CKR Cke Restaurants, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

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

Exchange Act of 1934 (Rule 14a-101)

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

o   Preliminary Proxy Statement

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

þ   Definitive Proxy Statement

o   Definitive Additional Materials

o   Soliciting Material Pursuant to §240.14a-12

 

CKE RESTAURANTS, INC.

(Name of Registrant as Specified In Its Charter)

Not Applicable

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

Common Stock, par value $0.01 per share

 

 

55,231,928 shares of common stock and 2,958,719 options to acquire common stock with an

exercise price below $12.55.

 

 

Solely for the purpose of calculating the registration fee, the underlying value of the transaction was calculated as the sum of (A) 55,231,928 shares of common stock, multiplied by $12.55 per share and (B) 2,958,719 options to acquire common stock with an exercise price below $12.55 multiplied by $4.04 per option (which is the difference between $12.55 and the $8.51 weighted average exercise price of such options).

 

 

$705,113,921.16

 

 

$50,274.62

 

 

 

 

 

 

 

 

 

 

 

May 28, 2010

 

Dear Stockholder:

 

We cordially invite you to attend a special meeting of stockholders of CKE Restaurants, Inc., a Delaware corporation, which we refer to as the Company, to be held on June 28, 2010 at 10:00 a.m. local time, at 6307 Carpinteria Avenue, Carpinteria, California, 93013.

 

On April 23, 2010, the Company entered into an Agreement and Plan of Merger, effective as of April 18, 2010 (such agreement, as it may be amended from time to time, being referred to herein as the merger agreement), providing for the acquisition of the Company by Columbia Lake Acquisition Holdings, Inc., an entity owned by certain affiliates of Apollo Management VII, L.P. 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 $12.55 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).

 

As you are aware, the Company had previously entered into a merger agreement with affiliates of Thomas H. Lee Partners, L.P. Prior to entering into the merger agreement with Columbia Lake Acquisition Holdings, Inc., the Company terminated the merger agreement it had entered into with affiliates of Thomas H. Lee Partners, L.P. The per share merger consideration offered pursuant to the merger agreement with Columbia Lake Acquisition Holdings, Inc. represents a premium of approximately 41% to the closing price of the Company’s common stock on February 25, 2010, the last trading day prior to the public announcement of the execution of the merger agreement with affiliates of Thomas H. Lee Partners, L.P., a premium of approximately 46% to the volume-weighted average price for the 30 trading days prior to February 25, 2010, and a premium of approximately 14% over the consideration provided by the merger agreement previously entered into with affiliates of Thomas H. Lee Partners, L.P.

 

The board of directors of the Company has unanimously determined that the merger is fair to, and in the best interests of, the Company and its stockholders and approved and declared advisable the merger agreement and the merger and the other transactions contemplated by the merger agreement. The Company’s board of directors made its determination after consultation with its independent legal and financial advisors and consideration of a number of factors. The board of directors of the Company 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 pre-paid 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 will have the same effect as a vote against approval of the proposal to adopt the merger agreement.

 

If your shares of common stock of the Company 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 common stock of the Company without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares of common stock of the Company, following 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 common stock of the Company “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.

 

If you have any questions or need assistance voting your shares of common stock of the Company, please contact Morrow & Co., LLC, the Company’s proxy solicitor, by telephone toll-free at (800) 607-0088 (banks and brokers call collect at (203) 658-9400)) or by email at CKE@morrowco.com.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

Andrew F. Puzder
Chief Executive Officer

 

The proxy statement is dated May 28, 2010, and is first being mailed to our stockholders on or about May 28, 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.

 

 

CKE RESTAURANTS, INC.
6307 Carpinteria Avenue, Suite A
Carpinteria, California 93013

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 28, 2010

 

 

 

By Order of the Board of Directors,

 

Byron Allumbaugh
Chairman of the Board of Directors

 

Dated: May 28, 2010

Carpinteria, California

 

 

 

 

TABLE OF CONTENTS

 

 

 

SUMMARY

	•	pay our stockholders (and holders of options) the amounts due to them under the merger agreement;
	•	repay certain of our existing indebtedness and existing liabilities that will come due as a result of the merger; and
	•	pay related fees and expenses in connection with the transactions contemplated by the merger agreement;

	•	in favor of the adoption of the merger agreement and the approval of the merger and in favor of each of the actions contemplated by the merger agreement and any other proposals that could reasonably be expected to facilitate the merger; and
	•	against:

	•	any proposal or action which is intended or could reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the merger agreement or of such stockholder under the voting agreement;
	•	any proposal or action which is intended or could reasonably be expected to result in impeding, interfering with, delaying, postponing, discouraging or adversely affecting the merger or any of the other transactions contemplated by the merger agreement; and
	•	any competing takeover proposal or alternative takeover agreement.

	•	the vesting and cash-out of all vested and unvested stock options held by certain of our executive officers and directors, which will result in an aggregate cash payment to such executive officers and directors of approximately $5,716,168, based on holdings as of April 27, 2010, and assuming that the merger is completed on June 30, 2010;
	•	the vesting and cash-out of all unvested shares of restricted stock held by certain of our executive officers and directors, which will result in an aggregate cash payment to such executive officers and directors of approximately $13,133,198, based on holdings as of April 27, 2010, and assuming that the merger is completed on June 30, 2010;
	•	pursuant to employment agreements with each of Andrew F. Puzder, E. Michael Murphy and Theodore Abajian, and assuming the merger is completed on June 30, 2010 and such executive officers experience qualifying terminations during a specified period after such date, the payment of severance payments, which will result in an aggregate cash payment to such executive officers of approximately $10,322,588 (exclusive of the estimated value of employee benefit plans);
	•	the fact that, pursuant to the terms of the employment agreements with certain of our executive officers, we are scheduled to grant restricted stock (subject to performance and/or time-based vesting) on October 12, 2010 and, in the event that the effective time of the merger occurs after October 12, 2010, or in the event of certain qualifying terminations of employment prior to the effective time of the merger, such awards will vest in full at the effective time of the merger; and
	•	the receipt by each of the members of the transaction committee of a one-time payment in the amount of $25,000 as compensation for such member’s services on the transaction committee, whether or not the merger occurs.

	•	Common Stock.   At the effective time of the merger, each share of common stock issued and outstanding (except for shares of our common stock held by Parent, the Company and certain of their subsidiaries, and shares held by stockholders who have properly demanded appraisal rights) will convert into the right to receive the per share merger consideration of $12.55 in cash, without interest, less any applicable withholding taxes.
	•	Options.   At the effective time of the merger, each outstanding option to acquire shares of common stock will vest and be cancelled and converted into the right to receive an amount in cash equal to (x) the number of shares of common stock subject to such option, multiplied by (y) the excess (if any) of the per share merger consideration of $12.55 in cash over the exercise price per share of such option, less any applicable withholding taxes.
	•	Restricted Stock.   At the effective time of the merger, each share of outstanding restricted stock will vest and be converted into the right to receive the per share merger consideration of $12.55 in cash, less any applicable withholding taxes.
	•	Employee Stock Purchase Plan.   At the effective time of the merger, the Employee Stock Purchase Plan, or the ESPP, will terminate. The ESPP was suspended following the signing of the merger agreement, and no payroll deductions have been made and no other amounts have been set aside for the purchase of shares under the ESPP since February 26, 2010, the date of suspension. All amounts withheld from pay and not applied to the purchase of shares as of the date that the ESPP was suspended have been returned to the participants in the ESPP without interest thereon. All Company matching contributions that would have been used for the purchase of shares under the ESPP had the ESPP not been suspended and then terminated have been or will be paid to each ESPP participant in cash, provided that the participant satisfied or satisfies all requirements under the terms of the ESPP in effect as of the date of the merger agreement.

	•	by either Parent or the Company, if:

	•	the merger has not been consummated on or before August 26, 2010 (but this right to terminate will not be available to a party if the failure to consummate the merger prior to August 26, 2010 was primarily due to the failure of such party to perform any of its obligations under the merger agreement);
	•	a law, injunction, judgment or ruling, which we collectively refer to as a restraint, results in enjoining, restraining, preventing or prohibiting the consummation of the merger, and such restraint has become final and non-appealable (but this right to terminate will not be available to a party if the issuance of such final, non-appealable restraint was primarily due to the failure of such party to perform its obligations under the merger agreement); or
	•	our stockholders’ meeting has been held and completed and our stockholders have not adopted the merger agreement at such meeting or any adjournment of such meeting (but this right to terminate will not be available to the Company if the failure of the Company to perform its obligations under the merger agreement was the principal cause of or resulted in the failure to obtain stockholder approval).

	•	by Parent, if:

	•	we have materially breached or failed to perform any of our representations, warranties, covenants or other agreements in the merger agreement which breach or failure to perform (i) would give rise to a failure of the condition to Parent’s and Merger Sub’s obligation to close the merger and (ii) cannot be cured by the Company, or if capable of being cured, will not have been cured within certain notice periods (but this right to terminate will not be available to Parent if it is then in material breach of any of its representations, warranties, covenants or other agreements that would result in the conditions, with respect to the Company’s obligation to close the merger, not being satisfied);

	•	we have materially breached our obligations described under “The Merger Agreement — Solicitation of Takeover Proposals” and such breach, if capable of being cured, will not have been cured within certain notice periods; or
	•	(i) our board of directors (a) fails to recommend to our stockholders that the stockholders adopt the merger agreement or fails to include the board’s recommendation to adopt the merger agreement, which we refer to as the Company recommendation, in the proxy statement, (b) changes, qualifies, withholds, withdraws, or modifies (or publicly proposes to do so), in a manner adverse to Parent, the Company recommendation, (c) takes formal action or makes any recommendation or public statement in connection with a tender offer or exchange offer, other than a recommendation against such offer or other permitted communications, (d) adopts, approves or recommends (or publicly proposes to do so) a takeover proposal, (e) changes, qualifies, withholds, withdraws or modifies (or publicly proposes to do so) in a manner adverse to Parent, the Company recommendation in response to a material event or circumstance on the business, results of operations or financial condition of the Company that was not known to the board of directors as of the date of the agreement, and the board of directors has determined in good faith after consultation with independent financial advisors and outside legal counsel that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law, subject to the satisfaction of certain conditions, (f) fails to publicly reaffirm the Company recommendation after Parent so requests, (g) fails to recommend against any publicly announced takeover proposal and reaffirm the Company recommendation or (h) the Company enters into an alternative takeover agreement or (ii) the Company or our board of directors have publicly announced its intention to do any of the above actions.

	•	by the Company, if:

	•	Parent or Merger Sub have materially breached or failed to perform any of their representations, warranties, covenants or agreements in the merger agreement which breach or failure to perform (i) would give rise to a failure of a condition to the Company’s obligation to close the merger and (ii) has not been cured prior to August 26, 2010 (but this right to terminate will not be available to the Company if we are then in material breach of any of our representations, warranties, covenants or other agreements that would result in the conditions with respect to Parent’s and Merger Sub’s obligation to close the merger not being satisfied);
	•	at any time prior to the adoption of the merger agreement by our stockholders, in order to concurrently enter into an alternative takeover agreement with respect to a superior proposal, provided that (i) the Company has complied in all material respects with our obligations described under “The Merger Agreement — Solicitation of Takeover Proposals” and (ii) prior to or concurrently with such termination, we pay Parent the termination fee discussed under “The Merger Agreement — Termination Fees;”
	•	(i) the conditions to the obligations of Parent and Merger Sub to close the merger have been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the closing of the merger), (ii) the merger has not been consummated within two business days following the final day of the marketing period as described under “The Merger Agreement — Closing and Effective Time of the Merger; Marketing Period” beginning on page 58 and (iii) we have irrevocably confirmed that all conditions to our obligations to close the merger had been satisfied or that we are willing to waive all such conditions; or
	•	(i) the conditions to the obligations of Parent and Merger Sub to close the merger have been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the closing of the merger), (ii) the debt financing contemplated by the debt commitment letter has funded (or the conditions of the debt commitment letter, other than the merger or the funding of the equity financing contemplated by the equity commitment letter, have been satisfied and the debt financing would be funded pursuant to the terms and conditions of the debt commitment letter upon the consummation of the equity financing), (iii) the merger has not been consummated within five business days after the receipt of such financing and the delivery by us of a written notice to Parent and (iv) we have irrevocably confirmed that all conditions to our obligations to close the merger have been satisfied or that we are willing to waive all such conditions.

	•	the Company may be obligated to pay a termination fee of $15,471,000, except in the event that the merger agreement is terminated in order to enter into a definitive agreement with respect to a takeover proposal with Thomas H. Lee Equity Fund VI, L.P. or any of its affiliates, in which case the Company may be obligated to pay a termination fee of $15,471,000 plus an amount equal to $9,283,000, plus certain expenses reimbursed by the Company to affiliates of Thomas H. Lee Partners, L.P. under the prior merger agreement with affiliates of Thomas H. Lee Partners, L.P., which we refer to as the THL merger agreement, and reimburse up to $5,000,000 of the out-of-pocket fees and expenses incurred by Parent or its affiliates; or
	•	Parent may be obligated to pay the Company a reverse termination fee of $15,471,000 if the merger agreement is terminated as a result of Parent’s or Merger Sub’s material breach of any representation, warranty, covenant or agreement of the merger agreement, which breach has not been cured within the periods specified, subject to certain conditions (provided that in certain circumstances, Parent will be required to pay a higher reverse termination fee, in which case $15,471,000 will be increased to $30,943,000). The Apollo Investors have agreed to guarantee the obligation of Parent to pay the reverse termination fee pursuant to the guarantee.

 

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 Company stockholder. 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. 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 84.

 

 

 

 

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, dividends 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. Investors 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-Q and 10-K, 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, (i) the information contained under this heading and (ii) the information contained under the headings “Risk Factors” and “Business” and in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-Q and 10-K (see “Where You Can Find More Information” beginning on page 84). We undertake 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.

 

CKE Restaurants, Inc.
6307 Carpinteria Ave., Suite A
Carpinteria, California 93013
(805) 745-7500

 

The Company is a Delaware corporation. We own, operate, franchise and/or license more than 3,100 quick-service restaurants, primarily under the brand names Carl’s Jr. ^® and Hardee’s ^® . For more information about the Company, please visit our website at http://www.ckr.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 “Where You Can Find More Information” beginning on page 84. Our common stock is publicly traded on the NYSE under the symbol “CKR.”

 

Columbia Lake Acquisition Holdings, Inc.
c/o Apollo Management VII, L.P.
9 West 57th Street, 43 ^rd Floor
New York, NY 10019
(646) 607-0528

 

Columbia Lake Acquisition Holdings, Inc., which we refer to as Parent, is a Delaware corporation controlled by affiliates of Apollo Management VII, L.P. that was formed solely for the purpose of acquiring the Company and has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement. Upon consummation of the proposed merger, the Company will be a subsidiary of Parent.

 

Columbia Lake Acquisition Corp.
c/o Apollo Management VII, L.P.
9 West 57 ^th Street, 43 ^rd Floor
New York, NY 10019
(646) 607-0528

 

Columbia Lake Acquisition Corp., which we refer to as Merger Sub, is a Delaware corporation that is wholly-owned by Parent and was organized solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Merger Sub has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement. Under the terms of the merger agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation. Upon consummation of the proposed merger, Merger Sub will cease to exist.

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the board of directors for use at the special meeting to be held on June 28, 2010, starting at 10:00 a.m. local time, at 6307 Carpinteria Avenue, Carpinteria, California, 93013, or at any adjournment thereof. At the special meeting, holders of our 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 stockholders must approve the proposal to adopt the merger agreement in order for the merger to occur. If our stockholders 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 May 10, 2010 as the record date for the special meeting, and only holders of record of 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 common stock at the close of business on the record date. On the record date, there were 55,232,512 shares of common stock outstanding and entitled to vote. Each share of common stock entitles its holder to one vote on all matters properly coming before the special meeting.

 

A majority of the shares of 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 common stock represented at the special meeting but not voted, including shares of common stock for which a stockholder directs an “abstention” from voting, as well as “broker non-votes” (as described below), will be counted for purposes of establishing a quorum. A quorum is necessary to transact business at the special meeting. Once a share of 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 to solicit additional proxies.

 

Only stockholders of record or their duly authorized proxies have the right to attend the special meeting. Since seating is limited, admission to the special meeting will be on a first-come, first-served basis. You should be prepared to present photo identification for admittance. If you are not a stockholder of record but hold shares through a broker, bank, trustee or nominee (i.e., in “street name”), you should provide proof of beneficial ownership as of the record date, a copy of the voting instruction card provided by your broker, bank, trustee or nominee, or similar evidence of ownership.

 

The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of our 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 vote in person at the special meeting, or if you abstain, it will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

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

 

If your shares of common stock are held through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares of 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 common stock, the stockholder 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, brokers 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, brokers 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 common stock, brokers are not empowered to vote those shares of common stock, 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 common stock present in person or represented by proxy and entitled to vote on the matter at the special meeting, whether or not a quorum is present. 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 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 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 stockholder of record, you may have your shares of the common stock voted on matters presented at the special meeting in any of the following ways:

 

 

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 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.

 

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded, when voting over the Internet or by telephone. Please be aware that if you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible.

 

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 the Corporate Secretary of the Company by the time the special meeting begins. Please do not send in your stock certificates with your proxy card . When and if 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 the 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 common stock should be voted for, 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 and submit your proxy card but do not mark the boxes showing how your shares of common stock should be voted on a matter, the shares of 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 there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

If you have any questions or need assistance voting your shares, please contact Morrow & Co., LLC, our proxy solicitor, by telephone toll-free at (800) 607-0088 (banks and brokers call collect at (203) 658-9400)) or by email at CKE@morrowco.com

 

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF 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 PRE-PAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES AND VOTE BY BALLOT AT THE SPECIAL MEETING.

 

As of April 18, 2010, certain directors and executive officers of the Company who beneficially owned and were entitled to vote, in the aggregate, 4,463,495 shares of common stock, representing approximately 8.08% of the outstanding shares of common stock, have executed voting agreements with Parent (substantially in the form of Annex B to this proxy statement). Pursuant to such voting agreements, such directors and executive officers have agreed to vote all of their shares of our 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. See the section entitled “Stockholder Voting Agreements” beginning on page 75.

 

Any stockholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, or by returning the enclosed proxy card in the accompanying pre-paid reply envelope, or may vote in person at the special meeting. If your shares of common stock are held in “street name” by your broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote your shares of common stock using the instructions provided by your broker, bank or other nominee. If you fail to submit a proxy or vote in person at the special meeting, or abstain, or you do not provide your broker, bank or other nominee with instructions, as applicable, your shares of 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.

 

You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by voting at a later date through any of the methods available to you, by giving written notice of revocation to our Corporate Secretary, which must be filed with the Corporate Secretary by the time the special meeting begins, or by voting by ballot at the special meeting. Attending the special meeting, by itself, is not enough to revoke a proxy. If you are a beneficial owner and wish to revoke your voting instructions you should follow the instructions provided by your bank, brokerage firm or other nominee.

 

Although it is not currently expected, the special meeting may be adjourned or postponed 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. Other than an announcement to be made at the special meeting of the time, date and place of an adjourned meeting, any adjournment may be made without notice (if the adjournment is not for more than 30 days and a new record date has not been fixed). Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

We are working towards completing the merger as soon as possible. Assuming timely satisfaction of necessary closing conditions, we anticipate that the merger will be completed in either the end of the second calendar quarter of 2010 or the beginning of the third calendar quarter of 2010. If our stockholders vote to approve the proposal to adopt the merger agreement, the merger will become effective as promptly as practicable following the satisfaction or waiver of the other conditions to the merger. See the section entitled “The Merger Agreement — Closing and Effective Time of the Merger; Marketing Period” beginning on page 58.

 

Stockholders are entitled to appraisal rights under the DGCL in connection with the merger. If applicable conditions to making a demand for appraisal rights are satisfied and if the merger occurs, this means that you are entitled to have the fair value of your shares of common stock determined by the Delaware Court of Chancery and to receive cash payment based on that valuation instead of receiving the per share merger consideration. 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 proposal to adopt 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 76 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 the common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee. In view of the complexity of the procedures specified under the DGCL, stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

 

The Company has engaged Morrow & Co., LLC to assist in the solicitation of proxies for the special meeting. The Company estimates that it will pay Morrow & Co., LLC a fee of approximately $15,000, plus $5.00 per each call made to or received from stockholders of the Company. The Company will reimburse Morrow & Co., LLC for reasonable out-of-pocket expenses and will indemnify Morrow & Co., LLC and its affiliates against certain claims, liabilities, losses, damages and expenses. In addition, in the event that the merger agreement is adopted by the stockholders of the Company, the Company will pay Morrow & Co., LLC an additional fee of $10,000. The Company may also reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of common stock for their expenses in forwarding soliciting materials to beneficial owners of our 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. In addition, certain employees of Apollo Management and its affiliates may be deemed to be participants in the solicitation. They will also 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 contact Morrow & Co., LLC, our proxy solicitor, by telephone toll-free at (800) 607-0088 (banks and brokers call collect at (203) 658-9400)) or by email at CKE@morrowco.com.

PROPOSAL 1 — THE MERGER

 

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 common stock (other than shares of common stock held by Parent, Merger Sub or any other direct or indirect wholly-owned subsidiary of Parent, shares of common stock held by stockholders who have properly demanded appraisal rights under the DGCL with respect to such shares, if any, and common stock owned by the Company or any of its direct or indirect wholly-owned subsidiaries, which we refer to collectively as the excluded shares) will be converted into the right to receive the per share merger consideration of $12.55 in cash, without interest, less any applicable withholding taxes.

 

The Company’s board of directors and senior management continually review our long-term strategic plan with the goal of maximizing stockholder value. As part of this ongoing process, the board of directors also periodically reviews the Company’s strategic alternatives, including prospects for mergers and acquisitions. In connection with these periodic reviews, the board of directors has, from time to time in the ordinary course of business, received communications and advice from various investment banking firms regarding market conditions and parties that may be interested in exploring a potential transaction with the Company.

 

In August 2009, a representative of the investment banking division of Bank of America/Merrill Lynch, which we refer to as BAML, informed Andrew F. Puzder, the Company’s Chief Executive Officer and a member of the board of directors, that he believed that an attractive merger and acquisition transaction involving the Company may be feasible in light of improved market conditions. The representative also noted that private equity firms might be interested in exploring a potential transaction with the Company. Mr. Puzder informed various independent members of the board of directors, including Byron Allumbaugh, the Chairman of the board of directors, and a representative of Stradling Yocca Carlson & Rauth, the Company’s outside legal counsel, of his discussions with the representative of BAML. After consulting with such directors, Mr. Puzder informed the representative of BAML that he would be interested in meeting with private equity firms to determine if any of such firms were interested in exploring a potential transaction with the Company. The Company did not engage BAML as its financial advisor at this time, or at any time, in connection with its exploration of a potential transaction.

 

In September 2009, representatives of Thomas H. Lee Partners, L.P., which we refer to as THL, and two other private equity firms, which we refer to as Party B and Party C, informed a representative of BAML that they had an interest in exploring a potential transaction with the Company. The representative of BAML subsequently informed Mr. Puzder of these expressions of interest and BAML’s interest in serving as an advisor to the successful bidder in the event the Company entered into a transaction (BAML was subsequently engaged by THL as its financial advisor in connection with this transaction). Throughout early September 2009, Mr. Puzder informed various independent members of the board of directors of these events. Pursuant to these discussions, senior management was authorized to schedule an initial meeting with each of THL, Party B and Party C, subject to their prior entry into customary confidentiality agreements. In September 2009, the Company entered into confidentiality agreements with each of THL, Party B and Party C.

 

From September 16, 2009 through October 2, 2009, the Company held one management presentation meeting with each of THL, Party B and Party C, and representatives from BAML and, in the case of Party B and Party C, the lending division of Bank of America, which we refer to as Bank of America, which would potentially provide credit financing in connection with any transaction. At these meetings, the business due diligence discussions with THL, Party B and Party C were limited to publicly-available information regarding the Company, and no material non-public information was shared. At various times during this period, including following each management presentation, Mr. Puzder regularly consulted with various independent members of the board of directors, including Mr. Allumbaugh, and a representative of Stradling Yocca Carlson & Rauth, regarding the status of discussions. Thereafter, due to the perceived level of interest of THL, Party B and Party C, Mr. Allumbaugh determined that such discussions should be brought to the attention of the full board of directors.

 

On October 5, 2009, the board of directors held a special meeting. Several members of senior management and representatives of Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the board of directors, Mr. Puzder reviewed with the board of directors his discussions with the representatives of BAML and Bank of America. Mr. Puzder noted that he had reviewed the Company’s standard investor presentation with each of

THL, Party B and Party C, and that no non-public information was shared with these parties. In addition, members of senior management noted that there had been no substantive discussions with respect to any terms, provisions, or conditions of a potential transaction, or any possible employment or other arrangements between any of the firms and the Company’s senior management.

 

Mr. Puzder advised the board of directors that he believed that each of THL, Party B and Party C seemed interested in a potential transaction, but that each expressed a need to receive additional information, including confidential information, regarding the Company. After consultation with a representative of Stradling Yocca Carlson & Rauth, and after extensive deliberation, the board of directors agreed that the Company should provide additional information to THL, Party B and Party C through an electronic data room. The board of directors also agreed that this due diligence activity should be supervised by Messrs. Allumbaugh and Rubinstein. The board of directors instructed senior management not to discuss any other aspects of a potential transaction, or any arrangements with respect to the retention of management or any equity investment by management in any potential transaction with any bidders, and senior management confirmed that no such discussions had occurred to date.

 

As authorized by the board of directors, during the month of October 2009, each of THL, Party B and Party C received non-public information concerning the Company in accordance with the terms of the confidentiality agreements, discussed with senior management the Company’s business and prospects, and received equal access to an electronic data room, which contained certain financial and legal due diligence materials and other information regarding the Company.

 

In October 2009, Potter Anderson & Corroon LLP, which we refer to as Potter Anderson, was engaged as special Delaware counsel to provide advice on matters of Delaware law.

 

Also, by mid-October 2009, the Company was informed that Party B and Party C were no longer interested in pursuing a potential acquisition of the Company and had terminated their due diligence efforts.

 

During the month of November 2009, THL continued its due diligence efforts.

 

On December 8, 2009, the board of directors held a regularly-scheduled meeting. A representative of Stradling Yocca Carlson & Rauth attended this meeting. The board of directors discussed the status of the Company’s interactions with THL, Party B and Party C. Messrs. Allumbaugh and Rubinstein, and members of senior management, reviewed with the board of directors the due diligence activities of THL, Party B and Party C to date. Members of senior management remained present during this portion of the meeting to respond to any questions that the board of directors might have regarding the nature of the due diligence activities of THL, Party B and Party C. The board of directors was advised that Party B and Party C had terminated their due diligence efforts, but that THL was continuing to conduct due diligence on the Company. The board of directors reiterated its instruction to senior management not to discuss any other aspects of a potential transaction, or any arrangements with respect to management retention or any equity investment by management in any potential transaction with any bidders, and senior management confirmed that no such discussions had occurred to date.

 

In light of the continued due diligence review by THL with respect to a potential transaction involving the Company, the board of directors then discussed the retention of UBS to serve as an independent financial advisor to the board of directors in connection with any potential transaction involving the Company. Following extensive discussion regarding the qualifications of UBS, including its familiarity with both the Company and the Company’s industry, the board of directors authorized the engagement of UBS. The board of directors then instructed UBS to supervise the due diligence process, subject to the oversight of Messrs. Allumbaugh and Rubinstein.

 

The board of directors then discussed the retention of outside legal counsel. Mr. Allumbaugh stated that Potter Anderson had previously been engaged as special Delaware counsel. The board of directors noted Potter Anderson’s significant expertise in Delaware law, including its experience in merger and acquisition transactions involving Delaware corporations. The board of directors also discussed the continued retention of Stradling Yocca Carlson & Rauth, noting its experience in merger and acquisition transactions and familiarity with the Company’s operations. Following this discussion, the board of directors ratified the formal engagement of Potter Anderson and Stradling Yocca Carlson & Rauth with respect to a potential transaction.

 

The board of directors also formalized the role of Messrs. Allumbaugh and Rubinstein by appointing them as members to a two-member due diligence committee with the authority to (i) continue to supervise the Company’s due diligence activities, (ii) negotiate the engagement of the board of directors’ outside advisors and to interact with

such advisors regarding their respective activities, including the screening of any preliminary indications of interest, and (iii) update the board of directors as appropriate.

 

On December 17, 2009, THL submitted a non-binding indication of interest to acquire all of the capital stock of the Company at a price of $10.00 per share. A copy of the non-binding indication of interest was provided to the members of the due diligence committee, representatives of Potter Anderson, representatives of Stradling Yocca Carlson & Rauth and certain members of senior management.

 

On December 23, 2009, the due diligence committee held a meeting to discuss the status of due diligence activities by THL and the indication of interest submitted by THL. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Prior to this meeting, preliminary materials prepared by UBS were distributed to the members of the due diligence committee. Representatives of UBS and Stradling Yocca Carlson & Rauth also participated in the meeting. At the request of the due diligence committee, a representative from Stradling Yocca Carlson & Rauth reviewed with the due diligence committee the previous actions of the board of directors with respect to a potential transaction with THL. During this meeting, the due diligence committee reviewed the terms of the proposed engagement letter with UBS and subsequently approved the engagement letter.

 

Representatives of UBS then reviewed the due diligence activities by THL and the discussions with THL to date. Prior to discussing THL’s indication of interest, at the request of the due diligence committee, representatives of UBS reviewed various strategic considerations. The representatives of UBS discussed current merger and acquisition market conditions and reviewed a number of considerations with respect to a potential transaction with THL, and considerations with respect to remaining a publicly-traded, independent company. The due diligence committee and the representatives of UBS discussed how to obtain the highest valuation if the Company were to pursue discussions with THL, including whether the Company should engage in some form of market check prior to or in connection with further exploration of a possible transaction with THL. The due diligence committee discussed a variety of additional factors, including the universe of potential bidders capable of entering into a transaction with the Company, the possibility that competition between multiple bidders could result in a higher per share price in a transaction, the increased risk of a premature leak to the market of information regarding a potential transaction, the board of directors’ view that the Company was not for sale merely because THL had delivered an indication of interest, the fact that three financial sponsors had already extensively examined the Company with a view towards a possible transaction, and the risks associated with sharing confidential information with any competitor of the Company. The due diligence committee also discussed the possibility that the Company would be able to proactively seek alternative proposals following the signing of a merger agreement with THL, which we refer to as the THL merger agreement, through the use of a “go-shop” provision, a customary “superior proposal” termination right and an appropriate termination fee. After these discussions, the due diligence committee concluded that if a potential transaction were to be pursued, the best strategy to obtain the highest valuation was to enter into a definitive merger agreement with the highest available per share merger consideration and then aggressively market that deal during a “go-shop” period.

 

The due diligence committee then discussed with UBS the indication of interest submitted by THL. In connection with this discussion, UBS presented the Company’s preliminary financial forecasts, public market perspectives on the Company, and preliminary valuation considerations. These forecasts, which had been previously provided to UBS by the Company’s management, and preliminary valuation considerations were discussed in detail. Following this discussion, the due diligence committee unanimously authorized UBS to communicate to THL that its offer was rejected and that its price was not sufficient. However, after discussion with UBS, the due diligence committee agreed to allow THL to continue its due diligence efforts with the expectation that additional due diligence would allow THL to improve the terms of its proposal.

 

After the conclusion of this meeting, at the instruction of the due diligence committee, UBS was informed that senior management had been advised that management’s role at the present time was limited to the assistance with due diligence efforts and that it was specifically not allowed to discuss with THL, UBS or anyone else any other aspects of a potential transaction, or any arrangements with respect to management retention or any equity investment by management in any potential transaction.

 

Following this meeting, representatives of UBS, at the direction of the due diligence committee, communicated to THL that its indication of interest was rejected and that its price was not sufficient.

From late December 2009 through the execution of the THL merger agreement, THL and its representatives engaged in extensive legal, accounting and financial due diligence, including numerous diligence calls with members of the Company’s senior management team. Also in attendance on many of these calls were representatives of UBS.

 

On January 18, 2010, THL submitted a letter that reiterated its interest in a potential acquisition of the Company. In the letter, THL provided an update with respect to its due diligence and financing activities to date, but did not submit a revised purchase price.

 

On January 19, 2010, the board of directors held a regularly-scheduled meeting, where senior management provided to and discussed with the board of directors a detailed update on the Company’s business goals and prospects, including a proposed budget for fiscal year 2011. The board of directors was also updated on discussions with THL. Several members of senior management and representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. The board of directors permitted the attendance of members of senior management during this portion of the meeting in light of their experience and knowledge of the Company, which could assist the board of directors in evaluating the financial information presented to it by UBS. Representatives of UBS, Mr. Puzder and other members of senior management were recused from a portion of the meeting when representatives of Potter Anderson reviewed with the board of directors their fiduciary duties under applicable law. Representatives of UBS then reviewed with the board of directors the discussions to date with THL, including the due diligence committee’s rejection of THL’s initial non-binding indication of interest. Representatives of UBS then provided various financial analyses to the board of directors and reviewed a number of considerations with respect to a potential transaction and considerations with respect to remaining a publicly-traded, independent company. UBS included in its presentation an outline of the significant next steps with respect to a potential transaction, which were discussed with the board of directors. After discussion, the board of directors adopted the approach previously formulated by the due diligence committee at the meeting of such committee that occurred on December 23, 2009: to enter into a definitive merger agreement with the highest available per share merger consideration and then aggressively market that deal during a “go-shop” period.

 

The board of directors also discussed with its legal counsel whether to expand the authority and membership of the due diligence committee to permit it to actively participate in the negotiations with THL. After discussion, the board of directors determined that such a committee would facilitate the negotiation process and therefore the board of directors re-designated the committee as the “transaction committee” and added Frank P. Willey as a member of such committee, who had previously been assisting the due diligence committee. In addition, the board of directors expanded the scope of such committee’s authority to include the power and authority to (i) review and evaluate the terms and conditions, and determine the advisability of, a potential transaction or any alternatives thereto, (ii) communicate to and negotiate with THL concerning the terms and conditions of a potential transaction, (iii) consider, evaluate and negotiate the terms and conditions of any and all alternatives to the potential transaction with any other party the committee deems appropriate, (iv) recommend, if appropriate, a potential transaction, or alternative thereto, to the board of directors as fair to, and in the best interests of, the Company and its stockholders and (v) take any other action necessary or appropriate in connection with the potential transaction or any alternatives thereto.

 

On January 22, 2010, the transaction committee met to discuss the status of discussions with THL. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS and Stradling Yocca Carlson & Rauth participated in the meeting. At the request of the transaction committee, representatives of UBS reviewed with the transaction committee the discussions with THL since the last meeting of the board of directors on January 19, 2010.

 

Later that same day on January 22, 2010, THL submitted a revised non-binding indication of interest to acquire all of the capital stock of the Company at a price of $10.50 per share to representatives of UBS and Stradling Yocca Carlson & Rauth. A representative of Stradling Yocca Carlson & Rauth distributed a copy of such revised non-binding indication of interest to the board of directors. The revised indication of interest included a draft THL merger agreement and a list of conditions that THL expected would be included in the debt commitment letter, which we refer to as the THL debt commitment letter, and equity commitment letter, which we refer to as the THL equity commitment letter. The draft THL merger agreement included a “go-shop” provision based on earlier direction from UBS to the effect that if the Company’s discussions with THL were to result in a deal, the Company

would insist in all cases on preserving the contractual right, via a “go-shop” provision, to conduct a fulsome post-signing market check. In addition, in its indication of interest, THL stated that any transaction with the Company would be predicated on THL’s ability to reach satisfactory arrangements with management regarding equity rollover and compensation arrangements and requested the ability to commence discussions regarding such arrangements with management as soon as possible.

 

On January 25, 2010, the transaction committee met to discuss the revised indication of interest received from THL. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Prior to the meeting, preliminary materials prepared by UBS were distributed to members of the transaction committee. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the transaction committee, representatives of UBS reviewed with the transaction committee the revised indication of interest. Representatives of UBS also summarized their preliminary materials, including various financial analyses. After discussion, the transaction committee deferred any action regarding the revised indication of interest to a meeting of the full board of directors scheduled for later that afternoon.

 

Later that same day on January 25, 2010, the board of directors held a special meeting to discuss THL’s revised indication of interest. Several members of senior management and representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. The board of directors permitted the attendance of members of senior management at this meeting in light of their experience and knowledge of the Company, which could assist the board of directors in evaluating the Company’s short- and long-term prospects and financial information. At the request of the board of directors, representatives of UBS reviewed their discussions with THL and the revised indication of interest. Following the recusal from the meeting of the representatives of UBS, Mr. Puzder and other members of senior management, the board of directors engaged in lengthy discussions regarding the Company’s short- and long-term prospects, current financial information, strategic alternatives, including remaining a publicly-traded, independent company, the state of the Company’s industry, and general market conditions. Following this discussion, the board of directors determined that the price was not sufficient and agreed to reject the revised indication of interest and authorized UBS to communicate this decision to THL. In addition, the board of directors determined not to authorize management to commence discussions regarding any equity rollover and compensation arrangements with THL at such time. After consulting with its legal advisors, the board of directors determined that the optimal strategy for securing an improvement in the terms and conditions of a proposal from THL was for the board of directors to not directly engage in negotiations with THL. In lieu of direct board engagement, the board of directors authorized the transaction committee to continue to supervise the due diligence process, to receive regular updates from UBS regarding the status of discussions with THL, to evaluate additional financial analyses prepared by UBS, to communicate directly with THL, if necessary, and to provide regular updates to the board of directors with respect thereto, under the view that further diligence by THL may result in an increased purchase price.

 

On or about January 26, 2010, representatives of UBS advised THL that its indication of interest was rejected, but that THL could continue its due diligence activities.

 

On January 29, 2010, the transaction committee met to discuss the status of discussions with THL. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the transaction committee, representatives of UBS reviewed their discussions with THL since the last meeting of the board of directors on January 25, 2010.

 

On February 2, 2010, in furtherance of demonstrating its ability to consummate a potential transaction, THL submitted a letter that included draft THL debt commitment letters and a draft THL equity commitment letter. In its letter, THL indicated that the debt financing commitments were substantially negotiated. The letter also reiterated THL’s intention to complete the potential transaction at a price of $10.50 per share. On February 3, 2010, THL submitted a draft guarantee to be entered into by Thomas H. Lee Equity Fund VI, L.P., which we refer to as the THL guarantee, pursuant to which Thomas H. Lee Equity Fund VI, L.P. would guarantee certain payment obligations of Western Acquisition Holdings, Inc., which we refer to as THL Parent, under the THL merger agreement in certain circumstances.

Later that same day on February 3, 2010, the transaction committee met to discuss the status of discussions with THL. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the transaction committee, representatives of UBS reviewed their discussions with THL since the last meeting of the transaction committee that occurred on January 29, 2010. UBS also reviewed the letter submitted by THL the previous day. The transaction committee then reviewed the discussions that took place at the previous meeting of the board of directors regarding the rejection of THL’s revised indication of interest. Thereafter, representatives of UBS reviewed various financial analyses and provided a summary of the material financial terms and conditions of the THL debt commitment letters submitted by THL. After a lengthy discussion, the transaction committee unanimously agreed to reject THL’s revised indication of interest in light of the fact that the price in the revised indication of interest remained the same as the price previously rejected by the board of directors as not sufficient on January 25, 2010, and instructed Mr. Allumbaugh to deliver a letter to THL to that effect. However, the transaction committee agreed to allow THL to continue its due diligence efforts with the expectation that additional due diligence would allow THL to improve the terms of its proposal.

 

On February 4, 2010, Mr. Allumbaugh submitted a letter to THL that stated the board of directors’ determination that the valuation proposed in THL’s revised indication of interest dated January 22, 2010 was not sufficient to proceed with a potential transaction or the negotiation of the draft THL merger agreement at such time.

 

On February 12, 2010, the transaction committee met to discuss the status of discussions with THL. Mr. Puzder and representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. Mr. Puzder informed the transaction committee that management had, consistent with past practice, updated the Company’s financial forecasts for fiscal year 2011 based on results obtained after the end of fiscal year 2010, and such revisions resulted in improved forecasts. Mr. Puzder then reviewed the revised financial forecasts, which we refer to as the management forecast. The management forecast was provided to UBS, and elements of it were provided to THL. See section captioned “Certain Company Forecasts” beginning on page 46. After his presentation, Mr. Puzder was recused from the meeting. At the request of the transaction committee, representatives of UBS reviewed their discussions with THL since the last meeting of the transaction committee that occurred on February 3, 2010, including the letter submitted to THL on February 4, 2010. At the request of the transaction committee, representatives of UBS reviewed various financial analyses and preliminary valuation considerations. After a lengthy discussion, the transaction committee authorized UBS to continue to engage in discussions with THL to address certain outstanding due diligence requests. Management’s revised forecast for fiscal year 2011 was distributed to THL that same day.

 

On February 17, 2010, THL submitted a revised non-binding indication of interest to acquire all of the capital stock of the Company at a price of $10.80 per share. In addition, in its indication of interest, THL reiterated that any transaction with the Company would be predicated on THL’s ability to reach satisfactory arrangements with management regarding equity rollover and compensation arrangements, and again requested the ability to commence discussions regarding such arrangements with management as soon as possible. THL also expressed its desire to receive a comprehensive response to the drafts of the THL merger agreement, THL debt commitment letter and THL equity commitment letter and THL guarantee submitted on January 22, 2010, February 2, 2010, and February 3, 2010, respectively. In addition, THL requested, due to weakening conditions in the global debt financing markets that could negatively impact the economic terms of THL’s debt financing, a response to its revised indication of interest no later than February 18, 2010.

 

Later that same day on February 17, 2010, the transaction committee met to discuss the status of discussions with THL. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. Representatives of UBS and the transaction committee discussed the terms and conditions of the revised indication of interest. After extensive discussion, the transaction committee determined to distribute the revised indication of interest to the board of directors and to schedule a meeting of the board of directors for the following day to discuss the revised indication of interest.

On February 18, 2010, the board of directors held a special meeting to discuss the second revised indication of interest received from THL. Members of senior management and representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the board of directors, representatives of UBS reviewed their discussions with THL since the last meeting of the board of directors. Representatives of UBS and the board of directors discussed the terms and conditions of the revised indication of interest. Representatives of UBS also reviewed various financial analyses, key trading price considerations and preliminary valuation considerations from the materials provided to the transaction committee on February 12, 2010.

 

After such discussion, the board of directors called an executive session and Mr. Puzder and other members of senior management and representatives of UBS were recused from the meeting. A representative of Potter Anderson discussed the directors’ fiduciary duties under applicable law. During the executive session, the independent members of the board of directors engaged in a lengthy discussion regarding the Company’s strategic alternatives, including remaining a publicly-traded independent company, and the state of the Company’s industry and general market conditions. During such discussion, the independent members of the board of directors also discussed the potential benefits and risks associated with allowing senior management to engage in discussions with THL regarding equity rollover and compensation arrangements at such time. After extensive deliberation, the independent members of the board of directors authorized representatives of UBS to communicate to THL that its price was not sufficient and did not meet the expectations of the board of directors. Due to the advanced nature of the negotiations between the parties and the need for the board of directors to better understand whether THL had any material contingencies relating to the proposed transaction, including whether the proposed transaction with THL would be predicated on THL’s ability to reach satisfactory arrangements with management regarding equity rollover and compensation, the independent members of the board of directors also authorized senior management to engage in discussions with THL regarding equity rollover and compensation arrangements.

 

From February 18, 2010 through February 24, 2010, representatives of UBS and THL continued to engage in discussions regarding the status of the THL debt commitment letter and the proposed purchase price.

 

On February 19, 2010, representatives of Stradling Yocca Carlson & Rauth sent a memorandum identifying its and Potter Anderson’s concerns with respect to certain provisions of the THL merger agreement to representatives of Ropes & Gray LLP, who we refer to as Ropes & Gray, counsel to THL. The memorandum requested terms in the THL merger agreement that were more favorable to the Company. In particular, the memorandum demanded that the length of the “go-shop” period in the draft THL merger agreement be lengthened. In addition, the memorandum sought a decrease in the amount of the termination fee payable by the Company and an increase in the amount of the reverse termination fee and also raised issues relating to the use of a closing adjusted leverage condition to closing.

 

On February 20, 2010, in response to these issues, Ropes & Gray communicated THL’s willingness to agree to (i) extend the length of the “go-shop” period, (ii) permit the Company to continue to negotiate for an additional 20-day period, subject to specified conditions, with third parties (each, an “excluded party”) that had presented the Company with a competing takeover proposal prior to the expiration of the initial 40-day “go-shop” period that the board of directors had determined constituted, or was reasonably expected to lead to, a “superior proposal” (as such term was defined in the THL merger agreement), (iii) adopt a two-tier termination fee structure, which would permit the Company to pay a reduced termination fee if it entered into a definitive agreement with an excluded party prior to the end of such additional 20-day period, and (iv) adopt a two-tier reverse termination fee structure, which would provide for a greater reverse termination fee in certain events.

 

On February 21, 2010, Ropes & Gray sent certain proposed changes to the THL merger agreement to representatives of Stradling Yocca Carlson & Rauth and UBS, which reflected THL’s revised positions on the ability of the Company to negotiate with an excluded party for an additional 20-day period, the adoption of a two-tier termination fee structure and the adoption of a two-tier reverse termination fee structure.

 

On February 22, 2010, representatives of Stradling Yocca Carlson & Rauth sent revised drafts of the THL merger agreement and the THL guarantee to representatives of Ropes & Gray. Representatives of Stradling Yocca Carlson & Rauth, Potter Anderson and Ropes & Gray engaged in discussions from February 23, 2010 through February 26, 2010 regarding transaction documents (including a form of voting agreement, which we refer to as the THL voting agreement, and the THL equity commitment letter).

Between February 23, 2010 and February 25, 2010, THL presented members of senior management with term sheets setting forth proposed terms for post-closing employment and equity arrangements with the surviving corporation.

 

On February 24, 2010, representatives of Ropes & Gray sent a revised draft THL merger agreement to representatives of Stradling Yocca Carlson & Rauth. Also on February 24, 2010, THL revised the proposal that it earlier submitted by making a non-binding offer to acquire all of the capital stock of the Company at a price of $10.95 per share, which we refer to as the February 24 Proposal.

 

On February 25, 2010, the transaction committee met to discuss the status of discussions with THL, including the status of negotiations regarding the THL merger agreement. Representatives of UBS and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the transaction committee, representatives of UBS reviewed their discussions with THL since the last meeting of the board of directors, including the February 24 Proposal. Representatives of UBS also reviewed with the transaction committee various financial analyses. After extensive deliberation, the transaction committee requested representatives of UBS to instruct THL to provide to the board of directors its best offer by 3:00 p.m. Pacific Time that same day. The transaction committee then requested that Mr. Puzder join the meeting and update the transaction committee regarding all discussions between senior management and THL with respect to the proposed terms of post-closing employment and equity arrangements with senior management that had occurred to date. Mr. Puzder indicated that such discussions were taking place, but were only at a preliminary stage. After Mr. Puzder’s presentation, he was recused from the committee meeting.

 

Representatives of UBS and the transaction committee further discussed the terms and conditions of the February 24 Proposal and other deal protection provisions. A representative from Stradling Yocca Carlson & Rauth reviewed the status of negotiations regarding the THL merger agreement and provided a summary of the terms and conditions of the THL merger agreement and the results of the negotiations thereof. The transaction committee determined to schedule a meeting of the board of directors for later that afternoon.

 

Later that same day on February 25, 2010, in response to the board of directors’ request for its best offer, THL submitted a revised non-binding indication of interest to acquire all of the capital stock of the Company at a price of $11.05 per share, which we refer to as the February 25 Proposal.

 

Later that same day on February 25, 2010, the board of directors held a special meeting to discuss the February 25 Proposal. Prior to the meeting, materials prepared by representatives of UBS and the revised draft of the THL merger agreement were distributed to the members of the board of directors. Members of senior management and representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. Representatives of UBS reviewed the discussions with THL since the last meeting of the board of directors and various financial analyses.

 

The board of directors and its advisors discussed the terms and conditions of the February 25 Proposal, the THL merger agreement, the THL debt commitment letter, the THL equity commitment letter and the THL guarantee, including the termination fees and the “go-shop” provision. With respect to the “go shop” provision, the board of directors and its advisors discussed in detail the Company’s ability to actively solicit takeover proposals during the “go-shop” period and the two-tier termination fee whereby the Company would be obligated to pay a termination fee equal to (i) $9,283,000 in the event the Company terminated the THL merger agreement in order to enter into a definitive agreement with an excluded party prior to 12:01 p.m., New York City time on April 27, 2010, and (ii) $15,471,000 in the event that it terminated the THL merger agreement under all other circumstances, plus, in each case, documented expenses up to $5,000,000. The board of directors and its advisors also discussed the efforts that would be undertaken by UBS on the Company’s behalf during the “go-shop” period.

 

After the presentations by UBS and a review of the February 25 Proposal, the board of directors requested that UBS deliver its fairness opinion. Thereafter, UBS delivered to the Company’s board of directors an oral opinion, which was confirmed by delivery of a written opinion dated February 25, 2010, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the price of $11.05 per share merger consideration to be received by holders of the Company’s common stock (other than the excluded holders) in the merger was fair, from a financial point of view, to such holders.

Then, representatives of Potter Anderson again reviewed the directors’ fiduciary duties under applicable law. At the request of the board of directors, a representative of Stradling Yocca Carlson & Rauth discussed the material terms and conditions of the THL merger agreement and reviewed the negotiations that had occurred between Stradling Yocca Carlson & Rauth and Ropes & Gray with respect to the THL merger agreement. The board of directors and its advisors then discussed the THL merger agreement, the Company’s short- and long-term prospects, current financial statements, general views regarding the financial analyses presented by UBS and the state of the market in which the Company does business. After extensive discussion and deliberation, the board of directors unanimously adopted and approved the THL merger agreement and the transactions contemplated thereby. In approving the THL merger agreement, the board of directors determined that the Company’s entering into the THL merger agreement was in the best interests of the Company and our stockholders, as it represented a key step in the board of directors’ strategy to maximize stockholder value. Specifically, the board of directors concluded that stockholder value could be further enhanced through the publicly-noticed auction process contemplated by the “go-shop” provision of the THL merger agreement and the possibility of consummating a transaction with a new bidder whereby the Company would qualify to pay a reduced termination fee of $9,283,000 to THL.

 

On February 26, 2010, the Company and THL Parent executed the THL merger agreement. Thereafter, the Company issued a press release announcing the execution of the THL merger agreement and the commencement of the “go-shop” marketing process during which the Company would actively solicit takeover proposals from third parties.

 

Later that same day on February 26, 2010, pursuant to the “go-shop” provision of the THL merger agreement, at the direction and under the supervision of the board of directors, representatives of UBS began contacting potential buyers that were believed would be capable of, and might be interested in, consummating an acquisition of the Company at a price greater than $11.05 per share. Representatives of UBS contacted 24 potential financial sponsor buyers, including Apollo Management, and four potential strategic buyers. Of the parties contacted by UBS, three potential financial sponsor buyers, including Apollo Management, and one potential strategic buyer entered into confidentiality agreements with the Company and received confidential information regarding the Company.

 

During the “go-shop” period, the Company and its representatives also continued to work to consummate the transactions contemplated by the THL merger agreement in light of the uncertain outcome of the “go-shop” process and as required by the THL merger agreement. Among the actions taken by the Company and its representatives in connection with the THL merger agreement, the Company filed for and received antitrust clearance under the HSR Act, obtained various third-party consents and prepared and filed a preliminary proxy statement with the SEC.

 

Also during the “go-shop” period, Apollo Management requested copies of the THL equity commitment letter and the THL debt commitment letter. Due to certain confidentiality restrictions, the Company did not provide those documents to Apollo Management.

 

During the period commencing on February 26, 2010 and continuing until April 23, 2010, members of senior management met with representatives of THL several times to discuss the terms for post-closing employment and equity arrangements with the surviving corporation under the THL merger agreement. Throughout this period, members of senior management kept members of the transaction committee and representatives of Stradling Yocca Carlson & Rauth informed regarding material developments relating to their ongoing discussions.

 

On March 12, 2010, the transaction committee met to discuss the activities of the Company’s representatives during the “go-shop” period. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the transaction committee, representatives of UBS provided an update regarding the potential buyers contacted by representatives of UBS and the due diligence activities of the four parties, including Apollo Management, that had executed confidentiality agreements.

 

On March 18, 2010, the board of directors held a regularly scheduled meeting. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the board of directors, representatives of UBS provided an update regarding the potential buyers contacted by representatives of UBS and

the due diligence activities of the four parties, including Apollo Management, that had executed confidentiality agreements.

 

On April 2, 2010, the transaction committee met to discuss the activities of the potential buyers during the “go-shop” period. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the transaction committee, representatives of UBS updated the transaction committee on the status of discussions between representatives of UBS and representatives of the four parties that had executed confidentiality agreements, including representatives of Apollo Management. Representatives of UBS stated that, of the four parties that had executed confidentiality agreements, two parties had informed UBS since the last meeting of the board of directors that such parties had decided to withdraw from the “go-shop” process and another party had not actively participated in the “go-shop” process since executing a confidentiality agreement. With respect to Apollo Management, representatives of UBS also informed the transaction committee that Apollo Management had indicated to UBS that Apollo Management’s due diligence efforts were nearly complete and that the remaining due diligence activities focused on legal and accounting matters. In addition, representatives of UBS stated that representatives of Apollo Management had provided assurances that financing arrangements required for Apollo Management to submit a takeover proposal for the Company were nearly in place. Representatives of UBS also confirmed that Apollo Management had not yet requested direct negotiations with the Company’s senior management with respect to proposed terms for post-closing employment and equity arrangements with the surviving corporation in a transaction with Apollo Management. Representatives of Potter Anderson stated that they would discuss with members of senior management those members’ fiduciary duties to the Company, and that the transaction committee would determine when members of senior management could commence negotiations with Apollo Management.

 

On April 6, 2010, prior to the end of the “go-shop” period, Apollo Management submitted a non-binding proposal on behalf of itself and its affiliated investment funds, subject to due diligence and other conditions, pursuant to which Apollo Management proposed to acquire the Company at a price of $11.50 per share, in cash, which proposal we refer to as the Apollo Initial Proposal. In the Apollo Initial Proposal, Apollo Management indicated that it intended to finance the proposed transaction through an equity contribution and through third-party debt financing, and that Apollo Management had been working closely to obtain the debt financing with Citigroup Capital Markets, Inc., Morgan Stanley Senior Funding, Inc., and RBC Capital Markets. The Apollo Initial Proposal also indicated that Apollo Management would provide the Company with a guarantee, in favor of the Company, guaranteeing the payment of certain monetary obligations that might be owed by Apollo Management’s acquisition vehicle to the Company under a definitive merger agreement. The Apollo Initial Proposal stated that the execution of a definitive merger agreement by Apollo Management was subject to certain conditions, including identification of Apollo Management as an “excluded party” (as such term was defined in the THL merger agreement) and termination of the THL merger agreement by the Company prior to the “cut-off date” of April 27, 2010.

 

Later that same day on April 6, 2010, the board of directors held a special meeting to discuss the Apollo Initial Proposal. Prior to this meeting, the Apollo Initial Proposal was distributed to the members of the board of directors. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. The board of directors discussed the receipt of the Apollo Initial Proposal. Representatives of Stradling Yocca Carlson & Rauth and UBS then reviewed the status of their discussions with Apollo Management to date and provided a summary of the material terms of the Apollo Initial Proposal, including the fact that the Apollo Initial Proposal indicated that Apollo Management planned to acquire the Company on substantially the same terms as set forth in the THL merger agreement, including with respect to closing conditions. At the request of the board of directors, representatives of Potter Anderson reviewed the board of directors’ fiduciary duties and contractual obligations under the THL merger agreement with respect to the receipt of the Apollo Initial Proposal. After extensive deliberation and consultation with representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth, the board of directors determined, in accordance with terms and conditions of the THL merger agreement, that the Apollo Initial Proposal was a “takeover proposal” under the THL merger agreement that constituted or was reasonably expected to lead to a “superior proposal” under the THL merger agreement and that, accordingly, Apollo Management was an “excluded party” under the THL merger agreement.

Later that same day on April 6, 2010, at the direction of the board of directors, representatives of Stradling Yocca Carlson & Rauth, on behalf of the Company, notified THL of the Company’s receipt of the Apollo Initial Proposal and the board of directors’ determination that Apollo Management was an “excluded party” under the THL merger agreement. Stradling Yocca Carlson & Rauth, on behalf of the Company, also provided to THL a summary of the material terms of the Apollo Initial Proposal and a summary of the reasons for the board of directors’ determination.

 

As a result of the board of directors’ determination that Apollo Management was an “excluded party” under the THL merger agreement, the Company was permitted to continue to engage in discussions and negotiations with Apollo Management until April 27, 2010, provided that Apollo Management remained an excluded party during that period. At the request of the transaction committee, representatives of UBS agreed to attend a meeting between members of Senior Management and representatives of Apollo Management. Also, at the request of the transaction committee, representatives of Potter Anderson provided advice to members of senior management on an ongoing basis in connection with meetings between representatives of Apollo Management and members of senior management.

 

Pursuant to the THL merger agreement, the “go-shop” period expired on April 7, 2010, with respect to all third parties other than Apollo Management. The Company did not receive any takeover proposals from third parties, other than Apollo Management, during the “go-shop” period and thus, no parties, other than Apollo Management, qualified as “excluded parties” under the THL merger agreement. Later that same day, in accordance with the requirements of the THL merger agreement, the Company terminated discussions with each of the three parties, other than Apollo Management, that had previously received confidential information regarding the Company during the “go-shop” period and requested that all such confidential information be destroyed or returned to the Company.

 

On April 7, 2010, the Company issued a press release regarding the receipt of a takeover proposal (which was the Apollo Initial Proposal) and the board of directors’ determination that the party that submitted the proposal (which was Apollo Management) was an “excluded party” under the THL merger agreement.

 

Later that same day, on April 7, 2010, members of senior management, with approval from the transaction committee, met with representatives of Apollo Management to discuss potential post-closing employment and equity arrangements with the surviving corporation. At the direction of the transaction committee, a representative of UBS also attended this meeting.

 

During the period commencing on April 7, 2010 and continuing until April 18, 2010, representatives of UBS discussed the Apollo Initial Proposal and potential revisions thereto with representatives of Apollo Management.

 

On April 11, 2010, THL Parent sent a letter, which we refer to as the April 11 letter, to the Company’s board of directors describing various observations of THL Parent with respect to the board of directors’ determination that Apollo Management was an “excluded party” (as such term was defined in the THL merger agreement), including the conditionality associated with Apollo Management’s due diligence review and the lack of debt and equity commitment letters in the Apollo Initial Proposal. In the April 11 letter, THL urged the Company’s board of directors to reconsider its initial conclusion with regard to Apollo Management’s status as an “excluded party” and to assess on a continuing basis whether Apollo Management continued to warrant such status.

 

On April 12, 2010, the transaction committee met to discuss the status of negotiations with Apollo Management. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in the meeting. At the request of the transaction committee, representatives of UBS reviewed the status of discussions with Apollo Management, including a summary of the meeting that occurred between certain members of senior management and representatives of Apollo Management on April 7, 2010.

 

On April 12, 2010, Apollo Management presented certain members of senior management with a term sheet setting forth proposed terms for post-closing employment and equity arrangements with the surviving corporation.

 

On April 16, 2010, the transaction committee met to discuss the status of negotiations with Apollo Management and a potential response to the April 11 letter received from THL. Neither Mr. Puzder nor any other

member of senior management was present at this meeting. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in the meeting. At the request of the transaction committee, representatives of UBS reviewed the status of discussions with representatives of Apollo Management regarding the Apollo Initial Proposal. Representatives of UBS summarized the discussions that had occurred on April 7, 2010 between Apollo Management and members of senior management, and confirmed that members of senior management had received proposed term sheets from Apollo Management, but that members of senior management and representatives of Apollo Management continued to negotiate such term sheets.

 

Later that same day, on April 16, 2010, Mr. Allumbaugh, on behalf of the Company’s board of directors, sent a letter to THL Parent in response to the April 11 letter. In the letter, Mr. Allumbaugh confirmed that the Company’s board of directors had made its determination with respect to the status of Apollo Management as an “excluded party” in good faith after consultation with representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth, and had otherwise complied with the applicable requirements of the THL merger agreement with respect to such determination.

 

On April 18, 2010, Apollo Management delivered a formal binding offer, which we refer to as the Apollo Formal Proposal, for the acquisition of all of the outstanding shares of the Company in a merger transaction in which the Company’s stockholders would receive $12.55 in cash per share of the Company’s common stock. The Apollo Formal Proposal included copies of a merger agreement, voting agreements, an equity commitment letter and a guarantee, each of which were fully executed by all parties other than the Company and the stockholders that would be asked to execute voting agreements. The Apollo Formal Proposal also included a copy of a debt commitment letter, which was executed by the Lenders. The merger agreement included in the Apollo Formal Proposal was substantially similar to the THL merger agreement, except that it increased the merger consideration to be received by the Company’s stockholders to $12.55 per share and eliminated the provision that would provide the buyer with an additional two business days to revise its offer to attempt to match an amended takeover proposal submitted by another party during the “no-shop” period, which provision we refer to as the two business day match right. In addition, the merger agreement included in the Apollo Formal Proposal contained a provision that, assuming the Company entered into the agreement, would have required the Company to pay to Apollo Management a termination fee of $15,471,000 in the event the Company subsequently terminated the merger agreement in order to enter into a new merger agreement that constituted a “superior proposal.” The merger agreement included in the Apollo Formal Proposal also included a provision that, in the event the Company subsequently terminated the merger agreement included in the Apollo Formal Proposal in order to enter into a new merger agreement with THL, would have required the Company to pay (i) an amount equal to the termination fee paid to THL Parent under the THL merger agreement ($9,283,000), plus (ii) an amount equal to the expense reimbursement paid to THL Parent under the THL merger agreement (which was capped in that agreement at $5,000,000), in addition to the $15,471,000 termination fee. The merger agreement included in the Apollo Formal Proposal also eliminated the condition to closing contained in the THL merger agreement with respect to the closing leverage ratio, although the debt commitment letter included a requirement that, in order to fund at the proportion of debt to equity set forth in the letter, the total leverage ratio of Parent and its subsidiaries at closing should be no greater than 5.5 to 1.0. The Apollo Formal Proposal stated that it was not subject to any due diligence or financing condition, but was subject to the termination of the THL merger agreement and execution of the definitive merger agreement with Apollo Management. The Apollo Formal Proposal indicated that it would expire at 12:01 a.m. Eastern Daylight Time on April 24, 2010 if the Company failed to execute and deliver to Morgan, Lewis & Bockius, LLP, counsel to Parent, which we refer to as Morgan Lewis, executed copies of the merger agreement, guarantee and voting agreements. In addition, the Apollo Formal Proposal requested that the documents contained therein be kept confidential and not be shared with any party other than representatives of the Company, its financial advisor and outside legal counsel, unless the Company was expressly required to share such documents with other parties under the THL merger agreement. After a preliminary review by representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth, the Apollo Formal Proposal was promptly distributed to the members of the board of directors.

 

Later that same day on April 18, 2010, the transaction committee held a meeting to discuss the Apollo Formal Proposal. Neither Mr. Puzder nor any other member of senior management was present at this meeting. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the transaction committee, representatives of Stradling Yocca Carlson & Rauth updated the transaction

committee on the status of discussions with Morgan Lewis, and confirmed that the Company had received the Apollo Formal Proposal. At the request of the transaction committee, representatives of UBS summarized the material financial terms of the Apollo Formal Proposal, noting that the merger agreement included in the Apollo Formal Proposal eliminated the total leverage ratio requirement contained in the THL merger agreement as a closing condition. The representatives further noted that, although the lenders maintained a total leverage ratio requirement in the debt commitment letter, such ratio was more favorable to the Company than the ratio set forth in the THL merger agreement and THL debt commitment letter and Apollo Management remained contractually obligated to either contribute additional equity and satisfy the requirement in the debt commitment letter, or pay the reverse termination fee. Representatives of Potter Anderson and Stradling Yocca Carlson & Rauth then reviewed the terms of the merger agreement included in the Apollo Formal Proposal, including (a) an elimination of the two business day match right and (b) a provision that required the Company to pay a termination fee of $15,471,000 plus, in the event the Company terminated the merger agreement included in the Apollo Formal Proposal in order to enter into a subsequent merger agreement with THL, (i) an amount equal to the termination fee paid to THL Parent under the THL merger agreement ($9,283,000), plus (ii) an amount equal to the expense reimbursement paid to THL Parent under the THL merger agreement (which was capped in that agreement at $5,000,000), in addition to the $15,471,000 termination fee. Representatives of UBS and Potter Anderson noted that, since THL Parent would be entitled to receive from the Company the amounts described in clauses (i) and (ii) of the foregoing sentence in the event the Company terminated the THL merger agreement to enter into a merger agreement with Apollo Management, if the Company elected thereafter to accept a subsequent topping bid from THL Parent, the termination fee in the Apollo Formal Proposal applicable to THL Parent, net of the amounts described in clauses (i) and (ii) of the foregoing sentence, would be equal to the $15,471,000 termination fee applicable to other potential topping bidders. Representatives of Potter Anderson also noted that since THL Parent still had an opportunity to match the Apollo Formal Proposal, THL Parent could avoid the termination fee structure proposed in the Apollo Formal Proposal by matching the Apollo Formal Proposal pursuant to the THL merger agreement. Representatives of Potter Anderson reviewed the board of directors’ fiduciary duties and contractual obligations under the THL merger agreement with respect to the determination as to whether the Apollo Formal Proposal constituted a “superior proposal” under the THL merger agreement and the Company’s obligations thereafter. After discussion, the members of the transaction committee decided to defer any determination with respect to whether the Apollo Formal Proposal constituted a “superior proposal” under the THL merger agreement until the special meeting of the full board of directors that had been scheduled for the following day.

 

On April 19, 2010, the Company’s board of directors held a special meeting to discuss the Apollo Formal Proposal. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the board of directors, representatives of UBS and Stradling Yocca Carlson & Rauth updated the board of directors on the status of discussions with Apollo Management, and confirmed that the Company had received the Apollo Formal Proposal. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth discussed the material terms of the Apollo Formal Proposal, including the increase in the per share merger consideration to $12.55, and the elimination of the two business day match right. In addition, representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth summarized the termination fee provisions proposed by Apollo Management. Representatives of UBS noted that the merger agreement included in the Apollo Formal Proposal eliminated the total leverage ratio requirement contained in the THL merger agreement as a closing condition. The representatives further stated that, although the total leverage ratio remained a requirement to the Lenders’ obligation to provide the debt financing, such ratio was more favorable to the Company than the ratio set forth in the THL merger agreement and THL debt commitment letter. Representatives of Potter Anderson and Stradling Yocca Carlson & Rauth also stated that, since the total leverage ratio condition was eliminated as a closing condition in the merger agreement submitted by Apollo Management, in the event Apollo Management was unable to obtain the debt financing contemplated by the debt commitment letter submitted by Apollo Management due to the failure to meet this requirement, Apollo Management would remain obligated to either consummate the proposed merger with the Company by contributing additional equity to satisfy the condition or pay the Company the reverse termination fee. At the request of the board of directors, Mr. Puzder updated the board of directors on the status of negotiations that had occurred between senior management and Apollo Management, and confirmed that although senior management had received proposed term sheets from Apollo Management, they had not yet reached an agreement with respect to such term sheets. Mr. Puzder also noted that senior management had not yet reached

agreement with respect to the proposed term sheets submitted by THL. Representatives of Potter Anderson then reviewed the board of directors’ fiduciary duties and contractual obligations under the THL merger agreement with respect to the determination as to whether the Apollo Formal Proposal constituted a “superior proposal” under the THL merger agreement. After consulting with representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth, and extensive discussion and deliberation, the board of directors determined, in accordance with the terms of the THL merger agreement, that (i) the Apollo Formal Proposal constituted a “superior proposal” under the THL merger agreement and (ii) failure to terminate the THL merger agreement in order to enter into a definitive merger agreement in accordance with the Apollo Formal Proposal would be inconsistent with the directors’ fiduciary duties under applicable law.

 

Later that same day on April 19, 2010, Stradling Yocca Carlson & Rauth, on behalf of the Company, notified THL Parent of the following: (i) the Company’s receipt of the Apollo Formal Proposal, (ii) the Company’s board of directors’ determination that the Apollo Formal Proposal constituted a “superior proposal” under the THL merger agreement and (iii) the fact that the Company intended to terminate the THL merger agreement in order to enter into a definitive merger agreement with Parent and Merger Sub. Representatives of Stradling Yocca Carlson & Rauth also provided a summary of the material terms of the Apollo Formal Proposal, including a detailed summary of the terms of the debt financing that Apollo Management intended to utilize in connection with the Apollo Formal Proposal. In accordance with the terms of the THL merger agreement, the notice also included copies of the merger agreement, voting agreements and guarantee included in the Apollo Formal Proposal.

 

Following delivery of the notice to THL Parent on April 19, 2010, the Company and its representatives, on behalf of the Company, negotiated with THL Parent and its representatives, in accordance with the terms of the THL merger agreement, in an attempt to have THL Parent revise the terms of the THL merger agreement and other transaction documents in order to cause the Apollo Formal Proposal to no longer constitute a “superior proposal” (as such term was defined in the THL merger agreement).

 

On April 20, 2010, the Company issued a press release announcing its board of directors’ determination that the Apollo Formal Proposal constituted a “superior proposal” under the THL merger agreement and the Company’s notification to THL of its intent to terminate the THL merger agreement after the expiration of the four business day period during which THL Parent could match the Apollo Formal Proposal. In accordance with the terms of the THL merger agreement, representatives of Stradling Yocca Carlson & Rauth consulted with representatives of Ropes & Gray regarding the contents of the press release.

 

On April 20, 2010, representatives of Ropes & Gray, on behalf of THL, submitted a letter to the Company’s board of directors acknowledging receipt of the Company’s notice dated April 19, 2010 regarding the board of directors’ determination that the Apollo Formal Proposal constituted a “superior proposal” under the THL merger agreement, which we refer to as the April 20 letter. The April 20 letter requested that the Company provide THL with copies of the debt commitment letter and equity commitment letter included in the Apollo Formal Proposal, which materials had not been included in the materials previously provided to THL on April 19, 2010. The April 20 letter also expressed THL’s belief that, based on its interpretation of the THL merger agreement, the four business day period prior to the expiration of which the Company could not terminate the THL merger agreement would run through Monday, April 26, 2010.

 

On April 21, 2010, representatives of Potter Anderson, on behalf of the Company, submitted a letter to representatives of THL in response to the April 20 letter, objecting to statements set forth in the April 20 letter concerning the applicable notice period. This letter stated that the applicable notice period expired on Friday, April 23, 2010, and confirmed that the Company had complied in all respects with the terms of the THL merger agreement.

 

On April 22, 2010, in an attempt to prepare for contingencies in the event that THL Parent did not submit a revised proposal, the Company requested wire transfer instructions from THL Parent in order to prepare the wire transfer of the $9,283,000 termination fee potentially payable to THL Parent in the event that the Company’s board of directors determined to terminate the THL merger agreement in order to enter into a definitive merger agreement with Apollo Management. The Company and its representatives made subsequent requests for THL Parent’s wire transfer instructions.

On April 23, 2010, THL Parent sent a letter to the Company’s board of directors in which THL Parent submitted a binding formal proposal, which we refer to as the April 23 Proposal, for the acquisition of all of the outstanding shares of the Company by a merger in which the Company’s stockholders would receive $12.55 in cash per share of the Company’s common stock. The April 23 Proposal included complete, amended, and executed copies of a merger agreement, voting agreements, an equity commitment letter, a debt commitment letter, and a guarantee. The amended merger agreement included in the April 23 Proposal was substantially similar to the merger agreement included in the Apollo Formal Proposal, except that it (i) included a provision whereby the Company would be obligated to pay a termination fee equal to $29,754,000 in the event that the Company terminated the merger agreement in order to enter into a new merger agreement with Apollo Management or any of its affiliated funds, but the Company would be obligated to pay a termination fee equal to $15,471,000 for all other buyers, and (ii) included the two business day match right. In addition, the amended debt commitment letter included in the April 23 Proposal eliminated the total leverage ratio requirement contained in the debt commitment letter included in the Apollo Formal Proposal.

 

Later that same day on April 23, 2010, at the direction of the transaction committee, representatives of UBS engaged in discussions with representatives of THL regarding the April 23 Proposal. The representatives of UBS reviewed with the representatives of THL the material differences between the Apollo Formal Proposal and the April 23 Proposal and told them that the April 23 Proposal, as submitted by THL, might make it very difficult for the board of directors to determine that the Apollo Formal Proposal no longer constituted a “superior proposal” under the THL merger agreement. The representatives of UBS made three suggestions as to how THL could improve the April 23 Proposal: (i) increase the per share merger consideration, (ii) eliminate the two business day match right, and (iii) make the termination fee applicable to a later topping bid from Apollo Management equal to that applicable to other potential bidders. In response to these suggestions, the representatives of THL declined to negotiate and instead stated that they stood by the April 23 Proposal, as submitted. The representatives of UBS then reminded the representatives of THL of the time of the meeting of the board of directors scheduled for later that day and recommended that they immediately contact the representatives of UBS any time before or during the meeting if they wanted to make any modifications to the April 23 Proposal. The representatives of THL did not contact the representatives of UBS following this discussion. Also on April 23, 2010, a representative of Potter Anderson contacted a representative of Ropes & Gray shortly before the scheduled meeting of the board of directors to discuss the April 23 Proposal. The representative of Potter Anderson cautioned the representative of Ropes & Gray that, in light of the size and discriminatory nature of the higher termination fee applicable to Apollo Management and the two business day match right under the April 23 Proposal, the board of directors was unlikely to consider the April 23 Proposal a match, but indicated that he understood that THL was not prepared to continue to discuss the termination fee or the two business day match right. The representative of Ropes & Gray indicated that the representative did not share the same concerns as the representative of Potter Anderson about the size and discriminatory nature of the higher termination fee applicable to Apollo Management or the two business day match right under the April 23 Proposal, but indicated that the representative would raise the concerns expressed by the representative of Potter Anderson with THL and contact the representative of Potter Anderson if THL was willing to make any changes to the April 23 Proposal. The representative of Ropes & Gray did not contact the representative of Potter Anderson following this discussion. In both the UBS / THL discussions and the Potter Anderson / Ropes & Gray discussions, the Company’s representatives made clear that the board of directors was meeting shortly thereafter to determine whether the Apollo Formal Proposal continued to constitute a “superior proposal” under the THL merger agreement and that the Company’s financial and legal advisors believed that the termination fee provision and the two business day match right might make it very difficult for the board of directors to determine that the Apollo Formal Proposal no longer constituted a “superior proposal” under the THL merger agreement.

 

Later that same day on April 23, 2010, the board of directors held a special meeting to discuss the April 23 Proposal. Representatives of UBS, Potter Anderson and Stradling Yocca Carlson & Rauth participated in this meeting. At the request of the board of directors, representatives of Stradling Yocca Carlson & Rauth updated the board of directors on the status of discussions between counsel and each of Apollo Management and THL, and confirmed that the Company had received the April 23 Proposal. Representatives of UBS and Potter Anderson reported on their discussions earlier that day that had occurred with THL and its representatives. Representatives of UBS and Potter Anderson then reviewed the proposed provisions of the merger agreement and the other transaction documents included in the April 23 Proposal, including the inclusion of the two business day match right and the

termination fee provisions included in the April 23 Proposal. Specifically, representatives of UBS noted that, although representatives of THL had articulated their view, both to UBS and Potter Anderson, that the April 23 Proposal included effectively the same termination fee as set forth in the Apollo Formal Proposal, the termination fee included in the April 23 Proposal failed to take into account the payment of $9,283,000 plus the reimbursement of expenses up to $5,000,000 payable by the Company to THL Parent that would become payable upon termination of the THL merger agreement in favor of a merger agreement with Apollo Management. Representatives of UBS and Potter Anderson noted that, in light of the termination fee provisions in the April 23 Proposal, the April 23 Proposal might have a preclusive effect on the ability of Apollo Management, the only party that had submitted a proposal during the “go-shop” period, to submit a later, higher takeover proposal were the Company to enter into the merger agreement contained in the April 23 Proposal. Representatives of UBS also confirmed that the amended debt commitment letter included in the April 23 Proposal eliminated the total leverage ratio condition to the debt financing. Representatives of UBS noted that while the debt commitment letter included in the Apollo Formal Proposal included a total leverage ratio requirement, the ratio was set at a level that was materially higher than the Company’s projected leverage ratio during the relevant period based on projections of the Company’s management, and therefore, unless the Company’s actual performance during such period was materially worse than such projections, the requirement was immaterial as it related to the likelihood of closing the financing and the merger contemplated by the Apollo Formal Proposal. In addition, representatives of UBS noted that in the event the Company’s leverage ratio were to exceed the level permitted in the total leverage ratio requirement, Apollo Management might have an incentive to contribute sufficient additional equity to compensate for the reduction in debt committed such that it would result in the total leverage ratio requirement being satisfied, in order to avoid paying the Company the reverse termination fee.

 

At the request of the board of directors, Mr. Puzder updated the board of directors on the status of negotiations that had occurred between members of senior management and Apollo Management, and confirmed that although members of senior management had received proposed term sheets from Apollo Management, they had not yet reached an agreement with respect to such term sheets. Mr. Puzder also noted that senior management had not yet reached agreement with respect to the proposed term sheets submitted by THL.

 

Representatives of Potter Anderson reviewed with the board of directors its fiduciary duties and its contractual obligations under the THL merger agreement with respect to the April 23 Proposal and the Apollo Formal Proposal. After extensive discussion and deliberation, the Company’s board of directors unanimously determined that, notwithstanding the April 23 Proposal from THL, the Apollo Formal Proposal continued to constitute a “superior proposal.” In making this determination, the board of directors compared the Apollo Formal Proposal to the April 23 Proposal and noted that the $12.55 per share merger consideration to be received by the Company’s stockholders was the same in both proposals. The board of directors also considered the potential for litigation created by the termination fee provisions in the April 23 Proposal and the increased risk to consummating the transactions contemplated by such proposal that any such litigation might present, and how this increased risk negatively impacted the relative value of the April 23 Proposal. The board of directors also determined that the terms of the merger agreement included in the Apollo Formal Proposal represented the best course of action to maximize stockholder value in a manner consistent with the board of directors’ fiduciary duties to our stockholders.

 

Thereafter, UBS made a presentation to the Company’s board of directors of various financial analyses and delivered to the Company’s board of directors an oral opinion, which was confirmed by delivery of a written opinion, dated April 23, 2010, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the $12.55 per share merger consideration to be received by holders of the Company’s common stock (other than the excluded holders) in connection with the Apollo Formal Proposal was fair, from a financial point of view, to such holders. After considering, among other things, the factors described below under “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” the board of directors unanimously adopted resolutions terminating the THL merger agreement, approving the merger agreement with Apollo Management and the transactions contemplated thereby, and recommending that the Company’s stockholders adopt the merger agreement with Apollo Management. In connection with the termination of the THL merger agreement, the Company made another request for THL Parent’s wire transfer instructions in order to pay the termination fee equal to $9,283,000 to THL Parent. Concurrently with the termination of the THL merger agreement, the Company, Parent and Merger Sub executed the merger agreement and certain of the

Company’s executive officers and directors entered into voting agreements with Parent to vote their shares in favor of adoption of the merger agreement. See the section captioned “Stockholder Voting Agreements” in this proxy statement beginning on page 75. Thereafter, the Company and Apollo Management issued a joint press release announcing the execution of the merger agreement.

 

On May 21, 2010, THL Parent sent a letter to the Company, which included, among other things, its wire transfer instructions and a request for payment of the termination fee equal to $15,471,000 and an invoice for reimbursement of expenses equal to $5,000,000. On May 24, 2010, the Company transmitted two wire transfers to THL, one wire transfer equal to $9,283,000, which represented the termination fee payable to THL Parent in connection with the Company’s termination of the THL merger agreement pursuant to Section 7.1(d)(ii) thereof, and one wire transfer equal to $5,000,000, which represented the maximum amount allowed for reimbursement of THL Parent’s expenses. Later that same day, on May 24, 2010, Mr. Allumbaugh, on behalf of the Company, provided notice to THL that, in light of such wire transfers, all of the Company’s obligations under the THL merger agreement had been satisfied.

 

On April 23, 2010, the board of directors met to consider the merger. On the basis of the factors described below, the board of directors unanimously determined that the merger agreement is superior to the THL merger agreement, that the THL merger agreement should be terminated, and that the required termination fee and expense reimbursement should be paid to certain affiliates of THL thereunder. The board of directors also unanimously determined that the merger is fair to, and in the best interests of, the Company and our stockholders and approved and declared advisable the merger agreement and the merger and the other transactions contemplated by the merger agreement. The board of directors further resolved that the merger agreement be submitted for consideration by our stockholders at a special meeting of our stockholders, and recommended that our stockholders vote to adopt the merger agreement.

 

In evaluating the merger agreement, the merger, and the other transactions contemplated by the merger agreement, the board of directors consulted with members of the transaction committee and our senior management team, as well as our outside legal and financial advisors, and considered a number of factors, including the following material factors (not in any relative order of importance):

 

 

 

 

The board of directors also considered a variety of potentially negative factors in its deliberations concerning the merger agreement and the merger, including the following (not in any relative order of importance):

 

 

The foregoing discussion of the factors considered by the board of directors is not intended to be exhaustive, but rather includes the material factors considered by the board of directors. In reaching its decision to approve the

merger, the merger agreement and the other transactions contemplated by the merger agreement, the board of directors did not quantify or assign any relative weights to the factors considered and individual directors may have given different weights to different factors. The board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The board of directors based its recommendation on the totality of the information presented.

 

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 merger and the proposal to adopt the merger agreement, you should be aware that certain directors and executive officers of the Company 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 stockholders of the Company. See the section entitled “The Merger — Interests of Certain Persons in the Merger” beginning on page 52.

 

On April 23, 2010, at a meeting of the Company’s board of directors held to evaluate the proposed merger, UBS delivered to the Company’s board of directors an oral opinion, which opinion was confirmed by delivery of a written opinion, dated April 23, 2010, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the $12.55 per share merger consideration to be received by holders of Company common stock (other than Parent and its affiliates and holders of shares of the Company’s common stock as to which treatment in the merger is separately agreed to by Parent and the holders thereof, which, together with Parent and its affiliates, we refer to collectively as the excluded holders) in the merger was fair, from a financial point of view, to such holders.

 

The full text of UBS’ opinion describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by UBS. This opinion is attached as Annex C and is incorporated into this proxy statement by reference. Holders of Company common stock are encouraged to read UBS’ opinion carefully in its entirety. UBS’ opinion was provided for the benefit of the Company’s board of directors (solely in its capacity as such) in connection with, and for the purpose of, its evaluation of the $12.55 per share merger consideration, from a financial point of view, and does not address any other aspect of the merger. The opinion does not address the relative merits of the merger as compared to other business strategies or transactions (including the Company’s previously proposed merger transaction with an affiliate of Thomas H. Lee Equity Fund VI, L.P.) that might be available with respect to the Company or the Company’s underlying business decision to effect the merger. The opinion does not constitute a recommendation to any stockholder as to how to vote or act with respect to the merger. The following summary of UBS’ opinion is qualified in its entirety by reference to the full text of UBS’ opinion.

 

In arriving at its opinion, UBS, among other things:

 

 

 

In connection with its review, with the consent of the Company’s board of directors, UBS assumed and relied upon, without independent verification, the accuracy and completeness in all material respects of the information provided to or reviewed by UBS for the purpose of its opinion. In addition, with the consent of the Company’s board of directors, UBS did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company, and was not furnished with any such evaluation or appraisal. With respect to the financial forecasts and estimates referred to above, UBS assumed, at the direction of the Company’s board of directors, that such forecasts and estimates were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company’s management as to the future financial performance of the Company. UBS’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information available to UBS as of, the date of its opinion.

 

At the direction of the Company’s board of directors, UBS was not asked to, and it did not, offer any opinion as to the terms, other than the $12.55 per share merger consideration to the extent expressly specified in UBS’ opinion, of the merger agreement or any related documents or the form of the merger. In addition, UBS expressed no opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the $12.55 per share merger consideration. In rendering its opinion, UBS assumed, with the consent of the Company’s board of directors, that (i) the final executed form of the merger agreement would not differ in any material respect from the draft that UBS reviewed, (ii) the parties to the merger agreement would comply with all material terms of the merger agreement and (iii) the merger would be consummated in accordance with the terms of the merger agreement without any adverse waiver or amendment of any material term or condition of the merger agreement. UBS also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any material adverse effect on the Company or the merger. At the request of the Company’s board of directors, UBS contacted third parties to solicit indications of interest in a possible transaction with the Company and held discussions with certain of these parties prior to the date of its opinion. Except as described above, the Company imposed no other instructions or limitations on UBS with respect to the investigations made or the procedures followed by UBS in rendering its opinion. The issuance of UBS’ opinion was approved by an authorized committee of UBS.

 

In connection with rendering its opinion to the Company’s board of directors, UBS performed a variety of financial and comparative analyses which are summarized below. The following summary is not a complete description of all analyses performed and factors considered by UBS in connection with its opinion. The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. With respect to the selected companies analysis and the selected transactions analysis summarized below, no company or transaction used as a comparison was identical to the Company or the merger. These analyses necessarily involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or acquisition values of the companies concerned.

 

UBS believes that its analyses and the summary below must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying UBS’ analyses and opinion. UBS did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole.

 

The estimates of the future performance of the Company provided by the Company’s management or derived from public sources in or underlying UBS’ analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, UBS considered industry performance, general business and economic conditions and other matters, many of which were beyond the control of the Company. Estimates of the financial value of companies do not purport to be appraisals or necessarily reflect the prices at which companies or securities actually may be sold or acquired.

The merger consideration was determined through negotiation between the Company and Parent and the decision by the Company to enter into the merger was solely that of the Company’s board of directors. UBS’ opinion and financial analyses were only one of many factors considered by the Company’s board of directors in its evaluation of the merger and should not be viewed as determinative of the views of the Company’s board of directors or management with respect to the merger or the merger consideration.

 

The following is a brief summary of the material financial analyses performed by UBS and reviewed with the Company’s board of directors on April 23, 2010 in connection with UBS’ opinion relating to the proposed merger. The financial analyses summarized below include information presented in tabular format. In order for UBS’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of UBS’ financial analyses.

 

Selected Companies Analysis

 

UBS compared selected financial and stock market data of the Company with corresponding data of all of the other publicly traded burger quick service restaurant companies with market capitalizations in excess of $250 million that are listed on U.S. stock exchanges, which we refer to as Burger QSR Operators. The Burger QSR Operators consist of the following two regional operators and three national operators:

 

 

UBS reviewed, among other things, enterprise values of the selected companies, calculated as diluted equity value based on closing stock prices on April 21, 2010, plus debt at book value and minority interests at book value, less cash and cash equivalents as multiples of last twelve months, which we refer to as LTM, and estimated calendar year 2010 (1) EBITDA and (2) EBITDA less capital expenditures. UBS also calculated share prices as of April 21, 2010 as multiples of estimated calendar year 2010 and 2011 earnings per share, which we refer to as P/E ratios. UBS then compared these multiples implied for the selected companies with corresponding multiples implied for the Company based on both the closing price of Company common stock on February 25, 2010 of $8.91 per share (which was the last closing price before the announcement of the Company’s previously proposed merger transaction with an affiliate of Thomas H. Lee Equity Fund VI, L.P.) and the $12.55 per share merger consideration. Financial data for the selected companies were based on consensus estimates provided by the Institutional Brokerage Estimate System, which we refer to as IBES (a data service that compiles estimates issued by securities analysts) and public filings. Estimated financial data for the Company were based both on IBES consensus estimates and internal estimates of the Company’s management. This analysis indicated the following implied high,

mean, median and low multiples and P/E ratios for the selected companies, as compared to the corresponding multiples implied for the Company:

 

 

Selected Transactions Analysis

 

UBS reviewed certain publicly available information relating to the three selected transactions set forth below, which were announced after December 1, 2002, had enterprise values greater than $250 million and involved target companies in the quick service restaurant industry primarily engaged in the food business that were not franchisees of another company’s brands and for which data relating to the target company’s EBITDA and transaction value were publicly available. For analytical purposes, and thus for purposes of calculating the high, mean, median and low multiples for the selected transactions, the stock-for-stock acquisition of Wendy’s International, Inc. by Triarc Companies, Inc. (owner of Arby’s Restaurant Group, Inc.), which was the smaller of the two entities by market capitalization at the time of the transaction, was reviewed both as an acquisition of Wendy’s International, Inc. by Triarc Companies, Inc. and as an acquisition of Triarc Companies, Inc. by Wendy’s International, Inc., in order to present the valuation multiples implied in the transaction viewed in either light. Accordingly, the selected transactions reviewed by UBS were:

 

 

UBS reviewed, among other things, enterprise values in the selected transactions, calculated as the purchase price paid for a target company’s equity, plus debt at book value, less cash and cash equivalents, as multiples of (1) LTM EBITDA and (2) LTM EBITDA less capital expenditures. UBS then compared these multiples implied for the selected transactions with corresponding multiples implied for the Company based on the $12.55 per share merger consideration. Multiples for the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Estimated financial data for the Company were based on internal

estimates of the Company’s management. This analysis indicated the following implied high, mean, median and low multiples for the selected transactions, as compared to corresponding multiples implied for the Company:

 

 

 

 

Discounted Cash Flow Analysis

 

UBS performed a discounted cash flow analysis of the Company using financial forecasts and estimates prepared by the Company’s management. UBS calculated a range of implied present values as of May 18, 2010 of the standalone unlevered, after-tax free cash flows that the Company was forecasted to generate from the second quarter of fiscal year 2011 through fiscal year 2015. UBS calculated a range of terminal values for the Company by applying to the Company’s fiscal year 2015 estimated EBITDA a range of EBITDA terminal multiples of 5.0x to 6.0x. Present values of cash flows and terminal values were calculated as of May 18, 2010 using discount rates ranging from 10.0% to 11.0%. This discounted cash flow analysis resulted in a range of implied present values of approximately $9.50 to $12.25 per share of Company common stock, as compared to the $12.55 per share merger consideration.

 

Miscellaneous

 

Under the terms of UBS’ engagement, the Company agreed to pay UBS for its financial advisory services in connection with the merger an aggregate fee currently estimated to be approximately $8.1 million, $250,000 of which was payable as a retainer fee, $1.0 million of which was payable in connection with UBS’ opinion rendered in connection with the Company’s previously proposed merger transaction with an affiliate of Thomas H. Lee Equity Fund VI, L.P., $1.0 million of which was payable in connection with UBS’ opinion rendered in connection with the merger and approximately $5.9 million of which is contingent upon consummation of the merger. The Company also agreed to pay UBS a termination fee equal to 10% of any break-up fee or other compensation payable to the Company in the event that the merger is not consummated. In addition, the Company agreed to reimburse UBS for its reasonable expenses, including fees, disbursements and other charges of counsel, and to indemnify UBS and related parties against liabilities, including liabilities under federal securities laws, relating to, or arising out of, its engagement.

 

In the past, UBS and its affiliates have provided investment banking and other financial services to affiliates of Parent, which we refer to as Apollo Affiliates, including, among others, Apollo Investment Corporation, Apollo Management Holding L.P. and certain portfolio companies of Apollo Management and its affiliates, unrelated to the merger, for which UBS and its affiliates have received compensation, fees and other payments, including having acted as (i) financial advisor in connection with several acquisitions and divestitures, (ii) bookrunner, lead manager or co-manager on several debt and equity offerings, (iii) arranger or agent on several leveraged buyout financings and credit facilities and (iv) private placement agent for several funds sponsored by certain Apollo Affiliates. UBS and its affiliates have also been, and in certain cases continue to be, a participant in various credit facilities of several Apollo Affiliates and have received, and continue to receive, fees and other payments in respect thereof. In addition, UBS acted as financial advisor to the Company’s board of directors in connection with the Company’s previously proposed merger transaction with an affiliate of Thomas H. Lee Equity Fund VI, L.P. and is entitled to receive compensation for certain of UBS’ services in connection therewith. In the ordinary course of business, UBS and its affiliates may hold or trade, for their own accounts and the accounts of their customers, securities of the Company and securities of certain Apollo Affiliates and, accordingly, may at any time hold a long or short position in such

securities. In addition, an affiliate of UBS and certain employees of UBS or its affiliates were, as of the date of UBS’ opinion, investors in Apollo Investment Fund VII, L.P. and may have been investors in other Apollo Affiliates.

 

The Company selected UBS as its financial advisor in connection with the merger because UBS is an internationally recognized investment banking firm with substantial experience in similar transactions and because of UBS’ familiarity with the Company and its business. UBS is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

 

The Company does not, as a matter of course, publicly disclose financial forecasts as to future financial performance, earnings or other results and we are especially cautious of making financial forecasts for extended periods due to unpredictability of the underlying assumptions and estimates. However, in connection with the evaluation of a possible transaction involving the Company, the Company’s management team prepared and provided to Apollo Management, the board of directors, the transaction committee and the board of directors’ advisors certain non-public financial forecasts that were not prepared with a view toward public disclosure.

 

A summary of these financial forecasts 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 because these financial forecasts were made available to Apollo Management, the board of directors, the transaction committee and the board of directors’ advisors. The inclusion of this information should not be regarded as an indication that our board of directors, the transaction committee, the board of directors’ 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. Management’s internal financial forecasts, upon which the financial forecasts were based, are subjective in many respects. There can be no assurance that these financial forecasts will be realized or that actual results will not be significantly higher or lower than forecasted. The financial forecasts 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 financial forecasts in this proxy statement should not be relied on as necessarily predictive of actual future events.

 

In addition, the financial forecasts were prepared solely for internal use in assessing strategic direction, related capital and resource needs and allocations and other management decisions and to provide performance targets for management, and not with a view toward public disclosure or toward complying with generally accepted accounting principles, which we refer to as GAAP, the published guidelines of the SEC regarding projections and the use of non-GAAP measures or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The financial forecasts included below were prepared by, and are the responsibility of, our management. Neither our independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of the independent registered public accounting firm, which is incorporated by reference in this proxy statement, relates to the Company’s historical financial information. It does not extend to the financial forecasts and should not be read to do so.

 

These financial forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of the Company. Important factors that may affect actual results and cause these financial forecasts to not be achieved include, but are not limited to, risks and uncertainties relating to the Company’s business (including its ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, the regulatory environment, general business and economic conditions and other factors described under “Cautionary Statement Concerning Forward-Looking Information” beginning on page 17 of this proxy statement. In addition, the forecasts do not reflect revised prospects for the Company’s business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared. Accordingly, there can be no assurance that these financial forecasts will be realized or that the Company’s future financial results will not materially vary from these financial forecasts.

Readers of this proxy statement are cautioned not to rely on the forecasted financial information. We have not updated and do not intend to update, or otherwise revise the financial forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error. The Company has made no representation to Apollo Management, Parent, Merger Sub or any other person in the merger agreement or otherwise, concerning these financial forecasts.

 

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 17.

 

The following is a summary of the financial forecasts prepared by management of the Company and given to Apollo Management, the board of directors, the transaction committee and the board of directors’ advisors:

 

Summary Financial Forecasts

 

 

 

 

In preparing the summary financial forecasts, the Company made the following assumptions for the period from fiscal year 2011 to 2015:

 

 

We anticipate that the total amount of funds necessary to complete the merger will be approximately $1.06 billion, in the aggregate, comprised of:

 

 

 

These payments are expected to be funded by a combination of (i) equity contributions by the Apollo Investors and (ii) certain debt financing. Parent has obtained equity and debt financing commitments described below in connection with the transactions contemplated by the merger agreement. Parent’s proposed equity and debt financing may change after the date hereof in accordance with the terms and conditions of the merger agreement.

 

Equity Financing

 

Parent has entered into an equity commitment letter with the Apollo Investors, dated April 18, 2010, pursuant to which the Apollo Investors have committed to provide equity financing in an aggregate amount up to $456,000,000. In certain circumstances, the Apollo Investors may assign their commitment to other investors, although such assignment will not affect the obligations of the Apollo Investors under the equity commitment letter. The funding of financing contemplated by the equity commitment letter is subject to the satisfaction at the closing of all conditions precedent to the obligations of Merger Sub and Parent to consummate the transactions contemplated by the merger agreement, the substantially contemporaneous merger of Merger Sub with the Company and the funding of the debt financing on the terms and conditions described in the debt commitment letter (as described below) or alternative debt financing on terms satisfactory to Apollo Management and Parent.

 

The obligation of the Apollo Investors to fund their equity commitment will automatically terminate upon the earliest to occur of (i) the closing of the merger, (ii) the termination of the merger agreement pursuant to its terms, (iii) August 26, 2010, if the merger is not closed on or before that date and (iv) the assertion by Parent or the Company or any of their affiliates of any claim against any of the Apollo Investors in connection with the merger agreement, the guarantee or the equity commitment letter, other than a claim against the Apollo Investors under the guarantee.

 

Debt Financing

 

In connection with Merger Sub’s and Parent’s entry into the merger agreement, Merger Sub and Parent received a debt commitment letter, dated April 17, 2010, from Morgan Stanley Senior Funding, Inc., Citigroup Global Markets Inc. and RBC Capital Markets which we refer to, together with certain of their affiliates, collectively as the Lenders, to provide, severally but not jointly, in the aggregate up to $700,000,000 in debt financing to Merger Sub, consisting of (i) up to $100,000,000 in the form of a senior secured revolving credit facility and (ii) up to $600,000,000 in the form of a senior secured second-priority increasing rate bridge facility. It is expected that at the closing, in lieu of the senior secured second-priority increasing rate bridge facility, $600,000,000 principal amount of senior secured second-priority notes will be issued in a public offering or pursuant to Rule 144A of the Securities Act, or another private placement exemption. The Lenders may invite other institutional lenders to participate in the debt financing described in the debt commitment letter and to undertake a portion of the commitment to provide such financing.

 

Conditions

 

The facilities contemplated by the debt financing are subject to certain closing conditions, including without limitation:

 

 

 

The debt commitments expire upon the first to occur of (i) the termination of the merger agreement without the consummation of the merger having occurred or (ii) October 16, 2010.

Subject to the terms and conditions of the merger agreement, each of Parent and Merger Sub has agreed to use its commercially reasonable efforts to obtain the financing on the terms and conditions described in the equity commitment letter and the debt commitment letter, and not to permit any amendment, modification or replacement thereto, which (x) reduces the aggregate amount of the financing or (y) imposes new or additional conditions or otherwise expands, amends or modifies any of the conditions to the financing in a manner that would reasonably be expected to (i) delay or prevent the funding of the financing (or satisfaction of the conditions thereto) on the closing date or (ii) adversely impact the ability of Parent, Merger Sub or the Company, as applicable, to enforce its rights against other parties to the equity commitment letter or the debt commitment letter or the definitive agreements with respect thereto in any material respect.

 

Although the debt financing described in this proxy statement is not subject to due diligence or a “market out” provision, which allows lenders not to fund their commitments if certain conditions in the financial markets prevail, there is still a risk that such 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.

 

Pursuant to a guarantee delivered by the Apollo Investors in favor of the Company, dated April 18, 2010, the Apollo Investors have agreed (severally but not jointly) to guarantee the performance and discharge of certain obligations of Parent under the merger agreement; provided, however, that the maximum aggregate liability of the Apollo Investors shall not exceed the sum of: (x) a reverse termination fee of $15,471,000 (provided that, in certain circumstances, Parent is required to pay a higher reverse termination fee, in which case $15,471,000 will be increased to $30,943,000) and (y) up to $500,000 for any costs and expenses incurred in connection with the enforcement of Parent’s obligations to pay any such reverse termination fee. See the section entitled “The Merger Agreement — Termination Fees” beginning on page 72.

 

Subject to certain exceptions, the guarantee will terminate upon the earliest to occur of (i) the effective time of the merger, if the closing occurs, (ii) the first anniversary of August 26, 2010 if the closing has not occurred and no claim is brought under the guarantee prior to such first anniversary, (iii) the termination of the merger agreement in accordance with its terms by mutual consent of the parties or under circumstances in which Parent would not be obligated to pay the reverse termination fee, (iv) the final resolution of any and all claims brought under the guarantee prior to termination and (v) any time when the Company or any of its affiliates asserts that certain provisions of the guarantee are illegal, invalid or unenforceable or that the Apollo Investors are liable in excess of or to a greater extent than its maximum aggregate liability as set forth in the guarantee.

 

The Company cannot seek specific performance to require Parent and Merger Sub to complete the merger, and the Company’s exclusive remedy for the failure of Parent and Merger Sub to complete the merger is the payment of the applicable reverse termination fee and a portion of any costs and expenses incurred in the circumstances described under “The Merger Agreement — Termination Fees” beginning on page 72.

 

In the event that the Company receives a reverse termination fee, such fee shall be deemed to be liquidated damages for any and all losses or damages suffered or incurred by the Company or any other person in connection with the merger agreement, the equity commitment letter, the debt commitment letter, the guarantee or the transactions contemplated thereby and the abandonment or termination thereof or any matter forming the basis for such termination and no other claims may be brought against Parent, Merger Sub or any other buyer party with respect to such matters. Except in the case of fraud, the Company’s right to receive a reverse termination fee is the sole and exclusive remedy of the Company and its affiliates against the Apollo Investors and any other buyer party in respect of any liabilities or obligations arising under, or in connection with, the merger agreement, the equity commitment letter, the debt commitment letter, the guarantee or the transactions contemplated thereby. Parent and Merger Sub are entitled to seek specific performance of the terms and provisions of the merger agreement, including seeking an injunction to prevent breaches of the merger agreement. In addition, the Company is not entitled to seek specific performance with respect to the obligations of Parent or Merger Sub.

 

Parent and Merger Sub’s receipt of the termination fee and certain reimbursement payments from us, will, subject to certain rights of equitable relief described above, be deemed to be liquidated damages for any and all

losses or damages suffered or incurred by Parent, Merger Sub, any of their respective affiliates or any other person in connection with the merger agreement, the transactions contemplated thereby and the abandonment or termination thereof or any matter forming the basis for such termination and no other claims may be brought against the Company or any of its affiliates with respect to such matters.

 

In considering the recommendation of our board of directors that you vote to approve the merger agreement, you should be aware that certain of our directors and executive officers have financial interests in the merger that are different from, or in addition to, those of our stockholders generally. 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 stockholders of the Company. For the purposes of all of the agreements and plans described below, the completion of the transactions contemplated by the merger agreement will constitute a change in control.

 

Equity Compensation Awards

 

At the effective time of the merger, each outstanding option to purchase shares of the Company’s common stock granted under existing plans that is outstanding and unexercised as of immediately prior to the effective time of the merger, whether vested or unvested, will vest and be converted into the right to receive a cash payment equal to the number of shares of common stock subject to such option multiplied by the amount (if any) by which $12.55 exceeds the exercise price per share of such option, less any applicable withholding taxes. At the effective time of the merger, each restricted share will vest and be converted into the right to receive a cash payment equal to $12.55, less any applicable withholding taxes. Certain restricted stock awards (subject to performance and/or time-based vesting) are scheduled to be granted on October 12, 2010, pursuant to the terms of certain executive officers’ employment agreements, and would vest at the effective time if they were granted prior to the effective time, provided that the executive officers remain employed on such date. In the event that any such executive officer’s employment is terminated without cause or he resigns for good reason prior to the effective time, such executive officer will be entitled to the grant of such restricted stock that will be vested as of the date of grant.

 

Based on the equity compensation holdings in the Company as of May 10, 2010, and assuming that the merger is completed on June 30, 2010, upon completion of the merger, the number of unvested options to purchase shares of the Company’s common stock (at exercise prices ranging from $8.07 to $11.34 held by each of Messrs. Puzder, Murphy, Abajian, Haley, Starke and nine directors (as a group) that would vest are 0, 0, 0, 39,999, 39,999 and 22,500, respectively (with such unvested options having a total “in the money” value of approximately $0, $0, $0, $150,965, $150,965 and $65,400 respectively, based upon a $12.55 price per share), and the number of shares of unvested restricted stock granted under existing company equity compensation plans, held by each of Messrs. Puzder, Murphy, Abajian, Haley, Starke and nine directors (as a group) that would vest and become free of restrictions and entitle the holder to a cash payment equal to $12.55 per share are 529,648, 132,412, 132,412, 3,499, 3,499 and 245,000 respectively (with such unvested restricted stock having a total value of approximately $6,647,082, $1,661,771, $1,661,771, $43,912, $43,912 and $3,074,750, respectively, based upon a $12.55 price per share). In addition, the number of vested options to purchase shares of Company common stock held by Messrs. Puzder, Murphy, Abajian, Haley, Starke and the nine directors (as a group) are 687,275, 216,000, 232,987, 155,001, 48,334 and 507,166, respectively (with such vested options having a total “in the money” value of approximately $1,465,051, $869,625, $1,208,667, $557,985, $47,035 and $1,200,475, respectively, based upon a $12.55 price per share).

 

Employment Agreements

 

We previously entered into employment agreements with Messrs. Puzder, Murphy, and Abajian.

 

Mr. Puzder’s employment agreement provides for the payment of certain severance benefits if Mr. Puzder terminates his employment for “good reason” during the period commencing 60 days and expiring 365 days, after a change in control. “Good reason” is defined in his employment agreement as a required relocation of his principal place of employment or a change in control. For Messrs. Murphy and Abajian, the employment agreements provide

for the payment of certain severance benefits if such officers terminate their employment with “good reason,” within 90 days of a change in control. For Messrs. Murphy and Abajian, “good reason” is also defined in each executive officer’s employment agreement as a required relocation of the principal place of such officer’s employment or a change in control. In this proxy statement, we refer to a termination for good reason within the period specified in the employment agreement as a “qualifying termination.” As of the date of this proxy statement, no discussions have occurred between Messrs. Puzder, Murphy or Abajian and the Company indicating that any such qualifying termination will occur.

 

In the event of a qualifying termination, Mr. Puzder is entitled to receive: (1) all amounts owed through the date of such qualifying termination; (2) the sum of: (A) an amount equal to his base salary multiplied by three, plus (B) an amount equal to the product of 100% of his base salary multiplied by three; (3) the accelerated vesting of options, restricted stock awards and other forms of equity compensation granted to him that had not vested as of the date of the qualifying termination; (4) the grant and immediate vesting (subject to certain limitations) of all restricted shares which the Company has agreed to grant after the date of such qualifying termination as of the date of the qualifying termination; (5) continued participation in all employee benefit plans (except the Company’s stock incentive plans) and programs that he was entitled to participate in immediately prior to the date of the qualifying termination, for the period commencing on the date of the qualifying termination and ending on December 31st of the second calendar year following the calendar year in which the qualifying termination occurred; and (6) a gross-up payment for excise taxes, if any, not to exceed $1,000,000, for tax incurred under Section 4999 of the Internal Revenue Code of 1986, as amended.

 

In the event of a qualifying termination, each of Messrs. Murphy and Abajian is entitled to receive: (1) all amounts owed through the date of termination; (2) the sum of: (A) an amount equal to the executive’s base salary multiplied by three, plus (B) an amount equal to the pro rata portion of the bonus based on an annualized calculation as of the date of termination for the year in which the qualifying termination occurs; (3) the accelerated vesting of options, restricted stock awards, and other forms of equity compensation granted to the executive, which had not vested as of the date of the qualifying termination; (4) the grant and immediate vesting (subject to certain limitations) of all restricted shares which the Company has agreed to grant after the date of such qualifying termination; and (5) continued participation in all employee benefit plans (except the Company’s stock incentive plans) and programs that the executive was entitled to participate in immediately prior to the date of the qualifying termination, for the period commencing on the date of the qualifying termination and ending on December 31st of the second calendar year following the calendar year in which the qualifying termination occurred.

 

Based on the executives’ compensation levels as of May 10, 2010, and assuming that the merger is completed on June 30, 2010, and the executive experiences a qualifying termination shortly thereafter, the amount of the cash severance payment (including the pro rata target annual bonus payment) that would be payable to Messrs. Puzder, Murphy and Abajian is approximately $6,420,000, $2,284,021 and $1,618,567, respectively, and the estimated value of the employee benefit plans each of them would receive is approximately $57,656, $55,715 and $62,484, respectively. Assuming these payments are made together with any additional payments or benefits that could be made or provided, as applicable, as described below under the caption “The Merger — Interests of Certain Persons in the Merger — Fiscal Year 2011 Cash Bonuses and Equity Awards,” we expect Mr. Puzder to be eligible to receive a 280G gross-up.

 

Fiscal Year 2011 Equity Awards

 

Pursuant to the terms of the employment agreements of Messrs. Puzder, Murphy and Abajian, we are scheduled to grant restricted stock (subject to performance and/or time-based vesting) on October 12, 2010. If the effective time occurs after that date, the restricted shares granted will vest at the effective time, and be converted to the right to receive $12.55 per share, provided that the executives remain employed on such date. In the event that any such executive’s employment is terminated without cause or he resigns for good reason prior to the effective time, such executive would be entitled to the grant of such restricted stock that will then become vested as of the date of grant.

 

Arrangements with the Surviving Corporation

 

Parent has previously indicated its belief that the continued involvement of our management team is integral to the Company’s future success; however, as of the date of this proxy statement, no members of our current management team have entered into any agreement with Parent, Merger Sub or their affiliates regarding

employment with, or the right to convert into or reinvest or participate in the equity of, the surviving corporation or Parent or any of its subsidiaries.

 

As of the date of this proxy statement, discussions have occurred between members of our current management team and representatives of Parent and/or Apollo Management with respect to such agreements. Parent has stated that it expects that (i) no member of our current management team, with the exception of Mr. Puzder, would occupy a seat on the board of directors of the surviving corporation, (ii) the terms of employment arrangements for members of our current management team following the proposed transaction would be substantially similar to their current employment arrangements, and (iii) no member of our current management team would receive significant increases in compensation as a result of the proposed transaction. Parent has also indicated that it would prefer that certain members of our current management team, consisting of Messrs. Puzder, Murphy and Abajian, invest 50% of the after-tax proceeds received by them in connection with the proposed transaction in the equity securities of the surviving corporation (or its direct or indirect parent). Assuming that each of Messrs. Puzder, Murphy and Abajian invested this amount, they, as a group, would beneficially own approximately 2% of the post-closing equity of the surviving corporation (or its direct or indirect parent) on a fully-diluted basis. In addition, Parent has indicated that, concurrent with the closing of the proposed transaction, Parent plans for the surviving corporation (or its direct or indirect parent) to adopt a new equity incentive plan pursuant to which executives, new hires and certain other employees could share in up to 10% of any increase in the equity value of the surviving corporation (or its direct or indirect parent). Parent expects that awards relating to 6.5% of any appreciation in the equity value of the surviving corporation (or its direct or indirect parent) will be granted to Messrs. Puzder, Murphy and Abajian under the new equity incentive plan. It is anticipated that all such grants will be subject to vesting over a period of four years of continued employment and approximately half of such grants will be subject to the achievement of certain performance targets.

 

Although it is likely that certain members of our current management team will enter into arrangements with Parent or its affiliates regarding employment (and severance arrangements) with, and the right to purchase or participate in the equity of, Parent (and/or a subsidiary of Parent), as of the date of this proxy statement no definitive agreements have been reached between members of our current management team and representatives of Parent and/or Apollo Management, and there can be no assurance that any parties will reach an agreement. Any new arrangements are currently expected to be entered into at or prior to the completion of the merger and would not become effective until after the merger is completed.

 

Except as disclosed in this proxy statement, there is no present or proposed material agreement, arrangement, understanding or relationship between Parent, Merger Sub, Apollo Management, or any of their respective executive officers, directors, controlling persons or subsidiaries, on the one hand, and the Company or any of its respective executive officers, directors, controlling persons or subsidiaries, on the other hand.

 

Transaction Committee Fees

 

In accordance with the resolutions of the board of directors, each member of the transaction committee is entitled to receive a one-time payment in the amount of $25,000 in compensation for such member’s services on the transaction committee, whether or not the merger occurs.

 

The merger will be accounted for as a “purchase transaction” for financial accounting purposes.

 

The following is a summary of the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) whose shares of common stock are converted into the right to receive cash in the merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of common stock that is, for U.S. federal income tax purposes:

 

 

 

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. A partner of a partnership holding common stock should consult the partner’s tax advisor regarding the U.S. federal income tax consequences of the merger to such partner.

 

This discussion is based upon the Internal Revenue Code of 1986, as amended, which we refer to in this proxy statement as the Code, and Treasury Regulations, Internal Revenue Service rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. The discussion applies only to beneficial owners who hold shares of common stock as capital assets, and does not apply to shares of common stock received in connection with the exercise of employee stock options or otherwise as compensation, stockholders who hold an equity interest, actually or constructively, in Parent or the surviving corporation after the merger, stockholders who validly exercise their rights under the DGCL to object to the merger or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, stockholders subject to the alternative minimum tax, stockholders that have a functional currency other than the U.S. dollar or stockholders who hold common stock as part of a hedge, straddle, constructive sale or conversion transaction). This discussion also does not address the U.S. tax consequences to any stockholder who, for U.S. federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust, and does not address the receipt of cash in connection with the cancellation of options to purchase shares of common stock or any other matters relating to equity compensation or benefit plans (including the 401(k) plan). This discussion does not address any aspect of state, local, foreign, estate or gift tax laws.

 

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement

 

The exchange of shares of common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes 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 the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis will generally equal the price the U.S. holder paid for such shares. Gain or loss will be determined separately for each block of shares of common stock (i.e., shares of common stock acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that the U.S. holder’s holding period for such shares of common stock is more than 12 months at the time of the completion of the merger. Long-term capital gains of non-corporate U.S. holders are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

 

Backup Withholding and Information Reporting

 

Backup withholding of tax (at the rate of 28%) may apply to cash payments to which a non-corporate U.S. holder is entitled under the merger agreement, unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct, and otherwise complies with the backup withholding rules. Each of our U.S. holders should complete and sign, under penalty of perjury, the Substitute Form W-9 included as part of the letter of transmittal that will be sent promptly after the completion of the merger (but in no event more than three business days thereafter) and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

Backup withholding is not an additional tax. Any amounts withheld from cash payments to a U.S. holder pursuant to the merger under the backup withholding rules will be allowable as a refund or a credit against such U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

Cash payments made pursuant to the merger will also be subject to information reporting unless an exemption applies.

 

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each stockholder should consult the stockholder’s tax advisor regarding the applicability of the rules discussed above to the stockholder and the particular tax effects to the stockholder of the merger in light of such stockholder’s particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of options, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

 

Under the terms of the merger agreement, the merger cannot be completed until (a) the waiting period applicable to the consummation of the merger under the HSR Act has expired or been earlier terminated and (b) all other authorizations, consents, orders or approvals of, or declarations or filings with any governmental authority required to consummate the merger have been filed or obtained or any applicable waiting period imposed by any governmental authority has expired, provided that the merger may be consummated if failure to file or obtain such authorizations, consents, orders or approvals, declarations or filings or the failure of such waiting period to expire would not reasonably be likely to have a material adverse effect on us or Parent and Merger Sub.

 

Under the HSR Act, and the rules promulgated thereunder by the FTC, the merger cannot be completed until each of the Company and Parent file a notification and report form with the FTC and the DOJ under the HSR Act and the applicable waiting period has expired or been terminated. The Company and Parent filed such notification and report forms on May 11, 2010 and each requested early termination of the waiting period. On May 21, 2010, the FTC notified the parties that their request for early termination of the applicable waiting period had been granted. At any time before or after consummation of the merger, notwithstanding the termination or expiration of the waiting period under the HSR Act, the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the Company or Parent. At any time before or after the completion of the merger, and notwithstanding the termination or expiration of the waiting period under the HSR Act, any state could take such action under antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the Company or Parent. Private parties may also seek to take legal action under antitrust laws under certain circumstances.

 

There can be no assurance that all of the regulatory approvals described above will be sought or obtained and, if obtained, there can be no assurance as to the timing of any approvals, ability to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals. There can also be no assurance that the DOJ, the FTC, or any other governmental entity or any private party will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, there can be no assurance as to its result.

 

Between March 1, 2010 and March 26, 2010, seven putative stockholder class actions were filed in the Delaware Court of Chancery and the Superior Court of California for the County of Santa Barbara against the Company, each of its directors, THL and its affiliates alleging the directors breached their fiduciary duties regarding the prior proposed merger and that THL and its affiliates aided and abetted those breaches. On March 26, 2010, the Superior Court of California for the County of Santa Barbara consolidated the four cases filed in that court as In re CKE Restaurants, Inc. Shareholder Litigation , Lead Case No. 1342245, which we refer to as the California Action. On March 29, 2010, the Delaware Court of Chancery consolidated the three cases filed in that court as In re CKE

Restaurants, Inc. Shareholder Litigation , Consolidated C.A. No. 5290-VCP, which we refer to as the Delaware Action.

 

On April 1, 2010, plaintiffs in the Delaware Action filed a consolidated complaint, and on April 8, 2010, plaintiffs in the California Action filed a consolidated complaint. On April 12, 2010, the Delaware Court of Chancery granted the Delaware Action plaintiffs’ motion for expedited proceedings and request for a hearing to consider preliminarily enjoining the prior proposed merger, and a hearing was scheduled for May 28, 2010. On April 16, 2010, the Superior Court of California for the County of Santa Barbara granted the defendants’ motion for a stay of the California Action pending resolution of the Delaware Action.

 

On May 12, 2010, the plaintiffs in the Delaware Action filed an amended consolidated complaint against the Company, its Directors, Apollo Management, Columbia Lake Acquisition Holdings, Inc. and Columbia Lake Acquisition Corp. that drops the challenge to the prior proposed merger and instead alleges the directors breached their fiduciary duties regarding the merger, including that the directors had breached their duty of disclosure in the preliminary proxy statement, and that Apollo Management and its affiliates aided and abetted those breaches. On May 12, 2010, the plaintiffs also filed a motion for expedited discovery and the scheduling of a hearing to preliminarily enjoin the merger.

 

On or about May 25, 2010, we entered into an agreement in principle with the plaintiffs regarding the settlement of the consolidated putative stockholder class action filed in the Delaware Court of Chancery.

 

The Company believes that no further disclosure is required under applicable laws; however, to avoid the risk of the putative stockholder class actions delaying or adversely affecting the merger and to minimize the expense of defending such actions, the Company has agreed, pursuant to the terms of the proposed settlement, to make certain supplemental disclosures related to the proposed merger, all of which are set forth herein. Subject to completion of certain confirmatory discovery by counsel to the plaintiffs, the agreement in principle contemplates that the parties will enter into a stipulation of settlement. The stipulation of settlement will be subject to customary conditions, including court approval following notice to the Company’s stockholders. In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the Delaware Court of Chancery will consider the fairness, reasonableness, and adequacy of the settlement. If the settlement is finally approved by the court, it will resolve and release all claims in all actions that were or could have been brought challenging any aspect of the proposed merger, the merger agreement, and any disclosure made in connection therewith (but excluding claims for appraisal under Section 262 of the DGCL), pursuant to terms that will be disclosed to stockholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that plaintiffs’ counsel will file a motion in the Delaware Court of Chancery for an award of attorneys’ fees and expenses to be paid by the Company or its successor, which the defendants may oppose. The Company or its successor shall pay or cause to be paid those attorneys’ fees and expenses awarded by the Delaware Court of Chancery. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Delaware Court of Chancery will approve the settlement even if the parties were to enter into such stipulation. In such event, the proposed settlement as contemplated by the agreement in principle may be terminated.

 

 

This section describes the material terms of the merger agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety. This section is not intended to provide you with any factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled, “Where You Can Find More Information,” beginning on page 84.

 

The merger agreement is included to provide you with information regarding its terms. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may

supplement, update or modify the factual disclosures about the Company contained in the merger agreement. The representations, warranties and covenants made in the merger agreement by the Company, Parent and Merger Sub were qualified and subject to important limitations agreed to by the Company, Parent and Merger Sub in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement. Any material facts that the Company is aware of as of the date of this proxy statement that would otherwise materially modify the representations and warranties in the merger agreement have been disclosed elsewhere in this proxy statement, or in the documents incorporated by reference in this proxy statement. See “Where You Can Find More Information” beginning on page 83.

 

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms and subject to the conditions set forth in the merger agreement. As the surviving corporation, the Company will continue to exist following the merger.

 

The board of directors of the surviving corporation will, from and after the effective time of the merger, consist of the directors of Merger Sub until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal. The officers of the Company at the effective time of the merger will, from and after the effective time of the merger, be the officers of the surviving corporation until their successors have been duly appointed and qualified or until their earlier death, resignation or removal.

 

The certificate of incorporation of the surviving corporation will be in the form of the certificate of incorporation of Merger Sub (except with respect to the name of the Company), until amended in accordance with its terms or by applicable law. The bylaws of the surviving corporation will be in the form of the bylaws of Merger Sub (except with respect to the name of the Company) until amended in accordance with their terms or by applicable law.

 

Following the completion of the merger, we expect our common stock to be delisted from the NYSE and deregistered under the Exchange Act, and cease to be publicly traded.

 

The closing of the merger will take place no later than the third business day following the date on which the last of the conditions to closing of the merger (described under the heading “The Merger Agreement — Conditions to the Merger” beginning on page 69) have been satisfied or waived (other than the conditions that by their nature are to be satisfied at the closing of the merger, but subject to the fulfillment or waiver of those conditions). However, if the marketing period (as defined below) has not ended at such time, neither Parent nor Merger Sub will be required to effect the closing of the merger until the earlier to occur of (i) a date during the marketing period specified by Parent on no less than three business days’ prior written notice to the Company or (ii) the final day of the marketing period.

 

The marketing period is the first period of 21 consecutive business days throughout and on the last day of which (i) delivery by the Company to Parent, Merger Sub and their financing sources of offering and syndication documents and materials, including certain financial statements specified in the debt commitment letter and any other information relating to the Company and our subsidiaries to the extent reasonably requested by Parent to prepare a confidential information memorandum and lender presentation that are contemplated by the debt commitment letter (which information we refer to as the required information); (ii) all general conditions and all conditions to the obligations of Parent and Merger Sub to close have been satisfied (other than those that by their nature will not be satisfied until the effective time of the merger) and nothing has occurred and no condition exists

that would cause any of such conditions not to be satisfied assuming the effective time of the merger were to be scheduled for any time during such consecutive 21 business day period; and (iii) we have provided all cooperation which we are obligated to provide with respect to the financing as set forth in the merger agreement. Notwithstanding the foregoing, the marketing period will not be deemed to have commenced if before the completion of the marketing period, (a) we have announced any intention to restate any financial statements or financial information included in the required information or that any such restatement is under consideration or may be a possibility, in which case the marketing period will be deemed not to commence unless and until such restatement has been completed and the applicable required information has been amended or we have announced our conclusion that no restatement will be required, (b) we have failed to file any report with the applicable securities authorities when due, in which case the marketing period will be deemed not to commence unless and until all such reports have been filed, or (c) the required information would not be compliant (as defined below) throughout and on the last day of such 21 business day period, in which case a new 21 business day period will commence upon the date on which Parent, Merger Sub and their financing sources receive updated required information that would be compliant, and the requirements in clauses (i) and (ii) above would be satisfied throughout and on the last day of such new 21 business day period.

 

In this proxy statement, we refer to, with respect to the required information, that (i) such required information does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make such required information, in light of the circumstances under which it was made, not misleading; (ii) such required information is, and remains throughout the marketing period, compliant in all material respects with all requirements of Regulation S-K and Regulation S-X under the Securities Act for offerings of debt securities that customarily would be included in a preliminary offering memorandum or registration statement, subject to certain exceptions; (iii) our auditors have not withdrawn any opinion with respect to any financial statements contained in the required information; (iv) our auditors have delivered drafts of customary comfort letters; and (v) the financial statements and other financial information included in the required information are, and remain throughout the marketing period, sufficient to permit (A) a registration statement using such financial statements to be declared effective by the SEC on the last day of the marketing period and (B) Parent and Merger Sub’s financing sources to receive customary comfort letters from our independent auditors on the financial information contained in the required information to consummate any offering of debt securities on the last day of the marketing period, as “compliant.”

 

The effective time of the merger will occur 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).

 

Common Stock

 

At the effective time of the merger, each share of common stock issued and outstanding immediately prior thereto (other than excluded shares) will convert into the right to receive the per share merger consideration of $12.55, without interest, less any applicable withholding taxes. Common stock owned by Parent, Merger Sub or any other direct or indirect wholly-owned subsidiary of Parent will be cancelled without payment of consideration. Common stock owned by the Company or any of our wholly-owned subsidiaries will, at the election of Parent, either convert into stock of the surviving corporation or be cancelled without payment of consideration. Common stock owned by stockholders who have perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the DGCL will be cancelled without payment of consideration. Such stockholders will instead be entitled to the appraisal rights provided under the DGCL as described under “Appraisal Rights.”

 

Options

 

At the effective time, each outstanding option will vest and be converted into the right to receive cash in an amount equal to the product of (x) the total number of shares of common stock subject to such option immediately prior to the effective time and (y) the excess, if any, of the per share merger consideration of $12.55 over the exercise price per share of such option, less any applicable withholding taxes.

Restricted Shares

 

At the effective time, each outstanding restricted share of common stock will fully vest and be converted into the right to receive cash in an amount equal to the per share merger consideration of $12.55, without interest, less any applicable withholding taxes.

 

Employee Stock Purchase Plan

 

At the effective time, the Employee Stock Purchase Plan, or ESPP, shall terminate. The ESPP was suspended following the signing of the merger agreement and no payroll deductions have been made and no other amounts have been set aside for the purchase of shares under the ESPP since February 26, 2010, the date of suspension. All amounts withheld from pay and not applied to the purchase of shares as of the date that the ESPP was suspended were returned to the participants in the ESPP without interest thereon. All Company matching contributions that would have been used for the purchase of shares under the ESPP had the ESPP not been suspended and then terminated, have been or will be paid to each ESPP participant in cash, provided that the participant satisfied or satisfies all requirements under the terms of the ESPP as in effect as of the date of the merger agreement.

 

At or prior to the effective time, Parent will deposit, or will cause to be deposited, with the paying agent a cash amount in immediately available funds necessary for the paying agent to make payment of the aggregate per share merger consideration to the holders of shares of our common stock.

 

Each record holder of shares of common stock will be sent a letter of transmittal and instructions describing how it may exchange its shares of common stock for the per share merger consideration promptly after the completion of the merger (but in no event more than three business days thereafter).

 

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.

 

No interest will be paid or accrued on the cash payable as the per share merger consideration as provided above. Parent, the surviving corporation and the paying agent will be entitled to deduct and withhold any applicable taxes from the per share merger consideration. Any sum that is withheld will be deemed to have been paid to the person with regard to whom it is withheld.

 

From and after the effective time of the merger, there will be no transfers on our stock transfer books of shares of common stock that were outstanding immediately prior to the effective time of the merger. If, after the effective time of the merger, any person presents to the surviving corporation any certificates for any reason, such certificates shall be cancelled and exchanged for the per share merger consideration as provided above to the extent that the per share merger consideration has not already been paid in respect of the shares of common stock represented by such certificates.

 

Any portion of the per share merger consideration deposited with the paying agent that remains unclaimed by former record holders of common stock for one year after the effective time of the merger will be delivered to the surviving corporation. Record holders of common stock who have not complied with the above-described exchange and payment procedures will thereafter only look to Parent and the surviving corporation for payment of the per share merger consideration. None of the surviving corporation, Parent or the paying agent will be liable to any former record holders of common stock for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws.

 

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the per share merger consideration, you will have to make an affidavit of the loss, theft or destruction, and if required by the surviving corporation, post a bond in a reasonable amount as indemnity against any claim that may be made against it with respect to such certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

 

Subject to the terms and conditions of the merger agreement, each of Parent and Merger Sub has agreed to use its commercially reasonable efforts to obtain the financing on the terms and conditions described in the equity commitment letter and the debt commitment letter, and not to permit any amendment, modification or replacement thereto, which (x) reduces the aggregate amount of the financing or (y) imposes new or additional conditions or otherwise expands, amends or modifies any of the conditions to the financing in a manner that would reasonably be expected to (i) delay or prevent the funding of the financing (or satisfaction of the conditions thereto) on the closing date or (ii) adversely impact the ability of Parent, Merger Sub or the Company, as applicable, to enforce its rights against other parties to the equity commitment letter, the debt commitment letter or the definitive documents with respect thereto in any material respect.

 

Parent and Merger Sub will use their commercially reasonable efforts to:

 

 

Parent and Merger Sub acknowledge in the merger agreement that the obtaining of the financing is not a condition to the consummation of the merger.

 

Parent has agreed to keep us reasonably informed of the status of its efforts to arrange the financing.

 

We have agreed to use our commercially reasonable efforts to provide to Parent and Merger Sub (at Parent’s sole expense) all cooperation reasonably requested by Parent or Merger Sub and all cooperation that is customary, necessary or advisable in connection with the arrangement of the financing for the merger, including assisting with the preparation of offering and syndication documents and materials, preparing and furnishing certain financial information and the required information, participating in certain meetings with third parties, obtaining accountant’s comfort letters and consents from our independent auditors, assisting in the preparation of, execution of and delivery of, definitive financing documents, facilitating the pledging of collateral for the financing, using commercially reasonable efforts to ensure that Parent and Merger Sub’s financing sources benefit from our existing lending relationships, using commercially reasonable efforts to obtain such consents, approvals, authorizations and instruments which may be reasonably requested by Parent or Merger Sub in connection with the financing, and otherwise facilitating the consummation of the financing.

 

We made customary representations and warranties in the merger agreement that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement or in the disclosure schedules the Company delivered in connection therewith. These representations and warranties relate to, among other things:

 

 

 

Many of our representations and warranties made in the merger agreement were qualified by, among other things, exceptions relating to the absence of a “material adverse effect,” which means any change, event or occurrence that would reasonably be expected to have a material adverse effect on the business, results of operations or financial condition of the Company and our subsidiaries, taken as a whole, or would, or would reasonably be expected to prevent or materially impair or delay the consummation of the transactions contemplated by the merger agreement, provided that none of the following, and no effect arising out of or resulting from the following, will constitute or be taken into account in determining whether a “material adverse effect” has occurred or may, would or could occur:

 

 

 

 

 

 

to the extent such changes, events, occurrences or effects do not have a materially disproportionate adverse effect on the Company and our subsidiaries, taken as a whole, relative to other participants in the industry in which the Company and our subsidiaries operate; or

 

 

 

provided, however, that the exceptions provided in the bullet points immediately above do not prevent or otherwise affect a determination that the underlying cause of the decline, change or failure is a material adverse effect.

 

The merger agreement also contains customary representations and warranties made by Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement or in the disclosure schedules that Parent delivered in connection therewith. The representations and warranties of Parent and Merger Sub relate to, among other things:

 

 

 

The representations and warranties in the merger agreement of each of the Company, Parent and Merger Sub will terminate upon the consummation of the merger or the termination of the merger agreement pursuant to its terms.

 

Under the merger agreement, we have agreed that, subject to certain exceptions in the merger agreement and disclosure schedules we delivered in connection with the merger agreement, between the date of the merger agreement and the effective time of the merger, unless Parent gives its prior written approval (which will not be unreasonably withheld, delayed or conditioned), we and our subsidiaries will cause our businesses to be conducted in the ordinary course consistent with past practice and we and our significant subsidiaries will use our reasonable best efforts to preserve our business organizations intact and maintain existing relations with key customers, distributors, suppliers, franchisees, employees and business associates.

 

Subject to certain exceptions set forth in the merger agreement and the disclosure schedules we delivered in connection with the merger agreement, we will not, and we will not permit our subsidiaries to, take any of the following actions without Parent’s written approval (which will not be unreasonably withheld, delayed or conditioned):

 

 

 

 

Except as permitted by the terms of the merger agreement described below, we have agreed in the merger agreement that our board of directors will not (i) fail to recommend to our stockholders that the stockholders adopt the merger agreement or fail to include the Company recommendation to adopt the merger agreement, which we refer to as the Company recommendation, in the proxy statement; (ii) change, qualify, withhold, withdraw, or modify (or publicly propose to do so), in a manner adverse to Parent, the Company recommendation; (iii) take formal action or make any recommendation or public statement in connection with a tender offer or exchange offer, other than a recommendation against such offer or other permitted communications; (iv) adopt, approve or recommend (or publicly propose to do so) a takeover proposal; (v) authorize, cause or permit the Company or any of our subsidiaries to enter into any letter of intent, agreement or agreement in principle with respect to a takeover proposal; or (vi) take any action to terminate the merger agreement in light of a superior proposal.

 

From and after April 18, 2010, the effective date of the merger agreement, we are required to immediately cease any solicitation, encouragement, discussions or negotiations with any persons that may be ongoing with respect to any takeover proposals, request that such persons promptly return or destroy all confidential information concerning the Company and our subsidiaries, and promptly provide Parent a written summary of the material terms of any takeover proposal. At any time from and after April 18, 2010, the effective date of the merger agreement, and until the effective time of the merger or, if earlier, the termination of the merger agreement, we, our subsidiaries and our representatives may not, directly or indirectly:

 

 

However, at any time from and after April 18, 2010, the effective date of the merger agreement, and prior to the time our stockholders adopt the merger agreement, if the Company receives an unsolicited written takeover proposal from any person, and if our board of directors, prior to taking any such actions, determines in good faith after consultation with independent financial advisors and outside legal counsel that (x) failure to take such action would be inconsistent with the directors’ fiduciary duties and (y) such takeover proposal either constitutes a superior proposal or could reasonably be expected to result in a superior proposal, we may:

 

 

in each case, provided that, we promptly provide to Parent (and in any event within 48 hours) a copy of any takeover proposal made in writing provided to the Company or any of our subsidiaries, the identity of the party making the takeover proposal, and a written summary of the material terms of any takeover proposal not made in writing.

 

At any time before the merger agreement is adopted by our stockholders, we may terminate the merger agreement and enter into an alternative takeover agreement with respect to a superior proposal, so long as we

comply with certain terms of the merger agreement, including the payment of a termination fee to Parent. See “The Merger Agreement — Termination Fees.”

 

Prior to the time our stockholders adopt the merger agreement, our board of directors may effect a change of recommendation or terminate the merger agreement in order to enter into an agreement with respect to a takeover proposal if, prior to taking such action, our board of directors determines in good faith, after consultation with independent financial advisors and outside legal counsel, that (x) failure to do so would be inconsistent with the directors’ fiduciary duties and (y) such takeover proposal constitutes a superior proposal. In the case of any change of recommendation that is the result of a superior proposal or termination of the merger agreement by us to enter into an alternative takeover agreement with respect to a superior proposal:

 

 

Notwithstanding the above, at any time before the merger agreement is adopted by our stockholders, the board of directors may change, qualify, withhold, withdraw or modify (or publicly propose to do so) in a manner adverse to Parent, the Company recommendation in response to a material event or circumstance on the business, results of operations or financial condition of the Company that was not known to the board of directors as of the date of the agreement, if the board of directors has determined in good faith after consultation with independent financial advisors and outside legal counsel that failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law, subject to the satisfaction of certain conditions.

 

Except to the extent provided in certain provisions of the merger agreement, nothing in the provisions of the merger agreement relating to takeover proposals prevents us from complying with our disclosure obligations under U.S. federal or state law with regard to a takeover proposal, including taking and disclosing to our stockholders a position contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A under the Exchange Act.

 

In this proxy statement, we refer to any inquiry, proposal or offer from any person or “group” within the meaning of Section 13(d) of the Exchange Act with respect to any (i) acquisition of assets of the Company and our subsidiaries equal to more than 20% of the Company’s consolidated assets or to which more than 20% of the Company’s revenues or earnings on a consolidated basis are attributable; (ii) acquisition of more than 20% of the Company’s outstanding common stock; (iii) tender offer or exchange offer that if consummated would result in any person beneficially owning more than 20% of the Company’s outstanding common stock; (iv) merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company; or (v) any combination of the foregoing if the sum of the percentage of consolidated assets, consolidated revenues or earnings and the Company’s common stock involved is more than 20%, in each case, other than the transactions contemplated by the merger agreement, as a “takeover proposal.”

 

In this proxy statement, we refer to any bona fide written takeover proposal that the board of directors has determined in its good faith judgment is reasonably likely to be consummated in accordance with its terms, taking into account all legal, regulatory, and financial aspects of the proposal and the person making the proposal, and if consummated, would result in a transaction more favorable to our stockholders from a financial point of view than the merger, as a “superior proposal,” provided that for purposes of the definition of “superior proposal,” the references to 20% in the definition of takeover proposal shall be deemed references to 50%.

 

Unless the merger agreement is terminated, we are required to take all actions in accordance with applicable law, our charter documents and the rules of the NYSE to convene a meeting of our stockholders, as promptly as practicable after the mailing of this proxy statement to consider and vote on the adoption of the merger agreement. We may adjourn the stockholders’ meeting (i) after consultation with Parent and with Parent’s consent, to the extent necessary to ensure that any required supplement or amendment to the proxy statement is provided to our stockholders within a reasonable amount of time in advance of the stockholders’ meeting or (ii) for the absence of a quorum. Subject to the provisions of the merger agreement discussed above under “The Merger Agreement — Solicitation of Takeover Proposals,” the board of directors will recommend that our stockholders vote to adopt the merger agreement and the Company will take all other action reasonably necessary to solicit adoption of the merger agreement.

 

We and Parent will cooperate and use our respective reasonable best efforts to take or cause to be taken all actions and do or cause to be done all things reasonably necessary, proper or advisable to consummate the merger and the other transactions contemplated by the merger agreement as soon as practicable and to prepare and file promptly and fully all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents (including effecting the regulatory filings described under the heading “The Merger — Regulatory Approvals” beginning on page 56) and obtain all approvals, consents, registrations, permits, authorizations and other confirmations from any governmental authority necessary, proper and advisable to consummate the transactions contemplated by the merger agreement. We and Parent will use our respective commercially reasonable efforts to obtain any third party approvals, consents, authorizations and other confirmations that are (i) necessary to consummate the transactions contemplated by the merger agreement or (ii) in the case of the Company and our subsidiaries, (a) required to prevent a material adverse effect from occurring prior to the effective time or (b) otherwise reasonably required by Parent from time to time, subject to certain exceptions.

 

We and Parent have agreed, subject to certain exceptions, to use reasonable best efforts to:

 

 

Parent has agreed that it will, and will cause the surviving corporation after the completion of the merger to:

 

 

 

The respective obligations of the Company, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of the following conditions:

 

 

In this proxy statement, we refer to any approvals set forth in the disclosure schedules, as the “Company approvals.”

 

The obligations of Parent and Merger Sub to effect the merger are also subject to the satisfaction or waiver by Parent at or prior to the effective time of the merger of the following additional conditions:

 

 

 

Our obligation to effect the merger is subject to the satisfaction or waiver by us at or prior to the effective time of the merger of the following additional conditions:

 

 

The conditions to each of the parties’ obligations to complete the merger are for the sole benefit of such party and may be waived by such party in whole or in part (to the extent permitted by applicable laws).

 

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 stockholders.

 

The merger agreement may also be terminated and the merger abandoned at any time prior to the effective time of the merger as follows:

 

 

 

 

 

 

 

 

 

We must pay Parent a termination fee equal to $15,471,000, except in the event that the merger agreement is terminated in order to enter into a definitive agreement with respect to a takeover proposal from Thomas H. Lee Equity Fund VI, L.P. or any of its affiliates, in which case the Company may be obligated to pay a termination fee of $15,471,000 plus an amount equal to $9,283,000, plus certain expenses reimbursed by the Company to affiliates of THL under the THL merger agreement, and in each case, reimburse up to $5,000,000 of the out-of-pocket fees and expenses incurred by Parent or its affiliates in connection with the merger agreement or the transactions contemplated therein. The occurrence of the following events will result in our obligation to pay Parent the applicable termination fee described above:

 

 

 

Parent Fee

 

Parent must pay us a termination fee, which we refer to as the reverse termination fee, of $15,471,000 in the event we terminate the merger agreement because:

 

 

Parent must pay us a reverse termination fee of $30,943,000 in the event we terminate the merger agreement because (i) the conditions to the obligations of Parent and Merger Sub to close the merger have been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the closing of the merger); (ii) the debt financing contemplated by the debt commitment letter has funded (or the conditions of the debt commitment letter, other than the merger or the funding of the equity financing contemplated by the equity commitment letter, have been satisfied and the debt financing would be funded pursuant to the terms and conditions of the debt commitment letter upon the consummation of the equity financing); (iii) the merger has not been completed within five business days after the receipt of such financing, and the delivery by us of a written notice to Parent; and (iv) we have irrevocably confirmed that all conditions to our obligations to close the merger had been satisfied or that we are willing to waive all such conditions.

 

The Apollo Investors have agreed to guarantee the obligation of Parent to pay the applicable reverse termination fee pursuant to the guarantee.

 

All costs and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be paid by the party incurring such expense, except that Parent and Merger Sub will reimburse the Company for expenses incurred by the Company or its subsidiaries in connection with the cooperation of the Company and our subsidiaries with respect to the arrangement of the financing of the merger.

 

Parent and Merger Sub are entitled to injunctions to prevent breaches of the merger agreement and to specifically enforce the terms and provisions of the merger agreement, in addition to any other remedy to which they are entitled at law or in equity.

 

The Company cannot seek specific performance to require Parent and Merger Sub to complete the merger, and the Company’s exclusive remedy for the failure of Parent and Merger Sub to complete the merger is the payment of the applicable reverse termination fee and a portion of any costs and expenses incurred in the circumstances described under the heading “The Merger Agreement — Termination Fees” beginning on page 72.

 

In the event that the Company receives a reverse termination fee, such fee shall be deemed to be liquidated damages for any and all losses or damages suffered or incurred by the Company or any other person in connection with the merger agreement, the equity commitment letter and debt commitment letter or the guarantee, the transactions contemplated thereby and the abandonment or termination thereof or any matter forming the basis for such termination and no other claims may be brought against Parent, Merger Sub or any other buyer party with respect to such matters. Except in the case of fraud, the Company’s right to receive a reverse termination fee is the sole and exclusive remedy of the Company and its affiliates against the Apollo Investors and any other buyer party in respect of any liabilities or obligations arising under, or in connection with, the merger agreement, the equity commitment letter and debt commitment letter or the guarantee or the transactions contemplated thereby. Parent and Merger Sub are entitled to seek specific performance of the terms and provisions of the merger agreement, including seeking an injunction to prevent breaches of the merger agreement. In addition, the Company is not entitled to seek specific performance with respect to the obligations of Parent or Merger Sub.

 

Parent and Merger Sub’s receipt of the termination fee and certain reimbursement payments from us, will, subject to certain rights of equitable relief described above, be deemed to be liquidated damages for any and all losses or damages suffered or incurred by Parent, Merger Sub, any of their respective affiliates or any other person in connection with the merger agreement, the transactions contemplated thereby and the abandonment or termination thereof or any matter forming the basis for such termination and no other claims may be brought against the Company or any of its affiliates with respect to such matters.

 

From and after the effective time until six years after the effective time, Parent and the surviving corporation will indemnify and hold harmless (and Parent will advance expenses to) our present and former officers and directors against any and all claims, liabilities, losses, damages, judgments, fines, penalties, costs (including amounts paid in settlement or compromise) and expenses (including fees and expenses of legal counsel) in connection with any claim, suit, action, proceeding or investigation (whether civil, criminal, administrative or investigative), whenever asserted, based on, arising out of or related to such officer’s or director’s service as an officer or director of the Company or its subsidiaries (or services performed at our request) at or prior to the effective time of the merger (including in connection with the merger agreement or the transactions contemplated thereby) to the fullest extent permitted by law. From and after the effective time until six years after the effective time, unless otherwise required by law, Parent shall cause the certificate of incorporation and by-laws of the surviving corporation to contain provisions no less favorable to our present and former officers and directors with respect to the limitation of liability of our officers and directors and indemnification than those set forth in our charter documents as of the date of the merger agreement, which provisions will not be amended, repealed or otherwise modified in a manner that would adversely affect the rights of our present and former officers and directors thereunder.

Prior to the effective time, we may, with Parent’s prior written consent, purchase a six-year pre-paid “tail” policy on terms and conditions providing at least substantially equivalent benefits as the current policies of directors’ and officers’ liability that we maintain with respect to matters existing or occurring prior to the effective time, covering, without limitation, the transactions contemplated by the merger agreement. If we fail to purchase such “tail” policy, then Parent has agreed to cause the surviving corporation to maintain in effect the Company’s current directors’ and officers’ liability insurance covering acts or omissions occurring at or prior to the effective time with respect to those persons who are currently (and any additional persons who prior to the effective time become) covered by the Company’s directors’ and officers’ liability insurance policy on terms and scope with respect to such coverage, and in amount, no less favorable to such individuals than those of such policy in effect as of the date of the merger agreement, provided that if the aggregate annual premiums for such insurance exceed 300% of the current aggregate annual premium, then Parent will provide or cause to be provided a policy for the applicable individuals with the best coverage as shall then be available at an annual premium not in excess of 300% of the current aggregate annual premium.

 

The present and former directors and officers of the Company will have the right to enforce the provisions of the merger agreement relating to their indemnification.

 

At any time prior to the effective time of the merger, the parties to the merger agreement may amend or supplement the merger agreement, whether before or after the stockholder approval, by written agreement of each of the parties and by action of their respective boards of directors. However, following stockholder approval, the parties may not amend the provisions of the merger agreement in any manner which would require further approval by our stockholders under applicable law.

 

The following description summarizes the material provisions of the voting agreements and is qualified by reference to the complete text of the form of voting agreement, which is attached as Annex B to this proxy statement and is incorporated herein by reference. This summary may not contain all of the information about the voting agreements that is important to you. We encourage you to read the form of voting agreement carefully and in its entirety.

 

As an inducement to Parent to enter into the merger agreement, on April 18, 2010, certain members of our board of directors and executive officers, who hold and are entitled to vote an aggregate of approximately 8.08% of our outstanding shares of common stock as of the record date, entered into voting agreements with Parent. We refer to each of these stockholders individually as a voting stockholder and collectively as the voting stockholders. Under the voting agreements, each voting stockholder agreed to cause any of his or her shares of common stock to vote or consent at any meeting of our stockholders or in any written consent of our stockholders, as applicable:

 

 

 

Pursuant to the voting agreements, each voting stockholder has agreed not to sell, transfer, pledge or otherwise dispose of securities of the Company beneficially owned by such voting stockholder prior to the earliest to occur of (i) the closing of the merger, (ii) such date and time as the merger agreement is terminated or (iii) upon mutual agreement of each of the parties to such voting agreement. None of the voting stockholders have received any additional consideration with respect to the voting agreements.

 

Under the DGCL, if you do not wish to accept the per share merger consideration provided for in the merger agreement, you have the right to seek appraisal of your shares of the Company’s common stock and to, if the merger is completed, receive payment in cash for the fair value of your Company’s common stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be fair value. The “fair value” of your shares of common stock as determined by the Delaware Court of Chancery may be more or less than, or the same as, the $12.55 per share that you are otherwise entitled to receive under the terms of the merger agreement. These rights are known as appraisal rights. The Company’s stockholders who elect to exercise appraisal rights must not vote in favor of the proposal to adopt the merger agreement and must comply with the provisions of Section 262 of the DGCL, in order to perfect their rights. Strict compliance with the statutory procedures in Section 262 is required. Failure to follow precisely any of the statutory requirements may result in the loss of your appraisal rights.

 

This section is intended as a brief summary of the material provisions of the Delaware statutory procedures that a stockholder must follow in order to seek and perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements, and it is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which appears in Annex D to this proxy statement. The following summary does not constitute any legal or other advice, nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262.

 

Section 262 requires that where a merger agreement is to be submitted for adoption at a meeting of stockholders, the stockholders be notified that appraisal rights will be available not less than 20 days before the meeting to vote on the merger. A copy of Section 262 must be included with such notice. This proxy statement constitutes the Company’s notice to our stockholders that appraisal rights are available in connection with the merger, in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex D . Failure to comply timely and properly with the requirements of Section 262 will result in the loss of your appraisal rights under the DGCL.

 

If you elect to demand appraisal of your shares of common stock, you must satisfy each of the following conditions:

 

You must deliver to the Company a written demand for appraisal of your shares of common stock before the vote is taken to approve the proposal to adopt the merger agreement, which must reasonably inform us of the identity of the holder of record of the Company’s common stock who intends to demand appraisal of his, her or its shares of common stock, and you must not vote or submit a proxy in favor of the proposal to adopt the merger agreement.

 

If you fail to comply with either of these conditions and the merger is completed, you will be entitled to receive payment for your shares of the Company’s common stock as provided for in the merger agreement, but you will have no appraisal rights with respect to your shares of the Company’s common stock. A holder of shares of the Company’s common stock wishing to exercise appraisal rights must hold of record the shares of common stock on the date the written demand for appraisal is made and must continue to hold the shares of common stock of record through the effective time of the merger, because appraisal rights will be lost if the shares of common stock are transferred prior to the effective time of the merger. Voting against or failing to vote for the proposal to adopt the merger agreement by itself does not constitute a demand for appraisal within the meaning of Section 262. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted in favor of the proposal to adopt the merger agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who

wishes to exercise appraisal rights must either submit a proxy containing instructions to vote against the proposal to adopt the merger agreement or abstain from voting on the proposal to adopt the merger agreement. The written demand for appraisal must be in addition to and separate from any proxy or vote on the proposal to adopt the merger agreement.

 

All demands for appraisal should be addressed to CKE Restaurants, Inc., 6307 Carpinteria Avenue, Suite A, Carpinteria, California 93013, Attn: Corporate Secretary, and must be delivered before the vote is taken to approve the proposal to adopt the merger agreement at the special meeting, and should be executed by, or on behalf of, the record holder of the shares of common stock. The demand must reasonably inform the Company of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares of common stock.

 

To be effective, a demand for appraisal by a stockholder of the Company’s common stock must be made by, or in the name of, the registered stockholder, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificate(s) or in the transfer agent’s records, in the case of uncertificated shares. The demand cannot be made by the beneficial owner if he or she does not also hold the shares of common stock of record. The beneficial holder must, in such cases, have the registered owner, such as a broker or other nominee, submit the required demand in respect of those shares of common stock. If you hold your shares of the Company’s common stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 

If shares of common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made in that capacity. If the shares of common stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares of common stock as a nominee for others, may exercise his or her right of appraisal with respect to the shares of common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of common stock as to which appraisal is sought. Where no number of shares of common stock is expressly mentioned, the demand will be presumed to cover all shares of common stock held in the name of the record owner.

 

Within ten days after the effective time of the merger, the surviving corporation in the merger must give written notice that the merger has become effective to each of the Company’s stockholders who has properly filed a written demand for appraisal and who did not vote in favor of the proposal to adopt the merger agreement. At any time within 60 days after the effective time of the merger, any stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw the demand for appraisal and accept the cash payment specified by the merger agreement for that stockholder’s shares of the Company’s common stock by delivering to the surviving corporation a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the effective time of the merger will require written approval of the surviving corporation. Unless the demand is properly withdrawn by the stockholder within 60 days after the effective date of the merger, no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, with such approval conditioned upon such terms as the Court deems just. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding, which value could be less than, equal to or more than the consideration offered pursuant to the merger agreement.

 

Within 120 days after the effective time of the merger, but not thereafter, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of common stock held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the

surviving corporation. The surviving corporation has no obligation to file such a petition, and holders should not assume that the surviving corporation will file a petition. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previous written demand for appraisal. In addition, within 120 days after the effective time of the merger, any stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the merger agreement, upon written request, will be entitled to receive from the surviving corporation, a statement setting forth the aggregate number of shares of common stock not voted in favor of the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within 10 days after such written request has been received by the surviving corporation. A person who is the beneficial owner of shares of the Company’s common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file a petition or request from the surviving corporation such statement.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, then the surviving corporation will be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares of common stock and with whom agreements as to the value of their shares of common stock have not been reached. After notice to stockholders who have demanded appraisal, if such notice is ordered by the Delaware Court of Chancery, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided by Section 262. The Delaware Court of Chancery may require stockholders who have demanded payment for their shares of common stock to submit their stock certificates to the Delaware Register in Chancery for notation of the pendency of the appraisal proceedings, and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

 

After determination of the stockholders entitled to appraisal of their shares of the Company’s common stock, the Delaware Court of Chancery will appraise the shares of common stock, determining their fair value as of the effective time of the merger after taking into account all relevant factors exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. When the value is determined, the Delaware Court of Chancery will direct the payment of such value upon surrender by those stockholders of the certificates representing their shares of common stock. Unless the Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the merger and the date of payment of the judgment.

 

You should be aware that an investment banking opinion as to fairness from a financial point of view is not necessarily an opinion as to fair value under Section 262. Although we believe that the per share merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the per share merger consideration. Moreover, we do not anticipate offering more than the per share merger consideration to any stockholder exercising appraisal rights and reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of common stock is less than the per share merger consideration. In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc. , the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc. , the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does

not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger , the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

 

Costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery, as it deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, to be charged pro rata against the value of all shares of common stock entitled to appraisal. Any stockholder who demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares of common stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares of common stock, other than with respect to payment as of a record date prior to the effective time of the merger. However, if no petition for appraisal is filed within 120 days after the effective time of the merger, or if the stockholder otherwise fails to perfect, successfully withdraws or loses such holder’s right to appraisal, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the $12.55 per share cash payment (without interest) for his, her or its shares of the Company’s common stock pursuant to the merger agreement.

 

In view of the complexity of Section 262 of the DGCL, Company’s stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

MARKET PRICES OF COMMON STOCK AND DIVIDEND INFORMATION

 

The common stock is listed for trading on the NYSE under the symbol “CKR.” The table below shows, for the periods indicated, the price range of the common stock, as reported by Bloomberg L.P., and the dividends per share declared during each of the fiscal quarters of fiscal years 2009, 2010 and 2011 (to date). Our fiscal year ends on the last Monday in January each year.

 

 

The closing price of the common stock on the NYSE on February 25, 2010, the last trading day prior to the public announcement of the execution of the merger agreement with affiliates of THL, was $8.91 per share of common stock. On May 26, 2010, the most recent practicable date before this proxy statement was mailed to our stockholders, the closing price for the common stock on the NYSE was $12.29 per share of common stock. You are encouraged to obtain current market quotations for common stock in connection with voting your shares of common stock.

 

Our current policy has been to provide quarterly cash dividends on your shares of common stock. However, the terms of the merger agreement provide that, from the date of the merger agreement until the effective time of the merger, we may not declare, set aside or pay any dividends on shares of our common stock without the consent of Parent.

 

The following table sets forth certain information regarding the beneficial ownership of our common stock as of May 10, 2010, by (i) each of our directors, (ii) our principal executive officer, principal financial officer and each of our other three most highly compensated executive officers for fiscal year 2010, which we collectively refer to as the named executive officers, and (iii) all of our directors and executive officers as a group. Except as otherwise indicated, beneficial ownership includes both voting and investment power.

 

 

 

 

 

 

 

If the merger is completed, our common stock will be delisted from the NYSE and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC on account of the common stock. In addition, if the merger is completed, our common stock will no longer be publicly-traded.

PROPOSAL 2 — ADJOURNMENT OF THE SPECIAL MEETING

 

If we fail to receive a sufficient number of votes to adopt the merger agreement, we may propose to adjourn the special meeting for the purpose of soliciting additional proxies to adopt the merger agreement. We currently do not intend to propose adjournment of our special meeting if there are sufficient votes to adopt the merger agreement.

 

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 common stock present in person or represented by proxy and entitled to vote on the matter at the special meeting.

 

Our board of directors recommends that you vote “FOR” the proposal to adjourn the special meeting to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement.

OTHER MATTERS

 

Our board of directors currently knows of no other business that will be presented for consideration at the special meeting. Nevertheless, should any business other than that set forth in the notice of special meeting of stockholders properly come before the meeting, the enclosed proxy confers discretionary authority to vote with respect to such matters, including matters that our board of directors does not know, a reasonable time before proxy solicitation, are to be presented at the meeting. If any of these matters are presented at the meeting, then the proxy holders named in the enclosed proxy card will vote in accordance with their judgment.

STOCKHOLDER PROPOSALS

 

If the merger is completed, we will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the merger is not completed, or if we are otherwise required to do so under applicable law, we would hold a 2010 annual meeting of stockholders. If the merger is not consummated, any stockholder nominations or proposals for other business intended to be presented at our next annual meeting must be submitted to us as set forth below.

 

Any stockholder who intends to present a proposal at the Annual Meeting of Stockholders to be held in the year 2010 must deliver the proposal to our Corporate Secretary at 6307 Carpinteria Avenue, Suite A, Carpinteria, California 93013 by the following deadlines:

 

 

We amended our bylaws in September 2008 to include additional notice requirements with respect to stockholder proposals. In order for business to be properly brought before any meeting of the stockholders by a stockholder, other than the nomination of a person for election as a director, which is described below, the stockholder must have given written notice to our Corporate Secretary not less than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting. In addition,

the stockholder providing such notice must be a stockholder of record both at the time the notice is given and at the time of the annual meeting at which the business referenced in the notice will be considered. A stockholder’s notice to the Corporate Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the name and address of the stockholder proposing such business; (iii) the class and number of shares of our common stock that are beneficially owned by the stockholder; (iv) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any affiliate of such stockholder; (v) any material interest of the stockholder or any affiliate of such stockholder in such business; and (vi) whether the stockholder or any affiliate of the stockholder intends to conduct a proxy solicitation. In addition, a stockholder providing such notice shall promptly provide any other information we reasonably request.

 

Nominations for the election of directors may be made by any stockholder entitled to vote in the election of directors, provided, however, that a stockholder may nominate a person for election as a director at a meeting only if written notice of such stockholder’s intent to make such nomination has been given to our Corporate Secretary not later than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting. Each such notice shall set forth: (i) the name and address of the stockholder who intends to make the nomination; (ii) the name and address of the person or persons to be nominated; (iii) a representation that the stockholder is a holder of record of our common stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (iv) a description of all arrangements or understandings between the stockholder or any affiliate of such stockholder on the one hand, and any nominee for election as a director on the other hand, pursuant to which the nomination or nominations are to be made by the stockholder; (v) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had the nominee been nominated, or intended to be nominated, by our board of directors; (vi) the consent and commitment of each nominee to serve as a director and to comply with our corporate governance standards if so elected; (vii) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any affiliate of such stockholder; and (viii) whether the stockholder or any affiliate of such stockholder intends to conduct a proxy solicitation. In addition, the stockholder making such nomination shall promptly provide any other information we reasonably request.

 

The SEC has adopted rules that permit companies and intermediaries (e.g., banks, brokers and other nominees) to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. Each stockholder who participates in householding will continue to receive a separate proxy card.

 

A number of brokers with account holders who are our stockholders will be “householding” our proxy materials. A single proxy statement report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement, please notify your bank, broker, or other nominee and direct a written request to Investor Relations, CKE Restaurants, 6307 Carpinteria Avenue, Suite A, Carpinteria California 93013. If any stockholders in your household wish to receive a separate copy of this proxy statement, they may call or write to Investor Relations and we will provide such additional copies. Stockholders

who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their bank, broker or other nominee.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC website at www.sec.gov. You also may obtain free copies of the documents we file with the SEC, including this proxy statement, by going to the Investors page of our corporate website at www.ckr.com. Our website address is provided as an inactive textual reference only. The information provided on our website, other than copies of the documents listed below that have been filed with the SEC, is not part of this proxy statement, and therefore is not incorporated herein by reference.

 

Statements contained in this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. We incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the special meeting.

 

 

 

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of proxy statements and any of the documents incorporated by reference in this document or other information concerning us, without charge, by written or telephonic request directed to CKE Restaurants, Inc., 6307 Carpinteria Avenue, Suite A, Carpinteria, California 93013, Attn: Corporate Secretary or by telephone at (805) 745-7500, on the Investors page of our corporate website at www.ckr.com; or from our proxy solicitor, Morrow & Co., LLC by telephone toll-free at (800) 607-0088 (banks and brokers call collect at (203) 658-9400 or by email at CKE@morrowco.com; or from the SEC through the SEC website at the address provided above. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents.

 

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES OF COMMON STOCK AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED          ,          . YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

ANNEX A

 

EXECUTION VERSION

 

 

AGREEMENT AND PLAN OF MERGER

Dated as of April 18, 2010

among

COLUMBIA LAKE ACQUISITION HOLDINGS, INC.,

COLUMBIA LAKE ACQUISITION CORP.,

and

CKE RESTAURANTS, INC.

 

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