UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION
STATEMENT UNDER
SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF
1934
Burger King Holdings,
Inc.
(Name of Subject
Company)
Burger King Holdings,
Inc.
(Name of Person Filing
Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of
Securities)
121208201
(CUSIP Number of Class of
Securities)
Anne Chwat, Esq.
General Counsel
Burger King Holdings, Inc.
5505 Blue Lagoon Drive
Miami, Florida 33126
(305) 378-3000
(Name, address and telephone
numbers of person authorized to
receive notices and communications on behalf of the persons
filing statement)
With copies to:
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Kara L. MacCullough, Esq.
Laurie L. Green, Esq.
Holland & Knight LLP
701 Brickell Avenue, Suite 3000
Miami, FL 33131
(305) 374-8500
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Eileen T. Nugent, Esq.
Richard J. Grossman, Esq.
Thomas W. Greenberg, Esq.
Skadden, Arps, Slate,
Meagher & Flom LLP
4 Times Square
New York, New York 10036
(212) 735-3000
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Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
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TABLE OF CONTENTS
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ITEM 1.
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SUBJECT
COMPANY INFORMATION.
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Name and
Address.
The name of the subject company to which this
Solicitation/Recommendation Statement on
Schedule 14D-9
(together with any exhibits and annexes attached hereto, this
Statement
) relates is Burger King Holdings,
Inc., a Delaware corporation (
Burger King
or
the
Company
). The Companys principal
executive offices are located at 5505 Blue Lagoon Drive, Miami,
Florida, 33126. The Companys telephone number at this
address is
(305) 378-3000.
Securities.
The title of the class of equity securities to which this
Statement relates is the common stock, par value $0.01 per
share, of the Company (the
Company Common
Stock
). As of the close of business on
September 13, 2010, there were 136,465,856 shares of
Company Common Stock, or the shares, issued and outstanding.
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ITEM 2.
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IDENTITY
AND BACKGROUND OF FILING PERSON.
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Name and
Address.
The name, business address and business telephone number of
Burger King, which is the subject company and the person filing
this Statement, are set forth in
Item 1. Subject
Company Information
above.
Offer.
This Statement relates to the tender offer by Blue Acquisition
Sub, Inc., a Delaware corporation (the
Purchaser
), and a wholly owned subsidiary of
Blue Acquisition Holding Corporation, a Delaware corporation
(Parent)
, which is controlled by 3G Special
Situations Fund II, L.P., a Cayman exempted limited
partnership (
3G
), as disclosed in the Tender
Offer Statement on Schedule TO, dated September 16, 2010
(as amended or supplemented from time to time, the
Schedule TO
), to purchase all of the
issued and outstanding shares of Company Common Stock at a
purchase price of $24.00 per share (the
Offer
Price
), net to the holder in cash, without interest
thereon and less any required withholding taxes, upon the terms
and subject to the conditions set forth in the Offer to
Purchase, dated September 16, 2010 (as amended or supplemented
from time to time, the
Offer to Purchase
),
and in the related Letter of Transmittal (the
Letter of
Transmittal
, which, together with the Offer to
Purchase and any amendments or supplements thereto from time to
time, constitutes the
Offer
). The Offer to
Purchase and the Letter of Transmittal are filed as Exhibits
(a)(1) and (a)(2) hereto, respectively, and are incorporated
herein by reference.
The Offer is being made pursuant to the Agreement and Plan of
Merger, dated as of September 2, 2010, among Parent, the
Purchaser and the Company (the
Merger
Agreement
). The Merger Agreement provides that, among
other things, as soon as practicable following completion of the
Offer, and subject to the satisfaction or waiver of certain
conditions, the Purchaser will merge with and into the Company
(the
Merger
) in accordance with the Delaware
General Corporation Law (the
DGCL
). The
Merger Agreement also provides that the Merger may be
consummated regardless of whether the Offer is completed, but if
the Offer is not completed, the Merger may only be consummated
after the stockholders of the Company have adopted the Merger
Agreement at a meeting of stockholders. Following the effective
time of the Merger (the
Effective Time
), the
Company will continue as the surviving corporation (the
Surviving Corporation
) and as a wholly-owned
subsidiary of Parent. As a result of the Merger, at the
Effective Time, each issued and outstanding share of Company
Common Stock (other than shares owned by Parent or the
Purchaser, and shares of Company Common Stock held by
stockholders who have perfected their statutory dissenters
rights of appraisal under Section 262 of the DGCL) will be
automatically converted into the right to receive an amount in
cash, without interest thereon and less any required withholding
taxes, equal to the Offer Price. The Merger Agreement is filed
as Exhibit (e)(1) hereto and is incorporated herein by reference.
1
As set forth in the Schedule TO, the address of the
principal executive offices of Parent, the Purchaser and 3G is
600 Third Avenue,
37
th
Floor, New York, New York, 10016 and their telephone number is
(212) 893-6727.
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ITEM 3.
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PAST
CONTACTS, TRANSACTIONS, NEGOTIATIONS AND
AGREEMENTS.
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Except as set forth in this Statement or in the Information
Statement attached to this Statement as Annex III and
incorporated herein by reference, or as otherwise incorporated
by reference herein, as of the date of this Statement, there are
no material agreements, arrangements or understandings, nor any
actual or potential conflicts of interest, between (i) the
Company or any of its affiliates, on the one hand, and (ii)(x)
any of its executive officers, directors or affiliates, or
(y) Parent, the Purchaser, 3G or any of their respective
executive officers, directors or affiliates, on the other hand.
The Information Statement is being furnished to the stockholders
of the Company pursuant to Section 14(f) of the Securities
Exchange Act of 1934, as amended (the
Exchange
Act
), and
Rule 14f-1
promulgated thereunder, in connection with the Purchasers
right, pursuant to the Merger Agreement, to designate persons to
the board of directors of the Company (the
Company
Board
) following the Purchasers acceptance for
payment of the shares of Company Common Stock tendered in the
Offer.
Any information contained in the documents incorporated herein
by reference shall be deemed modified or superseded for purposes
of this Statement to the extent that any information contained
herein modifies or supersedes such information.
Relationship
with Parent and 3G
Merger
Agreement
On September 2, 2010, the Company, Parent and the Purchaser
entered into the Merger Agreement. A summary of the Merger
Agreement is contained in the Offer to Purchase and is
incorporated herein by reference. This summary does not purport
to be complete and is qualified in its entirety by reference to
the Merger Agreement, which is filed as Exhibit (e)(1) hereto
and is incorporated herein by reference.
The Merger Agreement has been provided solely to inform
investors of its terms. The representations, warranties and
covenants contained in the Merger Agreement were made only for
the purposes of such agreement and as of specific dates, were
made solely for the benefit of the parties to the Merger
Agreement and may be intended not as statements of fact, but
rather as a way of allocating risk to one of the parties if
those statements prove to be inaccurate. In addition, such
representations, warranties and covenants may have been
qualified by certain disclosures not reflected in the text of
the Merger Agreement and may apply standards of materiality in a
way that is different from what may be viewed as material by
stockholders of, or other investors in, the Company. The
Companys stockholders and other investors are not
third-party beneficiaries under the Merger Agreement and should
not rely on the representations, warranties and covenants or any
descriptions thereof as characterizations of the actual state of
facts or conditions of the Company, Parent, the Purchaser or any
of their respective subsidiaries or affiliates.
The Merger Agreement contains representations and warranties the
Company, Parent and the Purchaser made to each other as of
specific dates. The assertions embodied in those representations
and warranties were made solely for purposes of the Merger
Agreement and may be subject to important qualifications and
limitations agreed to by the Company, Parent and the Purchaser
in connection with the negotiated terms. Moreover, some of those
representations and warranties may not be accurate or complete
as of any specified date, may be subject to a contractual
standard of materiality different from those generally
applicable to stockholders or may have been used for purposes of
allocating risk among the Company, Parent and the Purchaser
rather than establishing matters as facts.
Limited
Guaranty
In connection with the entry into the Merger Agreement, on
September 2, 2010, 3G executed and delivered to the Company
a limited guaranty (the
Guaranty
). Pursuant
to the Guaranty, 3G has agreed to
2
guarantee the performance and discharge of (i) the payment
of the Parent Termination Fee of $175 million, when
required to be paid under the terms of the Merger Agreement and
(ii) all of the liabilities and obligations of Parent and
the Purchaser under the terms of the Merger Agreement. However,
under the terms of the Guaranty, 3Gs maximum liability
cannot exceed $175 million. This summary does not purport
to be complete and is qualified in its entirety by reference to
the Guaranty, which is filed as Exhibit (e)(2) hereto and is
incorporated herein by reference.
Equity
Financing
In connection with the entry into the Merger Agreement, Parent
has entered into the equity commitment letter with 3G, dated
September 2, 2010 (the
Equity Commitment
Letter
), pursuant to which 3G has agreed to purchase
or cause the purchase of equity interests in Parent
simultaneously with the earlier of the closing of the Offer (the
Offer Closing
) or the Effective Time, up to a
maximum of $1.5 billion in the aggregate, to fund the
aggregate per share Offer Price
and/or
certain merger consideration and related expenses. Pursuant to
the terms of the Equity Commitment Letter 3G is required to make
capital calls from its investors to fund their capital
contributions. 3Gs obligation to fund the financing
contemplated by the Equity Commitment Letter is generally
subject to (i) the satisfaction or waiver of the conditions
to Parents and the Purchasers obligations to
consummate the transactions contemplated by the Merger
Agreement, (ii) the funding of the debt financing pursuant
to the terms and conditions of the debt commitment letter or any
alternative financing that Parent and the Purchaser are required
or permitted to accept from alternative sources pursuant to the
Merger Agreement and (iii) the substantially
contemporaneous consummation of the Offer Closing, if the Offer
Closing occurs, and the Merger. The Company is a third-party
beneficiary of the Equity Commitment Letter to the extent
provided in the Equity Commitment Letter to permit the Company
to seek specific performance to cause Parent and the Purchaser
to cause, or to directly cause, 3G to fund its equity commitment
in certain circumstances in accordance with the terms of the
Equity Commitment Letter and the Merger Agreement.
3Gs obligation to fund its equity commitment will
terminate upon the earlier to occur of (i) the valid
termination of the Merger Agreement in accordance with its terms
and (ii) the Effective Time, so long as 3G has funded its
commitment in connection with the Merger.
This summary does not purport to be complete and is qualified in
its entirety by reference to the Equity Commitment Letter, which
is filed as Exhibit (e)(3) hereto and is incorporated herein by
reference.
Non-Disclosure
Agreement
On April 26, 2010, the Company and 3G Capital Partners Ltd.
(
3G Capital
) entered into a non-disclosure
and standstill agreement (the
Non-Disclosure
Agreement
), pursuant to which 3G Capital agreed that
any non-public information furnished to it or to its
representatives by or on behalf of the Company would be
considered confidential information and, for a period of two
years from the date of the Non-Disclosure Agreement, would be
kept confidential and be used only for purposes of evaluating a
possible transaction. The parties agreed that they would only
disclose the confidential information to their representatives
or as may be required by law. Under the Non-Disclosure
Agreement, 3G Capital also agreed, among other things, to
certain standstill provisions for the protection of
the Company for a period of 12 months from the date of the
Non-Disclosure Agreement and that, subject to certain limited
exceptions, for a period of two years from the date of the
Non-Disclosure Agreement, 3G Capital would not solicit the
Companys employees, franchisees, customers or suppliers.
This summary does not purport to be complete and is qualified in
its entirety by reference to the Non-Disclosure Agreement, which
is filed as Exhibit (e)(4) hereto and is incorporated herein by
reference.
Arrangements
with Current Executive Officers and Directors of the
Company.
Overview.
The vested shares of Company Common Stock held by the
Companys directors and executive officers will be treated
in the same manner as outstanding shares of Company Common Stock
held by other
3
stockholders of the Company. As of September 13, 2010, the
Companys directors and executive officers and their
affiliates owned in the aggregate 28,659,925 shares of Company
Common Stock, excluding (1) shares issuable upon the
exercise of options to purchase Company Common Stock
(
Stock Options
), (2) shares issuable
upon vesting of Company restricted stock units
(
Restricted Stock Units
), (3) shares
issuable upon vesting of Company performance based stock units
(
Performance Based Stock Units
) and
(4) vested and unvested deferred stock awards granted to
members of the Company Board (
Director Stock
Units
). If the Companys directors and executive
officers and their affiliates tendered all of their shares of
Company Common Stock pursuant to the Offer, they would receive
an aggregate amount of $687,838,200 net in cash, without
interest thereon and less any required withholding taxes.
Aside from their interests as stockholders of the Company, the
Companys directors and employees, including its executive
officers, have interests in the Offer that may be different
from, or in addition to, those of other stockholders of the
Company generally. In considering the recommendation of the
Company Board that you tender your shares of Company Common
Stock pursuant to the Offer, you should be aware of these
interests. The members of the Company Board were aware of and
considered these interests, among other matters, in making their
decision to recommend that you accept the Offer and tender your
shares of Company Common Stock in the Offer. The interests of
the Companys directors and employees, including its
executive officers, in the Offer that are different from, or in
addition to, those of other stockholders of the Company are as
follows:
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Accelerated vesting of all Stock Options held by the
Companys employees, including its executive officers, at
the earlier to occur of the Offer Closing and the Effective Time
(the
Acceleration Time
), and the settlement
of such options in exchange for cash (as described below).
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Accelerated vesting of all Restricted Stock Units held by the
Companys employees, including its executive officers, at
the Acceleration Time and the cancelation of such awards in
exchange for cash (as described below).
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Accelerated vesting of all Performance Based Stock Units held by
the Companys employees, including its executive officers,
at the Acceleration Time (calculated at target level of
performance) and the cancelation of such awards in exchange for
cash (as described below).
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Payment of a pro rata annual bonus (calculated at target level
of performance) to all Company bonus-eligible employees,
including its executive officers, for the period commencing on
July 1, 2010 through the Effective Time.
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Certain executive officers of the Company will receive payment
for performing transition services.
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The executive officers of the Company will receive payments and
benefits under the executive officers employment
agreements upon certain types of termination of employment
following the Effective Time.
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Accelerated vesting of any unvested Director Stock Units and the
payment to all non-management directors of the Company for all
outstanding Director Stock Units upon their resignation from the
Board in accordance with the terms of such awards.
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The dates used below to quantify these interests have been
selected for illustrative purposes only. They do not necessarily
reflect the dates on which certain events will occur.
The Compensation Committee of the Company Board (comprised
solely of independent directors in accordance with
the requirements of
Rule 14d-10(d)(2)
under the Exchange Act and the instructions thereto) has
approved, in accordance with the non-exclusive safe harbor
provisions contained in
Rule 14d-10
under the Exchange Act, among other things, each of the
arrangements set forth below as an employment
compensation, severance or other employee benefit
arrangement within the meaning of
Rule 14d-10(d)(2)
under the Exchange Act.
4
Equity
Awards.
The Companys officers, and certain of its employees, hold
Stock Options, Restricted Stock Units
and/or
Performance Based Stock Units. All of the Companys
non-management directors hold Director Stock Units. Under the
Merger Agreement, each Stock Option, whether vested or unvested,
that is outstanding immediately prior to the Acceleration Time
will vest and be canceled in exchange for an amount in cash
equal to (A) the excess, if any, of (x) the Offer
Price over (y) the exercise price per share of Company
Common Stock subject to such option, multiplied by (B) the
number of shares of Company Common Stock for which such option
shall not have been exercised. Each Restricted Stock Unit that
is outstanding immediately prior to such time will vest and be
converted into an amount in cash equal to the Offer Price. Each
Performance Based Stock Unit that is outstanding immediately
prior to such time will vest and be converted into an amount in
cash equal to (A) the Offer Price multiplied by
(B) the number of shares subject to the Performance Based
Stock Unit assuming that the target level of performance had
been attained. Each Director Stock Unit, that has not yet
vested, will vest and all Director Stock Units outstanding
immediately prior to such time, in connection with such
directors resignation, will be converted into an amount in
cash equal to the Offer Price.
For the Companys officers who hold the position of vice
president and above, including the executive officers, the
equity awards that were granted on August 25, 2010 (the
August Equity Grants
) will be converted into
the right to receive the Offer Price, however 60% of the cash
amount attributable to the August Equity Grants for such
officers, other than Mr. Smith (who will receive such
amounts at the Acceleration Time), will be deposited into a
trust account established with a third party for the
officers benefit. The remaining 40% will be withheld for
taxes. For those officers other than Messrs. Chidsey and
Wells, and Ms. Chwat, if the officer is employed on each of
August 25, 2011 and August 25, 2012, the officer will
receive from the trust an amount equal to 25% of the portion of
the trust account related to such officers stock options,
which mirrors the vesting schedule of the original underlying
option grant. If the officer is actively employed until the end
of the two year anniversary following the Effective Time, the
balance of the trust will be paid to the officer. If the officer
is terminated without cause prior to any of these payment dates
(or terminates for good reason prior to the payment date, for
those officers who are a party to an employment agreement
containing a definition of good reason) the balance will be paid
to such officer upon such termination. However, if the officer
voluntarily terminates his or her employment (other than for
good reason, for those officers who are a party to an employment
agreement containing a definition of good reason) or is
terminated for cause prior to any of these payment dates, the
officer will forfeit his or her remaining balance in the trust.
For Mr. Chidsey, Mr. Wells and Ms. Chwat (the
Transition Executives
), the subsequent
conditions to receive the payment of the trust amounts are as
follows: (i) in the case of Mr. Chidsey (i) 50%
of the amounts in the trust will be released and remitted on the
six-month anniversary of the Effective Time and (ii) 50% of
the amounts in the trust will be released and remitted on the
twelve-month anniversary of the Effective Time, subject to
Mr. Chidseys continued service until each such date
except as provided below and (ii) in the case of each of
Mr. Wells and Ms. Chwat, the amounts in the trust will
be released in six substantially equal installments on the first
business day of each of the first six months following the
Effective Time, subject to such Transition Executives
continued service through such date except as provided below. If
the Transition Executives employment is terminated due to
death or disability or without cause or if the Transition
Executive terminates his or her employment for good reason prior
to any of these payment dates, the balance of the Transition
Executives trust will be paid to such Transition Executive
upon termination. However, if the Transition Executive
voluntarily terminates his or her employment (other than for
good reason) or is terminated for cause prior to any of these
payment dates, the Transition Executive will forfeit his or her
remaining balance in the trust. For Mr. Chidsey, the Merger
Agreement specifies that the expiration of the transition period
and the commencement of the six-month consulting arrangement
described below under
Amendments to
Employment Agreements
will not be deemed to be the
termination of his employment without cause or voluntary
resignation for good reason. Further, if Mr. Chidseys
consulting arrangement is terminated without cause or by reason
of his death or disability, the amount in trust will be
immediately released to him upon such termination.
5
The following table shows the amount in cash that each executive
officer is expected to receive pursuant to the Merger Agreement,
based on equity awards held as of September 13, 2010,
assuming the Acceleration Time occurs on October 15, 2010
as a result of the cancelation of all Stock Options, Restricted
Stock Units and Performance Based Restricted Stock Units held by
the Companys executive officers.
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Vested
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Unvested
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Performance-Based
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Stock
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Stock
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and Restricted
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Executive Officer
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Options ($)
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Options ($)
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Stock Units ($)
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Total ($)
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John W. Chidsey
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17,154,523
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3,583,134
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6,763,392
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27,501,049
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Ben K. Wells
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1,274,398
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834,230
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1,547,688
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3,656,316
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Anne Chwat
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1,175,140
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581,122
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968,856
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2,725,118
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Peter C. Smith
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807,153
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563,161
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903,960
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2,274,274
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Charles M. Fallon, Jr.
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1,387,295
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937,936
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988,056
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3,313,287
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Julio A. Ramirez
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205,229
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510,234
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1,104,384
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1,819,847
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Natalia Franco
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181,468
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344,448
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525,916
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Kevin Higgins
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47,620
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392,307
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571,104
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1,011,031
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The following table shows the amount in cash that each director
is expected to receive pursuant to the Merger Agreement, based
on equity awards held as of September 13, 2010, assuming
the Acceleration Time occurs on October 15, 2010 as a
result of the cancelation of all Director Stock Units held by
the Companys directors.
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Vested
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Unvested
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Director Stock
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Director Stock
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Director
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Units ($)
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Units ($)
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Total ($)
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Richard W. Boyce
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600,000
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600,000
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David A. Brandon
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840,000
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840,000
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Ronald M. Dykes
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574,200
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574,200
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Peter R. Formanek
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3,780,168
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3,780,168
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Manuel A. Garcia
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1,551,384
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1,551,384
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Sanjeev K. Mehra(1)
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587,472
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587,472
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Stephen Pagliuca
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495,552
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28,776
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524,328
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Brian T. Swette
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3,141,648
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3,141,648
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Kneeland C. Youngblood
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420,168
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420,168
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(1)
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Mr. Mehra has an understanding with The Goldman Sachs
Group, Inc. pursuant to which he holds such Director Stock Units
for the benefit of The Goldman Sachs Group, Inc.
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Employment
Agreements
The Company is a party to employment agreements with its
executive officers that provide for certain payments and
benefits upon a termination of employment by the Company (other
than for cause) or a resignation for good reason (as such terms
are defined in the respective employment agreements).
Amendments
to Employment Agreements
On September 1, 2010, the Company entered into amendments
to the employment agreements of Messrs. Chidsey, Wells and
Smith and Ms. Chwat, effective upon the Effective Time,
which add or modify certain terms of their existing agreements,
including terms pursuant to which services will be performed
following the Effective Time. The amendments provide that at the
Effective Time, the Transition Executives will remain employed
with the Company for a period of six months. With respect to the
Transition Executives, the six-month transition period can be
extended if the Company and the executive mutually agree.
Mr. Smiths employment will terminate at the Effective
Time and he will receive the severance payments and benefits set
forth in his employment agreement, as amended.
6
In exchange for performing services during the transition
period, the Transition Executives will generally be compensated
during the transition period as they were compensated prior to
the transition period. If their employment is terminated during
the transition period other than (i) for cause or
(ii) the executives voluntary termination without
good reason, in addition to the severance payments and benefits
under the executives existing employment agreement, the
executive will receive the remaining cash compensation that
would have been paid to the executive had he or she performed
services through the end of the transition period.
Following the six-month transition period, the employment of
each of Messrs. Chidsey and Wells and Ms. Chwat will
terminate and he or she will be entitled to the severance
payments and benefits set forth in his or her employment
agreement. In addition, Mr. Chidsey has agreed to perform
part-time consulting services for the six-month period following
the transition period. In exchange for performing consulting
services, Mr. Chidsey will receive a monthly consulting fee
of $100,000.
Each of Messrs. Chidsey, Wells and Smith and Ms. Chwat
will receive a transition bonus ($3,021,000, $1,308,500,
$1,097,518, and $1,130,619 for Messrs. Chidsey, Wells and
Smith and Ms. Chwat, respectively) in respect of his or her
contributions toward the successful completion of the Merger
and, in the case of Messrs. Wells and Chidsey and
Ms. Chwat, as an inducement for his or her agreement to
perform services following the Effective Time. The transition
bonuses will be paid at the time the Merger closes except for
Mr. Chidsey, who will receive $521,000 of his transition
bonus at the Effective Time, $1,250,000 on the
six-month
anniversary of the Effective Time and $1,250,000 on the
twelve-month anniversary of the Effective Time, subject to his
continued service or earlier termination of employment without
cause, for good reason, or by reason of his death or disability.
In connection with the employment agreement amendments,
Messrs. Chidsey, Wells and Smith and Ms. Chwat have
agreed to extend the non-competition and non-solicitation
covenants from one year following their termination to two years
following their termination and Messrs. Chidsey and Wells
and Ms. Chwat have agreed to modify their right to
terminate for good reason, including waiving that right due to
any change in their duties resulting from consummation of the
Merger. In the case of Messrs. Wells and Smith and
Ms. Chwat, the welfare benefits continuation period in the
event of a qualifying termination has been extended from one
year to two years pursuant to their amended employment
agreements.
The foregoing description of the terms of the amendments to the
employment agreement does not purport to be complete and is
qualified in its entirety by reference to the amendments to the
employment agreements, which are filed as Exhibits (e)(5)-(e)(8)
hereto and are incorporated herein by reference.
A description of the employment agreement without giving effect
to the foregoing amendments for each of Messrs. Chidsey,
Wells and Smith and Ms. Chwat is described under
Compensation Discussion and Analysis
Employment Agreements
of the Information Statement
attached as Annex III to this
Schedule 14D-9.
Copies of their employment agreements are filed as Exhibits
(e)(9)-(e)(12) hereto and are incorporated herein by reference.
Pursuant to the Merger Agreement, the Company is authorized to
enter into amendments to the employment agreements of
Messrs. Fallon, Ramirez and Higgins and Ms. Franco,
effective upon the Effective Time, which will increase their
severance payments to two times the sum of base salary, benefits
or perquisite allowance (as applicable) and target bonus for the
year of termination. In addition, the right of
Messrs. Fallon and Ramirez and Ms. Franco to receive
welfare benefits continuation will be extended from one year to
two years. In addition, the proposed amendments provide for the
non-competition provisions and the non-solicitation provisions
to be extended from one year to two years.
Prior to amendment, the employment agreements of each of
Messrs. Fallon, Ramirez and Higgins and Ms. Franco
provide that in the event of a termination by the Company
without cause, or by the executive for good reason in the case
of Messrs. Fallon and Ramirez and Ms. Franco, subject
to execution by the executive of a release, the executive is
entitled to an amount equal to (i) his or her annual base
salary and annual perquisite allowance plus (ii) a pro-rata
bonus though the date of termination, payable when and to the
extent that the Company pays a bonus for such year, and
continued coverage for one year under Burger King
Corporations (
BKC
) medical, dental and
life insurance plans. In addition, Ms. Francos
agreement provides
7
that if a Change in Control (as defined in the agreement) occurs
on or before May 17, 2011, and, within twelve months
following such Change in Control Ms. Franco is terminated
without cause or resigns for good reason, Ms. Franco is
entitled to an amount equal to twice her annual base salary,
annual perquisite allowance and prorated bonus. Copies of their
current employment agreements, and Ms. Francos
Indemnity Agreement, are filed as Exhibits (e)(13)-(e)(17)
hereto and are incorporated herein by reference.
Potential
Payments Upon a Change in Control
Based on compensation and benefit levels as of
September 16, 2010, and assuming that the Effective Time
occurs on October 15, 2010 and that the executive officers
experience a qualifying termination of employment at that time
(except that for Messrs. Chidsey and Wells and
Ms. Chwat, it assumes that a qualifying termination occurs
at the end of the transition period), the executive officers
would be entitled to receive the following cash payments and
benefits under their amended employment agreements upon a
8
qualifying termination (assuming that all of the payments
described above under
Equity
Awards
have been previously made, including payments
resulting from accelerated vesting of outstanding equity awards):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination w/o
|
|
|
|
|
|
|
|
|
Cause or
|
|
|
Pro-Rata
|
|
|
|
|
|
for Good
|
|
|
Bonus
|
|
|
|
|
|
Reason
|
|
|
Payable Upon
|
|
|
|
|
|
After Change
|
|
|
the Mergers
|
|
Name
|
|
Benefit
|
|
in Control ($)
|
|
|
Closing ($)(2)
|
|
|
John W. Chidsey(1)
|
|
Salary
|
|
$
|
6,257,250
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing
|
|
|
|
|
|
$
|
302,862
|
|
|
|
Pro Rata Bonus at Termination Date(3)
|
|
$
|
521,438
|
|
|
|
|
|
|
|
Transition Bonus(4)
|
|
$
|
3,021,000
|
|
|
|
|
|
|
|
Benefits Continuation(5)
|
|
$
|
90,000
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
190,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,080,188
|
|
|
$
|
302,862
|
|
Ben K. Wells(1)
|
|
Salary
|
|
$
|
525,000
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing
|
|
|
|
|
|
$
|
106,726
|
|
|
|
Pro Rata Bonus at Termination Date(3)
|
|
$
|
183,750
|
|
|
|
|
|
|
|
Transition Bonus(4)
|
|
$
|
1,308,500
|
|
|
|
|
|
|
|
Benefits Continuation(5)
|
|
$
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
48,500
|
|
|
|
|
|
|
|
Outplacement Services
|
|
$
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,154,250
|
|
|
$
|
106,726
|
|
Anne Chwat(1)
|
|
Salary
|
|
$
|
450,883
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing
|
|
|
|
|
|
$
|
91,659
|
|
|
|
Pro Rata Bonus at Termination Date(3)
|
|
$
|
157,809
|
|
|
|
|
|
|
|
Transition Bonus(4)
|
|
$
|
1,130,619
|
|
|
|
|
|
|
|
Benefits Continuation(5)
|
|
$
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
48,500
|
|
|
|
|
|
|
|
Outplacement Services
|
|
$
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,876,311
|
|
|
$
|
91,659
|
|
Peter C. Smith
|
|
Salary
|
|
$
|
437,091
|
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing(3)
|
|
|
|
|
|
$
|
88,855
|
|
|
|
Transition Bonus(4)
|
|
$
|
1,097,518
|
|
|
|
|
|
|
|
Benefits Continuation(5)
|
|
$
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
48,500
|
|
|
|
|
|
|
|
Outplacement Services
|
|
$
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination w/o
|
|
|
|
|
|
|
|
|
Cause or
|
|
|
Pro-Rata
|
|
|
|
|
|
for Good
|
|
|
Bonus
|
|
|
|
|
|
Reason
|
|
|
Payable Upon
|
|
|
|
|
|
After Change
|
|
|
the Mergers
|
|
Name
|
|
Benefit
|
|
in Control ($)
|
|
|
Closing ($)(2)
|
|
|
|
|
Total
|
|
$
|
1,671,609
|
|
|
$
|
88,855
|
|
Charles M. Fallon, Jr
|
|
Salary
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
Bonus
|
|
$
|
700,000
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing
|
|
|
|
|
|
$
|
101,644
|
|
|
|
Benefits Continuation(5)
|
|
$
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
97,000
|
|
|
|
|
|
|
|
Outplacement Services
|
|
$
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,885,500
|
|
|
$
|
101,644
|
|
Julio A. Ramirez
|
|
Salary
|
|
$
|
824,000
|
|
|
|
|
|
|
|
Bonus
|
|
$
|
576,800
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing
|
|
|
|
|
|
$
|
83,755
|
|
|
|
Benefits Continuation(5)
|
|
$
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
97,000
|
|
|
|
|
|
|
|
Outplacement Services
|
|
$
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,586,300
|
|
|
$
|
83,755
|
|
Natalia Franco
|
|
Salary
|
|
$
|
700,000
|
|
|
|
|
|
|
|
Bonus
|
|
$
|
490,000
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing
|
|
|
|
|
|
$
|
71,151
|
|
|
|
Benefits Continuation(5)
|
|
$
|
60,000
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
97,000
|
|
|
|
|
|
|
|
Outplacement Services
|
|
$
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,375,500
|
|
|
$
|
71,151
|
|
Kevin Higgins(6)
|
|
Salary
|
|
$
|
992,600
|
|
|
|
|
|
|
|
Bonus
|
|
$
|
446,670
|
|
|
|
|
|
|
|
Pro Rata Bonus Payable at Closing
|
|
|
|
|
|
$
|
64,859
|
|
|
|
Benefits Continuation
|
|
|
N/A
|
|
|
|
|
|
|
|
Perquisite Allowance
|
|
$
|
121,098
|
|
|
|
|
|
|
|
Outplacement Services
|
|
$
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,527,801
|
|
|
$
|
64,380
|
|
|
|
|
(1)
|
|
If Messrs. Chidsey or Wells or Ms. Chwat are
terminated other than for cause or good reason, he or she will
receive the remaining cash compensation that he or she would
have received had he or she performed services through the end
of their six-month transition period.
|
|
(2)
|
|
All bonus eligible employees, including each executive officer,
will receive a pro rata annual bonus for the period commencing
July 1, 2010 through October 15, 2010, calculated at
target level of performance, upon the Effective Time without
regard to whether the executive is terminated or continues to be
employed by the Company.
|
10
|
|
|
(3)
|
|
For each of the Transition Executives, the pro rata bonus
payable at Termination Date represents a pro rata bonus,
calculated at target level of performance, for services rendered
during the six-month transition period.
|
|
(4)
|
|
The transition bonus will be paid at the Effective Time, except
for Mr. Chidsey, who will receive $521,000 at the Effective
Time, $1,250,000 six months after the Effective Time and
$1,250,000 12 months after the Effective Time.
|
|
(5)
|
|
Assumes cost of the benefits continuation of $30,000 per year.
However, each executive will receive benefits at the level in
effect on the date of termination.
|
|
(6)
|
|
Mr. Higgins salary and other payments are due in Swiss
Francs. Amounts above represent conversion to U.S. dollars based
on the Bloomberg exchange rate in effect on September 13,
2010, which was 1 Swiss Franc to 0.9926 United States Dollars.
|
Director
Compensation.
Each non-management director receives an annual deferred stock
award, Director Stock Units, with a grant date fair value of
$85,000. The Director Stock Units vest in quarterly installments
over a 12 month period. In addition, the non-management
directors receive an annual retainer of $65,000. The chair of
the Audit Committee receives an additional $20,000 fee and the
chairs of the Compensation Committee and the Nominating and
Corporate Governance Committee each receive an additional
$10,000 fee. In addition, commencing on July 1, 2010, the
Board appointed a lead independent director who will be eligible
to receive an additional $25,000 annual fee. Directors have the
option to receive their annual retainer and their chair fees
either 100% in cash or 100% in Director Stock Units.
Messrs. Formanek and Youngblood, who elected to receive
their annual retainer for the 2010 calendar year in cash,
previously received their annual retainer. The remaining
non-management directors, who elected to receive their annual
retainer for the 2010 calendar year in Director Stock Units,
will receive a cash settlement in the amount of $65,000 at the
Effective Time in lieu of receiving Director Stock Units at the
annual meeting of stockholders.
All Director Stock Units, whether the annual grant or a grant in
lieu of a cash retainer or chair fees, will be settled upon
termination of Company Board service. Any Director Stock Units
granted as part of a directors annual compensation that
remain unvested immediately before the Offer Closing will vest
and be canceled in exchange for an amount in cash calculated as
described above under
Equity
Awards
. The Director Stock Units for each director are
set forth in the Deferred Stock columns in the director table
above under
Equity Awards
.
Indemnification
and Exculpation of Directors and Officers.
Section 145 of the DGCL provides that a Delaware
corporation may indemnify any persons who are, or are threatened
to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such
person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such person
as an officer, director, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding,
provided that such person acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the
corporations best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe that his or her conduct was illegal. A Delaware
corporation may indemnify any persons who are, or are threatened
to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason
of the fact that such person was a director, officer, employee
or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys fees) actually and
reasonably incurred by such person in connection with the
defense or settlement of such action or suit provided such
person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporations best
interests, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be
liable to the corporation. Expenses incurred by any
11
officer or director in defending any such action, suit or
proceeding in advance of its final disposition shall be paid by
the corporation upon delivery to the corporation of an
undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be
indemnified by the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director has
actually and reasonably incurred. The Companys certificate
of incorporation and bylaws provide for the indemnification of
the Companys directors and officers to the fullest extent
permitted under the DGCL.
Section 102(b)(7) of the DGCL permits a corporation to
provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director, except for liability for any:
|
|
|
|
|
transaction from which the director derives an improper personal
benefit;
|
|
|
|
act or omission not in good faith or that involves intentional
misconduct or a knowing violation of law;
|
|
|
|
unlawful payment of dividends or redemption of shares; or
|
|
|
|
breach of a directors duty of loyalty to the corporation
or its stockholders.
|
The Companys certificate of incorporation provides for
such limitation of liability to the fullest extent permitted by
the DGCL. In addition, the employment agreements of each of
Messrs. Chidsey, Wells, Fallon, Franco, Ramirez and Smith,
and Ms. Chwat contain provisions providing for the
indemnification of the executive officer in certain
circumstances.
The Merger Agreement requires the Surviving Corporation to honor
all existing rights to indemnification in favor of all current
and former directors and officers of the Company and its
subsidiaries.
In addition, the Merger Agreement requires Parent to maintain
the Companys current directors and officers
insurance policies (or substitute insurance of at least the same
coverage and amounts containing terms that are no less favorable
to the indemnified parties) for six years following the
Effective Time. However, Parent will not be required to pay
premiums which on an annual basis exceed 300% of the premium
paid by the Company for its last fiscal year. The Merger
Agreement also requires Parent and the Surviving Corporation to
indemnify, defend and hold harmless, and provide advancement of
expenses to, the current and former directors and officers of
the Company and the Companys subsidiaries against certain
losses and indemnified liabilities, including in connection with
the Merger Agreement, the Merger and the other transactions
contemplated by the Merger Agreement.
Arrangements
with Affiliates.
Stockholder
Tender Agreements
Concurrently with the execution of the Merger Agreement, on
September 2, 2010, the Company entered into Stockholder
Tender Agreements (the
Stockholder Tender
Agreements
) with certain private equity funds
affiliated with each of Bain Capital Partners, Goldman,
Sachs & Co. (the
Goldman Sachs
Funds
) and TPG Capital (collectively, the
Sponsors
) pursuant to which such stockholders
have agreed to tender their shares of Company Common Stock in
the Offer upon the terms and subject to the conditions of such
agreements and, if requested by Parent, to enter into customary
voting agreements with Parent to vote such shares of Company
Common Stock in favor of the Merger. As of September 16, 2010,
the shares subject to the Stockholder Tender Agreements comprise
approximately 31% of the outstanding Company Common Stock. The
Stockholder Tender Agreements will terminate upon certain
circumstances, including upon termination of the Merger
Agreement.
This summary does not purport to be complete and is qualified in
its entirety by reference to the Stockholder Tender Agreements,
which are filed as Exhibits (e)(18) (e)(20) hereto
and are incorporated herein by reference.
12
Shareholders
Agreement
In connection with the acquisition of BKC, the Company entered
into a shareholders agreement dated June 27, 2003
with BKC and the Sponsors, which was amended and restated on
May 17, 2006 (the
Shareholders
Agreement
). The Shareholders Agreement provides
for (i) the right of each Sponsor to appoint two members to
the Company Board, (ii) the right of each Sponsor, with
respect to each committee of the Company Board other than the
Audit Committee, to have at least one Sponsor director on each
committee, for Sponsor directors to constitute a majority of the
membership of each committee and for the chairmen of the
committees to be Sponsor directors, to the extent that such
directors are permitted to serve on such committees under the
Securities and Exchange Commission
(SEC)
and
NYSE rules applicable to the Company, (iii) drag-along and
tag-along rights and transfer restrictions, (iv) shelf,
demand and piggyback registration rights and (v) the
payment of expenses and the grant of certain indemnities
relating to those registration rights. A Sponsors right to
appoint directors will be reduced to one director if the stock
ownership of the private equity funds controlled by that Sponsor
drops to 10% or less of the outstanding Company Common Stock,
and will be eliminated if the stock ownership of the private
equity funds controlled by that Sponsor drops to 2% or less of
the outstanding Company Common Stock. The right to appoint
directors to Company Board committees terminates if the private
equity funds controlled by the Sponsors no longer collectively
beneficially own 30% or more of the outstanding Company Common
Stock. Three of the Companys current directors,
Messrs. Boyce, Pagliuca and Mehra, were appointed pursuant
to the Shareholders Agreement.
The Shareholders Agreement also includes customary
indemnification provisions against liabilities under the
Securities Act of 1933, as amended, incurred in connection with
the registration of the Companys debt or equity
securities. The Company agreed to reimburse legal or other
expenses incurred in connection with investigating or defending
any such liability, action or proceeding, except that the
Company will not be required to indemnify or reimburse related
legal or other expenses if such loss or expense arises out of or
is based on any untrue statement or omission made in reliance
upon and in conformity with written information provided by
these persons. This summary does not purport to be complete and
is qualified in its entirety by reference to the
Shareholders Agreement, which is filed as Exhibit (e)(21)
hereto and is incorporated herein by reference.
Expense
Reimbursement to the Sponsors
The Company has reimbursed the Sponsors for certain
travel-related expenses of their employees who are members of
the Company Board in connection with meetings of the Company
Board in amounts that are consistent with amounts reimbursed to
the non-Sponsor directors.
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ITEM 4.
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THE
SOLICITATION OR RECOMMENDATION.
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Solicitation
or Recommendation.
At a meeting held on September 1, 2010, the Company Board
unanimously (1) authorized and approved the execution,
delivery and performance of the Merger Agreement and the
transactions contemplated by the Merger Agreement,
(2) approved and declared advisable the Merger Agreement,
the Offer, the Merger and the other transactions contemplated by
the Merger Agreement, (3) declared that the terms of the
Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Merger, the Offer and the other
transactions contemplated by the Merger Agreement, on the terms
and subject to the conditions set forth therein, are fair to and
in the best interests of the stockholders of the Company,
(4) directed that the adoption of the Merger Agreement be
submitted to a vote at a meeting of the stockholders of the
Company, unless the adoption of the Merger Agreement by the
Companys stockholders is not required by applicable law,
(5) recommended that the stockholders of the Company accept
the Offer and tender their shares of Company Common Stock
pursuant to the Offer and, if required by applicable law, vote
their shares of Company Common Stock in favor of adoption of the
Merger Agreement and (6) approved for all purposes the
Purchaser, Parent and their affiliates, the Merger Agreement and
the transactions contemplated by the Merger Agreement to exempt
such persons, agreements and transactions from any anti-takeover
laws.
13
Accordingly, for the reasons described in more detail below,
the Company Board unanimously recommends that the Companys
stockholders accept the Offer and tender their shares of Company
Common Stock in the Offer.
A copy of the press release communicating the Company
Boards recommendation is filed as Exhibit (a)(6) hereto
and is incorporated by reference.
Background
of the Offer and Merger; Reasons for Recommendation.
Background
of the Offer and Merger
Since our initial public offering in 2006, as part of our
ongoing strategic planning process, the Company Board and
members of our senior management have regularly reviewed and
evaluated our business and operations, competitive position,
strategic plans and alternatives with a goal of enhancing
stockholder value. Although we have achieved many financial and
operating performance goals since our initial public offering,
certain initiatives that management considered important to our
long-term success, including (1) the recent roll-out of the
new flexible broiler and
point-of-sale
system, (2) the on-going reimaging and remodeling of our
Company restaurants, (3) our portfolio management
strategies, including the refranchising of half of our Company
restaurant portfolio over the next three to five years, and
(4) other operating initiatives designed to enhance overall
efficiencies and profitability, could take several years to
yield any direct monetary benefits to us and our stockholders
and may depress the market price of our common stock in the
interim. Furthermore there are significant internal and external
risks that could result in us not recognizing all of the
anticipated benefits of these initiatives. In addition, our
refranchising strategy, although designed to position the
Company for stronger net restaurant growth and reduce the
Companys future required capital expenditure obligations,
could exacerbate the operational risks associated with our
highly franchised business model.
In late 2009 and early 2010, Alexandre Behring, Managing Partner
at 3G Capital, the investment advisor of 3G, taking action on
behalf of 3G, Parent and Purchaser, other representatives of
3G Capital and certain representatives of Lazard
Freres & Co. LLC (
Lazard
),
financial advisor to 3G Capital, contacted representatives of
the Sponsors on an unsolicited basis to express 3G
Capitals preliminary interest in exploring a potential
transaction involving the Company. The representatives of the
Sponsors informed the representatives of 3G Capital and Lazard
that any inquiries regarding the Company should be raised
directly with Mr. John Chidsey, the Chief Executive Officer
and Executive Chairman of the Company.
In early March 2010, Mr. Behring contacted Mr. Chidsey
to express 3G Capitals preliminary interest in exploring a
potential acquisition of the Company. During this discussion,
Mr. Behring suggested that the consideration payable in
such transaction would be entirely paid in cash, but
Mr. Behring did not propose a purchase price for the
acquisition of the Company. Mr. Chidsey informed
Mr. Behring that the Company was not for sale, but that the
Company and the Company Board would consider any proposal that
would enhance stockholder value. Mr. Chidsey informed
Mr. Behring that, if 3G Capital was serious about exploring
a potential acquisition of the Company, then 3G Capital should
deliver a written acquisition proposal to the Company based on
publicly available information, which Mr. Chidsey would
then discuss with the Company Board.
On March 29, 2010, the Company received a letter from 3G
Capital and a third party private equity firm with whom 3G
Capital was discussing the transaction containing a non-binding
indication of interest to acquire all of the outstanding shares
of Company Common Stock for $24.00 in cash per share (the
March
29
th
Proposal
).
Following receipt of the March 29th Proposal, Mr. Chidsey
contacted Mr. Behring to confirm that he had received the
proposal and would discuss it with the Company Board at a
special meeting to be held on April 6, 2010.
14
On April 6, 2010, the Company Board held a special meeting,
at which certain members of the Companys senior management
were present. At the meeting, the terms and conditions of the
March 29th Proposal were discussed and it was noted, among other
matters, that the March 29th Proposal:
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set forth a price of $24.00 in cash per share as compared to the
market price of approximately $21 to $22 per share over the
prior two weeks;
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was non-binding in nature and could be withdrawn or modified by
3G Capital at any time;
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was based solely on publicly available information and was
subject to due diligence that 3G Capital described as
confirmatory in nature;
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had been reviewed and approved by the investment committee of 3G
Capital;
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was subject to financing but included non-binding highly
confident letters from Barclays Capital PLC and another
international lending institution to provide the necessary debt
financing for the potential transaction; and
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indicated that 3G Capital had reviewed all of the publicly
available information and was prepared to enter into a
confidentiality agreement in order to gain access to non-public
information and personnel to further refine its proposal.
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The Company Board and management also discussed the
Companys prospects as a stand-alone company, including the
Companys strategic plan, the historical operating and
financial results and the short-term and long-term outlook for
the Company, as well as macroeconomic factors. With a view
towards maximizing stockholder value, the Company Board and
management then discussed whether, if the Company Board were to
decide to explore a possible sale of the Company, any third
parties other than 3G Capital, including any potential strategic
buyers, should be contacted regarding their potential interest
in the Company. The Company Board noted that the most likely
strategic acquirer had not shown an interest in pursuing a
business combination with the Company.
In addition, the Company Board discussed the advisability of
hiring an investment bank as its financial advisor to conduct an
independent assessment and valuation of the Company. The Company
Board authorized the Companys senior management team to
retain a financial advisor to perform such valuation and
otherwise assist the Company in its evaluation of strategic
alternatives. At this meeting, the Company Board unanimously
approved the appointment of Ronald Dykes as the independent lead
director of the Board. After further discussion of the March
29th Proposal, the Company Board decided to not pursue a
potential sale to 3G Capital at that time. The Company Board
requested that Mr. Chidsey communicate the Company
Boards position to 3G Capital. Following the meeting,
Mr. Chidsey contacted a representative of Lazard to convey
the Company Boards position that the offer price contained
in the March 29th Proposal was not sufficient to warrant further
discussions at this time unless 3G Capital was willing to
increase its offer price.
On or about April 12, 2010, representatives of Lazard
contacted Mr. Chidsey and indicated that 3G Capital might
be willing to increase the price of its offer above $24.00 per
share but would need to meet with the Companys management
to further understand the Companys business and its
short-term and long-term prospects. No alternative prices were
discussed in these conversations. Based on these discussions,
Mr. Chidsey said he was willing to meet with
representatives of 3G Capital to discuss additional information
about the Company that might be helpful to 3G Capitals
analysis if 3G Capital entered into an acceptable
confidentiality agreement.
On April 14, 2010, the Company distributed to 3G Capital a
draft of the Non-Disclosure Agreement. The Company, 3G Capital,
Holland & Knight, LLP (
Holland &
Knight
), outside corporate counsel to the Company, and
Kirkland & Ellis LLP (
Kirkland
),
outside counsel to 3G Capital, negotiated the terms of the
Non-Disclosure Agreement over the next several weeks. On
April 26, 2010, the Company and 3G Capital executed the
Non-Disclosure Agreement. The Non-Disclosure Agreement contained
customary provisions, including standstill and non-solicitation
of employees provisions. The other private equity firm that had
initially participated in the March 29th Proposal did not
execute a Non-Disclosure Agreement and the Company had no
further contact with such firm.
15
In addition, beginning on April 14, 2010, the Company began
discussions with representatives of Morgan Stanley &
Co. Incorporated (
Morgan Stanley
) and
Goldman, Sachs & Co. (
Goldman
Sachs
) regarding their potential role as financial
advisors to the Company. During the next few weeks,
representatives of the Company held discussions with each of
Morgan Stanley and Goldman Sachs regarding preparing a financial
analysis of the Company. On April 21, 2010, the Company
entered into a Non-Disclosure Agreement with Morgan Stanley in
connection with Morgan Stanleys engagement to conduct a
valuation of the Company.
On April 27, 2010, Mr. Chidsey and Mr. Wells, the
Chief Financial Officer of the Company, met with representatives
of 3G Capital at the Miami offices of Holland &
Knight. At such meeting, Mr. Chidsey and Mr. Wells
provided information regarding the Companys business and
prospects that had recently been presented to investors and
analysts and that were publicly available. At the conclusion of
the meeting, representatives of 3G Capital requested certain
additional due diligence information from the Company. In
addition, representatives of 3G Capital indicated that it would
deliver an updated proposal to the Company within a few weeks
after receiving the requested additional information. Following
the April 27, 2010 discussion, Mr. Wells provided
representatives of 3G Capital with the information requested by
3G Capital.
On May 11, 2010, the Company received a revised proposal
from 3G Capital to acquire all of the outstanding shares of
Company Common Stock for $25.00 per share in cash (the
May
11
th
Proposal
) subject to results of its due diligence
investigation. The May 11th Proposal indicated that the $25.00
per share offer price represented a value of the Company equal
to 9.4x its trailing twelve month EBITDA as of March 31,
2010. In the May 11th Proposal, 3G Capital stated its commitment
to contribute all of the equity capital required to finance the
transaction and indicated that JP Morgan and Barclays Capital
had committed to provide all of the debt financing required to
consummate the transaction. 3G Capital also indicated that it
was working on firm commitment papers with those lenders. In the
May 11th Proposal, 3G Capital requested further meetings with
the Company to complete its due diligence review as soon as
possible and indicated that it would be able to finalize its
confirmatory due diligence and financing commitments within two
to three weeks. Finally, 3G Capital indicated in the May 11th
Proposal that it expected to enter into exclusive negotiations
with the Company for a period of 30 days following the
start of its due diligence. The Company did not agree to any
exclusivity arrangement with 3G Capital and the discussions and
negotiations continued on a non-exclusive basis throughout the
period until the signing of the merger agreement. On
May 12, 2010, representatives of Morgan Stanley contacted
representatives of Lazard by telephone to convey that the
Company Board would review the May 11th Proposal in detail at
its regularly scheduled Company Board meeting on June 3,
2010.
From mid-April 2010 until early June 2010, Mr. Chidsey and
Mr. Wells had several in-person and telephonic meetings
with representatives of Morgan Stanley in connection with Morgan
Stanleys preparation of preliminary financial analyses
relating to the Company. The Company also interviewed several
national law firms specializing in public company mergers and
acquisitions to provide additional assistance to the Company
Board and the Company in connection with its evaluation of 3G
Capitals interest in a potential transaction with the
Company.
On May 20, 2010, the Company Board held a special meeting,
at which certain members of the Companys senior management
were present. During the meeting, Mr. Chidsey updated the
Company Board on the status of the Companys activities in
response to the acquisition proposal received from 3G Capital
and reviewed the terms and conditions of the May 11th Proposal.
Mr. Chidsey informed the Company Board that
(i) representatives of Morgan Stanley would attend the
regularly scheduled Company Board meeting on June 3, 2010
to review their preliminary financial analyses relating to of
the Company in detail and (ii) representatives of an
outside special legal counsel (
Outside Special
Counsel
) would attend the June
3
rd
Company Board meeting to discuss the fiduciary duties of the
directors in general and specifically in connection with their
consideration of 3G Capitals interest in a potential
transaction. The Company Board determined to defer further
consideration of the May 11th Proposal until it had received the
preliminary financial analyses from Morgan Stanley and further
discussed with management and the Companys advisors
potential responses to the May 11th Proposal. The Company Board
instructed representatives of Morgan Stanley to advise 3G
Capital that the Company would respond to the May 11th Proposal
following the Company Board meeting on June 3, 2010.
16
On June 3, 2010, the Company Board held a regularly
scheduled meeting, at which certain members of the
Companys senior management were present and, for portions
of the meeting, representatives of Morgan Stanley and Outside
Special Counsel were present. During this meeting, the
Companys management provided the Company Board with a
forecast of the fourth quarter 2010 financial results and the
proposed annual operating plan for fiscal year 2011. During the
review of the fourth quarter forecasted financial results and
the forecasted fiscal 2010 results generally, the Companys
management indicated that the Companys results were
adversely impacted by a generally weak consumer environment,
including continued high unemployment, and commodity price
increases, which have contributed to an erosion of margins as
well as uncertainties created by fluctuations in currency
exchange rates. Mr. Chidsey then reviewed the proposed
annual operating plan for fiscal year 2011. See
Item 8. Additional Information Certain
Company Projections.
Mr. Chidsey also reviewed
the macroeconomic and business challenges facing the Company,
including global economic uncertainty, high unemployment,
potential as well as current commodity price increases,
unpredictable currency exchange rates, competitive pressures and
the negative impact of refranchisings on sales and EBITDA.
Mr. Chidsey then reviewed the proposed capital expenditure
plan for fiscal year 2011, including the Companys
re-imaging program and new restaurant development.
Mr. Wells then discussed the need to refinance the
Companys existing credit facility before the end of
September 2010 since the term loan under that facility would
become a current liability in the fourth quarter of calendar
2010 and the revolver was scheduled to mature in June 2011.
Mr. Chidsey and Mr. Wells then reviewed with the
Company Board the Companys five year plan, including key
strategic imperatives, the key assumptions underlying the plan
and various growth scenarios. Representatives of Outside Special
Counsel reviewed the legal duties of the directors generally and
specifically in connection with a proposed acquisition
transaction. Representatives of Morgan Stanley presented and
reviewed with the Company Board their preliminary financial
analyses of the Company. Representatives of Morgan Stanley
discussed with the Company Board the terms of the May 11th
Proposal and other potential strategic alternatives.
Representatives of Morgan Stanley also reviewed certain
background information relating to 3G Capital, including its
involvement in other transactions. The Board, along with
representatives of Morgan Stanley, Outside Special Counsel and
members of senior management, discussed the terms of the May
11th Proposal in light of the preliminary valuation analyses of
the Company performed by Morgan Stanley and the state of the
financing markets. At the conclusion of these discussions, the
Company Board instructed representatives of Morgan Stanley to
inform Lazard that if 3G Capital would confirm the $25.00 per
share price in its May 11th Proposal, then the Company Board
would permit the Companys management to meet with 3G
Capital and its representatives and provide additional due
diligence materials to allow 3G Capital to further improve its
proposal, including to potentially decrease uncertainty in its
offer and potentially improve its offer price.
Following the Company Board meeting on June 3, 2010, a
representative of Morgan Stanley contacted a representative of
Lazard to inform Lazard that the Company Board authorized the
Company to have a due diligence meeting with 3G Capital and its
debt financing sources if 3G Capital confirmed that there had
been no change to the $25.00 per share price contained in the
May 11th Proposal and a representative of Lazard stated that 3G
had not changed its price from the May 11th Proposal.
On June 14, 2010, Mr. Chidsey, Mr. Wells and Anne
Chwat, General Counsel of the Company, met with representatives
of 3G Capital, its debt financing sources and another private
equity firm considering participating in the transaction. The
Companys and 3G Capitals financial and legal
advisors also attended the meeting. During this meeting,
Mr. Chidsey and Mr. Wells gave a detailed presentation
regarding the Companys business and prospects for the
remaining portion of fiscal year 2010 as well as the budget for
fiscal year 2011 and the issues and opportunities for fiscal
year 2012 and beyond.
On June 16, 2010, representatives of Lazard contacted
representatives of Morgan Stanley to express 3G Capitals
continued interest in pursuing a transaction and indicated that
3G Capital would respond to the Company no later than
July 1, 2010 with a proposal that included fully committed
financing.
17
During the last two weeks of June 2010, representatives of
Outside Special Counsel and Holland & Knight had a few
discussions with representatives of Kirkland to confirm that the
new proposal to be delivered by 3G Capital would also address
other significant deal provisions and conditions.
On June 25, 2010, representatives of Lazard contacted
representatives of Morgan Stanley to provide an update on 3G
Capitals discussions with the lenders that would be
providing the debt financing for the proposed transaction. The
representatives of Lazard indicated that the lenders remained
willing to fully commit the debt financing, but that the credit
markets had tightened and worsened significantly since the May
11th Proposal and such adjustment in market conditions had
resulted in reduced availability of leverage and significantly
higher financing costs. The representatives of Lazard indicated
that due to the less favorable market conditions and certain
financial information provided by the Company during the
June 14, 2010 meeting, 3G Capital expected to propose an
offer price to acquire the Company that was lower than the price
in the May 11th Proposal.
On June 29, 2010, the Company received a proposal from 3G
Capital to acquire all of the outstanding shares of Company
Common Stock for $23.00 in cash per share (the
June
29
th
Proposal
). The key elements of the June 29th
Proposal included, among other things:
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draft commitment letters from debt financing sources (JP Morgan
and Barclays Capital) for the entire debt financing that would
be necessary to consummate the transaction;
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a draft equity commitment letter from 3G Capital to fund the
entire equity capital of the Purchaser (approximately
$1.5 billion) needed to consummate the transaction;
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an indication that 3G Capital had completed substantially all of
its work and that it needed two additional weeks to complete
confirmatory due diligence and negotiate a definitive merger
agreement;
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a summary of certain key provisions of the merger agreement
pursuant to which 3G Capital would be willing to enter into the
transaction, including a one-step merger structure, a
30-day
go-shop period during which the Company would be
permitted to solicit alternative transaction proposals and if a
superior offer were made and accepted during this period, the
Company would only be obligated to pay a reduced termination fee
to 3G Capital of $75 million (compared to $100 million
after the go shop period), and a reverse termination
fee of $150 million;
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an expectation that, at the time the Company Board considered to
be most appropriate, certain members of senior management
(including Mr. Chidsey and Mr. Wells) would agree to
continue their association with the Company during a
post-closing transition period, although management retention
would not be a condition to closing the transaction and none of
the members of senior management would be rolling-over any of
their equity interests in the transaction; and
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a statement that the proposal was a non-binding indication of
interest and the offer remained subject to negotiation and
execution of definitive agreements and the satisfactory
completion of confirmatory due diligence.
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In addition, the June 29th Proposal included a request that the
Company grant 3G Capital a
30-day
period of exclusivity. The Company did not grant 3G
Capitals request for exclusivity and the parties continued
discussions on a non-exclusive basis.
On June 30, 2010, representatives of Outside Special
Counsel and representatives of Kirkland held a teleconference to
discuss the proposed terms of the merger agreement included with
the June
29
th
Proposal letter.
On July 1, 2010, the Company Board held a special meeting,
at which certain members of the Companys senior management
were present and, for portions of the meeting, representatives
of Morgan Stanley, Holland & Knight and Outside
Special Counsel were present. Representatives of Morgan Stanley
and Outside Special Counsel presented the Company Board with a
detailed summary of the June 29th Proposal. Representatives of
Morgan Stanley then reviewed with the Company Board the
Companys recent share price performance relative to other
participants and competitors in its industry over a range of
historical short-term
18
and long-term periods, as well as a description of the current
debt financing market conditions and changes in the market since
the May 11th Proposal and the Company Board meeting on
June 3, 2010. The Company Board, in consultation with
representatives of Morgan Stanley, noted that although the
leveraged loan markets had weakened considerably during these
periods, the market had recently showed some improvement.
Finally, representatives of Morgan Stanley presented their
preliminary valuation analyses of the Company. At the conclusion
of the meeting and following an extensive discussion of the June
29th Proposal, the Company Board determined that pursuing a
potential acquisition by 3G Capital on the terms of the June
29th Proposal was not in the best interest of the Company and
its stockholders at that time. The Company Board instructed
representatives of Morgan Stanley to inform Lazard that the
Company Board was not willing to pursue a transaction on the
basis of the June 29th Proposal at that time. Following the
meeting, representatives of Morgan Stanley contacted a
representative of Lazard to convey the Company Boards
position.
On July 26, 2010, the Company Board held a special meeting,
at which certain members of the Companys senior
management, and representatives of Morgan Stanley,
Holland & Knight and Outside Special Counsel were
present. Mr. Chidsey provided the Company Board with an
update of the Companys financial results and forecast
since the July 1, 2010 Company Board meeting.
Representatives of Morgan Stanley informed the Company Board of
the discussions between Morgan Stanley and Lazard on
July 1, 2010 following the Company Board meeting.
Representatives of Morgan Stanley further indicated that neither
Lazard nor 3G Capital had contacted the Company or Morgan
Stanley since the July 1, 2010 call between representatives
of Morgan Stanley and Lazard. The Company Board and its advisors
discussed the June 29th Proposal, the Companys stand-alone
prospects and whether any further action should be taken with
respect to the June 29th Proposal. After discussion, the Company
Board determined not to initiate any further discussions with 3G
Capital at that time.
On July 27, 2010, Mr. Behring contacted a member of
the Company Board to discuss 3G Capitals interest in the
transaction and the amount of work that had been done to support
the June
29
th
Proposal. The director suggested that it might be productive for
3G Capital to discuss these topics directly with
Mr. Chidsey. Thereafter, a representative of Lazard
contacted a representative of Morgan Stanley to schedule a
meeting among them, Mr. Behring and Mr. Chidsey to
take place within a few days.
On July 29, 2010, Mr. Chidsey and a representative of
Morgan Stanley met with Mr. Behring and a representative of
Lazard. At the meeting, Mr. Behring indicated that 3G
Capital wished to continue discussions with the Company in a
collaborative process regarding the appropriate price at which a
transaction may be completed. Mr. Chidsey and the
representative of Morgan Stanley indicated at the meeting that
they could not commit to any additional discussions without
further guidance from the Board.
On July 30, 2010, a representative of Morgan Stanley
informed a representative of Lazard that the Company Board
planned to meet the following week to discuss the July 29,
2010 meeting.
On August 3, 2010, the Company Board held a special
meeting, at which certain members of the Companys senior
management and representatives of Morgan Stanley,
Holland & Knight and Outside Special Counsel were
present. Mr. Chidsey and representatives of Morgan Stanley
updated the Company Board on the discussions that had occurred
with 3G Capital and Lazard since July 26, 2010, including
the discussion during the in-person meeting on July 29,
2010. Representatives of Morgan Stanley and Outside Special
Counsel reminded the Company Board that the non-price terms of
the June 29th Proposal had not yet been discussed between the
parties. Following discussion, the Company Board determined that
its legal advisors should engage in discussions and negotiations
with Kirkland regarding the non-price terms of the potential
transaction, particularly to decrease the conditionality of the
proposed terms. At the conclusion of the meeting, the Company
Board instructed representatives of Morgan Stanley to inform
representatives of Lazard that the Company would provide 3G
Capital with updated due diligence materials and organize a
meeting between Outside Special Counsel and Kirkland to
negotiate certain material non-price terms and conditions of the
June 29th Proposal. Following the meeting, representatives of
Morgan Stanley contacted a representative of Lazard to convey
the Company Boards position.
Later in the day on August 3, 2010, Outside Special Counsel
distributed to Kirkland a revised version of the summary terms
of the merger agreement that was included in the June 29th
Proposal. The revised terms
19
deleted all conditions to the consummation of the transaction
related to 3G Capitals debt financing and required that 3G
Capital enter into definitive financing for the transaction
prior to signing the merger agreement. In addition, the revised
terms proposed that 3G Capital would complete the transaction
through a tender offer directly to the Companys
stockholders and a back-end merger, which representatives of
Outside Special Counsel explained would be favorable to the
Company because it could be completed more quickly and therefore
with greater certainty of closing. In addition, the revised
terms proposed expansions to the go shop rights of
the Company to solicit superior proposals, including a lower
termination fee and more limited matching and information rights.
Between August 3, 2010 and August 16, 2010,
representatives of Outside Special Counsel, Holland &
Knight and Kirkland held meetings and discussions regarding the
summary terms of a merger agreement. During this period, the
parties also discussed the terms under which 3G Capital would
intend for certain members of the management of the Company to
continue to be employed following the closing of the transaction
and other management transition and retention matters.
In addition, during early August, 3G Capital and its
representatives were provided with information in response to
due diligence requests. Commencing on August 10, 2010, 3G
Capital and its representatives were advised that an online data
room that contained various legal and financial due diligence
materials was available for representatives of 3G Capital and
its advisors to access. Throughout the process leading to the
execution of the merger agreement the data room was updated with
new information, including specific information requested by 3G
Capital and its advisors.
Between August 3, 2010 and August 13, 2010,
representatives of Morgan Stanley and Lazard had a number of
conversations to discuss the process that would be followed in
the next few weeks to allow 3G Capital to make a definitive
offer. Representatives of Lazard and Morgan Stanley discussed
the mutual desire to finalize the due diligence and work through
any other key issues in the proposed transaction through a
negotiation of the merger agreement terms.
On August 12, 2010, representatives of Morgan Stanley,
Outside Special Counsel and Holland & Knight, on behalf of
the Company, and representatives of Lazard and Kirkland, on
behalf of 3G Capital, held a call to review the status of the
discussions and open issues in advance of a meeting of the
Company Board. Later that day, a subset of this group met to
recap their mutual understanding on the remaining open items
regarding the proposed terms of the merger agreement based on
the discussions that had taken place over the course of the
prior days of negotiations. In particular, the parties agreed
that the merger agreement would initially contemplate a tender
offer followed by a back-end merger with a minimum tender
condition of approximately 78-80%, but that the merger agreement
would provide that the Company would simultaneously proceed with
filing a proxy statement for a single-step merger to prevent
delay to the transaction if a majority but less than a
supermajority of the Companys stockholders tendered their
shares in the tender offer.
On August 13, 2010, the Company Board held a special
meeting, at which certain members of the Companys senior
management and representatives of Morgan Stanley,
Holland & Knight and Outside Special Counsel were
present. Mr. Chidsey updated the Company Board on the
Companys fourth quarter and full year 2010 results as well
as results for July 2010 and indicated that he would be
presenting an updated forecast for the full year and the
five-year plan at the upcoming Company Board meeting on
August 19, 2010. Representatives of Morgan Stanley updated
the Company Board on their discussions with representatives of
Lazard since August 3, 2010 regarding the proposed process
and timeline to get to a definitive agreement for a proposed
transaction. In that regard, it was noted that progress on the
deal had been made (other than on the price of the transaction,
on which the parties had agreed to delay further negotiation).
Following discussion, the Company Board determined that Company
management and its advisors should continue to furnish due
diligence materials to 3G Capital and its advisors and deliver a
draft merger agreement to 3G Capital and Kirkland.
Representatives of Morgan Stanley informed the Company Board
that Mr. Behring had requested a meeting with
Mr. Chidsey to review the transition and retention issues
with respect to members of the Companys management team.
Following a discussion, the Company Board determined that
Mr. Chidsey should meet with Mr. Behring to discuss
the management retention and transition issues, but that
Mr. Chidsey should not discuss any of the terms of his own
retention arrangements until later in the process.
20
On August 16, 2010, Mr. Chidsey met with
Mr. Behring at 3G Capitals offices to discuss the
Companys senior management organizational structure and
management retention and transition issues generally, although
no specific individual arrangements were discussed at this
meeting.
Also on August 16, 2010, Outside Special Counsel
distributed to Kirkland an initial draft of the merger agreement
that reflected the most recent discussions between the parties,
as well as the Companys proposal to resolve certain of the
remaining open issues.
On August 18, 2010, the Compensation Committee of the
Company Board met to discuss proposed changes to the severance
arrangements for Mr. Chidsey, members of the Global
Executive Team, other Senior Vice Presidents and Vice
Presidents. The Compensation Committee received advice from
Mercer, its compensation consultant, and CAP Partners, the
Companys compensation consultant, that the level of
severance in connection with a change in control of the Company
provided at the time of the Companys initial public
offering was currently below market as compared to industry
peers. The Compensation Committee then discussed the potential
changes that should be made to such provisions in order to bring
them more in line with industry peers, including for
Mr. Chidsey adding a pro-rata bonus in addition to his
current severance benefit and increasing the benefits for other
members of the Global Executive Team, other Senior Vice
Presidents and Vice Presidents (collectively, the
Company Officers
). In addition, the
Compensation Committee discussed the Companys regular,
annual grant of long-term incentive compensation to employees
and officers of the Company under the Companys Equity
Incentive Plan, including the fact that such grant was a
standard component of compensation for certain Company employees
and officers as well as the pros and cons of making such grant
in light of a possible transaction with 3G Capital. Following
such discussion, the Compensation Committee approved such grant
of long-term incentive compensation under the Companys
Equity Incentive Plan, such grant to be made and priced as of
August 25, 2010, generally, in the form of 50% stock
options and 50% restricted stock awards.
On August 19, 2010, the Company Board held a regular
meeting, at which certain members of the Companys senior
management were present and, for portions of the meeting,
representatives of Morgan Stanley, Holland & Knight
and Outside Special Counsel were present. Mr. Chidsey
updated the Company Board on the Companys results for the
2010 fiscal year. Mr. Chidsey then provided an update on
the proposed transaction with 3G Capital and indicated that the
Company was still awaiting an updated proposal, with a revised
offer price, from 3G Capital. The Companys senior
management team then reviewed with the Company Board the
refinancing options that existed with respect to the
Companys term loan facility, including the amendment and
extension of the Companys existing credit facility, and
reported to the Company Board that the Company would need to
capitalize on any favorable conditions in the debt markets to
effect the refinancing if a transaction could not be finalized
with 3G Capital. Representatives of Outside Special Counsel then
gave a presentation regarding the Boards fiduciary duties,
the current transaction terms proposed by 3G Capital and
compensation and equity-related matters. The Company Board also
discussed the terms of the draft merger agreement, including the
go-shop provision which allows for a formal
marketing process after the signing of a definitive merger
agreement to explore whether any third parties would be
interested in acquiring the Company on more favorable terms. The
Company Board also reviewed the current transaction terms and
conditions proposed by 3G Capital, including a two-step tender
offer structure with a fall back one-step merger, the status of
the debt financing, the proposed termination fees (including the
amounts and circumstances in which such fees would be payable),
the reverse termination fees payable by 3G Capital and other
matters. The Company Board then discussed the principal
outstanding open issues between the parties, the Companys
position with respect to these matters and the potential risks
to the Company. Representatives of the Sponsors indicated that
they would be prepared to enter into tender agreements, with
customary fiduciary out provisions, to support a transaction
with 3G Capital that was approved by the Company Board. The
Company Board then reviewed the change in control severance
enhancements for the officers of the Company that were discussed
with the Compensation Committee on August 18, 2010 at a
meeting of the Compensation Committee. See the paragraph
immediately above. After carefully considering the implications
of the equity grant in light of the potential, but not definite,
transaction with 3G Capital and the impact of deviating from the
Companys standard practice with respect to such grants,
the Company Board ratified the fiscal year 2011 annual equity
grant previously approved by the Compensation Committee. In
addition, the
21
Company Board approved management moving forward with the
refinancing in the event the transaction with 3G Capital did not
occur, in order to take advantage of a window of opportunity in
the credit markets.
Also at the August 19, 2010 meeting, representatives of
Morgan Stanley summarized for the Company Board the recent
developments with respect to the 3G Capital proposal, including
the expectation that 3G Capital seek to put in place fully
negotiated financing agreements before signing. Representatives
of Morgan Stanley discussed the recent share price performance
of the Company and its peers and again reviewed Morgan
Stanleys preliminary financial analyses.
In order to efficiently manage the process of reviewing the new
proposal that was expected from 3G Capital and any alternatives
thereto, the Company Board authorized the Executive Committee of
the Company Board to provide advice and guidance to the
Companys management and advisors in reviewing the basic
financial terms of any proposal received by 3G Capital but that
no definitive steps relating to such proposal would be
determined without the final approval of the entire Company
Board. The Executive Committee of the Company Board is comprised
of Richard Boyce, John W. Chidsey, Ronald M. Dykes, Sanjeev K.
Mehra and Stephen G. Pagliuca.
Following the presentation from Morgan Stanley, the
representatives of Morgan Stanley, Outside Special Counsel and
Holland & Knight were excused from the meeting, and
the Company Board discussed the fee proposals submitted by
Morgan Stanley relating to its role as financial advisor in
connection with a potential acquisition transaction and the
potential role of Goldman Sachs as the Companys
co-financial advisor with Morgan Stanley. Mr. Mehra was
then excused from the meeting. Representatives of Outside
Special Counsel were invited back into the meeting, and together
with the Company Board, reviewed the history of the Goldman
Sachs Funds ownership interest in the Company, its board
rights under the existing Shareholders Agreement, any
potential (or perceived) conflict of interest in Goldman Sachs
acting as the Companys co-financial advisor on the
transaction, the depth of knowledge that Goldman Sachs had of
the Company and the industry including through its role as an
underwriter in various equity offerings and noted the benefit of
receiving a second financial analysis of the transaction and
opinion as to the fairness of the price that would be offered in
the transaction. The Company Board noted that the financial
advisor fees would be split between Morgan Stanley and Goldman
Sachs. The Company Board also noted that the advice, analysis
and fairness opinion provided by Goldman Sachs would be
independent of any analysis prepared by Morgan Stanley and that
Goldman Sachs financial advisory team would be separate
from the persons affiliated with the Goldman Sachs Funds.
Following such discussion, the Outside Special Counsel
representatives were excused from the meeting and the Company
Board (excluding Mr. Mehra) approved the engagement of
Goldman Sachs as co-financial advisor in connection with the
proposed transaction and the advisory fee to be paid to both
Morgan Stanley and Goldman Sachs. The Company Board also
discussed formally retaining legal counsel to provide advice and
assistance in connection with the proposed transaction and
instructed Ms. Chwat to retain such legal counsel to
represent the Company.
Finally, Mr. Wells provided the Company Board with a
summary of the financial results for fiscal year 2010 and the
fiscal year 2011 plan, including the strategic initiatives
regarding refranchising of Company restaurants. Mr. Wells
reviewed the assumptions in the forecasted plan, including
comparable sales and traffic, commodity prices and currency
impact. Mr. Wells advised the Company Board that, because
the Companys 2011 plan and five-year plans contained many
risks and uncertainties, including macroeconomic factors outside
of the Companys control such as those regarding currency,
commodities, unemployment rates, and general economic
conditions, it was very difficult to forecast the Companys
potential results. See
Item 8. Additional
Information - Certain Company Projections
below.
Later in the day on August 19, 2010, representatives of
Morgan Stanley and Lazard had a detailed conversation regarding
the status of the potential transaction, the issues discussed at
the Company Board meeting earlier that day, and the process to
move forward. Representatives of Morgan Stanley indicated during
this discussion that the Company Board was reviewing the
refinancing alternatives relating to the Companys existing
credit facility and that the Company needed to know whether or
not there would be a mutually agreeable transaction by
August 30, 2010. Representatives of Lazard indicated that
3G Capital hoped to
22
conclude the discussions by August 30, 2010 and that it was
in discussions with its banks to provide detailed debt
commitment letters. They further discussed the status and
remaining items needed to complete the legal and financial due
diligence.
On August 20, 2010, Ms. Chwat contacted Skadden, Arps,
Slate, Meagher & Flom LLP (
Skadden
Arps
) to engage the firm as legal counsel to provide
advice and assistance in connection with the proposed
transaction with 3G Capital. Thereafter, Skadden Arps served as
special transaction counsel to the Company. From August 22,
2010 through August 25, 2010, representatives of Skadden
Arps discussed certain outstanding open issues in the merger
agreement with representatives of Kirkland, including
transaction structure, certainty of financing, conditions to the
closing, cooperation by the Company with 3G Capitals debt
financing efforts, obligations of 3G Capital to use bridge
financing, specific performance rights, the go-shop
period, termination fees and management retention and transition
matters.
On August 22, 2010, representatives of Kirkland and
representatives of Skadden Arps held a teleconference to discuss
the status of the merger agreement and management retention
arrangements and the open items on each. Following the call,
Kirkland delivered to Skadden Arps a proposal setting forth 3G
Capitals expectations regarding the treatment of employee
equity in the merger, the treatment of existing severance
arrangements for Company Officers and transition arrangements
with the Transition Executives and Mr. Smith. The proposed
terms included a cash out of all vested equity and a cash out
and placement in trust of the proceeds with respect to all
unvested equity for all employees, including management, which
would then be released over the two year period following the
completion of the merger. The proposal did not contemplate the
issuance of any new equity for management or other employees
post-closing, including pursuant to the rollover of existing
Company equity awards. The proposal generally indicated 3G
Capitals acceptance of the severance terms discussed by
the Compensation Committee at the August 18, 2010 meeting
for members of the Global Executive Team and other Senior Vice
Presidents. The proposal further contemplated transition
agreements with Messrs. Chidsey, Wells and Smith and
Ms. Chwat, pursuant to which the executives would perform
transition services for a period of up to one year or, in the
case of Mr. Chidsey, at least two years. Pursuant to the
proposal, Mr. Chidsey would serve as Co-Chairman during the
transition period, would no longer serve as Chief Executive
Officer of the Company upon the completion of the merger, would
receive current salary and bonus levels during the transition
period, would agree to the placement in trust of his unvested
equity proceeds and severance entitlements at closing and would
receive a payment of 1.5 times Mr. Chidseys equity
proceeds placed in trust. With respect to Messrs. Wells and
Smith and Ms. Chwat, the proposal provided that the
executives would receive current salary and bonus levels during
the transition period and would agree to the placement in trust
of the executives equity amounts and severance
entitlements at closing. Discussions between the Company and 3G
Capital and their respective legal advisors regarding treatment
of employee equity and severance arrangements and the retention
and transition arrangements for the Transition Executives and
Mr. Smith continued until the signing of the merger
agreement.
On August 25, 2010, Kirkland distributed a revised draft of
the merger agreement for the proposed transaction. From
August 25, 2010 through August 29, 2010, the
Companys senior management and representatives of Skadden
Arps, Holland & Knight and Morgan Stanley held
numerous meetings and conference calls with representatives of
3G Capital, Lazard and Kirkland to discuss the open issues in
the merger agreement and the Companys position with
respect to such issues, including the obligations of the
Purchaser to use the bridge financing in lieu of placing the
high-yield notes, the timing of the tender offer (and extensions
thereto) and the filing and mailing of the proxy statement, the
conditions to the tender offer and the merger, including with
respect to solvency matters and financial performance criteria
of the Company, the termination fees (including the amounts and
the circumstances in which such fees would become payable) and
the management retention and transition matters.
On August 26, 2010, Mr. Chidsey met with
Mr. Behring to discuss (i) the treatment of employee
equity in the transaction, including the Companys standard
equity grant of August 25, 2010 of approximately
2.2 million shares, (ii) the senior management team
and retention issues, and (iii) the transition arrangements
for the Transition Executives and Mr. Smith.
23
On August 27, 2010, representatives of 3G Capital, Lazard,
Kirkland, the Company, Morgan Stanley, Skadden Arps and Holland
& Knight met by teleconference to negotiate certain key
terms of the merger agreement, including the terms of the
Companys go shop period and the closing
conditions to the Offer and the Merger. In particular, the
Company objected to the presence of a closing condition
providing for the Company to have a minimum EBITDA of
$100 million during the first fiscal quarter of fiscal 2011.
On August 28, 2010, Skadden Arps delivered a revised
proposal to Kirkland reflecting managements position
regarding management retention and transition issues. The
revised proposal, among other things, provided (i) that all
Company equity awards, whether or not vested, would be cashed
out in the merger, except that an amount equal to sixty percent
(60%) of the proceeds (representing an after-tax amount) from
the Companys August Equity Grants to the Company Officers
(excluding Peter Smith), would be deposited in a trust, escrow
or similar account for the benefit of such employees for
subsequent release; (ii) for the payment at closing of pro
rata bonuses in respect of the 2011 fiscal year to all
bonus-eligible employees of the Company; (iii) for
amendments to the severance provisions of Company Officers
consistent with changes discussed at the August 18, 2010
compensation committee meeting; (iv) transition bonuses for
the Transition Executives; and (v) for transition services
to be performed by Messrs. Chidsey and Wells and
Ms. Chwat for six months following completion of the
Merger, including a part-time consulting arrangement for
Mr. Chidsey for an additional six-month period.
On August 29, 2010, Skadden Arps distributed a revised
draft of the Merger Agreement relating to the proposed
transaction and a draft of the Stockholder Tender Agreements,
whereby the Sponsors would, subject to customary exceptions,
agree to tender their shares of Company Common Stock into the
proposed tender offer. From this time until early in the morning
on September 2, 2010, representatives of the Company and 3G
Capital and their respective legal and financial advisors
engaged in extensive discussions and negotiations regarding the
terms of the Merger Agreement, the debt and equity commitment
letters and the management retention and transition matters. In
particular, the parties discussed the timing of the tender offer
and mailing of the proxy statement, the terms of the go
shop period during which the Company could solicit
interest in alternative transactions, the obligation of the
Company to cooperate in the financing efforts of Parent and the
closing conditions. During these negotiations, 3G Capital agreed
to permit a 40 day go shop period, lower the
termination fee payable in connection with the termination of
the merger agreement to accept a superior proposal of
$50 million, and agreed to increase the termination fee
payable by 3G Capital in connection with certain events of
termination of the merger agreement where 3G Capital has failed
to close the Offer or the Merger to $175 million. 3G
Capital also agreed to eliminate its minimum EBITDA condition if
the Company would agree that 3G would not have to draw on its
bridge commitment under its debt financing commitment letters to
complete the Offer prior to November 18, 2010 unless it was
commercially reasonable to do so.
On August 31, 2010, a representative of Lazard contacted a
representative of Morgan Stanley and stated that 3G Capital
proposed to acquire all of the outstanding shares of Company
Common Stock at a price of $24.00 in cash per share. The
representative of Lazard indicated that this was 3G
Capitals best and final offer.
On August 31, 2010, the Compensation Committee held a
special meeting, with representatives of Skadden Arps, Mercer
and CAP Partners, managements compensation consultant, in
attendance, to consider certain matters in connection with the
proposed transaction. At this meeting, the Compensation
Committee determined that the treatment of Company equity awards
provided in the Merger Agreement was consistent with the terms
of the Companys equity incentive plans and further
approved, and recommended that the Company Board approve, the
cancellation of outstanding equity awards at the effective time
of the Merger in exchange for the consideration to be paid to
holders of such equity awards in accordance with the terms of
the Merger Agreement, as well as the placement in trust of the
after tax amount of the proceeds with respect to the August
Equity Grants made to Vice Presidents of the Company and above.
The Compensation Committee considered and approved, and
recommended that the Company Board approve, the employment
agreement amendments for Messrs. Chidsey, Wells and Smith
and Ms. Chwat. The Compensation Committee also authorized
amendments to the employment agreements for members of the
Global Executive Team, other Senior Vice Presidents and Vice
Presidents which modified the severance payments for such
executives to be effective upon consummation of the Merger. The
Compensation Committee also authorized and approved the
24
payment, upon effectiveness of the Merger, of pro rata bonuses
for the portion of the Companys 2011 fiscal year occurring
prior to such date at target level, as contemplated by the
Merger Agreement. These transition and retention arrangements
are described in
Item 3. Past Contacts,
Transactions, Negotiations and Agreements
Arrangements with Current Executive Officers and Directors of
the Company.
On August 31, 2010, Kirkland distributed a revised draft of
the equity commitment letter and an initial draft of the limited
guaranty pursuant to which 3G would agree to guarantee the
performance and discharge of the payment of the reverse
termination fee when required to be paid under the merger
agreement. Representatives of Skadden Arps and Kirkland
subsequently discussed the issues regarding the limited guaranty
and equity commitment letter, including the circumstances in
which the Company would be permitted to specifically enforce, as
a third party beneficiary, the obligations of 3G under the
equity commitment letter.
On the evening of August 31, 2010, news articles ran
reporting rumors that the Company was considering a sale of the
Company.
On September 1, 2010, the Company Board held a special
meeting, at which members of the Companys senior
management and representatives of Skadden Arps,
Holland & Knight, Morgan Stanley and Goldman Sachs
were present. Prior to this meeting, the members of the Company
Board were provided with materials related to the proposed
transaction. At the meeting:
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representatives of Skadden Arps reviewed with the Company Board
its fiduciary duties in considering the proposed transaction;
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the Company Board reviewed the developments in the negotiations
with 3G Capital, including the terms of the Merger Agreement and
Stockholder Tender Agreements and the changes that had been
effected to the Merger Agreement since the last Company Board
meeting, the terms of the debt and equity financing commitment
letters and the information that had been received regarding the
sources of funding of 3G with respect to its obligations under
the equity commitment letter and the limited guaranty;
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the Company Board considered the positive and negative factors
and risks in connection with the proposed transaction, as
discussed in the section entitled
Reasons
for Recommendation
below;
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Ms. Chwat reviewed with the Company Board the actions taken
by the Compensation Committee on August 31, 2010 with
respect to retention and transition matters;
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representatives of Morgan Stanley made a financial presentation
and rendered to the Company Board its oral opinion, subsequently
confirmed in writing, that as of September 1, 2010, and
based upon and subject to the limitations, qualifications and
assumptions set forth in the written opinion, the $24.00 per
share to be received by holders of shares of Company Common
Stock pursuant to the Merger Agreement was fair, from a
financial point of view, to such holders as discussed in
Opinion of the Companys Financial
Advisors Morgan Stanley.
Such opinion is
attached hereto as Annex I. Representatives of Morgan
Stanley discussed with the Company Board the possibility of
another private equity buyer or strategic buyer making an offer
for the Company; and
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representatives of Goldman Sachs made a financial presentation
and rendered to the Company Board its oral opinion, which was
subsequently confirmed by delivery of a written opinion, dated
September 2, 2010, to the effect that, as of that date, and
based upon and subject to the factors, assumptions and
limitations described in the opinion, the $24.00 per share of
Company Common Stock in cash to be paid to the holders (other
than Parent and its affiliates) of shares of Company Common
Stock pursuant to the Merger Agreement was fair, from a
financial point of view, to such holders as discussed in the
section entitled
Opinion of the
Companys Financial Advisors Goldman
Sachs.
Such opinion is attached hereto as
Annex II.
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Following an extensive discussion, the Company Board instructed
the Company and its advisors to continue to pursue their due
diligence with respect to the source of the funds for 3G to
ensure that the 3G fund could perform the 3G funds
obligations under the equity commitment letter and the limited
guaranty,
25
including satisfying its obligations to pay the reverse
termination fee. The Company Board determined to adjourn the
meeting until later in the evening on September 1, 2010 to
allow for the due diligence and discussions on this issue to
progress. Following the adjournment of the meeting, the Company
and its advisors contacted 3G Capital and its advisors to
discuss the source of the funds for 3G and to explore potential
methods to provide reasonable assurances that 3G would have the
funds to satisfy its obligations under the equity commitment
letter and the limited guaranty. Skadden Arps and Kirkland then
discussed certain modifications to the equity commitment letter
and limited guaranty to include provisions that would provide
assurances on these matters.
Later in the evening of September 1, 2010, the Company
Board reconvened the special meeting, at which members of the
Companys senior management and representatives of Skadden
Arps, Morgan Stanley, Goldman Sachs and Holland & Knight
were present. The Company Board reviewed discussions with 3G
Capital and its advisors regarding the source of funds of 3G.
The Company Board also discussed the assurances that 3G had
agreed to provide to the Company. Following a detailed
discussion of these matters and following careful consideration
of the proposed Merger Agreement and the Offer and the Merger,
the Company Board unanimously (1) approved and declared
advisable the Merger Agreement, the Offer, the Merger and the
other transactions contemplated by the Merger Agreement
,
and (2) declared that the terms of the Merger Agreement and
the transactions contemplated by the Merger Agreement, including
the Merger, the Offer and the other transactions contemplated by
the Merger Agreement, on the terms and subject to the conditions
set forth therein, are fair to and in the best interests of the
stockholders of the Company. The Company Board unanimously
resolved to recommend that the Companys stockholders
accept the Offer and tender their shares into the Offer and, if
necessary, vote their shares in favor of adoption of the Merger
Agreement to approve the Merger. The Company Board authorized
the appropriate officers of the Company to finalize and execute
the Merger Agreement and related documentation. The Company
Board also ratified the actions taken by the Compensation
Committee on August 31, 2010.
During the course of the late evening of September 1, 2010
and early morning of September 2, 2010, representatives of
Kirkland, Skadden Arps, Holland & Knight and the Company
finalized the merger agreement and the other definitive
transaction agreements.
On September 2, 2010, the parties executed the Merger
Agreement and the appropriate parties executed and delivered the
equity commitment letter, the debt commitment letter and the
stockholder tender agreements and ancillary documents on
September 2, 2010. On September 2, 2010, before the
opening of trading on the NYSE, the Company and 3G Capital
issued a joint press release announcing the execution of the
Merger Agreement.
Beginning on September 3, 2010, the day following the
execution of the Merger Agreement, at the direction of the
Company Board and under the supervision of the Companys
executive officers, representatives of Morgan Stanley began the
process of contacting parties to determine whether they might be
interested in pursuing a transaction that would be superior to
the proposed transaction with 3G Capital. Representatives of
Morgan Stanley and, in one case, together with representatives
of Goldman Sachs, contacted 21 parties, consisting of one
potential strategic buyer and 20 potential financial sponsor
buyers.
As of September 15, 2010, none of the parties contacted
during the go-shop process, on behalf of the Company and at the
direction of the Company Board, had submitted an acquisition
proposal for the Company. The process for the solicitation of
other third party interest is ongoing, although there can be no
assurance that such efforts will result in an alternative
transaction being proposed or in a definitive agreement for such
a transaction being entered into. The Company does not intend to
announce further developments with respect to the solicitation
process until the Company Board has made a decision regarding an
alternative proposal, if any.
Reasons
for Recommendation
In evaluating the Merger Agreement, the Offer, the Merger and
the other transactions contemplated by the Merger Agreement, the
Company Board consulted with the Companys senior
management, outside legal counsel and independent financial
advisors. In recommending that the Companys stockholders
accept the
26
Offer, tender their shares of Company Common Stock to the
Purchaser pursuant to the Offer and, if required by applicable
law, vote their shares of Company Common Stock in favor of
adoption of the Merger Agreement, the Company Board also
considered a number of factors, including the following:
Financial
Terms; Fairness Opinions; Certainty of Value
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Historical market prices, volatility and trading information
with respect to the Company Common Stock, including that the
Offer Price of $24.00 per share in cash:
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Represented a premium of 43.1% over the closing price of the
Company Common Stock on August 30, 2010.
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Represented a premium of 41.6%, 36.7% and 27.0% over the one,
three and six month, respectively, volume-weighted average
closing prices of the Company Common Stock prior to
August 30, 2010.
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Exceeded, by 8.8%, the 52-week high prior to August 30,
2010.
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Opinions of the Companys financial advisors and support of
the transactions:
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Morgan Stanley and Goldman Sachs presented certain financial
analyses and delivered their opinions that as of the date of
their respective opinions and subject to various limitations,
qualifications and assumptions set forth therein, the Offer
Price was fair, from a financial point of view, to the
Companys stockholders, other than with respect to Goldman
Sachs opinion, Parent and its affiliates, as described
under this
Item 4. Opinions of Financial
Advisors
below.
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The Sponsors, highly sophisticated investors and whose
affiliated funds own approximately 31% of the outstanding shares
of Company Common Stock, have three representatives on the
Company Board, all of whom support the transaction.
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The form of consideration to be paid in the transaction is cash,
which provides certainty of value and immediate liquidity to the
Companys stockholders.
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Financial
Condition; Prospects of Company
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The Companys current and historical financial condition,
results of operations, competitive position, strategic options
and prospects, as well as the financial plan and prospects if
the Company were to remain an independent public company, and
the potential impact of those factors on the trading price of
the Company Common Stock (which is not feasible to quantify
numerically).
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The prospective risks to the Company as a stand-alone public
entity, including the risks and uncertainties with respect to
(i) achieving its growth in light of the current and
foreseeable market conditions, including the risks and
uncertainties in the U.S. and global economy generally and
the quick service restaurant industry specifically,
(ii) future commodity prices, (iii) fluctuations in
foreign exchange rates, (iv) potential increased costs
relating to changes in law effecting the health care industry
and (v) the risk factors set forth in the
Companys
Form 10-K
for the fiscal year ended June 30, 2010.
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In particular, the Company Board considered the increasing
challenges to achieving the Companys business plan caused
by having approximately 90% of its restaurants owned by
franchisees (which percentage would have been expected to
increase in the next five years if the Company accelerated the
pace of refranchisings as part of the portfolio management
strategy):
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Given the significant percentage of franchised restaurants, the
Companys operating results (i.e., royalties) are closely
tied to the success of its franchisees, but the franchisees are
independent operators and the Company has limited influence over
their restaurant operations and must rely on franchisees to
implement major initiatives (including the reimaging initiative
and
point-of-sale
upgrade initiative) and marketing and advertising programs to
drive future growth.
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27
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The Companys principal competitors may have greater
influence over their restaurant systems because of their
significantly higher percentage of owned restaurants (as
compared to the Company) which allows such competitors more
control in the implementation of operational initiatives and
business strategies, including marketing and advertising
programs.
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The Company Board considered how closely tied the Companys
comparable sales and average restaurant sales are to the
unemployment and consumer confidence levels and its opinion
that, while some operating improvements were achievable in the
current economic environment, until and unless the economy
experiences significant improvements in unemployment and
consumer confidence, the Company would not be able to
significantly capitalize on the investments and operating
improvements that had been made in the business.
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The Company Boards knowledge of the significant capital
expenditures that are required in order to remodel or rebuild
the Company restaurants and the risks that are associated with
the Companys plan to refranchise approximately half of the
Company restaurant portfolio in the next three to five years to
minimize these capital expenditures and encourage additional
restaurant growth.
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The Company Boards knowledge of the Companys recent
share price performance, specifically that the Companys
recent earnings multiples compared to those of certain
comparable companies did not provide stockholders the full
benefit of the Companys recent operational performance.
|
Strategic
Alternatives
|
|
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|
In consultation with its financial advisors, the Company Board
considered the likelihood of another financial or strategic
buyer being willing to pursue a transaction with the Company.
Although the Company did not actively seek offers from other
potential purchasers, the Company Board believes that the Offer
Price is the highest price reasonably attainable by the
Companys stockholders in an acquisition transaction,
considering the likelihood of potential interested third parties
and strategic opportunities.
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As discussed below, the terms of the Merger Agreement permit the
Company Board to solicit and consider alternative proposals and
to terminate the Merger Agreement and enter into an agreement
with a third party to accept a superior proposal.
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The Company Board also considered the possibility of continuing
as a standalone company or pursuing a leveraged stock repurchase
and perceived risks of those alternatives, the range of
potential benefits to the Companys stockholders of these
alternatives and the timing and execution risk of accomplishing
the goals of such alternatives, as well as the Company
Boards assessment that no alternatives were reasonably
likely to create greater value for the Companys
stockholders, taking into account risks of execution as well as
business, competitive, industry and market risk.
|
Merger
Agreement Terms (Go-Shop Period; Solicitation of Alternative
Proposals)
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The Company has the right to conduct a go shop
process for 40 days after signing the Merger Agreement to
solicit alternative acquisition proposals, if available, or
confirm the advisability of the Offer and the Merger.
|
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|
The Merger Agreement has customary no solicitation and
termination provisions which should not preclude third parties
from making superior proposals:
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After the go-shop period, the Company Board can furnish
information or enter into discussions with respect to a takeover
proposal if it determines in good faith, after consultation with
its outside legal counsel and financial advisor, that such
takeover proposal constitutes or would reasonably be expected to
result in a superior proposal.
|
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If the Company Board determines in good faith after consultation
with its financial advisor and outside legal counsel, that a
takeover proposal constitutes a superior proposal, it can (after
giving the
|
28
|
|
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|
Purchaser a match right) terminate the Merger
Agreement and enter into an agreement with respect to the
superior proposal.
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The Company Board may withdraw or modify its recommendation if
it determines in good faith after consultation with its
financial advisor and outside legal counsel, that the failure to
do so would be inconsistent with its fiduciary duties (whether
or not in response to a takeover proposal).
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If the Company terminates the Merger Agreement in order to
accept a superior proposal, the Company is required to pay a
termination fee of $50 million during the go-shop period or
$95 million after the go-shop period (equal to
approximately 1.5% and 2.8% of the aggregate equity value of the
transaction, respectively); the Company Board believes that such
termination fees are customary and would not deter any
interested third party from making, or inhibit the Company Board
from approving a superior proposal if such were available.
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|
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The Merger Agreement has customary terms and was the product of
extensive arms-length negotiations.
|
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|
The structure of the transaction as a two-step transaction
enables the stockholders to receive the cash price pursuant to
the Offer in a relatively short time frame (and reduce the
uncertainty during the pendency of the transaction), followed by
the cash-out Merger in which stockholders that do not tender in
the Offer will receive the same cash price as is paid in the
Offer. In addition, the structure of the transaction permits the
use of a one-step transaction, under certain circumstances, in
the event the two-step transaction is unable to be effected.
|
|
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|
The Purchaser is obligated to exercise the
Top-Up
to purchase up to an additional number of shares of Company
Common Stock sufficient to cause the Purchaser to own 90% of the
shares of Company Common Stock outstanding after the Offer,
which would permit the Purchaser to close the Merger (as a
short-form merger under Delaware law) more quickly than
alternative structures.
|
|
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|
The availability of statutory appraisal rights under Delaware
law in the cash-out Merger for stockholders who do not tender
their shares in the Offer.
|
Likelihood
of Consummation
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|
Stockholder Tender Agreements:
|
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|
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|
The Sponsors, who currently own approximately 31% of the
outstanding shares of Company Common Stock, entered into the
Stockholder Tender Agreements and agreed to tender their shares
in the Offer.
|
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|
The Stockholder Tender Agreements were a condition to
Parents willingness to enter into the Merger Agreement.
|
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|
The Stockholder Tender Agreements would automatically terminate
upon a termination of the Merger Agreement for any reason
(including as a result of the Company Board accepting a superior
proposal) and do not prevent the Company Board from accepting a
superior proposal.
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|
The likelihood that the Offer and the Merger would be
consummated, including:
|
|
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|
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|
The Purchaser is required, subject to certain exceptions, to
extend the Offer in certain circumstances.
|
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|
The consummation of the Offer is conditioned on 79.1% of the
outstanding shares of Company Common Stock being tendered in the
Offer, with a
back-up
one-step Merger (that only requires the approval of the holders
of a majority of the outstanding shares of Company Common Stock)
in certain circumstances, including in the event the minimum
condition in the Offer is not satisfied.
|
|
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|
The conditions to the Offer are specific and limited, and are
not within the control or discretion of the Purchaser, Parent or
3G and, in the Company Boards judgment, are likely to be
satisfied.
|
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|
The transaction is likely to be completed if a sufficient number
of shares are tendered in the Offer.
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|
There are no significant antitrust or other regulatory
impediments.
|
29
|
|
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|
There are no third party consents that are conditions to the
transaction.
|
|
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|
Although there is a funding condition, the Purchaser has
obtained commitment letters as described below.
|
Financing-Related
Terms
|
|
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|
Debt/Equity Commitment Letters:
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|
The Purchaser received executed debt financing commitment
letters from major commercial banks with significant experience
in similar lending transactions and a strong reputation for
honoring the terms of the commitment letters, which, in the
reasonable judgment of the Company Board, increases the
likelihood of such financing being completed.
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|
Each of Parent and the Purchaser is required to use reasonable
best efforts to seek to enforce its rights under the debt
financing documents in the event of a material breach thereof by
the financing sources thereunder.
|
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|
3G has provided the Equity Commitment Letter to fund the equity
portion of the financing (which represents approximately 37.5%
of the total financing required for the transaction) and has
provided assurances of the sources of its funds.
|
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|
The limited number and nature of the conditions to funding set
forth in the debt and equity financing commitment letters and
the expectation that such conditions will be timely met and the
financing will be provided in a timely manner, and the
obligation of Parent and the Purchaser to use reasonable best
efforts to obtain the debt financing, and if they fail to effect
the closing under certain circumstances, for Parent to pay the
Company a $175 million reverse termination fee.
|
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|
3G has provided the Guaranty in favor of the Company that
guarantees the payment of the reverse termination fee.
|
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|
The Company Board considered the level of effort the Purchaser
and Parent must use under the Merger Agreement to obtain the
proceeds of the financing, including the obligation to
take-down the bridge financing by November 18,
2010 if all conditions to the Offer, other than the financing
proceeds condition, have been satisfied or waived.
|
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|
The Company is entitled to cause the equity to be funded if
(i) all of the conditions to Parents and the
Purchasers obligations to the Offer Closing
and/or
the
Effective Time have been satisfied, (ii) the debt financing
would be funded at the Offer Closing or the Effective Time, as
applicable, if the equity is funded and (iii) the Company
has confirmed that if the equity financing and debt financing
were funded, it would take actions within its control to cause
the Offer Closing
and/or
the
closing of the Merger to occur.
|
The Company Board also considered a number of uncertainties and
risks in its deliberations concerning the Offer, the Merger and
the other transactions contemplated by the Merger Agreement,
including the following:
|
|
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|
|
The Companys current stockholders would not have the
opportunity to participate in any possible growth and profits of
the Company following the completion of the transaction.
|
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|
The risk that the minimum tender condition of 79.1% in the Offer
may not be satisfied and that such minimum tender condition is a
higher threshold than the approval percentage that would be
required if the transaction was structured as a one-step merger
(i.e., a majority of the outstanding shares).
|
|
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|
However, this consideration was viewed in light of the
provisions in the Merger Agreement that provide for the one-step
Merger (with a majority voting requirement) if the minimum
tender condition is not satisfied.
|
30
|
|
|
|
|
The Merger Agreement contemplates the early filing of a proxy
statement so that the one-step Merger structure could be
implemented without significant delay if the minimum tender
condition is not satisfied.
|
|
|
|
|
|
The risk that the proposed transaction might not be completed
and the effect of the resulting public announcement of
termination of the Merger Agreement on:
|
|
|
|
|
|
The market price of the Company Common Stock, which could be
affected by many factors, including (i) the reason for
which the Merger Agreement was terminated and whether such
termination results from factors adversely affecting the
Company, (ii) the possibility that the marketplace would
consider the Company to be an unattractive acquisition candidate
and (iii) the possible sale of shares of Company Common
Stock by short-term investors following the announcement of
termination of the Merger Agreement.
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|
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|
The Companys operating results, particularly in light of
the costs incurred in connection with the transaction, including
the potential requirement to make a termination payment.
|
|
|
|
The ability to attract and retain key personnel.
|
|
|
|
Relationships with franchisees and others that do business with
the Company.
|
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|
The possible disruption to the Companys business that may
result from the announcement of the transaction and the
resulting distraction of the attention of the Companys
management and employees and the impact of the transaction on
the Companys franchisees and others that do business with
the Company.
|
|
|
|
The terms of the Merger Agreement, including (i) the
operational restrictions imposed on the Company between signing
and closing (which may delay or prevent the Company from
undertaking business opportunities that may arise pending the
completion of the transaction), and (ii) the termination
fee, that could become payable by the Company under certain
circumstances, including if the Company terminates the Merger
Agreement to accept a superior proposal, in an amount equal to:
|
|
|
|
|
|
$50 million (or approximately 1.5% of the equity value of
the transaction) if such termination occurs prior to the
expiration of the go-shop period, or
|
|
|
|
$95 million (or approximately 2.8% of the equity value of
the transaction) if such termination occurs after the expiration
of the go-shop period.
|
|
|
|
|
|
The fact that the Company entered into the transaction with
Parent and the Purchaser before seeking offers from other
potential purchasers.
|
|
|
|
|
|
The Company Board believed that initiating a prolonged auction
process could have (i) resulted in the loss of the
Purchasers offer, (ii) negative impacts on the morale
of employees, and (iii) distracted employees and senior
management from implementing the Companys operating plan.
|
|
|
|
The permissive go shop provisions and level of
termination fees of the Merger Agreement would nonetheless
provide an opportunity to seek offers from other potential
purchasers.
|
|
|
|
|
|
The restriction on soliciting competing proposals following the
go-shop period.
|
|
|
|
The possibility that the Purchaser will be unable to obtain the
debt financing from the lenders under the commitment letters,
including as a result of the conditions in the debt commitment
letter.
|
|
|
|
|
|
The fact that the Company is entering into a Merger Agreement
with a newly formed entity and, accordingly, that its remedy in
connection with a breach of the Merger Agreement by the
Purchaser, even a breach that is deliberate or willful, is
limited to $175 million.
|
|
|
|
|
|
The interests of the Companys CEO and certain other
members of senior management in the Offer and the Merger,
including certain severance and retention arrangements as
described under
Item 3. Past Contacts,
Transactions, Negotiations and Agreements.
|
31
|
|
|
|
|
The fact that the cash consideration paid in the transaction
would be taxable to the Companys stockholders and would
provide liquidity to the Sponsors.
|
The Company Board believed that, overall, the potential benefits
of the Offer and the Merger to the Companys stockholders
outweighed the risks and uncertainties of the Offer and the
Merger.
The foregoing discussion of information and factors considered
by the Company Board is not intended to be exhaustive. In light
of the variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Company Board did
not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered in
reaching its determinations and recommendations. Moreover, each
member of the Company Board applied his own personal business
judgment to the process and may have given different weight to
different factors. In arriving at their recommendation, the
members of the Company Board were aware of the interests of
executive officers, directors and affiliates of the Company as
described under
Item 3. Past Contacts,
Transactions, Negotiations and Agreements
above. The
Company Board believed it was appropriate to engage Goldman
Sachs to provide financial advice and to undertake a study to
render a fairness opinion in connection with the Offer and
Merger, notwithstanding that certain of its affiliates have
interests as described under
Item 3. Past
Contacts, Transactions, Negotiations and
Agreements
Arrangements with
Affiliates,
as, among other things, (i) Goldman
Sachs financial advisory team was separate from the
persons affiliated with the Goldman Sachs Funds, which is a
Sponsor, and Mr. Mehra, a member of the Company Board and a
Managing Director of Goldman Sachs, (ii) the Company Board
had also engaged Morgan Stanley to act as a financial advisor
and (iii) Goldman Sachs would split the financial advisor
fee with Morgan Stanley, therefore there would be no incremental
advisor fees as a result of the Company engaging two financial
advisors.
Intent to
Tender.
To the Companys knowledge, after making reasonable
inquiry, all of the Companys executive officers, directors
and affiliates currently intend to tender or cause to be
tendered all shares of Company Common Stock held of record or
beneficially by them pursuant to the Offer (other than shares of
Company Common Stock as to which such holder does not have
discretionary authority and shares of Company Common Stock which
may be retained in order to facilitate estate and tax planning
dispositions) and, if necessary, to vote such shares in favor of
the adoption of the Merger Agreement. Pursuant to the
Stockholder Tender Agreements, stockholders beneficially owning
approximately 31% of the issued and outstanding shares of
Company Common Stock have agreed to tender their shares in the
Offer and, if necessary, to vote such shares in favor of the
adoption of the Merger Agreement. See
Item 3. Past
Contacts, Transactions, Negotiations and
Agreements
Arrangements with
Affiliates
Stockholder Tender
Agreements
above.
Opinion
of the Companys Financial Advisors.
Morgan
Stanley
Morgan Stanley was engaged by the Company to provide it with
financial advisory services in connection with the potential
sale of the Company. At the meeting of the Company Board on
September 1, 2010, Morgan Stanley rendered its oral
opinion, subsequently confirmed in writing, that, as of that
date, based upon and subject to the limitations, qualifications
and assumptions set forth in the written opinion, the $24.00 per
share to be received by holders of shares pursuant to the Merger
Agreement, was fair from a financial point of view to such
holders.
The full text of the written opinion of Morgan Stanley, dated
September 1, 2010, which sets forth among other things,
assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken by Morgan
Stanley in rendering its opinion, is attached as Annex I
hereto. Stockholders are urged to, and should, read the opinion
carefully and in its entirety. Morgan Stanleys opinion is
directed to the Company Board and addresses only the fairness,
from a financial point of view, of the consideration to be
received by the holders of shares pursuant to the Merger
Agreement, as of the date of the opinion. Morgan Stanleys
opinion does not address any other aspect of the transactions
contemplated by the Merger Agreement and does not constitute a
recommendation as
32
to whether any holder of shares should tender such shares in
the Offer, how any such holder should vote at any
stockholders meeting that may be held in connection with
the Merger or whether any such holder should take any other
action with respect to the Offer or the Merger. The summary of
the opinion of Morgan Stanley set forth in this Statement is
qualified in its entirety by reference to the full text of the
opinion.
In connection with rendering its opinion, Morgan Stanley, among
other things:
|
|
|
|
|
Reviewed certain publicly available financial statements and
other business and financial information of the Company;
|
|
|
|
Reviewed certain internal financial and operating data
concerning the Company;
|
|
|
|
Reviewed certain financial projections prepared by the
management of the Company;
|
|
|
|
Discussed the past and current operations and financial
condition and the prospects of the Company with senior
executives of the Company;
|
|
|
|
Reviewed the reported prices and trading activity for the shares;
|
|
|
|
Compared the financial performance of the Company and the price
and trading activity of the shares with that of certain other
comparable publicly-traded companies and their securities;
|
|
|
|
Reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
|
|
|
|
Participated in certain discussions and negotiations among
representatives of the Company, Parent, Purchaser, certain
parties and their respective financial and legal advisors;
|
|
|
|
Reviewed the Merger Agreement, drafts of equity and debt
commitment letters from certain lenders and other parties (the
Commitment Letters
) and certain related
documents; and
|
|
|
|
Performed such other analyses and considered such other factors
as Morgan Stanley deemed appropriate.
|
In rendering its opinion, Morgan Stanley assumed and relied
upon, without independent verification, the accuracy and
completeness of the information that was publicly available or
supplied or otherwise made available to Morgan Stanley by the
Company, which formed a substantial basis for its opinion. With
respect to the financial projections, Morgan Stanley assumed
that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of
the Company of the future financial performance of the Company.
In addition, Morgan Stanley assumed that the Offer and the
Merger will be consummated in accordance with the terms set
forth in the Merger Agreement without any waiver, amendment or
delay of any terms or conditions and that the Parent and
Purchaser will obtain financing in accordance with the terms set
forth in the Commitment Letters. Morgan Stanley assumed that in
connection with the receipt of all the necessary governmental,
regulatory or other approvals and consents required for the
Merger, no delays, limitations, conditions or restrictions would
be imposed that would have a material adverse effect on the
contemplated benefits expected to be derived in the Merger.
Morgan Stanley is not a legal, tax or regulatory advisor. Morgan
Stanley is a financial advisor only and relied upon, without
independent verification, the assessment of Parent, Purchaser
and the Company and their legal, tax or regulatory advisors with
respect to legal, tax or regulatory matters. Morgan Stanley did
not express an opinion with respect to the fairness of the
amount or nature of the compensation to any of the
Companys officers, directors or employees, or any class of
such persons, relative to the consideration to be received by
the holders of shares in the transaction. Morgan Stanley did not
make any independent valuation or appraisal of the assets or
liabilities of the Company, nor was it furnished with any such
appraisals.
Morgan Stanleys opinion was necessarily based on
financial, economic, market and other conditions as in effect
on, and the information made available to it, as of
September 1, 2010. Events occurring after
33
September 1, 2010 may affect Morgan Stanleys
opinion and the assumptions used in preparing it. Morgan Stanley
did not assume any obligation to update, revise or reaffirm its
opinion.
In arriving at its opinion, Morgan Stanley was not authorized to
solicit and did not solicit interest from any party with respect
to the acquisition, business combination or other extraordinary
transaction, involving the Company, nor did Morgan Stanley
negotiate with any of the parties, other than Parent and
Purchaser, which expressed interest to Morgan Stanley in the
possible acquisition of the Company or certain of its
constituent businesses.
Morgan Stanleys opinion was approved by a committee of
Morgan Stanley investment banking and other professionals in
accordance with its customary practice.
The following is a brief summary of the material analyses
performed by Morgan Stanley in connection with its oral opinion
and the preparation of its written opinion letter dated
September 1, 2010. Some of these summaries of financial
analyses include information presented in tabular format. In
order to fully understand the financial analyses used by Morgan
Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete
description of the financial analyses.
Historical Share Price Performance.
Morgan
Stanley reviewed the share price performance and compared
various metrics to the Offer Price.
Morgan Stanley observed that the shares closed at $17.12 on
June 29, 2010 (the day on which the Company received a
written proposal from Parent and Purchaser proposing an
acquisition of the Company at $23.00 per share) and compared
that to the consideration to be received by holders of shares
pursuant to the Merger Agreement of $24.00 per share. Morgan
Stanley noted that the implied premium of the consideration to
be received by holders of shares pursuant to the Merger
Agreement of $24.00 per share when compared with the closing
share price on June 29th was 40.2%.
Morgan Stanley also observed that the shares closed at $16.77 on
August 30, 2010 (two trading days prior to the announcement
of the execution of the Merger Agreement) and compared that to
the consideration to be received by holders of shares pursuant
to the Merger Agreement of $24.00 per share. Morgan Stanley
noted that the implied premium of the consideration to be
received by holders of shares pursuant to the Merger Agreement
of $24.00 per share when compared with the closing share price
on August 30 was 43.1%.
Morgan Stanley also observed that the range of closing share
prices for the twelve months ending August 30, 2010 was
from $16.41 to $22.06.
The following table presents various closing prices for the
shares and the premium implied by the Offer Price when compared
with such closing prices:
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June
|
|
August
|
|
52-Week
|
|
1-Month
|
|
3-Month
|
|
6-Month
|
|
|
29th
|
|
30th
|
|
High(1)
|
|
Average(1)
|
|
Average(1)
|
|
Average(1)
|
|
Closing Share Price
|
|
$
|
17.12
|
|
|
$
|
16.77
|
|
|
$
|
22.06
|
|
|
$
|
16.94
|
|
|
$
|
17.55
|
|
|
$
|
18.90
|
|
Premium Implied by the Offer Price
|
|
|
40.2
|
%
|
|
|
43.1
|
%
|
|
|
8.8
|
%
|
|
|
41.6
|
%
|
|
|
36.7
|
%
|
|
|
27.0
|
%
|
|
|
|
(1)
|
|
As of August 30, 2010, two trading days prior to
announcement of the execution of the Merger Agreement.
|
Securities Research Analysts Future Price
Targets.
Morgan Stanley reviewed the public
market trading price targets for the shares prepared and
published by securities research analysts prior to
August 30, 2010. These targets reflected each
analysts estimate of the future public market trading
price of the shares. The range of equity analyst price targets
for the Company was $18.00 per share to $24.00 per share. Morgan
Stanley discounted the analysts price targets to derive a
range of present values of these price targets which resulted in
a range of securities research analysts future price
targets for the Company of approximately $16.50 per share to
$22.00 per share.
The public market trading price targets published by securities
research analysts do not necessarily reflect current market
trading prices for the shares and these estimates are subject to
uncertainties, including the future financial performance of the
Company and future financial market conditions.
34
Peer Group Comparison.
Morgan Stanley compared
certain financial information of the Company with
publicly-available information for certain companies that
operate in and are exposed to similar lines of business as the
Company, namely companies in the quick service restaurant
sector. The peer group included:
|
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|
|
Yum! Brands, Inc.
|
|
|
|
McDonalds Corporation
|
|
|
|
Sonic Corporation
|
|
|
|
Jack in the Box Inc.
|
|
|
|
Dominos Pizza, Inc.
|
|
|
|
Wendys Arbys Group Inc.
|
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|
|
Tim Hortons Inc.
|
|
|
|
Papa Johns International, Inc.
|
For this analysis, Morgan Stanley analyzed the following
statistics for each of these companies, as of August 30,
2010 and based on estimates for the peer group companies
provided by I/B/E/S and public filings:
|
|
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|
|
The ratio of aggregate value, defined as market capitalization
plus total debt plus minority interests plus preferred capital
less cash and cash equivalents (
Aggregate
Value
or
AV
), to estimated calendar
year 2010 earnings before interest, taxes, depreciation and
amortization (
EBITDA
);
|
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|
|
The ratio of price to estimated earnings per share for calendar
year 2010; and
|
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|
|
The ratio of price to estimated earnings growth per share for
calendar year 2010.
|
Based on the analysis of the relevant metrics for each of the
peer group companies, Morgan Stanley selected a range of
multiples for the peer group companies and applied this range of
multiples to the relevant Company financial statistics. For
purposes of the Companys estimated calendar year 2010
EBITDA, earnings and earnings growth, Morgan Stanley utilized
estimates provided by I/B/E/S. Based on this analysis, the
implied value per share is as of August 30, 2010 as follows:
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Company
|
|
Peer Group
|
|
|
|
|
Financial
|
|
Company
|
|
Implied Value per
|
Ratio
|
|
Statistic
|
|
Multiple Range
|
|
Share
|
|
Aggregate Value to Estimated Calendar 2010 EBITDA
|
|
$
|
444.2MM
|
|
|
|
6.5x - 8.5
|
x
|
|
$
|
16.25 - $22.50
|
|
Price to Estimated Calendar 2010 Earnings
|
|
$
|
1.36 per share
|
|
|
|
12.0x - 14.5
|
x
|
|
$
|
16.25 - $19.75
|
|
Price to Estimated Calendar 2010 Earnings Growth
|
|
|
12.8%
|
|
|
|
0.8x - 1.2
|
x
|
|
$
|
14.00 - $21.00
|
|
Morgan Stanley also noted that applying McDonalds
Corporation and Yum! Brands, Inc., valuation metrics to the
Company resulted in a per share price of $27.00 based on the AV
to Estimated Calendar 2010 EBITDA ratio, a per share price of
$22.50 based on the Price to Estimated Calendar 2010 Earnings
ratio, and a per share price of $26.25 based on the Price to
Estimated Calendar 2010 Earnings Growth ratio.
No company in the peer group comparison analysis is identical to
the Company. In evaluating the peer group, Morgan Stanley made
judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the
Company, such as the impact of competition on the business of
the Company or the industry generally, industry growth and the
absence of any material adverse change in the financial
condition and prospects of the Company or the industry or in the
financial markets in general. Mathematical analysis, such as
determining the average or median, is not in itself a meaningful
method of using peer group data.
Discounted Equity Value Analysis.
Morgan
Stanley performed an illustrative analysis of the present value
of the Companys theoretical implied future price per
share. In performing the discounted equity value analysis,
Morgan Stanley multiplied the earnings per share estimate for
calendar years
2011-2013,
based on Company management forecasts, to
price-to-earnings
(
P/E
) multiples of 12.0x and 15.0x in order
to estimate the future price per share. The estimated future
price per share was then discounted to present value
35
implying a price per share ranging from approximately $15.50 per
share to $19.75 per share for a P/E multiple of 12.0x and a
price per share ranging from approximately $19.25 per share to
$24.75 per share for a P/E multiple of 15.0x.
Analysis of Selected Precedent
Transactions.
Using publicly available
information, Morgan Stanley reviewed the terms of selected
transactions in which the targets were companies or divisions
that operate in
and/or
were
exposed to similar lines of business as the Company.
Morgan Stanley reviewed the price paid and calculated the ratio
of Aggregate Value implied by the price paid to last twelve
months (
LTM
) EBITDA (based on publicly
available information) in each of the selected transactions in
the quick service restaurant and casual dining restaurant
sectors since May 31, 2002 (listed below). Based on this
analysis, Morgan Stanley selected a range of multiples implied
by these transactions and applied this range of multiples to the
Companys LTM EBITDA to imply a value per share based on
such multiples.
For this analysis Morgan Stanley reviewed the following
transactions:
Domestic
Transactions
|
|
|
|
|
Acquiror
|
|
Target
|
|
Announcement Date
|
|
Oak Hill Capital Partners
|
|
Dave & Busters
|
|
5/3/10
|
Apollo Management
|
|
CKE Restaurants
|
|
4/24/10
|
Golden Gate Capital
|
|
On-The-Border Cafes, Inc.
|
|
3/23/10
|
Friedman Fleischer & Lowe
|
|
Churchs Chicken
|
|
6/9/09
|
Golden Gate Capital
|
|
Romanos Macaroni Grill
|
|
8/18/08
|
Triarc Companies, Inc.
|
|
Wendys International, Inc.
|
|
4/24/08
|
LNK Partners
|
|
ABP Corporation
|
|
1/16/08
|
Sun Capital Partners (Barbeque Integrated, Inc.)
|
|
Smokey Bones Barbeque and Grill (Darden)
|
|
12/4/07
|
Ruths Chris Steak House Inc.
|
|
Mitchells Fish Market
|
|
11/6/07
|
Darden Restaurants Inc.
|
|
RARE Hospitality International Inc.
|
|
8/16/07
|
Sun Capital Partners Inc.
|
|
Boston Market Corporation
|
|
8/6/07
|
IHOP Corp.
|
|
Applebees International, Inc.
|
|
7/16/07
|
Seminole Hard Rock Hotel & Casino
|
|
Hard Rock Café International, Inc.
|
|
12/7/06
|
Bain Capital Partners LLC & Catterton Partners
|
|
OSI Restaurant Partners, Inc.
|
|
11/6/06
|
Black Canyon and BRS
|
|
Logans Roadhouse
|
|
10/30/06
|
Catterton Partners & Oak Investment Partners
|
|
Cheddars Inc.
|
|
8/28/06
|
Buffets, Inc.
|
|
Ryans Restaurant Group, Inc.
|
|
7/24/06
|
CCMP Capital Advisors LLC
|
|
The Quiznos Corporation
|
|
3/20/06
|
Services Acquisition Corp. International
|
|
Jamba Juice Company
|
|
3/13/06
|
Carlyle Group, Bain Capital, THL Partners
|
|
Dunkin Brands Inc.
|
|
12/12/05
|
Trimaran Capital Partners, Inc.
|
|
El Pollo Loco, Inc.
|
|
9/28/05
|
Management
|
|
Au bon Pain, Inc.
|
|
5/18/05
|
Arcapita Inc.
|
|
Churchs Chicken
|
|
11/1/04
|
Catterton Partners
|
|
First Watch Restaurants, Inc.
|
|
9/1/04
|
Wendys International Inc.
|
|
Fresh Enterprises Inc. (Baja Fresh)
|
|
5/31/02
|
36
International
Transactions
|
|
|
|
|
Acquiror
|
|
Target
|
|
Announcement Date
|
|
Bridgepoint Capital Ltd.
|
|
Pret A Manger
|
|
2/22/08
|
Rome Bidco (Paladin Partners and Saratoga)
|
|
Caffe Nero Group PLC
|
|
12/7/06
|
CDC Capital Investissement
|
|
Quick Restaurant NV
|
|
10/25/06
|
Foodco Pastries
|
|
Tele Pizza SA
|
|
2/20/06
|
Investor Group
|
|
PizzaExpress PLC
|
|
5/13/03
|
TPG, Bain Capital, GS Capital Partners
|
|
Burger King Corp.
|
|
7/25/02
|
The following table summarizes Morgan Stanleys analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
Comparable
|
|
|
|
|
Financial
|
|
Company
|
|
Implied Value per
|
Ratio
|
|
Statistic
|
|
Multiple Range
|
|
Share
|
|
Aggregate Value to LTM EBITDA
|
|
$
|
444.6MM
|
|
|
|
8.0x - 10.0
|
x
|
|
$
|
21.00 - $27.00
|
|
Morgan Stanley also reviewed the premiums paid or proposed to be
paid in acquisitions of U.S. public companies with
capitalization greater than $1 billion during the
21-year
period ended March 31, 2010. Morgan Stanley observed that
the premiums paid or proposed to be paid in these transactions
was between 30% to 40% of the targets pre-announcement
trading price, which implied a range of $21.75 to $23.50 per
share based on the closing share price on August 30, 2010.
No company utilized in the selected precedent transactions
analysis is identical to the Company, nor is any transaction
listed identical to the transactions contemplated by the Merger
Agreement. In evaluating the transactions listed above, Morgan
Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the
control of the Company, such as the impact of competition on the
business of the Company or the industry generally, industry
growth and the absence of any adverse material change in the
financial condition and prospects of the Company or the industry
or in the financial markets in general. Mathematical analysis,
such as determining the average or median, is not in itself a
meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis.
Morgan Stanley
performed a discounted cash flow analysis as of August 30,
2010, which is an analysis of the present value of projected
unlevered free cash flows using terminal year Aggregate Value to
EBITDA multiples based on projected EBITDA for the Company.
Morgan Stanley analyzed the Companys business using
information provided by Company management, including certain
financial forecasts prepared by Company management for the
fiscal years 2011 through 2015, under five scenarios. The first
scenario assumes that the Company operates in a continued
recessionary economic environment (the
Recessionary
Case
). The second scenario assumes that the Company
operates in a moderately improved economic environment (the
Moderate Growth Case
). The third scenario
assumes that the Company operates in a significantly improved
economic environment (the
Economic Expansion
Case
). The fourth scenario assumes that the Company
implemented a re-franchising of its company-owned stores (the
ReFranchise Case
). The fifth scenario assumes
that the Company operates in an economic environment without any
macroeconomic risks to pricing and costs (e.g., commodities,
labor, inflation, etc.) (the
Risk Neutral
Case
). The terminal value was calculated by applying
terminal multiples ranging from 6.5x to 8.5x fiscal year 2015
EBITDA, as estimated by Company management. For purposes of this
analysis, Morgan Stanley calculated the Companys
discounted unlevered free cash flow value using discount rates
ranging from 8.0% to 9.0%. The range of discount rates was
selected based upon an analysis of the Companys weighted
average cost of capital and on the experience and judgment of
Morgan Stanley. The discounted cash flow analysis implied a
range of $20.50 per share to $27.25 per share using the
Recessionary Case, $21.75 per share to $29.00 per share using
the Moderate Growth Case and ReFranchise Case and $24.00 per
share to $32.50 per share using the Economic Expansion Case and
Risk Neutral Case.
37
Leveraged Buyout Analysis.
Morgan Stanley
performed an illustrative leveraged buyout analysis to estimate
the theoretical purchase price that a financial buyer could pay
in an acquisition of the Company. For purposes of this analysis,
Morgan Stanley assumed that the capital structure of the Company
that would result from the theoretical transaction would be
identical to the capital structure proposed by Parent and the
Purchaser and that such a financial buyer would attempt to
realize a return on its investment in fiscal year 2015.
Estimated financial data for the Company was based on certain
financial forecasts prepared by Company management for fiscal
years 2011 through 2015, under the five scenarios described
above. Estimated exit values for the Company were calculated by
applying an exit value multiple of 8.5x to fiscal year 2015
EBITDA, as estimated by Company management. Morgan Stanley then
derived a range of theoretical purchase prices based on an
assumed required internal rate of return for a financial buyer
of between 17.5% and 22.5%. This analysis implied a value range
of $21.00 per share to $22.75 per share using the Recessionary
Case, $22.00 per share to $24.00 per share using the Moderate
Growth Case and ReFranchise Case and $23.50 per share to $26.50
per share using the Economic Expansion Case and Risk Neutral
Case.
In connection with the review of the transaction contemplated by
the Merger Agreement by the Company Board, Morgan Stanley
performed a variety of financial and comparative analyses for
purposes of its opinion given in connection therewith. The
preparation of a financial opinion is a complex process and is
not necessarily susceptible to partial analysis or summary
description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that
selecting any portion of its analyses, without considering all
analyses as a whole, would create an incomplete view of the
process underlying its analyses and opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less
weight than other analyses and factors and may have deemed
various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be
Morgan Stanleys view of the actual value of the Company.
In performing its analyses, Morgan Stanley made numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, many of
which are beyond the control of the Company. Any estimates
contained in Morgan Stanleys analyses are not necessarily
indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by
such estimates. The analyses performed were prepared solely as
part of Morgan Stanleys analysis of the fairness from a
financial point of view of the consideration to be received by
the holders of shares pursuant to the Merger Agreement, and were
conducted in connection with the delivery of Morgan
Stanleys opinion to the Company Board. These analyses do
not purport to be appraisals or to reflect the prices at which
the shares might actually trade. The consideration to be
received by the holders of the shares and other terms of the
Merger Agreement were determined through arms-length
negotiations between the Company and Parent and the Purchaser
and were approved by the Company Board. Morgan Stanley provided
advice to the Company during such negotiations; however, Morgan
Stanley did not recommend any specific consideration to the
Company or that any specific consideration constituted the only
appropriate consideration for the proposed transaction. In
addition, as described above under the heading
Reasons for Recommendation,
Morgan Stanleys opinion and presentation to the Company
Board was one of many factors taken into consideration by the
Company Board in making their decision to approve the Merger
Agreement. Consequently, the Morgan Stanley analyses as
described above should not be viewed as determinative of the
opinion of the Company Board with respect to the consideration
or the value of the Company, or of whether the Company Board
would have been willing to agree to a different consideration.
The Company Board retained Morgan Stanley based upon Morgan
Stanleys qualifications, experience and expertise and its
knowledge of the business affairs of the Company. Morgan Stanley
is a global financial services firm engaged in the securities,
investment management and individual wealth management
businesses. Its securities business is engaged in securities
underwriting, trading and brokerage activities, foreign
exchange, commodities and derivatives trading, prime brokerage,
as well as providing investment banking, financing and financial
advisory services. Morgan Stanley, its affiliates, directors and
officers may at any time invest on a principal basis or manage
funds that invest, hold long or short positions, finance
positions, and may trade or otherwise structure and effect
transactions, for their own account or the accounts of its
customers, in debt or
38
equity securities or loans of the Parent and Purchaser or their
affiliates, the Company, or any other company, or any currency
or commodity, that may be involved in this transaction, or any
related derivative instrument. In the two years prior to the
date of its opinion, Morgan Stanley has provided financial
advisory and financing services to the Company and has received
fees in connection with such services. Morgan Stanley may also
seek to provide such services to the Parent and the Purchaser
and the Company in the future and expects to receive fees for
the rendering of these services.
Pursuant to the terms of its engagement letter, Morgan Stanley
provided financial advisory services and a financial fairness
opinion to the Company Board in connection with the transaction,
and the Company agreed to pay Morgan Stanley a customary fee, a
substantial portion of which is contingent upon the consummation
of the Merger, in connection with the transaction. For a
description of the engagement letter and the fees payable
thereunder by the Company to Morgan Stanley, see
Item 5 Persons/Assets Retained,
Employed, Compensated or Used.
The Company has also
agreed to reimburse Morgan Stanley for its expenses incurred in
performing its services. In addition, the Company has agreed to
indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if
any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities
under the federal securities laws, related to or arising out of
Morgan Stanleys engagement.
Goldman
Sachs
Goldman Sachs rendered its opinion to the Company Board that, as
of September 2, 2010 and based upon and subject to the
factors and assumptions set forth therein, the $24.00 per share
of Company Common Stock in cash to be paid to the holders (other
than Parent and its affiliates) of shares of Company Common
Stock pursuant to the Merger Agreement was fair from a financial
point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated
September 2, 2010, which sets forth the assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Annex II. Goldman Sachs provided its opinion for the
information and assistance of the Company Board in connection
with its consideration of the transactions contemplated by the
Merger Agreement. The Goldman Sachs opinion is not a
recommendation as to whether or not any holder of shares of
Company Common Stock should tender such shares in connection
with the Offer or how any holder of such shares should vote with
respect to the Merger or any other matter.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
|
|
|
|
|
the Merger Agreement;
|
|
|
|
annual reports to stockholders and Annual Reports on
Form 10-K
of the Company for the five fiscal years ended June 30,
2010;
|
|
|
|
certain interim reports to stockholders and Quarterly Reports on
Form 10-Q
of the Company;
|
|
|
|
certain other communications from the Company to its
stockholders;
|
|
|
|
certain publicly available research analyst reports for the
Company; and
|
|
|
|
certain internal financial analyses and forecasts for the
Company prepared by its management, including the Companys
ReFranchise Plan, which was approved for Goldman
Sachs use by the Company (such ReFranchise Plan being
referred to as the
Forecast
).
|
Goldman Sachs also held discussions with members of the senior
management of the Company regarding their assessment of the past
and current business operations, financial condition and future
prospects of the Company. In addition, Goldman Sachs reviewed
the reported price and trading activity for the shares of
Company Common Stock, compared certain financial and stock
market information for the Company with similar information for
certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business
combinations in the restaurant industry specifically and in
other
39
industries generally, and performed such other studies and
analyses, and considered such other factors, as Goldman Sachs
considered appropriate.
For purposes of rendering the opinion described above, Goldman
Sachs relied upon and assumed, without assuming any
responsibility for independent verification, the accuracy and
completeness of all of the financial, legal, regulatory, tax,
accounting and other information provided to, discussed with or
reviewed by it, and Goldman Sachs does not assume any liability
for any such information. In that regard, Goldman Sachs assumed
with the consent of the Company that the Forecast was reasonably
prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company. In
addition, Goldman Sachs did not make an independent evaluation
or appraisal of the assets and liabilities (including any
contingent, derivative or other off-balance sheet assets and
liabilities) of the Company or any of its subsidiaries, nor was
any such evaluation or appraisal of the assets or liabilities of
the Company or any of its subsidiaries furnished to Goldman
Sachs. Goldman Sachs assumed that all governmental, regulatory
or other consents and approvals necessary for the consummation
of the transactions contemplated by the Merger Agreement will be
obtained without any adverse effect on the expected benefits of
such transactions in any way meaningful to its analysis. Goldman
Sachs also assumed that the transactions contemplated by the
Merger Agreement will be consummated on the terms set forth
therein, without the waiver or modification of any term or
condition the effect of which would be in any way meaningful to
its analysis. Goldman Sachs opinion does not address any
legal, regulatory, tax or accounting matters.
Goldman Sachs opinion does not address the underlying
business decision of the Company to engage in the transactions
contemplated by the Merger Agreement or the relative merits of
such transactions as compared to any strategic alternatives that
may be available to the Company. Goldman Sachs was not requested
to solicit, and did not solicit, interest from other parties
with respect to an acquisition of or other business combination
with the Company. Goldman Sachs opinion addresses only the
fairness from a financial point of view, as of the date of its
opinion, of the $24.00 per share of Company Common Stock in cash
to be paid to the holders (other than Parent and its affiliates)
of such shares pursuant to the Merger Agreement. Goldman
Sachs opinion does not express any view on, and does not
address, any other term or aspect of the Merger Agreement or the
transactions contemplated thereby or any term or aspect of any
other agreement or instrument contemplated by the Merger
Agreement or entered into or amended in connection with the
transactions contemplated thereby, including, without
limitation, the fairness of such transactions to, or any
consideration received in connection therewith by, the holders
of any other class of securities, creditors, or other
constituencies of the Company; nor as to the fairness of the
amount or nature of any compensation to be paid or payable to
any of the officers, directors or employees of the Company, or
class of such persons in connection with the transactions
contemplated by the Merger Agreement, whether relative to the
$24.00 per share of Company Common Stock in cash to be paid to
the holders (other than Parent and its affiliates) of such
shares pursuant to the Merger Agreement or otherwise. In
addition, Goldman Sachs did not express any opinion as to the
impact of the transactions contemplated by the Merger Agreement
on the solvency or viability of the Company or Parent or the
ability of the Company or Parent to pay their respective
obligations when they become due. Goldman Sachs opinion
was necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available
to it as of, the date of its opinion and Goldman Sachs assumed
no responsibility for updating, revising or reaffirming its
opinion based on circumstances, developments or events occurring
after the date of the opinion. The advisory services provided by
Goldman Sachs and the opinion expressed in Goldman Sachs
opinion were provided for the information and assistance of the
Company Board in connection with its consideration of the
transactions contemplated by the Merger Agreement and Goldman
Sachs opinion does not constitute a recommendation as to
whether or not any holder of shares of Company Common Stock
should tender such shares in connection with the Offer or how
any holder of such shares should vote with respect to the Merger
or any other matter. Goldman Sachs opinion was approved by
a fairness committee of Goldman Sachs.
The following is a summary of the material financial analyses
delivered by Goldman Sachs to the Company Board in connection
with rendering the opinion described above. The following
summary, however, does not purport to be a complete description
of the financial analyses performed by Goldman Sachs, nor does
the order of analyses described represent relative importance or
weight given to those analyses by Goldman Sachs. Some
40
of the summaries of the financial analyses include information
presented in tabular format. The tables must be read together
with the full text of each summary and are alone not a complete
description of Goldman Sachs financial analyses. Except as
otherwise noted, the following quantitative information, to the
extent that it is based on market data, is based on market data
as it existed on or before August 30, 2010 (the date on
which Goldman Sachs completed its analyses) and is not
necessarily indicative of current market conditions.
Historical Trading Analysis.
Goldman Sachs
reviewed the historical trading prices for the shares of Company
Common Stock and analyzed the consideration to be paid to
holders of such shares pursuant to the Merger Agreement in
relation to (1) the closing price of the shares of Company
Common Stock on August 30, 2010; (2) the average
closing prices of shares of Company Common Stock for the
30-calendar day and 60-calendar day periods ending
August 30, 2010; (3) the high closing price of shares
of Company Common Stock for the 52-week period ending
August 30, 2010; and (4) the high closing price of
shares of Company Common Stock for the period beginning with the
date of the initial public offering of the shares of Company
Common Stock and ending August 30, 2010.
This analysis indicated that the price per share to be paid to
the Companys stockholders in connection with the
transactions contemplated by the Merger Agreement represented:
|
|
|
|
|
a premium of 43.1% based on the closing market price of the
shares of Company Common Stock on August 30, 2010;
|
|
|
|
a premium of 41.8% based on the average closing price of the
shares of Company Common Stock for the 30-calendar day period
ended on August 30, 2010;
|
|
|
|
a premium of 40.4% based on the average closing price of the
shares of Company Common Stock for the 60-calendar day period
ended on August 30, 2010;
|
|
|
|
a premium of 8.8% based on the last twelve months high closing
price of the shares of Company Common Stock for the period
ending on August 30, 2010; and
|
|
|
|
a discount of 21.1% based on the high closing price of the
shares of Company Common Stock for the period beginning on the
Companys initial public offering (May 18,
2006) and ending on August 30, 2010.
|
Selected Public Companies Analysis.
Goldman
Sachs reviewed and compared certain financial information,
ratios and public market multiples for the Company to
corresponding financial information, ratios and public market
multiples for the following publicly traded corporations in the
quick service restaurant (
QSR
) industry:
|
|
|
QSR Index
|
|
Large Cap QSR
|
|
Wendys/Arbys Group, Inc.
|
|
McDonalds Corporation
|
Dominos Pizza, Inc.
|
|
YUM! Brands, Inc.
|
Jack in the Box Inc.
|
|
|
Sonic Corp.
|
|
|
Papa Johns International, Inc.
|
|
|
Although none of the selected companies is directly comparable
to the Company, the companies included were chosen because they
are publicly traded companies with operations that for purposes
of analysis may be considered similar to certain operations of
the Company.
Goldman Sachs calculated and compared various financial
multiples and ratios based on the most recent publicly available
financial data and I/B/E/S estimates
and/or
other
Wall Street research. The multiples and ratios of the Company
and the selected companies were calculated using the closing
price of each companys shares on August 30, 2010.
With respect to the Company and the selected companies, Goldman
Sachs calculated (1) enterprise value, which is the market
value of common equity plus the book value of debt less cash, as
a multiple of earnings before interest, taxes, depreciation and
amortization, or EBITDA, for the latest twelve months ended
August 30, 2010; and (2) enterprise value as a
multiple of EBITDA for estimated calendar years 2010 and 2011,
respectively, based on IBES estimates
and/or
other
Wall Street research.
41
The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Public Companies
|
|
Company
|
|
|
QSR Index
|
|
Large Cap Index
|
|
As of 8/30
|
|
Offer Price
|
|
|
Range
|
|
Median
|
|
Range
|
|
Median
|
|
2010
|
|
$24.00
|
|
Enterprise Value as a multiple of EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTM
|
|
|
5.5x - 9.2x
|
|
|
|
6.5x
|
|
|
|
9.6x - 10.0x
|
|
|
|
10.0x
|
|
|
|
6.6x
|
|
|
|
9.0x
|
|
CY2010E
|
|
|
5.5x - 9.1x
|
|
|
|
6.8x
|
|
|
|
9.6x - 10.2x
|
|
|
|
9.9x
|
|
|
|
6.6x
|
|
|
|
9.0x
|
|
CY2011E
|
|
|
5.3x - 8.8x
|
|
|
|
6.3x
|
|
|
|
8.8x - 9.8x
|
|
|
|
9.3x
|
|
|
|
6.3x
|
|
|
|
8.7x
|
|
Goldman Sachs also calculated (1) the
price-to-earnings
ratios for estimated calendar years 2010 and 2011, respectively;
(2) the
price-to-earnings
ratios for the latest twelve months ended August 30, 2010;
(3) the price to earnings ratios estimated for the next
twelve months ending August 30, 2011; and (4) the
latest twelve months EBITDA margins, which is the last twelve
months EBITDA as a percentage of the last twelve months revenue.
The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Public Companies
|
|
Company
|
|
|
QSR Index
|
|
Large Cap QSR
|
|
As of 8/30
|
|
Offer Price
|
|
|
Range
|
|
Median
|
|
Range
|
|
Median
|
|
2010
|
|
$24.00
|
|
Price/Earnings Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
CY2010E
|
|
9.9x - 31.9x
|
|
13.2x
|
|
16.1x - 16.7x
|
|
16.4x
|
|
12.4x
|
|
17.7x
|
CY2011E
|
|
9.1x - 122.2x
|
|
11.5x
|
|
14.8x - 14.9x
|
|
14.9x
|
|
11.7x
|
|
16.7x
|
LTM
|
|
8.5x - 14.4x
|
|
11.3x
|
|
16.8x - 18.8x
|
|
17.7x
|
|
12.3x
|
|
17.6x
|
NTM-E
|
|
9.4x - 24.9x
|
|
12.1x
|
|
15.5x - 15.7x
|
|
15.6x
|
|
12.3x
|
|
17.6x
|
EBITDA Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
LTM
|
|
10.1% - 24.6%
|
|
12.0%
|
|
21.6% - 35.8%
|
|
28.7%
|
|
17.8%
|
|
17.8%
|
Selected Transactions Analysis.
Goldman Sachs
analyzed certain information relating to the following selected
transactions in the restaurant industry since 1998 with
transaction equity values ranging from $570 million to
$3 billion. These transactions (listed by acquirer/target
and date of announcement) were:
|
|
|
|
|
Oak Hill Capital Partners, L.P./Dave & Busters,
Inc. (May 2010)
|
|
|
|
Apollo Management, L.P./CKE Restaurants, Inc. (April 2010)
|
|
|
|
Tilman J. Fertitta/Landrys Restaurants, Inc. (June 2008)
|
|
|
|
Triarc Companies, Inc./Wendys International, Inc. (April
2008)
|
|
|
|
Darden Restaurants, Inc./RARE Hospitality International, Inc.
(August 2007)
|
|
|
|
IHOP Corp./Applebees International, Inc. (June 2007)
|
|
|
|
Bain Capital Partners LLC and Catterton Partners and Company/OSI
Restaurant Partners, LLC (November 2006)
|
|
|
|
Merrill Lynch Global Private Equity, Inc./NPC International,
Inc. (March 2006)
|
|
|
|
JP Morgan Partners LLC/Quiznos Master LLC (March 2006)
|
|
|
|
Bain Capital Partners LLC, the Carlyle Group and Thomas H. Lee
Partners LP/Dunkin Brands, Inc. (December 2005)
|
|
|
|
Weston Presidio Capital/Apple American Group LLC (January 2005)
|
|
|
|
Caxton-Iseman Capital, Inc./Buffets Holdings, Inc. (June 2000)
|
|
|
|
Sbarro Family/Sbarro, Inc. (January 1999)
|
42
|
|
|
|
|
Bain Capital, Inc./Dominos Pizza, Inc. (September 1998)
|
For each of the selected transactions, Goldman Sachs calculated
and compared the enterprise value as a multiple of latest twelve
months EBITDA, using publicly available data, and then
calculated the median of these multiple values for all
transactions; however, for purposes of its analysis Goldman
Sachs excluded transactions occurring during calendar years 2005
through 2007 because in its professional judgment, these
transactions were not representative of the current market
environment. While none of the companies that participated in
the selected transactions are directly comparable to the
Company, these companies were chosen because they are publicly
traded companies with operations that, for the purposes of
analysis, may be considered similar to certain of the
Companys results, market size and product profile.
The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Transactions
|
|
Proposed Transaction
|
|
|
Range
|
|
Median
|
|
Offer Price $24.00
|
|
LTM EV/EBITDA (all transactions)
|
|
|
5.0x - 13.3x
|
|
|
|
8.2x
|
|
|
|
9.0x
|
|
LTM EV/EBITDA (excluding transactions occurring in
2005-2007)
|
|
|
5.0x - 8.9x
|
|
|
|
7.4x
|
|
|
|
|
|
Premia Paid Analysis.
Goldman Sachs also
calculated the median price premia paid per share relative to
the market closing price of target companies on the day prior to
announcement of transactions for announced and completed cash
transactions involving target companies in the United States in
all industries since 2001 with transaction values over
$1 billion, using publicly available historical data, but
excluding transactions with undisclosed value, spinoffs,
recapitalizations, self-tenders, stock repurchases, deals in
which minority stakes in a target were acquired, deals involving
acquisitions of the remaining minority stake in a target by a
controlling stockholder and nationalization transactions. Based
on this information, Goldman Sachs then calculated the median of
these implied premia values for the multi-year period from 2001
to 2010.
The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
Selected Transactions
|
|
Proposed Transaction
|
|
|
|
|
|
|
Offer Price Premium
|
Period
|
|
Range
|
|
Median
|
|
to Price as of 8/30/2010
|
|
2001-2010
|
|
22.7% - 43.8%
|
|
27.7%
|
|
43.1%
|
Illustrative Present Value of Future Share Price
Analysis.
Goldman Sachs performed an illustrative
analysis of the implied present value of the future price per
share of Company Common Stock, which is designed to provide an
indication of the present value of a theoretical future value of
a companys equity as a function of such companys
estimated future earnings and its assumed price to future
earnings per share multiple. For this analysis, Goldman Sachs
used the Forecast provided by the Companys management for
the fiscal years 2011 to 2015. Goldman Sachs calculated the
implied present values per share by applying price to forward
earnings per share multiples ranging from 12.3x to 14.8x
earnings per share of Company Common Stock for each of the
fiscal years 2011 to 2015 based on the Forecast, discounted to
present value using a discount rate of 10%, reflecting an
estimate of the Companys cost of equity, and assuming a
yearly dividend of $0.25 with a constant yield throughout such
time period. This analysis resulted in a range of implied
present values per share of Company Common Stock of $19.51 to
$27.38.
Illustrative Discounted Cash Flow
Analysis.
Goldman Sachs performed an illustrative
discounted cash flow analysis on the Company using the Forecast.
Goldman Sachs calculated indications of the net present value of
free cash flows for the Company for the years 2011 through 2015.
Goldman Sachs calculated illustrative value indications per
share of Company Common Stock using the Forecast and
illustrative terminal value indications in the year 2015 based
on terminal multiples ranging from 6.0x 2015 EBITDA to 7.5x 2015
EBITDA and discounting these terminal values to illustrative
present values using discount rates ranging from 8.0% to 10.0%,
reflecting estimates of the Companys weighted average cost
of capital. This analysis resulted in a range of illustrative
per share of Company Common Stock values of $20.73 to $27.74.
Goldman Sachs also performed a sensitivity analysis to
illustrate the effect of different assumptions for changes in
annual revenue growth rates and operating margins for the
Company. The sensitivity adjustments to
43
the projected annual EBITDA growth rates ranged from 4.4%, which
implies an estimated 2015 EBITDA of $550.0 million, to
12.8%, which implies an estimated 2015 EBITDA of
$750.0 million. This analysis, assuming a 9% discount rate
and 6.6x 2015 EBITDA multiple, resulted in an implied present
value per share of Company Common Stock range of $17.76 to
$26.59.
General.
The preparation of a fairness opinion
is a complex process and is not necessarily susceptible to
partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete
view of the processes underlying Goldman Sachs opinion. In
arriving at its fairness determination, Goldman Sachs considered
the results of all of its analyses and did not attribute any
particular weight to any factor or analysis considered by it.
Rather, Goldman Sachs made its determination as to fairness on
the basis of its experience and professional judgment after
considering the results of all of its analyses. No company or
transaction used in the above analyses as a comparison is
directly comparable to the Company or the contemplated
transactions.
Goldman Sachs prepared these analyses for purposes of Goldman
Sachs providing its opinion to the Company Board as to the
fairness from a financial point of view of the $24.00 per share
of Company Common Stock in cash to be paid to the holders (other
than Parent and its affiliates) of shares pursuant to the Merger
Agreement. These analyses do not purport to be appraisals nor do
they necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual
future results, which may be significantly more or less
favorable than suggested by these analyses. Because these
analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or
their respective advisors, none of the Company, Parent, Goldman
Sachs or any other person assumes responsibility if future
results are materially different from those forecast.
The consideration for the transactions was determined through
arms-length negotiations between the Company and Parent
and was approved by the Company Board. Goldman Sachs provided
advice to the Company during these negotiations. Goldman Sachs
did not, however, recommend any specific amount of consideration
to the Company or the Company Board or that any specific amount
of consideration constituted the only appropriate consideration
for the transactions.
As described above, Goldman Sachs opinion to the Company
Board was one of many factors taken into consideration by the
Company Board in making its determination to approve the Merger
Agreement. The foregoing summary does not purport to be a
complete description of the analyses performed by Goldman Sachs
in connection with the fairness opinion and is qualified in its
entirety by reference to the written opinion of Goldman Sachs
attached as Annex II.
Goldman Sachs and its affiliates are engaged in investment
banking and financial advisory services, commercial banking,
securities trading, investment management, principal investment,
financial planning, benefits counseling, risk management,
hedging, financing, brokerage activities and other financial and
non-financial activities and services for various persons and
entities. In the ordinary course of these activities and
services, Goldman Sachs and its affiliates may at any time make
or hold long or short positions and investments, as well as
actively trade or effect transactions, in the equity, debt and
other securities (or related derivative securities) and
financial instruments (including bank loans and other
obligations) of the Company, Parent, any of their respective
affiliates and third parties, including affiliates and portfolio
companies of 3G Capital, TPG Capital and Bain Capital, LLC or
any currency or commodity that may be involved in the
transactions contemplated by the Merger Agreement for their own
account and for the accounts of their customers. Goldman Sachs
acted as financial advisor to the Company in connection with,
and participated in certain of the negotiations leading to, the
transactions contemplated by the Merger Agreement. For a
description of the engagement letter and the fees payable
thereunder by the Company to Goldman Sachs, see
Item 5 Persons/Assets Retained,
Employed, Compensated or Used.
Goldman Sachs also has provided certain investment banking
services to the Company and its affiliates from time to time.
Goldman Sachs also has provided from time to time and is
currently providing certain investment banking to Bain Capital
and its affiliates and portfolio companies for which its
Investment Banking Division has received, and may receive,
compensation, including having acted as joint lead arranger for
a new term loan (aggregate principal amount of $250,000,000) for
SunGard Data Systems Inc., a portfolio company of
44
Bain Capital, in September 2008; as joint bookrunner on a high
yield offering (aggregate principal amount of $1,100,000,000)
for Warner Music Group, a portfolio company of Bain Capital, in
May 2009; as joint bookrunner on high yield offerings (aggregate
principal amount of $2,900,000,000) for HCA Inc., a portfolio
company of Bain Capital, in April 2009 and March 2010; as joint
bookrunner with respect to a high yield offering (aggregate
principal amount of $2,500,000,000) for Clear Channel
Communications Inc., a portfolio company of Bain Capital, in
December 2009; and as joint lead arranger with respect to a term
loan (aggregate principal amount of $1,500,000,000) for Warner
Chilcott Plc, a portfolio company of Bain Capital, in August
2010. In addition, Goldman Sachs has provided from time to time
and is currently providing certain investment banking services
to TPG and its affiliates and portfolio companies for which its
Investment Banking Division has received, and may receive,
compensation, including having acted as joint bookrunner on a
notes offering (aggregate principal amount of $1,500,000,000) by
TXU Electric Delivery Company, a portfolio company of TPG, in
September 2008; as a joint lead arranger for a term loan
(aggregate principal amount of $250,000,000) for SunGard Data
Systems Inc., a portfolio company of TPG, in September 2008; as
financial advisor to ALLTEL Corporation, a former portfolio
company of TPG, in connection with its sale in January 2009; and
as co-manager of a high yield offering (aggregate principal
amount of $1,000,000,000) by Harrahs Entertainment Inc., a
portfolio company of TPG, in May 2009. Goldman Sachs may also in
the future provide investment banking services to the Company,
its affiliates and Parent, TPG, Bain Capital and their
respective affiliates and portfolio companies for which its
Investment Banking Division may receive compensation. The
Goldman Sachs Funds currently own, in the aggregate,
approximately 10.3% of the outstanding shares of Company Common
Stock. In connection with the transactions contemplated by the
Merger Agreement, the Goldman Sachs Funds have entered into a
Stockholder Tender Agreement. Goldman Sachs may be deemed to
directly or indirectly own the shares which are owned directly
or indirectly by the Goldman Sachs Funds. Sanjeev K. Mehra, a
Managing Director of Goldman Sachs, is a director of the
Company. Affiliates of Goldman Sachs also may have co-invested
with Parent, TPG, Bain Capital and their respective affiliates
from time to time and may have invested in limited partnership
units of affiliates of Parent, TPG and Bain Capital from time to
time and may do so in the future.
|
|
ITEM 5.
|
PERSONS/ASSETS
RETAINED, EMPLOYED, COMPENSATED OR USED.
|
The Company has retained Morgan Stanley and Goldman Sachs as its
financial advisors in connection with the Offer and the Merger
and in connection with such engagement, Morgan Stanley and
Goldman Sachs provided the fairness opinions described in
Item 4. The Solicitation or
Recommendation Opinion of the Companys
Financial Advisors
, which are filed as Annex I
and II hereto, respectively, and are incorporated herein by
reference. The Company Board selected Morgan Stanley and Goldman
Sachs as its financial advisors because each is an
internationally recognized investment banking firm that has
substantial experience in transactions similar to the
transactions contemplated by the Merger Agreement and each has a
strong experience working with the Company and in the industry
which the Company Board believed would assist it in successfully
evaluating and negotiating the transaction.
Pursuant to the Engagement Letter between Morgan Stanley and the
Company, the Company has agreed to pay to Morgan Stanley
(i) an announcement fee of $4.5 million, which was due
and payable upon execution of the Merger Agreement, credited
against fees payable pursuant to (ii) and (iii);
(ii) a transaction fee of 0.4% of the Adjusted Aggregate
Value (as defined in the Engagement Letter) paid in the
transaction if the transaction is consummated; and (iii) if
the transaction is not consummated, but the Company receives
compensation pursuant to the termination provisions contained in
the Merger Agreement, a termination fee of 13.34% of the total
of such fees, provided that the termination fee will not exceed
the transaction fee payable in (ii). Assuming the transaction is
consummated, the Company will pay approximately $20 million
in the aggregate to Morgan Stanley.
The Company has also agreed in the Engagement Letter to
reimburse Morgan Stanley for all reasonable
out-of-pocket
expenses and to indemnify Morgan Stanley and certain related
persons from and against any liabilities, expenses and actions
arising out of or in connection with its engagement.
In the past two years, Morgan Stanley and its affiliates have
provided financial advisory services for the Company and
received customary fees for such services. In the ordinary
course of Morgan Stanleys trading and brokerage
activities, Morgan Stanley or its affiliates may at any time
hold long or short positions, and may trade or
45
otherwise effect transactions, for its own account or for the
account of customers in the equity and other securities of the
Company or any other parties, commodities or currencies involved
in the Offer or Merger.
Pursuant to the Engagement Letter between Goldman Sachs and the
Company, the Company has agreed to pay to Goldman Sachs
(i) 0.2% of the Aggregate Value (as defined in the
Engagement Letter) paid in the transaction if the transaction is
consummated; and (ii) if the transaction is not
consummated, but the Company receives compensation pursuant to
the termination provisions contained in the Merger Agreement, a
termination fee of 6.66% of the total of such fees, provided
that the termination fee will not exceed the transaction fee
payable in (i). Assuming the transaction is consummated, the
Company will pay approximately $10 million in the aggregate
to Goldman Sachs. The Company has also agreed in the Engagement
Letter to reimburse Goldman Sachs for all reasonable expenses
and to indemnify Goldman Sachs and certain related persons from
and against any liabilities, expenses and actions arising out of
or in connection with its engagement.
The Goldman Sachs Funds, affiliates of Goldman Sachs, are one of
the Companys Sponsors and own 10.3% of the issued and
outstanding shares of Company Common Stock. The Goldman Sachs
Funds have entered into a Stockholder Tender Agreement and are a
party to the Shareholders Agreement. See
Item 3. Past Contacts, Transactions, Negotiations
and Agreements
Arrangements with
Affiliates
above. In addition, Mr. Mehra, a
member of the Company Board, is a Managing Director of Goldman
Sachs. In connection with the Offer and the Merger,
Mr. Mehra will be entitled to receive $587,472 in cash
pursuant to the accelerated vesting of his Director Stock Units.
See
Item 3. Past Contacts, Transactions,
Negotiations and Agreements
Equity
Awards
above. Mr. Mehra has an understanding with
The Goldman Sachs Group, Inc. pursuant to which he holds such
Director Stock Units for the benefit of The Goldman Sachs Group,
Inc. Over the past two years, Goldman Sachs and its affiliates
have provided financial advisory services for the Company and
received customary fees for such services. In the ordinary
course of Goldman Sachs trading and brokerage activities,
Goldman Sachs or its affiliates may at any time hold long or
short positions, and may trade or otherwise effect transactions,
for its own account or for the account of customers in the
equity and other securities of the Company or any other parties,
commodities or currencies involved in the Offer or the Merger.
The Company has also retained Joele Frank, Wilkinson Brimmer
Katcher (
Joele Frank
) as its public relations
advisor in connection with the Offer and the Merger. The Company
has agreed to pay customary compensation to Joele Frank for such
services. In addition, the Company has agreed to reimburse Joele
Frank for its reasonable
out-of-pocket
expenses and to indemnify it and certain related persons against
certain liabilities arising out of the engagement.
Except as set forth above, neither the Company nor any person
acting on its behalf has or currently intends to employ, retain
or compensate any person to make solicitations or
recommendations to the stockholders of the Company on its behalf
with respect to the Offer.
|
|
ITEM 6.
|
INTEREST
IN SECURITIES OF THE SUBJECT COMPANY.
|
Securities
Transactions.
No transactions with respect to shares of Company Common Stock
have been effected by the Company or, to the Companys
knowledge after making reasonable inquiry, by any of its
executive officers, directors, affiliates or
46
subsidiaries during the 60 days prior to the date of this
Statement, except with respect to the Stockholder Tender
Agreements, the
Top-Up
and
transactions under the Companys employee benefit plans as
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
|
|
|
Transaction
|
|
of
|
|
|
per Share
|
|
|
|
Name of Person
|
|
Date
|
|
Shares
|
|
|
(If Applicable)
|
|
|
Nature of Transaction(1)
|
|
John W. Chidsey
|
|
8/30/10
|
|
|
37,617
|
|
|
|
N/A
|
|
|
(2)
|
|
|
8/26/10
|
|
|
42,917
|
|
|
|
N/A
|
|
|
Forfeiture of Performance Based Restricted Stock Unit
|
|
|
8/25/10
|
|
|
59,558
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
59,558
|
|
|
|
N/A
|
|
|
Grant of Restricted Stock Units
|
|
|
8/25/10
|
|
|
339,502
|
|
|
$
|
17.51
|
|
|
Grant of Option
|
|
|
8/23/10
|
|
|
29,186
|
|
|
$
|
16.45
|
|
|
(2)
|
Ben K. Wells
|
|
8/30/10
|
|
|
4,856
|
|
|
|
N/A
|
|
|
(2)
|
|
|
8/26/10
|
|
|
7,634
|
|
|
|
N/A
|
|
|
Forfeiture of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
11,243
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
11,243
|
|
|
|
N/A
|
|
|
Grant of Restricted Stock Units
|
|
|
8/25/10
|
|
|
20,560
|
|
|
|
N/A
|
|
|
Grant of Restricted Stock Units
|
|
|
8/25/10
|
|
|
64,091
|
|
|
$
|
17.51
|
|
|
Grant of Option
|
Anne Chwat
|
|
8/30/10
|
|
|
4,559
|
|
|
|
N/A
|
|
|
(2)
|
|
|
8/26/10
|
|
|
6,957
|
|
|
|
N/A
|
|
|
Forfeiture of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
9,656
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
9,656
|
|
|
|
N/A
|
|
|
Grant of Restricted Stock Units
|
|
|
8/25/10
|
|
|
55,043
|
|
|
$
|
17.51
|
|
|
Grant of Option
|
|
|
8/23/10
|
|
|
3,477
|
|
|
$
|
16.45
|
|
|
(2)
|
Peter C. Smith
|
|
8/30/10
|
|
|
4,291
|
|
|
|
N/A
|
|
|
(2)
|
|
|
8/26/10
|
|
|
6,745
|
|
|
|
N/A
|
|
|
Forfeiture of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
9,360
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
9,360
|
|
|
|
N/A
|
|
|
Grant of Restricted Stock Units
|
|
|
8/25/10
|
|
|
53,359
|
|
|
$
|
17.51
|
|
|
Grant of Option
|
|
|
8/23/10
|
|
|
3,600
|
|
|
$
|
16.45
|
|
|
(2)
|
Charles Fallon
|
|
8/30/10
|
|
|
4,297
|
|
|
|
N/A
|
|
|
(2)
|
|
|
8/26/10
|
|
|
6,755
|
|
|
|
N/A
|
|
|
Forfeiture of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
10,708
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
10,708
|
|
|
|
N/A
|
|
|
Grant of Restricted Stock Units
|
|
|
8/25/10
|
|
|
61,039
|
|
|
$
|
17.51
|
|
|
Grant of Option
|
Julio A. Ramirez
|
|
8/30/10
|
|
|
3,463
|
|
|
|
N/A
|
|
|
(2)
|
|
|
8/26/10
|
|
|
5,722
|
|
|
|
N/A
|
|
|
Forfeiture of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
8,823
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
8,823
|
|
|
|
N/A
|
|
|
Grant of Restricted Stock Units
|
|
|
8/25/10
|
|
|
50,296
|
|
|
$
|
17.51
|
|
|
Grant of Option
|
Natalia Franco
|
|
8/25/10
|
|
|
7,495
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
Kevin Higgins
|
|
8/26/10
|
|
|
1,829
|
|
|
|
N/A
|
|
|
Forfeiture of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
38,434
|
|
|
|
N/A
|
|
|
Grant of Performance Based Restricted Stock Units
|
|
|
8/25/10
|
|
|
13,485
|
|
|
$
|
17.51
|
|
|
Grant of Option
|
Peter R. Formanek
|
|
8/30/10
|
|
|
75,587
|
|
|
$
|
3.80
|
|
|
Exercise of Option
|
47
|
|
|
(1)
|
|
Does not include ordinary course vesting of outstanding options
and the issuance of Company Common Stock upon the vesting of
outstanding Restricted Stock Units, Performance Based Restricted
Stock Units and Director Stock Units previously granted under
the Companys employee benefit plans.
|
|
(2)
|
|
Shares of Performance Based Restricted Stock withheld by the
Company to satisfy tax obligations in connection with the
settlement of Performance Based Restricted Stock.
|
|
|
ITEM 7.
|
PURPOSES
OF THE TRANSACTION AND PLANS OR PROPOSALS.
|
Subject
Company Negotiations.
Except as otherwise set forth in this Statement (including in
the Exhibits to this Statement) or as incorporated in this
Statement by reference, the Company is not currently undertaking
or engaged in any negotiations in response to the Offer that
relate to, or would result in, (i) a tender offer for, or
other acquisition of, shares of Company Common Stock by the
Company, any of its subsidiaries or any other person,
(ii) any extraordinary transaction, such as a merger,
reorganization or liquidation, involving the Company or any of
its subsidiaries, (iii) any purchase, sale or transfer of a
material amount of assets of the Company or any of its
subsidiaries or (iv) any material change in the present
dividend rate or policy, or indebtedness or capitalization, of
the Company.
Except as described above or otherwise set forth in this
Statement (including in the Exhibits to this Statement) or as
incorporated in this Statement by reference, there are no
transactions, resolutions of the Company Board, agreements in
principle or signed contracts in response to the Offer that
relate to, or would result in, one or more of the events
referred to in the preceding paragraph.
|
|
ITEM 8.
|
ADDITIONAL
INFORMATION.
|
Regulatory
Approvals.
U.S.
Antitrust Approval
Parent filed a Premerger Notification and Report Form with the
Federal Trade Commission (the
FTC
) and the
Antitrust Division of the U.S. Department of Justice (the
Antitrust Division
) relating to its proposed
acquisition of the Company on September 16, 2010. The Company
expects to submit its Premerger Notification and Report Form
with the FTC and the Antitrust Division promptly thereafter.
Consequently, the required waiting period with respect to the
Offer will expire on October 1, 2010, unless earlier
terminated.
Under the provisions of the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR
Act
), applicable to the Offer, the acquisition of
shares of Company Common Stock pursuant to the Offer may be
consummated following the expiration of a
15-day
waiting period following the filing by Parent of its Premerger
Notification and Report Form with respect to the Offer, unless
Parent receives a request for additional information or
documentary material from the Antitrust Division or the FTC or
unless early termination of the waiting period is granted. If,
within the initial
15-day
waiting period, either the Antitrust Division or the FTC
requests additional information or documentary material
concerning the Offer, the waiting period will be extended
through the 10th day after the date of substantial
compliance by Parent. Complying with a request for additional
information or documentary material may take a significant
amount of time.
At any time before or after Parents acquisition of shares
of Company Common Stock pursuant to the Offer, the Antitrust
Division or the FTC could take such action under the antitrust
laws as either deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of shares of
Company Common Stock pursuant to the Offer, or seeking the
divestiture of shares of Company Common Stock acquired by Parent
or the divestiture of substantial assets of the Company or its
subsidiaries or Parent or its subsidiaries. State attorneys
general may also bring legal action under both state and Federal
antitrust laws, as applicable. Private parties may also bring
legal action under the antitrust laws under certain
circumstances. There can be no assurance that a challenge to the
Offer on antitrust grounds will not be made or, if such a
challenge is made, the result thereof.
48
If any waiting period under the HSR Act applicable to the Offer
has not expired or been terminated prior to the expiration date
of the Offer, Parent will not be obligated to proceed with the
Offer or the purchase of any shares of Company Common Stock not
previously purchased pursuant to the Offer. However, the
Purchaser must extend the Offer until at least March 2,
2011, if, on any then-scheduled expiration date, any waiting
period under the HSR Act applicable to the Offer has not expired
or been terminated.
Foreign
Antitrust Approval
The Offer may also trigger antitrust notifications in the
following jurisdictions:
Mexico.
Under
Articles 16-22
of Mexicos Federal Law of Economic Competition (the
Competition Law
) along with
Articles 15-27
of Mexicos new Regulations to the Competition Law, certain
acquisition transactions may not be consummated unless certain
information has been furnished to the Federal Competition
Commission (
FCC
) and certain waiting period
requirements have been satisfied. The initial statutory review
period can range between 15 and 35 working days from receipt of
a complete notification, depending on whether the notification
is made under the so-called fast-track procedure or the general
procedure. Transactions notified under the general procedure or
under the fast-track procedure may not be completed for 10
working days following the date of notification. If the FCC does
not issue a suspension order during the
10-day
period, the parties may close the transaction without incurring
the risk of any fine on day 11 and any time thereafter. If the
FCC issues a bar on closing order during the initial waiting
period, the parties must refrain from closing the transaction
until the Commission issues a decision. The Company and Parent
expect to make a filing with the FCC on September 21, 2010.
Consequently, the required waiting period with respect to the
Offer is expected to expire on October 12, 2010.
Turkey.
Under Articles 7, 10, 11, and 12
of the Law on the Protection of Competition, No. 4054,
dated 7 December 1994, and the Competition Authority
Comminique No. 1997/1 on the Mergers and Acquisitions
Calling for the Authorization of the Competition Board, as
amended by Communiques No. 1998/2, No. 1998/6,
No. 2000/2 and 2006/2, certain acquisition transactions may
not be consummated unless certain information has been furnished
to the Turkish Competition Authority (the
TCA
) and certain waiting period requirements
have been satisfied. The TCA must notify the parties of its
decision to approve a transaction or to open a prolonged
in-depth investigation within 30 calendar days following the
receipt of a complete notification, unless the TCA requests
additional information. If the TCA requests additional
information, the
30-day
review period will start again as of the date of submission of
the requested information. A notifiable transaction is invalid
and unenforceable under Turkish law until the date of approval
of the TCA. The Company and Parent expect to make a filing with
the TCA on September 17, 2010. Consequently, the required
waiting period with respect to the Offer is expected to expire
on October 18, 2010.
Appraisal
Rights.
No appraisal rights are available in connection with the Offer.
However, if the Offer is successful and the Merger is
consummated, stockholders of the Company who have not properly
tendered in the Offer and have neither voted in favor of the
Merger nor consented thereto in writing, and who otherwise
comply with the applicable procedures under Section 262 of
the DGCL, will be entitled to receive appraisal rights for the
fair value of their shares in accordance with
Section 262 of the DGCL. Any stockholder contemplating the
exercise of such appraisal rights should review carefully the
provisions of Section 262 of the DGCL, particularly the
procedural steps required to perfect such rights.
The obligations of the Company to notify stockholders of their
appraisal rights will depend on how the Merger is effected. If a
meeting of the Companys stockholders is held to approve
the Merger, the Company will be required to send a notice to
each stockholder of record not less than 20 days prior to
the Merger that appraisal rights are available, together with a
copy of Section 262 of the DGCL. Within 10 days after
the Effective Time, the Surviving Corporation will be required
to send a notice that the Merger has become effective to each
stockholder who delivered to the Company a demand for appraisal
prior to the vote and who did not vote in favor of the Merger.
Alternatively, if the Merger is consummated through a short-form
procedure, the Surviving Corporation will be required to send a
notice within 10 days after the date the
49
Merger has become effective to each stockholder of record on the
effective date of the Merger. The notice will inform
stockholders of the effective date of the Merger and of the
availability of, and procedure for demanding, appraisal rights,
and will include a copy of Section 262 of the DGCL.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF
THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS
OF SUCH RIGHTS.
This summary of appraisal rights under the
DGCL is not complete and is qualified in its entirety by
reference to Section 262 of the DGCL and the Offer.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE
INFORMATION SET FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY
WITH RESPECT TO ALTERNATIVES AVAILABLE TO STOCKHOLDERS IF THE
MERGER IS COMPLETED. STOCKHOLDERS WHO WILL BE ENTITLED TO
APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER WILL RECEIVE
ADDITIONAL INFORMATION CONCERNING APPRAISAL RIGHTS AND THE
PROCEDURES TO BE FOLLOWED IN CONNECTION THEREWITH BEFORE SUCH
STOCKHOLDERS HAVE TO TAKE ANY ACTION RELATING THERETO.
STOCKHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE
ENTITLED TO EXERCISE APPRAISAL RIGHTS WITH RESPECT THERETO BUT,
RATHER, WILL RECEIVE THE OFFER PRICE.
Anti-Takeover
Statute.
The Company is incorporated under the laws of the State of
Delaware. In general, Section 203 of the DGCL prevents a
Delaware corporation from engaging in a business
combination (defined to include mergers and certain other
actions) with an interested stockholder (including a
person who owns or has the right to acquire 15% or more of a
corporations outstanding voting stock) for a period of
three years following the date such person became an
interested stockholder unless, among other things,
the business combination is approved by the board of
directors of such corporation before such person became an
interested stockholder. Pursuant to the
Companys Certificate of Incorporation, the Company has
opted out of Section 203 of the DGCL and therefore
Section 203 of the DGCL will not apply to Parent or the
Purchaser or with respect to or as a result of the Offer, the
Merger or the transactions contemplated by the Merger Agreement.
Vote
Required to Approve the Merger.
The Company Board has approved the Offer, the Merger and the
Merger Agreement in accordance with the DGCL. Under
Section 253 of the DGCL, if the Purchaser acquires,
pursuant to the Offer or otherwise, at least 90% of the
outstanding shares of Company Common Stock, the Purchaser will
be able to effect the Merger after consummation of the Offer
without a vote by the Companys stockholders. If the
Purchaser acquires, pursuant to the Offer or otherwise, less
than 90% of the outstanding shares of Company Common Stock, the
affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock will be required under the DGCL
to effect the Merger. After the purchase of the shares of
Company Common Stock by the Purchaser pursuant to the Offer, the
Purchaser will own a majority of the outstanding shares of
Company Common Stock and will be able to effect the Merger
without the affirmative vote of any other stockholder of the
Company.
Top-Up.
Pursuant to the terms of the Merger Agreement, the Company
granted the Purchaser an irrevocable right to acquire shares of
Company Common Stock, which the Purchaser must exercise
immediately following consummation of the Offer, if necessary,
to purchase from the Company the number of shares of Company
Common Stock that, when added to the shares of Company Common
Stock already owned by Parent or any of its subsidiaries
following consummation of the Offer, constitutes one share of
Company Common Stock more than 90% of the shares of Company
Common Stock then outstanding. The
Top-Up
is
exercisable only once and only on the terms and conditions set
forth in the Merger Agreement, to purchase newly issued shares
of the Company Common Stock at a price per share equal to the
Offer Price. The Purchaser will deemed to have
50
exercised the
Top-Up
if
the number of shares tendered and not withdrawn in the Offer,
which when added to the number of shares owned by Parent and its
affiliates, represents less than 90% of the outstanding shares
at the Offer Closing.
The number of
Top-Up
Shares that may be issued pursuant to the
Top-Up
is
limited to the number of shares that the Company is authorized
to issue under its Certificate of Incorporation, but that are
not issued and outstanding (and are not reserved) at the time of
exercise of the
Top-Up.
The aggregate purchase price for the
Top-Up
Shares may be paid by the Purchaser, at its election, either
entirely in cash or by paying in cash an amount equal to at
least the aggregate par value of the
Top-Up
Shares and executing and delivering to the Company a promissory
note having a principal amount equal to the balance of the
aggregate purchase price to be paid for the
Top-Up
Shares. Any promissory note delivered to the Company for the
Top-Up
Shares will be due on the first anniversary of the closing of
the purchase of the
Top-Up
Shares, will bear simple interest of 5% per annum, will be full
recourse to Parent and the Purchaser, and may be prepaid without
premium or penalty.
The
Top-Up
is intended to expedite the timing of the completion of the
Merger by permitting Parent and the Purchaser to effect a
short-form merger pursuant to Section 253 of
the DGCL at a time when the approval of the Merger at a meeting
of the stockholders of the Company would otherwise be assured
because of the Purchasers ownership of a majority of the
shares of Company Common Stock following completion of the Offer.
This summary is qualified in its entirety by reference to the
Merger Agreement, which is filed as Exhibit (e)(1) hereto and is
incorporated herein by reference.
Section 14(f)
Information Statement.
The Merger Agreement provides that, following the payment by the
Purchaser for any shares of Company Common Stock pursuant to the
Offer, Parent will be entitled to designate that number of
directors of the Companys Board as will give Parent and
the Purchaser, subject to compliance with Section 14(f) of
the Exchange Act, and
Rule 14f-1
thereunder, pro rata representation on the Company Board (based
on the ratio of (i) the number of shares of Company Common
Stock that are owned by Parent and its subsidiaries (including
shares accepted for payment pursuant to the Offer) to
(ii) the total number of shares of Company Common Stock
then outstanding. The Company is obligated pursuant to the
Merger Agreement to promptly take all action necessary to effect
any such election or appointment, including (i) increasing
the size of the Company Board and (ii) obtaining the
resignation of such number of its current directors as is, in
each case, necessary to enable such designees to be so elected
or appointed to the Company Board in compliance with applicable
law. Notwithstanding anything to the contrary, prior to the
Effective Time, the Company Board shall have at least three
members who are directors on the date of the Merger Agreement
and who are not officers, stockholders or affiliates of the
Company or Parent and who will be independent for purposes of
Rule 10A-3
under the Exchange Act (
Independent
Directors
). If the number of Independent Directors
shall be reduced below two for any reason whatsoever, any
remaining Independent Directors (or Independent Director, if
there shall be only one remaining) shall be entitled to
designate persons to fill such vacancies who shall be deemed to
be Independent Directors for purposes of the Merger Agreement
or, if no Independent Directors then remain, the other directors
shall designate three persons to fill such vacancies who are not
officers, stockholders or affiliates of the Company or Parent
and who will be independent for purposes of
Rule 10A-3
under the Exchange Act, and such persons shall be deemed to be
Independent Directors for purposes of the Merger Agreement. This
summary is qualified in its entirety by reference to the Merger
Agreement, which is filed as Exhibit (e)(1) hereto and is
incorporated herein by reference.
The Information Statement attached as Annex III to this
Statement is being furnished in connection with the possible
designation by Parent, pursuant to the Merger Agreement, of
certain persons to be appointed to the Company Board, other than
at a meeting of the Companys stockholders as described in
Item 3. Past Contacts, Transactions, Negotiations
and Agreements
above and in the Information Statement,
and is incorporated herein by reference.
51
Litigation
On September 3, 2010, four purported class action
complaints were filed in the Circuit Court for the County of
Miami-Dade, Florida, captioned
Darcy Newman v. Burger
King Holdings, Inc. et. al.
, Case
No. 10-48422CA30,
Belle Cohen v. David A. Brandon, et. al
., Case
No. 10-48395CA32,
Melissa Nemeth v. Burger King Holdings, Inc. et.
al.
, Case
No. 10-48424CA05
and
Vijayalakshmi Venkataraman v. John W. Chidsey, et.
al.
, Case
No. 10-48402CA13,
by purported stockholders of the Company, in connection with the
Offer and the Merger. Each of the complaints names as defendants
the Company, each member of the Company Board (the
Individual Defendants
) and 3G Capital. The
suits allege that the Individual Defendants breached their
fiduciary duties to the Companys stockholders in
connection with the proposed sale of the Company and that 3G
Capital and the Company aided and abetted the purported breaches
of fiduciary duties. The complaint filed on behalf of Belle
Cohen includes, among others, allegations that the Individual
Defendants have failed to explore alternatives to the Offer,
that the consideration to be received by the holders of shares
is unfair and inadequate; and that the proposed transaction
employs a process that does not maximize stockholder value. The
complaints filed on behalf of Melissa Nemeth and Darcy Newman
generally allege that the Individual Defendants breached their
fiduciary duties by engaging in self-dealing and obtaining for
themselves personal benefits not shared equally by the other
holders of shares. Those complaints include allegations that the
consideration to be received by the holders of shares is unfair
and inadequate, and that the proposed transaction employs a
process which renders it unlikely that a higher bid will emerge
for the Company. The complaint filed on behalf of Vijayalakshmi
Venkataraman generally alleges that the Individual Defendants
breached their fiduciary duties by pursuing a transaction that
fails to maximize stockholder value. The complaint includes,
among others, allegations that the
40-day
go-shop period is inadequate and the proposed
transaction is intended to enable the Companys private
equity investors to dump their shares. Each of the
complaints seeks injunctive relief and one complaint also seeks
compensatory damages. The Plaintiffs in all four actions have
filed a joint agreed motion to consolidate these actions and to
appoint plaintiffs co-lead counsel. In addition, the
Company has filed a motion to transfer the actions to the
Complex Business Litigation Section of the Court, which
Plaintiffs have agreed not to oppose.
On September 8, 2010, another putative stockholder class
action suit captioned Roberto S. Queiroz v. Burger King
Holdings, Inc., et al., Case
No. 5808-VCP
was filed in the Delaware Court of Chancery against the
Individual Defendants, Burger King, 3G, 3G Capital, Parent, and
Purchaser. The complaint generally alleges that the Individual
Defendants breached their fiduciary duty to maximize stockholder
value by entering into the proposed transaction via an unfair
process and at an unfair price, and that the Merger Agreement
contains provisions that unreasonably dissuade potential suitors
from making competing offers. The complaint further alleges that
the Individual Defendants engaged in self-dealing and obtained
for themselves personal benefits not shared equally by the
stockholders. Specifically, the complaint includes allegations
that the
Top-Up
will likely lead to a short form merger without obtaining
stockholder approval, that the termination fees are unreasonable
that the no shop restriction impermissibly
constrains the Companys ability to communicate with
potential acquirers, and that the consideration to be received
by the Companys stockholders is unfair and inadequate. The
complaint also alleges that the Company and 3G aided and abetted
these alleged breaches of fiduciary duty. The complaint seeks
class certification, injunctive relief, including enjoining the
Merger and rescinding the Merger Agreement, unspecified damages,
and costs of the action as well as attorneys and
experts fees. The Company and the Individual Defendants
filed an answer to the complaint on September 9, 2010,
substantially denying the allegations of wrongdoing contained
therein. 3G filed its answer in this action on
September 15, 2010.
The Company believes the aforementioned complaints are
completely without merit, and intends to vigorously defend them.
Certain
Company Projections.
The Company does not as a matter of course make public
projections as to future performance, earnings or other results
beyond the current fiscal year due to the unpredictability of
the underlying assumptions and estimates. However, the Company
provided to Parent, the Purchaser and Lazard in August 2010, in
connection with their due diligence review, managements
internal non-public stand-alone fiscal 2011 financial forecasts
52
(the
Fiscal 2011 P&L Projections
) which
are summarized below. The Company also provided to Morgan
Stanley and Goldman Sachs for their use in connection with the
rendering of their fairness opinions to the Company Board and
performing their related financial analysis, as described under
Item 4. Opinions of Financial Advisors
,
non-public five-year standalone financial forecasts that had
been prepared by management for internal planning purposes and
that are subjective in many respects. The Company has included
below a summary of a subset of these five-year forecast which
assumes that the Company implements its previously announced
plan to refranchise approximately half of the Company restaurant
portfolio in the next three to five years (the
Five-Year Projections
). The Company believes
that the Five-Year Projections, which incorporate the impact of
the refranchising strategy, are the projections that reflect the
current operating plan for the Company on a go-forward
standalone basis. The Company Board also considered other
projections prepared by management, including those that
excluded the impact of the refranchising strategy and those that
applied alternative macroeconomic assumptions, but came to the
conclusion that the Five-Year Projections were the most
realistic. In addition, the Company provided to Morgan Stanley
and Goldman Sachs certain stand-alone fiscal 2011 free cash flow
forecasts which are summarized below (the
Free Cash
Flow Projections
, and collectively, with the Fiscal
2011 P & L Projections and the Five-Year Projections,
the
Projections
). The Fiscal 2011
P & L Projections were based on the 2011 fiscal plan
adopted by the Board, and adjusted for one-month of actual
results, while the Five-Year Projections and the Free Cash Flow
Projections were not so adjusted.
The Projections have been prepared by, and are the
responsibility of, the Companys management. The
Projections were not prepared with a view toward public
disclosure; and, accordingly, do not necessarily comply with
published guidelines of the SEC, the guidelines established by
the American Institute of Certified Public Accountants for
preparation and presentation of financial forecasts, or
generally accepted accounting principles
(
GAAP
). KPMG LLP, the Companys
independent registered public accounting firm, has not audited,
compiled or performed any procedures with respect to the
Projections and does not express an opinion or any form of
assurance related thereto. The summary of the Projections is not
being included in this Statement to influence a
stockholders decision whether to tender shares of Company
Common Stock in the Offer, but is being included because the
Fiscal 2011 Projections were made available by the Company to
Parent, the Purchaser and Lazard and the Five-Year Projections
and the Cash Flow Projections were provided to Morgan Stanley
and Goldman Sachs, as described under
Item 4.
Opinions of Financial Advisors
.
The Projections, while presented with numerical specificity,
necessarily were based on numerous variables and assumptions
that are inherently uncertain and many of which are beyond the
control of the Companys management. Because the Five-Year
Projections cover multiple years, by their nature, they become
subject to greater uncertainty with each successive year. The
assumptions upon which the Projections were based necessarily
involve judgments with respect to, among other things, future
economic, competitive and financial market conditions, all of
which are difficult or impossible to predict accurately and many
of which are beyond the Companys control. The Projections
also reflect assumptions as to certain business decisions that
are subject to change. In addition, the Projections may be
affected by the Companys ability to achieve strategic
goals, objectives and targets over the applicable periods.
Accordingly, there can be no assurance that the Projections will
be realized, and actual results may vary materially from those
shown. The inclusion of the Projections in this Statement should
not be regarded as an indication that the Company or any of its
affiliates, advisors, officers, directors or representatives
considered or consider the Projections to be predictive of
actual future events, and the Projections should not be relied
upon as such. Neither the Company nor any of its affiliates,
advisors, officers, directors or representatives can give any
assurance that actual results will not differ from the
Projections, and none of them undertakes any obligation to
update or otherwise revise or reconcile the Projections to
reflect circumstances existing after the date the Projections
were generated or to reflect the occurrence of future events
even in the event that any or all of the assumptions underlying
the Projections are shown to be in error. The Company does not
intend to make publicly available any update or other revision
to the Projections, except as otherwise required by law. Neither
the Company nor any of its affiliates, advisors, officers,
directors or representatives has made or makes any
representation to any stockholder of the Company or other person
regarding the ultimate performance of the Company compared to
the information contained in the Projections or that the
Projections
53
will be achieved. The Company has made no representation to
Parent, the Purchaser or their affiliates, in the Merger
Agreement or otherwise, concerning the Projections.
In light of the foregoing factors and the uncertainties
inherent in the Projections, stockholders are cautioned not to
place undue, if any, reliance on the Projections.
Fiscal
2011 Projections
The following is a summary of the Fiscal 2011 Projections
(dollars in millions, except per share information):
|
|
|
|
|
|
|
FY 2011 Estimate
|
|
|
Revenues
|
|
|
|
|
Company
|
|
$
|
1,846.1
|
|
Franchise
|
|
|
566.2
|
|
Property
|
|
|
114.5
|
|
|
|
|
|
|
Total Revenues
|
|
|
2,556.8
|
|
Company Restaurant expenses
|
|
|
(1,628.8
|
)
|
Selling, general and administrative expenses
|
|
|
(513.5
|
)
|
Other Income and Expenses
|
|
|
(5.7
|
)
|
Operating Income
|
|
|
348.4
|
|
Net Interest Expense
|
|
|
(49.9
|
)
|
Income Tax Expense
|
|
|
(107.5
|
)
|
|
|
|
|
|
Net Income
|
|
$
|
191.1
|
|
Earnings per share
|
|
|
|
|
Net Income -basic
|
|
$
|
1.41
|
|
Net Income diluted
|
|
$
|
1.39
|
|
EBITDA(1)
|
|
$
|
465.8
|
|
The key assumptions underlying the summary Fiscal 2011
Projections include:
|
|
|
|
|
Comparable Sales of 1.6%
|
|
|
|
Comparable Traffic of 1.3%
|
|
|
|
Commodities inflation continues
|
|
|
|
Competition for value will continue
|
|
|
|
Global economic and financial market recovery uncertain
|
|
|
|
Re-franchising will reduce Sales, EBITDA, and EPS in the short
term
|
|
|
|
Re-financing of outstanding debt will negatively impact Interest
Expense/Net Income/EPS
|
54
Cash
Flow Projections
The following is a summary of the Cash Flow Projections (dollars
in millions):
|
|
|
|
|
|
|
FY 2011
|
|
|
|
Estimate
|
|
|
EBITDA(1)
|
|
$
|
463
|
|
Cash Interest Expense, net
|
|
|
(50
|
)
|
Cash Tax Expense
|
|
|
(103
|
)
|
FX Hedging
|
|
|
|
|
Other non-cash losses/gains
|
|
|
29
|
|
Changes in working capital
|
|
|
3
|
|
Other long-term assets/liabilities
|
|
|
2
|
|
|
|
|
|
|
Operating Cash Flow
|
|
$
|
344
|
|
|
|
|
|
|
Maintenance Capital Expenditures
|
|
|
(24
|
)
|
|
|
|
|
|
Free Cash Flow
|
|
|
321
|
|
Five-Year
Projections
The following is a summary of the Five-Year Projections (dollars
in millions, except per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2011
|
|
FY 2012
|
|
FY 2013
|
|
FY 2014
|
|
FY 2015
|
|
Revenue
|
|
$
|
2,574
|
|
|
$
|
2,102
|
|
|
$
|
1,884
|
|
|
$
|
1,910
|
|
|
$
|
2,024
|
|
EBIT
|
|
|
351
|
|
|
|
426
|
|
|
|
465
|
|
|
|
528
|
|
|
|
589
|
|
Profit Before Tax
|
|
|
299
|
|
|
|
363
|
|
|
|
409
|
|
|
|
478
|
|
|
|
549
|
|
EPS
|
|
|
1.40
|
|
|
|
1.69
|
|
|
|
1.91
|
|
|
|
2.23
|
|
|
|
2.56
|
|
EBITDA(1)
|
|
|
464
|
|
|
|
518
|
|
|
|
563
|
|
|
|
620
|
|
|
|
685
|
|
|
|
|
(1)
|
|
EBITDA is a non-GAAP financial measure. EBITDA is defined as
earnings (net income) before interest, taxes, depreciation and
amortization, and is used by management to measure operating
performance of the business. The Company also uses EBITDA as a
measure to calculate certain incentive based compensation and
certain financial covenants related to the Companys credit
facility and as a factor in the Companys tangible and
intangible asset impairment test. Management believes EBITDA is
a useful measure as it reflects certain operating drivers of the
Companys business, such as sales growth, operating costs,
selling, general and administrative expenses and other operating
income and expense.
|
The key assumptions underlying the summary Five-Year Projections
include:
|
|
|
|
|
Refranchising a total of 689 restaurants over the 5 year
period, comprising of 105 in fiscal year 2011, 342 in fiscal
year 2012, 240 in fiscal year 2013 and 45 in fiscal year 2014
|
|
|
|
Comparable Sales of 1.6% in fiscal year 2011, 2.7% in fiscal
year 2012, 2.8% in fiscal year 2013, 2.9% in fiscal year 2014
and 2.8% in fiscal year 2015
|
|
|
|
Comparable Traffic of 1.3% for all years presented
|
|
|
|
Royalty Rate of 4.5% on all refranchised restaurants
|
|
|
|
Excludes 36% Estimated Tax Rate for all years presented
|
|
|
|
137.3 million weighted average shares outstanding for all
years presented and no dilutive effect of compensation grants
|
|
|
|
Cash benefits of $258 million over the five-year period,
including approximately $110 million in cash proceeds from
the refranchising of the Company restaurants and
$148 million in reduced capital expenditures. However the
run-rate EBIT set forth above excludes any impact from the
re-investment of any cash proceeds.
|
55
The Projections should be evaluated, if at all, in
conjunction with the historical financial statements and other
information regarding the Company contained elsewhere in this
Statement, the Offer to Purchase and the Companys public
filings with the SEC.
Forward-Looking
Statements.
Certain statements made in this Statement that reflect
managements expectations regarding future events and
economic performance are forward-looking in nature and,
accordingly, are subject to risks and uncertainties. These
forward-looking statements include without limitation statements
regarding the anticipated timing of filings and approvals
relating to the transaction; statements regarding the expected
timing of the completion of the transaction; statements
regarding the ability to complete the transaction considering
the various closing conditions; projected financial information;
any statements of expectation or belief; and any statements of
assumptions underlying any of the foregoing. These
forward-looking statements are only predictions based on the
Companys current expectations and projections about future
events. Important factors could cause the Companys actual
results, level of activity, performance or achievements to
differ materially from those expressed or implied by these
forward-looking statements. These factors include those risk
factors set forth in filings with the SEC, including the
Companys annual and quarterly reports, and the following:
uncertainties as to the timing of the closing of the Offer and
Merger; uncertainties as to how many of the Companys
stockholders will tender their shares of Company Common Stock in
the Offer; risks that the Offer and Merger will not close
because of a failure to satisfy one or more of the closing
conditions and that the Companys business will have been
adversely impacted during the pendency of the Offer; the effects
of disruption from the transaction making it more difficult to
maintain relationships with employees, franchisees, customers,
vendors and other business partners; risks that stockholder
litigation in connection with the Offer and Merger may result in
significant costs of defense, indemnification and liability; and
the risk that competing offers will be made.
These risks are not exhaustive and may not include factors which
could adversely impact the Companys business and financial
performance. Moreover, the Company operates in a very
competitive and rapidly changing environment. New risk factors
emerge from time to time and it is not possible for the
Companys management to predict all risk factors, nor can
it assess the impact of all factors on the Companys
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
Although the Company believes the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee
future results, level of activity, performance or achievements.
Moreover, neither the Company nor any other person assumes
responsibility for the accuracy or completeness of any of these
forward-looking statements. You should not rely upon
forward-looking statements as predictions of future events. The
Company does not undertake any responsibility to update any of
these forward-looking statements to conform its prior statements
to actual results or revised expectations.
The following Exhibits are filed herewith or incorporated herein
by reference:
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
(a)(1)
|
|
|
Offer to Purchase, dated September 16, 2010 (incorporated by
reference to Exhibit (a)(1)(A) to the Schedule TO of Blue
Acquisition Holding Corporation and Blue Acquisition Sub, Inc.,
filed with the Securities and Exchange Commission on
September 16, 2010 (the
Schedule TO
)).
|
|
(a)(2)
|
|
|
Letter of Transmittal (incorporated by reference to Exhibit
(a)(1)(B) to the Schedule TO).
|
|
(a)(3)
|
|
|
Notice of Guaranteed Delivery (incorporated by reference to
Exhibit (a)(1)(C) to the Schedule TO).
|
|
(a)(4)
|
|
|
Letter from the Information Agent to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees
(incorporated by reference to Exhibit (a)(1)(D) to the
Schedule TO).
|
|
(a)(5)
|
|
|
Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by
reference to Exhibit (a)(1)(E) to the Schedule TO).
|
56
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
(a)(6)
|
|
|
Joint Press Release issued by Blue Acquisition Holding
Corporation, Blue Acquisition Sub, Inc. and Burger King
Holdings, Inc. on September 2, 2010 (incorporated by
reference to Exhibit 99.1 to the Burger King Holdings, Inc.
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 2, 2010).
|
|
(a)(7)
|
|
|
Letter to Employees from the Chief Executive Officer of Burger
King Holdings, Inc., dated September 2, 2010 (incorporated
by reference to Exhibit 99.2 to the Burger King Holdings,
Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 2, 2010).
|
|
(a)(8)
|
|
|
Letter to Franchisees from the Chief Executive Officer of Burger
King Holdings, Inc., dated September 2, 2010 (incorporated
by reference to Exhibit 99.3 to the Burger King Holdings,
Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 2, 2010).
|
|
(a)(9)
|
|
|
Letter to Vendors and Suppliers from the Chief Executive Officer
of Burger King Holdings, Inc., dated September 2, 2010
(incorporated by reference to Exhibit 99.4 to the Burger
King Holdings, Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 2, 2010).
|
|
(a)(10)
|
|
|
Opinion of Morgan Stanley, dated September 1, 2010
(included as Annex I to this
Schedule 14D-9).
|
|
(a)(11)
|
|
|
Opinion of Goldman Sachs, dated September 2, 2010 (included
as Annex II to this
Schedule 14D-9).
|
|
(a)(12)
|
|
|
Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and
Rule 14f-1
thereunder (included as Annex III to this
Schedule 14D-9).
|
|
(a)(13)
|
|
|
Summary Advertisement as published in The New York Times on
September 16, 2010 (incorporated by reference to Exhibit
(a)(1)(H) to the Schedule TO).
|
|
(a)(14)
|
|
|
Letter, dated September 16, 2010, from John W. Chidsey to
the stockholders of Burger King Holdings, Inc.
|
|
(a)(15)
|
|
|
Voicemail Transcript recorded by John W. Chidsey, Chief
Executive Officer and Chairman of the Board of Burger King
Holdings, Inc. and sent to the Companys employees and
franchisees worldwide on September 10, 2010 (incorporated
by reference to Schedule 14A filed with the Securities and
Exchange Commission on September 13, 2010).
|
|
(a)(16)
|
|
|
Joint Press Release issued by Blue Acquisition Holding
Corporation, Blue Acquisition Sub, Inc. and Burger King
Holdings, Inc. on September 16, 2010 (incorporated by
reference to Exhibit (a)(1)(I) to the Schedule TO).
|
|
(e)(1)
|
|
|
Agreement and Plan of Merger, dated as of September 2,
2010, among Blue Acquisition Holding Corporation, Blue
Acquisition Sub, Inc. and Burger King Holdings, Inc.
(incorporated by reference to Exhibit 2.1 to the Burger
King Holdings, Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
|
(e)(2)
|
|
|
Limited Guaranty, dated as of September 2, 2010, delivered
by 3G Special Situations Fund II, L.P. in favor of Burger King
Holdings, Inc. (incorporated by reference to Exhibit (d)(3) to
the Schedule TO).
|
|
(e)(3)
|
|
|
Equity Commitment Letter, dated as of September 2, 2010,
from 3G Special Situations Fund II, L.P. to Blue Acquisition
Holding Corporation (incorporated by reference to Exhibit (d)(4)
to the Schedule TO).
|
|
(e)(4)
|
|
|
Non-Disclosure and Standstill Agreement, dated as of
April 26, 2010, between 3G Capital Partners Ltd. and Burger
King Holdings, Inc.
|
|
(e)(5)
|
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and John W. Chidsey, dated as of April 1,
2010 (incorporated by reference to Exhibit 10.62 to the
Burger King Holdings, Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
|
(e)(6)
|
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and Ben Wells, dated as of December 8,
2008 (incorporated by reference to Exhibit 10.63 to the
Burger King Holdings, Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
|
(e)(7)
|
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and Anne Chwat, dated as of December 8,
2008 (incorporated by reference to Exhibit 10.64 to the
Burger King Holdings, Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
57
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
(e)(8)
|
|
|
Amendment No. 1, dated as of September 1, 2010, to the
Amended and Restated Employment Agreement by and between Burger
King Corporation and Peter Smith, dated as of December 8,
2008 (incorporated by reference to Exhibit 10.65 to the
Burger King Holdings, Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
|
(e)(9)
|
|
|
Amended and Restated Employment Agreement by and between John W.
Chidsey and Burger King Corporation, dated April 1, 2010
(Incorporated by reference to the Burger King Holdings, Inc.
Quarterly Report on
Form 10-Q
filed with the Securities and Exchange Commission on
April 30, 2010).
|
|
(e)(10)
|
|
|
Amended and Restated Employment Agreement by and between Ben K.
Wells and Burger King Corporation, dated December 8, 2008
(Incorporated by reference to the Burger King Holdings, Inc.
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
August 27, 2009).
|
|
(e)(11)
|
|
|
Amended and Restated Employment Agreement by and between Anne
Chwat and Burger King Corporation, dated December 8, 2008.
|
|
(e)(12)
|
|
|
Amended and Restated Employment Agreement by and between Peter
Smith and Burger King Corporation, dated December 8, 2008.
|
|
(e)(13)
|
|
|
Amended and Restated Employment Agreement by and between Charles
M. Fallon and Burger King Corporation, dated December 8,
2008 (Incorporated by reference to the Burger King Holdings,
Inc. Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
August 27, 2009).
|
|
(e)(14)
|
|
|
Amended and Restated Employment Agreement by and between Julio
Ramirez and Burger King Corporation, dated December 8, 2008.
|
|
(e)(15)
|
|
|
Employment Agreement by and between Natalia Franco and Burger
King Corporation, dated May 4, 2010.
|
|
(e)(16)
|
|
|
Indemnity Agreement by and between Natalia Franco and Burger
King Corporation, dated May 4, 2010.
|
|
(e)(17)
|
|
|
Employment Agreement by and between Kevin Higgins and Burger
King Corporation, dated July 10, 2009.
|
|
(e)(18)
|
|
|
Stockholder Tender Agreement, dated as of September 2,
2010, by and between Burger King Holdings, Inc. and certain
private equity funds controlled by Bain Capital Partners
(Incorporated by reference to Exhibit 99.1 to the Burger
King Holdings, Inc. Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
|
(e)(19)
|
|
|
Stockholder Tender Agreement, dated as of September 2,
2010, by and between Burger King Holdings, Inc. and certain
private equity funds controlled by the Goldman Sachs Funds
(Incorporated by reference to Exhibit 99.2 to the Burger
King Holdings, Inc.Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
|
(e)(20)
|
|
|
Stockholder Tender Agreement, dated as of September 2,
2010, by and between Burger King Holdings, Inc. and certain
private equity funds controlled by TPG Capital (Incorporated by
reference to Exhibit 99.3 to the Burger King Holdings, Inc.
Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 3, 2010).
|
|
(e)(21)
|
|
|
Form of Amended and Restated Shareholders Agreement by and
among Burger King Holdings, Inc., Burger King Corporation, TPG
BK Holdco LLC, GS Capital Partners 2000, L.P., GS Capital
Partners 2000 Offshore, L.P., GS Capital Partners 2000
GmbH & Co. Beteiligungs KG, GS Capital Partners 2000
Employee Fund, L.P., Bridge Street Special Opportunities
Fund 2000, L.P., Stone Street Fund 2000, L.P., Goldman
Sachs Direct Investment Fund 2000, L.P., GS Private Equity
Partners 2000, L.P., GS Private Equity Partners 2000 Offshore
Holdings, L.P., GS Private Equity Partners
2000-Direct
Investment Fund, L.P., Bain Capital Integral Investors, LLC,
Bain Capital VII Coinvestment Fund, LLC and BCIP TCV, LLC
(Incorporated by reference to the Companys Registration
Statement on
Form S-1
(File
No. 333-131897)
filed with the Securities and Exchange Commission on May 2,
2006).
|
58
Annex I Morgan Stanley Opinion Letter
dated September 1, 2010
Annex II Goldman Sachs Opinion Letter dated
September 2, 2010
Annex III Information Statement dated
September 16, 2010
59
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is
true, complete and correct.
BURGER KING HOLDINGS, INC.
Name: John W. Chidsey
|
|
|
|
Title:
|
Chairman and Chief Executive Officer
|
Dated: September 16, 2010
60
Annex
I
September 1,
2010
Board of Directors
Burger King Holdings, Inc.
5505 Blue Lagoon Drive
Miami, Florida 33126
Members of the Board:
We understand that Burger King Holdings, Inc. (Burger
King or the Company), Blue Acquisition Holding
Corporation (the Buyer), and Blue Acquisition Sub,
Inc., a wholly owned subsidiary of the Buyer (Acquisition
Sub), propose to enter into an Agreement and Plan of
Merger, substantially in the form of the draft dated
September 1, 2010 (the Merger Agreement), which
provides, among other things, for (i) the commencement by
Acquisition Sub of a tender offer (the Tender Offer)
for all outstanding shares of common stock, par value $0.01 per
share (the Company Common Stock) of the Company for
$24.00 per share in cash (the Consideration), and
(ii) the subsequent merger (the Merger) of
Acquisition Sub with and into the Company. Pursuant to the
Merger, the Company will become a wholly owned subsidiary of the
Buyer, and each outstanding share of the Company Common Stock,
other than shares held in treasury, shares held by the Buyer or
Acquisition Sub or shares as to which dissenters rights
have been perfected, will be converted into the right to receive
the Consideration. The terms and conditions of the Tender Offer
and the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration
to be received by the holders of shares of the Company Common
Stock pursuant to the Merger Agreement is fair from a financial
point of view to such holders.
For purposes of the opinion set forth herein, we have:
1) Reviewed certain publicly available financial statements
and other business and financial information of the Company;
2) Reviewed certain internal financial and operating data
concerning the Company;
3) Reviewed certain financial projections prepared by the
management of the Company;
4) Discussed the past and current operations and financial
condition and the prospects of the Company with senior
executives of the Company;
5) Reviewed the reported prices and trading activity for
the Company Common Stock;
6) Compared the financial performance of the Company and
the price and trading activity of the Company Common Stock with
that of certain other comparable publicly-traded companies and
their securities;
I-1
7) Reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
8) Participated in certain discussions and negotiations
among representatives of the Company, the Buyer, certain parties
and their respective financial and legal advisors;
9) Reviewed the Merger Agreement, drafts of equity and debt
commitment letters, substantially in the forms of the drafts
dated August 31, 2010 and September 1, 2010,
respectively, from certain lenders and other parties (the
Commitment Letters) and certain related
documents; and
10) Performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon, without independent
verification, the accuracy and completeness of the information
that was publicly available or supplied or otherwise made
available to us by the Company, and formed a substantial basis
for this opinion. With respect to the financial projections, we
have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the management of the Company of the future financial
performance of the Company. In addition, we have assumed that
the Tender Offer and the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement
without any waiver, amendment or delay of any terms or
conditions and that the Buyer will obtain financing in
accordance with the terms set forth in the Commitment Letters.
Morgan Stanley has assumed that in connection with the receipt
of all the necessary governmental, regulatory or other approvals
and consents required for the proposed Merger, no delays,
limitations, conditions or restrictions will be imposed that
would have a material adverse effect on the contemplated
benefits expected to be derived in the proposed Merger. We are
not legal, tax or regulatory advisors. We are financial advisors
only and have relied upon, without independent verification, the
assessment of the Buyer and the Company and their legal, tax or
regulatory advisors with respect to legal, tax or regulatory
matters. We express no opinion with respect to the fairness of
the amount or nature of the compensation to any of the
Companys officers, directors or employees, or any class of
such persons, relative to the Consideration to be received by
the holders of shares of the Company Common Stock in the
transaction. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have
we been furnished with any such appraisals. Our opinion is
necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof. Events occurring after the date
hereof may affect this opinion and the assumptions used in
preparing it, and we do not assume any obligation to update,
revise or reaffirm this opinion.
In arriving at our opinion, we were not authorized to solicit
and did not solicit interest from any party with respect to the
acquisition, business combination or other extraordinary
transaction, involving the Company, nor did we negotiate with
any of the parties, other than the Buyer, which expressed
interest to Morgan Stanley in the possible acquisition of the
Company or certain of its constituent businesses.
We have acted as financial advisor to the Board of Directors of
the Company in connection with this transaction and will receive
a fee for our services, a substantial portion of which is
contingent upon the closing of the Merger. In the two years
prior to the date hereof, we have provided financial advisory
and financing services for the Company and have received fees in
connection with such services. Morgan Stanley may also seek to
provide such services to the Buyer and the Company in the future
and expects to receive fees for the rendering of these services.
Please note that Morgan Stanley is a global financial services
firm engaged in the securities, investment management and
individual wealth management businesses. Our securities business
is engaged in securities underwriting, trading and brokerage
activities, foreign exchange, commodities and derivatives
trading, prime brokerage, as well as providing investment
banking, financing and financial advisory services. Morgan
Stanley, its affiliates, directors and officers may at any time
invest on a principal basis or manage funds that invest, hold
long or short positions, finance positions, and may trade or
otherwise structure and effect transactions, for their own
account or the accounts of its customers, in debt or equity
securities or loans of the Buyer or its
I-2
affiliates, the Company, or any other company, or any currency
or commodity, that may be involved in this transaction, or any
related derivative instrument.
This opinion has been approved by a committee of Morgan Stanley
investment banking and other professionals in accordance with
our customary practice. This opinion is for the information of
the Board of Directors of the Company and may not be used for
any other purpose without our prior written consent, except that
a copy of this opinion may be included in its entirety in any
filing the Company is required to make with the Securities and
Exchange Commission in connection with this transaction if such
inclusion is required by applicable law. This opinion does not
in any manner address the prices at which the Company Common
Stock will trade at any time. In addition, we express no opinion
or recommendation as to whether the holders of shares of the
Company Common Stock should tender such shares in the Tender
Offer, how such holders should vote at any shareholders
meeting that may be held in connection with the Merger or
whether such holders should take any other action with respect
to the Tender Offer or the Merger.
Based on and subject to the foregoing, we are of the opinion on
the date hereof that the Consideration to be received by the
holders of shares of the Company Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such
holders.
Very truly yours,
MORGAN
STANLEY & CO.
INCORPORATED
Carmen Molinos
Managing Director
I-3
Annex
II
PERSONAL
AND CONFIDENTIAL
September 2,
2010
Board of Directors
Burger King Holdings, Inc.
5505 Blue Lagoon Drive
Miami, FL 33126
Gentlemen:
You have requested our opinion as to the fairness from a
financial point of view to the holders (other than Blue
Acquisition Holding Corporation (Blue) and its
affiliates) of the outstanding shares of common stock, par value
$0.01 per share (the Shares), of Burger King
Holdings, Inc. (the Company) of the $24.00 per Share
in cash to be paid to such holders pursuant to the Agreement and
Plan of Merger, dated as of September 2
,
2010 (the
Agreement), by and among Blue, Blue Acquisition Sub,
Inc., a wholly owned subsidiary of Blue (Acquisition
Sub), and the Company. The Agreement provides for a tender
offer for all of the Shares (the Tender Offer)
pursuant to which Acquisition Sub will pay $24.00 in cash for
each Share accepted. The Agreement further provides that,
following completion of the Tender Offer or if the Tender Offer
does not close, under circumstances specified in the Agreement,
Acquisition Sub will be merged with and into the Company (the
Merger) and each outstanding Share (other than
Shares directly owned by the Company as treasury stock or by
Blue or Acquisition Sub, or any Appraisal Shares (as defined in
the Agreement)) will be converted into the right to be paid
$24.00 in cash.
Goldman, Sachs & Co. and its affiliates are engaged in
investment banking and financial advisory services, commercial
banking, securities trading, investment management, principal
investment, financial planning, benefits counseling, risk
management, hedging, financing, brokerage activities and other
financial and non-financial activities and services for various
persons and entities. In the ordinary course of these activities
and services, Goldman, Sachs & Co. and its affiliates
may at any time make or hold long or short positions and
investments, as well as actively trade or effect transactions,
in the equity, debt and other securities (or related derivative
securities) and financial instruments (including bank loans and
other obligations) of the Company, Blue, any of their respective
affiliates and third parties, including affiliates and portfolio
companies of 3G Capital Partners Ltd., an affiliate of Blue
(3G), and TPG Capital (TPG) and Bain
Capital, LLC (Bain), each a significant shareholder
of the Company, or any currency or commodity that may be
involved in the transactions contemplated by the Agreement (the
Transactions) for their own account and for the
accounts of their customers. We have acted as financial advisor
to the Company in connection with, and have participated in
certain of the negotiations leading to, the Transactions. We
expect to receive fees for our services in connection with the
Transactions, the principal portion of which is contingent upon
consummation of the Transactions, and the Company has agreed to
reimburse our expenses arising, and indemnify us against certain
liabilities that may arise, out of our engagement. We have
provided certain investment banking services to the Company and
its affiliates from time to time. We have also provided from
time to time and are currently providing certain investment
banking to Bain and its affiliates and portfolio companies for
which our Investment Banking Division has received, and may
receive, compensation, including having acted as joint lead
arranger for a new term loan (aggregate principal amount of
$250,000,000) for SunGard Data Systems Inc., a portfolio company
of Bain, in September 2008; as joint bookrunner on a high yield
offering (aggregate principal amount of $1,100,000,000) for
Warner Music Group, a portfolio company of Bain, in May 2009; as
joint bookrunner on high yield offerings (aggregate principal
amount of $2,900,000,000) for HCA Inc., a portfolio company of
Bain, in April 2009 and March 2010; as joint
II-1
bookrunner with respect to a high yield offering (aggregate
principal amount of $2,500,000,000) for Clear Channel
Communications Inc., a portfolio company of Bain, in December
2009; and as joint lead arranger with respect to a term loan
(aggregate principal amount of $1,500,000,000) for Warner
Chilcott Plc, a portfolio company of Bain, in August 2010. In
addition, we have provided from time to time and are currently
providing certain investment banking services to TPG and its
affiliates and portfolio companies for which our Investment
Banking Division has received, and may receive, compensation,
including having acted as joint bookrunner on a notes offering
(aggregate principal amount of $1,500,000,000) by TXU Electric
Delivery Company, a portfolio company of TPG, in September 2008;
as a joint lead arranger for a term loan (aggregate principal
amount of $250,000,000) for SunGard Data Systems Inc., a
portfolio company of TPG, in September 2008; as financial
advisor to ALLTEL Corporation, a former portfolio company of
TPG, in connection with its sale in January 2009; and as
co-manager of a high yield offering (aggregate principal amount
of $1,000,000,000) by Harrahs Entertainment Inc., a
portfolio company of TPG, in May 2009. We may also in the future
provide investment banking services to the Company, its
affiliates and 3G, TPG, Bain and their respective affiliates and
portfolio companies for which our Investment Banking Division
may receive compensation. Affiliates of Goldman,
Sachs & Co. (the GS Funds) currently own,
in the aggregate, approximately 10.3% of the outstanding Shares
and receive certain management fees from the Company. In
connection with the Transactions, the GS Funds have entered into
a Sponsor Tender Agreement (as defined in the Agreement).
Goldman, Sachs & Co. may be deemed to directly or
indirectly own the Shares which are owned directly or indirectly
by the GS Funds. Sanjeev K. Mehra, a Managing Director of
Goldman, Sachs & Co., is a director of the Company.
Affiliates of Goldman, Sachs & Co. also may have
co-invested with 3G, TPG, Bain and their respective affiliates
from time to time and may have invested in limited partnership
units of affiliates of 3G, TPG and Bain from time to time and
may do so in the future.
In connection with this opinion, we have reviewed, among other
things, the Agreement, annual reports to stockholders and Annual
Reports on
Form 10-K
of the Company for the five fiscal years ended June 30,
2010; certain interim reports to stockholders and Quarterly
Reports on
Form 10-Q
of the Company; certain other communications from the Company to
its stockholders; certain publicly available research analyst
reports for the Company; and certain internal financial analyses
and forecasts for the Company prepared by its management,
including the Refranchise Plan, which was approved for our use
by the Company (such Refranchise Plan being referred to as the
Forecast). We have also held discussions with
members of the senior management of the Company regarding their
assessment of the past and current business operations,
financial condition and future prospects of the Company. In
addition, we have also reviewed the reported price and trading
activity for the Shares; compared certain financial and stock
market information for the Company with similar information for
certain other companies the securities of which are publicly
traded; reviewed the financial terms of certain recent business
combinations in the restaurant industry specifically and in
other industries generally; and performed such other studies and
analyses, and considered such other factors, as we deemed
appropriate.
For purposes of rendering this opinion, we have relied upon and
assumed, without assuming any responsibility for independent
verification, the accuracy and completeness of all of the
financial, legal, regulatory, tax, accounting and other
information provided to, discussed with or reviewed by, us; and
we do not assume any responsibility for any such information. In
that regard, we have assumed with your consent that the Forecast
has been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of
the Company. We have not made an independent evaluation or
appraisal of the assets and liabilities (including any
contingent, derivative or other off-balance-sheet assets and
liabilities) of the Company or any of its subsidiaries and we
have not been furnished with any such evaluation or appraisal.
We have assumed that all governmental, regulatory or other
consents and approvals necessary for the consummation of the
Transactions will be obtained without any adverse effect on the
expected benefits of the Transactions in any way meaningful to
our analysis. We also have assumed that the Transactions will be
consummated on the terms set forth in the Agreement, without the
waiver or modification of any term or condition the effect of
which would be in any way meaningful to our analysis. Our
opinion does not address any legal, regulatory, tax or
accounting matters.
Our opinion does not address the underlying business decision of
the Company to engage in the Transactions, or the relative
merits of the Transactions as compared to any strategic
alternatives that may be
II-2
available to the Company. We were not requested to solicit, and
did not solicit, interest from other parties with respect to an
acquisition of or other business combination with the Company.
This opinion addresses only the fairness from a financial point
of view, as of the date hereof, of the $24.00 per Share in cash
to be paid to the holders (other than Blue and its affiliates)
of Shares pursuant to the Agreement. We do not express any view
on, and our opinion does not address, any other term or aspect
of the Agreement or Transactions or any term or aspect of any
other agreement or instrument contemplated by the Agreement or
entered into or amended in connection with the Transactions,
including, without limitation, the fairness of the Transactions
to, or any consideration received in connection therewith by,
the holders of any other class of securities, creditors, or
other constituencies of the Company; nor as to the fairness of
the amount or nature of any compensation to be paid or payable
to any of the officers, directors or employees of the Company,
or class of such persons, in connection with the Transactions,
whether relative to the $24.00 per Share in cash to be paid to
the holders (other than Blue and its affiliates) of Shares
pursuant to the Agreement or otherwise. In addition, we are not
expressing any opinion as to the impact of the Transaction on
the solvency or viability of the Company or Blue or the ability
of the Company or Blue to pay their respective obligations when
they become due. Our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof and we
assume no responsibility for updating, revising or reaffirming
this opinion based on circumstances, developments or events
occurring after the date hereof. Our advisory services and the
opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in
connection with its consideration of the Transactions and such
opinion does not constitute a recommendation as to whether or
not any holder of Shares should tender such Shares in connection
with the Tender Offer or how any holder of Shares should vote
with respect to the Merger or any other matter. This opinion has
been approved by a fairness committee of Goldman,
Sachs & Co.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the $24.00 per Share in cash to be paid
to the holders (other than Blue and its affiliates) of Shares
pursuant to the Agreement is fair from a financial point of view
to such holders.
Very truly yours,
(Goldman, Sachs & Co.)
II-3
Annex
III
BURGER
KING HOLDINGS, INC.
5505 BLUE LAGOON DRIVE
MIAMI, FLORIDA 33126
INFORMATION
STATEMENT
PURSUANT TO SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14f-1
THEREUNDER
WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY
Burger King Holdings, Inc. (Burger King Holdings,
the Company, we or our) is
mailing this Information Statement on or about September 16,
2010 to holders of our common stock as part of the
Solicitation/Recommendation Statement on
Schedule 14D-9
(the
Schedule 14D-9).
The Schedule 14D-9 relates to our position with respect to the
tender offer by Blue Acquisition Sub, Inc., a Delaware
corporation (Sub) and a wholly-owned subsidiary of
Blue Acquisition Holding Corporation, a Delaware corporation
(Parent), for all of our issued and outstanding
shares of common stock. You are receiving this Information
Statement in connection with the possible election of persons
designated by Parent to at least a majority of the seats on our
Board of Directors. Such designation is to be made pursuant to
the Agreement and Plan of Merger, dated as of September 2,
2010, by and among the Company, Parent and Sub (the Merger
Agreement).
Pursuant to the Merger Agreement, Sub commenced a cash tender
offer on September 16, 2010 to purchase all of our issued
and outstanding shares at a price of $24.00 per share, net to
the holder in cash, without interest and less any required
withholding taxes, upon the terms and conditions set forth in
the Offer to Purchase dated September 16, 2010 (the
Offer to Purchase) and the related Letter of
Transmittal (which, together with any amendments or supplements,
collectively, constitute the Offer). The initial
expiration date of the Offer is 12:00 midnight, New York City
time, on October 14, 2010, subject to extension in certain
circumstances as required or permitted by the Merger Agreement.
At that time, if all conditions to the Offer have been satisfied
or waived, Sub will purchase all shares validly tendered
pursuant to the Offer and not validly withdrawn. Copies of the
Offer to Purchase and the related Letter of Transmittal have
been mailed with the
Schedule 14D-9
to shareholders and are filed as exhibits to the
Schedule 14D-9
filed by the Company with the Securities and Exchange Commission
(the SEC) on September 16, 2010.
The Merger Agreement provides that, upon acceptance for payment
of shares pursuant to and subject to the conditions of the
Offer, Parent shall be entitled to designate, from time to time,
to serve on the Board, such number of directors as will give
Parent representation equal to at least that number of directors
(rounded up to the next whole number) determined by multiplying
(i) the total number of directors on the Board of Directors
(giving effect to the directors elected or appointed pursuant to
the right of Parent described in this paragraph) by
(ii) the percentage that (A) the number of shares
owned by Parent and its subsidiaries (including shares accepted
for payment pursuant to the Offer) bears to (B) the number
of shares then outstanding. We have agreed to take, upon
Parents request, all action requested by Parent necessary
to cause Parents designees to be elected or appointed to
the Board of Directors, including obtaining resignations of
incumbent directors and increasing the size of the Board of
Directors. As a result, Parent will have the ability to
designate a majority of our Board of Directors following the
consummation of the Offer.
This Information Statement is required by Section 14(f) of
the Securities Exchange Act of 1934, as amended (the
Exchange Act), and
Rule 14f-1
thereunder, in connection with the appointment of Parents
designees to our Board of Directors. You are urged to read this
Information Statement carefully. You are not, however, required
to take any action. The information contained in this
Information Statement, including information incorporated herein
by reference, concerning Parent and Subs designees has
been furnished to us by Parent, and we assume no responsibility
for the accuracy or completeness of such information.
III-1
SUB
DESIGNEES
Parent has informed us that it will choose its designees to the
Board of Directors from among the persons identified below. The
following paragraphs set forth, with respect to each individual
who may be designated by Parent as a designee, the name, age of
the individual as of the date hereof, and such individuals
present principal occupation and employment history during the
past five years.
Peter
Harf
Peter Harf, 63, has served as an independent Board member of
Anheuser Busch-InBev since 2002 and as Chairman since 2006. Mr
Harf has served as Chief Executive Officer of Joh. A. Benckiser,
a German manufacturer and marketer of household and personal
care products since 1997. Since 1993 he has served as Chairman
of Coty, a global cosmetics group, which is owned by Joh A.
Benckiser, Chairman of Labelux, a producer of luxury goods based
in Switzerland and Deputy Chairman of Reckitt Benckiser, a
leading fast moving consumer goods company.
Paul
J. Fribourg
Paul J. Fribourg, 56, has served as the Chairman and Chief
Executive Officer of Continental Grain Company, an international
agribusiness and investment company with investments in poultry,
pork and beef businesses, since 1997. Prior to taking this role
at one of the largest privately-held corporations in the United
States, he held a variety of positions with increasing
responsibility-from Merchandiser and Product Line Manager to
Group President and Chief Operating Officer.
Mr. Fribourg has been a director of Loews Corporation, one
of the largest diversified holding companies, since 1997.
Mr. Fribourg is also a director of Estee Lauder Companies,
Inc. He was a director of Smithfield Foods, Inc. from 2007 until
2009, Power Corporation of Canada from 2005 until 2008, Premium
Standard Farms, Inc. from 1998 until 2007 and Vivendi Universal,
S.A. from 2003 until 2006.
Alexandre
Behring
Alexandre Behring, 43, has been Co-founder, Managing Partner and
Board Member of 3G Capital since late 2004. Previously, he
served as Chief Executive Officer of America Latina Logistica
(ALL), Latin Americas largest railroad and logistics
company, from July 1998 to December 2004 and served as a member
of the Boards Management Committee since December 1996.
Mr. Behring has served as a director of the railroad CSX
since 2008.
Previously, Mr. Behring was a Partner and Board Member of
GP Investimentos from 1994 to 2004. Prior to that he was the
Co-founder and Managing Partner of Modus OSI Technologies.
Bernardo
Hees
Bernardo Hees, 40, joined 3G Capital as a Partner in July 2010.
Previously, he was Chief Executive Officer of America Latina
Logistica (ALL), Latin Americas largest railroad and
logistics company, since January 2005 and served on its board of
directors. He served as Chief Operating Officer at ALL since
November 2003.
Mr. Hees joined ALL in 1998 as a Logistics Analyst,
subsequently holding various positions including Operational
Planning Manager, Chief Financial Officer and Commercial
Officer, and in 2004, held the position of
Director-Superintendent.
Carlos
Alberto da Veiga Sicupira
Carlos Sicupira, 62, has been Chairman of Lojas Americanas, one
of South Americas largest retailers, since 1981, where he
served as Chief Executive Officer until 1992. He has been a
board member of AmBev since 1990, a board member of Quilmes
since 2002, and a member of the Board of Deans Advisors of
Harvard Business School since 1998.
III-2
Marcel
Herrmann Telles
Marcel Herrmann Telles, 60, served as Chief Executive Officer of
Companhia Cervejaria Brahma from 1989 to 1999. He is the
Co-Chairman of the Board of Directors of AmBev where he has
served as a director since 2000. Mr. Telles also serves as
Chairman of the Board of Companhia Cervej Brahma and is
currently a member of the Board of directors of Lojas Americanas
S.A. He has also served as a Director of Quilmes Industrial SA.
Parent has informed us that each of the persons listed above who
may be chosen has consented to act as a director of the Company,
if so designated.
Parent has informed us that, to the best of its knowledge, none
of the persons listed above (1) is currently a director of,
or holds any position with, the Company, or (2) has a
familial relationship with any directors or executive officers
of the Company. We have been advised that, to the best knowledge
of Parent, except as disclosed in the Offer to Purchase, none of
the persons listed above beneficially owns any equity securities
(or rights to acquire such equity securities) of the Company and
none has been involved in any transactions with us or any of our
directors, executive officers, affiliates or associates which
are required to be disclosed pursuant to the rules and
regulations of the SEC.
Parent has informed us that, except as disclosed in the Offer to
Purchase, to the best of its knowledge, none of the persons
listed above has been convicted in a criminal proceeding
(excluding traffic violations or misdemeanors) or has been a
party to any judicial or administrative proceeding during the
past ten years (except for matters that were dismissed without
sanction or settlement) that resulted in a judgment, decree or
final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state
securities laws.
It is expected that Parents and Subs designees may
assume office at any time following the purchase by Sub of
shares pursuant to the Offer, which purchase cannot be earlier
than 12:00 midnight, New York City time, on October 14,
2010, and that, upon assuming office, Parents and
Subs designees will thereafter constitute at least a
majority of our Board of Directors. It is currently not known
which of our current directors would resign, if any.
INFORMATION
CONCERNING OUTSTANDING SECURITIES
Our authorized common stock consists of 300,000,000 shares,
par value $0.01 per share. As of September 13, 2010, a
total of 136,465,856 shares were issued and outstanding.
The shares constitute the only class of our securities that is
entitled to vote at a meeting of our shareholders. As of the
date of this Information Statement, Parent and its affiliates,
including Sub, do not own of record any shares of our common
stock.
CORPORATE
GOVERNANCE PRINCIPLES, COMMITTEES AND
DIRECTOR INFORMATION CURRENT BOARD OF DIRECTORS
Our Amended and Restated Certificate of Incorporation provides
that the number of directors constituting the Board of Directors
shall not be fewer than three or more than 15, with the exact
number to be fixed by a resolution adopted by the affirmative
vote of a majority of the Board. The Board of Directors has
fixed the number of directors at 10. The term of office of each
director is one year and each director continues in office until
he resigns or until a successor has been elected and qualified.
John W. Chidsey, Richard W. Boyce, David A. Brandon, Ronald M.
Dykes, Peter R. Formanek, Manuel A. Garcia, Sanjeev K. Mehra,
Stephen G. Pagliuca, Brian T. Swette and Kneeland C. Youngblood
currently serve as directors. Messrs. Boyce, Pagliuca and
Mehra were appointed to the Board of Directors by certain
private equity funds affiliated with each of TPG Capital, Bain
Capital Partners and Goldman, Sachs & Co. (the
Goldman Sachs Funds) respectively, pursuant to the
Shareholders Agreement referred to below under
Corporate Governance Principles.
III-3
The following table sets forth the name, age, principal
occupation of, and other information regarding, each of the
current directors of the Company:
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John W. Chidsey
Director since 2006
Age 48
|
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Mr. Chidsey has served as Chairman of our Board since July 1,
2008 and has served as Chief Executive Officer since April 2006.
From September 2005 until April 2006, he served as our President
and Chief Financial Officer and from June 2004 until September
2005, he was our President, North America. Mr. Chidsey
joined us as Executive Vice President, Chief Administrative and
Financial Officer in March 2004 and held that position until
June 2004. From January 1996 to March 2003, Mr. Chidsey served
in numerous positions at Cendant Corporation (a business and
consumer services provider), including Chief Executive Officer
of the Vehicle Services Division and the Financial Services
Division. Mr. Chidsey is a director of HealthSouth Corporation
(a healthcare services provider) and is also a member of the
Board of Trustees of Davidson College.
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Mr. Chidsey has extensive experience in managing and leading
franchised and branded businesses due to his long tenures at
Cendant, PepsiCo. and the Company. He also has experience in
matters of finance, corporate strategy and senior leadership
relevant to large public companies. Mr. Chidsey is a certified
public accountant and a member of the Georgia Bar.
|
Richard W. Boyce
Director since 2002
Age 56
|
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Mr. Boyce has been a Partner of TPG Capital L.P. (formerly Texas
Pacific Group) based in San Francisco, California since
January 1997. Mr. Boyce is a director of LPL Investment
Holdings, Inc. (a holding company for one of the largest
brokerage firms in the U.S.) and Direct General Corporation (an
insurance provider). He has served as a director of On
Semiconductor Corp. (a provider of semiconductor and integrated
circuit devices) and Gate Gourmet (a provider of airline
catering and provisioning services).
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Mr. Boyce has financial, operating and management experience
gained through his roles as chief executive officer of J. Crew
Group, Inc. (a clothing retailer) and as a former chairman of
the board of directors of Burger King Corporation. He also has a
high level of financial literacy gained through his investment
experience as a partner at TPG Capital in addition to knowledge
and experience gained through service on the boards of numerous
public companies.
|
David A. Brandon
Director since 2003
Age 58
|
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David A. Brandon has served on our Board since September 2003.
Mr. Brandon is Director of Athletics at The University of
Michigan and has served in that role since March 2010. He
previously served as the Chairman and CEO of Dominos Pizza
in Ann Arbor, Michigan from March 1999 through March 2010. Mr.
Brandon is a director of The TJX Companies (a discount retailer
of apparel and home fashion), Dominos Pizza, Kaydon
Corporation (a designer and manufacturer of engineered
performance products) and DTE Energy (a technology provider for
residential and commercial electric natural gas)
.
He
previously served as a director of Northwest Airlines.
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Mr. Brandon has experience in senior leadership and management
roles in various businesses operating in global markets and
spanning a diverse range of products and services, including
retail pizza delivery and distribution through his role as the
CEO of Dominos Pizza for more than 10 years. The
Board benefits from Mr. Brandons breadth of knowledge and
insight into the management of rapid growth and global
expansion, marketing, advertising, brand management and
operations.
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III-4
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Ronald M. Dykes
Director since 2007
Age 63
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Mr. Dykes has been a director since April 2007 and lead
independent director since April 2010. Mr. Dykes most
recently served as Chief Financial Officer of BellSouth
Corporation, a position he retired from in 2005. Prior to his
retirement, Mr. Dykes worked for BellSouth Corporation and its
predecessor entities in various capacities for over
34 years. Mr. Dykes is a director of American Tower
Corporation (an operator of wireless communication towers), and
from October 2000 through December 31, 2005, also served as a
director of Cingular Wireless, most recently as Chairman of the
Board.
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Mr. Dykes has management experience in communications network
operations and engineering, financial expertise with companies
in the wireless communications sector, substantial experience as
a director for public companies and years of experience
providing strategic development and advisory services to global
companies.
|
Peter R. Formanek
Director since 2003
Age 67
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Mr. Formanek has been a private investor since May 1994. Mr.
Formanek is a co-founder and retired President of AutoZone,
Inc. He is a director and member of the audit committee of KAR
Auction Services (a leading wholesaler of used and salvaged
vehicles). He previously served as a director of Perrigo, Co.
(a manufacturer and marketer of over-the-counter drugs), Borders
Group, and The Sports Authority.
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Mr. Formanek has financial, operating and management experience
gained through his role as the co-founder and President of
Autozone, Inc. He also has experience as a director of private
and public companies and has served as a member of the audit
committee of another public company. His current role as a
private investor enables him to bring the investors
perspective to our Board.
|
Manuel A. Garcia
Director since 2003
Age 67
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Mr. Garcia has served as President and Chief Executive Officer
of Atlantic Coast Management, Inc., an operator of various
restaurants in the Orlando, Florida area, since 1996. Mr. Garcia
is Chairman of the Board of Culinary Concepts, Inc. (a food
processing company) and is a member of the Board of Trustees of
Florida State University.
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Mr. Garcia has experience in the restaurant industry as a former
franchisee of Burger
King
®
and as an operator of other restaurant chains and concepts. The
Board benefits from Mr. Garcias breadth of knowledge and
insight into restaurant operations and his financial literacy
gained through his ownership and management of various business
enterprises.
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Sanjeev K. Mehra
Director since 2002
Age 51
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Mr. Mehra has been with Goldman, Sachs & Co. in New York,
New York since 1986, and has been a Managing Director since
1996. Mr. Mehra is a director of SunGard Capital Corp.
(SCC), SunGard Capital Corp. II (SCC
II), SCCs subsidiary, and SunGard Data Systems, Inc
(collectively, a software and processing solutions company),
ARAMARK Corporation (a provider of uniform and career apparel),
First Aviation Services, Inc. (a fixed base operator),
Sigma Electric Manufacturing Corp. (a manufacturer of
custom electric fittings), KAR Auction Services, Inc. and Hawker
Beechcraft, Inc. (a manufacturer of piston, turboprop and jet
aircraft). Mr. Mehra has served as a director of Hexcel Corp.
(a manufacturer of advance composite materials) and Nalco
Holding Co. (a water treatment and process improvement company).
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Mr. Mehra has management, leadership and financial expertise
gained through his experience in the financial services
industry. The Board benefits from Mr. Mehras
experience as a managing director in the private equity area and
the corporate finance department of Goldman, Sachs & Co and
his experience as a director of other multinational public and
private companies.
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III-5
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Stephen G. Pagliuca
Director since 2010
Age 55
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Stephen G. Pagliuca served on our Board from December 2002
through September 21, 2009. He resigned briefly in September
2009 to run for political office and was reappointed on January
20, 2010. Mr. Pagliuca has served as a Managing Director of Bain
Capital Partners, LLC since 1989. Mr. Pagliuca is a director of
HCA (Hospital Corporation of America), Gartner, Inc. (a
technology research and advisory firm) and the Weather Channel.
Mr. Pagliuca has served as a director of Warner Chilcott Limited
(an international pharmaceutical company), Quintiles
Transitional Corp. (a contract research company for biotech and
pharmaceutical companies), FCI, S.A. (a manufacturer of
electronic and optical connectors) and Epoch Senior Living, Inc.
(an assisted living and senior healthcare company).
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Mr. Pagliuca has management and leadership experience as a
managing director of Bain Capital Partners, LLC. The Board
benefits from Mr. Pagliucas experience in developing the
turnaround practice at Bain Capital, his experience as a
director of other multinational public and private companies and
his experience as a senior accountant and tax specialist with a
public accounting firm.
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Brian T. Swette
Director since 2003
Age 56
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Mr. Swette served as Non-Executive Chairman of our Board from
April 2006 to June 30, 2008. Mr. Swette served as Chief
Operating Officer of eBay from 1998 to 2002 and has been a
private investor since 2002. Mr. Swette is a director of Jamba,
Inc. (a chain of smoothie restaurants) and Shutterfly Inc. (an
Internet-based social expression and personal publishing
service). Mr. Swette is also a director of the following private
companies: The FRS Company (maker of nutraceutical energy
products) and Care.com (an online source for caregiver
services). Mr. Swette previously served as a director of
TheLadders.com (an online marketplace for professional
employees).
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Mr. Swette brings to the Board his executive and management
experience as well as significant knowledge of Internet
companies and consumer industries. Mr. Swettes
marketing skills brings a relevant perspective to our Board of
Directors and management.
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Kneeland C. Youngblood
Director since 2004
Age 54
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Mr. Youngblood is a founding partner of Pharos Capital Group,
L.L.C., a private equity firm focused on health care, business
services and opportunistic investments, and has served as
managing partner since January 1998. Mr. Youngblood is a
director of Starwood Hotels and Resorts Worldwide, Inc., Gap
Inc. and Energy Future Holdings (formerly TXU) (an electric
utility company).
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Mr. Youngbloods experience on the boards of two other
consumer-facing public companies and several private companies
and his experience as the founding partner of Pharos Capital
Group, L.L.C. give him a wide range of experience in a number of
industries.
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Director
Independence
The NYSE listing standards require that a majority of the
members of our Board of Directors be independent and that our
Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee be composed of only independent
directors. As of November 19, 2008, each of those
committees was and continues to be composed entirely of
independent directors.
The Board of Directors is responsible for determining the
independence of our directors. Under the NYSE listing standards,
a director qualifies as independent if the Board of Directors
affirmatively determines that the director has no material
relationship with us. While the focus of the inquiry is
independence from management, the Board is required to broadly
consider all relevant facts and circumstances in making an
independence determination. The NYSE listing standards permit
the Board to adopt and disclose standards to assist the Board in
making determinations of independence. Accordingly, the Board
has adopted, as a part of our Corporate Governance Guidelines,
director independence standards to assist it in making
independence determinations. The Board also considers the
recommendations of the Nominating and Corporate Governance
III-6
Committee which reviews information disclosed by the directors
on annual director and officer (D&O)
questionnaires prepared by us and completed by the directors.
On August 19, 2010, our Board conducted evaluations of
Richard W. Boyce, David A. Brandon, Ronald M. Dykes, Peter R.
Formanek, Manuel A. Garcia, Sanjeev K. Mehra, Stephen G.
Pagliuca, Brian T. Swette and Kneeland C. Youngblood under the
NYSE listing standards and the director independence standards
set forth in our Corporate Governance Guidelines (collectively,
the Independence Standards) and other applicable
independence standards as described below. The Board
affirmatively determined that each of Messrs. Boyce,
Brandon, Dykes, Formanek, Garcia, Mehra, Pagliuca, Swette and
Youngblood is independent.
In conducting its evaluations of Messrs. Brandon, Dykes,
Formanek, Swette and Youngblood, the Board determined that none
of these directors has a direct or indirect material
relationship with us and that each satisfies the Independence
Standards. In connection with determining Mr. Garcias
independence, the Board considered lease payments for a
B
urger
K
ing
®
restaurant in the amount of $110,661.72 paid by our subsidiary
Burger King Corporation to Mr. Garcias sister. Our
Board determined that the receipt of the lease payments by
Mr. Garcias sister does not constitute a direct or
indirect material relationship with us and that Mr. Garcia
satisfies the Independence Standards discussed above.
In conducting its evaluations of Messrs. Boyce, Mehra and
Pagliuca, the Board determined that none of these directors has
a direct or indirect material relationship with us and that each
satisfies the Independence Standards. In making its
determinations the Board considered Messrs. Boyce, Mehra
and Pagliucas positions with TPG Capital, Goldman
Sachs & Co, and Bain Capital Partners, respectively;
the Shareholders Agreement with the private equity funds
controlled by TPG Capital, Bain Capital Partners and the Goldman
Sachs Funds (collectively, the Sponsors); and other
related person transactions involving Goldman, Sachs &
Co. and the Sponsors previously disclosed in our SEC filings. As
a result of this evaluation and the recommendation of the
Nominating and Corporate Governance Committee, the Board
affirmatively determined that Messrs. Boyce, Mehra and
Pagliuca do not have any direct or indirect material
relationship with us and satisfy the Independence Standards.
Since Messrs. Dykes, Formanek and Garcia serve on our Audit
Committee, the Board also considered whether they satisfied the
independence standards mandated by Section 301 of the
Sarbanes-Oxley Act and those set forth in
Rule 10A-3
of the Exchange Act, which we refer to as the Audit Committee
Independence Standards. Our Board also considered the
recommendation of the Nominating and Corporate Governance
Committee. As a result of this evaluation and the recommendation
of the Nominating and Corporate Governance Committee, our Board
affirmatively determined that Messrs. Dykes, Formanek and
Garcia are independent under the Audit Committee Independence
Standards.
Corporate
Governance Principles
Our Board of Directors has adopted Corporate Governance
Guidelines (the Guidelines) to assist the Board in
exercising its responsibilities. The Guidelines are reviewed and
revised by the Board as it deems necessary and appropriate and
were last revised on June 3, 2010. The Guidelines and the
charter for each of the standing committees of the Board are
posted on our website at
www.bk.com
in the Company
Info Investor Relations section and are available in
print to any shareholder who requests a copy by contacting our
Investor Relations department at
305-378-7696
or by sending a written request to Burger King Holdings, Inc.,
Investor Relations, 5505 Blue Lagoon Drive, Miami, Florida 33126.
The Guidelines and the charter for the Nominating and Corporate
Governance Committee set forth our policies with respect to
Board composition, membership qualifications, responsibilities,
size, management oversight, committees and operations. The
Nominating and Corporate Governance Committee considers the
following criteria when recommending nominees for director: high
personal and professional ethics, integrity and values;
expertise that is useful to us and complementary to the
background and experience of the other members of the Board;
ability to devote the time necessary for the diligent
performance of duties and responsibilities of Board membership;
willingness to represent the long-term interests of all
shareholders and objectively appraise managements
performance; possession of sound judgment to provide prudent
guidance with respect to the operations and interests of the
Company; and diversity and other relevant factors as the
III-7
Board may determine. The Nominating and Corporate Governance
Committee considers possible candidates for nominees for
director from many sources, including from management and
shareholders. The committee considers nominees recommended by
shareholders, provided that the shareholder complies with the
procedure set forth in our bylaws which is described in
Advance Notice Requirements for Shareholder Submission of
Nominations and Proposals. Other than the submission
requirements set forth in our bylaws, the Nominating and
Corporate Governance Committee evaluates all nominees based on
the same criteria.
We are subject to a Shareholders Agreement with the
private equity funds controlled by the Sponsors. The
Shareholders Agreement provides for (i) the right of
each Sponsor to appoint two members to our Board, (ii) the
right of each Sponsor, with respect to each committee of the
Board other than the Audit Committee, to have at least one
Sponsor director on each committee, and (iii) Sponsor
directors to constitute a majority of the membership of each
committee and for the chairman of each committee to be a Sponsor
director, to the extent that such directors are permitted to
serve on such committees under SEC and NYSE rules applicable to
the Company. See Board Committees for more
information on the composition of each of the Board committees
and see Certain Relationships and Related Person
Transactions for more information on the
Shareholders Agreement, including the stock ownership
thresholds required to be maintained by the private equity funds
controlled by the Sponsors in order for them to retain these
Board of Director and Board committee appointment rights.
Although each Sponsor has elected to limit its representation on
the Board to one seat, each Sponsor retains the right to appoint
two directors to the Board. As of September 16, 2010, the
private equity funds controlled by the Sponsors owned
approximately 31% of the Companys common stock.
The non-management directors regularly schedule executive
sessions of the Board and each of the committees in which
management does not participate. The lead independent director
leads executive sessions. The Chairmen of the Audit,
Compensation and Nominating and Corporate Governance Committees
also lead executive session discussions on matters within the
purview of those committees.
Communication
with Directors
Shareholders and other parties interested in communicating
directly with the Chairman of the Board or with the
non-management directors may do so by writing to: Chairman of
the Board,
c/o Anne
Chwat, General Counsel and Secretary, Burger King Holdings,
Inc., 5505 Blue Lagoon Drive Miami, FL 33126. All communications
should include the name, address, telephone number and email
address (if any) of the person submitting the communication and
indicate whether the person is a shareholder of the Company.
The Board has approved a process for handling correspondence
received by the Company and addressed to the Chairman or to
non-management members of the Board. Under that process, the
General Counsel and Secretary of the Company reviews all such
correspondence and maintains a log of and forwards copies of
correspondence that, in the opinion of the General Counsel and
Secretary, deals with the functions of the Board or committees
thereof or that she otherwise determines requires their
attention. The General Counsel and Secretary may screen
frivolous or unlawful communications and commercial
advertisements. Directors may review the log maintained by the
General Counsel and Secretary at any time.
Concerns relating to accounting, internal controls or auditing
matters are immediately brought to the attention of the
Companys internal audit department and handled in
accordance with procedures established by the Audit Committee
with respect to such matters.
Board and
Committee Meeting Attendance and Annual Shareholders
Meeting Attendance
The Board held six meetings during the fiscal year ended
June 30, 2010 (fiscal 2010). Each director
attended at least 75% of the aggregate of (a) the total
number of meetings of the Board during fiscal 2010, and
(b) the total number of meetings held by all committees of
the Board on which the directors served during fiscal 2010.
Although we do not have a specific policy regarding director
attendance at our annual meeting of shareholders, all directors
are encouraged to attend. We do so by, among other things,
holding our annual
III-8
meeting of shareholders on the same date as one of the Board
meetings. All of our directors except Sanjeev Mehra and Brian
Swette attended the 2009 annual meeting of shareholders.
Board
Leadership Structure, Board Diversity, Board Oversight of Risk
and Board Committees
Board
Leadership Structure
The Board is led by John W. Chidsey in his role as Chairman. He
also serves as Chief Executive Officer of the Company. The Board
also has designated Ronald M. Dykes as lead independent director
to complement the Chairmans role, and to serve as the
principal liaison between the independent directors and the
Chairman. Mr. Dykes other duties as lead independent
director include (i) presiding over executive sessions;
(ii) collaborating with the Chairman on agendas for Board
meetings; (iii) serving as a principal liaison between
management and the independent Directors; (iv) being
available for consultation and direct communication with
stockholders; (v) calling meetings of independent
directors; and (vi) recommending retention of Board
advisors and consultants.
The Board recently reviewed its leadership structure and
concluded that its current structure is the appropriate one for
the Company at this time. Specifically, the Board determined
that in light of the Companys business strategy and the
strength of its overall governance practices, a combined
Chairman/CEO role will more effectively unify the Board and
management around the specific initiatives to support the
Companys business strategy. The Board continues to
separately evaluate Mr. Chidsey annually in each of his
roles, and has retained the discretion to separate the
Chairman/CEO roles at any time if the Board believes it would
better serve the interests of the Company. The Board also
concluded that its lead independent director position
effectively balances any risk of concentration of authority that
may exist with a combined Chairman/CEO position.
Board
Diversity
The Nominating and Corporate Governance Committee considers
diversity in its search for the best candidates to serve on the
Board of Directors. The Committee looks to incorporate diversity
into the Board through variety in demographics, skills and
experiences, including operational experience, and viewpoints,
all with a view toward identifying candidates that can best
assist the Board with its decision making. The Committee
believes that the current Board of Directors reflects diversity
on a number of these factors. Although diversity is a component
of our director selection criteria described in our Corporate
Governance Guidelines and the Nominating and Corporate
Governance Committee charter, the Nominating and Corporate
Governance Committees does not have a written policy regarding
diversity in identifying director candidates.
Board
Oversight of Risk
The Company has implemented a comprehensive enterprise risk
management (ERM) process designed to identify, manage and
mitigate against potential risks to the business. The Board is
actively engaged in overseeing and reviewing the Companys
ERM process. Periodically, the executive team reports to the
Board on the ERM process including, but not limited to the
following: (i) the inventory and coordination of risk
assessments; (ii) the prioritization and selection of
critical risks; (iii) the assignment of risk owners;
(iv) the development of action plans to address critical
risks; (v) the evaluation of the status of the
implementation of the action plans; and (vi) the
identification of available and needed resources.
The Board is also actively engaged in overseeing and reviewing
the Companys strategic direction and objectives, taking
into account (among other considerations) the Companys
risk profile and exposures.
The Board conducts an in-depth review of the business, which
includes consideration of strategic, operational, competitive,
financial, compliance and other risk exposures. The Board also
annually reviews leadership development initiatives and short
and long-term succession plans for the Chief Executive Officer
and other senior management positions, including in the event of
unanticipated vacancies in those offices.
III-9
Board oversight is also effected through three committees: the
Audit, Compensation, and Nominating and Corporate Governance
Committees. Each of the committees operates under a written
charter that details each committees responsibilities and
scope of authority.
Although the Board as a whole has responsibility for risk
oversight, these Committees also oversee the Companys risk
profile and exposures relating to matters within the scope of
their authority and report to the Board about their
deliberations. The Audit Committee considers audit, accounting
and compliance risk, and it receives reports from internal
audit, finance and accounting, corporate tax and the General
Counsel and Chief Ethics and Compliance Officer as well as the
Companys outside auditors. The Audit Committee is also
responsible for oversight of the Companys major financial
exposures, and the steps management has taken to monitor and
control such exposures. The Compensation Committee considers the
level of risk inherent in our compensation programs, including
incentive compensation programs in which the CEO and other
employees participate. The Nominating and Corporate Governance
Committee monitors potential risks to the effectiveness of the
Board, notably Director succession and Board composition, and
the principal policies that guide the Companys governance.
We conducted a risk assessment of our compensation programs for
our employees, including those relating to our executive
compensation programs, to determine if the programs
provisions and operations create undesired or unintentional risk
of a material nature. Our risk assessment included a detailed
qualitative and quantitative analysis of our compensation
programs in which employees, including our executive officers,
from our corporate offices, regional restaurant support centers
and Company restaurants may participate. We also considered how
our compensation programs compare, from a design perspective, to
compensation programs maintained by other companies. We
discussed the findings of our risk assessment with the
Compensation Committee. Based upon the assessment, we believe
that our compensation policies and practices do not encourage
excessive or unnecessary risk taking and are not reasonably
likely to have a material adverse effect on the Company. Please
refer to the Compensation Discussion and Analysis, or CD&A,
for a discussion of the Compensation Committees oversight
of risk associated with our compensation policies and practices.
Board
Committees
The Board of Directors has established an Audit Committee, a
Compensation Committee, a Nominating and Corporate Governance
Committee and an Executive Committee. The members of each
committee are appointed by the Board of Directors and serve one
year terms. Each committee has established a written charter
which sets forth the committees purpose, membership
criteria, powers and responsibilities and provides for the
annual evaluation of the committees performance. The
charters for the Audit Committee, the Nominating and Corporate
Governance Committee and the Compensation Committee were last
revised on November 19, 2009. The charter for the Executive
Committee was last revised on June 3, 2010. Copies of all
of our committee charters are available on our website at
www.bk.com
in the Investor Relations-Corporate
Governance section and are available in print to any shareholder
who requests a copy by contacting our Investor Relations
department at
305-378-7696
or by sending a written request to Burger King Holdings, Inc.,
Investor Relations, 5505 Blue Lagoon Drive, Miami, Florida 33126.
Audit
Committee
The Audit Committee assists the Board in its oversight of
(i) the integrity of our financial statements,
(ii) the qualifications, independence and performance of
our independent registered public accounting firm,
(iii) the performance of our internal audit function, and
(iv) compliance by us with legal and regulatory
requirements and our compliance program. The Audit Committee is
responsible for the appointment, compensation, retention and
oversight of the work of our independent registered public
accounting firm.
The current members of the Audit Committee are
Messrs. Ronald M. Dykes (Chairman), Peter R. Formanek and
Manuel A. Garcia. The Board of Directors has determined that
(i) Messrs. Dykes, Formanek and Garcia are independent
directors under the Independence Standards and the Audit
Committee Independence Standards, and (ii) all of the
members of the Audit Committee are financially
literate as defined by the NYSE rules. The Board of
Directors also has determined that Mr. Dykes possesses
financial management
III-10
expertise under the NYSE rules and qualifies as an
audit committee financial expert as defined by the
applicable SEC regulations.
The Audit Committee held seven meetings in fiscal 2010.
Compensation
Committee
The Compensation Committee (i) sets our compensation
philosophy and oversees compensation and benefits policies
generally, including establishing, reviewing and making
recommendations with respect to any incentive compensation and
equity-based plans that are subject to approval by the Board of
Directors, (ii) oversees and sets the compensation and
benefits arrangements of our Chief Executive Officer, the CEO
Direct Reports (as defined in the CD&A) and members of the
Board of Directors, (iii) evaluates the performance of the CEO
and CEO Direct Reports, and (iv) reviews our management
succession plan.
The Compensation Committee has the authority under its charter
to engage the services of outside advisors, experts and others
to assist the Compensation Committee. In accordance with this
authority, the Compensation Committee has engaged Mercer Inc.
(Mercer), as an outside compensation consultant, to
advise the Compensation Committee on matters related to director
and executive compensation. Pursuant to its engagement by the
Compensation Committee, Mercer:
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advises the Committee Chairman on management proposals as
requested;
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assists the Committee Chairman in establishing the calendar and
agenda items for Committee meetings, reviews meeting materials
and attends Committee meetings;
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reviews the Companys total compensation philosophy, peer
group and competitive positioning for reasonableness and
appropriateness;
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reviews the Companys total executive compensation program
and advises the Compensation Committee of plans or practices
that might be changed to improve effectiveness;
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provides market data and recommendations on CEO compensation
without prior review by management except for necessary fact
checking;
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reviews drafts of the CD&A and related tables;
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proactively advises the Compensation Committee on best-practice
ideas for Board governance of executive compensation; and
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undertakes special projects at the request of the Committee
Chairman.
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The Company also retained its own compensation consultant,
Compensation Advisory Partners LLC (CAP). The
services conducted by CAP complement the services provided by
Mercer and include:
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conducting a risk assessment of our incentive compensation
programs;
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reviewing outside director compensation;
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providing advice and analysis on our equity usage relative to
market and assisting with changes to equity plans; and
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providing advice on incentive plan design.
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Further details regarding the role that Mercer played in our
executive compensation-setting practices and decisions are
provided in the CD&A. In addition, please refer to the
CD&A Role of Executives in Establishing
Compensation for a discussion regarding the role that
executive officers play in our executive compensation practices
and decisions.
The Compensation Committee may delegate its authority to
subcommittees or the Chairman of the Compensation Committee when
it deems appropriate and in our best interests. Additionally,
the charter provides that the Compensation Committee may
delegate to one or more of our officers the authority to make
grants under our incentive compensation or other equity-based
plans to any person other than the
III-11
Chief Executive Officer, the CEO Direct Reports (as defined
in the CD&A) or any officer covered by Section 16 of
the Exchange Act (executive officers). Further
details are provided in the CD&A.
The current members of the Compensation Committee are
Messrs. Stephen Pagliuca (Chairman), Peter R. Formanek and
Sanjeev K. Mehra. Mr. Pagliuca served on the Compensation
Committee as its Chairman from July 1, 2009 until
September 21, 2009. On September 21, 2009,
Mr. Pagliuca resigned from the Board of Directors and the
Compensation Committee to run for political office. From
September 21, 2009 until January 19, 2010, the
Compensation Committee was composed of Messrs. Mehra
(Chairman) and Formanek. On January 20, 2010, the Board
determined that Mr. Pagliuca was independent under the
Independence Standards, and he was reappointed to the Board and
to the Compensation Committee as its Chairman, effective
January 20, 2010.
The Compensation Committee held six meetings in fiscal 2010.
Nominating
and Corporate Governance Committee
The Nominating and Corporate Governance Committee has the
authority under its charter to (i) identify and recommend
potential candidates qualified to become board members, review
and evaluate current directors for re-nomination to the Board
and recommend directors for appointment or re-appointment to
board committees, (ii) make recommendations to the Board of
Directors as to independence determinations, (iii) assist
the Board of Directors in determining the skills and qualities
of individuals for Board membership, (iv) review the
composition of the Board of Directors to determine
appropriateness of adding or removing individuals, and
(v) review and assess the adequacy of, and oversee
compliance with, the Guidelines.
Please refer to Corporate Governance Principles
above for a discussion of the Nominating and Corporate
Governance Committees policy with regard to the
consideration of nominees for director, including the
consideration of nominees by shareholders and the criteria used
to evaluate nominees. Please refer to Advance Notice
Requirements for Shareholder Submission of Nominations and
Proposals for a discussion of the procedures that
shareholders are required to follow in order to submit nominees
for consideration by the Nominating and Corporate Governance
Committee.
The current members of the Nominating and Corporate Governance
Committee are Messrs. Sanjeev K. Mehra (Chairman) and David
A. Brandon.
The Nominating and Corporate Governance Committee held two
meetings in fiscal 2010.
Executive
Committee
The Executive Committee has authority under its charter to
exercise the powers and rights of the Board and to take any
action that could be taken by the Board (except if prohibited by
applicable law or regulation) if the amounts associated with
such actions do not individually exceed $25 million, other
than intercompany transactions which are unlimited as to amount.
The current members of the Executive Committee are
Messrs. Richard W. Boyce (Chairman), John W. Chidsey,
Ronald M. Dykes, Sanjeev K. Mehra and Stephen Pagliuca.
Mr. Pagliuca was a member of the Executive Committee until
he resigned from the Board and the Executive Committee on
September 21, 2009. Mr. Pagliuca was reappointed to
the Executive Committee on January 20, 2010. Mr. Dykes
was appointed to the Executive Committee on June 4, 2010.
The Executive Committee did not hold any meetings in fiscal 2010.
III-12
AUDIT
COMMITTEE REPORT
The Audit Committee has: (i) reviewed and discussed the
audited consolidated financial statements of the Company with
management; (ii) discussed with KPMG, the Companys
independent registered public accounting firm, the matters
required to be discussed by Statement on Auditing Standards 61
(Communication with Audit Committees), as modified or
supplemented; (iii) received the written disclosures and
the letter from KPMG required by applicable requirements of the
Public Company Accounting Oversight Board regarding KPMGs
communications with the Audit Committee concerning independence;
and (iv) discussed with KPMG the firms independence.
The Audit Committee considered whether the provision of
non-audit services by KPMG was compatible with maintaining such
firms independence. After reviewing the services provided
by KPMG, including all non-audit services, the Audit Committee,
in accordance with its charter, appointed KPMG as the
independent registered public accounting firm of the Company for
the fiscal year ending June 30, 2011.
Based on these reviews and discussions, the Audit Committee
recommended to the Board of Directors that the audited
consolidated financial statements be included in our Annual
Report on
Form 10-K
for the fiscal year ended June 30, 2010 for filing with the
SEC.
Respectfully submitted,
THE AUDIT COMMITTEE
Ronald M. Dykes, Chairman
Peter R. Formanek
Manuel A. Garcia
August 18, 2010
III-13
AUDIT
FEES AND SERVICES
The following table sets forth fees for professional services
rendered by KPMG for the annual audit of our financial
statements for the years ended June 30, 2010 and 2009 and
fees billed for other services rendered by KPMG for such years.
There were no fees billed by KPMG for the years ended
June 30, 2010 and 2009 that would fall under the categories
of Tax Fees or All Other Fees.
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Fiscal Year
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Fee Category
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2010
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2009
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(In thousands)
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(In thousands)
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Audit Fees(1)
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$
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3,267
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$
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3,643
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Audit-Related Fees(2)
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129
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151
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Total Fees
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3,396
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3,794
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(1)
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Annual audit fees primarily consist of fees for the audits of
the consolidated financial statements and the review of the
interim condensed quarterly consolidated financial statements.
This category also includes fees for statutory audits required
by the tax authorities of various countries and accounting
consultations and research work necessary to comply with Public
Company Accounting Oversight Board standards. In fiscal 2010 and
2009, audit fees also included amounts related to the audit of
the effectiveness of internal controls over financial reporting
and attestation services.
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(2)
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Audit-Related Fees primarily consist of the fees for financial
statement audits of our marketing fund and gift card subsidiary.
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Pre-approval
Policy
Pursuant to its written charter, the Audit Committee
pre-approves all audit services and permitted non-audit services
to be performed by our independent registered public accounting
firm. The Audit Committee has adopted a pre-approval policy
under which the Audit Committee has delegated to its chairman
the authority to approve services valued at up to $50,000 per
engagement. All such decisions to pre-approve audit and
permitted non-audit services are presented to the full Audit
Committee at the next scheduled meeting.
All audit and permitted non-audit services and all fees
associated with such services performed by our independent
registered public accounting firm in fiscal 2010 were approved
by the full Audit Committee or approved by the chairman of the
Audit Committee consistent with the policy described above.
III-14
EXECUTIVE
OFFICERS
The following table sets forth the name, age and position with
the Company of each of our current executive officers who is not
also a director of the Company:
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Name
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Age
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Position
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Natalia Franco
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48
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Global Chief Marketing Officer
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Ben K. Wells
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56
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Chief Financial Officer
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Julio A. Ramirez
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56
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EVP, Global Operations
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Peter C. Smith
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54
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EVP, Chief Human Resources Officer
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Anne Chwat
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51
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EVP, General Counsel and Secretary
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Charles M. Fallon, Jr.
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48
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President, North America
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Kevin Higgins
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47
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President, EMEA
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Natalia Franco
has served as our Global Chief Marketing
Officer, since May 2010. From August 2006 until May 2010, she
was Vice President, Global Marketing and Innovation,
McDonalds Division, at The Coca Cola Company. Before
joining The
Coca-Cola
Company, Ms. Franco served as USA Vice President
Cereal Strategic Growth Channels with the Big G
Cereal Division at General Mills from July 2004 until July 2006.
From November 1995 until July 2004, Ms. Franco held various
marketing responsibilities at General Mills and Pillsbury.
Ben K. Wells
has served as our Chief Financial Officer
since April 2006. From May 2005 to April 2006, Mr. Wells
served as our Senior Vice President and Treasurer. From June
2002 to May 2005 he was a Principal and Managing Director at BK
Wells & Co., a corporate treasury advisory firm in
Houston, Texas. From June 1987 to June 2002, he was at
Compaq Computer Corporation, most recently as Vice President,
Corporate Treasurer. Before joining Compaq, Mr. Wells held
various finance and treasury responsibilities over a
10-year
period at British Petroleum.
Julio A. Ramirez
has served as our EVP, Global Operations
since September 2008. Mr. Ramirez has worked for Burger
King Corporation for 25 years. From January 2002 to
September 2008, Mr. Ramirez served as our President, Latin
America. During his tenure, Mr. Ramirez has held several
positions, including Senior Vice President of
U.S. Franchise Operations and Development from February
2000 to December 2001 and President, Latin America from 1997 to
2000.
Peter C. Smith
has served as our EVP, Chief Human
Resources Officer since December 2003. From September 1998 to
November 2003, Mr. Smith served as Senior Vice President of
Human Resources at AutoNation.
Anne Chwat
has served as our EVP, General Counsel and
Secretary since September 2004. In June 2008, Ms. Chwat
also began serving as a board member and President of the Have
It your
Way
®
Foundation, the charitable arm of the Burger King system. From
September 2000 to September 2004, Ms. Chwat served in
various positions at BMG Music (now SonyBMG Music
Entertainment), including as Senior Vice President, General
Counsel and Chief Ethics and Compliance Officer.
Charles M. Fallon, Jr.
has served as our President,
North America since June 2006. From November 2002 to June 2006,
Mr. Fallon served as Executive Vice President of Revenue
Generation for Cendant Car Rental Group, Inc. Mr. Fallon
served in various positions with Cendant Corporation, including
Executive Vice President of Sales for Avis
Rent-A-Car,
from August 2001 to October 2002.
Kevin Higgins
has served as our President, EMEA since
August 2009. From April 2004 through February 2009, he
served as General Manager, Yum! Brands Europe and Russia
Franchise Business Unit. From November 1, 2001 through
April 2004, Mr. Higgins served as Director of Development
and Franchise Recruitment for Yum! Brands Europe.
III-15
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
This Compensation Discussion and Analysis, or CD&A,
describes our compensation philosophy, how the Compensation
Committee establishes executive compensation, the objectives of
our various compensation programs, how performance metrics are
selected and evaluated for the various components of our
compensation programs and how the performance of our CEO and
other NEOs is evaluated and results in the level of compensation
awarded under the various components of our compensation
program. In connection with our proposed merger with 3G, the
Compensation Committee has made various decisions with respect
to outstanding cash and equity awards and employment agreements
that we have with certain of our NEOs which will be effective
upon consummation of the merger. These actions are discussed in
the attached
Schedule 14d-9
and are not reflected in this CD&A or the compensation
tables.
As used in this CD&A, the following terms have the
following meanings:
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BKC is Burger King Corporation, a Florida
corporation;
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the CEO is our Chief Executive Officer, John W.
Chidsey, who also serves as Chairman of our Board of Directors;
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the NEOs are the following executives:
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John W. Chidsey, Chairman and CEO;
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Ben K. Wells, Chief Financial Officer;
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Anne Chwat, EVP, General Counsel and Secretary;
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Charles M. Fallon, Jr., President, North America;
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Peter C. Smith, EVP, Chief Human Resources Officer; and
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Russell B. Klein, former President, Global Marketing,
Strategy & Innovation;
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the CEO Direct Reports are our executives who report
directly to the CEO. All of the NEOs (other than the CEO) are
CEO Direct Reports; and
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Total Direct Compensation is annual base salary,
cash incentives and long-term equity incentives.
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Special
Note Regarding Determination of NEOs
Mr. Klein entered into a Separation and Release Agreement
with BKC, dated November 5, 2009 (the Separation
Agreement), in which the parties agreed that
Mr. Kleins employment would terminate effective
December 15, 2009. Mr. Klein is an NEO as a result of
his separation payment and a special equity award granted in
fiscal 2010 which was forfeited upon his separation from the
Company. The details of Mr. Kleins Separation
Agreement are discussed below in Agreements with
Mr. Klein.
Our
Compensation Philosophy and Objectives
We believe that compensation is an important tool to further our
long-term goal of creating shareholder value. As such, our
compensation philosophy is based on
pay-for-performance
principles, which incorporate the Companys achievement of
specific financial goals as well as achievement by employees of
individual performance goals. Our compensation programs are
designed to support our business initiatives by:
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rewarding superior financial and operational performance;
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placing a significant portion of compensation at risk if
performance goals are not achieved;
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aligning the interests of the CEO and the CEO Direct Reports
with those of our shareholders; and
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enabling us to attract, retain and motivate top talent.
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III-16
Our compensation policies are aligned with our business
strategy. The key elements of our business strategy are:
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expand worldwide development;
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invest in our restaurants to drive growth;
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develop innovative products that support both ends of our
barbell menu strategy;
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employ innovative marketing strategies;
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enhance restaurant margins and profitability by:
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achieving our comparable sales and average restaurant sales
potential;
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better utilizing our fixed cost base and exploring ways to
mitigate labor, commodity and energy costs; and
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use proactive portfolio management to drive growth.
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Our executive compensation program for all senior executives at
the Company, including the NEOs, consists of base salary, annual
cash incentives, long-term equity incentives and executive
benefits and perquisites. Annual cash and long-term equity
incentive programs reward our financial performance compared to
goals established for the year. Each year, the Compensation
Committee approves worldwide and regional financial goals for
these programs. We must achieve at least the minimum financial
goals with respect to the annual cash incentive program in order
for any payments to be made for that year.
Individual performance objectives are established at the
beginning of each fiscal year for all of our employees,
including the NEOs. These individual performance objectives are
intended to support our business strategy and inclusion and
leadership development initiatives. Our inclusion and leadership
development initiatives are designed to reinforce the importance
of developing our employees, while respecting and embracing all
of the differences we bring to the Burger
King
®
brand.
The Compensation Committee recommends, and the Board approves,
individual performance objectives for the CEO each fiscal year.
The CEO, assisted by the Chief Human Resources Officer, then
establishes individual performance objectives for each CEO
Direct Report, including the NEOs (other than the CEO, which is
determined by the Compensation Committee, and the Chief Human
Resources Officer, which is determined by the CEO) based on the
objectives that the Board has set for the CEO. Performance
against these pre-established objectives is evaluated by the
Compensation Committee following the end of each fiscal year.
The annual cash incentive for all participants (assuming we have
achieved at least our minimum financial goals) and the long-term
equity incentive for all participants other than the CEO may be
adjusted based on individual performance.
Oversight
of Executive Compensation Programs
Role
of Compensation Committee
The Compensation Committee is composed entirely of outside
directors and is responsible to the Board of Directors and our
shareholders for establishing and overseeing our compensation
philosophy and for overseeing our executive compensation
policies and programs generally. As part of this responsibility,
the Compensation Committee:
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administers our executive compensation programs;
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evaluates the performance of the CEO and the CEO Direct Reports;
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oversees and sets compensation for the CEO and the CEO Direct
Reports;
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makes decisions relating to the issuance of equity to executive
officers; and
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reviews our management succession plan.
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III-17
The Compensation Committee is responsible for all decisions
relating to the issuance of equity to our executive officers.
However, the Board of Directors approves all compensation
decisions relating to the CEO.
The Compensation Committees charter describes the
Compensation Committees responsibilities. The Compensation
Committee and the Board of Directors review the charter
annually. The charter was last revised on November 19, 2009.
Role
of Compensation Consultant
Under its charter, the Compensation Committee is authorized to
engage the services of outside advisors, experts and others. For
fiscal 2010, the Compensation Committee again engaged Mercer as
an outside compensation consultant to advise the Compensation
Committee on matters related to executive compensation. During
fiscal 2010, Mercer assisted the Compensation Committees
executive compensation-setting process by:
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Reviewing those companies that comprise our peer group and
advising the Compensation Committee on the appropriate levels of
adjustment necessary for comparative purposes;
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Providing a competitive analysis of Total Direct Compensation
for our CEO and the CEO Direct Reports against our peer group
(described below);
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Providing analysis and advice with respect to the evaluation of
the renewal of the employment agreements for our CEO and our CEO
Direct Reports;
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Assisting in the design of our compensation programs for
executives and Board members;
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Reviewing the effectiveness of our compensation programs,
including our annual and long-term incentive programs, against
those of our peer group;
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Providing data to support our current incentive plan parameters
and measures;
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Reviewing our compensation plans to ensure that the design for
fiscal 2010 will be competitive as compared to our industry and
peer group;
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Reviewing the Compensation Committees fiscal 2010 calendar;
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Assisting in compliance with SEC disclosures regarding executive
compensation; and
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Reviewing this CD&A.
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Peer
Group Comparison
To establish Total Direct Compensation levels for our CEO and
the CEO Direct Reports, the Compensation Committee compares our
compensation practices and Total Direct Compensation
opportunities with those of certain publicly-traded peer
companies selected by us. It also considers data reported in
various compensation surveys. In making determinations about
compensation, however, the Compensation Committee places greater
emphasis on the following factors specific to the relevant
individual and his or her role:
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performance and long-term potential;
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nature and scope of the individuals responsibilities and
his or her effectiveness in supporting our long-term
goals; and
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Total Direct Compensation of the individual in relation to other
CEO Direct Reports.
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We believe that the relative pay of each CEO Direct Report as
compared to the pay of each other CEO Direct Report and the CEO
is one factor of many to be considered in establishing
compensation for our CEO Direct Reports. We have not established
a policy regarding the numerical ratio of total compensation of
the CEO to that of the CEO Direct Reports, but we do review
compensation levels to ensure that appropriate internal pay
equity exists. The difference between the CEOs
compensation and that of the CEO Direct Reports reflects the
significant difference in the nature and scope of their relative
responsibilities. The CEOs
III-18
responsibilities for management and oversight of a global
enterprise are significantly higher than those of the other
executives. As a result, the CEOs compensation is
substantially higher than the compensation of our CEO Direct
Reports.
Our peer group is focused on other restaurant and franchise
companies. We also include companies in the broader consumer
products/services industry and companies with a strong global
footprint because we recruit executive talent from a more
diverse background and we consider international growth to be a
key driver of our success. Additionally, as a highly franchised
company, the complexity of managing the overall Burger
King
®
system may not be reflected in our actual revenue, so for peer
group purposes, we add 50% of the worldwide franchise sales of
our system to our total revenue numbers, thereby increasing our
annual revenue, for comparison purposes, to approximately
$9.3 billion in fiscal 2009. Taking into account this first
adjustment, our annual revenue is still less than the median of
the peer group. The median revenue for the peer group in
calendar year 2009 was $9.8 billion. Consequently, in
consultation with Mercer, we adjust the compensation data from
the peer group companies for differences in revenue to provide
comparable data for our analysis. We review the peer group and
make changes as we deem necessary on an annual basis. While the
Compensation Committee uses the adjusted compensation data from
our peer group as a reference point, it is not, and was not in
fiscal 2010, the determining factor in executive compensation
decisions. The adjusted compensation data is used primarily to
ensure that our executive compensation program as a whole is
competitive when the Company achieves targeted performance
levels.
For the fiscal 2010 analysis, the companies comprising the peer
group and their respective industry groups were:
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Peer Group Company
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GICS Industry Description
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Brinker International, Inc.
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Hotels, Restaurants & Leisure
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Darden Restaurants, Inc.
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Hotels, Restaurants & Leisure
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Dominos Pizza, Inc.
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Hotels, Restaurants & Leisure
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Marriott International, Inc.
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Hotels, Restaurants & Leisure
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McDonalds Corp.
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Hotels, Restaurants & Leisure
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Nike, Inc.
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Textiles, Apparel & Luxury Goods
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PepsiCo. Inc.
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Beverages
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Starbucks Corp.
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Hotels, Restaurants & Leisure
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Starwood Hotels & Resorts Worldwide, Inc.
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Hotels, Restaurants & Leisure
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The
Coca-Cola
Company
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Beverages
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Wendys/Arbys Group, Inc.
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Hotels, Restaurants & Leisure
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Wyndham Worldwide Corp.
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Hotels, Restaurants & Leisure
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Yum! Brands, Inc.
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Hotels, Restaurants & Leisure
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For fiscal 2011, the peer group will be composed of the same
companies set forth above.
Role
of Executives in Establishing Compensation
Our Chief Human Resources Officer administers our retirement,
severance and other benefit plans and trusts, with oversight and
supervision by the Compensation Committee. In addition, our
Chief Human Resources Officer makes recommendations to the
Compensation Committee regarding job leveling and grading for
the CEO, the CEO Direct Reports and other senior level
employees. Our CEO and Compensation Committee work together to
review our management succession plan for these employees.
The CEO annually reviews the individual performance of each CEO
Direct Report and provides the Compensation Committee with
(i) evaluations of each CEO Direct Report, including an
evaluation of each persons performance against his or her
individual performance objectives and (ii) recommendations
regarding any increase in each persons base salary level,
the individual performance rating for purposes of calculating
his or her annual cash incentive payment and any long-term
equity award.
III-19
The CEO, Chief Human Resources Officer, General Counsel and Vice
President of Total Rewards attend Compensation Committee
meetings, although they leave the meetings during discussions
and deliberations of individual compensation actions affecting
them personally and during the Compensation Committees
executive sessions.
Elements
of Compensation and Benefit Programs
To achieve our policy goals, the Compensation Committee utilizes
the following components of compensation: base salary, annual
cash incentives, long-term equity incentives, benefits and
perquisites. Different elements of the total compensation
package serve different objectives. Competitive base salaries
and benefits are designed to attract and retain employees by
providing them with a stable source of income and security over
time. Annual cash incentives and long-term equity incentives are
performance-based and, in the case of annual cash incentives,
will only be paid if we achieve our minimum financial goals for
the fiscal year. Moreover, employees who contribute positively
towards our business strategy and inclusion and leadership
development initiatives can increase the amount of their annual
cash incentives and long-term equity incentives based on their
individual performance rating. However, the CEOs annual
equity incentive is not subject to adjustment based on
individual performance. The use of equity compensation supports
the objectives of encouraging stock ownership and aligning the
interests of the NEOs with those of our shareholders, as they
share in both the positive and negative stock price returns
experienced by our shareholders.
The only retirement programs we provide to our NEOs are the
ability to participate in BKCs 401(k) plan and the
Executive Retirement Program as described below in the
Executive Benefits and Perquisites section of this
CD&A.
The Compensation Committee uses Total Direct Compensation as its
measure when it determines the level and components of
compensation for the NEOs. The Compensation Committee reviews
the Total Direct Compensation of the NEOs using data provided by
Mercer and Company management. For the NEOs, the Compensation
Committee places more emphasis on the performance-based
components of Total Direct Compensation. Actual payments may
vary for the NEOs if the Company exceeds or fails to meet
financial and operational targets and may vary for an NEO if he
or she exceeds or fails to meet his or her individual
objectives. The table below sets forth the percentage of
targeted and actual components of Total Direct Compensation for
our current NEOs for fiscal 2010:
Total
Direct Compensation
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Long-Term Equity
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Base Salary
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Annual Cash Incentive
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Incentive
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Name
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Target
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Actual
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Target
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Actual
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Target
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Actual
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John W. Chidsey
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17
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%
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21
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%
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17
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%
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13
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%
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67
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%
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67
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%
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Ben K. Wells
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31
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%
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38
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%
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22
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%
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16
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%
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47
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%
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46
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%
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Anne Chwat
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31
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%
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37
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%
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22
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%
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19
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%
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47
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%
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45
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%
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Charles M. Fallon, Jr.
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31
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%
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38
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%
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22
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%
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16
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%
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47
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%
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46
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%
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Peter C. Smith
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31
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%
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38
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%
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22
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%
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16
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%
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47
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%
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46
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%
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The Compensation Committee has set the CEOs variable pay,
as a percentage of total pay, significantly higher than that of
the other NEOs due to the importance of aligning the interests
of the CEO with those of our shareholders and the nature of the
CEOs role and responsibilities as compared to the other
NEOs.
Our executive compensation program is designed to encourage and
reward behavior that promotes sustainable growth in shareholder
value through attainment of annual and long-term goals. For
example, our performance-based restricted stock awards are
subject to a three-year cliff vesting period, including a
one-year performance period. Consequently, executives are
incentivized to achieve annual financial targets in order to
maximize the number of shares of performance based restricted
stock that they will actually receive. The vesting period also
encourages executives to consider long-term growth in making
decisions, as they will not
III-20
be able to monetize the shares for three years. We believe that
this design limits speculative rewards and inappropriate risk
taking for short-term results.
Base
Salary
We provide base salaries to recognize the skills, competencies,
experience and individual performance that each NEO brings to
his or her position. The Compensation Committee annually reviews
and approves any changes to the base salary of the CEO and each
other NEO and submits the CEOs base salary to the Board of
Directors for approval. The Compensation Committee considers
various factors such as the relevant employment agreement, the
executives performance and responsibilities, leadership
and years of experience, competitive salaries within the
marketplace for similar positions, and his or her total
compensation package. In July 2009, in light of the recessionary
environment that the Company faced and in line with the
Companys implementation of cost containment strategies to
position the Company to effectively operate in the challenging
economic environment, the Compensation Committee decided to
forgo base salary increases for all executive officers
(including the NEOs) for fiscal 2010. In light of continuing
economic uncertainty, in July 2010 the Compensation
Committee again decided to forgo
across-the-board
base salary increases for the executive officers and decided to
make targeted base salary increases only in those situations
where the Compensation Committee believed that for retention
purposes it was necessary to bring the executives salary
into a competitive range. As part of these targeted increases,
the base salaries of Messrs. Wells and Fallon were
increased by $30,000 and $62,250, respectively, to $525,000 and
$500,000. These increases were effective as of July 2, 2010.
Annual
Cash Incentive Program
The NEOs are eligible to receive an annual performance-based
cash bonus based on the Companys financial performance,
which can be adjusted by their individual performance.
Approximately 1,600 Company employees are eligible to
participate in this annual cash incentive program. For fiscal
2010, annual cash incentives were awarded under the BKC Fiscal
Year 2010 Restaurant Support Incentive Program (the
RSIP), which was implemented under our 2006 Omnibus
Incentive Plan. This annual cash incentive is calculated for
each eligible employee as a percentage of his or her base
salary, based on Company financial performance and as may be
adjusted for individual performance, as set forth below. We must
achieve at least the minimum financial goals established for a
fiscal year in order for any payments to be made for that year.
The formula for determining an eligible employees cash
incentive under the RSIP (the Payout Amount) is:
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Annual
Base
Salary
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X
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T
arget Bonus Percentage
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X
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Overall Business Performance Factor
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X
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Individual
Performance Multiplier
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=
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Payment Amount
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Target Bonus Percentage:
The employment
agreement for each NEO establishes the annual target cash bonus
opportunity or target bonus for the NEO, expressed as a
percentage of his or her then current base salary. For
Mr. Chidsey, his target bonus is 100% of base salary, for
each of Messrs. Wells, Fallon and Smith and Ms. Chwat
their target bonus is 70% of base salary and for Mr. Klein
his targeted bonus was 80% of base salary.
Overall Business Performance Factor:
The
Overall Business Performance Factor is based on two Company
financial performance measures which are equally weighted, as
follows:
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50% on worldwide Company performance, and
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50% on the Companys performance in the employees
geographic area of responsibility, which is either worldwide or
regional.
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Given the roles and worldwide scope of responsibility of
Messrs. Chidsey, Wells, Smith and Klein and Ms. Chwat,
the Overall Business Performance Factor for those NEOs was
measured on a 100% worldwide basis. The Overall Business
Performance Factor for Mr. Fallon, who has regional
responsibilities, was measured 50% on a worldwide basis and 50%
on his geographic areas of responsibility, which is the North
America region.
III-21
In July 2009, the Compensation Committee approved using PBT
(profit before taxes) as the measure to determine the
Companys worldwide Company performance and EBITDA as the
measure to determine the Companys regional performance for
purposes of calculating the Overall Business Performance Factor
under the RSIP. The change was made to increase
managements focus on managing capital through operating
and financial decisions, as PBT holds management accountable for
controlling costs and increasing profits and is a key driver for
total shareholder return. PBT excludes the impact of taxes which
only a few employees have the ability to impact. For those
employees with regional responsibilities, the use of PBT
introduces a second measure for evaluating Company performance,
while preserving EBITDA as the measure for regional performance.
In July 2009, the Compensation Committee established a target
performance level and a maximum performance level for worldwide
PBT and EBITDA for each region. In addition, the Compensation
Committee set a threshold performance level for each measure
which must be achieved in order for any payments to be made
under the RSIP. At the threshold performance level,
a payout of 50% of target bonus may be earned, at the
target performance level, a payout of 100% of target
bonus may be earned; and at the maximum performance
level, a payout of 200% of target bonus may be earned. To the
extent that the fiscal year worldwide PBT or EBITDA for a
region, after adjustment for foreign currency as discussed
below, falls between the threshold and target performance
levels, the Overall Business Performance Factor would be between
50% and 100%, and if either of these measures falls between the
target and maximum performance levels, the Overall Business
Performance Factor would be between 100% and 200%. If the
adjusted PBT falls below 75% of the target performance level,
there would be no payout under the RSIP for that fiscal year. If
the adjusted PBT falls below the threshold performance level,
there would be no payout for the worldwide portion and if the
adjusted EBITDA for a particular region falls below the
threshold performance level, then there would be no payment on
that portion of the bonus for any officer who had the relevant
regional performance included in determining the Overall
Business Performance Factor.
Our threshold performance level, target performance level and
maximum performance level under the RSIP are based on our
Board-approved budget and business plan for the upcoming fiscal
year. At the end of the fiscal year, the Compensation Committee
adjusts the actual worldwide PBT or regional EBITDA results to
bring actual results back to the forecasted currency exchange
rates, thereby eliminating any benefit or detriment due to
fluctuations in currency exchange rates, which we refer to as
Incentive PBT and Incentive EBITDA.
The tables below set forth the threshold performance level,
target performance level and maximum performance level, for
worldwide PBT and for North America EBITDA, and the Incentive
worldwide PBT and Incentive North America EBITDA for fiscal 2010:
FISCAL
2010 WORLDWIDE PBT PERFORMANCE LEVELS
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Threshold
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Target
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Maximum
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Performance Level
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Performance Level
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Performance Level
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Incentive PBT
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(In millions)
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$259
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$305
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$338
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$271
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FISCAL
2010 NORTH AMERICA EBITDA PERFORMANCE LEVELS UNDER
RSIP
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Threshold
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Target
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Maximum
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Performance Level
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Performance Level
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Performance Level
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Incentive EBITDA
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(In millions)
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$436
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$513
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$569
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$485
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Individual Performance Multiplier:
Assuming
that we have achieved at least the threshold financial
performance level established for a fiscal year, an eligible
employees annual cash incentive may be adjusted based on
individual performance. For fiscal 2010, our executives
individual performance was evaluated based on the achievement of
business objectives and inclusion and leadership development
objectives. In fiscal 2010, this list of individual performance
objectives (both quantitative and qualitative) for each NEO
other than the CEO included approximately 15 criteria relating
to broad business objectives and at least five criteria
III-22
addressing broad inclusion and people development objectives.
These business objectives differed for each NEO based on his or
her individual responsibilities and the business function,
division or group that he or she managed. For Mr. Wells,
the business objectives included initiatives to enhance
and/or
roll-out various P&L enhancements, rationalize global
general and administrative costs, and implement various Global
Financial Systems, financial reporting and accountability
enhancements; for Ms. Chwat, the business objectives
included qualitative measures relating to the adoption of
initiatives to address issues arising from the Companys
franchising and marketing activities and continued enhancement
of governance and compliance processes; for Mr. Fallon, the
business objectives included quantitative and qualitative
measures relating to the operational performance of the
restaurants in his respective region, continued expansion of the
regions restaurant portfolio and enhanced guest experience
and franchisee relationships; and for Mr. Smith, the
business objectives included qualitative measures designed to
increase the effectiveness of Human Resources processes, enhance
employee learning and development programs and build a
Company-wide culture of fiscal responsibility.
At the end of the fiscal year, the CEO, assisted by the Chief
Human Resources Officer, provides the Compensation Committee
with a performance rating, on a scale of between 1 and 5, with 5
being the highest possible rating, for each of the business,
inclusion and people development objectives for each NEO (other
than the CEO, which is determined by the Compensation Committee,
and the Chief Human Resources Officer, which is determined by
the CEO). Each NEO other than the CEO was then evaluated on 12
leadership and management competencies and the resulting scores
were weighted 2/3 for the business objectives and 1/3 for the
inclusion and people development objectives to determine their
final Individual Performance Multiplier.
For fiscal 2010, the individual performance objectives for the
CEO included company-wide financial and operational measures,
such as EBITDA, comparable sales and restaurant portfolio
growth, as well as initiatives relating to employee morale,
succession planning and leadership. However, the Compensation
Committee maintains complete discretion in assigning the CEO a
performance rating based on his performance and therefore the
determination of the CEOs Individual Performance
Multiplier is inherently subjective.
Individual Performance Multipliers range from 0 to 1.25, based
on an individuals performance rating. If the Company
achieves the Overall Business Performance Factor at the maximum
performance level, and the NEOs achieve the highest individual
performance rating, the annual cash bonus earned by each of the
NEOs would be as follows (expressed as a percentage of base
salary): Mr. Chidsey, 250%; Mr. Klein, 200%; and
Ms. Chwat and Messrs. Wells, Fallon and Smith, 175%.
For fiscal 2010, the Compensation Committee evaluated the CEO
and reviewed the individual performance evaluations that the CEO
completed for each other NEO at the end of fiscal 2010. All of
the NEOs rated Individual Performance Multipliers are equal to
1.0.
The fiscal 2010 RSIP payout amounts for the NEOs are set forth
in the following table:
2010 RSIP
CASH BONUS
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Target Bonus
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as
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Annual
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Percentage of
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Percentage Payout
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Payout
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Name
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Base Pay ($)
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Base Salary
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(% of Base Salary)
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Amount ($)
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John W. Chidsey
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1,042,875
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100
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%
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62
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%
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649,967
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Ben K. Wells
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494,709
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70
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%
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44
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%
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215,828
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Anne Chwat
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450,883
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70
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%
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44
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%
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196,708
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Charles M. Fallon, Jr.
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437,750
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70
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%
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50
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%
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220,750
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Peter C. Smith
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437,091
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70
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%
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44
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%
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190,691
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Long-Term
Equity Incentives
We believe that long-term compensation is a critical component
of our executive compensation program as a way to foster a
long-term focus on our financial results. Long-term compensation
is an incentive tool that we and the Compensation Committee use
to align the financial interests of executives to the creation
of
III-23
sustained shareholder value. We believe that equity incentives
are preferable to cash in a long-term plan design because:
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the ultimate value is impacted by share price gains or losses,
linking executive returns to those of shareholders;
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equity incentives provide an opportunity for executives to
increase their stock ownership in us;
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once vested, stock options provide flexibility for executives in
deciding when to exercise their options and recognize
income; and
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equity incentives are a common form of pay in most publicly
traded companies, and we use these incentives to remain
competitive in attracting and retaining executives.
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The Compensation Committee has adopted an Equity Grant Policy
and the Board of Directors has adopted Stock Ownership
Guidelines. These policies are described below in the
Additional Features of our Executive Compensation
Programs section of this CD&A.
We award annual long-term equity incentives to the NEOs and
approximately 200 other executives. For the NEOs, these awards
represent the largest component of their Total Direct
Compensation. The Compensation Committee established individual
target awards for fiscal 2010 based on the executives
level, base salary, and for all NEOs other than the CEO, the
Individual Performance Multiplier established for each
executive. Pursuant to his employment agreement, the CEOs
target award is not subject to adjustment based on his
individual performance.
For fiscal 2010, the Compensation Committee decided to award a
combination of equity grants, with 50% of the value earned paid
in the form of stock options and 50% of the value earned paid in
the form of performance-based restricted stock awards. This was
the same equity mix determined by the Compensation Committee for
fiscal 2009. The fiscal 2010 performance-based restricted stock
awards are subject to a
one-year
performance period and then, to the extent earned, will vest
100% on the third anniversary of the grant date, and the fiscal
2010 option awards will vest ratably over four years.
The fiscal 2010 performance-based restricted stock awards for
the CEO and other NEOs were subject to an increase or decrease
by up to 50% at fiscal year end, based upon the financial
performance of the Company during fiscal 2010. For fiscal 2010,
the Compensation Committee established PBT as the financial
metric by which Company performance would be measured and set
the threshold, target and maximum performance levels at the same
levels as those used for the RSIP.
For fiscal 2010, our Incentive PBT fell between the threshold
and target performance levels. Based on Company performance,
there was a 38% downward adjustment in the fiscal 2010
performance-based restricted stock awards granted to the NEOs.
Consequently, the number of shares of performance-based
restricted stock actually awarded for fiscal 2010, after
adjustment for Company performance and the resulting reduction
in the number of shares, was as follows: Mr. Chidsey,
70,996; Mr. Wells, 12,629; Ms. Chwat, 11,511;
Mr. Fallon, 11,175; and Mr. Smith, 11,158.
In June 2010, the Compensation Committee approved a change to
our long term equity incentive program. For fiscal 2011, the
Compensation Committee decided to bifurcate the annual
performance-based restricted stock grant which comprises 50% of
the annual equity award into 25% restricted stock and 25%
performance shares for the CEO and the executive vice presidents
of the Company, including all NEOs. The restricted stock and
performance shares will vest 100% on the third anniversary of
the grant date. For fiscal 2010, the target equity awards for
the NEOs, after application of the Individual Performance
Multiplier and as a percentage of their base salary are as
follows: Mr. Chidsey, 400%; Mr. Klein, 200%; and
Ms. Chwat and Messrs. Wells, Smith and Fallon, 150%.
III-24
Executive
Benefits & Perquisites
In addition to base salary, annual cash bonuses and long-term
equity incentives, we provide the following executive benefit
programs:
Executive
Retirement Program
The Executive Retirement Program (ERP) is a
non-qualified excess benefits program available to
senior-level U.S. employees. This program permits
voluntary deferrals of up to 50% of base salary and 100% of cash
bonus until retirement or termination of employment. Deferrals
become effective once an executive has reached his or her
applicable 401(k) contribution limit. Amounts deferred, up to a
maximum of 6% of base salary, are matched by us on a
dollar-for-dollar
basis. Depending on the level at which we achieve specified
financial performance goals, accounts under the plan also may be
credited by us with up to an additional 4% of base salary at the
target performance level and 6% of base salary at the maximum
performance level. The financial performance goals for fiscal
2010 were based on PBT to reflect the change made in the measure
of worldwide Company financial performance under the RSIP for
fiscal 2010. Prior to fiscal 2008, all accounts earned interest
at the same fixed interest rate. Beginning in fiscal 2008, all
amounts earned interest at a rate that reflects the performance
of investment funds that the employee selects from a pool of
funds. All of our contributions vest ratably over the three-year
period beginning on the date the employee commences employment.
After three years of employment, all future Company
contributions for the benefit of that employee are fully vested.
Our performance-based contribution for fiscal 2010 was 2.49% of
base salary for all participating employees.
On July 1, 2007, we established a rabbi trust to invest
compensation deferred under the ERP and fund future deferred
compensation obligations. We closed the rabbi trust for any new
contributions effective September 1, 2009, and all
contributions since that date have been and will continue to be
made on an unfunded basis. Further details are provided in the
2010 All Other Compensation Table and the 2010 Nonqualified
Deferred Compensation Table.
Executive
Life Insurance Program
The Executive Life Insurance Program provides life insurance
coverage which is paid by us and allows our U.S. executives
to purchase additional life insurance coverage at their own
expense. Coverage for our NEOs, which is paid by us, is limited
to the lesser of $1.3 million or 2.75 times base salary.
Further details are provided in the 2010 All Other Compensation
Table.
Executive
Health Plan
Until April 2010, we offered an Executive Health Plan to all of
our NEOs. The Executive Health Plan provided reimbursement for
out-of-pocket
costs and expenses for deductibles, coinsurance, dental care,
orthodontia, vision care, prescription drugs, and preventative
care for an NEO and his or her eligible dependents up to an
annual maximum of $100,000. Effective April 2010, this plan was
terminated and replaced with an increased perquisite allowance.
Perquisites
Each NEO is provided with an annual perquisite allowance to be
used at his or her discretion. Until March 30, 2010 , the
annual perquisite allowance was $50,000 for Mr. Chidsey and
$35,000 for each other NEO. Effective April 1, 2010, the
annual perquisite allowance was increased to $63,500 for
Mr. Chidsey and $48,500 for each other NEO. In addition to
Mr. Chidseys annual perquisite allowance, he is
entitled to personal use of private charter jet and private car
service, which are not subject to tax
gross-up.
Additional information regarding perquisites provided to the
NEOs is set forth in the 2010 Perquisites Table.
III-25
Certain
Other Benefits
BKC also maintains a comprehensive benefits program consisting
of retirement income and health and welfare plans. The objective
of the program is to provide full time employees with reasonable
and competitive levels of financial support in the event of
retirement, death, disability or illness, which may interrupt
the eligible employees employment or income received as an
active employee. BKCs health and welfare plans consist of
life, disability and health insurance benefit plans that are
available to all eligible full-time employees. BKC also provides
a 401(k) plan that is available to all eligible full-time
employees. The 401(k) plan includes a matching feature of up to
6% of the employees base salary.
Other
Compensation Committee Actions
From time to time, our Compensation Committee awards special
cash or equity grants for retention purposes or to recognize
extraordinary performance or disparities in pay. On
July 19, 2010, the Compensation Committee approved a
special equity grant with a grant date of August 25, 2010
and an aggregate grant date fair value of $360,000 for
Mr. Wells. The grant consisted of restricted stock which
vests ratably on the anniversary of the grant date over a three
year period.
Employment
Agreements
We currently have employment agreements with our CEO and each of
our officers. We believe that employment agreements provide us
protection in an extremely competitive environment by imposing
restrictions on an employees ability to engage in
competitive activities and solicit employees and franchisees.
Pursuant to his or her respective employment agreement, the CEO
and each of our CEO Direct Reports has agreed (i) not to
compete with us during the term of his or her employment and for
one year after termination of employment; (ii) not to
solicit our employees or franchisees during the term of his or
her employment and for one year after termination; and
(iii) to maintain the confidentiality of our information.
If an executive breaches any of these covenants, we will cease
providing any severance and other benefits to the executive and
we have the right to require the executive to repay any
severance amounts already paid to him or her. See the
Clawback Policy section of this CD&A for
information about our right to recoup economic gains from equity
grants if an employee violates any restrictive covenants
contained in his or her employment or separation agreement.
Employment
Agreement with Mr. Chidsey
We initially entered into an employment agreement with
Mr. Chidsey to serve as our Chief Executive Officer on
April 6, 2006, which was amended on December 16, 2008
and further amended on April 1, 2010. The initial term of
the agreement ended on April 6, 2009. At the end of the
term, the agreement automatically extends for additional
three-year periods, unless either party provides notice of
non-renewal to the other at least six months prior to the
expiration of the relevant period. Prior to the notice date, the
Compensation Committee evaluated the terms of
Mr. Chidseys employment agreement and decided that
the agreement should be renewed. Consequently, on April 7,
2009, the agreement automatically extended for a period of three
years. The current term of the agreement ends on April 6,
2012. Pursuant to his employment agreement, Mr. Chidsey is
eligible to receive an annual base salary of $1,042,875, subject
to increase by the Compensation Committee, in its sole
discretion. The employment agreement provides that
Mr. Chidseys target annual cash bonus opportunity is
100% of his base salary; however, Mr. Chidsey has the
opportunity to earn up to 250% of his base salary if we achieve
our financial objectives at the maximum performance level and
Mr. Chidsey receives the maximum individual performance
rating pursuant to the RSIP. Mr. Chidsey may elect to
receive up to 50% of his annual cash bonus in such non-cash form
as the Compensation Committee makes available to members of our
senior management team. On an annual basis, Mr. Chidsey
also is entitled to receive a target annual performance-based
equity grant (consisting of restricted stock, stock options or
any combination thereof as determined by the Compensation
Committee) with a grant date value equal to 400% of his base
salary as described in the Elements of Compensation and
Benefit Programs section of this CD&A.
Mr. Chidsey also is entitled to receive an annual
perquisite allowance of $63,500, private charter jet usage for
business travel (and up to $100,000 per year for personal use)
and personal use of a car service. Additional
III-26
information regarding Mr. Chidseys private charter
jet usage and car service is set forth in the 2010 Perquisites
Table.
If Mr. Chidseys employment is terminated without
cause or he terminates his employment with good reason or due to
his death or disability (as such terms are defined in the
employment agreement), he will be entitled to receive an amount
equal to the sum of four times his base salary if the separation
occurs prior to a change in control (or six times his base
salary if the separation occurs subsequent to a change in
control) and two times the annual amount of his annual
perquisites allowance if his separation occurs prior to a change
in control (or three times his annual perquisites allowance if
the separation occurs subsequent to the change in control). This
severance amount will be payable over a period of six months on
our regular payroll dates, commencing on the first business day
immediately following the six month anniversary of the
termination date and ending on the one year anniversary of the
termination date. Mr. Chidsey also will be entitled to
continued coverage under BKCs medical, dental and life
insurance plans for him and his eligible dependents during the
two-year period following termination (or three-year period, if
his termination occurs after a change in control). If
Mr. Chidseys employment is terminated due to his
death or disability or during the
24-month
period after a change in control of the Company either without
cause or for good reason, all options and other equity awards
held by Mr. Chidsey will vest in full. Upon termination of
his employment for any reason other than for cause,
Mr. Chidsey will have one year to exercise all vested
awards. Among other events, a resignation for any reason within
the
30-day
period immediately following the one-year anniversary of a
change in control involving a strategic buyer (as determined by
the Board) constitutes a termination by BKC without cause under
the employment agreement. If any payments due to
Mr. Chidsey in connection with a change in control would be
subject to an excise tax, we will provide Mr. Chidsey with
a related tax
gross-up
payment, unless a reduction in Mr. Chidseys payments
by up to 10% would avoid the excise tax. Mr. Chidsey is not
entitled to receive an annual bonus or prorated annual bonus for
the year of his termination of employment.
Employment
Agreements with Ms. Chwat and Messrs. Wells, Fallon
and Smith
We have entered into one-year employment agreements with each of
Ms. Chwat and Messrs. Wells, Fallon and Smith. At the
end of the term, each executives employment agreement
automatically extends for an additional one-year period and will
continue to be so extended unless BKC provides notice of
non-renewal at least 90 days prior to the expiration of the
relevant period. The employment agreements of each of
Ms. Chwat and Messrs. Wells, Fallon and Smith expired
on June 30, 2010 and, on July 1, 2010, these
agreements automatically extended for a period of one year each.
Pursuant to their respective employment agreements, these NEOs
are eligible to receive annual base salaries, which are subject
to increase by the Compensation Committee, in its sole
discretion. During fiscal 2010, each of Ms. Chwat and
Messrs. Wells, Fallon and Smith, was eligible to receive a
performance-based annual cash bonus with a target payment equal
to 70% of his or her annual base salary if we achieve the target
financial objectives set by the Compensation Committee for a
particular fiscal year; however, he or she is eligible to
receive a performance-based annual cash bonus of up to 175% of
his or her base salary if we achieve our financial objectives at
the maximum level and he or she receives the maximum individual
performance rating pursuant to the RSIP. Each executive also is
entitled to receive an annual perquisite allowance and is
eligible to participate in our long-term equity programs. Each
executive is entitled to receive outplacement services upon
termination of employment.
Pursuant to their respective employment agreements, if BKC
terminates the executives employment without cause or if
the executive terminates his or her employment with good reason
(as defined in the relevant agreement), he or she will be
entitled to receive his or her then current base salary and
perquisite allowance for one year, payable in equal installments
over a six-month period beginning on the first business day
following the six month anniversary of the termination date and
ending on the one year anniversary of the termination date and
continued coverage for one year under BKCs medical, dental
and life insurance plans for the executive and his or her
eligible dependents. In addition, each executive is entitled to
receive an additional severance amount equal to the pro-rata
bonus that would have been earned if the executive had been
employed at the end of the year. This additional severance
amount will only be paid to the extent, and when, the Company
pays the RSIP bonuses. Additionally, if
III-27
the executives employment is terminated at any time within
24 months after a change in control of the Company either
without cause or by the executive for good reason, all options
held by the executive will become fully vested upon termination
and he or she will have 90 days to exercise such options.
The potential payments and benefits to the NEOs in the event of
a termination of employment or change in control are described
below in the 2010 Potential Payments Upon Termination or Change
in Control Table.
Agreements
with Mr. Klein
Mr. Kleins service as President, Global Marketing,
Strategy and Innovation ended on December 15, 2009 (the
Separation Date). In connection with his separation,
BKC entered into the Separation Agreement which entitles
Mr. Klein to receive (i) a gross payment of $550,000
payable in thirteen equal, bi-weekly installments commencing on
BKCs first regular payroll following May 6, 2010;
(ii) a severance amount equal to a prorated cash bonus for
fiscal 2010 calculated in accordance with the terms of the RSIP
bonus plan, and payable to the extent and when, the Company pays
out RSIP bonuses to other employees; (iii) coverage under
BKCs medical, dental and life insurance plans for one year
following the Separation Date; and (iv) outplacement
services.
Additional
Features of our Executive Compensation Programs
Deductibility
of Compensation
Section 162(m) of the IRC and the related regulations and
other guidance promulgated thereunder, generally limit the tax
deductibility of non-performance based annual compensation paid
by a publicly-held company to $1,000,000 for the CEO and the
next four highest compensated officers of the Company (other
than the CFO). Since we became a public company in May 2006, our
existing compensation programs have generally been eligible for
special relief from this tax rule. While the Compensation
Committee takes the impact of 162(m) into consideration in
making its decisions, the Compensation Committee does not limit
its compensation decisions by the deductibility of such
compensation. The Compensation Committee recognizes that in
order to attract and retain individuals with superior talent, it
may be necessary to pay amounts that are not deductible. During
fiscal 2010, certain amounts paid to our CEO were not deductible.
Equity
Grant Policy
On February 28, 2007, the Compensation Committee adopted an
Equity Grant Policy governing the issuance of equity awards.
Under the Equity Grant Policy, the Compensation Committee may
delegate to one of our officers the authority to make grants to
any person other than the CEO, the CEO Direct Reports or our
executive officers.
Under the Equity Grant Policy, our annual employee grants are
made on August 21 of each year and our mid-year grants are made
on March 21 of each year. The Company, with the approval of the
Compensation Committee or pursuant to the delegation of
authority described above, also may make additional grants at
its discretion. These additional grants are generally made for
purposes of recognition and retention, and to newly hired
executives, and are to be awarded on the first day of the month
following the date of approval of the equity award, or at a
later date designated by the approving authority. No grants may
be made on any of these predetermined dates if the grant date
would fall on or within five days preceding our release of
material non-public information. In such event, the grant date
must be postponed until the first business day following the
release.
Under the Equity Grant Policy, we set the exercise price of
options and the fair market value of other equity awards at the
closing price of our common stock on the NYSE on the date of the
grant, or, if there is no reported sale on the grant date, then
on the last preceding date on which any reported sale occurred.
Executive
Stock Ownership Guidelines
On September 13, 2007, the Board adopted Executive Stock
Ownership Guidelines (the Guidelines) establishing
minimum equity ownership requirements for our CEO, executive
vice presidents and senior vice
III-28
presidents. The purposes of the Guidelines are to align the
interests of those executives with the interests of shareholders
and further promote our commitment to sound corporate
governance. The minimum required ownership is determined as a
multiple of the executives annual base salary, based upon
the executives level, as follows: 4 times base salary for
our CEO, 2 times base salary for all executive vice presidents,
1.75 times base salary for all regional presidents and one times
base salary for all other senior vice presidents.
The Guidelines identify the types of equity that may be
considered in determining whether an executive has met the
minimum ownership requirement. Executives will have between
three and five years to reach the minimum requirement, depending
upon the date they commenced employment with us. If an executive
does not meet his or her minimum required ownership within the
proscribed time period, then until he or she meets the
requirement, he or she must retain 100% of all net shares
received from the exercise or settlement of equity awards
granted under our incentive plans. Once an executive achieves
his or her minimum required ownership on or after the applicable
deadline, he or she must maintain the minimum required ownership
for as long as he or she is an employee.
Clawback
Policy
As described in our standard equity award agreements issued
after April 2006, the Compensation Committee has the right to
seek to recoup economic gains realized during the preceding year
from the vesting, exercise or settlement of equity grants from
an employee who violates any post-employment restrictive
covenants contained in his or her employment or separation
agreement, including non-compete and confidentiality obligations.
Compensation
Risks
Management and the Compensation Committee have examined the risk
profile of our compensation program to ensure that it does not
encourage excessive risk-taking. In addition to the risk
mitigation measures described in this CD&A, the
Compensation Committee believes that the following factors help
mitigate risk:
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Our annual incentive opportunities are capped for each of our
NEOs, which limit the incentive for excessive risk-taking;
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The vesting periods of our equity grants encourage executives to
focus on sustained stock price appreciation over the long-term;
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Performance targets are directly tied to the business plan that
is approved by our Board of Directors;
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Clawbacks are in place for long-term incentive awards;
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Minimum equity ownership requirements have been established for
our CEO, executive vice presidents and senior vice presidents
which mitigate the incentive to drive short-term results at the
cost of long-term value creation; and
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The Compensation Committee process provides for transparency and
an open dialogue among the members.
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III-29
COMPENSATION
COMMITTEE REPORT
We have reviewed and discussed the foregoing Compensation
Discussion and Analysis with management. Based on our review and
discussions with management, we have approved the inclusion of
the Compensation Discussion & Analysis in this
Information Statement.
COMPENSATION
COMMITTEE
Stephen G. Pagliuca, Chairman
Peter R. Formanek
Sanjeev K. Mehra
September 9, 2010
III-30
EXECUTIVE
COMPENSATION
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Non-Equity
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Stock
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Incentive Plan
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All Other
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Name and
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Bonus
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Awards(2)
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Awards(3)
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Compensation(4)
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Compensation(5)
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Principal Position
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Year(1)
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Salary ($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Total ($)
|
|
John W. Chidsey
|
|
|
2010
|
|
|
|
1,042,875
|
|
|
|
0
|
|
|
|
2,085,747
|
|
|
|
2,054,332
|
|
|
|
649,967
|
|
|
|
358,419
|
|
|
|
6,191,340
|
|
Chief Executive Officer
|
|
|
2009
|
|
|
|
1,034,697
|
|
|
|
0
|
|
|
|
2,024,993
|
|
|
|
1,967,403
|
|
|
|
803,014
|
|
|
|
316,943
|
|
|
|
6,147,050
|
|
|
|
|
2008
|
|
|
|
1,012,500
|
|
|
|
0
|
|
|
|
2,024,982
|
|
|
|
1,916,253
|
|
|
|
1,306,125
|
|
|
|
434,190
|
|
|
|
6,694,050
|
|
Ben K. Wells
|
|
|
2010
|
|
|
|
494,709
|
|
|
|
0
|
|
|
|
371,016
|
|
|
|
365,442
|
|
|
|
215,828
|
|
|
|
115,336
|
|
|
|
1,562,331
|
|
Chief Financial Officer
|
|
|
2009
|
|
|
|
490,830
|
|
|
|
50,000
|
|
|
|
360,223
|
|
|
|
349,978
|
|
|
|
266,648
|
|
|
|
115,336
|
|
|
|
1,633,015
|
|
|
|
|
2008
|
|
|
|
479,147
|
|
|
|
0
|
|
|
|
360,220
|
|
|
|
340,887
|
|
|
|
433,711
|
|
|
|
126,109
|
|
|
|
1,740,074
|
|
Anne Chwat(6)
|
|
|
2010
|
|
|
|
450,883
|
|
|
|
0
|
|
|
|
338,149
|
|
|
|
333,069
|
|
|
|
196,708
|
|
|
|
107,033
|
|
|
|
1,425,842
|
|
EVP, General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles M. Fallon, Jr.
|
|
|
2010
|
|
|
|
437,750
|
|
|
|
0
|
|
|
|
328,298
|
|
|
|
323,364
|
|
|
|
220,750
|
|
|
|
104,029
|
|
|
|
1,414,191
|
|
President, North America
|
|
|
2009
|
|
|
|
434,317
|
|
|
|
0
|
|
|
|
350,622
|
|
|
|
340,652
|
|
|
|
222,158
|
|
|
|
96,527
|
|
|
|
1,444,276
|
|
|
|
|
2008
|
|
|
|
425,000
|
|
|
|
0
|
|
|
|
318,728
|
|
|
|
301,625
|
|
|
|
391,162
|
|
|
|
128,575
|
|
|
|
1,565,090
|
|
Peter C. Smith(6)
|
|
|
2010
|
|
|
|
437,091
|
|
|
|
0
|
|
|
|
327,804
|
|
|
|
322,880
|
|
|
|
190,691
|
|
|
|
104,016
|
|
|
|
1,382,482
|
|
EVP, HR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell B. Klein(7)
|
|
|
2010
|
|
|
|
253,539
|
|
|
|
0
|
|
|
|
2,014,979
|
(7)
|
|
|
1,257,237
|
(7)
|
|
|
|
|
|
|
774,521
|
|
|
|
4,300,276
|
|
Former President, Global
|
|
|
2009
|
|
|
|
510,962
|
|
|
|
0
|
|
|
|
499,996
|
|
|
|
485,772
|
|
|
|
317,240
|
|
|
|
121,650
|
|
|
|
1,935,620
|
|
Marketing, Strategy & Innovation
|
|
|
2008
|
|
|
|
500,000
|
|
|
|
0
|
|
|
|
499,994
|
|
|
|
473,143
|
|
|
|
516,000
|
|
|
|
146,610
|
|
|
|
2,135,747
|
|
|
|
|
(1)
|
|
Please refer to our fiscal 2008 and fiscal 2009 proxy statements
and accompanying footnotes for additional information relating
to fiscal 2008 and 2009 compensation.
|
|
(2)
|
|
Amounts shown in this column include the aggregate grant date
fair value of restricted stock awards and performance-based
restricted stock awards granted in fiscal 2008, fiscal 2009 and
fiscal 2010 in accordance with FASB ASC Topic 718. The amounts
previously reported for fiscal 2008 and fiscal 2009 have been
restated to reflect the aggregate grant date fair value of the
grants in accordance with new SEC rules. The amounts reported
for the performance-based restricted stock awards assume that
the awards are paid out at the probable level, which we
determine as our target amount. Assuming that the fiscal 2010
performance-based restricted stock awards are paid out at the
maximum level, the grant date fair value of the awards for each
NEO would be as follows: Mr. Chidsey, $3,128,621;
Mr. Wells, $556,523; Ms. Chwat, $507,224;
Mr. Fallon, $492,447; Mr. Smith $491,706; and
Mr. Klein, $772,487. The assumptions and methodology used
to calculate the grant date fair value for the restricted stock
awards are in Note 3 to our Consolidated Financial
Statements included in our
Form 10-K
for fiscal 2010.
|
|
(3)
|
|
Amounts shown in this column include the aggregate grant date
fair value of option awards granted in fiscal 2008, fiscal 2009
and fiscal 2010. The amounts previously reported for fiscal 2008
and fiscal 2009 have been restated in accordance with new SEC
rules. The assumptions and methodology used to calculate the
grant date fair value for the options are in Note 3 to our
Consolidated Financial Statements included in our
Form 10-K
for fiscal 2010.
|
|
(4)
|
|
The amounts reported in this column reflect compensation earned
for fiscal 2010, fiscal 2009 and fiscal 2008 performance under
the RSIP. We pay cash incentives under the RSIP in the fiscal
year following the fiscal year in which they were earned. For
fiscal 2010, the Compensation Committee determined that
worldwide PBT and North America Incentive EBITDA was between the
threshold and target performance levels. Based on these results,
the Compensation Committee approved each NEOs individual
performance measures and cash incentive payment, and submitted
the CEOs individual performance measures and cash
incentive payment for approval to the Board of Directors. In
August 2010, the Board approved the Compensation
Committees recommendations. Fiscal 2010 cash incentive
payments were made in September 2010.
|
|
(5)
|
|
This column includes the fiscal 2010 perquisites described below
in the 2010 Perquisites Table. This column also includes
executive medical expenses for all NEOs, life insurance
premiums, dividend payments and dividend equivalents earned as
described in Footnote 3 to the 2010 All Other Compensation
Table, and the Companys matching and performance-based
contributions to the Companys 401(k) plan and ERP, as
described below in the 2010 All Other Compensation Table. This
column also includes Mr. Kleins severance payment in
the amount of $618,891 as described below in Footnote 4 to the
2010 All Other Compensation Table.
|
III-31
|
|
|
(6)
|
|
Ms. Chwat and Mr. Smith became NEOs in fiscal 2010.
Since they were not NEOs in fiscal 2008 and fiscal 2009, the
Summary Compensation Table includes only their fiscal 2010
compensation.
|
|
(7)
|
|
Mr. Kleins employment terminated on December 15,
2009. The stock and option awards shown in the Summary
Compensation Table were forfeited immediately upon his
termination.
|
Our NEOs received the following perquisites during fiscal 2010:
2010
PERQUISITES TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
|
|
|
|
|
|
Perquisite
|
|
Personal
|
|
Expenses/
|
|
|
|
Total
|
|
|
|
|
Allowance
|
|
Travel
|
|
Car Service
|
|
Miscellaneous
|
|
Perquisites
|
Name
|
|
Year
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)(4)
|
|
($)
|
|
John W. Chidsey
|
|
|
2010
|
|
|
|
52,908
|
|
|
|
122,597
|
|
|
|
6,848
|
|
|
|
0
|
|
|
|
182,353
|
|
Ben K. Wells
|
|
|
2010
|
|
|
|
37,908
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
37,908
|
|
Anne Chwat
|
|
|
2010
|
|
|
|
37,908
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
37,908
|
|
Charles M. Fallon, Jr.
|
|
|
2010
|
|
|
|
37,908
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
37,908
|
|
Peter C. Smith
|
|
|
2010
|
|
|
|
37,908
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,696
|
|
|
|
41,604
|
|
Russell B. Klein
|
|
|
2010
|
|
|
|
20,442
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20,442
|
|
|
|
|
(1)
|
|
These perquisite allowances were paid to the NEOs in accordance
with their respective employment agreements. Each NEO uses the
perquisite allowance at his or her discretion. The amount was
calculated at an annual rate of $50,000 for Mr. Chidsey and
$35,000 for Messrs Wells, Fallon, Smith and Klein and
Ms. Chwat from July 1, 2009 until March 31, 2010
(December 15, 2009 for Mr. Klein). The amount was
calculated at an annual rate of $63,500 for Mr. Chidsey and
$48,500 for Messrs Wells, Fallon and Smith and Ms. Chwat
from April 1, 2010 until June 30, 2010.
|
|
(2)
|
|
Pursuant to his employment agreement, Mr. Chidsey is
entitled to private charter jet usage for personal use of up to
$100,000 per year. However, under his employment agreement, only
hourly charges and fuel surcharges are to be considered for
purposes of this $100,000 allowance. In accordance with SEC
guidance, the amounts included in this column have been
calculated utilizing the actual invoice amount, which we believe
more accurately reflects the incremental cost to the Company for
this perquisite. Mr. Chidsey is fully responsible for all
taxes associated with his personal use of the Company aircraft.
Due to timing of invoicing, Mr. Chidseys fiscal 2010
amount exceeded this allowance.
|
|
(3)
|
|
Mr. Chidsey is entitled to personal use of a car service,
and the charges for this perquisite totaled $6,848.
Mr. Chidsey is fully responsible for all taxes associated
with this perquisite.
|
|
(4)
|
|
Represents event tickets paid or provided by the Company.
|
2010 ALL
OTHER COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to Retirement
|
|
Dividend
|
|
|
|
|
|
|
|
|
|
|
Welfare
|
|
and 401(k)
|
|
Equivalents
|
|
|
|
|
|
|
|
|
Perquisites
|
|
Plans(1)
|
|
Plans(2)
|
|
Earned(3)
|
|
Severance
|
|
|
Name
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Total ($)
|
|
John W. Chidsey
|
|
|
2010
|
|
|
|
182,353
|
|
|
|
18,424
|
|
|
|
90,978
|
|
|
|
66,664
|
|
|
|
0
|
|
|
|
358,419
|
|
Ben K. Wells
|
|
|
2010
|
|
|
|
37,908
|
|
|
|
22,270
|
|
|
|
43,299
|
|
|
|
11,859
|
|
|
|
0
|
|
|
|
115,336
|
|
Anne Chwat
|
|
|
2010
|
|
|
|
37,908
|
|
|
|
19,203
|
|
|
|
38,293
|
|
|
|
11,630
|
|
|
|
0
|
|
|
|
107,033
|
|
Charles M. Fallon, Jr.
|
|
|
2010
|
|
|
|
37,908
|
|
|
|
18,255
|
|
|
|
37,178
|
|
|
|
10,688
|
|
|
|
0
|
|
|
|
104,029
|
|
Peter C. Smith
|
|
|
2010
|
|
|
|
41,604
|
|
|
|
14,812
|
|
|
|
37,122
|
|
|
|
10,478
|
|
|
|
0
|
|
|
|
104,016
|
|
Russell B. Klein
|
|
|
2010
|
|
|
|
20,442
|
|
|
|
9,038
|
|
|
|
15,962
|
|
|
|
9,235
|
|
|
|
719,844
|
(4)
|
|
|
774,521
|
|
|
|
|
(1)
|
|
Amounts in this column reflect life insurance premiums paid by
us and payments made by us under the Executive Health Plan. The
amounts for each NEO for fiscal 2010 life insurance premiums and
executive health plan are as follows: Mr. Chidsey, $2,336
and $16,089, respectively; Mr. Wells, $6,181 and $16,089,
|
III-32
|
|
|
|
|
respectively; Ms. Chwat, $3,114 and $16,089, respectively;
Mr. Fallon, $2,167 and $16,089, respectively;
Mr. Smith $4,102 and $10,710 respectively; and
Mr. Klein, $3,666 and $16,089 respectively.
|
|
(2)
|
|
The amounts in this column represent Company matching
contributions to the 401(k) plan and the ERP and the
Companys profit sharing contribution to the ERP for fiscal
2010 for the NEOs except for Mr. Klein, for whom the
amounts represent only the Companys matching contribtions
to the ERP due to his termination on December 15, 2009, as
follows:
|
Company
Matching Contributions to 401 (k) and ERP and Company
Profit Sharing Contribution to ERP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010 Company
|
|
|
Fiscal 2010 Company
|
|
|
|
|
|
|
Matching Contributions
|
|
|
Matching Contributions
|
|
|
Fiscal 2010 Profit Sharing
|
|
NEO
|
|
401(k) ($)
|
|
|
ERP ($)
|
|
|
Contribution ERP ($)
|
|
|
John W. Chidsey
|
|
|
14,440
|
|
|
|
50,539
|
|
|
|
25,999
|
|
Ben K. Wells
|
|
|
14,700
|
|
|
|
16,266
|
|
|
|
12,333
|
|
Anne Chwat
|
|
|
14,246
|
|
|
|
12,807
|
|
|
|
11,240
|
|
Charles M. Fallon, Jr.
|
|
|
14,700
|
|
|
|
11,565
|
|
|
|
10,913
|
|
Peter C. Smith
|
|
|
14,146
|
|
|
|
12,079
|
|
|
|
10,897
|
|
Russell B. Klein
|
|
|
0
|
|
|
|
15,962
|
|
|
|
0
|
|
|
|
|
(3)
|
|
Quarterly dividends and dividend equivalents in the amount of
$0.0625 per share were paid by the Company to record owners of
shares, in the case of dividends, and accrued by the Company for
the holders of unvested restricted stock units, restricted stock
and performance-based restricted stock, in the case of dividend
equivalents, as of September 14, 2009, December 10,
2009, March 16, 2010 and June 14, 2010 in fiscal 2010.
The amounts in this column represent accrued dividend
equivalents earned on unvested restricted stock units,
restricted stock and performance-based restricted stock. All
Executive Officers had restricted stock units settle during
fiscal 2010, Mr. Chidsey was paid $84,294; Mr. Wells
was paid $17,547; Ms. Chwat was paid $8,771;
Mr. Fallon was paid $15,951; Mr. Smith was paid
$8,505; and Mr. Klein was paid $27,524, which represents
dividends that accrued on these restricted stock units during
fiscal 2008, fiscal 2009 and fiscal 2010.
|
|
(4)
|
|
Includes amounts payable pursuant to the Separation Agreement
with Mr. Klein.
|
2010
GRANTS OF PLAN-BASED AWARDS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
Exercise
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
or Base
|
|
|
Date Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
Price of
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under
|
|
|
Estimated Possible Payouts Under
|
|
|
Number of
|
|
|
Option
|
|
|
Stock and
|
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards(2)
|
|
|
Equity Incentive Plan Awards(3)
|
|
|
Securities
|
|
|
Awards
|
|
|
Option
|
|
|
|
Grant
|
|
|
Approval
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Underlying
|
|
|
($/sh)
|
|
|
Awards ($)
|
|
Name
|
|
Date
|
|
|
Date(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
Options (#)(4)
|
|
|
(5)
|
|
|
(7)
|
|
|
John W. Chidsey
|
|
|
8/26/2009
|
|
|
|
8/20/2009
|
|
|
|
521,438
|
|
|
|
1,042,875
|
|
|
|
2,085,750
|
|
|
|
56,957
|
|
|
|
113,913
|
|
|
|
170,870
|
|
|
|
314,118
|
|
|
|
18.31
|
|
|
|
4,140,079
|
|
Ben K. Wells
|
|
|
8/26/2009
|
|
|
|
8/20/2009
|
|
|
|
173,148
|
|
|
|
346,296
|
|
|
|
692,593
|
|
|
|
10,132
|
|
|
|
20,263
|
|
|
|
30,395
|
|
|
|
55,878
|
|
|
|
18.31
|
|
|
|
736,458
|
|
Anne Chwat
|
|
|
8/26/2009
|
|
|
|
8/20/2009
|
|
|
|
157,809
|
|
|
|
315,618
|
|
|
|
631,236
|
|
|
|
9,234
|
|
|
|
18,468
|
|
|
|
27,702
|
|
|
|
50,928
|
|
|
|
18.31
|
|
|
|
671,218
|
|
Charles M. Fallon, Jr.
|
|
|
8/26/2009
|
|
|
|
8/20/2009
|
|
|
|
153,213
|
|
|
|
306,425
|
|
|
|
612,850
|
|
|
|
8,965
|
|
|
|
17,930
|
|
|
|
26,895
|
|
|
|
49,444
|
|
|
|
18.31
|
|
|
|
651,662
|
|
Peter C. Smith
|
|
|
8/26/2009
|
|
|
|
8/20/2009
|
|
|
|
152,982
|
|
|
|
305,964
|
|
|
|
611,927
|
|
|
|
8,952
|
|
|
|
17,903
|
|
|
|
26,855
|
|
|
|
49,370
|
|
|
|
18.31
|
|
|
|
650,684
|
|
Russell B. Klein(6)
|
|
|
8/26/2009
|
|
|
|
8/20/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,063
|
|
|
|
28,126
|
|
|
|
42,189
|
|
|
|
77,560
|
|
|
|
18.31
|
|
|
|
1,022,229
|
|
Russell B. Klein(6)
|
|
|
8/26/2009
|
|
|
|
8/20/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
|
81,922
|
|
|
|
n/a
|
|
|
|
114,678
|
|
|
|
18.31
|
|
|
|
2,249,986
|
|
|
|
|
(1)
|
|
The Compensation Committee recommended and the Board approved
the fiscal 2010 grants at meetings held on August 20, 2009.
The approvals required that the grants be made on
August 26, 2009 in accordance with the Companys
Equity Grant Policy described in the CD&A.
|
|
(2)
|
|
The amounts reported in this column reflect possible payments
based on fiscal 2010 performance under the RSIP. The
Maximum estimated possible payout reflects what an
NEO would earn if the Company met or exceeded its financial
performance goals at the maximum level. If the NEO received the
highest individual performance rating the possible payout would
be increased by 25% at the Threshold,
Target and Maximum levels. A description
of the RSIP and our Threshold, Target
and Maximum Payout
|
III-33
|
|
|
|
|
Amounts is included in the CD&A. Fiscal 2010 cash incentive
payments were made in September 2010. The actual amounts
paid under the RSIP are the amounts reflected in the Non-Equity
Incentive Plan Compensation column of the 2010 Summary
Compensation Table.
|
|
(3)
|
|
In August 2009, we made grants of option and performance-based
restricted stock awards to each NEO. The amounts reported under
the Threshold, Target and
Maximum columns above relate only to the
performance-based restricted stock awards made under our 2006
Omnibus Incentive Plan. The performance-based restricted stock
awards granted to the NEOs, other than the CEO, were calculated
as follows: the NEOs current salary, multiplied by the
target equity award as a percentage of base salary, adjusted by
the NEOs individual performance factor (which may result
in an award adjustment of up to plus or minus 20%), divided by
two, then divided by the closing stock price on the grant date.
For the CEO, the number of performance-based restricted shares
is calculated similarly; however, his percentage of base salary
is not subject to adjustment based on his individual
performance. The actual number of performance-based restricted
shares granted is reflected in the Target column
above. If the Company achieves its target PBT, this is the
number of performance-based restricted shares that will be
earned at the end of the one-year performance period. The number
of performance-based restricted shares that will be earned by
the NEO at the end of the one-year performance period is then
subject to a decrease of up to 50% for all NEOs if the Company
achieves PBT between the Threshold and
Target levels or an increase of up to 50% for all
NEOs if the Company achieves PBT between the Target
and Maximum levels. For fiscal 2010, Incentive PBT
fell between the threshold and target performance levels. As a
result, the awards for all NEOs were reduced by 38%, which was
the downward adjustment for the CEO and all executive vice
presidents. The actual number of performance-based restricted
shares earned for fiscal 2010, after taking into consideration
the downward adjustment for Company performance and the
resulting reduction in the number of shares, is set forth in
Footnote 7 below.
|
|
(4)
|
|
The options awarded to the NEOs, other than the CEO, were
calculated as follows: the NEOs current salary, multiplied
by the target equity award as a percentage of base salary,
adjusted by the NEOs individual performance factor (which
may result in an award adjustment of up to plus or minus 20%),
divided by two, then divided by the economic value of our stock
options on the grant date, which was $6.64 per share. For the
CEO, the number of options is calculated similarly; however, his
target equity award is not subject to adjustment based on his
individual performance.
|
|
(5)
|
|
Reflects the closing price of our common stock on the NYSE on
August 26, 2009, the fiscal 2010 annual equity grant date.
|
|
(6)
|
|
Mr. Kleins employment terminated on December 15,
2009. He received two grants on August 26, 2009, his
regular annual equity grant and a special retention grant. These
shares and options were forfeited immediately upon the date of
his termination.
|
|
(7)
|
|
The amounts reflect the fair market value of (1) the
probable possible payout of performance-based restricted stock,
which we determine as our target amount, and (2) the
options awarded (which were not subject to any increase or
decrease based on individual or Company performance) on
August 26, 2009 (the grant date). The actual amounts for
the performance-based restricted stock awards were determined in
August 2010, based upon the Companys Incentive PBT for
fiscal 2010, as discussed above in the CD&A. The actual
amounts of performance-based restricted stock earned, after
taking into account the downward adjustment for Company
performance and the corresponding fair value of such shares
using the closing price on the grant date of August 26,
2009 ($18.31 per share) and June 30, 2010 ($16.84 per
share) for the NEOs (other than Mr. Klein whose
performance-based restricted stock awards were forfeited in
connection with his termination), are as follows:
|
III-34
Post
Leverage PBRS Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
PBRS
|
|
|
PBRS
|
|
|
|
Original PBRS
|
|
|
PBRS
|
|
|
PBRS
|
|
|
on Grant
|
|
|
at Fiscal
|
|
NEO
|
|
Granted (#)
|
|
|
Leveraged (#)
|
|
|
Earned (#)
|
|
|
Date ($)
|
|
|
Year End ($)
|
|
|
John W. Chidsey
|
|
|
113,913
|
|
|
|
(42,917
|
)
|
|
|
70,996
|
|
|
|
2,085,747
|
|
|
|
1,195,573
|
|
Ben K. Wells
|
|
|
20,263
|
|
|
|
(7,634
|
)
|
|
|
12,629
|
|
|
|
371,016
|
|
|
|
212,672
|
|
Anne Chwat
|
|
|
18,468
|
|
|
|
(6,957
|
)
|
|
|
11,511
|
|
|
|
338,149
|
|
|
|
193,845
|
|
Charles M. Fallon, Jr.
|
|
|
17,930
|
|
|
|
(6,755
|
)
|
|
|
11,175
|
|
|
|
328,298
|
|
|
|
188,187
|
|
Peter C. Smith
|
|
|
17,903
|
|
|
|
(6,745
|
)
|
|
|
11,158
|
|
|
|
327,804
|
|
|
|
187,901
|
|
2010
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
Market
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Shares
|
|
Value of
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
or Units
|
|
Shares or
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
of Stock
|
|
Units of
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
Stock
|
|
That
|
|
Stock That
|
|
|
Option
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
Award
|
|
have not
|
|
have not
|
|
|
Grant
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
|
Grant
|
|
Vested
|
|
Vested(4)
|
Name
|
|
Date(1)
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
Date
|
|
(#)
|
|
($)
|
|
John W. Chidsey
|
|
|
3/1/04
|
|
|
|
166,922
|
|
|
|
0
|
|
|
|
3.80
|
|
|
|
3/1/14
|
|
|
|
5/17/06
|
|
|
|
42,154
|
(2)
|
|
|
709,873
|
|
|
|
|
3/1/04
|
|
|
|
289,807
|
|
|
|
0
|
|
|
|
11.39
|
|
|
|
3/1/14
|
|
|
|
8/21/06
|
|
|
|
80,071
|
(3)
|
|
|
1,348,396
|
|
|
|
|
6/8/04
|
|
|
|
177,573
|
|
|
|
0
|
|
|
|
3.80
|
|
|
|
6/8/14
|
|
|
|
8/27/07
|
|
|
|
103,200
|
(3)
|
|
|
1,737,894
|
|
|
|
|
6/8/04
|
|
|
|
94,715
|
|
|
|
0
|
|
|
|
11.39
|
|
|
|
6/8/14
|
|
|
|
8/22/08
|
|
|
|
49,542
|
(3)
|
|
|
834,287
|
|
|
|
|
8/1/04
|
|
|
|
236,746
|
|
|
|
0
|
|
|
|
3.80
|
|
|
|
8/1/14
|
|
|
|
8/26/09
|
|
|
|
113,913
|
(3)
|
|
|
1,918,295
|
|
|
|
|
8/27/07
|
|
|
|
120,823
|
|
|
|
120,823
|
|
|
|
23.35
|
|
|
|
8/26/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/22/08
|
|
|
|
57,593
|
|
|
|
172,782
|
|
|
|
26.16
|
|
|
|
8/21/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/26/09
|
|
|
|
0
|
|
|
|
314,118
|
|
|
|
18.31
|
|
|
|
8/25/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben K. Wells
|
|
|
8/21/05
|
|
|
|
28,612
|
|
|
|
10,539
|
|
|
|
10.25
|
|
|
|
8/21/15
|
|
|
|
8/27/07
|
|
|
|
18,358
|
(3)
|
|
|
309,151
|
|
|
|
|
2/14/06
|
|
|
|
105,384
|
|
|
|
26,347
|
|
|
|
21.64
|
|
|
|
2/14/16
|
|
|
|
8/22/08
|
|
|
|
8,813
|
(3)
|
|
|
148,411
|
|
|
|
|
5/17/06
|
|
|
|
55,275
|
|
|
|
15,808
|
|
|
|
17.00
|
|
|
|
5/16/16
|
|
|
|
8/26/09
|
|
|
|
20,263
|
(3)
|
|
|
341,229
|
|
|
|
|
8/27/07
|
|
|
|
21,493
|
|
|
|
21,494
|
|
|
|
23.35
|
|
|
|
8/26/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/22/08
|
|
|
|
10,245
|
|
|
|
30,736
|
|
|
|
26.16
|
|
|
|
8/21/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/26/09
|
|
|
|
0
|
|
|
|
55,878
|
|
|
|
18.31
|
|
|
|
8/25/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anne Chwat
|
|
|
9/27/04
|
|
|
|
36,461
|
|
|
|
0
|
|
|
|
3.80
|
|
|
|
9/27/14
|
|
|
|
8/21/06
|
|
|
|
13,144
|
(3)
|
|
|
221,345
|
|
|
|
|
1/1/05
|
|
|
|
17,154
|
|
|
|
0
|
|
|
|
3.80
|
|
|
|
1/1/15
|
|
|
|
8/27/07
|
|
|
|
17,234
|
(3)
|
|
|
290,213
|
|
|
|
|
8/27/07
|
|
|
|
20,176
|
|
|
|
20,177
|
|
|
|
23.35
|
|
|
|
8/26/17
|
|
|
|
8/22/08
|
|
|
|
8,273
|
(3)
|
|
|
139,317
|
|
|
|
|
8/22/08
|
|
|
|
9,617
|
|
|
|
28,854
|
|
|
|
26.16
|
|
|
|
8/21/18
|
|
|
|
12/1/08
|
|
|
|
1,273
|
(3)
|
|
|
21,437
|
|
|
|
|
8/26/09
|
|
|
|
0
|
|
|
|
50,928
|
|
|
|
18.31
|
|
|
|
8/25/19
|
|
|
|
8/26/09
|
|
|
|
18,468
|
(3)
|
|
|
311,001
|
|
Charles M. Fallon, Jr.
|
|
|
5/17/06
|
|
|
|
168,615
|
|
|
|
42,154
|
|
|
|
17.00
|
|
|
|
5/16/16
|
|
|
|
8/27/07
|
|
|
|
16,244
|
(3)
|
|
|
273,541
|
|
|
|
|
6/2/06
|
|
|
|
23,205
|
|
|
|
5,802
|
|
|
|
18.91
|
|
|
|
6/1/16
|
|
|
|
8/22/08
|
|
|
|
8,578
|
(3)
|
|
|
144,454
|
|
|
|
|
8/27/07
|
|
|
|
19,018
|
|
|
|
19,018
|
|
|
|
23.35
|
|
|
|
8/26/17
|
|
|
|
8/26/09
|
|
|
|
17,930
|
(3)
|
|
|
301,941
|
|
|
|
|
8/22/08
|
|
|
|
9,972
|
|
|
|
29,917
|
|
|
|
26.16
|
|
|
|
8/21/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/26/09
|
|
|
|
0
|
|
|
|
49,444
|
|
|
|
18.31
|
|
|
|
8/25/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter C. Smith
|
|
|
8/1/04
|
|
|
|
26,347
|
|
|
|
0
|
|
|
|
3.80
|
|
|
|
8/1/14
|
|
|
|
8/21/06
|
|
|
|
13,608
|
(3)
|
|
|
229,159
|
|
|
|
|
8/21/05
|
|
|
|
10,833
|
|
|
|
2,709
|
|
|
|
10.25
|
|
|
|
8/21/15
|
|
|
|
8/27/07
|
|
|
|
16,220
|
(3)
|
|
|
273,140
|
|
|
|
|
8/27/07
|
|
|
|
18,989
|
|
|
|
18,990
|
|
|
|
23.35
|
|
|
|
8/26/17
|
|
|
|
8/22/08
|
|
|
|
7,787
|
(3)
|
|
|
131,133
|
|
|
|
|
8/22/08
|
|
|
|
9,052
|
|
|
|
27,156
|
|
|
|
26.16
|
|
|
|
8/21/18
|
|
|
|
8/26/09
|
|
|
|
17,903
|
(3)
|
|
|
301,487
|
|
|
|
|
8/26/09
|
|
|
|
0
|
|
|
|
49,370
|
|
|
|
18.31
|
|
|
|
8/25/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell B. Klein(5)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All stock options granted prior to August 21, 2006 vest 20%
per year on the anniversary date. All stock options granted on
August 21, 2006 and thereafter vest 25% per year on the
anniversary date.
|
|
(2)
|
|
This restricted stock unit award vests in equal installments
over five years, on each anniversary date.
|
III-35
|
|
|
(3)
|
|
These performance-based restricted stock awards vest 100% on the
third anniversary of the grant date with the following
exception: Messrs. Chidseys and Smiths and
Ms. Chwats awards granted on August 21, 2006
vest 50% on the third anniversary of the grant date, and 50% on
the fourth anniversary of the grant date.
|
|
(4)
|
|
The market value of unvested restricted stock unit awards and
unvested performance-based restricted stock awards has been
established by multiplying the number of unvested shares by
$16.84, which was the closing price of our stock on
June 30, 2010, the last business day of our 2010 fiscal
year.
|
|
(5)
|
|
Mr. Kleins unvested equity grants were forfeited on
the date of his termination and his unexercised options were
cancelled 90 days after his termination.
|
2010
OPTION EXERCISES AND STOCK VESTED TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
|
|
Acquired on Exercise
|
|
|
Exercise(1)
|
|
|
Acquired on Vesting
|
|
|
Vesting(2)
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
|
|
|
John W. Chidsey
|
|
|
150,000
|
|
|
|
2,730,081
|
|
|
|
122,225
|
|
|
|
2,245,672
|
|
Anne Chwat
|
|
|
25,000
|
|
|
|
393,450
|
|
|
|
14,416
|
|
|
|
251,178
|
|
Russell B. Klein
|
|
|
209,542
|
|
|
|
1,857,877
|
|
|
|
44,039
|
|
|
|
769,802
|
|
Charles M. Fallon, Jr.
|
|
|
0
|
|
|
|
0
|
|
|
|
25,522
|
|
|
|
446,125
|
|
Peter C. Smith
|
|
|
0
|
|
|
|
0
|
|
|
|
13,608
|
|
|
|
237,868
|
|
Ben K. Wells
|
|
|
0
|
|
|
|
0
|
|
|
|
28,075
|
|
|
|
490,751
|
|
|
|
|
(1)
|
|
Values Realized are based on the prices at which the NEO sold
the shares, which were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
Per Share Value
|
|
|
|
Acquired on
|
|
|
Exercise
|
|
|
Realized on Exercise
|
|
NEO
|
|
Exercise
|
|
|
Price ($)
|
|
|
Date ($)
|
|
|
John W. Chidsey
|
|
|
41,800
|
|
|
|
3.80
|
|
|
|
22.00
|
|
John W. Chidsey
|
|
|
73,800
|
|
|
|
3.80
|
|
|
|
22.00
|
|
John W. Chidsey
|
|
|
3,900
|
|
|
|
3.80
|
|
|
|
22.00
|
|
John W. Chidsey
|
|
|
30,500
|
|
|
|
3.80
|
|
|
|
22.00
|
|
Anne Chwat
|
|
|
5,000
|
|
|
|
3.80
|
|
|
|
18.50
|
|
Anne Chwat
|
|
|
5,000
|
|
|
|
3.80
|
|
|
|
19.00
|
|
Anne Chwat
|
|
|
5,000
|
|
|
|
3.80
|
|
|
|
19.50
|
|
Anne Chwat
|
|
|
5,000
|
|
|
|
3.80
|
|
|
|
20.00
|
|
Anne Chwat
|
|
|
5,000
|
|
|
|
3.80
|
|
|
|
20.69
|
|
Russell B. Klein
|
|
|
79,038
|
|
|
|
17.00
|
|
|
|
17.98
|
|
Russell B. Klein
|
|
|
12,125
|
|
|
|
10.25
|
|
|
|
18.26
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
18.13
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
18.21
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
17.65
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
17.95
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
17.99
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
18.11
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
18.21
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
18.00
|
|
Russell B. Klein
|
|
|
12,056
|
|
|
|
3.80
|
|
|
|
17.88
|
|
Russell B. Klein
|
|
|
9,875
|
|
|
|
3.80
|
|
|
|
18.07
|
|
|
|
|
(2)
|
|
Value Realized is based on our closing market price on the
vesting date which are as follows:
|
III-36
|
|
|
|
|
|
|
|
|
|
|
Closing Market Prices on
|
|
NEO
|
|
Vesting Date
|
|
Vesting Date ($)
|
|
|
John W. Chidsey
|
|
May 17, 2010
|
|
|
20.07
|
|
Anne Chwat
|
|
June 30, 2010
|
|
|
16.84
|
|
John W. Chidsey
|
|
August 21, 2009
|
|
|
17.48
|
|
Anne Chwat
|
|
August 21, 2009
|
|
|
17.48
|
|
Russell B. Klein
|
|
August 21, 2009
|
|
|
17.48
|
|
Charles M. Fallon, Jr.
|
|
August 21, 2009
|
|
|
17.48
|
|
Peter C. Smith
|
|
August 21, 2009
|
|
|
17.48
|
|
Ben K. Wells
|
|
August 21, 2009
|
|
|
17.48
|
|
2010
NONQUALIFIED DEFERRED COMPENSATION TABLE
This table reports the fiscal 2010 contributions by the NEOs and
the Company to the ERP and the aggregate account balances for
the NEOs. Details of the ERP are discussed in the CD&A.
Further details for the NEOs are provided in the 2010 All Other
Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Company
|
|
|
|
|
|
Aggregate
|
|
|
Contributions in
|
|
Contributions in
|
|
Aggregate
|
|
Aggregate
|
|
Balance at Last
|
|
|
Last Fiscal Year
|
|
Last Fiscal Year
|
|
Earnings in Last
|
|
Withdrawals/
|
|
Fiscal Year-End
|
Name
|
|
($)
|
|
($)(1)
|
|
Fiscal Year($)(2)
|
|
Distributions ($)
|
|
($)
|
|
John W. Chidsey
|
|
|
50,539
|
|
|
|
76,538
|
|
|
|
136,754
|
|
|
|
0
|
|
|
|
824,580
|
|
Ben K. Wells
|
|
|
16,266
|
|
|
|
28,599
|
|
|
|
19,827
|
|
|
|
0
|
|
|
|
186,991
|
|
Anne Chwat
|
|
|
12,981
|
|
|
|
24,047
|
|
|
|
62,412
|
|
|
|
0
|
|
|
|
395,519
|
|
Charles M. Fallon, Jr.
|
|
|
122,644
|
|
|
|
22,478
|
|
|
|
86,868
|
|
|
|
0
|
|
|
|
668,722
|
|
Peter C. Smith
|
|
|
12,104
|
|
|
|
22,976
|
|
|
|
64,853
|
|
|
|
0
|
|
|
|
424,739
|
|
Russell B. Klein
|
|
|
15,962
|
|
|
|
15,962
|
|
|
|
49,741
|
|
|
|
0
|
|
|
|
358,062
|
|
|
|
|
(1)
|
|
Amounts in this column include profit sharing contributions
which were paid in fiscal 2010 but were earned in fiscal 2009.
|
|
(2)
|
|
All amounts deferred by the NEO, or credited to his account by
us, earned interest at a rate that reflects the performance of
investment funds that the NEO selected from a pool of funds.
Each NEO may change his selections at any time, subject to any
individual fund restrictions.
|
2010
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
TABLE
The potential payments and benefits that would be provided to
each NEO, other than Mr. Klein, as a result of certain
termination events are set forth in the table below. Information
regarding payments due to Mr. Klein pursuant to the terms
of his Separation Agreement is included under the
Employment Agreements Agreements with
Mr. Klein section of the CD&A. Calculations for
this table are based on the assumption that the termination took
place on June 30, 2010 for Mr. Chidsey,
Mr. Wells, Ms. Chwat, Mr. Fallon and
Mr. Smith. The employment agreements we entered into with
Messrs. Chidsey, Wells, Fallon and Klein and Ms. Chwat
define cause, good reason and
change in control for purposes of determining
severance payments and benefits. Please refer to the
Employment Agreements, and Clawback
Policy sections of the CD&A for additional details on
the severance payments and benefits and change in control
provisions that affect our NEOs. As a condition to receiving any
severance payments and benefits, the NEO must sign a separation
agreement and release in a form approved by the Company. For a
description of potential payments and benefits that would be
provided upon consummation of the Merger, see
Item 3 Arrangements with Current
Executive Officers and Directors of the Company
Potential Payments Upon a
Change-In-Control
of the
Schedule 14D-9.
III-37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination w/o
|
|
|
|
|
|
|
Termination w/o
|
|
Cause or
|
|
|
|
|
|
|
Cause or for Good
|
|
for Good Reason After
|
|
Death and
|
|
|
|
|
Reason
|
|
Change in Control
|
|
Disability
|
Name
|
|
Benefit
|
|
($)(1)(2)
|
|
($)(3)(4)(5)
|
|
($)(6)
|
|
John W. Chidsey
|
|
Salary(7)
|
|
|
4,171,500
|
|
|
|
6,257,250
|
|
|
|
4,171,500
|
|
|
|
Bonus
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
Accelerated Vesting(8)
|
|
|
N/A
|
|
|
|
6,548,745
|
|
|
|
6,548,745
|
|
|
|
Value of Benefits Continuation
|
|
|
63,003
|
|
|
|
94,505
|
|
|
|
63,003
|
|
|
|
Perquisite Allowance(9)
|
|
|
127,000
|
|
|
|
190,500
|
|
|
|
127,000
|
|
|
|
Outplacement Services(10)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Tax Gross-up
|
|
|
N/A
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
Total
|
|
|
4,361,503
|
|
|
|
13,091,000
|
|
|
|
10,910,248
|
|
Ben K. Wells
|
|
Salary(7)
|
|
|
494,709
|
|
|
|
494,709
|
|
|
|
N/A
|
|
|
|
Bonus
|
|
|
346,296
|
|
|
|
346,296
|
|
|
|
346,296
|
|
|
|
Accelerated Vesting(8)
|
|
|
N/A
|
|
|
|
868,243
|
|
|
|
N/A
|
|
|
|
Value of Benefits Continuation
|
|
|
35,347
|
|
|
|
35,347
|
|
|
|
N/A
|
|
|
|
Perquisite Allowance(9)
|
|
|
48,500
|
|
|
|
48,500
|
|
|
|
N/A
|
|
|
|
Outplacement Services(10)
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
N/A
|
|
|
|
Total
|
|
|
953,352
|
|
|
|
1,821,595
|
|
|
|
346,296
|
|
Anne Chwat
|
|
Salary(7)
|
|
|
450,883
|
|
|
|
450,883
|
|
|
|
N/A
|
|
|
|
Bonus
|
|
|
315,618
|
|
|
|
315,618
|
|
|
|
315,618
|
|
|
|
Accelerated Vesting(8)
|
|
|
N/A
|
|
|
|
983,314
|
|
|
|
N/A
|
|
|
|
Value of Benefits Continuation
|
|
|
32,280
|
|
|
|
32,280
|
|
|
|
N/A
|
|
|
|
Perquisite Allowance(9)
|
|
|
48,500
|
|
|
|
48,500
|
|
|
|
N/A
|
|
|
|
Outplacement Services(10)
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
N/A
|
|
|
|
Total
|
|
|
875,781
|
|
|
|
1,859,095
|
|
|
|
315,618
|
|
Charles M. Fallon, Jr.
|
|
Salary(7)
|
|
|
437,750
|
|
|
|
437,750
|
|
|
|
N/A
|
|
|
|
Bonus
|
|
|
306,425
|
|
|
|
306,425
|
|
|
|
306,425
|
|
|
|
Accelerated Vesting(8)
|
|
|
N/A
|
|
|
|
719,935
|
|
|
|
N/A
|
|
|
|
Value of Benefits Continuation
|
|
|
31,333
|
|
|
|
31,333
|
|
|
|
N/A
|
|
|
|
Perquisite Allowance(9)
|
|
|
48,500
|
|
|
|
48,500
|
|
|
|
N/A
|
|
|
|
Outplacement Services(10)
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
N/A
|
|
|
|
Total
|
|
|
852,508
|
|
|
|
1,572,443
|
|
|
|
306,425
|
|
Peter C. Smith
|
|
Salary(7)
|
|
|
437,091
|
|
|
|
437,091
|
|
|
|
N/A
|
|
|
|
Bonus
|
|
|
305,964
|
|
|
|
305,964
|
|
|
|
305,964
|
|
|
|
Accelerated Vesting(8)
|
|
|
N/A
|
|
|
|
952,770
|
|
|
|
N/A
|
|
|
|
Value of Benefits Continuation
|
|
|
23,474
|
|
|
|
23,474
|
|
|
|
N/A
|
|
|
|
Perquisite Allowance(9)
|
|
|
48,500
|
|
|
|
48,500
|
|
|
|
N/A
|
|
|
|
Outplacement Services(10)
|
|
|
28,500
|
|
|
|
28,500
|
|
|
|
N/A
|
|
|
|
Total
|
|
|
843,529
|
|
|
|
1,796,299
|
|
|
|
305,964
|
|
|
|
|
(1)
|
|
If Mr. Chidseys employment is terminated without
cause or he resigns for good reason or due to his death or
disability (as such terms are defined in his employment
agreement), he will be entitled to receive (i) an amount
equal to four times his annual base salary and two times his
annual perquisite allowance payable over six months commencing
on the first business day following the six month anniversary of
termination, and (ii) continued coverage under our medical,
dental and life insurance plans for him and his eligible
dependents during the two-year period following termination.
|
|
(2)
|
|
If any of the NEOs, other than Mr. Chidsey, is terminated
without cause (as such term is defined in the relevant
employment agreement), he or she will be entitled to receive
(i) his or her then current base salary and his or her
perquisite allowance for one year, payable in the case of
Messrs. Wells and Fallon and Ms. Chwat, over six
months commencing on the first business day following the six
month anniversary of the termination date, (ii) a pro-rata
bonus for the year of termination, which will only be paid to
the extent, and when, the Company pays the RSIP bonuses, and
(iii) continued coverage for one year under our medical,
dental and life insurance
|
III-38
|
|
|
|
|
plans for the executive and his or her eligible dependents.
Additionally, each of the NEOs will receive these benefits if he
or she resigns for good reason (as such term is defined in the
relevant employment agreement).
|
|
(3)
|
|
A change in control, without a termination of employment, will
not in itself trigger any severance payments or vesting of
equity. Any payments or equity due upon a change in control and
subsequent termination of employment, either without cause or
for good reason (as defined in the relevant employment
agreement) is included in the Termination w/o Cause or for
Good Reason After Change in Control column of this table.
|
|
(4)
|
|
If Mr. Chidseys employment is terminated without
cause or he terminates his employment with good reason after a
change in control (as defined in his employment agreement), he
will be entitled to receive an amount equal to six times his
annual base salary and three times his annual perquisite
allowance. He also will be entitled to continued coverage under
our medical, dental and life insurance plans for him and his
eligible dependents during the three-year period following
termination. Additionally, if Mr. Chidseys employment
is terminated during the
24-month
period after a change in control of the Company either without
cause or for good reason, all options and other equity awards
held by him will vest in full. If Mr. Chidsey resigns for
any reason within the
30-day
period immediately following the one-year anniversary of a
change in control involving a strategic buyer (as determined by
the Board), his resignation would constitute a termination by us
without cause under his employment agreement.
|
|
(5)
|
|
All equity granted to each of Messrs. Wells, Fallon and
Smith and Ms. Chwat will fully vest upon termination if his
or her employment is terminated at any time within
24 months after a change in control either without cause or
by him or her for good reason.
|
|
(6)
|
|
If an NEO dies or becomes disabled (as such term is defined in
the relevant employment agreement), the NEO is entitled to
receive his or her target bonus, as if he or she had been
employed for the entire fiscal year. For Mr. Chidsey, any
severance payments made by BKC as a result of his termination
upon his death or disability will be reduced by the value of any
BKC paid life and disability benefits he or his family are
entitled to receive. The term disability is defined
in all NEO employment agreements as a physical or mental
disability that prevents or would prevent the performance by the
NEO of his or her duties under the employment agreement for a
continuous period of six months or longer.
|
|
(7)
|
|
Pursuant to the terms of the respective NEOs employment
agreement, each NEO has agreed to non-competition,
non-solicitation and confidentiality restrictions that last for
one year after termination. If the NEO breaches any of these
covenants, we will cease providing any severance and other
benefits to him or her, and we have the right to require him or
her to repay any severance amounts already paid. In addition, as
a condition to receiving the separation benefits, each NEO must
sign a separation agreement and release in a form approved by
us, which includes a waiver of all potential claims.
Mr. Chidsey, unlike the other NEOs, is entitled to receive
severance upon his death. In the case of his death, his estate
must sign the release in order to receive severance benefits.
|
|
(8)
|
|
The amounts in this table represent the fair market value on
June 30, 2010 of the unvested portion of
Mr. Chidseys, Mr. Wells,
Ms. Chwats, Mr. Fallons and
Mr. Smiths equity that would vest upon the occurrence
of a triggering event. The fair market value of the
Companys common stock on June 30, 2010 was $16.84 per
share.
|
|
(9)
|
|
The perquisites allowance will be paid to the NEO during the
relevant severance period specified in Footnotes 1 and 2 above.
|
|
(10)
|
|
Each NEO, other than Mr. Chidsey, is entitled to receive
outplacement services upon termination of employment without
cause or for good reason. As of June 30, 2010, eligible
NEOs are entitled to receive outplacement services from our
third party service provider for up to one year, which is
currently valued at $28,500.
|
DIRECTOR
COMPENSATION
Under our director compensation program, each non-management
director receives an annual deferred stock award with a grant
date fair value of $85,000. The annual deferred stock grant
vests in quarterly installments over a 12 month period. On
November 19, 2009, the non-management directors received
their annual grant of deferred stock for calendar year 2010. In
addition, the non-management directors receive an
III-39
annual retainer of $65,000, an increase of $15,000 from fiscal
2009. The chair of the Audit Committee receives an additional
$20,000 fee and the chairs of the Compensation Committee and the
Nominating and Corporate Governance Committee each receive an
additional $10,000 fee. In April 2010, Mr. Dykes was
named lead independent director, at which time he became
eligible to receive an additional $25,000 commencing
July 1, 2010. Directors have the option to receive their
annual retainer and their chair fees either 100% in cash or 100%
in shares of deferred stock. Directors who elected to receive
their 2010 calendar year annual retainer
and/or
chair
fees in deferred stock will receive these deferred stock awards
on November 18, 2010, which is the date of the fiscal 2010
annual shareholders meeting. These awards will be fully
vested on the grant date.
All deferred stock grants, whether the annual grant or deferred
stock granted in lieu of a cash retainer or chair fees, will be
settled upon termination of Board service. No separate committee
fees are paid and no compensation is paid to management
directors for Board or committee service. All directors or their
employers, in the case of the Sponsor directors, are reimbursed
for reasonable travel and lodging expenses incurred by them in
connection with attending Board and committee meetings.
FISCAL
2010 DIRECTOR COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
or Paid in
|
|
Stock
|
|
All Other
|
|
|
|
|
Cash(1)
|
|
Awards(2)(3)
|
|
Compensation
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)(4)
|
|
($)
|
|
Richard W. Boyce
|
|
|
57,500
|
|
|
|
84,988
|
|
|
|
5,767
|
|
|
|
148,255
|
|
David A. Brandon
|
|
|
57,500
|
|
|
|
84,988
|
|
|
|
5,767
|
|
|
|
148,255
|
|
Ronald M. Dykes
|
|
|
77,500
|
|
|
|
84,988
|
|
|
|
5,427
|
|
|
|
167,915
|
|
Peter R. Formanek
|
|
|
57,500
|
|
|
|
84,988
|
|
|
|
4,073
|
|
|
|
146,561
|
|
Manuel A. Garcia
|
|
|
57,500
|
|
|
|
84,988
|
|
|
|
5,287
|
|
|
|
147,775
|
|
Sanjeev K. Mehra
|
|
|
72,500
|
|
|
|
84,988
|
|
|
|
5,583
|
|
|
|
158,071
|
|
Stephen G. Pagliuca(5)
|
|
|
47,500
|
|
|
|
84,985
|
|
|
|
1,737
|
|
|
|
132,972
|
|
Brian T. Swette
|
|
|
57,500
|
|
|
|
84,988
|
|
|
|
7,087
|
|
|
|
149,575
|
|
Kneeland C. Youngblood
|
|
|
57,500
|
|
|
|
84,988
|
|
|
|
4,073
|
|
|
|
146,561
|
|
|
|
|
(1)
|
|
Board service fees are calculated based on a calendar year
(January through December), but our fiscal year runs from
July 1st through June 30th. Our non-employee directors
must make their deferral elections prior to January 1 in order
to defer their annual retainers and chair fees for that year.
Therefore, the amounts in this column represent annual retainers
and chair fees for a portion of two calendar years, one from
July 1, 2009 through December 31, 2009 and the other
from January 1, 2010 through June 30, 2010. The
following chart identifies our directors deferral
elections for the portions of calendar years 2009 and 2010
comprising our fiscal year and the fair market value of the 2009
deferred stock award paid in fiscal 2010, which was based on the
closing market price of a share of our common stock on
November 20, 2009. The calendar year 2009 deferred stock
award was granted on November 20, 2009 and the calendar
year 2010 deferred stock award will be granted on
November 19, 2010, and such award will be based on the
closing market price of a share of our common stock on such date.
|
III-40
|
|
|
|
|
|
|
Deferral Elections for July 1, 2009
|
|
Deferral Election for January 1, 2010
|
|
|
through December 31, 2009
|
|
through June 30, 2010
|
Director
|
|
Retainer and Chair Fees
|
|
Retainer and Chair Fees
|
|
Richard W. Boyce, David A.
|
|
|
|
|
Brandon, Manuel A. Garcia
|
|
|
|
|
and Brian Swette
|
|
Deferred Retainer: $25,000 value
|
|
Deferred Retainer: $32,500 value
|
Sanjeev Mehra
|
|
Deferred Retainer and Chair Fee: $30,000 value
|
|
Deferred Retainer and Chair Fees: $42,500 value
|
Stephen G. Pagliuca
|
|
Deferred Retainer and Chair Fee: $15,000 value
|
|
Deferred Retainer: $29,375 value
|
Ronald M. Dykes
|
|
Deferred Retainer and Chair Fee: $35,000 value
|
|
Deferred Retainer and Chair Fee: $42,500 value
|
Peter R. Formanek and Kneeland C. Youngblood
|
|
No Deferral: Cash $25,000
|
|
No Deferral: Cash $32,500
|
|
|
|
(2)
|
|
The grant date fair value of these awards is based on the
closing market price of a share of our common stock on the
November 19, 2009 grant date ($17.48 per share) for all
directors, except for Mr. Pagliucas, which is based
on the closing market price of a share of our common stock on
the February 5, 2010 grant date ($17.72 per share), which
is also the compensation cost for this grant recognized for
financial statement reporting purposes in accordance with
FAS 123R. The assumptions and methodology used to calculate
the compensation cost are set forth in Note 3 to our
Consolidated Financial Statements included in our
Form 10-K
for fiscal 2010.
|
|
(3)
|
|
As of June 30, 2010, Mr. Formanek was the only
director to have options outstanding. As of such date,
Mr. Formanek held 75,587 vested options. As of
June 30, 2010, all of our directors had the following
deferred stock awards outstanding: Messrs, Boyce and Brandon
25,000 shares, Mr. Dykes, 23,925 shares;
Messrs. Formanek and Youngblood, 17,507 shares;
Mr. Garcia, 23,078; Mr. Mehra, 24,478 shares;
Mr. Pagliuca, 4,796 shares; and Mr. Swette,
30,277 shares.
|
|
(4)
|
|
Quarterly dividends in the amount of $0.0625 per share were paid
by the Company to shareholders of record as of
September 14, 2009, December 10, 2009, March 16,
2010, and June 14, 2010. The amounts reflected in this
column represent dividend equivalents accrued on vested and
unvested deferred stock issued by the Company to the directors.
|
|
(5)
|
|
Mr. Pagliuca resigned from the Board effective
September 21, 2009. Mr. Pagliuca elected to defer his
calendar 2009 annual retainer, but because his resignation was
effective prior to the date his deferred stock award was issued,
he received a cash payment of $38,681 in lieu of deferred stock.
This amount represented his retainer for the period commencing
January 1, 2009 through September 21, 2009, including
the chair fee for the period commencing July 1, 2009
through September 21, 2009. Upon termination of service,
his vested deferred stock settled and the unvested portion was
forfeited. Upon his resignation, we issued 17,051 shares of
stock to Mr. Pagliuca in settlement of his vested deferred
stock, and the remaining 1,153 shares of unvested deferred
stock issued to Mr. Pagliuca were forfeited.
Mr. Pagliuca also received $7,742.45 in dividend
equivalents accrued on his vested and unvested deferred stock.
Mr. Pagliuca was reappointed to the Board on
January 20, 2010.
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-management directors currently serve on the
Compensation Committee of the Board of Directors: Peter R.
Formanek, Sanjeev K. Mehra and Stephen G. Pagliuca. On
September 21, 2009, Mr. Pagliuca resigned from the
Board of Directors and the Compensation Committee to run for
political office. He was reappointed to the Board of Directors
and to the Compensation Committee effective January 20,
2010. No directors on the Compensation Committee are or have
been officers or employees of the Company or any of its
subsidiaries. None of our executive officers served on the board
of directors or compensation committee of another entity, one of
whose executive officers served on the Companys Board of
Directors or its Compensation Committee.
III-41
STOCK
OWNERSHIP INFORMATION
Security
Ownership of Certain Beneficial Owners, Directors and
Management
The following table sets forth certain information as of
September 13, 2010, regarding the beneficial ownership of our
common stock by:
|
|
|
|
|
Each of our directors and NEOs;
|
|
|
|
All directors and executive officers as a group; and
|
|
|
|
Each person or entity who is known to us to be the beneficial
owner of more than 5% of our common stock.
|
As of September 13, 2010, our outstanding equity securities
consisted of 136,465,856 shares of common stock. The number
of shares beneficially owned by each stockholder is determined
under rules promulgated by the SEC and generally includes voting
or investment power over the shares. The information does not
necessarily indicate beneficial ownership for any other purpose.
Under the SEC rules, the number of shares of common stock deemed
outstanding includes shares issuable upon the conversion of
other securities, as well as the exercise of options or the
settlement of restricted stock units held by the respective
person or group that may be exercised or settled on or within
60 days of September 13, 2010. For purposes of
calculating each persons or groups percentage
ownership, shares of common stock issuable pursuant to stock
options and restricted stock units that may be exercised or
settled on or within 60 days of September 13, 2010 are
included as outstanding and beneficially owned by that person or
group but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person or group.
Unless otherwise indicated, the address for each listed
stockholder is:
c/o Burger
King Holdings, Inc., 5505 Blue Lagoon Drive, Miami, Florida
33126. To our knowledge, except as indicated in the footnotes to
this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially
owned by them.
III-42
|
|
|
|
|
|
|
|
|
|
|
Common Stock, par Value
|
|
|
$.01 Per Share
|
|
|
|
|
Percentage
|
Name and Address of Beneficial Owner
|
|
Number
|
|
of Class
|
|
John W. Chidsey(1)
|
|
|
1,831,834
|
|
|
|
1.3
|
%
|
Ben K. Wells(1)
|
|
|
300,660
|
|
|
|
*
|
|
Russell B. Klein(1)
|
|
|
124,778
|
|
|
|
*
|
|
Charles M. Fallon, Jr.(1)
|
|
|
305,154
|
|
|
|
*
|
|
Anne Chwat(1)
|
|
|
363,292
|
|
|
|
*
|
|
Peter Smith(1)
|
|
|
195,357
|
|
|
|
*
|
|
Richard W. Boyce(1)
|
|
|
25,000
|
|
|
|
*
|
|
David M. Brandon(1)
|
|
|
35,000
|
|
|
|
*
|
|
Ronald M. Dykes(1)
|
|
|
23,925
|
|
|
|
*
|
|
Peter R. Formanek(1)
|
|
|
233,094
|
|
|
|
*
|
|
Manuel A. Garcia(1)
|
|
|
64,641
|
|
|
|
*
|
|
Sanjeev K. Mehra(1)(2)(6)
|
|
|
13,946,647
|
|
|
|
10.2
|
%
|
Stephen G. Pagliuca(1)
|
|
|
13,601,924
|
|
|
|
10.0
|
%
|
Brian T. Swette(1)
|
|
|
130,902
|
|
|
|
*
|
|
Kneeland C. Youngblood(1)
|
|
|
17,507
|
|
|
|
*
|
|
All Executive Officers and Directors as a group
(18 persons)(1)
|
|
|
31,297,015
|
|
|
|
22.9
|
%
|
5% Stockholders
|
|
|
|
|
|
|
|
|
FMR LLC(3)
|
|
|
7,824,558
|
|
|
|
5.7
|
%
|
Investment funds affiliated with Artisan Partners Holdings LLC(4)
|
|
|
7,971,200
|
|
|
|
5.8
|
%
|
Investment funds affiliated with Bain Capital Investors, LLC(5)
|
|
|
10,403,858
|
|
|
|
7.6
|
%
|
Investment funds affiliated with The Goldman Sachs Group, Inc.(6)
|
|
|
14,046,089
|
|
|
|
10.3
|
%
|
TPG BK Holdco LLC(7)
|
|
|
15,131,497
|
|
|
|
11.1
|
%
|
|
|
|
*
|
|
Less than one percent (1%)
|
|
(1)
|
|
Includes beneficial ownership of shares of common stock for
which the following persons hold options currently exercisable
or exercisable on or within 60 days of September 13,
2010: Mr. Chidsey, 1,340,714 shares; Mr. Wells,
266,509 shares; Mr. Fallon, 252,653 shares;
Ms. Chwat, 284,462 shares; and Mr. Smith,
98,819 shares; and all directors and executive officers as
a group, 2,311,985 shares. Also includes beneficial
ownership of shares of common stock underlying deferred stock
units held by the following persons that are currently vested or
will vest on or within 60 days of September 13, 2010
and will be settled upon termination of Board service: each of
Messrs. Boyce and Brandon, 25,000 shares;
Mr. Dykes, 23,925 shares; each of Mr. Formanek
and Mr. Youngblood, 17,507 shares; Mr. Garcia,
23,078 shares; Mr. Mehra, 24,478 shares;
Mr. Pagliuca, 3,597 shares; Mr. Swette,
30,277 shares; and all non-employee directors as a group,
189,153 shares. See Footnotes 2 and 6 below for more
information regarding the deferred stock held by Mr. Mehra.
Mr. Kleins employment terminated on December 15,
2009 and his shares included in the table are based on the
Form 4 filed with the SEC on December 16, 2009. None
of the executive officers have restricted stock units or
performance-based restricted stock units that will vest on or
within 60 days of September 13, 2010, except 11,565
restricted stock units held by a non-NEO executive officer.
|
|
(2)
|
|
Mr. Mehra is a managing director of Goldman,
Sachs & Co. Mr. Mehra and The Goldman Sachs
Group, Inc. each disclaims beneficial ownership of the shares of
common stock owned directly or indirectly by the Goldman Sachs
Funds and Goldman, Sachs & Co., except to the extent
of his or its pecuniary interest therein, if any. Goldman,
Sachs & Co. disclaims beneficial ownership of the
shares of common stock owned directly or indirectly by the
Goldman Sachs Funds, except to the extent of its pecuniary
interest therein, if any. Mr. Mehra has an understanding
with The Goldman Sachs Group, Inc. pursuant to which he holds
the
|
III-43
|
|
|
|
|
deferred stock units he receives in his capacity as a director
of the Company for the benefit of The Goldman Sachs Group, Inc.
See Footnote 6 below for information regarding The Goldman Sachs
Group, Inc.
|
|
(3)
|
|
The shares included in the table are based solely on Amendment
No. 3 to the Schedule 13G filed with the SEC on
January 11, 2010 by FMR LLC. FMR LLC filed the amended
Schedule 13G on a voluntary basis as if all of the shares
are beneficially owned by FMR LLC and Fidelity International
Limited (FIL) on a joint basis, but each is of the
view that the shares held by the other need not be aggregated
for purposes of Section 13(d). FMR LLC has the sole power
to vote or to direct the vote regarding 4,857,828 of these
shares and the sole power to dispose or to direct the
disposition of 7,824,558 of these shares. The business address
of FMR LLC is 82 Devonshire Street, Boston, MA 02109.
|
|
(4)
|
|
The shares included in the table are based solely on the
Schedule 13G filed with the SEC on February 11, 2010
by Artisan Partners Holdings LP (Artisan Holdings),
Artisan Investment Corporation (Artisan Corp.),
Artisan Partners Limited Partnership (Artisan
Partners), Artisan Investments GP LLC (Artisan
Investments), ZFIC, Inc. (ZFIC), Andrew A.
Ziegler and Carlene M. Ziegler. Artisan Holdings, a registered
investment adviser, is the sole limited partner of Artisan
Partners, a registered investment adviser. Artisan Investments
is the general partner of Artisan Partners. Artisan Corp. is the
general partner of Artisan Holdings. ZFIC is the sole
stockholder of Artisan Corp. and Mr. Ziegler and
Ms. Ziegler are the principal stockholders of ZFIC. Of the
shares reported, each of Artisan Holdings, Artisan Corp., ZFIC,
Mr. Ziegler and Ms. Ziegler reported that they had
shared voting power with respect to 7,811,200 shares and
shared dispositive power with respect to 7,971,200 shares.
Artisan Partners and Artisan Investments each reported that it
had shared voting power over 7,754,000 shares and shared
dispositive power over 7,914,000 shares. The shares
reported were acquired on behalf of discretionary clients of
Artisan Partners and Artisan Holdings. The business address of
Artisan Holdings is 875 East Wisconsin Avenue, Suite 800,
Milwaukee, WI 53202.
|
|
(5)
|
|
The shares included in the table consist of:
(i) 10,403,858 shares of common stock owned by Bain
Capital Integral Investors, LLC, whose administrative member is
Bain Capital Investors, LLC (BCI);
(ii) 3,117,905 shares of common stock owned by Bain
Capital VII Coinvestment Fund, LLC, whose managing and sole
member is Bain Capital VII Coinvestment Fund, L.P., whose
general partner is Bain Capital Partners VII, L.P., whose
general partner is BCI and (iii) 59,513 shares of
common stock owned by BCIP TCV, LLC, whose administrative member
is BCI. The shares included in the table are based solely on the
Amendment No. 3 to Schedule 13G filed with the SEC on
February 16, 2010 by BCI on behalf of itself and its
reporting group. The business address of BCI is 111 Huntington
Avenue, Boston, MA 02199.
|
|
(6)
|
|
The Goldman Sachs Group, Inc., and certain affiliates,
including, Goldman, Sachs & Co., may be deemed to
directly or indirectly own the shares of common stock which are
owned directly or indirectly by investment partnerships, which
The Goldman Sachs Group, Inc. refers to as the Goldman Sachs
Funds, of which affiliates of The Goldman Sachs Group, Inc. and
Goldman Sachs & Co. are the general partner, managing
limited partner or the managing partner. Goldman,
Sachs & Co. is the investment manager for certain of
the Goldman Sachs Funds. Goldman, Sachs & Co. is a
direct and indirect, wholly owned subsidiary of The Goldman
Sachs Group, Inc. The Goldman Sachs Group, Inc., Goldman,
Sachs & Co. and the Goldman Sachs Funds share voting
and investment power with certain of their respective
affiliates. Shares beneficially owned by the Goldman Sachs Funds
consist of: (i) 7,262,660 shares of common stock owned
by GS Capital Partners 2000, L.P.;
(ii) 2,638,973 shares of common stock owned by GS
Capital Partners 2000 Offshore, L.P.;
(iii) 303,562 shares of common stock owned by GS
Capital Partners 2000 GmbH & Co. Beteiligungs KG;
(iv) 2,306,145 shares of common stock owned by GS
Capital Partners 2000 Employee Fund, L.P.;
(v) 106,837 shares of common stock owned by Bridge
Street Special Opportunities Fund 2000, L.P.;
(vi) 213,675 shares of common stock owned by Stone
Street Fund 2000, L.P.; (vii) 356,124 shares of
common stock owned by Goldman Sachs Direct Investment
Fund 2000, L.P.; (viii) 412,941 shares of common
stock owned by GS Private Equity Partners 2000, L.P.;
(ix) 141,944 shares of common stock owned by GS
Private Equity Partners 2000 Offshore Holdings, L.P.; and
(x) 157,364 shares of common stock owned by GS Private
Equity Partners
2000-Direct
Investment Fund, L.P.
|
|
|
|
Goldman Sachs Execution & Clearing, L.P. beneficially
owns directly and The Goldman Sachs Group, Inc. may be deemed to
beneficially own indirectly 3,520 shares of common stock.
Goldman, Sachs & Co. beneficially owns directly and
The Goldman Sachs Group, Inc. may be deemed to beneficially own
indirectly 10,100 shares of common stock. Goldman,
Sachs & Co. and The Goldman Sachs Group, Inc. may
|
III-44
|
|
|
|
|
each be deemed to beneficially own indirectly, in the aggregate,
13,900,225 shares of common stock through certain limited
partnerships described in this footnote, of which affiliates of
Goldman, Sachs & Co. and The Goldman
|
|
|
|
Sachs Group, Inc. are the general partner, managing general
partner, managing partner, managing member or member. Goldman,
Sachs & Co. is a wholly-owned subsidiary of The
Goldman Sachs Group, Inc. Goldman, Sachs & Co. is the
investment manager of certain of the limited partnerships.
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The Goldman Sachs Group, Inc. may be deemed to beneficially own
24,478 shares of common stock pursuant to the 2006 Omnibus
Incentive Plan, which are deferred shares granted to Sanjeev K.
Mehra, a managing director of Goldman, Sachs & Co. in
his capacity as a director of the Company. Mr. Mehra has an
understanding with The Goldman Sachs Group, Inc. pursuant to
which he holds such deferred shares for the benefit of The
Goldman Sachs Group, Inc. The grant of 24,478 deferred shares is
currently vested or will vest within 60 days of
September 13, 2010. The deferred shares granted to
Mr. Mehra will be settled upon termination of Board
service. Each of Goldman, Sachs & Co. and The Goldman
Sachs Group, Inc. disclaims beneficial ownership of the deferred
shares of common stock except to the extent of its pecuniary
interest therein.
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The shares included in the table are based solely on the
Schedule 13G filed with the SEC on February 16, 2010
by The Goldman Sachs Group, Inc. on behalf of itself and its
reporting group. The business address for The Goldman Sachs
Group, Inc. is 85 Broad Street, New York, NY 10004.
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(7)
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The shares included in the table are directly held by TPG BK
Holdco LLC. TPG Advisors III, Inc., a Delaware corporation
(Advisors III), is the sole general partner of TPG
GenPar III, L.P., a Delaware limited partnership, which in turn
is the sole general partner of TPG Partners III, L.P., a
Delaware limited partnership, which in turn is the managing
member of TPG BK Holdco LLC. David Bonderman and James Coulter
are directors, officers and sole shareholders of Advisors III,
and therefore, David Bonderman, James Coulter and
Advisors III may each be deemed to beneficially own the
shares directly held by TPG BK Holdco LLC. The shares included
in this table are based solely on the Amendment No. 2 to
Schedule 13G filed with the SEC on February 13, 2009
on behalf of Advisors III, Mr. Bonderman and
Mr. Coulter. The business address for TPG BK Holdco LLC is
c/o TPG
Capital, L.P., 301 Commerce Street, Suite 3300,
Fort Worth, TX 76102.
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SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors,
executive officers and beneficial owners of more than 10% of any
class of our equity securities to file reports of ownership and
changes in ownership of our common stock. To the best of our
knowledge, all required reports were filed on time and all
transactions by our directors, executive officers and beneficial
owners of more than 10% of any class of our equity securities
were reported on time, except for an equity grant for Kevin
Higgins that should have been reported on a Form 4 in
August 2009 and an equity grant for Richard W. Boyce that should
have been reported on Form 4 in November 2009. The failures
to timely report were inadvertent and, as soon as the oversights
were discovered, Mr. Higgins reported the transaction on a
Form 5 and Mr. Boyce reported the transaction on
Form 4.
III-45
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Related
Person Transactions Policy
In May 2007, our Board of Directors adopted a written related
person transactions policy, which is administered by the Audit
Committee. This policy applies to any transaction or series of
related transactions or any material amendment to any such
transaction involving a related person and the Company or any
subsidiary of the Company. For the purposes of the policy,
related persons consist of executive officers,
directors, director nominees, any shareholder beneficially
owning more than 5% of the Companys common stock, and
immediate family members of any such persons. In reviewing
related person transactions, the Audit Committee takes into
account all factors that it deems appropriate, including whether
the transaction is on terms no less favorable than terms
generally available to an unaffiliated third party under the
same or similar circumstances and the extent of the related
persons interest in the transaction. No member of the
Audit Committee may participate in any review, consideration or
approval of any related person transaction in which the director
or any of his immediate family members is the related person.
The related person transactions discussed below were entered
into before the adoption of this written policy.
Shareholders
Agreement
In connection with our acquisition of Burger King Corporation
(BKC), we entered into a shareholders
agreement dated June 27, 2003 with BKC and the private
equity funds controlled by the Sponsors, which was amended and
restated on May 17, 2006 (the Shareholders
Agreement). The Shareholders Agreement provides for
(i) the right of each Sponsor to appoint two members to our
Board, (ii) the right of each Sponsor, with respect to each
committee of the Board other than the Audit Committee, to have
at least one Sponsor director on each committee, for Sponsor
directors to constitute a majority of the membership of each
committee and for the chairmen of the committees to be Sponsor
directors, to the extent that such directors are permitted to
serve on such committees under SEC and NYSE rules applicable to
the Company, (iii) drag-along and tag-along rights and
transfer restrictions, (iv) shelf, demand and piggyback
registration rights and (v) the payment of expenses and the
grant of certain indemnities relating to those registration
rights. A Sponsors right to appoint directors will be
reduced to one director if the stock ownership of the private
equity funds controlled by that Sponsor drops to 10% or less of
our outstanding common stock, and will be eliminated if the
stock ownership of the private equity funds controlled by that
Sponsor drops to 2% or less of our outstanding common stock. The
right to appoint directors to board committees terminates if the
private equity funds controlled by the Sponsors no longer
collectively beneficially own 30% or more of our outstanding
common stock. Three of our current directors,
Messrs. Boyce, Mehra and Pagliuca, were appointed pursuant
to the Shareholders Agreement.
The Shareholders Agreement also includes customary
indemnification provisions against liabilities under the
Securities Act incurred in connection with the registration of
our debt or equity securities. We agreed to reimburse legal or
other expenses incurred in connection with investigating or
defending any such liability, action or proceeding, except that
we will not be required to indemnify or reimburse related legal
or other expenses if such loss or expense arises out of or is
based on any untrue statement or omission made in reliance upon
and in conformity with written information provided by these
persons.
Expense
Reimbursement to the Sponsors
We have reimbursed the Sponsors for certain travel-related
expenses of their employees who are members of our Board in
connection with meetings of the Board of Directors in amounts
that are consistent with amounts reimbursed to the non-Sponsor
directors.
III-46
ADVANCE
NOTICE REQUIREMENTS FOR SHAREHOLDER SUBMISSION
OF NOMINATION AND PROPOSALS
A shareholder recommendation for nomination of a person for
election to the Board of Directors or a proposal for
consideration at the next annual meeting of shareholders must be
submitted in accordance with the advance notice procedures and
other requirements in the Companys bylaws. These
requirements are separate from, and in addition to, the
requirements discussed above to have the shareholder proposal
included in our proxy statement and form of proxy/voting
instruction card pursuant to the SECs rules.
Our bylaws require a shareholder who wants to nominate a
director or submit a shareholder proposal be a stockholder of
record at the time of giving the notice and the time of the
meeting, be entitled to vote at the meeting and comply with the
advance notice provisions of our bylaws.
Our bylaws require that shareholder recommendations for nominees
to the Board must include the name of the nominee or nominees,
all information relating to such person that is required to be
disclosed in a proxy statement, a consent signed by the nominee
evidencing a willingness to serve as a director, if elected, and
disclosure of any material relationship between the shareholder
or the beneficial owner and the proposed nominee or nominees,
including any material interest in such business of the
shareholder or the beneficial owner.
Our bylaws require that shareholder proposals include a brief
description of the business to be brought before the meeting,
the text of the proposal or business, the reasons for conducting
such business at the meeting, and any material interest of such
shareholder or the beneficial owner, if any, on whose behalf the
proposal is made in such business. In order to be considered
timely pursuant to
Rule 14a-4
and
14a-5(e)
of the Exchange Act, under the advance notice requirements of
our bylaws the proposal or recommendation for nomination must be
received by the Companys General Counsel and Secretary at
least 90 days but no more than 120 days prior to the
first anniversary of the previous years annual meeting. If
no annual meeting was held in the previous year or if the date
of the annual meeting is more than 30 days from the date of
the previous years annual meeting, then the proposal or
recommendation must be received not later than the close of
business on the 90th day prior to the annual meeting or the
10th day following the day on which notice of the date of
the 2011 annual meeting is mailed or publicly disclosed or such
proposal will be considered untimely pursuant to
Rule 14a-4
and
14a-5(e)
of the Exchange Act. Except for proposals properly made in
accordance with
Rule 14a-8
under the Exchange Act and included in the notice of meeting
given by or at the direction of the Board of Directors, the
advance notice provisions of the bylaws shall be the exclusive
means for a stockholder to propose business to be brought before
an annual meeting of shareholders.
In addition, our bylaws require that the shareholder giving
notice and the beneficial owner, if any, on whose behalf the
proposal is made, must also include (i) the name and
address of the shareholder, (ii) the class and number of
shares beneficially owned and held of record by the shareholder
and the beneficial owner, (iii) any derivative, swap or any
other transaction or series of transactions engaged in, directly
or indirectly by the shareholder or the beneficial owner the
purpose or effect of which is to give the shareholder or
beneficial owner economic risk similar to ownership of shares in
the Company, (iv) a representation that the shareholder is
the holder of record of the shares entitled to vote at the
meeting and intends to appear in person or by proxy at the
meeting to present the proposal or nomination, and (v) a
representation that the shareholder or the beneficial owner
intends to be or is a part of a group which intends to deliver a
proxy statement or a form of proxy to the holders of at least
the percentage of the Companys outstanding shares required
to approve or adopt the proposal or elect the nominee, or
otherwise plans to solicit proxies from stockholders in support
of the nomination or proposal.
III-47
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