive welfare benefits continuation will be extended from one year to two years. In addition, the proposed amendments provide for the non-competition provisions and the non-solicitation provisions to be extended from one year to two years.

 

Prior to amendment, the employment agreements of each of Messrs. Fallon, Ramirez and Higgins and Ms. Franco provide that in the event of a termination by the Company without cause, or by the executive for good reason in the case of Messrs. Fallon and Ramirez and Ms. Franco, subject to execution by the executive of a release, the executive is entitled to an amount equal to (i) his or her annual base salary and annual perquisite allowance plus (ii) a pro-rata bonus though the date of termination, payable when and to the extent that the Company pays a bonus for such year, and continued coverage for one year under BKC’s medical, dental and life insurance plans. In addition, Ms. Franco’s agreement provides that if a Change in Control (as defined in the agreement) occurs on or before May 17, 2011, and, within twelve months following such Change in Control Ms. Franco is terminated without cause or resigns for good reason, Ms. Franco is entitled to an amount equal to twice her annual base salary, annual perquisite allowance and prorated bonus.

 

Potential Payments Upon a Change in Control

 

Based on compensation and benefit levels as of September 16, 2010, and assuming that the effective time of the merger occurs on October 15, 2010 and that the executive officers experience a qualifying termination of employment at that time (except that for Messrs. Chidsey and Wells and Ms. Chwat, it assumes that a qualifying termination occurs at the end of the transition period), the executive officers would be entitled to receive the following cash payments and benefits under their amended employment agreements upon a

qualifying termination (assuming that all of the payments described above under “— Equity Awards” have been previously made, including payments resulting from accelerated vesting of outstanding equity awards):