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:

 

 

 

 

 

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 Company’s principal executive offices are located at 5505 Blue Lagoon Drive, Miami, Florida, 33126. The Company’s 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.

 

 

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.

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.

 

 

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 Purchaser’s right, pursuant to the Merger Agreement, to designate persons to the board of directors of the Company (the “Company Board”) following the Purchaser’s 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 Company’s 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

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, 3G’s 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. 3G’s obligation to fund the financing contemplated by the Equity Commitment Letter is generally subject to (i) the satisfaction or waiver of the conditions to Parent’s and the Purchaser’s 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.

 

3G’s 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 Company’s 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 Company’s directors and executive officers will be treated in the same manner as outstanding shares of Company Common Stock held by other

stockholders of the Company. As of September 13, 2010, the Company’s 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 Company’s 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 Company’s 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 Company’s 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:

 

 

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.

Equity Awards.

 

The Company’s officers, and certain of its employees, hold Stock Options, Restricted Stock Units and/or Performance Based Stock Units. All of the Company’s 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 director’s resignation, will be converted into an amount in cash equal to the Offer Price.

 

For the Company’s 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 officer’s benefit. The remaining 40% will be withheld for taxes. For those officers other than Messrs. Chidsey and Wells, and Ms. Chwat, if the officer is employed on each of August 25, 2011 and August 25, 2012, the officer will receive from the trust an amount equal to 25% of the portion of the trust account related to such officer’s stock options, which mirrors the vesting schedule of the original underlying option grant. If the officer is actively employed until the end of the two year anniversary following the Effective Time, 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. Chidsey’s continued service until each such date except as provided below and (ii) in the case of each of Mr. Wells and Ms. Chwat, the amounts in the trust will be released in six substantially equal installments on the first business day of each of the first six months following the Effective Time, subject to such Transition Executive’s continued service through such date except as provided below. If the Transition Executive’s employment is terminated due to death or disability or without cause or if the Transition Executive terminates his or her employment for good reason prior to any of these payment dates, the balance of the Transition Executive’s trust will be paid to such Transition Executive upon termination. However, if the Transition Executive voluntarily terminates his or her employment (other than for good reason) or is terminated for cause prior to any of these payment dates, the Transition Executive will forfeit his or her remaining balance in the trust. For Mr. Chidsey, the Merger Agreement specifies that the expiration of the transition period and the commencement of the six-month consulting arrangement described below under “— Amendments to Employment Agreements” will not be deemed to be the termination of his employment without cause or voluntary resignation for good reason. Further, if Mr. Chidsey’s consulting arrangement is terminated without cause or by reason of his death or disability, the amount in trust will be immediately released to him upon such termination.

The following table shows the amount in cash that each executive officer is expected to receive pursuant to the Merger Agreement, based on equity awards held as of September 13, 2010, assuming the 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 Company’s executive officers.

 

 

The following table shows the amount in cash that each director is expected to receive pursuant to the Merger Agreement, based on equity awards held as of September 13, 2010, assuming the Acceleration Time occurs on October 15, 2010 as a result of the cancelation of all Director Stock Units held by the Company’s directors.

 

 

 

 

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. Smith’s employment will terminate at the Effective Time and he will receive the severance payments and benefits set forth in his employment agreement, as amended.

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

 

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

 

Each of Messrs. Chidsey, Wells and Smith and Ms. Chwat will receive a transition bonus ($3,021,000, $1,308,500, $1,097,518, and $1,130,619 for Messrs. Chidsey, Wells and Smith and Ms. Chwat, respectively) in respect of his or her contributions toward the successful completion of the Merger and, in the case of Messrs. Wells and Chidsey and Ms. Chwat, as an inducement for his or her agreement to perform services following the Effective Time. 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 Corporation’s (“BKC”) medical, dental and life insurance plans. In addition, Ms. Franco’s agreement provides

that if a Change in Control (as defined in the agreement) occurs on or before May 17, 2011, and, within twelve months following such Change in Control Ms. Franco is terminated without cause or resigns for good reason, Ms. Franco is entitled to an amount equal to twice her annual base salary, annual perquisite allowance and prorated bonus. Copies of their current employment agreements, and Ms. Franco’s 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

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):

 

 

 

 

 

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 director’s 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 corporation’s 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 corporation’s 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

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 Company’s certificate of incorporation and bylaws provide for the indemnification of the Company’s 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:

 

 

The Company’s 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 Company’s 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 Company’s 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.

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 Sponsor’s 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 Company’s 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 Company’s 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.

 

 

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 Company’s 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.

Accordingly, for the reasons described in more detail below, the Company Board unanimously recommends that the Company’s stockholders accept the Offer and tender their shares of Company Common Stock in the Offer.

 

A copy of the press release communicating the Company Board’s 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 Company’s 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 Capital’s preliminary interest in exploring a potential transaction involving the Company. The representatives of the Sponsors informed the representatives of 3G Capital and Lazard that any inquiries regarding the Company should be raised directly with Mr. John Chidsey, the Chief Executive Officer and Executive Chairman of the Company.

 

In early March 2010, Mr. Behring contacted Mr. Chidsey to express 3G Capital’s preliminary interest in exploring a potential acquisition of the Company. During this discussion, Mr. Behring suggested that the consideration payable in such transaction would be entirely paid in cash, but Mr. Behring did not propose a purchase price for the acquisition of the Company. Mr. Chidsey informed Mr. Behring that the Company was not for sale, but that the Company and the 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.

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

 

 

The Company Board and management also discussed the Company’s prospects as a stand-alone company, including the Company’s 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 Company’s 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 Board’s position to 3G Capital. Following the meeting, Mr. Chidsey contacted a representative of Lazard to convey the Company Board’s position that the offer price contained in the March 29th Proposal was not sufficient to warrant further discussions at this time unless 3G Capital was willing to increase its offer price.

 

On or about April 12, 2010, representatives of Lazard contacted Mr. Chidsey and indicated that 3G Capital might be willing to increase the price of its offer above $24.00 per share but would need to meet with the Company’s management to further understand the Company’s 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 Capital’s 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.

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 Stanley’s 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 Company’s 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 Stanley’s 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 Capital’s 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 Company’s senior management were present. During the meeting, Mr. Chidsey updated the Company Board on the status of the Company’s 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 Capital’s 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 Company’s 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.

On June 3, 2010, the Company Board held a regularly scheduled meeting, at which certain members of the Company’s senior management were present and, for portions of the meeting, representatives of Morgan Stanley and Outside Special Counsel were present. During this meeting, the Company’s 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 Company’s management indicated that the Company’s 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 Company’s re-imaging program and new restaurant development. Mr. Wells then discussed the need to refinance the Company’s 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 Company’s 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 Company’s 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 Company’s and 3G Capital’s financial and legal advisors also attended the meeting. During this meeting, Mr. Chidsey and Mr. Wells gave a detailed presentation regarding the Company’s business and prospects for the remaining portion of fiscal year 2010 as well as the budget for fiscal year 2011 and the issues and opportunities for fiscal year 2012 and beyond.

 

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

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

 

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

 

 

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 Capital’s request for exclusivity and the parties continued discussions on a non-exclusive basis.

 

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

 

On July 1, 2010, the Company Board held a special meeting, at which certain members of the Company’s 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 Company’s recent share price performance relative to other participants and competitors in its industry over a range of historical short-term

and long-term periods, as well as a description of the current debt financing market conditions and changes in the market since the May 11th Proposal and the 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 Board’s position.

 

On July 26, 2010, the Company Board held a special meeting, at which certain members of the Company’s 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 Company’s 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 Company’s 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 Capital’s 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 Company’s 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 Board’s position.

 

Later in the day on August 3, 2010, Outside Special Counsel distributed to Kirkland a revised version of the summary terms of the merger agreement that was included in the June 29th Proposal. The revised terms

deleted all conditions to the consummation of the transaction related to 3G Capital’s debt financing and required that 3G Capital enter into definitive financing for the transaction prior to signing the merger agreement. In addition, the revised terms proposed that 3G Capital would complete the transaction through a tender offer directly to the Company’s 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 Company’s 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 Company’s senior management and representatives of Morgan Stanley, Holland & Knight and Outside Special Counsel were present. Mr. Chidsey updated the Company Board on the Company’s 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 Company’s 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.

On August 16, 2010, Mr. Chidsey met with Mr. Behring at 3G Capital’s offices to discuss the Company’s 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 Company’s 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 Company’s compensation consultant, that the level of severance in connection with a change in control of the Company provided at the time of the Company’s 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 Company’s regular, annual grant of long-term incentive compensation to employees and officers of the Company under the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s senior management team then reviewed with the Company Board the refinancing options that existed with respect to the Company’s term loan facility, including the amendment and extension of the Company’s 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 Board’s 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 Company’s 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 Company’s 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

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 Stanley’s preliminary financial analyses.

 

In order to efficiently manage the process of reviewing the new proposal that was expected from 3G Capital and any alternatives thereto, the Company Board authorized the Executive Committee of the Company Board to provide advice and guidance to the Company’s 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 Company’s 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 Company’s 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 Company’s 2011 plan and five-year plans contained many risks and uncertainties, including macroeconomic factors outside of the Company’s control such as those regarding currency, commodities, unemployment rates, and general economic conditions, it was very difficult to forecast the Company’s 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 Company’s 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

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 Capital’s debt financing efforts, obligations of 3G Capital to use bridge financing, specific performance rights, the “go-shop” period, termination fees and management retention and transition matters.

 

On August 22, 2010, representatives of Kirkland and representatives of Skadden Arps held a teleconference to discuss the status of the merger agreement and management retention arrangements and the open items on each. Following the call, Kirkland delivered to Skadden Arps a proposal setting forth 3G Capital’s expectations regarding the treatment of employee equity in the merger, the treatment of existing severance arrangements for 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 Capital’s acceptance of the severance terms discussed by the Compensation Committee at the August 18, 2010 meeting for members of the Global Executive Team and other Senior Vice Presidents. The proposal further contemplated transition agreements with Messrs. Chidsey, Wells and Smith and Ms. Chwat, pursuant to which the executives would perform transition services for a period of up to one year or, in the case of Mr. Chidsey, at least two years. Pursuant to the proposal, Mr. Chidsey would serve as Co-Chairman during the transition period, would no longer serve as 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. Chidsey’s equity proceeds placed in trust. With respect to Messrs. Wells and Smith and Ms. Chwat, the proposal provided that the executives would receive current salary and bonus levels during the transition period and would agree to the placement in trust of the executive’s equity amounts and severance entitlements at closing. Discussions between 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 Company’s 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 Company’s 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 Company’s 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.

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 Company’s “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 management’s position regarding management retention and transition issues. The revised proposal, among other things, provided (i) that all Company equity awards, whether or not vested, would be cashed out in the merger, except that an amount equal to sixty percent (60%) of the proceeds (representing an after-tax amount) from the Company’s 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 Capital’s “best and final” offer.

 

On August 31, 2010, the Compensation Committee held a special meeting, with representatives of Skadden Arps, Mercer and CAP Partners, management’s compensation consultant, in attendance, to consider certain matters in connection with the proposed transaction. At this meeting, the Compensation Committee determined that the treatment of Company equity awards provided in the Merger Agreement was consistent with the terms of the Company’s equity incentive plans and further approved, and recommended that the 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

payment, upon effectiveness of the Merger, of pro rata bonuses for the portion of the Company’s 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 Company’s 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:

 

 

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 fund’s obligations under the equity commitment letter and the limited guaranty,

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 Company’s 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 Company’s 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 Company’s 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 Company’s senior management, outside legal counsel and independent financial advisors. In recommending that the Company’s stockholders accept the

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

 

 

 

 

 

 

Financial Condition; Prospects of Company

 

 

 

 

 

Strategic Alternatives

 

 

 

 

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

 

 

 

 

 

Likelihood of Consummation

 

 

 

 

 

 

 

 

Financing-Related Terms

 

 

 

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company Board believed that, overall, the potential benefits of the Offer and the Merger to the Company’s 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 Company’s knowledge, after making reasonable inquiry, all of the Company’s 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 Company’s 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 Stanley’s 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 Stanley’s opinion does not address any other aspect of the transactions contemplated by the Merger Agreement and does not constitute a recommendation as

to 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:

 

 

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 Company’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares in the transaction. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was it furnished with any such appraisals.

 

Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it, as of September 1, 2010. Events occurring after

September 1, 2010 may affect Morgan Stanley’s opinion and the assumptions used in preparing it. Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

 

In arriving at its opinion, Morgan Stanley was not authorized to solicit and did not solicit interest from any party with respect to the acquisition, business combination or other extraordinary transaction, involving the Company, nor did Morgan Stanley negotiate with any of the parties, other than Parent and Purchaser, which expressed interest to Morgan Stanley in the possible acquisition of the Company or certain of its constituent businesses.

 

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

 

The following is a brief summary of the material analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter dated September 1, 2010. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 

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

 

 

 

 

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 analyst’s estimate of the future public market trading price of the shares. The range of equity analyst price targets for the Company was $18.00 per share to $24.00 per share. Morgan Stanley discounted the analysts’ price targets to derive a range of present values of these price targets which resulted in a range of securities research analysts’ future price targets for the Company of approximately $16.50 per share to $22.00 per share.

 

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

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

 

 

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

 

 

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

 

 

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

 

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

 

Discounted Equity Value Analysis.  Morgan Stanley performed an illustrative analysis of the present value of the Company’s theoretical implied future price per share. 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

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 Company’s LTM EBITDA to imply a value per share based on such multiples.

 

For this analysis Morgan Stanley reviewed the following transactions:

 

Domestic Transactions

 

International Transactions

 

 

The following table summarizes Morgan Stanley’s analysis:

 

 

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

 

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

 

Discounted Cash Flow Analysis.  Morgan Stanley performed a discounted cash flow analysis as of August 30, 2010, which is an analysis of the present value of projected unlevered free cash flows using terminal year Aggregate Value to EBITDA multiples based on projected EBITDA for the Company. Morgan Stanley analyzed the Company’s business using information provided by Company management, including certain financial forecasts prepared by Company management for the fiscal years 2011 through 2015, under five scenarios. The first scenario assumes that the Company operates in a continued recessionary economic environment (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 Company’s discounted unlevered free cash flow value using discount rates ranging from 8.0% to 9.0%. The range of discount rates was selected based upon an analysis of the Company’s weighted average cost of capital and on the experience and judgment of Morgan Stanley. The discounted cash flow analysis implied a range of $20.50 per share to $27.25 per share using the Recessionary Case, $21.75 per share to $29.00 per share using the Moderate Growth Case and ReFranchise Case and $24.00 per share to $32.50 per share using the Economic Expansion Case and Risk Neutral Case.

Leveraged Buyout Analysis.  Morgan Stanley performed an illustrative leveraged buyout analysis to estimate the theoretical purchase price that a financial buyer could pay in an acquisition of the Company. For purposes of this analysis, Morgan Stanley assumed that the capital structure of the Company that would result from the theoretical transaction would be identical to the capital structure proposed by Parent and 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 Stanley’s view of the actual value of the Company.

 

In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Morgan Stanley’s analysis of the fairness from a financial point of view of the consideration to be received by the holders of shares pursuant to the Merger Agreement, and were conducted in connection with the delivery of Morgan Stanley’s 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 arm’s-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 Stanley’s 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 Stanley’s qualifications, experience and expertise and its knowledge of the business affairs of the Company. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or

equity securities or loans of the Parent and 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 Stanley’s 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:

 

 

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

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

 

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, and Goldman Sachs does not assume any liability for any such information. In that regard, Goldman Sachs assumed with the consent of the Company that the 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

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

 

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

 

This analysis indicated that the price per share to be paid to the Company’s stockholders in connection with the transactions contemplated by the Merger Agreement represented:

 

 

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

 

 

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

 

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

The following table presents the results of this analysis:

 

 

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

 

The following table presents the results of this analysis:

 

 

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

 

 

 

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

 

The following table presents the results of this analysis:

 

 

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

 

 

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

 

Illustrative Discounted Cash Flow Analysis.  Goldman Sachs performed an illustrative discounted cash flow analysis on the Company using the 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 Company’s weighted average cost of capital. This analysis resulted in a range of illustrative per share of Company Common Stock values of $20.73 to $27.74.

 

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

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

 

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

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the 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

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

 

 

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 Company’s 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 Stanley’s trading and brokerage activities, Morgan Stanley 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 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 Company’s 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.

 

 

Securities Transactions.

 

No transactions with respect to shares of Company Common Stock have been effected by the Company or, to the Company’s knowledge after making reasonable inquiry, by any of its executive officers, directors, affiliates or

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 Company’s employee benefit plans as set forth below:

 

 

 

 

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.

 

 

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 Parent’s 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.

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 Mexico’s Federal Law of Economic Competition (the “Competition Law”) along with Articles 15-27 of Mexico’s 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 Company’s 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

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 corporation’s 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 Company’s 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 Company’s 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

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 Purchaser’s 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 Company’s 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 Company’s stockholders as described in “Item 3. Past Contacts, Transactions, Negotiations and Agreements” above and in the Information Statement, and is incorporated herein by reference.

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 Company’s 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 Company’s 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 plaintiff’s 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 Company’s ability to communicate with potential acquirers, and that the consideration to be received by the Company’s 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, management’s internal non-public stand-alone fiscal 2011 financial forecasts

(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 Company’s 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 Company’s 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 stockholder’s 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 Company’s 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 Company’s 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 Company’s 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

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):

 

 

The key assumptions underlying the summary Fiscal 2011 Projections include:

 

 

Cash Flow Projections

 

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

 

 

Five-Year Projections

 

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

 

 

 

 

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

 

 

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

 

Forward-Looking Statements.

 

Certain statements made in this Statement that reflect management’s 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 Company’s current expectations and projections about future events. Important factors could cause the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s management to predict all risk factors, nor can it assess the impact of all factors on the Company’s 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:

 

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

 

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

 

Dated: September 16, 2010

 

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;

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 Company’s 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

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,

 

 

Carmen Molinos

Managing Director

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

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 Harrah’s 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

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.)

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 Parent’s request, all action requested by Parent necessary to cause Parent’s 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 Parent’s 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 Sub’s designees has been furnished to us by Parent, and we assume no responsibility for the accuracy or completeness of such information.

 

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 individual’s 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 America’s largest railroad and logistics company, from July 1998 to December 2004 and served as a member of the Board’s 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 America’s 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 America’s 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 Dean’s Advisors of Harvard Business School since 1998.

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 Parent’s and Sub’s 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, Parent’s and Sub’s 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.”

The following table sets forth the name, age, principal occupation of, and other information regarding, each of the current directors of the Company:

 

 

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

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. Garcia’s independence, the Board considered lease payments for a BurgerKing^® restaurant in the amount of $110,661.72 paid by our subsidiary Burger King Corporation to Mr. Garcia’s sister. Our Board determined that the receipt of the lease payments by Mr. Garcia’s 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 Pagliuca’s 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 management’s 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

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 Company’s 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 Company’s 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

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 Chairman’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s strategic direction and objectives, taking into account (among other considerations) the Company’s 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.

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 committee’s responsibilities and scope of authority.

 

Although the Board as a whole has responsibility for risk oversight, these Committees also oversee the Company’s 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 Company’s outside auditors. The Audit Committee is also responsible for oversight of the Company’s 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 Company’s 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 Committee’s 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 committee’s purpose, membership criteria, powers and responsibilities and provides for the annual evaluation of the committee’s 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

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:

 

 

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:

 

 

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

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.