SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Dave & Buster's, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share, of Dave & Buster's, Inc.
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(2) Aggregate number of securities to which transaction applies:
13,283,279 shares of Common Stock
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
The filing fee is determined based upon the sum of (a) the product
of the 12,224,734 shares of common stock to be acquired for cash
and the merger consideration of $13.50 per share, (b) the
cumulative total of the difference between the merger
consideration of $13.50 per share and the exercise price per share
of each of the 1,535,961 shares of common stock subject to
outstanding options in which the exercise price per share is less
than the merger consideration per share, and (c) the market value
of the 1,058,545 shares of common stock, and 95,804 shares
issuable under in-the-money options, which are all to be acquired
in exchange from the registrant's continuing shareholders as
determined in accordance with Regulation 0-11(a)(4) of the
Securities Exchange Act of 1934. In accordance with Section 14(g)
of the Securities Exchange Act of 1934, as amended, the filing fee
was determined by calculating a fee of $92 per $1,000,000 of the
amount calculated pursuant to the preceding sentence.
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(4) Proposed maximum aggregate value of transaction:
$190,065,720
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(5) Total fee paid:
$17,486
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[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$19,923.02
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(2) Form, Schedule or Registration Statement No.:
Schedule 14A
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(3) Filing Party:
Dave & Buster's, Inc.
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(4) Date Filed:
July 29, 2002
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September ____, 2002
DAVE & BUSTER'S, INC.
2481 Manana Drive
Dallas, Texas 75220
To our Shareholders:
You are cordially invited to attend a special meeting of the shareholders of
Dave & Buster's, Inc., to be held at The Show Room at Dave & Buster's, 10727
Composite Drive, Dallas, Texas, on October ___, 2002, at __:00 __.M. (Central
Daylight Time).
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger, dated as of May 30, 2002, by
and among D&B Holdings I, Inc., D&B Acquisition Sub, Inc., a wholly owned direct
subsidiary of D&B Holdings I, Inc., and Dave & Buster's, Inc., as amended by
that First Amendment to the Agreement and Plan of Merger, dated as of July 12,
2002, pursuant to which D&B Acquisition Sub, Inc., will merge with and into Dave
& Buster's, Inc. If the merger is completed, you will receive $13.50 in cash for
each share of common stock of Dave & Buster's, Inc. that you own.
A special committee of the board of directors of Dave & Buster's, Inc.,
consisting of three independent directors, unanimously determined that the
merger agreement and the merger are advisable, fair to and in the best interests
of, the shareholders of Dave & Buster's, Inc., including its unaffiliated
shareholders, and unanimously recommended that our board of directors approve
the merger agreement and the merger.
Our board of directors, based in part on the recommendation of the special
committee, has determined that the merger agreement and the merger are
advisable, fair to and in the best interests of Dave & Buster's, Inc. and our
shareholders, including our unaffiliated shareholders. Accordingly, our board of
directors has unanimously approved the merger agreement and the merger and
recommends that you vote "FOR" adoption of the merger agreement.
In considering the recommendation of our board of directors, you should be
aware that certain of our executive officers and directors, David O. Corriveau,
James W. Corley, Walter S. Henrion and William C. Hammett, Jr., negotiated and
entered into separate arrangements with D&B Holdings I, Inc., pursuant to which
each of them will contribute a portion of their interests in Dave & Buster's,
Inc. common stock in exchange for shares of D&B Holdings I, Inc., immediately
prior to the merger. The accompanying proxy statement provides you with
additional information about the parties involved in the merger and their
interests.
You are encouraged to read the accompanying proxy statement carefully as it
sets forth details of the proposed merger and other important information
related to the merger.
Whether or not you plan to attend the special meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope. If you attend the special meeting, you may revoke your proxy and vote
in person if you wish, even if you have previously returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Sincerely,
John S. Davis
Vice President, General Counsel and Secretary
This proxy statement is dated September ____, 2002, and is first being
mailed to shareholders on or about September ____, 2002.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
DAVE & BUSTER'S, INC.
2481 MANANA DRIVE
DALLAS, TEXAS 75220
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER ___, 2002
To the Shareholders of Dave & Buster's, Inc.:
A special meeting of the shareholders of Dave & Buster's, Inc., will be held
at The Show Room at Dave & Buster's, 10727 Composite Drive, Dallas, Texas, on
October ___, 2002, at __:00 __.M. (Central Daylight Time), to consider and vote
upon a proposal to adopt the Agreement and Plan of Merger, dated as of May 30,
2002, by and among D&B Holdings I, Inc., D&B Acquisition Sub, Inc., a wholly
owned direct subsidiary of D&B Holdings I, Inc., and Dave & Buster's, Inc., as
amended by that First Amendment to the Agreement and Plan of Merger, dated July
12, 2002, pursuant to which D&B Acquisition Sub, Inc., will merge with and into
Dave & Buster's, Inc., with Dave & Buster's, Inc., surviving the merger. In the
merger, each outstanding share of Dave & Buster's, Inc., common stock will be
converted into the right to receive $13.50 in cash, without interest, less any
applicable withholding taxes, excluding shares held in treasury by Dave &
Buster's, Inc., or held by D&B Holdings I, Inc., or D&B Acquisition Sub, Inc.,
or held by shareholders who perfect their appraisal rights under Missouri law.
The board of directors has fixed the close of business on August 23, 2002 as
the record date for determining the shareholders entitled to notice of, and to
vote at, the special meeting and at any adjournment or postponement thereof. A
list of the shareholders entitled to vote at the special meeting will be
available for examination by a shareholder for any purposes germane to the
meeting during ordinary business hours during the ten days prior to the special
meeting at the principal place of business of Dave & Buster's, Inc., located at
2481 Manana Drive, Dallas, Texas 75220.
Please carefully read the proxy statement and other materials concerning
Dave & Buster's, Inc., and the merger, which are mailed with this notice, for a
more complete statement regarding the matter to be acted upon at the special
meeting. This notice also constitutes notice of appraisal rights under Missouri
law in connection with the merger, as described in the accompanying proxy
statement and Appendix C to such proxy statement.
DAVE & BUSTER'S, INC.'S BOARD OF DIRECTORS, BASED IN PART ON THE
RECOMMENDATION OF A SPECIAL COMMITTEE OF ITS BOARD OF DIRECTORS, HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AGREEMENT IS ADVISABLE, FAIR TO AND IN THE BEST
INTERESTS OF DAVE & BUSTER'S, INC., AND ITS SHAREHOLDERS, INCLUDING ITS
UNAFFILIATED SHAREHOLDERS. Accordingly, all of the members of Dave & Buster's,
Inc.'s board of directors approved and adopted the merger agreement and the
transactions contemplated thereby and recommend that you vote "FOR" the adoption
of the merger agreement.
Whether you expect to attend the special meeting or not, you are encouraged
to vote your shares by dating and signing the enclosed proxy and returning it as
promptly as possible in the accompanying envelope, which requires no postage if
mailed in the United States. If you attend the special meeting, you may revoke
your proxy and vote in person if you wish, even if you have previously returned
your proxy card. Your prompt cooperation will be greatly appreciated.
By order of the Board of Directors,
John S. Davis
Vice President, General Counsel and Secretary
Dallas, Texas
September ___, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY TERM SHEET................................................................................................ 1
The Companies.................................................................................................. 1
The Special Meeting............................................................................................ 2
Date, Time and Proposal to be Considered................................................................. 2
Record Date for Voting; Record Holders and Shares Outstanding on the Record Date......................... 2
Voting and Other Rights of Shareholders.................................................................. 2
Vote Required for Approval............................................................................... 2
The Merger..................................................................................................... 2
Purpose of the Merger.................................................................................... 2
Effects of the Merger.................................................................................... 3
Recommendations of the Special Committee and D&B's Board of Directors; Fairness of the Merger............ 3
Opinion of Houlihan Lokey................................................................................ 3
Position of the Continuing Shareholders, D&B Acquisition, D&B Holdings and Investcorp as to the
Fairness of the Merger................................................................................... 3
Interests of D&B's Directors and Executive Officers in the Merger........................................ 4
Accounting Treatment..................................................................................... 4
Material U.S. Federal Income Tax Consequences............................................................ 4
Appraisal Rights......................................................................................... 4
Financing of the Merger.................................................................................. 5
Provisions for Unaffiliated Shareholders................................................................. 5
Vote of the Continuing Shareholders; Voting Agreements................................................... 5
Revocation of Proxies.................................................................................... 5
The Merger Agreement........................................................................................... 5
Conditions to the Merger................................................................................. 5
No Solicitation.......................................................................................... 6
Termination of Merger Agreement.......................................................................... 6
Effect of Termination.................................................................................... 7
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................ 8
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE................................................................... 11
INTRODUCTION...................................................................................................... 13
Proposal to be Considered at the Special Meeting......................................................... 13
Voting Rights; Vote Required for Approval................................................................ 13
Institutional Investor Voting Arrangements............................................................... 13
Voting and Revocation of Proxies......................................................................... 14
Solicitation of Proxies; Expenses of Solicitation........................................................ 14
Comparative Market Price Data............................................................................ 14
Dividends................................................................................................ 15
D&B Selected Consolidated Financial Information.......................................................... 15
SPECIAL FACTORS................................................................................................... 16
Background of the Merger................................................................................. 16
Fairness Opinion of Houlihan Lokey....................................................................... 21
Alternatives Considered.................................................................................. 27
Recommendation of the Special Committee and D&B's Board of Directors; Fairness of the Merger............. 27
Special Committee............................................................................... 27
Board of Directors.............................................................................. 30
Forecasts................................................................................................ 31
</Table>
<Table>
<Caption>
PAGE
----
D&B's Reasons for the Merger................................................................................... 32
Position of the Continuing Shareholders as to the Fairness of and Reasons for the Merger; Purpose and
Structure of the Merger........................................................................................ 32
Fairness of the Merger................................................................................ 32
Reasons for the Merger................................................................................ 33
Position of D&B Acquisition, D&B Holdings and Investcorp as to the Fairness of and Reasons for the Merger...... 33
Purpose and Structure of the Merger............................................................................ 34
Certain Effects of the Merger; Plans or Proposals After the Merger............................................. 34
THE MERGER.............................................................................................................. 36
Effective Time of the Merger................................................................................... 36
Payment of Merger Consideration and Surrender of Stock Certificates............................................ 36
Financing of the Merger........................................................................................ 37
Senior Secured Notes.................................................................................. 37
Senior Credit Facility................................................................................ 38
Conditions to Financing............................................................................... 38
Material U.S. Federal Income Tax Consequences of the Merger to D&B's Shareholders.............................. 38
Accounting Treatment........................................................................................... 40
Fees and Expenses of the Merger................................................................................ 40
Appraisal Rights............................................................................................... 40
Regulatory Approvals........................................................................................... 41
State Takeover Statutes............................................................................... 41
Antitrust in the United States........................................................................ 42
Liquor Licenses....................................................................................... 42
Merger Related Litigation...................................................................................... 42
THE MERGER AGREEMENT.................................................................................................... 43
General........................................................................................................ 43
Articles of Incorporation; Bylaws; Directors and Officers of the Surviving Corporation......................... 43
Consideration to Paid in the Merger............................................................................ 43
Stock Options.................................................................................................. 43
Representations and Warranties................................................................................. 43
Conduct of Business Before the Merger.......................................................................... 44
No Solicitation................................................................................................ 46
Access to Information; Confidentiality......................................................................... 47
Reasonable Efforts............................................................................................. 47
Notification................................................................................................... 47
Employee Benefit Plans......................................................................................... 47
Indemnification................................................................................................ 48
Insurance...................................................................................................... 48
Fees and Expenses.............................................................................................. 48
Public Announcements........................................................................................... 49
Cooperation with Financing Efforts............................................................................. 49
Consents....................................................................................................... 49
Conditions to the Merger....................................................................................... 49
Termination.................................................................................................... 50
Effect of Termination.......................................................................................... 51
Waiver......................................................................................................... 51
Amendment...................................................................................................... 51
Assignment..................................................................................................... 52
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER............................................................. 53
Support and Exchange Agreement................................................................................. 53
Stockholder Agreement.......................................................................................... 53
Put/Call Rights................................................................................................ 53
D&B Holdings Governance........................................................................................ 54
D&B Holdings Stock Incentive Plan.............................................................................. 54
</Table>
<Table>
<Caption>
PAGE
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Loan Arrangement............................................................................................ 54
Employment Agreements; Executive Retention Agreements....................................................... 54
Non-Competition Agreements.................................................................................. 55
Restricted Stock............................................................................................ 55
Stock Options............................................................................................... 55
Allocation of Consideration Among Officers and Directors of D&B............................................. 56
Special Committee........................................................................................... 56
Indemnification and Insurance............................................................................... 57
OTHER MATTERS........................................................................................................ 58
Security Ownership of Certain Beneficial Owners and Management.............................................. 58
Other Matters for Action at the Special Meeting............................................................. 59
Legal Counsel............................................................................................... 59
Independent Auditors........................................................................................ 59
Available Information....................................................................................... 59
Information Incorporated by Reference....................................................................... 60
APPENDIX A -- AGREEMENT AND PLAN OF MERGER, AS AMENDED
APPENDIX B -- OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN
APPENDIX C -- SECTION 351.455 OF THE MISSOURI GENERAL BUSINESS AND CORPORATION LAW
</Table>
SUMMARY TERM SHEET
This summary term sheet highlights material information from this proxy
statement and does not contain all of the information that is important to you.
To understand the merger fully, you should carefully read this entire proxy
statement, including the information incorporated by reference, the appendices
and the additional documents referred to in this proxy statement.
THE COMPANIES
DAVE & BUSTER'S INC.
2481 MANANA DRIVE
DALLAS, TEXAS 75220
(214) 357-9588
Dave & Buster's, Inc., a Missouri corporation, operates large format,
high-volume restaurant/entertainment centers under the "Dave & Buster's" name.
Each D&B entertainment center offers a full menu of high-quality food and
beverage items combined with an extensive array of entertainment attractions
such as pocket billiards, shuffleboard, state-of-the-art interactive simulators
and virtual reality systems, and traditional carnival-style games of skill.
In this proxy statement, Dave & Buster's, Inc., is referred to, prior to the
merger, as "D&B" and Dave & Buster's, Inc., as the surviving corporation in the
merger, as "new D&B."
D&B HOLDINGS I, INC.
C/O GIBSON, DUNN & CRUTCHER LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 351-4000
D&B Holdings I, Inc., a Delaware corporation, was formed at the direction of
Investcorp S.A. solely for the purpose of financing and effecting the merger and
the transactions related to the merger. D&B Holdings has not engaged in any
business except in furtherance of this purpose. Following the merger, certain
affiliates of Investcorp, certain international investors organized by
Investcorp and David O. Corriveau, James W. Corley, Walter S. Henrion and
William C. Hammett, Jr. will beneficially own all of the capital stock of D&B
Holdings. In addition, options to purchase shares of common stock of D&B
Holdings will have been granted to Messrs. Corriveau, Corley, Henrion and
Hammett and other members of management, along with additional shares that will
be reserved for option grants to management employees of new D&B in the future.
Investcorp is a Luxembourg corporation which, through its subsidiaries, acts
as a principal and intermediary in international investment transactions.
Investcorp's principal executive offices are located at 6 rue Adolphe Fischer,
Luxembourg. References to Investcorp in this proxy statement include, as the
context requires, entities affiliated with Investcorp and certain international
investors with whom Investcorp maintains an administrative relationship who are
expected to participate in this investment through an indirect equity investment
in D&B Holdings. Investcorp International Inc., a Delaware corporation wholly
owned indirectly by Investcorp, acts as Investcorp's financial advisor on all
U.S.-based investments. References to Investcorp in this proxy statement also
include, in certain cases, Investcorp International acting in such advisory
capacity.
In this proxy statement, D&B Holdings I, Inc., is referred to as "D&B
Holdings," Investcorp S.A. is referred to as "Investcorp," and David O.
Corriveau, James W. Corley, Walter S. Henrion and William C. Hammett, Jr., are
collectively referred to as the "continuing shareholders."
D&B ACQUISITION SUB, INC.
C/O GIBSON, DUNN & CRUTCHER LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 351-4000
D&B Acquisition Sub, Inc., a Missouri corporation and a direct subsidiary of
D&B Holdings, was formed solely for the purpose of effecting the merger and the
transactions related to the merger. D&B Acquisition has not engaged in any
business except in
1
furtherance of this purpose. All of the outstanding capital stock of D&B
Acquisition is owned by D&B Holdings.
In this proxy statement, D&B Acquisition Sub, Inc., is referred to as "D&B
Acquisition."
THE SPECIAL MEETING
DATE, TIME AND PROPOSAL TO BE CONSIDERED (see p. __)
The special meeting of shareholders of D&B will be held on October ___, 2002
at ______ __.M. (Central Daylight Time), at The Show Room at Dave & Buster's,
10727 Composite Drive Dallas, Texas. At the special meeting, shareholders will
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of May 30, 2002, as amended by the First Amendment to the Agreement and
Plan of Merger, dated July 12, 2002, among D&B, D&B Holdings and D&B
Acquisition, pursuant to which D&B Acquisition will merge with and into D&B. A
copy of the merger agreement as amended is attached as Appendix A to this proxy
statement. Unless the context requires otherwise, all references in this proxy
statement to the merger agreement are to the merger agreement as amended. For
additional information regarding the proposal to be considered at the special
meeting, see "Introduction -- Proposal to be Considered at the Special Meeting."
RECORD DATE FOR VOTING; RECORD HOLDERS AND SHARES OUTSTANDING ON THE RECORD DATE
(see p. __)
Only shareholders of record at the close of business on August 23, 2002, are
entitled to notice of and to vote at the special meeting. On that date, there
were 1,864 holders of record of D&B common stock, par value $0.01 per share, and
13,283,279 shares of D&B common stock outstanding. Of the shares of D&B common
stock outstanding, 11,739,507 shares were held by shareholders other than D&B's
affiliates, including the continuing shareholders.
VOTING AND OTHER RIGHTS OF SHAREHOLDERS (see p. ___)
Each share of D&B common stock entitles the holder to cast one vote at the
special meeting. The rights of holders of D&B common stock at the effective time
of the merger are identical in all respects, including the right to receive
$13.50 per share in cash in the merger, except that shares held in treasury by
D&B and by D&B Holdings, D&B Acquisition, the continuing shareholders, as well
as holders who exercise appraisal rights, will not receive the $13.50 per share
merger consideration. See "Introduction -- Voting Rights; Vote Required for
Approval" and "The Merger Agreement -- Consideration to be Paid in the Merger."
VOTE REQUIRED FOR APPROVAL (see p. ___)
Adoption of the merger agreement requires the affirmative vote of the
holders of two-thirds in voting power of all outstanding shares of D&B common
stock. The continuing shareholders and certain institutional holders of D&B
common stock have agreed to vote their shares, which collectively represent
approximately 21% of all shares outstanding, in favor of the merger. See
"Introduction -- Institutional Investor Voting Arrangements" and "Interests of
Directors and Executive Officers in the Merger -- Support and Exchange
Agreement." Abstentions and broker non-votes will have the effect of a vote
"AGAINST" the adoption of the merger agreement. Adoption of the merger agreement
does not require the separate vote of two-thirds of D&B's unaffiliated
shareholders, and no separate vote of D&B's unaffiliated shareholders will be
conducted. See "Introduction -- Voting Rights; Vote Required for Approval."
THE MERGER
PURPOSE OF THE MERGER (see p. ___)
A principal purpose of the merger is to enable you to maximize the value of
your shares. The merger price of $13.50 per share represents a premium of 27.5%
over the $10.59 closing price per share on May 30, 2002, the last full trading
day before the public announcement of the merger agreement, and a premium of
16.4% over the $11.60 closing price per share of D&B common stock on July 12,
2002, the last full trading day before the public announcement of the amendment
to the merger agreement. See "Special Factors -- Purpose and Structure of the
Merger."
2
EFFECTS OF THE MERGER (see p. ___)
The merger is a "going private" transaction for D&B. Upon completion of the
merger, new D&B will be a wholly owned, privately held subsidiary of D&B
Holdings. Immediately following the merger, certain investors that are organized
by Investcorp, certain of Investcorp's affiliates, and the continuing
shareholders will beneficially own all of the equity securities of D&B Holdings.
See "Interests of Directors and Executive Officers in the Merger -- Support and
Exchange Agreement" and "-- D&B Holdings Stock Incentive Plans." No other
shareholders will have any interest in D&B Holdings or new D&B, including in any
future earnings and growth of new D&B, and similarly will not bear the risk of
any decrease in the value of new D&B after the merger. D&B common stock will no
longer be publicly traded after the merger. In addition, the registration of D&B
common stock and new D&B's reporting obligations under the Securities Exchange
Act of 1934 will be terminated upon application to the SEC. See "Special Factors
- -- Certain Effects of the Merger; Plans or Proposals After the Merger."
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND D&B'S BOARD OF DIRECTORS; FAIRNESS
OF THE MERGER (see p. ____)
A special committee of D&B's board of directors, consisting of three
directors who are not executive officers or employees of D&B, D&B Holdings or
their respective affiliates, determined that the merger agreement and the
transactions contemplated thereby are advisable, fair to and in the best
interests of D&B's shareholders, including its unaffiliated shareholders.
Accordingly, the special committee unanimously recommended to D&B's board of
directors that it approve and adopt the merger agreement and recommends to D&B
shareholders that they adopt the merger agreement. D&B's board of directors,
based in part on the recommendation of the special committee, determined that
the merger agreement and the merger are fair to and in the best interests of D&B
and D&B's shareholders, including its unaffiliated shareholders. Accordingly,
D&B's board of directors approved and adopted the merger agreement and the
transactions contemplated thereby and recommends that you vote "FOR" the
proposal to adopt the merger agreement. For a discussion of the material factors
considered by the special committee and D&B's board of directors in reaching
their conclusions and the reasons why the special committee and D&B's board of
directors determined that the merger is advisable, fair to and in the best
interests of D&B's shareholders, including its unaffiliated shareholders, see
"Special Factors -- Reasons for the Recommendations of the Special Committee and
D&B's Board of Directors; Fairness of the Merger."
All the members of D&B's board of directors unanimously approved and
recommended adoption of the merger agreement. See "Special Factors -- Background
of the Merger."
OPINION OF HOULIHAN LOKEY (see p. ____)
In connection with the merger, a special committee of D&B's board of
directors considered the opinion of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc., as to the fairness of the merger consideration, from a financial
point of view, to the unaffiliated holders of D&B common stock. In this proxy
statement, Houlihan Lokey Howard & Zukin Financial Advisors, Inc., is referred
to as "Houlihan Lokey." Houlihan Lokey delivered its opinion, dated July 12,
2002, to D&B's special committee to the effect that, as of that date and based
upon the assumptions made, matters considered and limitations on the review
described in the written opinion, the merger consideration to be received by the
unaffiliated holders of the D&B common stock in connection with the transaction
was fair from a financial point of view. Houlihan Lokey expressed no opinion as
to the fairness of the merger consideration to the continuing shareholders.
Houlihan Lokey's opinion was provided for the information of the special
committee and does not constitute a recommendation to any shareholder with
respect to any matter relating to the proposed merger or as to whether
shareholders should vote to approve the merger. See "Special Factors -- Fairness
Opinion of Houlihan Lokey."
The full text of Houlihan Lokey's written opinion is attached as Appendix B
to this proxy statement. You are encouraged to read Houlihan Lokey's opinion in
its entirety for a description of the assumptions made, matters considered and
limitations on the review undertaken.
POSITION OF THE CONTINUING SHAREHOLDERS, D&B ACQUISITION, D&B HOLDINGS AND
INVESTCORP AS TO THE FAIRNESS OF THE MERGER (see p. ___)
The rules of the SEC require the continuing shareholders, D&B Acquisition,
D&B Holdings and Investcorp to express a belief regarding the fairness of the
merger to D&B's unaffiliated shareholders. Based on their beliefs regarding the
reasonableness of the conclusions and analyses of the special committee, the
continuing shareholders, D&B Acquisition, D&B Holdings and Investcorp adopted
the conclusions and analyses of the special committee.
Because of this analysis and other factors described in "Special Factors --
Position of the Continuing Shareholders as to the Fairness of and Reasons for
the Merger; Purpose and Structure of the Merger" and "-- Position of D&B
Acquisition, D&B Holdings and Investcorp as the Fairness of and Reasons for the
Merger," the continuing shareholders, D&B Acquisition, D&B Holdings and
Investcorp believe that the merger is fair to D&B's unaffiliated shareholders.
However, you should not construe this belief as a recommendation as to how you
should vote on the merger.
3
INTERESTS OF D&B'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (see p. ___)
In considering the recommendation of D&B's board of directors with respect
to the merger agreement and the merger, you should be aware that, in addition to
the matters discussed above, certain of D&B's executive officers and directors
have interests in the merger that are in addition to or different from the
interests of D&B's shareholders generally. These interests create the following
potential conflicts of interest:
o The continuing shareholders have agreed to contribute 1,058,545 shares
of D&B common stock, including certain restricted shares, valued at
$13.50 per share, and another 95,804 shares issuable under existing
stock options, valued at the difference between $13.50 per share and the
applicable exercise price per share, which have an aggregate value of
$15,531,953, to D&B Holdings in exchange for an approximate 9.4% equity
interest in D&B Holdings.
o Some of D&B's executive officers and directors, including members of the
special committee, have options to purchase D&B common stock. The merger
agreement provides that, at the effective time of the merger, each
outstanding option to purchase common stock of D&B which is then
exercisable or which becomes exercisable as a result of the transactions
contemplated by the merger agreement will be cancelled in exchange for
the right to receive, for each such option, a cash payment equal to the
amount by which the $13.50 per share merger consideration exceeds the
per share exercise price of the option, referred to as the "spread,"
without interest, less any applicable withholding taxes.
o Mark A. Levy (acting as the Chairman of the special committee), Peter A.
Edison and Christopher C. Maguire, members of the special committee,
will receive compensation of $75,000, $50,000 and $50,000, respectively,
for serving on the special committee. These amounts are payable
regardless of whether the merger is consummated.
o New D&B will continue the indemnification arrangements and directors'
and officers' liability insurance for D&B's past, present and future
directors and officers following the merger, including members of the
special committee.
See "Interests of Directors and Executive Officers in the Merger."
ACCOUNTING TREATMENT (see p.___)
The merger will be accounted for under the purchase method of accounting.
For a discussion of the accounting treatment for the merger, see "The Merger --
Accounting Treatment."
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (see p. ____)
The receipt of cash in exchange for D&B common stock in the merger will be a
taxable transaction for U.S. federal income tax purposes. For U.S. federal
income tax purposes, D&B's shareholders receiving cash in the merger generally
will realize gain or loss as a result of the merger measured by the difference,
if any, between the $13.50 per share merger consideration and the shareholder's
adjusted tax basis of that share. For additional information regarding material
U.S. federal income tax consequences of the merger to D&B's shareholders, see
"The Merger -- Material U.S. Federal Income Tax Consequences of the Merger to
D&B's Shareholders." D&B URGES YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO YOU THAT MAY RESULT FROM YOUR INDIVIDUAL
CIRCUMSTANCES, AS WELL AS THE FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE
DISPOSITION OF SHARES IN THE MERGER.
APPRAISAL RIGHTS (see p. ____)
Shareholders who object to the merger may elect to pursue their appraisal
rights to receive the statutorily determined "fair value" of their shares, which
could be more or less than the $13.50 per share merger consideration. In order
to qualify for these rights, you must (1) not vote to adopt the merger
agreement, (2) make a written objection to the merger prior to the taking of the
vote on the merger agreement at the special meeting, (3) make a written demand
for appraisal within 20 days of the effectiveness of the merger and (4)
otherwise comply with the Missouri law procedures for exercising appraisal
rights. For a summary of these Missouri law procedures, see "The Merger --
Appraisal Rights." An executed proxy that is not marked "AGAINST" or "ABSTAIN"
will be voted for adoption of the merger agreement and will disqualify the
shareholder submitting that proxy from demanding appraisal rights.
4
FINANCING OF THE MERGER (see p. ____)
D&B Holdings has informed us that it estimates that the total amount of
consideration necessary for D&B Holdings and D&B Acquisition Sub to consummate
the merger and to repay certain D&B outstanding indebtedness and to pay certain
fees, costs and expenses related to the merger is approximately $307.8 million,
and that it expects these funds to come from a combination of a senior secured
notes offering, equity investments and a new credit facility. For additional
information regarding the financing of the merger, see "Special Factors --
Financing of the Merger."
PROVISIONS FOR UNAFFILIATED SHAREHOLDERS (see p. _____)
No provisions have been made in connection with the merger to grant
unaffiliated shareholders access to D&B's corporate files or the corporate files
of D&B Holdings, D&B Acquisition or the continuing shareholders, or to obtain
counsel or appraisal services for unaffiliated shareholders at D&B's expense or
the expense of D&B Holdings, D&B Acquisition or the continuing shareholders.
VOTE OF THE CONTINUING SHAREHOLDERS; VOTING AGREEMENTS (see p. ___)
The continuing shareholders have agreed to vote the shares of D&B common
stock that they beneficially own, which collectively represent approximately 8%
of the common stock outstanding, in favor of the merger. In addition, four large
institutional holders of common stock, which did not tender their shares as part
of the terminated tender offer contemplated by the merger agreement and which
collectively own approximately 13% of the common stock outstanding, have entered
into written arrangements to vote in favor of the merger. See "Interests of
Directors and Executive Officers in the Merger -- Support and Exchange
Agreement." and "Introduction--Institutional Investor Voting Arrangements."
REVOCATION OF PROXIES (see p. __)
You have the unconditional right to revoke your proxy at any time prior to
its use at the special meeting by:
o attending the special meeting, submitting a written revocation of your
proxy and voting in person,
o delivering to D&B prior to the vote at the special meeting a duly
executed proxy with a later date than your original proxy, or
o giving written notice of revocation to D&B addressed to Dave & Buster's,
Inc., 2481 Manana Drive, Dallas, Texas 75220, Attn: Secretary, prior to
the vote at the Special Meeting.
THE MERGER AGREEMENT
CONDITIONS TO THE MERGER (see p. ___)
The obligations of D&B, D&B Holdings and D&B Acquisition to effect the
merger are subject to the satisfaction of, among others, the following
conditions:
o the merger agreement must be adopted by the affirmative vote of the
holders of 66 2/3% of the shares of D&B common stock outstanding on the
record date;
o no temporary restraining order, permanent injunction or other court
order, nor any other legal restraint or prohibition, preventing the
consummation of the merger may be in effect; and
o the parties' respective representations and warranties in the merger
agreement must be true and correct in all respects, except where the
failure would not have a material adverse effect on D&B or such party's
ability to complete the merger.
The obligations of D&B Holdings and D&B Acquisition to effect the merger
will also be conditioned on, in addition to the other conditions to the merger
set forth above, the funding from third-party lenders of at least $155 million
aggregate principal amount of new debt financing and availability of an
additional $30 million line of credit from third party lenders, in each case on
commercially reasonable terms as determined in the good faith judgment of D&B
Holdings, and the satisfaction of each of the conditions set forth in
5
Exhibit A to the merger agreement (disregarding references to the tender offer
contained therein), which include the following:
o no suit, action or proceeding shall be pending by a governmental entity
seeking to restrain or prohibit the merger or which would otherwise have
a "material adverse effect," which means any event, change, effect or
development that, (i) is or is reasonably expected to be materially
adverse to the business, operations, properties, conditions, prospects,
assets or liabilities of D&B or its subsidiaries, taken as a whole, or
(ii) impairs or would reasonably be excepted to impair in any material
respect, the ability of D&B to perform its obligations under the merger
agreement;
o no event, change or development that has had or would reasonably be
expected to have such a material adverse effect, except as may relate to
economic conditions generally, shall have occurred;
o D&B shall have complied in all material respects with its agreements and
covenants under the merger agreement; and
o D&B shall have obtained any required material third party and
governmental consents and approvals, including the approval of the
landlords of certain of D&B's leased properties and of the liquor
control boards in certain of the states in which D&B operates.
For additional information regarding the conditions of each party's
obligation to effect the merger, see "The Merger Agreement -- Conditions to the
Merger."
NO SOLICITATION (see p.___)
The merger agreement prohibits D&B from taking any action to solicit an
acquisition proposal from a third party. D&B is permitted, however, to engage in
discussions with and provide information to any third party in response to an
unsolicited, bona fide acquisition proposal that D&B's board of directors
determines is superior. In the event D&B receives a superior proposal and D&B
Acquisition Sub does not match the proposal within 5 business days, then D&B may
terminate the merger agreement, subject to the payment of a termination fee
equal to $5.68 million, plus the reimbursement of out-of-pocket fees and
expenses. For additional information regarding these "no solicitation"
provisions, see "The Merger Agreement -- No Solicitation" and "-- Effect of
Termination."
TERMINATION OF MERGER AGREEMENT (see p.___)
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after adoption of the merger agreement by
D&B's shareholders:
o by mutual written consent of D&B Holdings and D&B;
o by either D&B Holdings or D&B, if any governmental authority issues an
order or takes any other action, permanently restraining or otherwise
prohibiting the merger;
o if the holders of 66 2/3% of the shares of D&B common stock entitled to
vote at the special meeting fail to vote to adopt the merger agreement
at the special meeting held for such purpose; or
o by either D&B Holdings or D&B, if the effective time of the merger does
not occur on or before October 31, 2002, except that this date may be
extended under certain circumstances.
The merger agreement may also be terminated by D&B, acting alone:
o if D&B Holdings or D&B Acquisition breaches its representations or
warranties or fails to perform in any material respect any of its
respective covenants in the merger agreement and such breach or failure
to perform causes such representations and warranties not to be true,
except where such failure to be true would not have, and would not
reasonably be expected to have, a material adverse effect on the ability
of D&B Holdings and D&B Acquisition to consummate the merger; or
o if the D&B board of directors provides written notice that upon
termination of the merger agreement it is prepared to accept a superior
proposal, subject to its compliance with the requirements for accepting
such a proposal set forth in the merger
6
agreement, including the payment of a termination fee of $5.68 million
and reimbursement of out-of-pocket fees and expenses.
The merger agreement may also be terminated by D&B Holdings, acting alone:
o if D&B's board of directors recommends a superior proposal, fails to
call or hold a special shareholders' meeting to vote on the merger
agreement within certain time periods, or withdraws its recommendation
of the merger;
o if D&B breaches its representations or warranties or breaches or fails
to perform in any material respect any of its covenants in the merger
agreement and such breach (i) would give rise to a failure of a
condition as set forth on Exhibit A to the merger agreement (other than
those relating the abandoned tender offer) or (ii) would cause the
representations and warranties of D&B not to be true and correct in all
respects except where such failure to be true has not had and would not
reasonably be expected to have a material adverse effect on D&B or its
ability to perform its obligations under the merger agreement; or
o if a material adverse effect occurs with respect to D&B and is not cured
within thirty days after the giving of written notice of such
occurrence.
EFFECT OF TERMINATION (see p. ___)
The merger agreement provides that, if the merger agreement is terminated
under specified circumstances, D&B must pay to D&B Holdings a termination fee of
$5.68 million, plus reimbursement of out-of-pocket fees and expenses. One effect
of the termination fee provision is to make it more expensive for any other
potential acquiror of D&B to acquire control of D&B. This might discourage a
potential acquiror from making an offer to acquire D&B. For additional
information regarding the fees payable upon termination and the circumstances
under which such amounts are payable, see "The Merger Agreement -- Effect of
Termination."
7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What is the date, time and place of the special meeting?
A: The special meeting of shareholders of D&B will be held on October __,
2002 at __:00 __.M. (Central Daylight Time), at The Show Room at Dave &
Busters, 10727 Composite Drive, Dallas, Texas, to consider and vote
upon the proposal to adopt the merger agreement.
Q: What is the proposed transaction?
A: D&B Holdings will acquire D&B through the merger of D&B Acquisition, a
direct wholly owned subsidiary of D&B Holdings, with and into D&B, with
new D&B continuing as the surviving corporation and a direct wholly
owned subsidiary of D&B Holdings. D&B Holdings and D&B Acquisition were
organized to effect the merger and related transactions.
Q: What will I be entitled to receive in the merger?
A: If the merger is completed, each of your shares of D&B common stock
will be converted into the right to receive $13.50 in cash, without
interest and less any applicable withholding taxes. You will not have
any interest in new D&B after completion of the merger.
Q: Who will own new D&B after the merger?
A: New D&B will be a privately held company owned by D&B Holdings. Under
separately negotiated arrangements, certain affiliates and related
parties of Investcorp and the continuing shareholders will participate
in the ownership and governance of D&B Holdings following the merger
and will have a number of rights and obligations related to their
interest in D&B Holdings. For a discussion of the rights and
obligations of D&B Holdings and the continuing shareholders, see
"Interests of Directors and Executive Officers in the Merger -- Support
and Exchange Agreement," "-- Stockholder Agreement" and "D&B Holdings
Governance." In addition, the continuing shareholders and certain other
management employees of D&B will receive options to purchase shares of
common stock of D&B Holdings. See "Interests of Directors and Executive
Officers in the Merger -- D&B Holdings Stock Incentive Plan."
Q: What does D&B's board of directors recommend?
A: D&B's board of directors recommends that you vote "FOR" adoption of the
merger agreement. D&B's board of directors has determined, based in
part on the recommendation of a special committee of D&B's board of
directors, that the merger agreement and the merger are advisable, fair
to and in the best interests of D&B and D&B's shareholders, including
D&B's unaffiliated shareholders. To review the background of and
reasons for the merger, see "Special Factors -- Background of the
Merger" and "Special Factors -- Recommendation of the Special Committee
and D&B's Board of Directors; Fairness of the Merger." All members of
D&B's board of directors approved the merger agreement and the merger
and recommended adoption of the merger agreement. In considering the
recommendation of D&B's board of directors, you should be aware that
certain of D&B's directors and executive officers have interests in the
merger that are different from yours. See "Interests of Directors and
Executive Officers in the Merger."
Q: What function did the special committee serve with respect to the
merger and who are its members?
A: The principal functions of the special committee of the board of
directors with respect to the merger were to evaluate the merger and
negotiate the merger agreement. The special committee is composed of
Mark A. Levy, Chairman of the special committee, Christopher C. Maguire
and Peter A. Edison, none of whom is an executive officer or employee
of D&B or an employee or director of D&B Holdings or its affiliates.
The special committee independently selected and retained legal and
financial advisors to assist it in making its recommendation. For more
information regarding the special committee and its evaluation of the
merger and negotiation of the merger agreement, see "Special Factors --
Background of the Merger."
8
Q: What vote is required to adopt the merger agreement?
A: The affirmative vote of the holders of two-thirds of all outstanding
shares of D&B common stock entitled to vote at the special meeting is
required to adopt the merger agreement. Adoption of the merger
agreement does not require the separate vote of D&B's unaffiliated
shareholders, and no separate vote of D&B's unaffiliated shareholders
will be conducted. The continuing shareholders beneficially own
approximately 8% of the D&B common stock outstanding as of the record
date, and have agreed to vote all of such shares in favor of the
adoption of the merger agreement at the special meeting. In addition,
four institutional holders, who did not tender their shares in the
terminated tender offer originally contemplated by the merger
agreement, beneficially owning approximately 13% of the outstanding D&B
common stock, have agreed to vote in favor of the merger. See
"Introduction -- Voting Rights; Vote Required for Approval" and "--
Institutional Investor Voting Arrangements" and "Interests of Directors
and Executive Officers in the Merger -- Support and Exchange
Agreement."
Q: What should I do now? How do I vote?
A: After you read and consider carefully the information contained in this
proxy statement, please fill out, sign and date your proxy card and
mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting.
Failure to return your proxy or vote in person at the meeting will have
the same effect as a vote against the adoption of the merger agreement.
See "Introduction -- Voting and Revocation of Proxies."
Q: What if I oppose the merger? Do I have appraisal rights?
A: If you are a shareholder who objects to the merger, and if you comply
with the procedures required under Missouri law, you may elect to
pursue your appraisal rights to receive the statutorily determined
"fair value" of your shares, which could be more or less than the
$13.50 per share merger consideration. In order to qualify for these
rights, you must (1) not vote in favor of the merger agreement, (2)
make a written objection to the merger prior to or at the taking of the
vote on the merger agreement at the special meeting, (3) make a written
demand for appraisal within 20 days of the effectiveness of the merger
and (4) otherwise comply with the Missouri law procedures for
exercising appraisal rights. For a summary of these Missouri
procedures, see "The Merger -- Appraisal Rights." An executed proxy
that is not marked "AGAINST" or "ABSTAIN" will be voted for adoption of
the merger agreement and will disqualify you from demanding appraisal
rights.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: Yes, but only if you provide instructions to your broker on how to
vote. You should fill out, sign, date and return the proxy card and
otherwise follow the directions provided by your broker regarding how
to instruct your broker to vote your shares. See "Introduction --
Voting and Revocation of Proxies."
Q: Can I change my vote or revoke my proxy after I have mailed my signed
proxy card?
A: Yes, you can change your vote before your proxy is voted at the special
meeting. You can do this in one of three ways. First, you can either
deliver a written notice stating that you would like to revoke your
proxy or a new later-dated proxy card to D&B's corporate secretary on
or before the business day prior to the special meeting. Second, you
can submit a written revocation or a new later-dated proxy card to D&B
at the special meeting prior to the vote being taken. Third, you can
attend the special meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy; you must vote at the
meeting. If you have instructed a broker to vote your shares, you must
follow directions received from your broker to change your vote. See
"Introduction -- Voting and Revocation of Proxies."
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, shortly thereafter you will receive a
letter of transmittal with instructions informing you how to send in
your stock certificates to D&B Holdings' paying agent. You should use
the letter of transmittal to exchange stock certificates for the $13.50
per share merger consideration to which you are entitled as a result of
the merger. You should not send any stock certificates with your proxy
cards. You should follow the procedures described in "The Merger --
Payment of Merger Consideration and Surrender of Stock Certificates."
Q: When do you expect the merger to be completed? Is the merger subject to
the fulfillment of any conditions?
A: D&B is working towards completing the merger as soon as possible. For
the merger to occur, the merger agreement must be adopted by D&B's
shareholders. If D&B's shareholders adopt the merger agreement, D&B
expects to complete the merger as soon as practicable after the special
meeting, subject to the fulfillment of the conditions set forth in the
merger agreement. See "The Merger Agreement -- Conditions to the
Merger."
9
Q: What are the tax consequences of the merger to me?
A: The receipt of cash in exchange for D&B common stock in the merger will
be a taxable transaction for U.S. federal income tax purposes and may
be taxable for state and local income tax purposes. For federal income
tax purposes, you will recognize a gain or loss equal to the
difference, if any, between the per share amount of cash you receive
pursuant to the merger and your adjusted tax basis in that share. D&B
urges you to consult your own tax advisor regarding the specific tax
consequences that may result from your individual circumstances, as
well as the foreign, state and local tax consequences of the
disposition of shares in the merger. To review a summary of the
material tax considerations of the merger, see "The Merger -- Material
U.S. Federal Income Tax Consequences of the Merger to D&B's
Shareholders."
Q: Who can help answer my other questions?
A: If you have more questions about the merger, you should contact: Mellon
Investor Services LLC, 44 Wall Street, 7th Floor, New York, New York
10005, (888) 684-1236.
10
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Information provided herein may contain, and D&B may from time to time
disseminate material and make statements which may contain "forward-looking"
information. The words "expects," "anticipates," "believes" and similar words
generally signify a "forward-looking" statement. The reader is cautioned that
all forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward-looking statements. The
discussion below, together with portions of the discussion elsewhere in this
proxy statement, highlight some of the more important risks identified by
management of D&B but should not be assumed to be the only things that could
affect future financial performance of D&B. Certain risk factors may also be
identified by D&B from time to time in other filings with the Securities and
Exchange Commission, press releases and other communications.
Our results of operations are dependent upon consumer discretionary
spending.
Our results of operations are dependent upon discretionary spending by
consumers, particularly by consumers living in communities in which the
entertainment centers are located. A significant weakening in any of the local
economies in which we operate may cause our customers to curtail discretionary
spending which in turn could materially affect our profitability. Our operations
during fiscal 2001 were adversely affected by a number of factors, including the
overall decline in the U.S. economy and levels of consumer spending.
Additionally, the terrorist attacks that took place in the United States on
September 11, 2001 were unprecedented events that created economic and business
uncertainties, especially for consumer spending. The potential for future
terrorist attacks, national and international responses, and other acts of war
or hostility have created economic and political uncertainties that could
materially adversely affect our business, results of operations and financial
condition in ways we currently cannot predict. In addition, seasonality is a
factor in our results of operations due to typically lower third quarter
revenues in the fall season and higher fourth quarter revenues associated with
the year-end holidays.
We operate a small number of entertainment centers and new entertainment
centers require significant investment.
As of August 4, 2002, we operated 31 entertainment centers. The combination
of the relatively small number of locations and the significant investment
associated with each new entertainment complex may cause our operating results
to fluctuate significantly. Due to this relatively small number of locations,
poor results of operations at any one entertainment complex could materially
affect our profitability. Historically, new entertainment centers experience a
drop in revenues after their first year of operation, and we do not expect that
in subsequent years any increases in comparable revenues will be meaningful.
Additionally, because of the substantial up-front financial requirements to open
new entertainment centers, the investment risk related to any one entertainment
complex is much larger than that associated with most other companies'
restaurant or entertainment venues.
Our results of operations are dependent upon the efforts of our senior
management.
Our future success will depend largely on the efforts and abilities of our
existing senior management, particularly David O. "Dave" Corriveau and James W.
"Buster" Corley, the Co-Chief Executive Officers and founders of our business.
The loss of their services for any reason could materially adversely affect our
business, results of operations and financial condition.
We may not be able to compete favorably in the highly competitive
out-of-home entertainment market.
The out-of-home entertainment market is highly competitive. There are a
great number of businesses that compete directly and indirectly with us. Many of
these entities are larger and have significantly greater financial resources and
a greater number of units than we have. Although we believe most of our
competition comes from localized single attraction facilities that offer a
limited entertainment package, we may encounter increased competition in the
future, which may have an adverse effect on our profitability. In addition, the
legalization of casino gambling in geographic areas near any current or future
entertainment complex would create the possibility for entertainment
alternatives, which could have a material adverse effect on our business.
Our operations are subject to many government regulations that could affect
our operations.
Various federal, state and local laws and permitting and license
requirements affect our business, including alcoholic beverage control,
amusement, health and safety and fire agencies in the state, county or
municipality in which each entertainment complex is located. For example, each
entertainment complex is required to obtain a license to sell alcoholic
beverages on the premises from a state authority and, in certain locations,
county and municipal authorities. The merger will require us to report a change
of control or
11
obtain new liquor licenses in most states in which we operate. The failure to
receive or retain a liquor license, or any other required permit or license, in
a particular location, or to continue to qualify for or renew our licenses in
connection with the merger, could adversely affect our operations and our
ability to obtain such a license or permit in other locations. The failure to
comply with other applicable federal, state or local laws, such as federal and
state minimum wage and overtime pay laws, may also adversely affect our
business. We are also subject to "dram-shop" statutes in the states in which our
entertainment centers are relocated, which generally provide a person injured by
an intoxicated person the right to recover damages from an establishment which
wrongfully served alcoholic beverages to the intoxicated individual. Although we
are covered by liquor liability insurance, a judgment against us under a
dram-shop statute in excess of our liability coverage could have a material
adverse effect on our operations. Additionally, significant numbers of our
hourly personnel are paid at rates related to the federal minimum wage and,
accordingly, legislated increases in the minimum wage will increase labor costs
at our entertainment centers. Other governmental initiatives such as mandated
health insurance, if implemented, could adversely affect us and the industry in
general.
The merger requires the consent of our landlords and certain regulatory
agencies.
The merger will require D&B to obtain the consent of landlords under three
of our entertainment complex leases. In addition, D&B must obtain certain
consents and approvals from certain state and local governmental agencies with
respect to the liquor licenses held by D&B in the states of Michigan, Missouri,
Rhode Island and Texas. If we are unsuccessful in obtaining such consents, D&B
Holdings and/or D&B Acquisition may terminate the merger agreement and forego
the merger.
We may face difficulties in attracting and retaining qualified employees for
our entertainment centers.
The operation of our business requires qualified executives, managers and
skilled employees. From time to time there may be a shortage of skilled labor in
certain communities in which our entertainment centers are located. While we
believe that we will continue to be able to attract, train and retain qualified
employees, shortages of skilled labor will make it increasingly difficult and
expensive to attract, train and retain the services of a satisfactory number of
qualified employees.
Our growth depends upon our ability to open new entertainment centers.
We currently plan to open one entertainment complex in fiscal 2002, and up
to three in fiscal 2003 if we have adequate external financing or internally
generated cash flow. Our ability to achieve this expansion goal depends upon our
access to sufficient capital, locating and obtaining appropriate sites, hiring
and training additional management personnel, and constructing or acquiring, at
reasonable cost, the necessary improvements and equipment for these complexes.
In particular, the capital resources required to develop each new entertainment
complex are significant. Based on our current liquidity and capital resources
and operating performance, we may not be able to generate sufficient cash flow
or obtain sufficient additional funding to open any new units in 2003 or
maintain our historic growth. There is no assurance that we can complete our
planned expansion or that new entertainment centers will perform in a manner
consistent with our most recently opened entertainment centers or make a
positive contribution to our operating performance.
Local conditions, events and natural disasters could adversely affect our
business.
Certain of the regions in which our entertainment centers are located,
including five in California, have been, and may in the future be, subject to
adverse local conditions, events or natural disasters such as earthquakes.
Depending upon its magnitude, an earthquake could severely damage our
entertainment centers, which could adversely affect our business and operations.
We currently maintain earthquake insurance for each of our entertainment
centers. However, there is no assurance that our coverage will be sufficient if
there is a major earthquake. In addition, upon the expiration of our current
policies, we cannot assure you that adequate coverage will be available at
economically justifiable rates, if at all.
12
INTRODUCTION
This proxy statement is furnished in connection with the solicitation of
proxies by D&B's board of directors for a special meeting of shareholders to be
held on October ___, 2002 at __:00 __.M. (Central Daylight Time), at The Show
Room at Dave & Buster's, 10727 Composite Drive, Dallas, Texas, or at any
adjournment or postponement of the special meeting. Shares of D&B common stock
represented by properly executed proxies received by D&B will be voted at the
special meeting or any adjournment or postponement of the special meeting in
accordance with the terms of those proxies, unless revoked.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, you will consider and vote upon a proposal to adopt
the merger agreement entered into by D&B, D&B Holdings and D&B Acquisition,
pursuant to which D&B Acquisition will be merged with and into D&B.
At the effective time of the merger, the separate corporate existence of D&B
Acquisition will cease, and new D&B will be the surviving corporation and will
become a wholly owned subsidiary of D&B Holdings. In the merger:
o each outstanding share of D&B common stock, other than shares held in
treasury by D&B and by D&B Holdings or D&B Acquisition or held by
shareholders who perfect their appraisal rights under Missouri law, will
be converted into the right to receive $13.50 in cash, without interest,
less any applicable withholding taxes;
o each option that has become exercisable prior to or at the effective
time of the merger will be converted into the right to receive a cash
payment equal to the amount by which the $13.50 per share merger
consideration exceeds the per share exercise price of the option,
referred to as the "spread," without interest, less any applicable
withholding taxes; and
o each outstanding share of common stock of D&B Acquisition will be
converted into one share of common stock of new D&B.
Shareholders who perfect their appraisal rights under Missouri law will be
entitled to receive from new D&B a cash payment in the amount of the "fair
value" of their shares, determined in accordance with Missouri law. After the
merger, these shares will not represent any interest in new D&B other than the
right to receive this cash payment. See "The Merger -- Appraisal Rights."
VOTING RIGHTS; VOTE REQUIRED FOR APPROVAL
Only shareholders of record at the close of business on August 23, 2002,
referred to as the "record date," are entitled to notice of and to vote at the
special meeting. On that date, there were approximately 1,864 holders of record
of D&B common stock and 13,283,279 shares of D&B common stock outstanding, of
which 11,739,507 shares were held by shareholders other than the continuing
shareholders and directors of D&B. Each share of D&B common stock entitles the
holder to cast one vote at the special meeting.
Any shareholder entitled to vote may vote either in person or by properly
executed proxy. The presence, in person or by proxy, of the holders of a
majority in voting power of the shares of D&B common stock outstanding on the
record date is necessary to constitute a quorum at the special meeting.
Abstentions and broker non-votes are counted for the purpose of establishing a
quorum at the special meeting.
The merger agreement must be adopted by the holders of at least two-thirds
of the outstanding shares of D&B common stock as of the record date. Abstentions
and broker non-votes will have the effect of a vote "AGAINST" adoption of the
merger agreement. Adoption of the merger agreement does not require the separate
vote of D&B's unaffiliated shareholders, and no separate vote of D&B's
unaffiliated shareholders will be conducted. Votes will be tabulated by D&B's
transfer agent, Mellon Investor Services LLC.
INSTITUTIONAL INVESTOR VOTING ARRANGEMENTS
On July 10 and 11, D&B Acquisition contacted four large institutional
holders of D&B common stock who had not tendered their shares in the tender
offer to explore their interest in voting for the merger if D&B Acquisition
increased the consideration to be paid to D&B shareholders. These institutional
holders own collectively approximately 13% of the outstanding D&B common stock.
On July 11 and 12, 2002, D&B Acquisition advised the special committee that it
had secured the agreement of Rutabaga Capital Management, Courage Capital
Management, LLC, Yale University and three funds advised by Renaissance Capital
Group, Inc. to vote in favor of
13
the merger if the consideration to be paid to D&B shareholders in the merger was
increased to $13.50 per share. The agreements also provided that these
institutional holders would not be obligated to vote in favor of the merger if
D&B terminated the merger agreement to accept a superior proposal or if the
merger agreement otherwise terminated for any reason. D&B Acquisition informed
the special committee that the support for the merger that it received from
these institutional investors was an important factor in D&B Acquisition's offer
to increase the consideration that it was willing to pay to holders of D&B
common stock to $13.50 per share from the $12.00 per share offered in the
expired tender offer.
VOTING AND REVOCATION OF PROXIES
All shares of D&B common stock represented by properly executed proxies
received prior to or at the special meeting and not revoked will be voted in
accordance with the instructions indicated in those proxies. If no instructions
are indicated on a returned proxy, the proxy will be voted "FOR" the proposal to
adopt the merger agreement.
A shareholder giving the proxy may revoke it by:
o delivering to D&B's corporate secretary at D&B's corporate offices at
2481 Manana Drive, Dallas, Texas 75220, on or before the business day
prior to the special meeting, a later-dated, signed proxy card or a
written revocation of the proxy; or
o delivering a later-dated, signed proxy card or a written revocation to
D&B at the special meeting prior to the taking of the vote on the merger
agreement and the merger; or
o attending the special meeting and voting in person; or
o if a shareholder has instructed a broker to vote their shares, following
the directions received from such broker to change those instructions.
Revocation of the proxy will not affect any vote previously taken.
Attendance at the special meeting will not in itself constitute the revocation
of a proxy; shareholders must vote in person at the special meeting to revoke an
existing proxy.
D&B's board of directors is not currently aware of any business to be
brought before the special meeting other than that described in this proxy
statement. However, if other matters are properly presented, the proxy grants to
the persons named as proxies the discretionary authority to vote in accordance
with their judgment with respect to those matters.
SOLICITATION OF PROXIES; EXPENSES OF SOLICITATION
This solicitation is being made by the board of directors of D&B and the
expenses thereof will be borne by D&B. The principal solicitation is being made
by mail; however, additional solicitations may be made by telephone, telegraph,
or personal interview by officers of D&B or employees of Mellon Investor
Services, LLC. D&B has agreed to pay Mellon Investor Services a base fee of
$16,000 plus out of pocket expenses and a fee of $4,500 payable upon the
approval of the merger by the shareholders. In the event that D&B authorizes
Mellon Investor Services to solicit beneficial owners that hold D&B shares in
street name, D&B will pay Mellon Investor Services an additional fee of $5.25
for each holder solicited. D&B also expects to reimburse brokerage houses, banks
and other fiduciaries for reasonable expenses of forwarding proxy materials to
beneficial owners.
COMPARATIVE MARKET PRICE DATA
D&B's common stock began trading on the Nasdaq National Market under the
symbol "DANB" on June 26, 1995. On June 4, 1999, the shares were listed on the
NYSE under the symbol "DAB." The following table sets forth, for the periods
indicated, the high and low closing sale prices per share. Share prices are as
reported on the NYSE based on published financial sources. To date, D&B has
never declared or paid cash dividends on its shares of common stock.
<Table>
<Caption>
HIGH LOW
---- ---
FISCAL YEAR 2002
Third Quarter (through September __, 2002) -- --
Second Quarter 13.25 9.78
First quarter 11.26 7.80
FISCAL YEAR 2001
Fourth quarter 8.65 6.10
Third quarter 8.25 5.45
Second quarter 9.15 7.61
First quarter 10.80 7.75
FISCAL YEAR 2000
Fourth quarter 12.25 7.56
Third quarter 8.88 6.06
Second quarter 7.50 6.00
First quarter 10.50 6.25
</Table>
14
On May 30, 2002, the last full day of trading before the public announcement
of the execution of the merger agreement, the closing price of the shares on the
NYSE was $10.59 per share. On July 12, 2002, the last full day of trading before
the public announcement of the amendment of the merger agreement, the closing
price of the shares on the NYSE was $11.60. On September __, 2002, the most
recent practicable trading day prior to the date of this proxy statement, the
closing price of the shares on the NYSE was $_______ per share. As of that date,
there were _____ holders of record of D&B's common stock and _____ shares issued
and outstanding. You should obtain current market price quotations for the D&B
common stock in connection with voting your shares.
DIVIDENDS
D&B has never declared a dividend on its shares of common stock. Under the
merger agreement, D&B has agreed not to declare or pay any dividends on D&B
common stock prior to the closing of the merger or the earlier termination of
the merger agreement.
D&B SELECTED CONSOLIDATED FINANCIAL INFORMATION
This data and the comparative per share data set forth below are extracted
from, and should be read in conjunction with, the audited consolidated financial
statements and other financial information contained in D&B's Annual Report on
Form 10-K for the fiscal year ended February 3, 2002, including the notes
thereto. More comprehensive financial information (including management's
discussion and analysis of financial condition and results of operation) is
included in such annual report and other documents filed by D&B with the SEC,
and the following summary is qualified in its entirety by reference to such
reports and other documents and all of the financial information and notes
contained therein. Copies of such reports and other documents may be examined at
or obtained from the SEC in the manner set forth above. These documents are
incorporated by reference in this proxy statement. See "Additional Information."
DAVE & BUSTER'S, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<Table>
<Caption>
YEARS ENDED
FEBRUARY 1, 1998 JANUARY 31, 1999 JANUARY 30, 2000 FEBRUARY 4, 2001 FEBRUARY 3, 2002
---------------- ---------------- ---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Statement Data
Revenues $ 128,504 182,284 $ 247,134 $ 332,303 $ 358,009
Income before income taxes(1) 14,311 21,547 15,616 19,254 11,877
Net income 8,897 13,578 5,205 12,245 7,578
Net income per common share(1):
Basic 0.77 1.04 0.76 0.95 0.58
Diluted 0.76 1.03 0.75 0.94 0.58
Balance Sheet Data (at period end):
Working capital 26,408 8,220 8,957 5,126 (4,478)
Total assets 158,989 216,592 268,184 303,875 309,134
Long-term debt obligations 12,000 42,500 91,000 103,860 84,896
Shareholders' equity 133,356 145,502 149,899 162,387 170,146
</Table>
(1) Before cumulative effect of a change in accounting principle.
15
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In October 1999, following a significant decline in D&B's stock price, D&B
engaged a nationally recognized investment banking firm to assist D&B with its
investment banking needs, including assisting D&B in a general strategic review.
A predecessor of this investment banking firm had previously assisted D&B as the
lead co-manager of its initial public offering and of a secondary offering of
D&B's common stock. D&B's senior management requested that the investment
banking firm make a presentation to D&B's board of directors at its regular
quarterly meeting in December 1999 to inform the directors regarding such
matters as the current state of the capital markets, the near-term and long-term
prospects for D&B's common stock and various financing and strategic
alternatives that D&B's board might consider exploring at a future time. The
investment banking firm met with the board of directors at the December 1999
meeting and indicated that such strategic alternatives might include a potential
share repurchase or dividend, a possible combination with one or more strategic
partners or a potential joint venture. However, such firm was not requested to
render any report, opinion or appraisal to D&B's board of directors regarding
any particular transaction or scenario and received no compensation for making
its presentation to D&B's board of directors at the December 1999 meeting.
Following the presentation, the board of directors discussed the
alternatives presented by the investment banking firm, but did not determine to
pursue any of the strategic alternatives proposed by the investment banking
firm, nor did they decide to pursue any of those strategic alternatives
following the meeting. No further services were requested of the investment
banking firm following the December 1999 meeting, and D&B elected to terminate
the engagement of such firm in March 2000.
As part of the December 1999 meeting, Mr. Corriveau advised D&B's board of
directors that, following the steep decline in D&B's stock price, D&B had
received several unsolicited inquiries from financial buyers concerning a
possible acquisition of D&B, and also exploring management's interest in
participating in any such transaction. D&B's board of directors determined,
based on the advice of its outside legal counsel, that it would be appropriate
under the circumstances to appoint a special committee of independent directors
to evaluate and negotiate on behalf of D&B any acquisition proposals that may be
received from one or more prospective buyers. Accordingly, D&B's board of
directors appointed Allen J. Bernstein, Mark A. Levy (as Chairman), Peter A.
Edison and Christopher C. Maguire to serve on the special committee, and
authorized the special committee to retain its own legal counsel and financial
advisors. Later in December 1999, the special committee engaged the law firm of
O'Melveny & Myers LLP as its legal counsel.
During the period from January to September 2000, D&B continued to receive
unsolicited inquiries from various strategic and financial buyers concerning a
possible acquisition or business combination involving D&B. D&B had informal
discussions with each of these prospective buyers to determine their level of
interest, their ability (financially and otherwise) to complete a transaction
and their business plan for D&B. Set forth below is a summary regarding the
entities which appeared to be credible to conduct due diligence on D&B and to
explore financing alternatives for a possible transaction:
o A private investor, not affiliated with D&B but which was an existing
shareholder of D&B, met with Messrs. Corriveau, Corley and/or Henrion on
at least three occasions to discuss a potential acquisition of D&B. Such
investor had extensive experience in the ownership of restaurant and
entertainment businesses. Such investor declined to sign a
confidentiality agreement but conducted limited due diligence based upon
publicly available materials. The private investor and Messrs.
Corriveau, Corley and Henrion discussed alternative financing and
transaction structures, as well as governance issues, incident to a
potential acquisition of D&B, but did not reach any mutual understanding
regarding these matters.
o A New York-based buyout firm, specializing in restaurant company
acquisitions, met with Messrs. Corriveau, Corley and/or Henrion on
approximately six occasions to discuss a potential acquisition of D&B.
This firm signed a confidentiality agreement and conducted limited due
diligence. Messrs. Corriveau and Corley met with prospective debt
financing sources for such buyer on two occasions. The buyout firm and
Messrs. Corriveau, Corley and Henrion discussed alternative financing
and transaction structures, as well as governance issues, incident to a
potential acquisition of D&B, but did not reach any mutual understanding
regarding these matters.
o A publicly held company engaged in restaurant ownership and operation,
headquartered in the southwestern United States, met with Messrs.
Corriveau and Corley on one occasion to discuss a potential acquisition
of D&B. This company and D&B were unable to agree upon the terms of a
confidentiality agreement.
Each of the prospective buyers was advised that in order to formally proceed
with a transaction, it would be required to make a specific proposal to the
special committee. Each party, however, ultimately declined to make an
acquisition proposal to the special
16
committee. Accordingly, there were no negotiations between the special
committee, on behalf of D&B, and any of the prospective buyers, nor did the
special committee engage any financial advisor to provide any services in
respect of these unsolicited inquiries. In September 2000, all discussions with
prospective purchasers had ceased, and D&B's board of directors determined to
disband the special committee.
In November 2000, D&B received an unsolicited inquiry from a prospective
buyer, which expressed interest in exploring a possible acquisition transaction
that would involve D&B's management. This buyer was an entity to be formed by a
New York-based venture investor and principals of a diversified restaurant firm
based in the southwestern United States, each of whom signed confidentiality
agreements with D&B. In December 2000, D&B's board of directors reconstituted
the special committee with the same members (Messrs. Levy (as Chairman),
Bernstein, Edison and Maguire), in anticipation of receiving a formal proposal
from this prospective buyer. Messrs. Corriveau, Corley and/or Henrion, as well
as other members of management, met with this prospective buyer on at least 10
occasions. The prospective buyer conducted due diligence on D&B and explored
financing alternatives for several months. In connection with this prospective
buyer's due diligence, approximately four prospective debt financing sources met
with D&B, and some of these entities also conducted limited due diligence. This
prospective buyer also conducted negotiations with D&B's senior management
regarding the basic terms and structure of a transaction, including the proposed
capital structure of the surviving entity, the respective equity contributions
and ownership interests of the parties, the terms of a stockholders' agreement
and employment and stock incentive arrangements for management. For purposes of
analyzing and structuring a possible transaction, D&B's management and the
prospective buyer used in their discussion the amount of $11.00 per share,
however, the prospective buyer never offered any firm amount and was unable to
arrange financing commitments that would permit it to propose an actual price
range for a prospective transaction or otherwise make a written proposal to the
special committee. These discussions ceased in September 2001, due in part to
the terrorist attacks that occurred on September 11th and the prospective
buyer's perception of the potential impact of such events on D&B's business and
U.S. financial markets generally.
During the November 2000 to October 2001 period, D&B also had informal
discussions with the following two additional entities which appeared to be
credible to conduct due diligence on D&B and to explore financing alternatives
for a possible transaction:
o A New York-based buyout firm met with Messrs. Corriveau, Corley and
Henrion on one occasion to discuss a potential acquisition of D&B. This
firm signed a confidentiality agreement but, to D&B's knowledge, did not
proceed with any due diligence investigation other than from publicly
available sources.
o A publicly held company engaged in restaurant ownership and operation,
headquartered in the southwestern United States, met with Messrs.
Corriveau, Corley and Henrion on one occasion to discuss a potential
acquisition of D&B. This company signed a confidentiality agreement but,
to D&B's knowledge, performed only limited and preliminary financial due
diligence.
In November 2001, D&B received an unsolicited inquiry from another
prospective financial buyer, which expressed interest in exploring a possible
acquisition transaction. In December 2001, D&B entered into a confidentiality
agreement with this prospective buyer. During January and February 2002, this
prospective buyer conducted its preliminary due diligence examination of D&B,
and explored various financing alternatives for a possible transaction. On
February 22, 2002, representatives of the prospective buyer met with the special
committee and its financial advisors and legal counsel, at which meeting the
participants discussed in general terms (excluding price) a possible transaction
in which the prospective buyer would join with certain members of D&B's
management to acquire all of the outstanding shares of D&B. This prospective
buyer also discussed in general terms the proposed capital structure of the
surviving entity, the respective equity contributions and ownership interests of
the parties, the terms of a stockholders' agreement and employment and stock
incentive arrangements for management. After the representatives of the
prospective buyer left the meeting, the members of the special committee
discussed their views of D&B's financial condition and their reaction to the
presentation made by the prospective buyer. The members of the special committee
asked questions of the special committee's legal and financial advisors
regarding the process for evaluating and responding to any proposal that might
be received from the prospective buyer. The special committee's legal counsel
also advised the members of the special committee of their fiduciary duties in
evaluating and responding to any proposals concerning a possible acquisition of
D&B. Shortly after this meeting, the prospective buyer indicated to Mr. Levy,
Chairman of the special committee, that the prospective buyer would be
interested in making a formal proposal to the special committee after completing
some additional financial due diligence regarding D&B, and conditioned upon
(among other things) D&B agreeing to negotiate exclusively with the buyer for a
designated period of time and to reimburse certain of the buyer's expenses
relating to a possible transaction. In anticipation of receiving a proposal from
this prospective buyer, the special committee retained Houlihan Lokey to render
advice regarding the value of D&B and, if requested, to render an opinion to the
special committee and D&B's board of directors as to the fairness of any such
proposal to the shareholders of D&B from a financial point of view.
17
Between February 22 and March 7, 2002, Mr. Levy and the special committee's
legal counsel had numerous discussions with the prospective buyer and its legal
counsel concerning the conditions under which the prospective buyer would be
willing to submit a formal proposal to the special committee. During this
period, Mr. Levy provided the other members of the special committee with
frequent updates on the status of these discussions and the prospects for
receiving a formal acquisition proposal from the prospective buyer. On March 8,
2002, the prospective buyer submitted a proposal to the special committee (the
"March Proposal") to acquire all of the outstanding shares of D&B for an
aggregate purchase price in the range of $224 million to $231 million (or
between approximately $10.00 and $10.50 per share) on a debt-free, cash-free
basis. The proposed transaction would be structured as a tender offer, to be
followed (if necessary) by a merger of D&B with the buyer, and would provide an
opportunity for certain members of D&B's senior management to participate by
exchanging their equity in D&B for up to approximately 40% of the equity in a
new entity to be formed by the buyer to consummate the transaction. The proposal
was accompanied by the buyer's proposed form of merger agreement, which included
(among other provisions) a financing condition and a provision for a termination
fee in the event that D&B was to terminate the agreement to accept another
proposal. The proposal was also accompanied by a commitment letter to evidence
the buyer's ability to obtain debt financing to fund a portion of the offer.
Finally, to induce the prospective buyer to enter into negotiations for a
definitive agreement and to continue its due diligence investigation, the
prospective buyer sought an agreement from D&B to (among other things) maintain
the confidentiality of the proposal, negotiate exclusively with the buyer for a
designated period of time, and reimburse certain of the buyer's expenses
relating to a possible transaction.
On March 12, 2002, the special committee met with its financial advisors and
legal counsel for the purpose of evaluating the March Proposal. At this meeting,
Houlihan Lokey provided its preliminary assessment of the value of D&B and the
March Proposal and discussed with the special committee whether the March
Proposal was sufficient to pursue further at this time. Houlihan Lokey also
described the methodologies used by it in making its preliminary assessments of
the values of D&B and the March Proposal and the methodologies it would use in
determining whether the March Proposal was fair to D&B and its unaffiliated
shareholders from a financial point of view. In this regard, Houlihan Lokey
described (i) a discounted cash flow analysis, (ii) an analysis of historic
trading prices, volume and other publicly available data regarding D&B and other
companies that Houlihan Lokey deemed comparable to D&B and (iii) an analysis of
comparable transactions and control premiums, and explained to the special
committee how each methodology provided an indication of D&B's value. Houlihan
Lokey informed the special committee that initial indications of value resulting
from Houlihan Lokey's utilization of the foregoing methodologies yielded a
preliminary assessment of the value of D&B that was higher than the March
Proposal. Houlihan Lokey advised the special committee that, in its view, the
March Proposal may be worth further discussions and negotiations with the
prospective buyer, but that, based on its preliminary assessment of D&B's value
and the proposal's value, Houlihan Lokey would not be able to render a fairness
opinion in respect of the March Proposal should it be requested to do so. After
discussion among the members of the special committee and with its financial and
legal advisors, the special committee determined that the price range reflected
in the March Proposal was inadequate, and that the terms and conditions of the
proposal generally were not in the best interests of D&B's shareholders.
Accordingly, the special committee unanimously voted to reject the March
Proposal. Mr. Levy communicated the special committee's decision to a
representative of the prospective buyer following the meeting and indicated that
the special committee would be willing to consider a revised proposal at a
higher price should the prospective buyer wish to submit one. In the weeks
following the March 12 meeting, representatives of the special committee and D&B
had informal discussions with the prospective buyer about possible alternative
transactions or investments in D&B. However, these discussions terminated as of
late March 2002, without a revised acquisition or investment proposal being
formally submitted by the prospective buyer.
In late March 2002, representatives of Investcorp met with Messrs.
Corriveau, Corley, Henrion and Hammett to discuss various alternative
transactions involving D&B. Representatives of Investcorp had initially
contacted D&B in February 2002, but due to ongoing discussions with other
potentially interested purchasers, D&B indicated that it was not interested in
pursuing a transaction with Investcorp at that time. On March 26, 2002, D&B and
Investcorp entered into a confidentiality agreement. Commencing in early April
2002, Investcorp conducted its due diligence review of D&B to determine whether
Investcorp would proceed with further discussions toward a possible
going-private transaction and if so, to determine possible transaction
structures.
On April 25, 2002, Mr. Bernstein resigned from the special committee, citing
the need to devote more of his time and attention to the sale of Morton's
Restaurant Group, Inc., of which he is currently the Chairman and Chief
Executive Officer.
18
On May 1, 2002, representatives of Investcorp met with Mr. Levy and Mr.
Maguire and delivered a letter expressing interest in pursuing a transaction in
the range of $11.00 to $12.00 per share in cash, subject to (among other
conditions) completion of further due diligence on D&B and obtaining financing
commitments for such a transaction. From May 6, 2002 until May 23, 2002,
Investcorp, together with its legal and financial advisors, continued its
diligence review of D&B's business and operations. Representatives of Investcorp
also continued to meet during this time period with members of D&B senior
management to discuss the terms of the Support and Exchange Agreement and the
related stockholders' agreement and description of stock incentive plans to be
attached to the Support and Exchange Agreement. In particular, Messrs.
Corriveau, Corley and Henrion wanted to ensure that, if the acquisition of D&B
were consummated, Investcorp was prepared to provide them with the protections
customarily afforded minority shareholders in a privately held company, such as
representation on the board of directors, preemptive rights to maintain their
percentage ownership and liquidity for the shares under certain circumstances
such as termination of employment.
On May 23, 2002, Investcorp's legal advisors delivered a proposed form of
merger agreement and a proposed form of Support and Exchange Agreement to D&B's
counsel and to counsel to the special committee. The proposed merger agreement
called for a tender offer for the outstanding shares of D&B common stock, which
if successful would be followed by the merger of D&B and D&B Acquisition. On May
24, 2002, representatives of Investcorp held a telephone conference with members
of the special committee, and orally indicated a proposed purchase price of
$11.50 per share for the outstanding shares of D&B common stock. The Investcorp
representatives confirmed that the tender offer would not be subject to a
financing contingency, and that they expected to secure financing commitments
prior to signing the merger agreement.
During the period from May 24 through May 30, 2002, O'Melveny & Myers LLP,
as counsel for the special committee, and Hallett & Perrin, P.C., as counsel for
D&B, negotiated the terms of the merger agreement and related documents with
Gibson Dunn & Crutcher LLP, as counsel for Investcorp. The negotiations included
discussion of the scope of D&B's representations and warranties, the disclosure
schedules qualifying those representations and warranties and the conditions
precedent to D&B Holdings' obligations to consummate the tender offer. Counsel
for the special committee also discussed and confirmed the need for Investcorp
to set the minimum tender condition in the tender offer at no less than 80% of
the outstanding common stock of D&B in order for D&B Holdings to qualify to
elect to treat the acquisition of the stock of D&B as an acquisition of the
assets of D&B for United States tax purposes. During this period, Mr. Levy
frequently apprised the other members of the special committee of the status of
these negotiations.
On May 28, 2002, Mr. Levy contacted Investcorp and indicated that, based in
part on preliminary advice from the special committee's financial advisor, the
proposed price of $11.50 per share of D&B common stock was inadequate for the
special committee to recommend the transaction to D&B's board of directors. Mr.
Levy also objected to Investcorp's proposal of a 3.5% termination fee in the
event D&B opted to terminate the merger agreement to accept a superior proposal.
Later in the day on May 28, Investcorp contacted Mr. Levy and indicated that it
would increase its proposal to $11.75 per share. On May 29, 2002, Mr. Levy and
Mr. Maguire each contacted Investcorp to indicate that the $11.75 price was
still inadequate, and that the 3.5% termination fee was also unacceptable. Later
on May 29, Investcorp notified Mr. Levy that it would increase the tender offer
price to $12.00 per share, and reduce the termination fee to 3.0% of the equity
value of the proposed transaction.
On May 30, 2002, the special committee met with its financial and legal
advisors to consider the proposed transaction, the merger agreement and the
related agreements. Mr. Levy and the special committee's legal counsel reviewed
the history of the negotiations with Investcorp, and counsel summarized for the
special committee the principal terms of the merger agreement and related
agreements. Counsel also summarized the terms of the Support and Exchange
Agreement, the Stockholder Agreement and other material agreements in which
certain of D&B's directors and executive officers had a personal interest.
Houlihan Lokey provided the special committee with a financial analysis of the
proposed transaction. Houlihan Lokey summarized the history of the different
proposals that had come before the special committee and explained the different
valuation methodologies employed by them, including a market trading analysis, a
market multiple analysis, a comparable transaction analysis and a discounted
cash flow analysis, in reaching their opinion. Houlihan Lokey then rendered its
verbal opinion (subsequently confirmed in writing) to the special committee to
the effect that, as of the date of such opinion, and on the basis of its
analysis and subject to the qualifications, assumptions and limitations set
forth in its opinion, the consideration per share to be received by the public
shareholders of D&B in the tender offer and the merger was fair to them from a
financial point of view. The special committee also discussed with its advisors
the conditions to the tender offer and the financing commitment letters
delivered by D&B Holdings and D&B Acquisition. Following discussion among the
members of the special committee, and based in part on the opinion of Houlihan
Lokey, the special committee unanimously (i) determined that the tender offer,
the merger and the merger agreement are fair from a financial point of view to,
and in the best interests of, the unaffiliated shareholders of D&B, (ii)
approved the tender offer, the merger and the merger agreement and (iii)
recommended that the shareholders of D&B accept the tender offer and tender
their shares pursuant thereto.
19
D&B's board of directors met after the meeting of the special committee on
May 30, 2002. At D&B's board of directors meeting, the special committee
recommended that D&B's board of directors authorize and approve the merger
agreement and the transactions contemplated thereby, including the tender offer
and the merger. Following discussion with the special committee members and
their financial and legal advisors, D&B's board of directors accepted the
special committee's recommendations and unanimously (i) determined that the
tender offer, the merger and the merger agreement are fair from a financial
point of view to, and in the best interests of, the shareholders of D&B,
including the unaffiliated shareholders, (ii) approved the tender offer, the
merger and the merger agreement and (iii) recommended that the shareholders of
D&B accept the tender offer and tender their shares pursuant thereto.
On May 30, 2002, after the approval of D&B's board of directors, the parties
signed the merger agreement. A joint press release announcing the signing of the
merger agreement was issued on May 30, 2002.
The tender offer was launched on June 4, 2002, and had an initial expiration
date of 5:00 P.M., New York City time, on July 2, 2002. Prior to the
commencement of trading on July 3, 2002, D&B Acquisition announced that it was
extending the tender offer to 5:00 P.M., New York City time, on July 9, 2002,
and that approximately 5.9 million shares (representing approximately 44% of the
outstanding common stock) had been tendered as of the initial expiration of the
tender offer.
On July 9, 2002, D&B Acquisition advised D&B that approximately 6.2 million
shares (representing approximately 46% of the outstanding common stock) had been
tendered as of the expiration of the extended tender offer and that D&B
Acquisition was not further extending the tender offer. On July 10, 2002, D&B
announced that the tender offer had expired and that it was considering its
options under the merger agreement. Because fewer than 66 2/3% of the
outstanding shares of common stock had been validly tendered, each of D&B
Acquisition, D&B Holdings and D&B was then entitled to terminate the merger
agreement. D&B Acquisition requested that the special committee not recommend
the termination of the merger agreement for four business days to give D&B
Acquisition sufficient time to consider and explore an increase in the price
that would be paid to D&B shareholders through a single step merger and its
options with respect to the senior notes offering that it had conducted to fund
in part the cost of the transactions contemplated by the merger agreement. D&B
Acquisition informed the special committee that the senior notes offering was
scheduled to close into escrow on July 15, 2002.
On July 10 and 11, D&B Acquisition contacted four large institutional
holders of D&B common stock who had not tendered their shares in the tender
offer to explore their interest in voting for the merger if D&B Acquisition
increased the consideration to be paid to D&B shareholders. These institutional
holders own collectively approximately 13% of the outstanding D&B common stock.
On July 11 and July 12, 2002, D&B Acquisition advised the special committee that
it had secured the agreement of Rutabaga Capital Management, Courage Capital
Management, LLC, Yale University and three funds advised by Renaissance Capital
Group, Inc. to vote in favor of the merger if the consideration to be paid to
D&B shareholders in the merger was increased to $13.50 per share. The agreements
also provided that these institutional holders would not be obligated to vote in
favor of the merger if D&B terminated the merger agreement to accept a superior
proposal or if the merger agreement otherwise terminated for any reason. D&B
Acquisition informed the special committee that the support for the merger that
it received from these institutional investors was an important factor in D&B
Acquisition's offer to increase the consideration that it was willing to pay to
holders of D&B common stock to $13.50 per share from the $12.00 per share
offered in the expired tender offer.
D&B Acquisition also informed the special committee that it had priced the
senior note offering in the aggregate principal amount of $155 million, the
proceeds of which were to be used to fund a portion of the cost of the merger.
The offering was subject to customary closing conditions and D&B Acquisition had
until July 12, 2002 to decide to proceed with the closing which was scheduled to
occur on July 15, 2002. The terms of the senior notes provided that the proceeds
from the offering would be deposited into escrow pending the closing of the
merger and that in the event the merger did not occur, there would be a special
redemption of the senior notes by D&B Acquisition by returning the proceeds
raised together with accrued interest and a 1% premium. D&B Acquisition
estimated that the costs, including interest, premium, fees and other expenses,
associated with the special redemption of the senior notes would be
approximately $6 million and proposed to the special committee that D&B
Acquisition would close the senior secured notes offering and eliminate any
financing condition in connection with the merger if D&B agreed to pay one-half
of such costs in the event the merger was not completed.
D&B Acquisition thereafter furnished the special committee with a proposed
amendment to the merger agreement reflecting an increase in the per share
consideration to $13.50 from the previous $12.00 and reflecting a sharing of the
costs of any special redemption of the senior notes.
20
On July 11, the members of the special committee received an update from
D&B's chief financial officer on the financial condition of D&B and its results
of operations for the periods following May 5, 2002, which was the end of D&B's
first fiscal quarter and the most recent date as of which financial information
had been made publicly available. The update from the chief financial officer
included a discussion of D&B's liquidity and capital resources and D&B's
operating performance relative to its financial plan. The chief financial
officer's update indicated that, while D&B's operating performance was
consistent with its prevailing analyst estimates, D&B would be unable to
generate sufficient cash flow or obtain sufficient additional financing to open
new units so that D&B could maintain its historic growth rates. The special
committee discussed with its financial and legal advisors the special
committee's view that D&B's prospects for increasing shareholder value through
internal growth were likely to be significantly limited by D&B's inability to
obtain the funding required to open such new units, and as a result, the $13.50
per share proposed under the merger agreement represented a greater value to the
shareholders then was likely to be generated by D&B pursuing such growth in the
foreseeable future. On July 11 and 12, members of the special committee also
contacted the institutional holders who had indicated that they would vote in
favor of the merger to further understand their support for the merger as so
revised. On July 12, the special committee informed D&B Acquisition that they
would not support D&B Acquisition's proposal to have D&B share the cost of the
special redemption of the notes in the event the merger was not completed. The
special committee also informed D&B Acquisition that, in any press release
announcing an amendment to the merger agreement, it would require a brief
summary of the provisions of the merger agreement regarding the procedures
whereby bona fide third party superior proposals could be considered by the
special committee, together with contact information for the chairman of the
special committee. Thereafter, D&B Acquisition withdrew its proposal with
respect to sharing the costs of the special redemption of the senior notes,
terminated the senior note offering and consented to the special committee's
request with respect to the press release.
On the afternoon of July 12, 2002, the special committee met with its
financial and legal advisors to consider the merger, the merger agreement and
the related agreements, as each were proposed to be amended. Mr. Levy and the
special committee's legal counsel reviewed the recent negotiations with
Investcorp, and counsel summarized for the special committee the principal terms
of the merger agreement and related agreements, as proposed to be amended,
including those in which certain of D&B's directors and executive officers had a
personal interest. Houlihan Lokey provided the special committee with a verbal
update to its financial analysis of the proposed merger and rendered its verbal
opinion (subsequently confirmed in writing) to the special committee to the
effect that, as of the date of such opinion, and on the basis of its analysis
and subject to the qualifications, assumptions and limitations set forth in its
opinion, the consideration per share to be received by the unaffiliated
shareholders of D&B in the merger was fair to them from a financial point of
view. The special committee also discussed with its advisors the conditions to
the merger. Following discussion among the members of the special committee, and
based in part on the opinion of Houlihan Lokey, the special committee
unanimously (i) determined that the merger and the merger agreement, as amended,
are fair from a financial point of view to, and in the best interests of, the
unaffiliated shareholders of D&B, (ii) approved the merger and the merger
agreement, as amended, and (iii) recommended that the shareholders of D&B
approve and adopt the merger and merger agreement, as amended. Later on July 12,
the special committee approved the merger agreement, as amended, and advised the
entire board of directors of its recommendation. After the close of the market
on Friday, July 12, the board of directors approved the merger agreement, as
amended.
D&B publicly announced the approval of the amended merger agreement prior to
the opening of the market on Monday, July 15, 2002.
FAIRNESS OPINION OF HOULIHAN LOKEY
The special committee retained Houlihan Lokey as financial advisor in
connection with the proposed tender offer by Investcorp and to render an opinion
as to whether the $12.00 per share consideration to be received by shareholders
in the tender offer and the merger, as contemplated in the merger agreement
prior to the July 12 amendment, was fair to such holders from a financial point
of view. Subsequently, the special committee asked Houlihan Lokey to update its
fairness opinion to reflect the changes to the proposed transaction contemplated
by the amendment to the merger agreement entered into on July 12, 2002. The
fairness opinion was prepared to assist the special committee in evaluating the
terms of the merger. The special committee retained Houlihan Lokey based upon
Houlihan Lokey's experience in the valuation of businesses and their securities
in connection with recapitalizations and similar transactions. Houlihan Lokey is
a nationally recognized investment banking firm that is continually engaged in
providing financial advisory services and rendering fairness opinions in
connection with mergers and acquisitions, leveraged buyouts, business and
securities valuations for a variety of regulatory and planning purposes,
recapitalizations, financial restructurings and private placements of debt and
equity securities. Previously, in March 2002, the special committee had retained
Houlihan Lokey to advise them with respect to D&B's value.
Houlihan Lokey initially presented its analysis as described below at a
meeting of the special committee on May 30, 2002, in connection with the special
committee's consideration of D&B Acquisition's original proposal of $12.00 per
share. At the May 30
21
meeting, Houlihan Lokey rendered to the special committee its oral opinion
(subsequently confirmed in writing) that, as of such date, and subject to the
matters described in the fairness opinion, the price per share of $12.00 to be
received by the unaffiliated shareholders under the original proposal was fair
to such shareholders from a financial point of view. At the July 12, 2002,
meeting of the special committee, Houlihan Lokey presented an update to its
previous analysis as described below and rendered to the special committee its
oral opinion (subsequently confirmed in writing) that, as of such date, and
based on and subject to the matters described in the fairness opinion, the price
per share of $13.50 to be received by the unaffiliated shareholders in the
merger was fair to such shareholders from a financial point of view. The summary
of the fairness opinion set forth below is qualified in its entirety by
reference to the full text of the fairness opinion, which is attached to
Appendix B to this proxy statement. You are urged to read the fairness opinion
in its entirety. A copy of this fairness opinion will be made available for
inspection and copying at the principal executive offices of D&B during regular
business hours by any interested shareholder or other person designated in
writing as a representative of such shareholder.
D&B has agreed to pay Houlihan Lokey a fee of $420,000 to $480,000 for its
services, plus reasonable out-of-pocket expenses. The actual amount of Houlihan
Lokey's fee within the range of $420,000 to $480,000 will be determined based
upon the amount of time expended by Houlihan Lokey in advising the special
committee and in assisting D&B in the preparation of public disclosure materials
relating to D&B's acquisition transaction. No portion of Houlihan Lokey's fee is
contingent upon the conclusions reached in the Houlihan Lokey opinion. Of this
amount, $200,000 has been paid to date, and the remainder is to be paid on
consummation of the merger. If the merger is not consummated, the fee payable to
Houlihan Lokey shall not exceed $250,000 plus its reasonable out-of-pocket
expenses. D&B has also agreed to reimburse Houlihan Lokey for reasonable legal
fees not to exceed $15,000. D&B has agreed to indemnify and hold harmless
Houlihan Lokey or any employee, agent, officer, director, attorney, shareholders
or any person who controls Houlihan Lokey, against and from all losses arising
out of or in connection with its engagement by the special committee.
In arriving at its fairness opinion, among other things, Houlihan Lokey did
the following:
o reviewed D&B's annual reports to shareholders on Form 10-K for the three
fiscal years ended on or about January 31, 2002, the quarterly report on
Form 10-Q for the quarter ended May 5, 2002, company-prepared internal
financial statements for the five fiscal years ended on or about January
31, 2002, and company-prepared interim financial statements for the
three month period ended May 5, 2002;
o held discussions with the special committee concerning an update
provided by D&B's chief financial officer to the special committee as to
D&B's financial condition and results of operations for periods
subsequent to May 5, 2002, including a report on D&B's operating
performance relative to its financial plan and D&B's future prospects;
o reviewed copies of the merger agreement, as amended;
o met with and held discussions with certain members of the senior
management of D&B to discuss the operations, financial condition, future
prospects and projected operations and performance of D&B, and met with
and held discussions with D&B and its counsel regarding the transaction
and related matters;
o visited certain facilities and business offices of D&B;
o reviewed forecasts and projections prepared by D&B's management with
respect to D&B for the years ending on or about January 31, 2003 through
2012;
o reviewed the historical market prices and trading volume for D&B's
publicly traded securities;
o reviewed certain other publicly available financial data for certain
companies that Houlihan Lokey deemed comparable to D&B, and publicly
available prices and premiums paid in other transactions that Houlihan
Lokey considered similar to the transaction;
o reviewed various documents related to the transaction including
financing commitments for the tender offer and a form of guarantee from
Investcorp; and
o conducted such other studies, analyses and inquiries as Houlihan Lokey
deemed appropriate.
22
Houlihan Lokey had used several methodologies to assess the fairness of the
consideration to be received by D&B shareholders in connection with the tender
offer, and reviewed and confirmed the appropriateness of such methodologies to
assess the fairness of the consideration to be received by the unaffiliated
holders of D&B common stock in connection with the merger. The following is a
summary of the material financial analyses used by Houlihan Lokey in connection
with providing its opinion in connection with the tender offer and its
confirmation of such opinion in connection with the merger. This summary is
qualified in its entirety by reference to the full text of such opinion, which
is attached as Appendix B to this proxy statement. Houlihan Lokey utilized each
of the following analyses based upon its view that each is reflective of
generally accepted valuation methodologies and appropriate given D&B's trading
volume relative to total shares outstanding, the accessibility of comparable
publicly traded companies, the availability of forecasts from management of D&B,
and available information regarding similar transactions in the restaurant
industry. Each analysis provides an indication of D&B's per share equity value
in order to assess the fairness of the consideration to be received by the
unaffiliated holders of D&B's common stock in connection with the merger. No one
methodology was considered to be more appropriate than any other methodology,
and therefore Houlihan Lokey utilized all of the aforementioned methodologies in
arriving at its conclusions.
Houlihan Lokey's analyses included the calculation and comparison of the
following: (i) an analysis of D&B's stock price as determined by the public
market; (ii) an analysis of D&B's stock price as determined by Houlihan Lokey;
and (iii) an analysis of the proposed transaction pricing compared to other,
similar transactions.
Houlihan Lokey performed the following analyses in order to determine the
current value of D&B's shares:
Public Market Pricing. Houlihan Lokey reviewed the historical market prices
and trading volume for D&B publicly held common stock prior to the announcement
of the original $12.00 per share proposal from D&B Acquisition, and reviewed
publicly-available analyst reports, news articles, and press releases relating
to D&B. Houlihan Lokey analyzed D&B's closing stock price as of May 24, 2002,
which was within five trading days prior to the announcement of the original
$12.00 per share offer from D&B Acquisition. In addition, Houlihan Lokey
reviewed D&B's closing stock price on a 30-day, 60-day, 90-day, 180-day,
360-day, and 720-day average basis as of May 24, 2002. The resulting per share
indications, as reviewed by Houlihan Lokey, ranged from $8.45 to $10.31.
Houlihan Lokey did not update this analysis for purposes of rendering its
July 12 opinion, in view of the fact that the public market pricing following
May 30, 2002 was impacted by the tender offer.
Market Multiple Methodology. Houlihan Lokey reviewed certain financial
information of publicly traded comparable restaurant, amusement, and gaming
companies selected solely by Houlihan Lokey. The comparable restaurant companies
included: CEC Entertainment, Inc., Total Entertainment Inc., Champps
Entertainment, Inc., Outback Steakhouse, Inc., P.F. Chang's China Bistro, Inc.,
Lone Star Steakhouse & Saloon, Inc., Landry's Restaurants, Inc., California
Pizza Kitchen, Inc., and Brinker International, Inc. The comparable amusement
and gaming (collectively "entertainment") companies included: Cedar Fair, L.P.,
Six Flags, Inc., Isle of Capri Casinos, Inc., Bowl America, Inc., Station
Casinos, Inc., Ameristar Casinos, Inc., MRT Gaming Group, Inc., and Aztar Corp.
Houlihan Lokey calculated certain financial ratios of the comparable restaurant
and entertainment companies based on the most recent publicly available
information. Houlihan Lokey calculated certain financial ratios for the
comparable restaurant and entertainment companies, including, the multiples of:
(i) enterprise value ("EV", the equity value of D&B plus all interest-bearing
debt) to latest twelve months ("LTM") revenues, (ii) EV to both LTM and
projected next fiscal year ("NFY") earnings before interest, taxes, depreciation
and amortization ("EBITDA"), (iii) EV to LTM and NFY free cash flow (which is
defined as EBITDA less capital expenditures) (iv) EV to LTM earnings before
interest and taxes ("EBIT"), and (iv) EV to total assets.
The analysis showed that the multiples exhibited by the comparable restaurant
and entertainment companies as of approximately May 24, 2002 was as follows:
<Table>
<Caption>
EV/FREE EV/FREE
CASH CASH
EV/EBITDA EV/EBITDA FLOW FLOW EV/EBIT EV/REVENUE
(LTM) (NFY) (LTM) (NFY) (LTM) (LTM)
Entertainment Companies
Low 6.32 4.79 9.43 8.79 9.98 0.65
High 12.26 10.27 44.53 32.37 26.26 4.35
Mean 8.32 7.37 16.21 13.8 14.74 0.72
Median 9.09 7.78 19.20 16.73 15.61 2.26
Restaurant Companies
Low 5.40 4.58 5.67 4.78 8.79 0.72
High 14.91 10.71 44.29 36.6 31.15 2.85
Mean 10.24 8.48 31.85 25.75 16.44 1.40
Median 10.42 8.39 28.42 25.71 16.91 1.60
</Table>
23
Because of the interruption to the business of D&B (and the restaurant and
entertainment industry in general) caused by the events of September 11, 2001,
Houlihan Lokey determined that management's forecasted results, as opposed to
the LTM results, most accurately represented the income and cash flow generating
capabilities of D&B. As such, Houlihan Lokey derived indications of the EV of
D&B by applying selected EBITDA, Free Cash Flow and EBIT multiples to certain
adjusted operating results for the next fiscal year ended approximately January
31, 2003. Houlihan Lokey also considered that the multiples exhibited by the
comparable companies reflect marketable minority ownership, but not prices for
change of control transactions. Accordingly, Houlihan Lokey applied a 20%
premium to the resulting equity indication to arrive at a controlling EV for
D&B. Based on the above market multiple analyses, the resulting indications of
the EV of the operations of D&B ranged from approximately $198.0 million to
$246.0 million. To arrive at an indicated per share value, certain adjustments
were made, including adding D&B's current holdings of cash and cash equivalents
and subtracting debt obligations, as well as considering the impact from the
exercise of "in-the-money" options as applicable for each valuation indication.
The resulting indicated range of value from the Market Multiple Methodology was
$8.23 to $11.49 per share.
Houlihan Lokey updated the multiples exhibited by the comparable restaurant
and entertainment companies as of July 12, 2002 and found that the mean, median,
low and high multiples of EV/LTM EBITDA, EV/NFY EBITDA, EV/LTM Free Cash Flow,
EV/NFY Free Cash Flow, EV/LTM EBIT, and EV/Revenue for both restaurant and
entertainment companies were lower on July 12, 2002. The multiples exhibited by
the restaurant companies reflected average declines of 10% to 16%, and median
declines of 11% to 20%, depending upon the specific multiple. The multiples
exhibited by the entertainment companies reflected average declines of 5% to 6%,
and median declines of 4% to 7%, depending upon the specific multiple. This
decline in multiples is reflective of the decline in the market values of both
the comparable restaurant and entertainment companies. From approximately May
24, 2002 to July 12, 2002, the comparable restaurant companies' average market
value declined by approximately 13% and the comparable entertainment average
market value declined by of approximately 11%.
Houlihan Lokey considered that D&B's management informed the special
committee that D&B's financial performance for May and June 2002 reflected no
material change from that which management had previously projected and
presented to the special committee and Houlihan Lokey, and that there was also
no change in management's outlook with respect to future performance.
Furthermore, as set forth above, Houlihan Lokey determined that forecasted
results, as opposed to LTM results, most accurately represented the income and
cash flow generating capabilities of D&B, and based upon discussion with the
special committee, understood that D&B's forecasted results had not changed. As
such, given no material change in D&B's financial performance or future outlook,
the declines in market value, and the corresponding declines in the multiples
exhibited by the comparable public companies from the period of May 24, 2002 to
July 12, 2002, Houlihan Lokey concluded that the indications of value resulting
from applying the Market Multiple Methodology as of July 12, 2002 would be lower
than the results set forth above.
Discounted Cash Flow Methodology. Houlihan Lokey utilized certain financial
projections prepared by D&B's management with respect to fiscal years 2003
through 2012. Such projections reflect four new stores opening each year.
However, given D&B's inability to generate sufficient capital to open four new
stores per year, Houlihan Lokey also sensitized the projections prepared by
management to reflect a scenario of one new store per year, or a level of new
store growth that could be funded from operations. Using both the four new store
forecasts and the sensitized one new store forecasts, Houlihan Lokey determined
D&B's EV by first deriving adjusted free cash flow (by adjusting for capital
expenditures as well as working capital requirements and any taxes) and
discounting free cash flow to the present. Houlihan Lokey applied risk-adjusted
discount rates ranging from 11.5% to 13.5% to the projected adjusted free cash
flow. To determine the value of D&B at the end of the projection period,
Houlihan Lokey considered the projected EBITDA in the last year of the
projection period and applied multiples in the range of 4.5x to 5.5x. This
terminal value was then discounted to the present at the same discount rate
range of 11.5% to 13.5%. Houlihan Lokey's selection of the discount rate was
based upon the weighted average cost of capital evidenced by certain similar
public companies, including CEC Entertainment Inc., Total Entertainment
Restaurant Corp., Champps Entertainment Inc., Outback Steakhouse Inc., PF Changs
China Bistro Inc., Lone Star Steakhouse & Saloon, Landry's Restaurants Inc.,
California Pizza Kitchen Inc., and Brinker International Inc., as well as D&B's
actual cost of capital. Similarly, Houlihan Lokey's selection of the EBITDA
multiple to apply to the projected EBITDA in the last year of the projection
period was based on the EBITDA multiples exhibited by similar publicly traded
companies and the relative performance of D&B compared to such similar public
companies. Based on the financial projections and this analysis, Houlihan Lokey
calculated indications of the range of EV between $209.0 million and $248.0
million. To arrive at an indicated per share value, certain adjustments were
made, including adding D&B's current holdings of cash and cash equivalents and
subtracting debt obligations, as well as considering the impact from the
exercise of "in-the-money" options as applicable for each valuation indication.
The resulting indicated range of value from the Discounted Cash Flow Methodology
was $8.98 to $11.62 per share.
24
Because there was no material change in the financial outlook for D&B from
the period between May 24, 2002 and July 12, 2002, Houlihan Lokey considered the
conclusions of the Discounted Cash Flow Methodology, as set forth above, to be
relevant as of July, 12, 2002.
Determination of Equity Value. After determining the EV of the operations of
D&B based on (i) the market multiple approach and (ii) the discounted cash flow
approach, Houlihan Lokey made certain adjustments to the resulting EVs to
determine equity value. Such adjustments included adding D&B's current holdings
of cash and cash equivalents and subtracting debt obligations, as well as
considering the impact from the exercise of "in-the-money" options as applicable
for each valuation indication. After consideration of such adjustments, and
considering the public market price of D&B common stock, Houlihan Lokey
estimated the equity value, in the context of a change of control, to be in the
range of $8.23 per share to $11.62 per share in connection with its analysis as
of May 24.
The following table illustrates the indications of value reached by Houlihan
Lokey based upon the Market Multiple Analysis and Discounted Cash Flow
Methodology:
<Table>
<Caption>
CURRENT
SHARE PRICE MARKET MULTIPLE BASE CASE DCF ONE STORE GROWTH INVESTCORP
MAY 24 LOW HIGH LOW HIGH LOW HIGH OFFER
----------- --------- --------- --------- --------- --------- --------- ----------
Enterprise Value 198.00 246.00 209.00 237.00 230.00 248.00 253.63
Debt(1) 88.17 88.17 88.17 88.17 88.17 88.17 88.17
Fees 2.50 2.50 2.50 2.50 2.50 2.50 2.50
Cash(1) 1.62 1.62 1.62 1.62 1.62 1.62 1.62
Equity Value 108.96 156.96 119.96 147.96 140.96 158.96 164.58
Shares(2) 12.971 12.971 12.971 12.971 12.971 12.971 12.971
Options(3) 0.9130 1.8697 1.7698 1.8223 1.8148 1.8697 1.8697
Cash In 5.78 13.51 12.44 12.98 12.90 13.51 13.51
--------- --------- --------- --------- --------- --------- --------- ----------
Implied Per Share Value $ 10.210 $ 8.264 $ 11.486 $ 8.982 $ 10.879 $ 10.406 $ 11.621 $ 12.000
--------- --------- --------- --------- --------- --------- --------- ----------
</Table>
- ----------
(1) As of 5/5/02 financial statements per D&B Management
(2) Per D&B Management
(3) Per 1/31/02 schedule of outstanding options
In connection with the confirmation and update of its opinion as of July 12,
2002, Houlihan Lokey noted that the Market Multiple Methodology as of July 12,
2002 would result in lower indications of value for D&B and noted that there
would be no change in the indications of value from the Discounted Cash Flow
Methodology.
Comparable Transaction Methodology. Houlihan Lokey reviewed the multiples
exhibited and control premiums paid in certain announced change of control
acquisitions of selected publicly traded restaurant companies for which purchase
price multiples were available and which Houlihan Lokey deemed relevant based
upon similarity of standard industrial classification within the restaurant
industry. Houlihan Lokey did not identify any comparable change of control
transactions in the entertainment industry. Houlihan Lokey identified announced
change of control acquisitions of the following publicly traded companies:
Morton's Restaurant Group, Lone Star Steakhouse and Saloon Inc, Shoneys Inc.,
Santa Barbara Restaurant Group, Interfoods of America Inc., Mexican Restaurants
Inc., Panchos Mexican Buffet Inc., VICORP Restaurants Inc., Il Fornaio America
Corp., Taco Cabana Inc., BFX Hospitality Group Inc., Buffets Inc., and Rock
Bottom Restaurants, Inc. The analysis showed that the multiples exhibited in the
change of control transactions were as follows: (i) EV to LTM revenues multiples
exhibited mean and median multiples of 0.64x and 0.66x, respectively; (ii) EV to
LTM EBITDA exhibited mean and median multiples of 6.05x and 6.61x, respectively;
(iii) EV to LTM free cash flow (EBITDA less capital expenditures) multiples
exhibited mean and median multiples of 9.27x and 11.79x respectively, and (iv)
EV to LTM EBIT multiples exhibited mean and median multiples of 11.11x and
13.85x respectively. Houlihan Lokey also noted that these transaction exhibited
control premiums that ranged from negative premiums to 71.8% with a mean and
median control premiums of 28.6% and 34.5%, respectively. The offering price of
$13.50 for each share in the transaction represents (a) a premium of
approximately 16.4% over the closing sale price of $11.60 for D&B common stock
on the New York Stock Exchange on July 12, 2002 (the last trading day prior to
the date on which the special committee and the board of directors approved the
transaction and D&B entered into the merger agreement), and (b) a premium of in
excess of 30% over the average closing sale price of $10.31 for the 30 trading
days prior to May 24, 2002, which were unaffected by the proposed tender offer.
25
In performing its analysis, Houlihan Lokey considered that the merger and
acquisition transaction environment varies over time because of, among other
things, interest rate and equity market fluctuations and industry results and
growth expectations. No company or transaction used in the analysis described
above was directly comparable to D&B. Accordingly, Houlihan Lokey reviewed the
foregoing transactions to understand the range of multiples of revenue, EBITDA
and EBIT paid for companies in the restaurant industry, and control premiums
paid in such transactions. Houlihan Lokey noted that the multiples indicated by
the transaction are within the range of multiples exhibited in comparable
transactions in the restaurant industry. Similarly, the control premium implied
by the consideration provided for in the transaction is within the range of
control premiums paid in comparable transactions in the restaurant industry.
Determination of Fairness. After determining the equity value, on a
controlling basis, of D&B, and after consideration of multiples and premiums
paid in comparable transactions, Houlihan Lokey noted that the consideration of
$13.50 per share as provided for in the transaction exceeds the indications of
value that are the result of Houlihan Lokey's analyses. Similarly, Houlihan
Lokey noted that the implied multiples exhibited by the transaction and the
control premium are both within the range of multiples and control premiums
exhibited in comparable transactions. Accordingly, Houlihan Lokey determined
that the consideration to be received by the public shareholders in connection
with the transaction is fair to them from a financial point of view.
As a matter of course, D&B does not publicly disclose forward-looking
financial information. Nevertheless, in connection with its review, Houlihan
Lokey considered financial projections. These financial projections were
prepared by the management of D&B based on assumptions regarding D&B's future
performance and assume a capital structure different from that currently
available under D&B's existing credit facilities. In particular, D&B has a
maximum debt availability of $92 million and a capital expenditures covenant
which effectively limits its new entertainment center expansion to one store per
annum. The financial projections were prepared under market conditions as they
existed as of approximately May 24, 2002, and D&B's management had confirmed to
the special committee on July 11 that its projections had not changed materially
since such date. D&B's management does not intend to provide Houlihan Lokey with
any updated or revised financial projections in connection with the transaction.
The financial projections do not take into account any circumstances or events
occurring after the date they were prepared. In addition, factors such as
industry performance, general business, economic, regulatory, market and
financial conditions, as well as changes to the business, financial condition or
results of operation of D&B, including without limitation such changes as may
occur as a result of the risk factors identified by D&B in this proxy statement
and in its other filings with the SEC, may cause the financial projections or
the underlying assumptions to be materially inaccurate. As a result, the
financial projections are not necessarily indicative of future results. See
"Forecasts."
In arriving at its fairness opinion, Houlihan Lokey reviewed key economic
and market indicators, including, but not limited to, growth in the U.S. Gross
Domestic Product, inflation rates, interest rates, consumer spending levels,
manufacturing productivity levels, unemployment rates and general stock market
performance. Houlihan Lokey's opinion is based on the business, economic, market
and other conditions as they existed as of July 12, 2002, and on the financial
projections of D&B provided to Houlihan Lokey as of May 24, 2002, and reaffirmed
by D&B's management to the special committee on July 11. In rendering its
opinion, Houlihan Lokey relied upon and assumed, without independent
verification, that the accuracy and completeness of the financial and other
information provided to Houlihan Lokey by the management of D&B, including the
financial projections, was reasonably prepared and reflects the best currently
available estimates of the financial results and condition of D&B; that no
material changes have occurred in the information reviewed between the date the
information was provided and the date of the Houlihan Lokey opinion; and that
there were no facts or information regarding D&B that would cause the
information supplied by Houlihan Lokey to be incomplete or misleading in any
material respect. Houlihan Lokey did not independently verify the accuracy or
completeness of the information supplied to it with respect to D&B and does not
assume responsibility for it.
Houlihan Lokey did not make any independent appraisal of the specific
properties or assets of D&B.
HOULIHAN LOKEY WAS NOT ASKED TO OPINE AND DOES NOT EXPRESS ANY OPINION AS
TO: (i) THE TAX OR LEGAL CONSEQUENCES OF THE TRANSACTIONS CONTEMPLATED BY THE
MERGER; (ii) THE REALIZABLE VALUE OF D&B'S COMMON STOCK OR THE PRICES AT WHICH
D&B'S COMMON STOCK MAY TRADE; AND (iii) THE FAIRNESS OF ANY ASPECT OF THE
TRANSACTION NOT EXPRESSLY ADDRESSED IN ITS FAIRNESS OPINION.
THE HOULIHAN LOKEY OPINION DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION
TO EFFECT THE TRANSACTIONS CONTEMPLATED BY THE MERGER; NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW THEY SHOULD VOTE IN CONNECTION WITH
THE TRANSACTION. HOULIHAN LOKEY HAS NO OBLIGATION TO UPDATE THE HOULIHAN LOKEY
OPINION. FURTHERMORE, HOULIHAN LOKEY DID NOT NEGOTIATE ANY PORTION OF THE
TRANSACTION.
26
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
and/or inaccurate view of the processes underlying the analyses set forth in
Houlihan Lokey's fairness opinion. In its analyses, Houlihan Lokey made numerous
assumptions with respect to D&B, the transaction, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of the respective entities. The estimates contained
in such analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be more or less favorable than suggested
by such analyses. Additionally, analyses relating to the value of businesses or
securities of D&B are not appraisals. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty.
ALTERNATIVES CONSIDERED
Since the Fall of 1999, D&B has considered a variety of strategic
alternatives for D&B to improve shareholder value. D&B has received several
unsolicited inquiries from various strategic and financial buyers since that
time concerning a possible acquisition or other business combination, and also
exploring management's interest in participating in such a transaction. After
conducting their financial due diligence and exploring possible financing
alternatives, all but one of these prospective buyers ultimately declined to
pursue a possible transaction with D&B. See "-- Background and Purpose of the
Merger."
D&B has also considered other possible alternatives to a sale of the entire
company, including continuing D&B's current operations and seeking additional
debt or equity financing to fund future growth, which the special committee and
D&B's board of directors determined, based in part on the financial analysis of
Houlihan Lokey, was subject to significant risks and uncertainties with respect
to the availability and cost of additional capital and the possible dilution to
existing shareholders of any equity financing.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND D&B'S BOARD OF DIRECTORS; FAIRNESS
OF THE MERGER
As described above, the D&B board of directors constituted and empowered the
special committee to evaluate acquisition proposals on behalf of D&B. The
analyses and conclusions of the special committee are described in detail below
under the subheading "The Special Committee." The special committee presented to
the entire board of directors its analyses and conclusions that the merger was
fair, from a financial point of view, to the unaffiliated shareholders.
Separately, the merger agreement required the entire D&B board of directors
to express its belief as to the fairness from a financial point of view of the
merger and the merger agreement to all of the shareholders of D&B. The analyses
and conclusions of the board of directors are described in detail below under
the subheading "Board of Directors." The board of directors did not make any
separate determination of fairness to the unaffiliated shareholders of D&B, but
expressly adopted the analyses and conclusions of the special committee as
described below in "-- Special Committee," and based upon the special
committee's analyses and conclusions, the merger and the merger agreement.
Special Committee. The special committee has by unanimous vote (i)
determined that the merger and the merger agreement are fair from a financial
point of view to, and in the best interests of, the unaffiliated shareholders of
D&B, (ii) approved the merger, the merger agreement and the Support and Exchange
Agreement and (iii) recommended that the shareholders of D&B vote to approve the
merger.
The special committee was composed entirely of non-employee members of the
board of directors to act solely on behalf of the unaffiliated shareholders of
D&B in negotiating and evaluating acquisition proposals such as the merger. The
special committee retained Houlihan Lokey as its financial advisor and to render
its opinion as to whether the transaction was fair to unaffiliated shareholders
of D&B.
The recommendation of the special committee is based in part on the oral
opinion (which was subsequently confirmed in writing) delivered by Houlihan
Lokey to the special committee of D&B's board of directors on July 12, 2002, to
the effect that, as of such date, and based on and subject to the matters
described in the opinion, the price per share of common stock equal to $13.50 to
be received
27
by the shareholders of D&B was fair to such unaffiliated shareholders, from a
financial point of view. The full text of the fairness opinion, which sets forth
the assumptions made, procedures followed, matters considered and limitations on
the review undertaken by Houlihan Lokey in rendering its opinion, is included as
Appendix B to this proxy statement and is hereby incorporated herein by
reference.
In making the determinations and recommendations described above, the
special committee considered a number of factors, including, without limitation,
the following:
o the price to be paid for each share in the merger represents (a) a
premium of approximately 27.5% over the closing sale price of $10.59 on
the New York Stock Exchange on May 30, 2002 (the trading day immediately
prior to the public announcement of the merger agreement), (b) a premium
of approximately 16.4% over the closing sale price of $11.60 on the New
York Stock Exchange on July 12, 2002 (the trading day immediately prior
to the date of the public announcement of the amendment to the merger
agreement) and (c) a premium of approximately 31% over the average
closing sale price of $10.31 for the 90 trading days prior to July 12,
2002;
o the fairness opinion of Houlihan Lokey to the effect that as of such
date, the $13.50 per share to be received by unaffiliated shareholders
in the merger was fair to such holders from a financial point of view;
o the financial analysis performed by Houlihan Lokey as to the value of
D&B and the value presented by the merger, including by way of
comparison to financial and market price data relating to other
companies engaged in similar businesses and to other recent acquisition
transactions within the same industries, and the belief of the special
committee and D&B's board of directors, on the basis of such
information, that the price to be paid in the merger fairly reflects
D&B's value in the current business environment;
o D&B's dependence upon the opening of new D&B entertainment centers to
generate growth in revenues and net income;
o D&B's inability to meet its growth objectives under its current capital
structure, given that its existing bank credit agreement (i) prohibits
D&B from opening new entertainment centers subsequent to fiscal 2002, or
entering into new lease commitments, without the unanimous consent of
the bank group, and (ii) restricts capital expenditures associated with
the construction, and first year of operations, of new D&B locations;
o the special committee's belief, based on the latest financial
information supplied to the special committee by D&B's management and
discussion of such information with Houlihan Lokey, that D&B was
unlikely in the foreseeable future to be able to generate sufficient
cash flow from its current operations or obtain additional financing to
open new units and pursue its growth objectives;
o the weakening of market and economic conditions generally, and the
potentially adverse impact that such trends could have on consumer
discretionary spending and, therefore, on D&B's operating results for
the foreseeable future;
o the special committee's belief, given the uncertain prospects for D&B to
achieve its growth objectives, and the limitations imposed by D&B's
credit facilities on its ability to grow by opening new stores, that the
merger agreement provided a superior alternative to increase shareholder
value;
o the fact that a termination fee was necessary to induce D&B Holdings and
D&B Acquisition to enter into the merger agreement, and the conclusion
of the special committee and D&B's board of directors, based in part on
Houlihan Lokey's statement that the termination fee did not present an
impediment to rendering its fairness opinion, that such amount should
not significantly deter any third party with serious interest in bidding
for D&B and is reasonable in light of the benefits of the tender offer
and the merger;
o the fact that the $5.68 million termination fee under the amended merger
agreement was the same percentage of transaction size at $13.50 per
share that the original termination fee was at a $12.00 per share
transaction;
o the fact that since late 1999, D&B and the special committee had
received unsolicited inquiries from, and held discussions with, several
prospective financial and strategic buyers for D&B, and that after
conducting their financial due diligence and exploring possible
financing alternatives, all but one of these prospective buyers
ultimately declined to pursue a possible transaction with D&B;
28
o the fact that the $13.50 per share to be received in the merger
represents between a 35.0% to 28.6% increase, respectively, over the
$10.00 to $10.50 price range that had been proposed to, and rejected by,
the special committee by another prospective financial buyer in March
2002, and an increase of approximately 12.5% over the $12.00 per share
contained in the tender offer;
o the certainty of value represented by the all-cash consideration offered
by D&B Acquisition, and the opportunity for shareholders to obtain
liquidity through the cash consideration to be paid in the merger;
o the fact that while the merger agreement and the Support and Exchange
Agreement prohibit D&B and its directors, officers, employees, agents
and representatives from soliciting, encouraging or discussing other
acquisition proposals, D&B and such persons may provide information to a
third party and may engage in discussions and negotiations regarding any
bona fide acquisition proposal that was not solicited by D&B or any of
such persons and that D&B's board of directors determines in good faith
(and based on the written advice of its financial advisors) is
reasonably capable of being completed and provides greater present value
to D&B's shareholders (a "Superior Proposal");
o the fact that approval of the merger requires the affirmative vote of
holders of two-thirds of the outstanding shares of D&B common stock;
o the fact that institutional holders which collectively hold
approximately 13% of the outstanding shares of D&B common stock, and
which had previously been opposed to the tender offer, had signed
agreements to vote in favor of the merger proposed by Investcorp,
subject to acceptance of a superior proposal;
o the ability of D&B to terminate the merger agreement in order to accept
a Superior Proposal;
o the limited number of instances in which D&B would be required to pay a
termination fee or otherwise reimburse D&B Acquisition or D&B Holdings
for their transaction expenses; and
o the limited number and nature of other conditions to D&B Acquisition's
obligations to consummate the merger; and the other terms and conditions
of the merger.
The special committee also considered the following factors, among others,
relating to the procedures involved in the negotiation of the merger:
o the special committee, which consists solely of directors who are not
officers or employees of D&B, D&B Holdings, D&B Acquisition or
Investcorp was given authority by the board of directors to, among other
things, evaluate, negotiate and approve the terms of the proposed
transaction;
o the cash consideration and the other terms and conditions of the merger
agreement resulted from arm's-length bargaining between the special
committee and its representatives, on the one hand, and D&B Acquisition
and its representatives, on the other hand;
o the special committee retained and received advice from its own legal
counsel and financial advisor in evaluating, negotiating and approving
the terms of the merger agreement;
o Houlihan Lokey rendered an oral opinion, subsequently confirmed by a
written opinion, dated July 12, 2002, that the $13.50 per share cash
consideration that is to be received by the D&B shareholders in the
proposed merger is fair, from a financial point of view, to D&B's
unaffiliated shareholders;
o the affirmative vote of the holders of two-thirds of the outstanding
D&B's shares of common stock entitled to vote on the matter is required
to approve and adopt the merger agreement;
o the special committee informed D&B Acquisition that, in any press
release announcing an amendment to the merger agreement, it would
require a brief summary of the provisions of the merger agreement
regarding the procedures whereby
29
bona fide third party superior proposals could be considered by the
special committee, together with contact information for the chairman of
the special committee, and D&B Acquisition consented to this request;
and
o D&B's shareholders have the right to demand appraisal of their shares in
accordance with the procedures established by Missouri law. See "The
Merger - Appraisal Rights."
The special committee also considered a variety of risks and other
potentially negative factors concerning the tender offer and the merger but
determined that these factors were outweighed by the benefits of the factors
supporting the tender offer and the merger. These negative factors included the
following:
o certain terms and conditions set forth in the merger agreement, required
by D&B Holdings as a prerequisite to entering into the merger agreement,
that prohibit D&B and its representatives from soliciting third-party
bids and from accepting third-party bids except in specified
circumstances and upon reimbursement of expenses relating to the merger
agreement and related transactions and payment to D&B Holdings of a
specified termination fee, and that these terms could have the effect of
discouraging a third party from making a bid to acquire D&B (See "The
Merger Agreement; Other Arrangements -- No Solicitation");
o the $13.50 per share merger consideration is lower than the historic
trading prices of D&B common stock on Nasdaq and the NYSE prior to
September 1999;
o the conflict of interest created by Messrs. Corriveau, Corley, Hammett
and Henrion's affiliation with D&B Holdings and by Messrs. Corriveau,
Corley and Hammett's expectation that they would continue as executives
of new D&B after the merger, as well as the other factors discussed in
"The Merger Agreement, Other Arrangements";
o if the merger is not consummated under circumstances further discussed
in "The Merger Agreement; Other Arrangements -- Termination" and "The
Merger Agreement -- Effect of Termination," D&B may be required to
reimburse D&B Holdings and D&B Acquisition for expenses relating to the
merger agreement and related transactions and to pay to D&B Holdings the
specified termination fee;
o following the merger, new D&B will be a privately held company and its
current shareholders will cease to participate in any future earnings
and appreciation of value of new D&B; and
o the existence of a financing contingency for D&B Holding's completion of
the merger, and that D&B Holdings has no existing financing commitments
for the merger.
The members of the special committee and the board of directors did not consider
factors that it did not consider relevant to its determination, such as D&B's
net book value and liquidation value. Each of those factors were deemed to not
be relevant because they produced valuations materially below the generally
accepted valuation methodologies considered by Houlihan Lokey in its fairness
opinion. The members of the special committee and the board of directors
believed that D&B's "going concern" value was more accurately indicated by the
analyses performed by Houlihan Lokey in assessing the current value per share of
D&B for purposes of its fairness opinion. Moreover, no prior purchases of D&B's
common stock by D&B Acquisition, D&B Holdings, or Investcorp have been reported
to D&B, so the special committee and board of directors were unable to evaluate
prior purchase prices paid by the proposed acquirors for purposes of determining
the fairness of the merger consideration. As a result, the special committee and
the board of directors focused primarily on the fairness of the $13.50 per share
merger consideration to be received by the unaffiliated shareholders relative to
such shareholders' interest in the going concern value of D&B, as presented by
the analyses of Houlihan Lokey.
The foregoing discussion of the information and factors considered and given
weight by the special committee is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
merger, the special committee did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determinations and recommendations. In addition,
individual members of the special committee may have given different weights to
different factors.
Board of Directors. D&B's board of directors met after the special
committee's meeting on July 12, 2002. At D&B's board of directors meeting, the
Chairman requested that the special committee present its report regarding its
consideration of the merger
30
agreement and the transactions contemplated thereby, including the tender offer
and the merger. Mr. Levy, as Chairman of the special committee, reviewed the
factors which the special committee had considered. Houlihan Lokey then reviewed
for the entire board the material aspects of the fairness opinion analysis that
it had earlier presented to the special committee.
The board of directors discussed the proposed amendment to the merger
agreement, whereby D&B Acquisition would be merged with and into D&B in a
single-step merger transaction for a consideration of $13.50 per share. The
special committee advised D&B's board of directors that its members had
unanimously recommended the merger agreement and the transactions contemplated
thereby, and D&B's board of directors was presented with a copy of the
resolutions of the special committee. Upon its review of the special committee's
report and acting upon the unanimous recommendation of the special committee,
D&B's board of directors then:
o determined that the merger and the merger agreement are fair from a
financial point of view to, and in the best interests of, the
shareholders of D&B,
o approved the merger, the merger agreement and the Support and Exchange
Agreement, and
o recommended that the shareholders of D&B approve the merger and the
merger agreement.
In making this determination, the members of D&B's board of directors
considered and agreed with the special committee's analysis of the merger and
each of the factors considered by the special committee. In view of the variety
of such factors, D&B's board of directors found it impracticable to, and did
not, quantify, rank or otherwise assign relative weights to, the factors
considered or determine that any factor was of particular importance in reaching
its determination that the merger was fair to, and in the best interests of, the
shareholders. Rather, D&B's board of directors viewed its determination as being
based upon the totality of the information presented to and considered by it.
FORECASTS
In connection with various potential acquirors' review of D&B and in the
course of the negotiations among D&B, the special committee, Investcorp, D&B's
management provided various third parties with non-public business and financial
information. D&B's management provided this information to, among others,
Investcorp and Houlihan Lokey. Houlihan Lokey used this information in its
analysis of the fairness of the cash merger consideration to be received by
D&B's shareholders. See "Special Factors -- Opinion of Houlihan Lokey." The
non-public information management provided included, among other things, D&B's
projections of store level and consolidated sales, gross profit, income before
income taxes and net income for D&B for the fiscal years 2003 through 2005.
D&B does not, as a matter of course, publicly disclose forecasts as to
future revenues or earnings. The forecasts were not prepared with a view to
public disclosure and are included in this proxy statement only because this
information was made available to Investcorp in connection with its due
diligence investigation of D&B. The forecasts were not prepared with a view to
comply with the published guidelines of the SEC regarding forecasts, nor were
they prepared in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial forecasts. Moreover, Ernst & Young LLP, D&B's independent auditors,
has not examined, compiled or applied any procedures to the forecasts in
accordance with standards established by the American Institute of Certified
Public Accountants and expresses no opinion or any assurance on their
reasonableness, accuracy or achievability. The forecasts reflect numerous
assumptions made by management, many of which are inherently uncertain and
subject to change. Material assumptions made by D&B in preparing the forecasts
include (i) the addition of four new entertainment centers each year even though
the terms of current bank credit facility do not permit us to do so because we
believed that in connection with any transaction that may occur we would be able
to obtain new financing arrangements that would permit expansion at that rate,
(ii) achieving a 0.2% improvement in gross margins for its entertainment
centers, (iii) margins at each entertainment center remaining consistent with
2001 levels, (iv) improving reducing the average general and administrative
expenses at each center, due to the addition of new entertainment centers
without corresponding increases in corporate level hiring, (v) depreciation
staying flat as a percentage of revenues, (vi) pre-opening costs of $1 million
for each new entertainment center, (vii) maintaining the same effective tax rate
as in 2001, and (viii) general economic conditions improving only slightly from
the 2001 fiscal year. In addition, factors such as industry performance and
general business, economic, regulatory, market and financial conditions, all of
which are difficult to predict, may cause the forecasts or the underlying
assumptions to be inaccurate. Accordingly, it is expected that there will be
differences between actual and forecasted results, and actual results may be
materially different from those contained in the forecasts.
The inclusion of the forecasts should not be regarded as an indication that
D&B considers the forecasts to be a reliable prediction of future events. To the
extent the forecasts represent D&B management's reasonable estimate of possible
future performance, this
31
estimate was made only as of May 24, 2002, the date of the forecasts, and is not
made or updated as of any later date. You should take all of this into account
when evaluating any factors or analyses based on the forecasts.
The material forecasts that D&B provided to various potential acquirors,
including, among others, Investcorp, and that were provided to Houlihan Lokey,
the special committee and the board of directors are summarized below:
<Table>
<Caption>
YEAR ENDING(1)
2003 2004 2005
(DOLLARS IN MILLIONS)
Units (at year end) 32 36 40
Income Statement Data:
Total revenues 385.6 415.5 463.4
Operating income 20.5 27.7 33.7
Net income 8.3 13.0 17.7
Balance Sheet Data:
Total assets 305.0 332.9 335.5
Total debt 118.0 128.1 128.1
Total shareholders' equity 137.9 150.9 168.6
</Table>
- ----------
(1) Fiscal year ends on the Sunday following the Saturday nearest to January
31.
Note: These projections assume a capital structure different from that
currently achievable under D&B's existing credit facilities. In particular, D&B
has a maximum debt availability of $92 million and a capital expenditures
covenant which effectively limits its new entertainment center expansion to one
store per annum.
D&B'S REASONS FOR THE MERGER
D&B is engaging in the merger to enable its shareholders to receive cash for
their shares at a premium of 27.5% over the $10.59 closing price per share of
its common stock on May 30, 2002, the last full trading day before the public
announcement of the merger agreement, and a premium of 16.4% over the $11.60
closing price per share of its common stock on July 12, 2002, the last full
trading day before the public announcement of the signing of the amendment to
the merger agreement. D&B believes that it is unlikely that a third party would
make an offer that is superior to the $13.50 per share merger consideration, and
that obtaining $13.50 per share in cash for its shareholders in the merger is
preferable to attempting to achieve a future share price in excess of that
amount as an independent publicly traded company, for the reasons considered by
the special committee and the board of directors and articulated above under
"Special Factors -- Recommendation of the Special Committee and D&B's Board of
Directors; Fairness of the Merger."
POSITION OF THE CONTINUING SHAREHOLDERS AS TO THE FAIRNESS OF AND REASONS FOR
THE MERGER; PURPOSE AND STRUCTURE OF THE MERGER
For the purposes of the discussion under this heading "Special
Factors--Position of the Continuing Shareholders as to the Fairness of and
Reasons for the Merger; Purpose and Structure of the Merger" the filing persons
are the continuing shareholders, David O. Corriveau, James W. Corley, Walter S.
Henrion and William C. Hammett, Jr.
The continuing shareholders are deemed to be "affiliates" of D&B under
applicable SEC regulations. Accordingly, the rules of the SEC require the
continuing shareholders to express their belief as to the fairness of the merger
to unaffiliated shareholders of D&B, and state their reasons for the merger.
Fairness of the Merger. The continuing shareholders were not members of, and
did not participate in the deliberations of, the special committee; however, as
directors of D&B, Messrs. Corriveau, Corley and Henrion participated in the
deliberations of the board of directors described above under "Special Factors
- -- Recommendation of the Special Committee and the Board of Directors; Fairness
of the Merger." Based on their beliefs regarding the reasonableness of the
conclusions and analyses of the special committee and D&B's board of directors,
the continuing shareholders concur with, and expressly adopt, the conclusions
and analyses of the special committee described above and believe that the
merger is fair to D&B's unaffiliated shareholders. In making this determination,
the continuing shareholders considered the same factors considered by the
special committee.
32
The continuing shareholders have considered all of the foregoing factors as
a whole to support their belief that the merger is fair to the unaffiliated
shareholders of D&B. This belief, however, should not be construed as a
recommendation to shareholders as to how they should vote on the merger.
In view of the number and wide variety of factors considered in connection
with making a determination as to the fairness of the merger to D&B's
unaffiliated shareholders, and the complexity of these matters, the continuing
shareholders did not find it practicable to, nor did they attempt to, quantify,
rank or otherwise assign relative weights to the specific factors they
considered. Moreover, the continuing shareholders have not undertaken to make
any specific determination to assign any particular weight to any single factor,
but have conducted an overall analysis of the factors described above.
The continuing shareholders did not consider the net book value or
liquidation value of D&B to be material to their conclusion regarding the
fairness of the merger because it is their view that neither book value nor
liquidation value accurately reflects the value of D&B in light of the nature of
its business and assets. The continuing shareholders considered the proposals
received with respect to an acquisition of D&B and the analysis performed by
Houlihan Lokey to be appropriate indications of the going concern value of D&B.
Reasons for the Merger. Following a significant decline in D&B's stock price
in the fall of 1999, D&B began to receive several unsolicited inquiries from
financial buyers concerning a possible acquisition of D&B and also exploring
management's interest in participating in any such transaction. Messrs.
Corriveau and Corley founded the D&B concept and have spent nearly their entire
careers in the development and growth of such concept. They and the other
continuing shareholders share a commitment to the continued development of the
D&B concept. Accordingly, in responding to these inquiries, they expressed their
interest in continuing to invest in the future growth of D&B, subject to the
risks of such continuing equity investment, if the unaffiliated shareholders
could otherwise receive consideration for their shares that was fair from a
financial point of view.
In assessing their interest in participating in an acquisition transaction
with inquiring parties since 1999, the continuing shareholders have in each case
carefully considered the financial resources of the acquiring party. The
continuing shareholders' interest in participating in an acquisition transaction
has been dependent upon their perception of the continuing entity's likelihood
of attracting suitable financing and otherwise achieving the future growth
objectives of the continuing shareholders for D&B. In responding to Investcorp's
inquiry regarding the interest of the continuing shareholders in participating
with Investcorp in an acquisition transaction, the continuing shareholders have
considered, among other factors, completed acquisition transactions sponsored by
Investcorp, the stated intentions of Investcorp and its principals regarding the
growth plans for the D&B concept and Investcorp's proposed financing for an
acquisition and for post-acquisition operations of D&B.
The interest of the continuing shareholders in pursuing the transaction with
Investcorp at the present time is based upon the following factors:
o the November 2001 amendment to D&B bank credit agreement, which
prohibits D&B from opening new entertainment centers, other than the
scheduled 2002 opening of the Islandia, New York unit, or entering into
new lease commitments, without the unanimous consent of the bank group,
and restricts capital expenditures associated with the construction, and
first year of operations, of new D&B locations;
o D&B activities during 2002 seeking alternatives to its present bank
credit arrangements in order to fund its future growth. These activities
have indicated that such alternative debt or equity financing is subject
to significant risks and uncertainties with respect to its availability
and cost and to possible dilution to existing shareholders. Each of the
debt financing alternatives identified by D&B continued to restrict the
opening of new D&B locations; and
o the significant lead time required to identify new D&B locations,
negotiate leases for such locations and complete construction. In order
for D&B to effectively plan for and open new locations during 2003 and
2004, the continuing shareholders believed that a new capital structure
would be required to be in place during 2002.
POSITION OF D&B ACQUISITION, D&B HOLDINGS AND INVESTCORP AS TO THE FAIRNESS OF
AND REASONS FOR THE MERGER
For the purposes of the discussion under this heading "Special
Factors--Position of D&B Acquisition, D&B Holdings and Investcorp as to the
Fairness of and Reasons for the Merger," the filing persons are D&B Acquisition,
D&B Holdings and Investcorp.
33
By virtue of the continuing shareholders' anticipated investment in D&B
Holdings and other benefits which they will receive from D&B Holdings, D&B
Holdings and Investcorp are affiliates of the continuing shareholders.
Therefore, D&B Acquisition, D&B Holdings and Investcorp are affiliates of D&B
engaged in a going private transaction. Accordingly, the rules of the SEC
require D&B Acquisition, D&B Holdings and Investcorp to express their belief as
to the fairness of the merger to Dave & Buster's unaffiliated shareholders, and
state their reasons for the merger. D&B Acquisition, D&B Holdings and Investcorp
were not members of, and did not participate in the above-described
deliberations of, the special committee or D&B's board of directors, nor have
they undertaken any formal evaluation of the fairness of the merger to
unaffiliated shareholders of D&B. Based on their beliefs regarding the
reasonableness of the conclusions and analyses of the special committee, D&B
Acquisition, D&B Holdings and Investcorp concur with, and expressly adopt, the
conclusions and analyses of the special committee described above concerning the
fairness of the merger to unaffiliated shareholders of D&B.
Because of the variety of factors considered, D&B Acquisition, D&B Holdings
and Investcorp did not find it practicable to make specific assessments of,
quantify or otherwise assign relative weights to the specific factors considered
in reaching their determination. None of D&B Acquisition, D&B Holdings nor
Investcorp makes any recommendation as to how any D&B shareholder should vote on
the merger agreement.
PURPOSE AND STRUCTURE OF THE MERGER
D&B Acquisition, D&B Holdings and Investcorp have informed us that they are
seeking to undertake the merger in order to acquire control of, and the entire
equity interest in, D&B.
D&B's purpose for engaging in the transactions is to offer its shareholders
what it believes to be the best opportunity currently available to maximize the
value of their common stock, as further described under "Background of the
Merger." D&B is undertaking the merger at this time for the reasons considered
by the special committee and outlined under "Special Factors --Background of the
Merger."
The continuing shareholders are pursuing this transaction at this time in
order to provide D&B with the ability to fund its future anticipated growth and
for the other reasons described under "Special Factors -- Background of the
Merger." The reason D&B and the continuing shareholders structured the
acquisition as a merger is to effect a prompt and orderly transfer of ownership
of D&B from its current shareholders to Investcorp (on behalf of its affiliates)
and to provide D&B shareholders with cash for their shares.
CERTAIN EFFECTS OF THE MERGER; PLANS OR PROPOSALS AFTER THE MERGER
Following completion of the merger, the shares of D&B common stock will no
longer be publicly traded or listed on the NYSE. In addition, the registration
of new D&B's shares and new D&B's reporting obligations under the Securities
Exchange Act of 1934 will be terminated upon application to the SEC. As a
result, new D&B will not bear the cost of compliance with SEC regulations,
including expenses associated with proxy rules and the preparation of periodic
reports.
Upon consummation of the merger, new D&B will be a privately held
corporation. Accordingly, the unaffiliated shareholders of D&B will no longer
continue to face the risk of losses generated by new D&B or a decline in value
of new D&B, but will instead have immediate liquidity upon payment of the $13.50
per share merger consideration. Similarly, the unaffiliated shareholders of D&B
will not have the opportunity to participate in the earnings and growth of new
D&B and will not have any right to vote on corporate matters affecting new D&B.
The continuing shareholders will not receive cash for most of their shares and
will continue to face the risk of losses generated by new D&B or a decline in
value in new D&B. The continuing shareholders will, however, continue to have
the opportunity to participate in future earnings and growth of new D&B, and to
vote on related corporate matters.
34
The continuing shareholders' interest in the net book value of D&B as May 5,
2002 and net earnings of D&B for the year ended February 3, 2002 will be
affected by the merger. The following table sets forth such interests in D&B
prior to the merger and in D&B Holdings, after giving pro forma effect to the
merger (dollars in millions):
<Table>
<Caption>
PRO FORMA PRO FORMA
PRIOR TO MERGER INDIVIDUALLY(1) COLLECTIVELY(2)
------------------------------ -------------------------------- --------------------------------
Net Net Net
Book Net Book Net Book Net
Value Earnings Value Earnings Value Earnings
Corriveau $ 6.0 (3.6%) $ 0.3 (3.6%) $ 5.4 (4.3%) $ .01 (4.3%) $ 8.8 (7.0%) $ .02 (7.0%)
Corley $ 6.1 (3.7%) $ 0.3 (3.7%) $ 5.4 (4.3%) $ .01 (4.3%) $ 8.8 (7.0%) $ .02 (7.0%)
Henrion $ 0.8 (0.5%) $ .04 (0.5%) $ 0.8 (0.7%) $ .002 (0.7%) $ 1.4 (1.1%) $ .003 (1.1%)
Hammett $ 0.3 (0.2%) $ .01 (0.2%) $ 0.6 (0.5%) $ .001 (0.5%) $ 0.8 (0.7%) $ .002 (0.7%)
</Table>
- ----------
(1) Takes into account, after giving pro forma effect to the merger, the named
individual's vested ownership only.
(2) Takes into account, after giving pro forma effect to the merger, all of the
continuing shareholders ownership interests, whether or not vested.
The receipt of cash pursuant to the merger will constitute a taxable
transaction for U.S. federal income tax purposes under the Internal Revenue Code
of 1986, as amended, and may also constitute a taxable transaction under
applicable state, local, foreign and other tax laws. For U.S. federal income tax
purposes, a shareholder would generally recognize gain or loss in an amount
equal to the difference between the amount of cash received by the shareholder
pursuant to the merger and the shareholder's tax basis in the shares
surrendered. If shares are held by a shareholder as capital assets, that gain or
loss will be capital gain or loss. Any such capital gain or loss will be
long-term if, as of the date of the disposition of its shares, the shareholder
held such shares for more than one year or will be short term if, as of such
date, the shareholder held such shares for one year or less.
The exchange of D&B shares by the continuing shareholders for the shares of
D&B Holdings capital stock immediately prior to the consummation of the merger
will not be subject to federal income tax.
Except as otherwise set forth in this proxy statement, it is expected that,
initially following the merger, the business operations of new D&B will be
continued substantially as they are currently being conducted. The directors of
D&B Acquisition will be the initial directors of new D&B, and the officers of
D&B will be the initial officers of new D&B. Upon completion of the tender offer
and the merger, D&B Holdings intends to conduct a detailed review of new D&B and
its assets, corporate structure, capitalization, operations, policies,
management and personnel. After such review, D&B Holdings will determine what
actions or changes, if any, would be desirable in light of the circumstances
which then exist.
Except as described in this proxy statement, neither D&B Holdings nor D&B
Acquisition has informed us of any present plans or proposals that would relate
to or result in (i) any extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving new D&B, or (ii) a purchase, sale or
transfer of a material amount of assets of new D&B or any of its subsidiaries.
35
THE MERGER
The following information describes the material aspects of the merger. This
description is qualified in its entirety by reference to the appendices to this
proxy statement, including the merger agreement itself, as amended, which is
attached to this proxy statement as Appendix A and is incorporated herein by
reference. References in this proxy statement to the merger agreement refer to
the merger agreement as amended. You are urged to read Appendix A in its
entirety. See also "The Merger Agreement" below.
EFFECTIVE TIME OF THE MERGER
The continuing shareholders, who held 1,058,545 shares of D&B common
stock as of the record date (representing approximately 8% of the D&B common
stock outstanding as of the record date) have agreed to vote in favor of
adoption of the merger agreement. See "Interests of Executive Officers and
Directors in the Merger -- Support and Exchange Agreement." In addition, four
institutional investors, who did not tender their shares in the terminated
tender offer originally contemplated by the merger agreement, beneficially
owning approximately 13% of the outstanding D&B common stock, have agreed to
vote in favor of the merger. See "Introduction -- Institutional Investor Voting
Arrangements." If the other conditions to the merger are satisfied or, to the
extent permitted, waived, the merger will be consummated and become effective at
the time that articles of merger are filed with the Secretary of State of the
State of Missouri or such later time as otherwise agreed by D&B and D&B Holdings
and provided in the articles of merger. If the other conditions to the merger
are satisfied or, to the extent permitted, waived, D&B expects to complete the
merger as soon as practicable after the special meeting.
PAYMENT OF MERGER CONSIDERATION AND SURRENDER OF STOCK CERTIFICATES
Mellon Investor Services LLC has been designated to act as paying agent for
purposes of making the cash payments provided by the merger agreement.
Immediately after the effective time of the merger, D&B Holdings will deposit,
or cause to be deposited, with the paying agent immediately available funds in
an aggregate amount necessary to pay the $13.50 per share merger consideration
to D&B's shareholders. The paying agent will use these funds for the sole
purpose of paying the merger consideration to D&B's shareholders entitled to
receive payment of the merger consideration. The paying agent will, in
accordance with irrevocable instructions, deliver to you your merger
consideration according to the procedure summarized below.
No later than three business days after the effective time of the merger,
new D&B will instruct the paying agent to mail to you a letter of transmittal
and instructions advising you of the effectiveness of the merger and the
procedure for surrendering to the paying agent your stock certificates in
exchange for payment of the $13.50 per share merger consideration. Upon the
surrender for cancellation to the paying agent of your stock certificates,
together with a letter of transmittal, duly executed and completed in accordance
with its instructions, and any other items specified by the letter of
transmittal, the paying agent will pay to you the $13.50 per share merger
consideration and your stock certificates will be canceled. No interest will be
paid or accrued on the merger consideration. Payments of merger consideration
also will be reduced by any applicable withholding taxes.
If your stock certificates have been lost, mutilated or destroyed, you may
instead deliver to the paying agent an affidavit and indemnity bond in form and
substance, and with surety, reasonably satisfactory to new D&B.
If the merger consideration, or any portion of it, is to be paid to a person
other than you, it will be a condition to the payment of the merger
consideration that your stock certificates be properly endorsed or otherwise in
proper form for transfer and that you pay to the paying agent any transfer or
other taxes required by reason of the transfer or establish to the satisfaction
of new D&B that the taxes have been paid or are not required to be paid.
You should not forward your stock certificates to the paying agent without a
letter of transmittal, and you should not return your stock certificates with
the enclosed proxy.
At and after the effective time of the merger, you will cease to have any
rights as a D&B shareholder, except for the right to surrender your stock
certificates, according to the procedure described in this section, in exchange
for payment of the $13.50 per share merger consideration, without interest, less
any applicable withholding taxes, or, if you exercise your appraisal rights, the
right to perfect your right to receive payment for your shares under Missouri
law.
At the effective time of the merger, D&B's stock ledger with respect to
shares of D&B common stock that were outstanding prior to the merger will be
closed and no further registration of transfers of these shares will be made.
36
After six months following the effective time of the merger, the paying
agent will, on demand, deliver to new D&B all cash that has not yet been
distributed in payment of the merger consideration, plus any accrued interest,
and the paying agent's duties will terminate. Thereafter, you may surrender your
stock certificates to new D&B and receive the $13.50 per share merger
consideration, without interest, less any applicable withholding taxes. However,
you will have no greater rights against new D&B than may be accorded to general
creditors of new D&B under applicable law. None of Investcorp, D&B Holdings, D&B
or new D&B will be liable to you for any merger consideration delivered to a
public official under any applicable abandoned property, escheat or similar law.
FINANCING OF THE MERGER
D&B Holdings has informed us that it estimates that the total amount of
consideration necessary for D&B Holdings and D&B Acquisition Sub to consummate
the merger and to pay certain fees, costs and expenses related to the merger is
approximately $[307.8] million, which includes the following uses;
o approximately $[188.9] million is expected to be used to pay the merger
consideration;
o approximately $[88.2] million is expected to be used to repay all funds
borrowed under our existing credit facility (which does not include the
refinancing of certain letters of credit);
o approximately $[28.2] million is expected to be used to pay certain
fees, costs and expenses related to the merger; and
o approximately $[2.5] million is expected to be used as a loan, or a
guarantee of loans, to David O. Corriveau, our Co-Chief Executive
Officer and President, in order to enable him to refinance loans which
are currently secured by a pledge of shares of our stock owned by him.
o D&B Holdings has also informed us that it currently expects these funds
to come from the following sources:
o approximately $[155] million from the gross proceeds of the issuance by
us of senior secured notes due 2009 (the "Senior Secured Notes");
o approximately $[132.3] million from an equity investment in D&B
Holdings, the proceeds of which will be contributed as equity to D&B
Acquisition Sub, by Investcorp, affiliates of Investcorp and certain
international investors with whom Investcorp maintains an administrative
relationship;
o approximately $[15.5] million from a roll-over equity investment in D&B
Holdings by our management in exchange for existing equity interests in
us held by them (which amount is based on the price per share to be paid
by Investcorp and its co-investors); and
o approximately $5.0 million from a new credit facility that we will enter
into in connection with the merger (the "Senior Credit Facility").
D&B Holdings has informed us that the above amounts and sources are based upon
its current expectations and that it has not received commitments from any third
party for such funds. Accordingly, the above amounts may change and D&B Holdings
may replace, in whole or in part, the above sources with other sources of funds.
Senior Secured Notes. We intend to conduct an offering of the Senior Secured
Notes in connection with the merger. The Senior Secured Notes will be offered to
qualified institutional buyers pursuant to Rule 144A under the Securities Act
and outside the United States in compliance with Regulation S of the Securities
Act. The Senior Secured Notes will not be registered under the Securities Act or
under any state securities laws upon their original issuance. We will agree to
file a registration statement with the Securities & Exchange Commission with
respect to the Senior Secured Notes following the closing of the merger.
The Senior Secured Notes will bear interest at a rate that will depend on
interest rates and market conditions at the time the Senior Secured Notes are
issued. The Senior Secured Notes will be collateralized by certain of our and
our wholly-owned domestic subsidiaries' real estate assets. It is currently
anticipated that the Senior Secured Notes will be issued on the closing date of
the merger and that the net proceeds from the offering will be used to finance a
portion of the merger consideration and certain fees, costs and
37
expenses related to the merger. The terms of repayment of the Senior Secured
Notes will depend on market conditions at the time the Senior Secured Notes are
issued and are expected to be consistent with terms then available for similar
debt instruments.
Senior Credit Facility. We intend to enter into a new Senior Credit Facility
that we would expect to provide for a five year $30.0 million revolving line of
credit, at an interest rate to be determined, to be used for, among other
things, general corporate purposes including working capital. The debt under the
Senior Credit Facility will be secured by a pledge of our capital stock and the
capital stock of our subsidiaries (but not to exceed 65% of the voting stock of
foreign subsidiaries), and a perfected lien and security interest in
substantially all of our and our wholly-owned domestic subsidiaries' personal
property assets (tangible and intangible) and certain of our and our
wholly-owned domestic subsidiaries' real estate assets. Following the merger,
the Senior Credit Facility will be available in full and up to $7.5 million will
be available to finance the merger.
The merger agreement provides that the terms and conditions of the Senior
Secured Notes offering and the Senior Credit Facility be satisfactory to D&B
Holdings.
Conditions to Financing. D&B Holdings has informed us that availability of
the proceeds from the offering of Senior Secured Notes will be dependent upon
market conditions at the time of such offering and that it has not obtained
prior commitments from any third party with respect to the Senior Credit
Facility. If D&B Holdings was successful in completing the offering of the
Senior Secured Notes or did obtain commitments for the Senior Credit Facility,
it is expected that its ability to access the proceeds from such offering or
facility would be subject to various conditions, including, among others:
o the execution of documentation satisfactory to D&B Holdings and the
lenders with respect to the Senior Credit Facility, and D&B Holdings and
the initial purchasers of the Senior Secured Notes with respect to the
Senior Secured Notes offering;
o the consummation of the merger an all related transactions;
o the absence of any material adverse change with respect to us or our
business; and
o the absence of any material adverse change or material disruption in the
financial, banking or capital markets generally.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO D&B'S
SHAREHOLDERS
The following is a description of the material U.S. federal income tax
consequences of the merger to holders of shares of D&B common stock who are
United States Persons, as defined below, and who, on the date of disposition,
hold their shares as capital assets, as defined in the Internal Revenue Code of
1986, each referred to as a "United States Holder." This discussion is based on
the Internal Revenue Code, proposed and final income tax regulations issued
under the Internal Revenue Code and administrative and judicial interpretations
of the Internal Revenue Code and regulations, each as in effect and available on
the date of this proxy statement. These income tax laws, regulations and
interpretations, however, may change at any time, and any change could be
retroactive to the date of this proxy statement. Although D&B will not seek any
rulings from the Internal Revenue Service or an opinion of counsel with respect
to the merger, D&B believes that the merger will have the U.S. federal income
tax consequences described below to the United States Holders.
D&B urges all holders to consult their own tax advisors regarding the
specific tax consequences that may result from their individual circumstances as
well as foreign, state, local and other tax consequences of the disposition of
shares in the merger. The following discussion does not address potential
foreign, state, local and other tax consequences, nor does it address special
tax consequences that may be applicable to particular classes of taxpayers,
including the following:
o financial institutions;
o real estate investment trusts;
o regulated investment companies;
o brokers and dealers or traders in securities or currencies;
o persons whose functional currency is not the U.S. dollar;
38
o insurance companies;
o tax-exempt organizations;
o S corporations;
o persons who hold common stock as part of a position in a straddle or as
part of a hedging or conversion transaction;
o persons who hold employee stock options or rights to acquire common
stock; and
o taxpayers subject to alternative minimum tax.
A "United States Person" is a beneficial owner of common stock who, for U.S.
federal income tax purposes, is:
o a citizen or resident of the U.S., including some former citizens or
residents of the U.S.;
o a partnership or corporation created or organized in or under the laws
of the U.S. or any state in the U.S., including the District of
Columbia;
o an estate if its income is subject to U.S. federal income taxation,
regardless of its source; or
o a trust if the trust validly has elected to be treated as a United
States Person for U.S. federal income tax purposes or if (A) a U.S.
court can exercise primary supervision over its administration and (B)
one or more United States Persons have the authority to control all of
its substantial decisions.
A United States Holder generally will realize gain or loss upon the exchange
of the holder's shares in the merger for cash in an amount equal to the
difference, if any, between the amount of cash received and the holder's
aggregate adjusted income tax basis in the shares surrendered.
In general, any gain or loss realized by a United States Holder in the
merger will be eligible for capital gain or loss treatment. Any capital gain or
loss recognized by a United States Holder will be long-term capital gain or loss
if the shares giving rise to the recognized gain or loss have been held for more
than one year. Otherwise, the capital gain or loss will be short-term. A
non-corporate United States Holder's long-term capital gain generally is subject
to U.S. federal income tax at a maximum rate of 20%. Any capital loss can be
offset only against other capital gains plus $3,000 of other income in any tax
year ($1,500 in the case of a married individual filing a separate return). Any
unutilized capital loss will carry over as a capital loss to succeeding years.
For United States Holders which are corporations, a capital gain is subject
to U.S. federal income tax at a maximum rate of 35%, while any capital loss can
be offset only against other capital gains. Any unutilized capital loss
generally can be carried back three years and forward five years to offset net
capital gains generated in those years.
Under the U.S. federal backup withholding tax rules, unless an exemption
applies, the paying agent in the merger will be required to and will withhold
31% of all cash payments to which a holder of shares or other payee is entitled
under the merger agreement, unless the shareholder or other payee provides a tax
identification number, certifies that number is correct and otherwise complies
with the backup withholding tax rules. Each of D&B's shareholders and, if
applicable, each other payee, should complete and sign the Substitute Form W-9
included as part of the letter of transmittal to be returned to the paying agent
in order to provide the information and certification necessary to avoid backup
withholding tax, unless an exemption applies and is established in a manner
satisfactory to the paying agent.
The U.S. federal income tax consequences set forth above are not intended to
constitute a complete description of all tax consequences relating to the
merger. Each D&B shareholder is urged to consult with its own tax advisor to
determine the particular tax consequences to such shareholder of the merger,
including the applicability and effect of foreign, state, local and other tax
laws.
For U.S. federal income tax purposes, no gain or loss will be realized by
D&B, Investcorp or D&B Acquisition as a result of the merger.
39
The exchange by the continuing shareholders of the shares of D&B common
stock for the shares of D&B Holdings stock will not be subject to federal income
tax.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the merger will be allocated among
new D&B's consolidated assets and liabilities based on the fair values of the
assets acquired and liabilities assumed.
FEES AND EXPENSES OF THE MERGER
The estimated fees and expenses in connection with the merger are set forth
in the table below:
<Table>
D&B Financial Advisor Fees $
D&B Legal, Accounting and Other Professional Fees $
D&B Holdings Legal, Accounting and Other $
Professional Fees
Printing, Proxy Solicitation and Mailing Costs $
Special Committee Fees $
Special Committee Financial Advisor Fees $
Financing Fees $
Filing Fees $
Paying Agent Fees $
Miscellaneous $
Total $
</Table>
The merger agreement provides that each party will pay all costs and
expenses incurred by it in connection with the merger. None of these costs and
expenses will reduce the $13.50 per share merger consideration to be received by
the shareholders.
APPRAISAL RIGHTS
If the merger is consummated, shareholders of D&B who have not approved the
merger will have the right under applicable Missouri law to object to the merger
and demand payment of the fair value of their shares. Shareholders who do not
vote for the merger, object to the merger and properly demand payment of the
fair value of their shares in accordance with and subject to the procedures set
forth in Section 351.455 of the Missouri BCL will be entitled to a determination
by a Missouri court of competent jurisdiction of the fair value of the shares as
of the day immediately prior to the day on which a vote in respect of the merger
was taken. In addition, dissenting shareholders may be entitled to receive
payment of interest, from the day immediately prior to the day on which a vote
in respect of the merger was taken to the date of such judgment by the court, on
the amount determined to be the fair value of their shares.
We do not intend to object, assuming the proper procedures are followed, to
any shareholder's demand for payment of the fair value of his, her or its
shares. We intend, however, to cause new D&B, as the surviving corporation, to
argue in a proceeding that, for purposes of the proceeding, the fair value of
each share is less than or equal to the merger consideration.
You should be aware that opinions of investment banking firms (including
Houlihan Lokey) as to the fairness from a financial point of view are not
necessarily opinions as to "fair value" under Missouri law.
The preservation and exercise of dissenters' rights requires strict
adherence to the applicable provisions of Missouri law. This summary of the
rights under Missouri law of dissenting shareholders does not purport to be a
complete statement of the procedures to be followed by dissenting shareholders
and is qualified in its entirety by reference to Section 351.455 of the Missouri
BCL which is attached hereto as Appendix C. Shareholders of D&B intending to
exercise their dissenters' right are urged to review carefully the provisions
set forth in Section 351.455 and to consult with legal counsel in order to
comply with the required procedures.
If you elect to exercise appraisal rights, you should mail or deliver your
written demand to: Dave & Buster's, Inc., 2481 Manana Drive, Dallas, Texas
75220, Attention: Secretary.
40
The written demand for appraisal should specify your name and mailing
address, the number of shares you own and that you are demanding appraisal of
your shares. A proxy or vote against the merger agreement and the merger will
not by itself constitute a demand. Within 10 days after the effective time of
the merger, new D&B must provide notice of the effective time of the merger to
you if you have complied with Section 351.455.
If you fail to comply fully with the statutory procedure set forth in
Section 351.455, you will forfeit your rights of appraisal and will be entitled
to receive the $13.50 per share merger consideration for your shares.
Consequently, any shareholder wishing to exercise appraisal rights should
contact legal counsel before attempting to exercise these rights.
REGULATORY APPROVALS
State Takeover Statutes. A number of states (including Missouri, where D&B
is incorporated), have adopted laws which purport, to varying degrees, to apply
to attempts to acquire corporations that are incorporated in, or which have
substantial assets, stockholders, principal executive offices or principal
places of business or whose business operations otherwise have substantial
economic effects in, such states. Except as described herein, D&B does not know
whether any of these laws will, by their terms, apply to the merger or any other
business combination between D&B Acquisition or any of its affiliates and D&B.
To the extent that certain provisions of these laws purport to apply to the
merger or other business combination, D&B believes that there are reasonable
bases for contesting such laws. In 1982, in Edgar v. MITE Corp., the Supreme
Court of the United States invalidated on constitutional grounds the Illinois
Business Takeover Statute which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that
the State of Indiana could, as a matter of corporate law, constitutionally
disqualify a potential acquiror from voting shares of a target corporation
without the prior approval of the remaining stockholders where, among other
things, the corporation is incorporated in, and has a substantial number of
stockholders in, the state. Subsequently, in TLX Purchaser Corp. v. Telex Corp.,
a Federal District Court in Oklahoma ruled that the Oklahoma statutes were
unconstitutional insofar as they apply to corporations incorporated outside
Oklahoma in that they would subject such corporations to inconsistent
Regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a Federal District
Court in Tennessee ruled that four Tennessee takeover statutes were
unconstitutional as applied to corporations incorporated outside Tennessee. This
decision was affirmed by the United States Court of Appeals for the Sixth
Circuit.
Sections 351.407 and 351.459 of the Missouri BCL (respectively, the "Control
Share Provision" and the "Interested Shareholder Provision") apply to certain
acquisitions and takeovers of Missouri corporations.
The Control Share Provision provides, among other things, that if shares of
a corporation's voting capital stock are acquired in an acquisition which (but
for the application of the Control Share Provision) would grant the holder of
those shares (when combined with the vote of such holder's affiliates or group)
the right to vote in an election of directors a percentage of the total vote
which exceeds certain thresholds described within the Control Share Provision,
then the acquired shares shall only have such voting rights as are granted by
resolution approved by the shareholders. The Control Share Provision will not
apply, however, if prior to such an acquisition the corporation has provided in
its bylaws or its articles of incorporation that the Control Share Provision
shall not apply to acquisitions of the corporation's shares. Prior to the
execution of the merger agreement, the D&B board of directors amended the bylaws
of D&B to provide that the Control Share Provision would not apply to the
transactions contemplated by the merger agreement.
In general, the Interested Shareholder Provision prevents an "interested
shareholder" (defined generally as a person who directly or indirectly
beneficially owns 20% or more of a corporation's outstanding voting stock, or an
affiliate or associate thereof) from engaging in a "business combination" (which
is defined to include mergers and certain other transactions) with certain
Missouri corporations for a period of five years following the date such person
becomes an interested shareholder. The prohibition on such business combinations
does not apply, however if, prior to the date of such a business combination,
the board of directors of the subject corporation approved the business
combination or the transactions in which such person became an interested
shareholder. On May 30, 2002, prior to the execution of the merger agreement,
the D&B board of directors approved the merger agreement and the transactions
contemplated thereby. Accordingly, the Interested Shareholder Provision is
inapplicable to the transactions contemplated by the merger agreement.
D&B reserves the right to challenge the validity of applicability of any
state law allegedly applicable to the merger, and nothing in this proxy
statement nor any action taken by D&B in connection with the merger is intended
as a waiver of that right. In the event it is asserted that one or more state
takeover statutes is applicable to the merger and an appropriate court does not
determine that it is inapplicable or invalid as applied to the merger, D&B might
be required to file certain information with, or to receive approvals from, the
relevant state authorities or holders of shares, and D&B might be delayed in
continuing or consummating the merger.
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Antitrust in the United States. Under the HSR Act and the rules that have
been promulgated thereunder by the Federal Trade Commission, certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice and the FTC and
certain waiting period requirements have been satisfied. The purchase of shares
pursuant to the merger not subject to such requirements.
Liquor Licenses. D&B Acquisition and D&B are required to obtain consents,
approvals or authorizations from the state, city and/or local liquor licensing
boards or agencies in certain states in which D&B holds liquor licenses for the
operation of its businesses. Certain of these approvals are required to be
obtained prior to a change in control being effected, and it is a condition to
D&B Acquisition's obligation to consummate the merger that these approvals be
obtained prior to the consummation of the merger. In addition, new D&B will be
required to make filings or send notices to certain additional liquor licensing
agencies following consummation of the merger.
MERGER RELATED LITIGATION
D&B and certain of its directors have been served with a complaint filed
purportedly on behalf of D&B's shareholders alleging breaches of fiduciary duty
by directors of D&B in connection with their approval of the transactions
contemplated by the merger agreement. The purported class action, filed in state
district court in Dallas County, Texas on May 31, 2002, seeks an injunction
preventing consummation of the proposed transaction and unspecified damages. D&B
has also been served with four similar complaints filed in the state of Missouri
on or after June 3, 2002, one filed in the circuit court of Greene County, and
three in the circuit court of Cole County. D&B and all of the members of D&B's
board of directors have been named as defendants in each of those complaints,
and two of the complaints filed in Cole County also name Investcorp as a
defendant.
In each of these actions, the complaint was filed before the tender offer
was terminated and the merger agreement amended to increase the merger
consideration to $13.50 per share. The plaintiffs in these actions seek class
certification, and generally allege that:
(1) the $12.00 price per share of D&B common stock offered prior to
amendment of the merger agreement is inadequate;
(2) Houlihan Lokey's opinion as to the fairness of the transaction relies on
a flawed analysis that understates the intrinsic value of D&B;
(3) D&B's offering documents were materially false and misleading because
they failed to disclose, among other things, the special committee's alleged
failure to act independently in obtaining the highest value for D&B's shares and
the substance of, and procedures for, discussions with other prospective
purchasers;
(4) some or all of the members of D&B's board of directors breached their
fiduciary duties to D&B's shareholders in connection with the merger by, among
other things, submitting materially false and misleading offering documents,
failing to hold an auction of the company to obtain the highest value for its
shares, failing to pursue or thwarting the efforts of unsolicited prospective
purchasers, taking advantage of their position within D&B to negotiate the
Support and Exchange Agreement, and requiring D&B to pay a break-up fee of $5
million (in addition to other expenses) in order to discourage other competitive
offers; and
(5) the continuing shareholders, together with Investcorp, are engaging in
the merger transaction to capture the future market potential of D&B for
themselves without regard for D&B's public stockholders;
The actions seek injunctive relief against the merger, rescission of the
merger if it is consummated or rescissionary damages, monetary damages, and an
award of plaintiffs' costs and attorneys' fees. None of the lawsuits specify any
amount of damages sought and, therefore, it is not practicable to estimate a
range of possible loss in connection with this litigation. The Dallas County
complaint and one of the Cole County complaints have been amended following the
announcement of the increase in the merger consideration. These amended class
action complaints, both of which were filed in July 2002, renew their initial
allegations and allege that the cash consideration of $13.50 per share is
inadequate.
D&B filed a motion to dismiss the complaint filed in Greene County for
improper venue, which motion is currently pending before the court. D&B also
answered the complaint filed in Dallas County, denying all of the allegations of
the plaintiffs, which it believes to be without merit. D&B has not filed an
answer to any of the Cole County complaints, but believes each of these actions
to be without merit and intends to vigorously defend against them.
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THE MERGER AGREEMENT
The following discussion of the material terms of the merger agreement is
qualified in its entirety by reference to the complete text of the merger
agreement and the amendment thereto, which are attached to this proxy statement
as Appendix A, exclusive of all schedules, which are incorporated herein by
reference.
GENERAL
Pursuant to the merger agreement, as soon as practicable following the
satisfaction (or, to the extent permitted by law, waiver by the parties entitled
to the benefits thereof) of the conditions to the merger, or at such other
place, time and date as agreed in writing between D&B Holdings and D&B, D&B
Acquisition will be merged with and into D&B.
ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION
Following the merger, the separate corporate existence of D&B Acquisition
will cease. New D&B will be the surviving corporation in the merger and will
continue as a wholly owned subsidiary of D&B Holdings. The merger will become
effective at such time as D&B Holdings files with the Secretary of State for the
State of Missouri articles of merger in such form and manner as required by the
Missouri BCL. New D&B, as the surviving corporation, will continue its corporate
existence under the laws of the State of Missouri. The merger agreement provides
that the Articles of Incorporation of D&B Acquisition in effect immediately
prior to the merger will be the Articles of Incorporation of new D&B, and that
the bylaws of D&B Acquisition in effect immediately prior to the merger will be
the bylaws of new D&B, until thereafter changed or amended as provided therein
or by applicable law. By virtue of the merger, the authorized shares of D&B will
be reduced from 40,000,000 shares of common stock and 10,000,000 shares of
preferred stock to 1,000 shares of common stock, and the stated capital will be
reduced from $132,817.79 to $1.00. The merger agreement also provides that the
directors of D&B Acquisition at the time of the merger will be the directors of
new D&B until their respective successors are duly elected or appointed and
qualified, and that the officers of D&B at the time of the merger will be the
officers of new D&B until their respective successors are duly elected or
appointed and qualified.
CONSIDERATION TO BE PAID IN THE MERGER
By virtue of the merger, each outstanding share (except for shares owned by
D&B, D&B Holdings or D&B Acquisition or by any subsidiary of D&B or D&B
Holdings, which will be canceled and retired and will cease to exist without any
payment with respect thereto or in exchange therefor, and except for shares held
by D&B's shareholders who have properly exercised rights to payment of the fair
value of such shares under Missouri law) will be converted into the right to
receive the merger consideration. Each share of common stock of D&B Acquisition
issued and outstanding immediately prior to the merger will be converted into
one share of common stock of new D&B.
STOCK OPTIONS
Pursuant to the merger agreement, immediately prior to the merger, each
outstanding option to purchase shares of D&B common stock which is then
exercisable or becomes exercisable as a result of the consummation of the
transactions contemplated by the merger agreement will be canceled by D&B. Upon
consummation of the merger, in consideration for such cancellation, the holder
of such option will be entitled to receive from new D&B as soon as practicable
after the merger an amount in cash equal to the product of (i) the number of
shares of D&B common stock previously subject to such stock option and (ii) the
excess, if any, of the merger consideration over the exercise price per share
for such stock option, reduced by the amount of withholding or other taxes
required by law to be withheld. Except as provided in the merger agreement or as
otherwise agreed by the parties, D&B stock option plans and any other plan,
program or arrangement providing for the issuance or grant of any interest in
respect of D&B common stock will terminate upon the effectiveness of the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
the parties. These include representations and warranties of D&B (on behalf of
itself and its subsidiaries) with respect to corporate organization, standing
and power, subsidiaries and equity interests, capitalization, corporate
authority, noncontravention, consents and approvals necessary for the merger,
filings with the SEC, accuracy of financial statements, absence of undisclosed
liabilities, absence of certain changes in D&B's business, litigation, employee
benefit plans and compliance with ERISA, disclosures in offer documents and
proxy statement, compliance with
43
laws, permits, tax matters, environmental matters, properties and assets,
intellectual property, material agreements, brokers' fees, board of directors
and special committee actions, fairness opinion of Houlihan Lokey, control share
statutes, D&B's Rights Agreement, insurance, suppliers and labor matters.
The representations and warranties contained in the merger agreement also
include representations and warranties of D&B Holdings and D&B Acquisition with
respect to corporate organization, standing and power, corporate authority,
noncontravention, consents and approvals necessary for the merger, disclosures
in offer documents and D&B proxy statement, availability of financing, brokers'
fees and prior operations.
No representations or warranties made by D&B, D&B Holdings or D&B
Acquisition will survive beyond the merger.
CONDUCT OF BUSINESS BEFORE THE MERGER
Pursuant to the merger agreement, D&B has agreed to conduct, and to cause
each of its subsidiaries to conduct, its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted and, to
the extent consistent therewith, use its reasonable efforts to preserve intact
its current business organization, keep available the services of its current
officers and key employees and keep its relationships with customers, suppliers,
licensors, licensees, distributors and others having business dealings with them
so that its goodwill and ongoing business will not be materially impaired at the
time of the merger. Without limiting the generality of the foregoing, except as
otherwise contemplated by the merger agreement, until the completion of the
merger, D&B may not, nor permit any of its subsidiaries to, do any of the
following without the prior written consent of D&B Holdings:
o (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned
subsidiary of D&B to its parent, (ii) split, combine, subdivide or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (iii) purchase, redeem or otherwise
acquire, directly or indirectly, any shares of its capital stock or any
other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
o authorize for issuance, issue, deliver, sell, pledge or grant (i) any
shares of its capital stock, (ii) any debt securities which have the
right, or are convertible into the right, to vote on matters which D&B
shareholders may vote, or other voting securities, (iii) any securities
convertible into or exchangeable for, or any options, warrants or rights
to acquire, any such shares, voting securities or convertible or
exchangeable securities, or (iv) any "phantom" stock, "phantom" stock
rights, stock appreciation rights or stock-based performance units,
other than the issuance of D&B common stock upon the exercise of stock
options outstanding on May 30, 2002 and in accordance with their present
terms;
o amend its articles of incorporation, bylaws or other comparable charter
or organizational documents;
o (i) enter into, or propose or negotiate to enter into, any material
contract (other than as contemplated by the merger agreement), (ii)
amend, or propose or negotiate to amend, the terms of any existing
material contracts, (iii) acquire, or propose or negotiate to acquire,
any interest in a corporation, partnership or joint venture arrangement,
or (iv) sell, transfer, assign, relinquish, terminate or make any other
material change (taken on an individual basis) in, or propose or
negotiate to take any such action with respect to, D&B material
interests (as of May 30, 2002) in the equity or debt securities of any
corporation, partnership or joint venture arrangement which holds such
an interest, including, without limitation, the imposition of any lien
on any of the foregoing;
o acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (ii)
any assets that are material, individually or in the aggregate, to D&B
and its subsidiaries taken as a whole;
o (i) grant to any officer or director of D&B or any of its subsidiaries
any increase in compensation, except to the extent required under
employment agreements in effect as of February 3, 2002 and except for
fees payable to the members of the special committee, (ii) grant to any
officer or director of D&B or any its subsidiaries any increase in
severance or termination pay, except to the extent required under any
agreement in effect as of February 3, 2002, (iii) enter into or amend
any employment, consulting, indemnification, severance or termination
agreement with any such officer or director, (iv) establish, adopt,
enter into or amend in any material respect any collective bargaining
agreement or employee benefit plan, except as
44
required by applicable law, or (v) take any action to accelerate any
rights or benefits (including vesting under D&B 401(k) plan), or make
any material determinations not in the ordinary course of business
consistent with prior practice, under any collective bargaining
agreement or employee benefit plan;
o make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of D&B, except insofar as may have been required
by a change in generally accepted accounting principles;
o sell, lease, license or otherwise dispose of or subject to any lien any
properties or assets, except in the ordinary course of business
consistent with past practice;
o (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of D&B or any of
its subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with
past practice, or (ii) make any loans, advances or capital contributions
to, or investments in, any other person, other than to or in D&B or any
direct or indirect wholly-owned subsidiary of D&B;
o make or agree to make any new capital expenditure or expenditures other
than capital expenditures which do not exceed the amount budgeted
therefor in D&B's annual capital expenditures budget for fiscal year
2002 previously provided to D&B Holdings;
o make any material tax election or settle or compromise any material tax
liability or refund or consent to any extension or waiver of the statute
of limitations period applicable to any tax claim or action;
o (i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in accordance with
their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or
the notes thereto) of D&B or incurred in the ordinary course of business
consistent with past practice, (ii) cancel any material indebtedness
(individually or in the aggregate) or waive any claims or rights of
substantial value, or (iii) waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement to
which D&B or any of its subsidiaries is a party;
o make any material change (including failing to renew) in the amount or
nature of the insurance policies covering D&B and its subsidiaries;
o waive any material claims or rights relating to D&B or any of its
subsidiaries' business;
o (i) redeem the rights outstanding under the Rights Agreement, or amend
or modify or terminate the Rights Agreement or render it inapplicable to
(or otherwise exempt from the application of the Rights Agreement) any
person or action, other than to delay the Distribution Date (as defined
in the Rights Agreement) or to render the rights inapplicable to the
execution, delivery and performance of the merger agreement, the tender
offer and the merger, or (ii) permit the rights to become non-redeemable
at the redemption price currently in effect; or
o authorize any of, or commit or agree to take any of, the foregoing
actions.
In addition, the merger agreement provides that each of D&B and D&B Holdings
may not, nor may they permit any of their respective subsidiaries to, take any
action that would, or that could reasonably be expected to, result in: (x) any
of the representations and warranties of such party set forth in the merger
agreement that is qualified as to materiality becoming untrue; (y) any of such
representations and warranties that is not so qualified becoming untrue in any
material respect; or (z) any condition to the merger agreement (excluding those
relating to the offer) or any condition to the merger not being satisfied.
45
NO SOLICITATION
The merger agreement provides that the board of directors of D&B must
promptly advise D&B Holdings orally and in writing of the existence of any
Takeover Proposal or Superior Proposal. The term "Takeover Proposal" means,
other than the transactions contemplated by the merger agreement, any of the
following:
o any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of a business that constitutes 25% or
more of the net revenues, net income or the assets of D&B and its
subsidiaries taken as a whole, or 25% or more of any class of equity
securities of D&B or any of its subsidiaries;
o any tender offer or exchange offer that if consummated would result in
any person beneficially owning 25% or more of any class of equity
securities of D&B or any of its subsidiaries; or
o any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving D&B or any of
its subsidiaries.
The term "Superior Proposal" means any bona fide proposal which:
o is made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution or
similar transaction, for consideration consisting of cash and/or
securities, 100% of the outstanding shares or all or substantially all
the assets of D&B; and which
o the board of directors of D&B determines in its good faith judgment,
based on the written advice of its financial advisor, is reasonably
capable of being completed, taking into account all legal, financial,
regulatory and other aspects of the proposal and the third party making
such proposal; and which
o is made on terms that the board of directors of D&B determines in its
good faith judgment (based on the written advice of its financial
advisor) provide greater present value to D&B's shareholders than the
cash consideration to be received by such shareholders pursuant to the
tender offer and the merger, as the tender offer and the merger may be
amended from time to time.
The merger agreement provides that D&B may not, nor may it permit any of its
subsidiaries to, nor may it authorize or permit any officer, director or
employee of, or any investment banker, attorney or other advisor, agent or
representative of D&B or any of its subsidiaries (referred to collectively in
this proxy statement as a "company representative") to: (a) solicit, initiate or
knowingly encourage the submission of any Takeover Proposal; (b) enter into any
agreement with respect to any Takeover Proposal; or (c) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Takeover Proposal.
Notwithstanding the foregoing, at any time prior to the consummation of
merger, in response to a Superior Proposal that was not solicited by D&B or any
company representative on or after May 30, 2002 and that did not otherwise
result from a breach of D&B covenant described in the preceding paragraph, the
board of directors of D&B may participate in discussions and negotiations
regarding such Superior Proposal and furnish information concerning D&B to the
person making such Superior Proposal, subject to its providing prior written
notice of its decision to take such action to D&B Holdings and to its previously
advising D&B Holdings orally and in writing of the existence of any Takeover
Proposal or Superior Proposal.
The merger agreement does not prohibit the board of directors of D&B from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Securities Exchange Act of 1934 or from changing
its recommendation with respect to the merger agreement, or making any
disclosure to D&B's shareholders if, in the good faith judgment of D&B, after
consultation with outside counsel, failure to take any such action would result
in a breach of its fiduciary duties to shareholders under applicable law.
46
ACCESS TO INFORMATION; CONFIDENTIALITY
D&B has agreed to provide, and to cause each of its subsidiaries to provide,
D&B Holdings and its directors, officers, employees, accountants, counsel,
financial advisers, financing sources and other representatives with reasonable
access during normal business hours during the period prior to the merger to all
of D&B and its subsidiaries' respective properties, books, contracts,
commitments, personnel and records. D&B has also agreed to furnish, and to cause
each of its subsidiaries to furnish, promptly to D&B Holdings during the period
prior to the merger (i) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of federal or state securities laws; and (ii) all other information concerning
its business, properties and personnel as D&B Holdings may reasonably request.
The merger agreement provides that all nonpublic information so exchanged will
be subject to the confidentiality agreement dated as of March 26, 2002, as
amended or supplemented from time to time, between D&B and Investcorp
International. See "Summary Term Sheet -- The Companies."
REASONABLE EFFORTS
Each of D&B, D&B Holdings and D&B Acquisition has agreed, subject to
the terms and conditions of the merger agreement, to use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the merger and the other obligations of such party under the
merger agreement. These things include: (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from governmental
entities and the making of all necessary registrations and filings (including
filings with governmental entities, if any) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any governmental entity; (ii) the obtaining of all
necessary consents, approvals or waivers from third parties; (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging the merger agreement or the consummation of the merger agreement,
including seeking to have any stay or temporary restraining order entered by any
court or other governmental entity vacated or reversed; and (iv) the execution
and delivery of any additional instruments necessary to consummate the merger
agreement and to fully carry out the purposes of the merger agreement. Without
limiting the foregoing, D&B has also agreed to (x) take all action necessary to
ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to the merger agreement and (y) if any state takeover statute
or similar statute or regulation becomes applicable to the merger agreement,
take all action necessary to ensure that the merger may be consummated as
promptly as practicable on the terms contemplated by the merger agreement and
otherwise to eliminate or minimize the effect of such statute or regulation on
the merger. The merger agreement provides that none of its provisions may be
deemed to require any party to waive any substantial rights or agree to any
substantial limitation on its operations.
NOTIFICATION
D&B has agreed to give prompt notice to D&B Holdings, and D&B Holdings and
D&B Acquisition have agreed to give prompt notice to D&B, of (i) any
representation or warranty made by it contained in the merger agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect and (ii) any failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under the merger agreement. The merger
agreement provides that no such notification will affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under the merger agreement.
EMPLOYEE BENEFIT PLANS
D&B Holdings has agreed, for one year after the merger, to either (i) cause
new D&B to continue to sponsor and maintain D&B existing employee benefit plans
other than any stock option or similar plans (the "Company Benefit Plans") or
(ii) provide benefits to the employees of D&B who continue to be employed by new
D&B under employee benefit plans, programs, policies or arrangements that in the
aggregate are substantially similar to those benefits provided to employees by
D&B immediately prior to the merger (excluding any stock option or other equity
compensation plan or program). With respect to any employee benefit plan,
program, policy or arrangement (other than stock options or stock based
compensation) sponsored or maintained by D&B Holdings and offered to new D&B
employees in addition to or as a substitute for D&B Benefit Plans, D&B Holdings
has agreed to give new D&B employees service credit for their employment with
D&B for eligibility and vesting purposes under all such employee benefit plans,
programs, policies or arrangements as if such service had been performed with
D&B Holdings. D&B Holdings has also agreed that, if D&B Holdings offers health
benefits to new D&B employees under a group health plan that is not a Company
Benefit Plan, D&B Holdings will waive any pre-existing condition exclusions
under such group health plan to the extent coverage exists for such
47
condition under D&B Benefit Plan and will credit each new D&B employee with all
deductible payments and co-payments paid by such new D&B employee under D&B's
health plan prior to the merger during the current plan year for purposes of
determining the extent to which any such new D&B employee has satisfied his or
her deductible and whether he or she has reached the out-of-pocket maximum under
any health plan for such plan year.
D&B Holdings has also agreed, following the merger, to cause new D&B and its
subsidiaries to honor, subject to its obligations described in this section and
in "-- Indemnification," all obligations under all employment, severance,
consulting and similar agreements of D&B and its subsidiaries existing on May
30, 2002, the existence of which did not constitute a violation of the terms of
the merger agreement.
Nothing in the merger agreement gives any employee of D&B or of any of D&B
subsidiaries any right to continued employment following the merger.
INDEMNIFICATION
D&B Holdings has agreed, after the completion of the merger, to cause new
D&B (or any successor to new D&B) to indemnify, defend and hold harmless the
present and former officers and directors of D&B and its subsidiaries (each, an
"Indemnified Party") against all losses, claims, damages, liabilities, fees and
expenses (including reasonable fees and disbursements of counsel and judgments,
fines, losses, claims, liabilities and amounts paid in settlement, provided that
any such settlement is effected with the written consent of D&B Holdings or new
D&B) incurred by reason of the fact that such person is or was an officer or
director of D&B or any of its subsidiaries and arising out of actions or
omissions occurring on or prior to the merger to the full extent permitted by
law, with each Indemnified Party's right to such indemnification including the
advancement of expenses incurred in the defense of any action or suit to the
extent permitted by the Missouri BCL. The merger agreement provides that any
determination which is required to be made with respect to whether an
Indemnified Party is entitled to such indemnification, including any
determination whether an Indemnified Party's conduct complies with the standards
set forth under the Missouri BCL, will be made at D&B Holdings' expense by
independent counsel mutually acceptable to D&B Holdings and the Indemnified
Party. The merger agreement further provides that none of its provisions will
impair any rights or obligations of any present or former directors or officers
of D&B.
D&B Holdings has also agreed, to the fullest extent permitted by law, to
cause new D&B to honor all of D&B's obligations to indemnify (including any
obligations to advance funds for expenses) the members of the special committee
and current or former directors or officers of D&B and its subsidiaries for acts
or omissions by such directors and officers occurring prior to the merger to the
extent that such obligations of D&B existed on May 30, 2002, whether pursuant to
D&B's Restated Articles of Incorporation, D&B's bylaws, individual indemnity
agreements or otherwise. The merger agreement provides that such indemnification
obligations will survive the merger and will continue in full force and effect
in accordance with the terms of D&B's Restated Articles of Incorporation, D&B's
bylaws and such individual indemnity agreements from the merger until the
expiration of the applicable statute of limitations with respect to any claims
against such directors or officers arising out of such acts or omissions.
INSURANCE
D&B Holdings has agreed, for a period of six years after the merger, to
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by D&B with respect to claims arising
from or related to facts or events which occurred at or before the merger,
provided that D&B Holdings may substitute for such current policies new policies
with reputable and financially sound carriers of at least the same coverage and
amounts containing terms and conditions which are no less advantageous. However,
D&B Holdings will not be obligated to make annual premium payments for such
insurance to the extent such premiums exceed 150% of the annual premiums paid as
of May 30, 2002, by D&B for such insurance (such 150% amount, the "Maximum
Premium"). If such insurance coverage cannot be obtained at all, or can only be
obtained at an annual premium in excess of the Maximum Premium, D&B Holdings
must maintain the most advantageous policies of directors' and officers'
insurance obtainable for an annual premium equal to the Maximum Premium.
FEES AND EXPENSES
The merger agreement provides that all fees and expenses incurred in
connection with the merger will be paid by the party incurring such fees or
expenses, whether or not the merger is consummated, except with respect to any
fees payable upon termination as described below, if such fees become payable.
See "--Effect of Termination."
48
PUBLIC ANNOUNCEMENTS
Through the effective time of the merger, D&B Holdings and D&B Acquisition,
on the one hand, and D&B, on the other hand, have agreed to consult with each
other before issuing, and to provide each other the opportunity to review and
comment upon, any press release or other public statements with respect to the
merger and the other obligations under the merger agreement, and have agreed not
to issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. D&B has also agreed to give at least 24 hours' prior written notice to
D&B Holdings and D&B Acquisition of any proposed press release or other public
statement not relating to the merger or any of the obligations under the merger
agreement, which notice is to include the text of such press release or public
statement.
COOPERATION WITH FINANCING EFFORTS
D&B has agreed to provide, and to cause its subsidiaries and its and their
respective officers, employees and advisors to provide, reasonable cooperation
in connection with the arrangement of any financing in respect of the
transactions contemplated by the merger agreement. Such cooperation will include
participation in meetings, due diligence sessions, road shows, the preparation
of offering memoranda, private placement memoranda, prospectuses and similar
documents and the execution and delivery of any commitment letters, underwriting
or placement agreements, pledge and security documents, other definitive
financing documents or other requested certificates or documents, including a
customary certificate of the chief financial officer of D&B with respect to
solvency matters, comfort letters of accountants, legal opinions and real estate
title documentation as may be reasonably requested by D&B Acquisition.
CONSENTS
The merger agreement provides that from and after May 30, 2002, until the
merger is complete, D&B and its subsidiaries will use commercially reasonable
efforts to obtain certain consents.
CONDITIONS TO THE MERGER
The obligation of each of D&B Holdings, D&B Acquisition and D&B to effect
the merger is subject to the satisfaction or waiver on or prior to the closing
of the merger of each of the following conditions:
o the merger agreement shall have been adopted by the holders of 66 2/3%
of the outstanding shares of common stock;
o the waiting period (and any extension thereof) applicable to the merger
under the HSR Act, if any, shall have been terminated or shall have
expired. Any consents, approvals and filings under any foreign antitrust
law, the absence of which would prohibit the consummation of the merger,
shall have been obtained or made; and
o no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the merger shall
be in effect.
The obligations of D&B Holdings and D&B Acquisition to consummate the merger
will be conditioned on, in addition to the other conditions to the merger set
forth above, the funding from third-party lenders of at least $155 million
aggregate principal amount of new debt financing and availability of an
additional $30 million line of credit from third party lenders, in each case on
commercially reasonable terms as determined in the good faith judgment of D&B
Holdings, and the satisfaction of each of the conditions set forth in Exhibit A
to the Merger Agreement (disregarding references to the tender offer contained
therein), which include the following:
o no suit, action or proceeding shall be pending by a governmental entity
seeking to restrain or prohibit the merger or which would otherwise have
a "material adverse effect," which means any event, change, effect or
development that, (i) is or is reasonably expected to be materially
adverse to the business, operations, properties, conditions, prospects,
assets or liabilities of D&B or its subsidiaries, taken as a whole, or
(ii) impairs or would reasonably be excepted to impair in any material
respect, the ability of D&B to perform its obligations under the merger
agreement;
o no event, change or development that has had or would reasonably be
expected to have such a material adverse effect, except for such as may
relate to economic conditions generally shall have occurred;
49
o D&B shall have complied in all material respects with its agreements and
covenants under the merger agreement;
o D&B shall have obtained any required material third party and
governmental consents and approvals, including the approval of the
landlords of certain of D&B's leased properties and of the liquor
control boards in certain of the states in which D&B operates; and
o the representations and warranties by D&B contained in the merger
agreement (which for this purpose shall be read as though none of them
contained any Material Adverse Effect or other materiality
qualifications) shall be true and correct in all material respects as of
May 30, 2002 and at the effective time of the merger, except where the
failure of such representations and warranties in the aggregate to be
true and correct in all respects, individually or in the aggregate, have
not had and would not reasonably be expected to have a material adverse
effect on D&B; provided, however, that the representations in Section
3.3 of the merger agreement as to the number of issued and outstanding
shares of capital stock of D&B and stock options shall be true and
correct in all respects.
The obligation of D&B to effect the merger is subject to the satisfaction or
waiver on or prior to the closing of the merger of the condition that the
representations and warranties by D&B Holdings and D&B Acquisition contained in
the merger agreement (which for this purpose shall be read as though none of
them contained any material adverse effect or other materiality qualifications)
shall be true and correct in all respects as of May 30, 2002, and at the
effective time of the merger, except where the failure of such representations
and warranties in the aggregate to be true and correct in all respects,
individually or in the aggregate, have not had and would not reasonably be
expected to have a material adverse effect on the ability of D&B Holdings and
D&B Acquisition to consummate the merger.
TERMINATION
The merger agreement may be terminated at any time prior to the effective
time of the merger, before or after the merger agreement has been adopted by a
vote of D&B's shareholders, in the following ways:
o D&B Holdings, D&B Acquisition and D&B agree to terminate the merger
agreement by mutual written consent.
o Either D&B Holdings or D&B decides to terminate the merger agreement
because:
(i) the merger is not consummated on or before October 31, 2002,
unless the failure to consummate the merger is the result of a willful
or material breach of the merger agreement by the party seeking to
terminate the merger agreement, provided that the passage of such period
is to be tolled for any part thereof during which any party is subject
to a nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the merger;
(ii) any governmental entity issues an order, decree or ruling or
takes any other action permanently enjoining, restraining or otherwise
prohibiting the merger, and such order, decree, ruling or other action
has become final and nonappealable; or
(iii) upon a vote at a duly held meeting to obtain the adoption of
the merger agreement by the holders of at least 66 2/3% of the
outstanding shares, such adoption is not obtained, provided that the
merger agreement may not be terminated by D&B Holdings if D&B Holdings
or D&B Acquisition is in breach of its covenant to vote to adopt and
approve the merger agreement and the merger at such meeting.
o D&B Holdings decides to terminate the merger agreement because:
(i) D&B breaches or fails to perform in any material respect any of
its covenants contained in the merger agreement, which breach or failure
to perform would give rise to the failure of a condition set forth in
Exhibit A to the merger agreement; or causes a failure of the condition
that the representations and warranties by D&B contained in the merger
agreement (which for this purpose shall be read as though none of them
contained any Material Adverse Effect or other materiality
qualifications) shall be true and correct in all material respects as of
May 30, 2002 and at the effective time of the merger, except where the
failure of such representations and warranties in the aggregate to be
true and correct in all respects, individually or in the aggregate, have
not had and would not reasonably be expected to have a material adverse
effect on D&B; provided, however, that the representations in Section
3.3 of the merger agreement as to the number of issued and outstanding
shares of capital stock of D&B and stock options shall be true and
correct in all respects;
50
(ii) any of the conditions set forth in Exhibit A to the merger
agreement (disregarding references to the tender offer) has become
incapable of fulfillment prior to October 31, 2002, other than the
minimum tender condition, and has not have been waived by all applicable
parties; or
(iii) the board of directors of D&B fails to make, withdraws,
modifies or changes in any manner adverse to D&B Holdings and D&B
Acquisition its approval or recommendation of the tender offer, the
merger and the merger agreement.
o D&B decides to terminate the merger agreement because:
(i) D&B Holdings or D&B Acquisition breaches or fails to perform in
any material respect any of their respective covenants contained in the
merger agreement; or
(ii) at any time prior to consummation of the merger, the board of
directors of D&B has provided written notice to D&B Holdings that D&B is
prepared, upon termination of the merger agreement, to enter into a
binding written definitive agreement for a Superior Proposal; provided
that (A) D&B must have complied with its covenants regarding
non-solicitation of Takeover Proposals in all respects; (B) the Board of
D&B must have reasonably concluded in good faith in consultation with
Houlihan Lokey and outside counsel that such proposal is a Superior
Proposal; (C) D&B Holdings does not make, within five business days
after receipt of D&B written notice referred to above, an offer that the
Board of D&B has reasonably concluded in good faith in consultation with
Houlihan Lokey and outside counsel is at least as favorable to the
shareholders of D&B as the Superior Proposal; and (D) D&B must have paid
D&B Holdings the termination fee described below.
EFFECT OF TERMINATION
The merger agreement provides that it will, upon termination of the merger
agreement by either D&B or D&B Holdings as described above, become void and have
no effect without any liability or obligation on the part of D&B, D&B Holdings
or D&B Acquisition, except to the extent that such termination results from any
breach by a party of any representation, warranty or covenant set forth in the
merger agreement, and except for: (i) the obligations of each of D&B, D&B
Holdings and D&B Acquisition with respect to confidentiality, as described in
"-- Access to Information; Confidentiality," and with respect to fees and
expenses, as described in "-- Fees and Expenses"; (ii) the provision of the
merger agreement described in this paragraph; and (iii) certain miscellaneous
provisions of the merger agreement, including provisions relating to assignment
and enforcement.
If the merger agreement is terminated (i) by D&B Holdings should the board
of directors of D&B withdraw, modify or change, in any manner adverse to D&B
Holdings or D&B Acquisition, its approval or recommendation of the merger or the
merger agreement, or (ii) by D&B by delivery of written notice to D&B Holdings
that D&B is prepared to enter into a binding written definitive agreement for a
Superior Proposal upon termination of the merger agreement, the merger agreement
provides that D&B shall pay to D&B Holdings a termination fee of $5.68 million
in cash. In addition, in such event D&B shall reimburse D&B Holdings, D&B
Acquisition and their affiliates for all out-of-pocket fees and expenses
incurred by any of them in connection with the negotiation of the merger
agreement and the merger and any related financings (including, without
limitation, fees and costs of attorneys and accountants and other advisors and
fees payable to banks, financial institutions and their respective agents and
fees of financial printers engaged by D&B Holdings, D&B Acquisition or their
affiliates).
WAIVER
The merger agreement provides that any term or provision of the merger
agreement may be waived, or the time for its performance may be extended, by the
party or parties entitled to the benefit thereof. The merger agreement further
provides that the failure of any party thereto to enforce at any time any
provision of the merger agreement will not be construed to be a waiver of such
provision, nor will it in any way affect the validity of the merger agreement or
any part thereof or the right of any party thereafter to enforce each and every
such provision. The merger agreement also provides that no waiver of any breach
of the agreement will be held to constitute a waiver of any other or subsequent
breach.
AMENDMENT
The merger agreement provides that it may be amended, modified or
supplemented by D&B, D&B Holdings and D&B Acquisition by mutual agreement in
writing.
51
ASSIGNMENT
The merger agreement provides that neither it nor any of the rights,
interests or obligations under it may be assigned or delegated by any of the
parties without the prior written consent of the other parties.
52
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of the special committee and the board of
directors with respect to the merger agreement and the merger, you should be
aware that, in addition to the matters discussed above, D&B's executive
officers, the continuing shareholders and certain directors have interests in
the merger that are in addition to, or different from, the interests of the
shareholders generally and that create potential conflicts of interest. The
special committee and the board of directors were aware of and considered these
actual and potential conflicts of interest in deciding to approve the merger
agreement and the transactions contemplated thereby.
SUPPORT AND EXCHANGE AGREEMENT
Concurrently with the execution of the merger agreement, the continuing
shareholders entered into a Support and Exchange Agreement with D&B Holdings and
D&B Acquisition. Pursuant to the Support and Exchange Agreement, the continuing
shareholders have agreed, among other things, to not transfer or sell their
shares and to vote their shares in favor of the merger in any vote of D&B's
shareholders. In addition, these individuals have agreed to exchange (i) shares
owned by them, including shares subject to stock award restrictions, for newly
issued shares of common stock of D&B Holdings, and (ii) certain of their
in-the-money options to purchase D&B common stock for new options to purchase
common stock of D&B Holdings, as set forth in the table below. Such exchange
will occur immediately prior to the consummation of the merger, if the merger
agreement is approved by D&B's shareholders and the other conditions are
satisfied or waived.
<Table>
<Caption>
RESTRICTED PARENT SHARES ISSUED IN
SHARES SHARES IN-THE-MONEY-OPTIONS EXCHANGE (ESTIMATED)(1)
David O. Corriveau 422,717 60,000 4,988 42,930
James W. Corley 427,718 60,000 -- 43,375
Walter S. Henrion 63,110 -- 30,000 5,613
William C. Hammett, Jr. -- 25,000 60,816 2,273
</Table>
(1) Based upon an assumed 1,000,000 shares of D&B Holdings common stock to be
issued prior to giving effect to the stock incentive plans described herein, the
continuing shareholders will, in the aggregate, be issued approximately 9.41% of
the common stock of D&B Holdings.
In addition, the Support and Exchange Agreement provides that none of the
continuing shareholders may, except as provided therein, (i) solicit, initiate
or knowingly encourage the submission of any "Takeover Proposal" (defined in the
merger agreement generally as any acquisition that constitutes 25% or more of
the net revenues, net income or the assets of D&B, or 25% or more of any class
of equity securities of D&B. See "The Merger Agreement -- No Solicitation");
(ii) enter into any agreement with respect to any Takeover Proposal; or (iii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Takeover Proposal. The continuing shareholders must
also promptly advise D&B Holdings orally and in writing of the existence of any
Takeover Proposal.
STOCKHOLDER AGREEMENT
Concurrently with the exchange described in "-- Support and Exchange
Agreement," the continuing shareholders are expected to enter into a Stockholder
Agreement with D&B Holdings, new D&B and the shareholders of D&B Holdings. The
Stockholder Agreement sets forth certain rights and obligations relating to the
D&B shares of stock of D&B Holdings that the continuing shareholders will
receive in exchange for their Affiliate Shares. Pursuant to the Stockholder
Agreement, the continuing shareholders would agree to, among other things,
certain limitations on sales of such stock and procedures on the sale of such
stock to third parties, including co-sale and drag-along rights.
PUT/CALL RIGHTS
The Stockholder Agreement is expected to contain provisions customary among
holders of privately held companies, including rights of first refusal,
tag-along and drag-along rights and pre-emptive rights. The Stockholder
Agreement also is expected to contain put and call provisions, whereby the
continuing shareholders may elect to require D&B Holdings to repurchase equity
securities of D&B Holdings received pursuant to the exchange described above
under certain circumstances (the "Put"), and whereby D&B Holdings may elect to
purchase the common stock owned by such individuals under certain circumstances
(the "Call"). The above mentioned persons will be entitled to a Put in the event
of (i) the termination of employment without cause of Messrs. Corriveau,
53
Corley or Hammett; (ii) the termination of Mr. Henrion's consulting agreement
with D&B; or (iii) the death or disability of such individual. D&B Holdings will
be entitled to a Call in the event of (i) the termination of employment of
Messrs. Corriveau, Corley or Hammett; or (ii) the termination of Mr. Henrion's
consulting agreement with D&B. The price paid upon the occurrence of a Put or
Call will generally be the fair market value of the common stock of D&B Holdings
as of the date of the event giving rise to the Put or Call. However, Messrs.
Corriveau and Corley will be entitled to a price of 125% of fair market value if
the Put or Call arises from a termination of their employment without cause at a
time when D&B has achieved at least 85% of certain operating performance targets
for the 15 months ending as of the month immediately preceding the date of
termination. The Call price must be paid in cash in full. However, the Put price
will be paid in the form of cash, notes and/or preferred stock, depending upon
both the amount of the Put price and the restrictions then existing under D&B
Holdings' credit agreements.
D&B HOLDINGS GOVERNANCE
The Stockholder Agreement will provide that each of Messrs. Corriveau,
Corley and Henrion will be entitled to serve on the board of directors of D&B
Holdings or to designate a replacement director reasonably acceptable to
Investcorp if any such individual is unable to serve as director. Unless at
least two of Messrs. Corriveau, Corley and Henrion consent, the board will not
relocate new D&B's executive offices from the Dallas metropolitan area or, prior
to the second anniversary of the Stockholder Agreement, engage in any new line
of business which would represent a material deviation from the operation of the
"Dave & Buster's" concept of restaurant/entertainment centers as currently
conducted and proposed to be conducted.
D&B HOLDINGS STOCK INCENTIVE PLANS
D&B Holdings and the continuing shareholders have negotiated a term sheet
regarding new stock incentive plans of D&B Holdings. The term sheet contemplates
that D&B Holdings will reserve an aggregate of 14.5% of its fully diluted common
stock for stock options and restricted stock awards. Of this amount, an
aggregate of 9.3% will be reserved for "management stock options," of which 2.8%
will be granted to Messrs. Corriveau, Corley and Henrion, 4.2% will be reserved
for members of management other than such individuals and 2.3% is reserved for
future grants. Of the remaining 5.1% so reserved, an aggregate of 2.3% will be
reserved for "founders' stock options" to be granted to Messrs. Corriveau and
Corley, and an aggregate of 2.8% is reserved for restricted stock awards to be
granted to Messrs. Corriveau and Corley. All grants of stock options at or about
the consummation of the merger will be at a per share exercise price equal to
that paid in the merger.
The options are expected to generally vest seven years after the closing of
the merger, but will be subject to earlier vesting upon (i) achievement of
certain projected results of operations; (ii) realization of a specified minimum
annual rate of return on the investment in D&B Holdings in the event of a sale
of D&B Holdings or D&B prior to an initial public offering of D&B Holdings'
common stock; and/or (iii) such initial public offering. Restricted stock awards
will vest, and restrictions thereon will lapse, in accordance with vesting
schedules similar to the stock options. In order to receive a stock option
grant, an executive officer will be required to voluntarily terminate his
currently existing Executive Retention Agreement with D&B. The stock options and
restricted stock awards will also contain various put and call provisions that
are triggered upon the termination of the executive's employment or the death or
disability of the executive.
LOAN ARRANGEMENT
Mr. Corriveau has currently pledged shares of common stock to secure loans
aggregating approximately $2.5 million. Upon the consummation of the merger, D&B
will either loan funds to Mr. Corriveau to retire the existing loans or provide
a guarantee of such loans. The replacement loan will be required to be repaid on
the earlier of the seventh anniversary of the merger or a sale of new D&B. Mr.
Corriveau will also be required to reduce the principal balance 180 days after
the termination of his employment with new D&B, to the extent of any after tax
proceeds received as a result of such termination. The replacement loan will
bear interest at the rate charged under new D&B's revolving credit facility. Mr.
Corriveau has further agreed to apply 25% of any bonus received by him to
accrued interest on, and unpaid principal of, the replacement loan.
EMPLOYMENT AGREEMENTS; EXECUTIVE RETENTION AGREEMENTS
D&B entered into Employment Agreements and Executive Retention Agreements
with each of Messrs. Corriveau and Corley in April 2000. In addition, in fiscal
year 2001, D&B also entered into Executive Retention Agreements with all of its
other executive officers. These agreements provide for guaranteed severance
payments equal to two times the annual compensation of the executive officers
(base salary plus cash bonus award) and continuation of health and similar
benefits for a two-year period upon termination of employment without cause
within one year after a change of control of D&B. In addition, D&B has entered
into related trust
54
agreements to provide for payment of amounts under its non-qualified deferred
compensation plans and the Executive Retention Agreements. Full funding is
required in the event of a change of control. The merger constitutes a change of
control within the meaning of the Executive Retention Agreements for Messrs.
Corriveau and Corley, but does not constitute a change of control under the
Executive Retention Agreements for other executive officers of D&B. Messrs.
Corriveau and Corley have agreed with D&B Holdings that they will voluntarily
terminate their respective Executive Retention Agreements immediately prior to
the merger; however, their Employment Agreements will remain in effect.
NON-COMPETITION AGREEMENTS
In connection with the merger, Messrs. Corriveau and Corley have agreed to
enter into non-competition agreements with D&B Holdings whereby Messrs.
Corriveau and Corley will agree that for a period of two years following the
merger, they will not engage in any business that is competitive with new D&B.
Messrs. Corriveau and Corley will not receive any additional consideration for
entering into these agreements, and the restrictions in these agreements will be
in addition to, and not in lieu of, the continuing non-compete restrictions in
their existing employment agreements.
RESTRICTED STOCK
Certain of D&B's executive officers have previously received awards of
restricted stock, which shares vest at future dates or earlier upon D&B's
achievement of specific performance measures. All of these shares vest upon a
change of control and all restrictions thereon will immediately lapse. Upon the
consummation of the merger, restricted shares will vest for each of the
following executive officers in the amounts set forth their respective names:
<Table>
<Caption>
NAME NUMBER OF SHARES
---- ----------------
David O. Corriveau 60,000
James W. Corley 60,000
Barry N. Carter 12,000
Barbara G. Core 9,000
John S. Davis 8,000
Nancy J. Duricic 10,000
W.C. Hammett, Jr. 25,000
Cory J. Haynes 8,500
Deborah A. Inzer 4,000
Jeffrey A. Jahnke 9,000
Margo L. Manning 6,000
Reginald M. Moultrie 10,000
Stuart A. Myers 12,000
R. Lee Pitts 8,500
J. Michael Plunkett 10,000
Sterling R. Smith 15,000
Bryan J. Spain 10,000
</Table>
As described under "-- Support and Exchange Agreement" above, the restricted
shares owned by Messrs. Corriveau, Corley and Hammett will not vest upon the
consummation of the merger, but will be exchanged for restricted stock of D&B
Holdings.
STOCK OPTIONS
Certain of D&B's executive officers and directors have previously received
grants of stock options under D&B's stock option plans. The unvested portions of
these stock options, which otherwise vest in installments over future periods,
become vested by virtue of a change of control. Upon the consummation of the
merger, the executive officers and directors of D&B will become vested as to the
aggregate number of shares subject to in-the-money options set forth opposite
their respective names:
<Table>
<Caption>
NAME NUMBER OF OPTIONS
---- -----------------
David O. Corriveau 270,000
James W. Corley 270,000
Barry N. Carter 68,750
Barbara G. Core 23,000
John S. Davis 20,000
</Table>
55
<Table>
Nancy J. Duricic 30,000
W.C. Hammett, Jr. 75,000
Cory J. Haynes 56,250
Deborah A. Inzer 1,000
Jeffrey A. Jahnke 30,000
Margo L. Manning 20,500
Reginald M. Moultrie 26,666
Stuart A. Myers 50,000
R. Lee Pitts 16,500
J. Michael Plunkett 68,750
Sterling R. Smith 99,700
Bryan J. Spain 38,000
Allen J. Bernstein 30,000
Peter A. Edison --
Bruce H. Hallett 7,500
Walter S. Henrion 30,000
Mark A. Levy 15,000
Christopher C. Maguire 30,000
</Table>
ALLOCATION OF CONSIDERATION AMONG EXECUTIVE OFFICERS AND DIRECTORS OF D&B
The table below sets forth information, as of July 12, 2002, for each
director and executive officer of D&B who will be entitled to receive cash
payments in connection with the merger with respect to such individual's shares
(including restricted shares) or options to purchase shares which will be
converted into cash consideration upon consummation of the merger.
<Table>
<Caption>
NAME TOTAL CASH CONSIDERATION($)
---- ---------------------------
David O. Corriveau 1,650,325
James W. Corley 1,681,500
Barry N. Carter 606,998
Barbara G. Core 288,250
John S. Davis 220,000
Nancy J. Duricic 379,250
W.C. Hammett, Jr. 100,000
Cory J. Haynes 516,350
</Table>
<Table>
<Caption>
NAME TOTAL CASH CONSIDERATION($)
---- ---------------------------
Deborah A. Inzer 60,250
Jeffrey A. Jahnke 324,900
Margo L. Manning 202,679
Reginald M. Moultrie 338,162
Stuart A. Myers 514,590
R. Lee Pitts 217,075
J. Michael Plunkett 657,068
Sterling R. Smith 933,304
Bryan J. Spain 438,540
Allen J. Bernstein 117,300
Peter A. Edison 4,208,868
Bruce H. Hallett 87,375
Walter S. Henrion --
Mark A. Levy 70,350
Christopher C. Maguire 87,375
</Table>
SPECIAL COMMITTEE
The board of directors has approved the payment of $75,000 to Mr. Levy
(acting as Chairman), and $50,000 each to Mr. Edison and Mr. Maguire, for their
service on the special committee.
56
INDEMNIFICATION AND INSURANCE
The merger agreement requires that D&B Holdings, after the effective time of
the merger, cause new D&B (or any successor) to indemnify, defend and hold
harmless the present and former officers and directors of D&B and its
subsidiaries against all losses, claims, damages, liabilities, fees and expenses
incurred by reason of the fact that such person is or was an officer or director
of D&B or any of its subsidiaries and arising out of actions or omissions
occurring on or prior to the merger to the full extent permitted by law. D&B
Holdings has also agreed in the merger agreement to cause D&B to honor all of
D&B's obligations to indemnify (including any obligations to advance funds for
expenses) the members of the special committee and current or former directors
or officers of D&B and its subsidiaries for acts or omissions by such directors
and officers occurring prior to the merger to the extent that such obligations
existed on May 30, 2002, whether pursuant to D&B's Restated Articles of
Incorporation, individual indemnity agreements or otherwise.
In addition, D&B has entered into indemnity agreements with its executive
officers and directors that generally provide for indemnification for such
individuals to the fullest extent provided by law. Missouri law generally grants
a corporation the power to adopt broad indemnification provisions with respect
to its directors and officers, but it places certain restrictions on a
corporation's ability to indemnify its officers and directors against conduct
that is finally adjudged to have been knowingly fraudulent or deliberately
dishonest or to have involved willful misconduct.
Article Eleven of D&B's Restated Articles of Incorporation eliminates, to
the fullest extent permissible under Missouri law, the liability of directors of
D&B for monetary damages for breach of fiduciary duty as a director. D&B also
maintains a directors' and officers' liability insurance policy insuring
directors and officers of D&B for covered losses as defined in the policy.
As directors, the members of the special committee will be entitled to the
benefits of the provisions described above.
57
OTHER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth information as of
September __, 2002, relating to beneficial ownership (as defined in Rule 13d-3
of the Securities Exchange Act of 1934 (the "Exchange Act")) of the common stock
of D&B by (i) each person known by D&B to own beneficially more than 5% of the
outstanding shares of the common stock of D&B, (ii) each director and executive
officer of D&B and (iii) all directors and executive officers of D&B as a group:
Except pursuant to applicable community property laws and except as
otherwise indicated, each shareholder identified in the table possesses sole
voting and investment power with respect to the listed shares.
<Table>
<Caption>
NAME OF BENEFICIAL OWNER: NUMBER(1) PERCENT
------------------------- ----------- ---------
5% SHAREHOLDERS:
Dimensional Fund Advisors, Inc.(2) 917,080 6.8%
DIRECTORS AND EXECUTIVE OFFICERS:
David O. Corriveau(3) 742,717 5.5%
James W. Corley(4) 747,718 5.5%
W.C. Hammett(5) 25,000 *
Sterling R. Smith(6) 80,095 *
John S. Davis(7) 14,667 *
Allen J. Bernstein(8) 27,500 *
Peter A. Edison(9) 311,768 2.3%
Bruce H. Hallett(10) 30,500 *
Walter S. Henrion(11) 93,100 *
Mark A. Levy(12) 12.500 *
Christopher C. Maguire(13) 30,500 *
All directors and officers as a group (24 persons)(14) 2,535,489 17.6%
</Table>
* Indicates less than 1%.
(1) Pursuant to the rules of the SEC, shares of D&B's common stock that a
person has the right to acquire within 60 days (on or before December __,
2002) are deemed to be outstanding for the purposes of computing the
percentage ownership of such person but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Based upon a 13G/A filing with the SEC, dated January 30, 2002. The address
of Dimensional Fund Advisors is 1299 Ocean Avenue, 11th Floor, Santa
Monica, California 90401.
(3) Includes 260,000 shares subject to options exercisable within 60 days and
60,000 shares of restricted stock for which Mr. Corriveau has sole voting
power only. Mr. Corriveau shares voting and dispositive power with respect
to 74,545 shares owned of record by a family limited partnership. Mr.
Corriveau disclaims beneficial ownership with respect to such shares.
(4) Includes 260,000 shares subject to options exercisable within 60 days and
60,000 shares of restricted stock for which Mr. Corley has sole voting
power only. Mr. Corley shares voting and dispositive power with respect to
99,559 shares owned of record by a family limited partnership. Mr. Corley
disclaims beneficial ownership with respect to such shares.
(5) Includes 25,000 shares of restricted stock for which Mr. Hammett has sole
voting power only.
(6) Includes 56,000 shares subject to options exercisable within 60 days and
15,000 shares of restricted stock for which Mr. Smith has sole voting power
only.
(7) Includes 6,667 shares subject to options exercisable within 60 days and
8,000 shares of restricted stock for which Mr. Davis has sole voting power
only.
(8) Includes 27,500 shares subject to options exercisable within 60 days.
58
(9) Mr. Edison holds all of such shares as Trustee for the benefit of himself
and others.
(10) Includes 27,500 shares subject to options exercisable within 60 days.
(11) Includes 30,000 shares subject to options exercisable within 60 days.
(12) Includes 12,500 shares subject to options exercisable within 60 days.
(13) Includes 27,500 shares subject to options exercisable within 60 days.
(14) Includes a total of 990,370 shares subject to options exercisable within 60
days and 282,000 shares of restricted stock for which such officers hold
sole voting power only.
OTHER MATTERS FOR ACTION AT THE SPECIAL MEETING
D&B's board is not aware of any matters to be presented for action at the
special meeting other than those described in this proxy statement and does not
intend to bring any other matters before the special meeting. However, if other
matters should come before the special meeting, it is intended that the holders
of proxies solicited hereby will vote on those matters in their discretion.
LEGAL COUNSEL
Hallett & Perrin, P.C. is outside counsel to D&B. Bruce Hallett, a director
of D&B, is a partner in the law firm of Hallett & Perrin, P.C., counsel to D&B.
O'Melveny & Myers LLP is counsel to the special committee.
INDEPENDENT AUDITORS
D&B's consolidated financial statements for the fiscal years ended February
3, 2002, February 4, 2001, and January 30, 2000, incorporated herein by
reference, have been audited by Ernst & Young, LLP, independent auditors.
It is not intended that Ernst & Young will attend the special meeting.
AVAILABLE INFORMATION
D&B is subject to the informational reporting requirements of the Securities
Exchange Act of 1934 and, in accordance with the Exchange Act, files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information can be inspected and copies made at the Public
Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and
the SEC's regional office at 175 W. Jackson Blvd., Suite 900, Chicago, Illinois
60604. Copies of these materials can also be obtained from the Public Reference
Room of the SEC at its Washington address at prescribed rates. Information
regarding the operation of the Public Reference Room may be obtained by calling
the SEC at 1-800-SEC-0330. Copies of these materials also may be accessed
through the SEC's website at www.sec.gov. D&B's common stock trades on the New
York Stock Exchange, under the symbol "DAB."
D&B has filed a Schedule 13E-3 with the SEC with respect to the merger. As
permitted by the SEC, this proxy statement omits certain information contained
in the Schedule 13E-3. The Schedule 13E-3, including any amendments and exhibits
filed or incorporated by reference as a part of it, is available for inspection
or copying as set forth above. Statements contained in this proxy statement or
in any document incorporated in this proxy statement by reference regarding the
contents of any contract or other document are not necessarily complete and each
of these statements is qualified in its entirety by reference to that contract
or other document filed as an exhibit with the SEC.
If you would like to request documents from D&B, please do so at least 10
business days before the date of the special meeting in order to receive timely
delivery of those documents prior to the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote your shares at the special meeting.
D&B has not authorized anyone to provide you with information that is different
from what is contained in this proxy
59
statement.
This proxy statement is dated September __, 2002. You should not assume that
the information contained in this proxy statement is accurate as of any date
other than that date, and the mailing of this proxy statement to shareholders
does not create any implication to the contrary. This proxy statement does not
constitute a solicitation of a proxy in any jurisdiction where, or to or from
any person to whom, it is unlawful to make a proxy solicitation.
INFORMATION INCORPORATED BY REFERENCE
D&B's Annual Report on Form 10-K for the fiscal year ended February 3, 2002,
as amended by the Form 10-K/A dated June 18, 2002, D&B's Quarterly Report for
the thirteen weeks ended May 5, 2002, and the Form 10-K/A dated September 10,
2002, D&B's Quarterly Report for the thirteen weeks ended August 4, 2002, D&B's
Current Report on Form 8-K dated May 31, 2002, and D&B's Current Report on Form
8-K dated July 16, 2002, each filed by D&B with the SEC (Commission File No.
001-15007), are incorporated by reference in this proxy statement. Any
references to Private Securities Litigation Reform Act in D&B's publicly-filed
documents which are incorporated by reference in this proxy statement are
specifically not incorporated by reference in this proxy statement. D&B's Form
10-K, Form 10-Q and Forms 8-K are not presented in this proxy statement or
delivered with it, but are available, without exhibits, unless the exhibits are
specifically incorporated by reference in this proxy statement, to any person,
including any beneficial owner, to whom this proxy statement is delivered,
without charge, upon written or telephonic request directed to D&B at 2481
Manana Drive, Dallas, Texas 75220, Attention: Corporate Secretary at (214)
357-9588.
No persons have been authorized to give any information or to make any
representations other than those contained, or incorporated by reference, in
this proxy statement and, if given or made, such information or representations
must not be relied upon as having been authorized by D&B or any other person.
D&B has supplied all information contained in this proxy statement relating to
D&B and D&B's affiliates, except for information relating to the continuing
shareholders other than in their capacities as officers or directors of D&B.
Investcorp has supplied all information contained in this proxy statement
relating to Investcorp, D&B Holdings, D&B Acquisition and their affiliates. The
individual shareholders have supplied all information contained in this proxy
statement relating to the continuing shareholders, except for information
relating to the continuing shareholders in their capacities as officers or
directors of D&B, which information has been provided by D&B, as noted above.
By order of the Board of Directors
John S. Davis
Vice President, General Counsel and Secretary
#197517 v2
60
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
D&B HOLDINGS I, INC.,
D&B ACQUISITION SUB, INC.
AND
DAVE & BUSTER'S, INC.
MAY 30, 2002
================================================================================
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
ARTICLE I THE OFFER ........................................................................................... A-4
1.1 The Offer .......................................................................................... A-4
1.2 Company Actions .................................................................................... A-5
1.3 Single Step Merger ................................................................................. A-6
ARTICLE II THE MERGER ......................................................................................... A-6
2.1 The Merger ......................................................................................... A-6
2.2 Closing ............................................................................................ A-6
2.3 Effective Time ..................................................................................... A-6
2.4 Effects of the Merger .............................................................................. A-6
2.5 Articles of Incorporation and Bylaws ............................................................... A-6
2.6 Directors .......................................................................................... A-6
2.7 Officers ........................................................................................... A-6
2.8 Conversion of Common Stock and Options ............................................................. A-6
2.9 Exchange of Certificates ........................................................................... A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY ..................................................... A-8
3.1 Corporate Organization ............................................................................. A-8
3.2 Subsidiaries ....................................................................................... A-9
3.3 Capitalization ..................................................................................... A-9
3.4 Corporate Authority; Noncontravention .............................................................. A-9
3.5 Consents and Approvals ............................................................................. A-10
3.6 SEC Reports ........................................................................................ A-10
3.7 Absence of Certain Changes or Events ............................................................... A-10
3.8 Litigation ......................................................................................... A-11
3.9 Employee Benefit Plans ............................................................................. A-11
3.10 Information Supplied ............................................................................... A-12
3.11 Conduct of Business; Permits ....................................................................... A-12
3.12 Taxes .............................................................................................. A-12
3.13 Environmental ...................................................................................... A-13
3.14 Title to Assets; Liens ............................................................................. A-14
3.15 Real Property ...................................................................................... A-15
3.16 Intellectual Property .............................................................................. A-17
3.17 Material Contracts ................................................................................. A-17
3.18 Brokers ............................................................................................ A-17
3.19 Board and Special Committee Action ................................................................. A-18
3.20 Opinion of Financial Advisor ....................................................................... A-18
3.21 Control Share Acquisition .......................................................................... A-18
3.22 Rights Agreement ................................................................................... A-18
3.23 Vote Required ...................................................................................... A-18
3.24 Insurance .......................................................................................... A-18
3.25 Suppliers .......................................................................................... A-18
3.26 Labor .............................................................................................. A-18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER ............................................. A-19
4.1 Organization ....................................................................................... A-19
</Table>
A-i
<Table>
<Caption>
Page
----
4.2 Authority and Related Matters ...................................................................... A-19
4.3 No Conflicts; Consents ............................................................................. A-19
4.4 Information Supplied ............................................................................... A-19
4.5 Financing .......................................................................................... A-19
4.6 Brokers ............................................................................................ A-19
4.7 No Prior Activities ................................................................................ A-20
ARTICLE V COVENANTS RELATED TO CONDUCT OF BUSINESS ............................................................ A-20
5.1 Conduct of Business ................................................................................ A-20
5.2 No Solicitation .................................................................................... A-21
ARTICLE VI ADDITIONAL COVENANTS ............................................................................... A-22
6.1 Preparation of Proxy Statement; Stockholders Meeting ............................................... A-22
6.2 Access to Information; Confidentiality ............................................................. A-23
6.3 Reasonable Efforts; Notification ................................................................... A-23
6.4 Benefit Plans ...................................................................................... A-23
6.5 Indemnification .................................................................................... A-24
6.6 Fees and Expenses .................................................................................. A-24
6.7 Public Announcements ............................................................................... A-24
6.8 Directors .......................................................................................... A-25
6.9 Cooperation of Financing Efforts ................................................................... A-25
6.10 Consents ........................................................................................... A-25
6.11 Takeover Statutes .................................................................................. A-25
ARTICLE VII CONDITIONS PRECEDENT .............................................................................. A-25
7.1 Conditions to Each Party's Obligation to Effect the Merger ......................................... A-25
ARTICLE VIII TERMINATION ...................................................................................... A-26
8.1 Termination ........................................................................................ A-26
8.2 Effect of Termination .............................................................................. A-27
ARTICLE IX GENERAL PROVISIONS ................................................................................. A-27
9.1 Non-survival of Representations and Warranties ..................................................... A-27
9.2 Notices ............................................................................................ A-27
9.3 Partial Invalidity ................................................................................. A-28
9.4 Execution in Counterparts; Facsimile Signatures .................................................... A-28
9.5 Governing Law, Etc. ................................................................................ A-28
9.6 Assignment; Successors and Assigns; No Third Party Beneficiaries ................................... A-28
9.7 Titles and Headings ................................................................................ A-28
9.8 Schedules and Exhibits ............................................................................. A-28
9.9 Knowledge .......................................................................................... A-28
9.10 Entire Agreement; Amendments ....................................................................... A-29
9.11 Waivers ............................................................................................ A-29
</Table>
A-ii
SCHEDULES
Schedule 3.2 Subsidiaries
Schedule 3.3 Capitalization
Schedule 3.4 Conflicts
Schedule 3.5 Consents and Approvals
Schedule 3.6 Financial Matters
Schedule 3.7 Certain Changes
Schedule 3.8 Litigation
Schedule 3.9 Employee Benefits
Schedule 3.11 Conduct of Business
Schedule 3.12 Taxes
Schedule 3.13 Environmental Matters
Schedule 3.14 Title to Assets; Liens
Schedule 3.15 Real Property
Schedule 3.16 Intellectual Property
Schedule 3.17 Material Contracts
Schedule 3.24 Insurance
Schedule 3.25 Suppliers
Schedule 5.1 Operations Prior to the Closing Date
Schedule 6.4 Employment Arrangements
Schedule 6.5 Maximum Insurance Premium
Schedule 6.10 Cooperation
Schedule 9.9 Persons Having Knowledge
A-iii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of May 30, 2002
(this "Agreement"), is by and among Dave & Buster's, Inc., a Missouri
corporation (the "Company"), D&B Holdings I, Inc., a Delaware corporation
("Parent"), and D&B Acquisition Sub, Inc., a Missouri corporation and a
wholly-owned subsidiary of Parent ("Purchaser").
BACKGROUND
A. The respective Boards of Directors of Parent, Purchaser and
the Company, and a Special Committee (the "Special Committee") of the Board of
Directors of the Company (composed entirely of directors who have no direct or
indirect interest in the transactions contemplated hereby), each have determined
that it would be advisable and in the best interests of their respective
stockholders for Parent to acquire the Company by means of a merger of Purchaser
with and into the Company (the "Merger") on the terms and subject to the
conditions set forth in this Agreement.
B. In furtherance of the Merger, Parent proposes to cause
Purchaser to make a tender offer (as it may be amended from time to time as
permitted under this Agreement, the "Offer") for the purchase of all the issued
and outstanding shares of common stock of the Company, par value $0.01 per share
(the "Common Stock"), including the associated stock purchase rights (the
"Rights") issued pursuant to the Amended and Restated Rights Agreement, dated as
of September 22, 1999, between the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent (the "Rights Agreement"), at a price per share of
$12.00, net cash to each seller of Common Stock, upon the terms and subject to
the conditions set forth in this Agreement.
C. The Board of Directors of the Company, upon the
recommendation of the Special Committee, has approved the Offer and recommends
(subject to the limitations contained herein) that the Company's stockholders
accept the Offer and tender their shares of Common Stock pursuant thereto.
D. Concurrently with the execution and delivery of this
Agreement, Parent is entering into an agreement with certain stockholders of the
Company (the "Support and Exchange Agreement") pursuant to which, among other
things, such stockholders shall agree to take certain actions to support the
transactions contemplated by this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements set forth herein, the parties agree
as follows:
ARTICLE I
THE OFFER
1.1. THE OFFER.
(a) Subject to the conditions of this Agreement, as promptly
as practicable, but in no event later than five business days after the date of
the execution and delivery of this Agreement, Purchaser shall, and Parent shall
cause Purchaser to, commence the Offer within the meaning of Rule 14d-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
obligation of Purchaser to, and of Parent to cause Purchaser to, commence the
Offer and accept for payment, and pay for, any shares of Common Stock tendered
pursuant to the Offer shall be subject only to the conditions set forth in
Exhibit A (any of which may be waived by Purchaser in its sole discretion,
provided that, without the consent of the Company, Purchaser may not waive the
Minimum Tender Condition (as defined in Exhibit A)). The initial expiration date
of the Offer shall be the 20th business day following the commencement of the
Offer. Purchaser expressly reserves the right to modify the terms of the Offer,
except that, without the consent of the Company, Purchaser shall not, except as
provided in the next sentence: (i) reduce the number of shares of Common Stock
subject to the Offer; (ii) reduce the price per share of Common Stock to be paid
pursuant to the Offer; (iii) modify or add to the conditions set forth in
Exhibit A in any manner adverse to the holders of Common Stock; (iv) extend the
Offer; (v) change the form of consideration payable in the Offer; or (vi)
otherwise amend the Offer in any manner adverse to the holders of Common Stock.
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, (x) extend the Offer for up to a maximum of 10 additional business
days, if at the initial expiration date of the Offer any of the conditions to
Purchaser's obligation to purchase shares of Common Stock set forth herein or in
Exhibit A are not satisfied; (y) extend the Offer for any period required by
applicable law, including any rule, regulation, interpretation or position of
the SEC applicable to the Offer; and (z) extend the Offer for any reason for a
period of not more than 10 business days beyond the latest expiration date that
would otherwise be permitted under this Section 1.1(a). If the Minimum Tender
Condition has been satisfied
A-4
and all other conditions to the Offer have been satisfied or waived but less
than 90% of the Fully Diluted Shares (as defined below) have been validly
tendered and not withdrawn on the scheduled expiration date, Purchaser may
accept and purchase all of the Common Stock tendered in the initial offer period
and may notify holders of Common Stock of Purchaser's intent to provide a
"subsequent offer period" for tender of at least 90% of the Fully Diluted Shares
pursuant to Rule 14d-11 of the Exchange Act, which subsequent offer period shall
not exceed 15 business days. "Fully Diluted Shares" means all outstanding
securities entitled generally to vote in the election of directors of the
Company on a fully diluted basis, after giving effect to the exercise or
conversion of all options, rights and securities exercisable or convertible into
such voting securities. It is agreed that the conditions to the Offer are for
the benefit of Parent and Purchaser and may be asserted by Parent or Purchaser
regardless of the circumstances giving rise to any such condition (including any
action or inaction by Parent or Purchaser not inconsistent with the terms
hereof). On the terms and subject to the conditions of the Offer and this
Agreement, Purchaser shall, and Parent shall cause Purchaser to, pay for all
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
that Purchaser becomes obligated to purchase pursuant to the Offer as soon as
practicable after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and
Purchaser shall file with the SEC a Tender Offer Statement on Schedule TO with
respect to the Offer (together with all amendments and supplements thereto and
including the exhibits thereto, the "Schedule TO") and a Statement on Schedule
13E-3 (together with all amendments and supplements thereto and including the
exhibits thereto, the "Schedule 13E-3"). The Schedule TO shall contain, among
other things, an offer to purchase and a related letter of transmittal and other
ancillary documents (such Schedule TO, including the Schedule 13E-3 and the
documents included therein pursuant to which the Offer will be made, together
with any supplements or amendments thereto, the "Offer Documents"). Each of
Parent and Purchaser on the one hand, and the Company on the other hand, shall
promptly correct any information provided by it for use in the Offer Documents
if and to the extent that such information is false or misleading in any
material respect, and each of Parent and Purchaser shall take all steps
necessary to amend or supplement the Offer Documents and to cause the Offer
Documents as so amended or supplemented to be filed with the SEC and to be
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable Federal or state securities laws. Parent and Purchaser
shall promptly notify the Company and its counsel regarding any comments that
Parent, Purchaser or their counsel receive from the SEC or its staff with
respect to the Offer Documents and shall promptly provide to the Company and its
counsel copies of such written comments, if any. The Company shall cooperate
with Parent and Purchaser in responding to any comments received from the SEC
with respect to the Offer Documents.
(c) Subject to the terms and conditions of this Agreement,
Parent shall provide or cause to be provided to Purchaser on a timely basis the
funds necessary to purchase any shares of Common Stock that Purchaser becomes
obligated to purchase pursuant to the Offer.
1.2 COMPANY ACTIONS.
(a) The Company hereby approves of and consents to the Offer,
the Merger and the other transactions contemplated by this Agreement, subject to
the approval of the Merger by the Company's stockholders in accordance with the
Missouri BCL (as defined in Section 2.1), if required.
(b) In accordance with Rule 14d-9(e) of the Exchange Act, and
prior to the Company Stockholder Approval (as defined in Section 3.23), if any,
the Company shall file with the SEC a Solicitation/ Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time and including the exhibits thereto, the "Schedule 14D-9")
containing the recommendations described in Section 3.19 hereof and shall mail
the Schedule 14D-9 to the stockholders of the Company. Each of the Company,
Parent and Purchaser shall promptly correct any information provided by it for
use in the Schedule 14D-9 if and to the extent that such information is false or
misleading in any material respect, and the Company shall take all steps
necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule
14D-9 as so amended or supplemented to be filed with the SEC and disseminated to
the Company's stockholders, in each case as and to the extent required by
applicable Federal securities laws. The Company shall promptly notify Parent and
its counsel regarding any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Schedule 14D-9 and shall promptly
provide to the Parent and its counsel copies of such written comments, if any.
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Purchaser promptly with mailing labels containing the
names and addresses of the record holders of Common Stock as of the latest
practicable date, together with copies of all lists of stockholders, security
position listings and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Common Stock, and shall
furnish to Purchaser such information and assistance (including updated lists of
stockholders, security position listings and computer files) as Parent may
reasonably request in communicating the Offer to the stockholders of the
Company. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate this Agreement, Parent and Purchaser shall
hold in confidence the information contained in any such labels, listings and
files, shall use such information only in connection with the Offer and the
Merger and, if this Agreement is terminated, shall,
A-5
upon request, use reasonable efforts to deliver to the Company or destroy all
copies of such information then in their possession, followed promptly by
written confirmation of copies destroyed, if any.
1.3 SINGLE STEP MERGER. In the event that, upon expiration of
the Offer, at least 66 2/3% of the Fully Diluted Shares have been validly
tendered and not withdrawn but the Minimum Tender Condition has not been
satisfied and no shares of Common Stock are accepted by Purchaser for purchase
and payment pursuant to the Offer, Parent, Purchaser and the Company shall
proceed with the Merger as expeditiously as reasonably possible subject to all
applicable terms and conditions contained in this Agreement, provided that the
obligations of Parent and Purchaser to consummate the Merger shall also be
conditioned on (i) satisfaction of each of the conditions set forth in Exhibit A
(disregarding references to the Offer contained therein) other than the Minimum
Tender Condition and (ii) notwithstanding anything to the contrary in Section
4.5 hereof or elsewhere in this Agreement, the funding from third party lenders
of at least $155 million of new debt financing and availability of an additional
$30 million line of credit from third party lenders, in each case on
commercially reasonable terms as determined in the good faith judgment of
Parent. If this Section 1.3 applies, (x) the "Merger Consideration" referred to
in Section 2.8(a) and elsewhere in this Agreement shall be the per share price
of the Offer in effect immediately prior to expiration of the Offer and (y)
Section 7.1(d) shall not apply.
ARTICLE II
THE MERGER
2.1 THE MERGER. On the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General and Business
Corporation Law of the State of Missouri (the "Missouri BCL"), Purchaser shall
be merged with and into the Company at the Effective Time (as defined in Section
2.3) whereupon the separate corporate existence of Purchaser shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation").
2.2 CLOSING. The closing of the Merger (the "Closing") shall
take place at the offices of Gibson, Dunn & Crutcher, 200 Park Avenue, New York,
New York 10166 as soon as practicable after all the conditions set forth in
Section 7.1 have been satisfied (or, to the extent permitted by law, waived by
the parties entitled to the benefits thereof), or at such other place, time and
date as shall be agreed in writing between Parent and the Company. The date on
which the Closing occurs is referred to in this Agreement as the "Closing Date".
2.3 EFFECTIVE TIME. Prior to the Closing, Parent shall
prepare, and on the Closing Date or as soon as practicable thereafter Parent
shall file with the Secretary of State for the State of Missouri, Articles of
Merger (the "Articles of Merger") executed in accordance with the relevant
provisions of the Missouri BCL and shall make all other filings or recordings
required under the Missouri BCL to give effect to the Merger. The Merger shall
become effective at such time as the Articles of Merger are duly filed with such
Secretary of State for the State of Missouri (the time the Merger becomes
effective being the ("Effective Time").
2.4 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the applicable provisions of the Missouri BCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
properties, rights, privileges, powers and franchises of the Company and
Purchaser shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Purchaser shall become the debts, liabilities and
duties of the Surviving Corporation.
2.5 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation of Purchaser in effect at the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation until amended in accordance with
applicable law. The Bylaws of Purchaser in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation until amended in accordance with
applicable law.
2.6 DIRECTORS. The directors of Purchaser at the Effective
Time shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
2.7 OFFICERS. The officers of the Company at the Effective
Time shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
2.8 CONVERSION OF COMMON STOCK AND OPTIONS. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of Common Stock or any shares of capital stock of Purchaser:
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(a) Common Stock. Each issued and outstanding share of Common
Stock (other than shares of Common Stock to be canceled and retired in
accordance with Section 2.8(c) and any Dissenting Shares (as defined in Section
2.8(d)) shall be converted into the right to receive in cash from the Company an
amount equal to the price per share of Common Stock paid pursuant to the Offer
(the "Merger Consideration"). As of the Effective Time, all such shares of
Common Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration upon
surrender of such certificate in accordance with Section 2.9, without interest.
(b) Purchaser Capital Stock. Each issued and outstanding share
of capital stock of Purchaser shall be converted into and become one fully paid
and nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.
(c) Cancellation of Treasury Stock and Purchaser-Owned Common
Stock. Each share of Common Stock that is owned by the Company, Parent or
Purchaser, or any wholly-owned subsidiary of the Company or Parent, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and no consideration shall be delivered or deliverable in
exchange therefor.
(d) Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by Persons
who are entitled to demand, and properly demand, payment of the fair value of
such shares pursuant to, and who comply in all respects with, Section 351.455 of
the Missouri BCL ("Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration, but rather shall be entitled to payment of the
fair value of such Dissenting Shares in accordance with the Missouri BCL;
provided, however, that if any holder of Dissenting Shares fails to perfect or
otherwise waives, withdraws or loses the right to payment of the fair value of
such shares under the Missouri BCL, then the right of such holder to be paid the
fair value of such holder's Dissenting Shares shall cease and such Dissenting
Shares shall be treated as if they had been converted as of the Effective Time
into the right to receive the Merger Consideration as provided in Section
2.8(a). The Company shall give prompt notice to Parent of any demands received
by the Company for payment of the fair value of any shares of Common Stock, and
Parent shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands.
(e) Stock Options. Immediately prior to the Effective Time,
each outstanding Company Stock Option (as defined in Section 3.3) which is then
exercisable or becomes exercisable as a result of the consummation of the
transactions contemplated by this Agreement, shall be canceled by the Company,
and at the Effective Time the holder thereof shall be entitled to receive from
the Surviving Corporation as soon as practicable after the Effective Time in
consideration for such cancellation an amount in cash equal to the product of a)
the number of shares of Common Stock previously subject to such Company Stock
Option and b) the excess, if any, of the Merger Consideration over the exercise
price per share for such Company Stock Option, reduced by the amount of
withholding or other taxes required by law to be withheld. Except as provided
herein or as otherwise agreed by the parties, the Company Stock Plans and any
other plan, program or arrangement providing for the issuance or grant of any
interest in respect of the capital stock of the Company shall terminate as of
the Effective Time. Prior to the Effective Time, the Board of Directors of the
Company and the Compensation Committee of the Board of Directors shall adopt
such resolutions and the Company shall take such other actions as are necessary
to carry out the terms of this Section 2.8(e).
2.9 EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Time, Parent shall select a bank or
trust company to act as paying agent (the "Paying Agent") for the payment of the
Merger Consideration upon surrender of certificates (the "Certificates")
representing Common Stock. Parent shall take all steps necessary to enable and
cause the Surviving Corporation to provide to the Paying Agent immediately
following the Effective Time all the cash necessary to pay for the shares of
Common Stock converted into the right to receive the Merger Consideration
pursuant to Section 2.8(a) (such cash being hereinafter referred to as the
"Exchange Fund").
(b) Promptly after the Effective Time, the Paying Agent shall
mail to each holder of record of a Certificate or Certificates that immediately
prior to the Effective Time represented Common Stock whose shares were converted
into the right to receive the Merger Consideration pursuant to Section 2.8(a)
(i) a letter of transmittal which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Paying Agent and shall be in a form and have such other
provisions as Parent may reasonably specify and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by the Parent,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the amount of cash
into which the shares of Common Stock theretofore represented by
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such Certificate shall have been converted pursuant to Section 2.8(a), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Common Stock which is not registered in the transfer
records of the Company, payment may be made to a Person (as defined below) other
than the Person in whose name the Certificate so surrendered is registered if
such Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the Person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a Person other than the registered
holder of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.9, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the shares of Common
Stock theretofore represented by such Certificate shall have been converted
pursuant to Section 2.8(a). No interest shall be paid or shall accrue on the
cash payable upon the surrender of any Certificate. For purposes of this
Agreement, "Person" means an individual, corporation, partnership, limited
liability company, association, trust or any unincorporated organization or
other entity.
(c) The Merger Consideration paid in accordance with the terms
of this Article II, upon conversion of any shares of Common Stock, shall be
deemed to have been paid in full satisfaction of all rights pertaining to such
shares, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of shares of Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, any Certificates formerly representing shares of Common Stock are
presented to the Surviving Corporation or the Paying Agent for any reason, they
shall be canceled and exchanged as provided in this Article II.
(d) Any portion of the Exchange Fund (plus any interest and
other income received by the Paying Agent in respect of such funds) that remains
undistributed to the holders of Certificates representing Common Stock as
provided in this Section 2.9 for six months after the Effective Time shall be
delivered to the Surviving Corporation, upon demand, and any holder of Common
Stock who has not theretofore complied with this Article II shall thereafter
look only to the Surviving Corporation for payment of its claim for the Merger
Consideration.
(e) None of Parent, Purchaser, the Company or the Paying Agent
shall be liable to any Person in respect of any cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificate has not been surrendered prior to
five years after the Effective Time (or immediately prior to such earlier date
on which the Merger Consideration in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.5), any such shares, cash, dividends or distributions in respect of
such Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any Person previously entitled thereto.
(f) The Paying Agent shall invest any cash included in the
Exchange Fund as directed by the Surviving Corporation. Any interest and other
income resulting from such investments shall be paid to the Surviving
Corporation.
(g) Parent and the Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable to any holder of
Common Stock pursuant to this Agreement such amounts as may be required to be
deducted and withheld with respect to the making of such payment under any
provision of Federal, state, local or foreign tax law. To the extent that
amounts are so deducted and withheld, such deducted and withheld amounts shall
be treated for all purposes of this Agreement as having been paid to such
holders in respect of which such deduction and withholding was made.
(h) If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such Person of a bond in such amount as Parent may direct as
indemnity against any claim which may be made against it with respect to such
Certificate and/or delivery of a suitable indemnity, the Paying Agent will
issue, in each case, in exchange for such lost, stolen or destroyed Certificate,
the Merger Consideration payable in respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of Parent and
Purchaser as follows:
3.1 CORPORATE ORGANIZATION. Each of the Company and its
Subsidiaries (as defined below) is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has the
requisite power and authority to own, operate or lease the properties that it
purports to own, operate or lease and to carry on its business as it is now
being conducted. Each of the Company and its Subsidiaries is duly qualified to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, operated or leased, or the nature of its activities,
makes such
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qualification necessary, except for such failures which, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect (as defined below). For purposes of this Agreement, "Material
Adverse Effect" means any event, change, effect or development that (i) is or is
reasonably expected to be materially adverse to the business, operations,
properties (including intangible properties), condition (financial or
otherwise), prospects, assets or liabilities of the Company and all of its
Subsidiaries, taken as a whole, or (ii) impairs or would reasonably be expected
to impair, in any material respect, the ability of the Company to perform its
obligations under this Agreement.
3.2 SUBSIDIARIES. Each Subsidiary of the Company is identified
on Schedule 3.2. All the outstanding equity interests of each Subsidiary of the
Company are validly issued, fully paid and nonassessable and are owned by the
Company, by another wholly-owned Subsidiary of the Company or by the Company and
another wholly-owned Subsidiary of the Company, free and clear of all liens,
security interests, pledges, agreements, claims, charges or encumbrances of any
nature whatsoever ("Liens"), except as set forth on Schedule 3.2. There are no
proxies with respect to any shares of capital stock of any such Subsidiary.
There are no outstanding obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any outstanding securities of any of
the Company's Subsidiaries or to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in the Company or any of its
Subsidiaries or any other Person. There are no options, warrants or other
rights, agreements, arrangements or commitments of any character obligating any
Subsidiary of the Company to issue or sell any shares of its capital stock or
other equity interests or any securities convertible into or exchangeable for
any capital stock or other equity interests. The Company does not directly or
indirectly own a greater than 5% equity interest in any Person that is not a
Subsidiary of the Company. For purposes of this Agreement, "Subsidiary" means,
with respect to any Person, (a) any corporation with respect to which such
Person, directly or indirectly through one or more Subsidiaries, (i) owns more
than 40% of the outstanding shares of capital stock having generally the right
to vote in the election of directors or (ii) has the power, under ordinary
circumstances, to elect, or to direct the election of, a majority of the board
of directors of such corporation, (b) any partnership with respect to which (i)
such Person or a Subsidiary of such Person is a general partner, (ii) such
Person and its Subsidiaries together own more than 40% of the interests therein,
or (iii) such Person and its Subsidiaries have the right to appoint or elect or
direct the appointment or election of a majority of the directors or other
Person or body responsible for the governance or management thereof, (c) any
limited liability company with respect to which (i) such Person or a Subsidiary
of such Person is the manager or managing member, (ii) such Person and its
Subsidiaries together own more than 40% of the interests therein, or (iii) such
Person and its Subsidiaries have the right to appoint or elect or direct the
appointment or election of a majority of the directors or other Person or body
responsible for the governance or management thereof, or (d) any other entity in
which such Person has, and/or one or more of its Subsidiaries have, directly or
indirectly, (i) at least a 40% ownership interest or (ii) the power to appoint
or elect or direct the appointment or election of a majority of the directors or
other Person or body responsible for the governance or management thereof.
3.3 CAPITALIZATION. The authorized capital stock of the
Company consists solely of (i) 50,000,000 shares of Common Stock and (ii)
10,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"). As of the date of this Agreement: (A) 13,269,611 shares of Common Stock
were issued and outstanding, all of which were validly issued, fully paid and
nonassessable and were not subject to or issued in violation of any purchase
option, call option, right of first refusal, preemptive right or any similar
right; (B) no shares of Preferred Stock were issued or outstanding; (C)
2,526,799 shares of Common Stock were reserved for issuance upon exercise of
outstanding Company Stock Options; (D) 500,000 shares of Series A Junior
Participating Preferred Stock were reserved for issuance upon the exercise of
the Rights and (E) 285,500 shares of Company Restricted Stock were issued and
outstanding under the Company Stock Plans. Except as disclosed in this Section
3.3 or in Schedule 3.3, there are (i) no other options, warrants or other
rights, agreements, arrangements or commitments of any character obligating the
Company to issue, sell, transfer, redeem or otherwise acquire any shares of
capital stock of or other equity interests in the Company or any securities
convertible into or exchangeable for any capital stock or other equity interests
or any Voting Debt (as defined below), (ii) no bonds, debentures, notes or other
indebtedness having the right to vote on any matters on which stockholders of
the Company may vote ("Voting Debt") and (iii) no agreements or commitments that
restrict the transfer of any shares of capital stock of the Company or relate to
the voting of any shares of capital stock of the Company or require the Company
to register any shares of capital stock of the Company. As used herein, "Company
Stock Option" means any option to purchase Common Stock and "Company Stock
Plans" means the plans providing for the grant of Company Stock Options or any
other issuance of capital stock of the Company and listed in Schedule 3.3(b).
3.4 CORPORATE AUTHORITY; NONCONTRAVENTION.
(a) The Company has the necessary corporate power and
authority to enter into this Agreement and, subject to obtaining any necessary
stockholder approval of the Merger, to carry out its obligations hereunder. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been (i) duly
authorized and adopted by the unanimous vote of the Special Committee and by the
unanimous vote of the Company's Board of Directors, (ii) determined to be fair
from a financial point of view to, advisable and in the best interests of, the
stockholders of the Company by the Special Committee and the Company's Board of
Directors and (iii) duly authorized by all necessary corporate action on the
part of the Company, subject to the
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approval of the Merger by the Company's stockholders in accordance with the
Missouri BCL. This Agreement has been duly executed and delivered by the Company
and, subject to the approval of the Merger by the Company's stockholders in
accordance with the Missouri BCL, constitutes a legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
(b) Except as set forth in Schedule 3.4(b), the execution and
delivery of this Agreement by the Company do not, and the performance of this
Agreement by the Company and the consummation of the transactions contemplated
hereby (exclusive of any financing to be consummated by Parent or Purchaser)
will not, (i) conflict with or violate any law, regulation, court order,
judgment or decree applicable to the Company or any of its Subsidiaries or by
which each of their respective properties are bound or subject, (ii) violate or
conflict with the Restated Articles of Incorporation of the Company currently on
file with the Secretary of State of the State of Missouri (the "Restated
Articles of Incorporation") or Bylaws of the Company or the comparable charter
documents or Bylaws of any of its Subsidiaries, each as amended, or (iii)
conflict with, modify, result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or terminate, accelerate or cancel or give to others any rights of termination,
acceleration or cancellation of (with or without notice or lapse of time or
both), or result in the creation of a Lien on any of the properties or assets of
the Company or any of its Subsidiaries pursuant to, any contract, agreement,
indenture, lease, permit, license, certificate, franchise or other instrument of
any kind to which the Company or any of its Subsidiaries is a party, of which
the Company or any of its Subsidiaries is the beneficiary or by which the
Company or any of its Subsidiaries or any of their respective property is bound
or subject, except for conflicts, violations, breaches or defaults,
terminations, accelerations, cancellations or rights of termination,
acceleration or cancellation which, individually or in the aggregate, and
assuming the exercise of any rights of termination, acceleration or
cancellation, have not had and would not reasonably be expected to have a
Material Adverse Effect.
3.5 CONSENTS AND APPROVALS. Except for applicable requirements
of the Exchange Act, the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and filing and recordation of appropriate Articles of Merger or other
documents as required by the Missouri BCL, and except as set forth in Schedule
3.5, the Company is not required to submit any application, notice, report or
other filing with any Federal, state, local or foreign government or any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity") or any other
Person in connection with the execution, delivery or performance of this
Agreement, except where the failure to submit such application, notice, report
or other filing, individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect. Except as disclosed on
Schedule 3.5, no waiver, consent, approval or authorization of any Governmental
Entity or any other Person is required to be obtained or made by the Company in
connection with its execution, delivery or performance of this Agreement, except
where the failure to obtain such waivers, consents, approvals or authorizations,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect.
3.6 SEC REPORTS.
(a) The Company has filed all forms, reports and documents
required to be filed by the Company with the SEC since January 1, 1998
(collectively, the "SEC Reports"). The SEC Reports (i) complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, as in effect at the time they were filed and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) The financial statements contained in the SEC Reports
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as in effect at the time of filing, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its Subsidiaries as at the respective dates thereof and the consolidated
statements of operations and cash flows of the Company for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring non-material year-end adjustments. The Company
is not a party to any material off-balance sheet transactions or agreements,
other than as set forth in Schedule 3.6(b).
(c) Except as reflected or reserved against in the financial
statements contained in the SEC Reports filed prior to the date of this
Agreement or as otherwise disclosed in such filed SEC Reports or in Schedule
3.6(c), the Company has no liabilities of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, have had or
would reasonably be expected to have Material Adverse Effect.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 3,
2002, except as contemplated by this Agreement or as set forth in Schedule 3.7
or in the SEC Reports filed prior to the date of this Agreement, there has not
been:
(a) any Material Adverse Effect (other than such as may relate
to economic conditions generally in the United States);
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(b) any strike, picketing, work slowdown or other labor
disturbance that has had or would reasonably be expected to have a Material
Adverse Effect;
(c) any damage, destruction or loss (whether or not covered by
insurance) with respect to any of the assets of the Company or any of its
Subsidiaries that has had or would reasonably be expected to have a Material
Adverse Effect;
(d) any (i) grant of any severance or termination pay to (A)
any director or executive officer of the Company or any of its Subsidiaries or
(B) any other officer or employee of the Company, except in the case of clause
(B) which do not cost $100,000 individually or $500,000 in the aggregate, (ii)
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) entered into with any director, officer or
employee of the Company or any of its Subsidiaries, (iii) increase in benefits
payable under any existing severance or termination pay policies or employment
agreements or (iv) increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company or any of its Subsidiaries other
than, in the case of employees (other than directors and officers), in the
ordinary course of business consistent with past practice;
(e) any redemption or other acquisition of Common Stock or
other capital stock of the Company or options or rights to acquire shares of
Common Stock or other capital stock of the Company by the Company or any
declaration or payment of any dividend or other distribution in cash, stock or
property with respect to Common Stock, except for purchases heretofore made
pursuant to the terms of the Company's employee benefit plans;
(f) any issuance by the Company, or agreement or commitment of
the Company to issue, any shares of Common Stock or securities convertible into
or exchangeable for shares of Common Stock, except for the issuance of shares of
Common Stock in accordance with the terms of outstanding Options; or
(g) any change by the Company in accounting principles except
insofar as may have been required by a change in generally accepted accounting
principles and disclosed in the SEC Reports filed prior to the date of this
Agreement.
Since February 3, 2002, the Company has conducted its business
in the ordinary course, consistent with past practice, except as disclosed in
the SEC Reports filed prior to the date of this Agreement or in Schedule 3.7 or
as contemplated by this Agreement.
3.8 LITIGATION. Except as disclosed in the SEC Reports filed
prior to the date of this Agreement or in Schedule 3.8, there are no claims,
actions, suits, arbitrations, grievances, proceedings or investigations pending
or, to the knowledge of the Company, threatened against the Company or any of
its Subsidiaries or any of their respective properties or rights of the Company
or any of its Subsidiaries or any of their respective officers or directors in
their capacity as such, before any Governmental Entity or arbitral authority,
nor any internal investigations (other than investigations in the ordinary
course of the Company's or any of its Subsidiaries' compliance programs) being
conducted by the Company or any of its Subsidiaries nor have any acts of alleged
misconduct by the Company or any of its Subsidiaries been reported to the
Company or any of its Subsidiaries, which, individually or in the aggregate,
have had or would reasonably be expected to have a Material Adverse Effect.
Neither the Company or any of its Subsidiaries nor any of their respective
properties is subject to any order, judgment, injunction or decree, which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect.
3.9 EMPLOYEE BENEFIT PLANS. Schedule 3.9 sets forth a list of
all employee welfare benefit plans (as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), employee pension
benefit plans (as defined in Section 3(2) of ERISA) and all other bonus, stock
option, stock purchase, benefit, profit sharing, savings, retirement,
disability, insurance, incentive, deferred compensation and other similar fringe
or employee benefit plans, programs or arrangements sponsored, maintained,
contributed to or required to be contributed to by the Company or any of its
Subsidiaries for the benefit of, or relating to, any employee of, or independent
contractor or consultant to, the Company or any of its Subsidiaries (together,
the "Employee Plans"). The Company has delivered or made available to Purchaser
true and complete copies of (i) all Employee Plans, together with all amendments
thereto, (ii) the latest Internal Revenue Service determination letters obtained
with respect to any Employee Plan intended to be qualified under Section 401(a)
or 501(a) of the Code, (iii) the most recent annual actuarial valuation report,
if any, (iv) the last filed Form 5500 together with Schedule A and/or B thereto,
if any, (v) the "summary plan description" (as defined in ERISA), if any, and
all modifications thereto communicated to employees, and (vi) the most recent
annual and periodic accounting of related plan assets. Neither the Company or
any of its Subsidiaries nor, to the knowledge of the Company, any of their
respective directors, officers, employees or agents has, with respect to any
Employee Plan, engaged in or been a party to any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), which could result
in the imposition of either a penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Code, in each case applicable to
the Company or any of its Subsidiaries or any Employee Plan. All Employee Plans
have been approved and administered in accordance with their terms and are in
compliance in all material respects with the currently applicable requirements
prescribed by all statutes, orders, or governmental rules or regulations
currently in effect with respect to such Employee Plans, including, but not
limited to, ERISA and the Code and there are no
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pending or, to the knowledge of the Company, threatened claims, lawsuits or
arbitrations (other than routine claims for benefits), relating to any of the
Employee Plans, or the assets of any trust for any Employee Plan. Each Employee
Plan intended to qualify under Section 401(a) of the Code, and the trusts
created thereunder intended to be exempt from tax under the provisions of
Section 501(a) of the Code, either (i) has received a favorable determination
letter from the Internal Revenue Service to such effect or (ii) is still within
the "remedial amendment period," as described in Section 401(b) of the Code and
the regulations thereunder. All contributions or payments required to be made or
accrued before the Effective Time under the terms of any Employee Plan will have
been made or accrued by the Effective Time. No Employee Plan subject to Section
412 of the Code has incurred any "accumulated funding deficiency" (as defined in
ERISA), whether or not waived. The Company has not incurred nor reasonably
expects to incur any liability under Title IV of Section 302 of ERISA or Section
412 of the Code other than liability to the Pension Benefit Guaranty Corporation
with respect to insurance premiums (which premiums have been paid when due).
Neither the Company nor any of its Subsidiaries contributes nor within the
six-year period ending on the date hereof has any of them contributed or been
obligated to contribute, to any pension or retirement plan which is a
"multiemployer plan" (as defined in Section 3 (37) of ERISA). No Employee Plan
provides medical, surgical, hospitalization, death or similar benefits (whether
or not insured) for employees or former employees of the Company or any of its
Subsidiaries for periods extending beyond their retirement or other termination
of service, other than coverage mandated by applicable law. No condition exists
that would prevent the Company or any of its Subsidiaries from amending or
terminating any Employee Plan providing health or medical benefits in respect of
any active employee of the Company or any of its Subsidiaries, except as may
otherwise be limited or prohibited by applicable law. Except as set forth on
Schedule 3.9, no amounts payable under any Employee Plan will fail to be
deductible for federal income tax purposes by virtue of Section 162(m) or 280G
of the Code. Except as set forth on Schedule 3.9, the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with a related event, (i) entitle any current or former employee or
officer of the Company or any of its Subsidiaries to severance pay or any other
payment or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer.
3.10 INFORMATION SUPPLIED. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in:
(i) the Offer Documents or the Schedule 14D-9 will, at the time such document is
filed with the SEC, at any time it is amended or supplemented or at the time it
is first published, sent or given to the stockholders of the Company, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) the proxy statement contemplated by Section 6.1 (together
with any amendments and supplements thereto, (the "Proxy Statement"), if
required, will, at the date it is first mailed to the Company's stockholders or
at the time of the Company Stockholders Meeting (as defined in Section 6.1(b))
or at the time of any action by written consent in lieu of a meeting pursuant to
Section 351.273 of the Missouri BCL with respect to this Agreement and the
Merger, as applicable, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Schedule 14D-9, the Information Statement (as
defined in Section 6.8) and the Proxy Statement, if required, will comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder, except that no representation is made by the
Company with respect to statements made or incorporated by reference therein
based solely on information supplied by Parent or Purchaser for inclusion or
incorporation by reference therein.
3.11 CONDUCT OF BUSINESS; PERMITS. Except as disclosed in the
SEC Reports filed prior to the date of this Agreement or in Schedule 3.11, the
business of the Company and each of its Subsidiaries is not being (and since
February 2, 1998 has not been) conducted in default or violation of any term,
condition or provision of (i) the Restated Articles of Incorporation or Bylaws
of the Company or the comparable charter documents or Bylaws of any of its
Subsidiaries (ii) any note, bond, mortgage, indenture, contract, agreement,
lease or other instrument or agreement of any kind to which the Company or any
of its Subsidiaries is now a party or by which the Company or any of its
Subsidiaries or any of their respective properties or assets may be bound, or
(iii) any federal, state, county, regional, municipal, local or foreign statute,
law, ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to the Company or any of its Subsidiaries or their respective
businesses, except, with respect to the foregoing clauses (ii) and (iii),
defaults or violations that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Material Adverse Effect. The permits,
licenses, approvals, certifications and authorizations from any Governmental
Entity (collectively, "Permits") held by the Company and each of its
Subsidiaries are valid and sufficient in all material respects for all business
presently conducted by the Company and its Subsidiaries. Neither the Company nor
any of its Subsidiaries has received any written claim or notice nor has any
knowledge indicating that the Company or any of its Subsidiaries is not in
compliance with the terms of any such Permits and with all requirements,
standards and procedures of the Governmental Entity which issued them, or any
limitation or proposed limitation on any Permit, except where the failure to be
in compliance, individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect.
3.12 TAXES.
(a) Except as set forth in Schedule 3.12, and except for such
failures as, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect, (i) the Company and
each of its
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Subsidiaries has timely filed with the appropriate governmental authorities all
Tax Returns (as defined below) required to be filed by or with respect to the
Company or any of its Subsidiaries or their respective operations or assets, and
such Tax Returns are true, correct and complete, (ii) all Taxes (as defined
below) due with respect to taxable years for which the Tax Returns for the
Company and each of its Subsidiaries were filed, all Taxes required to be paid
on an estimated or installment basis, and all Taxes required to be withheld with
respect to the Company and each of its Subsidiaries or their respective
employees, operations or assets have been timely and properly paid or, if
applicable, withheld and paid to the appropriate taxing authority in the manner
provided by law, (iii) the reserve for Taxes set forth on the balance sheet of
the Company as of February 3, 2002 is adequate for the payment of all Taxes
through the date thereof and no Taxes have been incurred after February 3, 2002
which were not incurred in the ordinary course of business, (iv) there are no
Liens for Taxes upon the assets of the Company or any of its Subsidiaries, (v)
no Federal, state, local or foreign audits, administrative proceedings or court
proceedings are pending with regard to any Taxes or Tax Returns of the Company
or any of its Subsidiaries and there are no outstanding deficiencies or
assessments asserted or, to the Company's knowledge, proposed; any such
proceedings, deficiencies or assessments shown in Schedule 3.12 are being
contested in good faith through appropriate proceedings and the Company has made
available to Purchaser copies of all revenue agent reports (or similar reports)
and related schedules relating to pending Tax audits of the Company or any of
its Subsidiaries, (vi) there are no outstanding agreements, consents or waivers
extending the statutory period of limitations applicable to the assessment of
any Taxes or deficiencies against the Company or any of its Subsidiaries, or
with respect to their respective operations or assets, no power of attorney
granted by the Company or any of its Subsidiaries with respect to any matter
relating to Taxes is currently in force, and neither the Company nor any of its
Subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes, and (vii) neither the Company nor any of its Subsidiaries will be
required to include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof) ending after
the Closing Date as a result of any (A) change in method of accounting for a
taxable period ending on or prior to the Closing Date, or (B) "closing
agreement," as described in Section 7121 of the Code (or any corresponding
provision of state, local or foreign income Tax law), entered into on or prior
to the Closing Date, or (C) any ruling received from the IRS.
(b) Neither the Company nor any of its Subsidiaries has filed
a consent to the application of Section 341(f) of the Code.
(c) Except as set forth in Schedule 3.12, neither the Company
nor any of its Subsidiaries is a party to any agreement, contract or arrangement
that could result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(d) No claim has been made in writing to the Company by any
taxing authority in a jurisdiction where the Company and its Subsidiaries do not
file Tax Returns that the Company or any Subsidiary is or may be subject to Tax
in that jurisdiction.
(e) For purposes of this Agreement, "Taxes" means all taxes,
charges, fees, levies or other assessments imposed by any United States Federal,
state, or local taxing authority or by any non-U.S. taxing authority, including
but not limited to, income, gross receipts, excise, property, sales, use,
transfer, payroll, license, ad valorem, value added, withholding, social
security, national insurance (or other similar contributions or payments)
franchise, estimated, severance, stamp, and other taxes (including any interest,
fines, penalties or additions attributable to or imposed on or with respect to
any such taxes, charges, fees, levies or other assessments).
(f) For purposes of this Agreement, "Tax Return" means any
return, report, information return or other document (including any related or
supporting information and, where applicable, profit and loss accounts and
balance sheets) with respect to Taxes.
3.13 ENVIRONMENTAL.
(a) Except as set forth in Schedule 3.13(a), the Company and
each of its Subsidiaries is in compliance with all applicable Environmental Laws
(as defined below) (which compliance includes, but is not limited to, the
possession by the Company and each of its Subsidiaries of all permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof), except such failures to be in
compliance, individually or in the aggregate, as have not had and would not
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries has received any written communication, whether from
a Governmental Entity, citizens group, employee or otherwise, alleging that the
Company or any of its Subsidiaries is not in compliance with Environmental Laws,
and there are no past or present actions, activities, circumstances, conditions,
events or incidents that are reasonably likely to prevent or interfere with such
compliance in the future.
(b) Except as set forth in Schedule 3.13(b), there is no
Environmental Claim (as defined below) pending or, to the best knowledge of the
Company, threatened, against the Company or any of its Subsidiaries or, to the
best knowledge of
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the Company, against any Person whose liability for any Environmental Claim the
Company or any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law, in each case which has had or would
reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth in Schedule 3.13(c), there are no past
or present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the Release or presence of any Hazardous Material
(as defined below) which could reasonably be expected to form the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to the
best knowledge of the Company, against any Person whose liability for any
Environmental Claim the Company has or may have retained or assumed either
contractually or by operation of law, in each case which has had or would
reasonably be expected to have a Material Adverse Effect.
(d) The Company has delivered or otherwise made available for
inspection to Purchaser true, complete and correct copies and results of any
reports, studies, analyses, tests or monitoring possessed by the Company or any
of its Subsidiaries which have been prepared since January 1, 1997 pertaining to
Hazardous Materials in, on, beneath or adjacent to any property currently or
formerly owned, operated or leased by the Company or any of its Subsidiaries, or
regarding the Company's or any of its Subsidiaries' compliance with applicable
Environmental Laws.
(e) For purposes of this Agreement, "Cleanup" means all
actions required to: (i) cleanup, remove, treat or remediate Hazardous Materials
in the indoor or outdoor environment; (ii) prevent the Release of Hazardous
Materials so that they do not migrate, endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; (iii) perform
pre-remedial studies and investigations and post-remedial monitoring and care;
or (iv) respond to any government requests for information or documents in any
way relating to cleanup, removal, treatment or remediation or potential cleanup,
removal, treatment or remediation of Hazardous Materials in the indoor or
outdoor environment.
(f) For purposes of this Agreement, "Environmental Claim"
means any claim, action, cause of action, investigation or notice (written or
oral) by any Person alleging potential liability (including, without limitation,
potential liability for investigatory costs, Cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or resulting from (i) the presence, or
Release (as defined below), of any Hazardous Materials at any location, whether
or not owned or operated by the Company or any of its Subsidiaries, or (ii)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.
(g) For purposes of this Agreement, "Environmental Laws" means
all federal, state, local and foreign laws and regulations relating to pollution
or protection of the environment, including without limitation, laws relating to
Releases or threatened Releases of Hazardous Materials or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
(h) For purposes of this Agreement, "Hazardous Materials"
means all substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National Oil and Hazardous Substances Pollution Contingency
Plan, 40 C.F.R. Section 300.5, or defined as such by, or regulated as such
under, any Environmental Law.
(i) For purposes of this Agreement, "Release" means any
release, spill, emission, discharge, leaking, pumping, injection, deposit,
disposal, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater and surface or subsurface strata) or into or out of any property,
including the movement of Hazardous Materials through or in the air, soil,
surface water, groundwater or property.
3.14 TITLE TO ASSETS; LIENS.
(a) Set forth in Schedule 3.14(a) is a true, correct and
complete list of all real property leased by the Company or any of its
Subsidiaries. Except as set forth in Schedule 3.14(a), each of the leases
relating to Leased Real Property (as defined below) is a valid and subsisting
leasehold interest of the Company or any of its Subsidiaries of the Company free
of subtenancies and other occupancy rights and Liens (other than Permitted Liens
and as set forth on Schedule 3.14(a)), is a binding obligation of the parties
thereto, enforceable against the parties thereto in accordance with its terms,
and is in full force and effect.
(b) Set forth in Schedule 3.14(b) is a true, correct and
complete list of each parcel of real property and interest in real property
owned in full by the Company or any of its Subsidiaries (the "Owned Real
Property"). Except as set forth in Schedule 3.14(b), the Company or a Subsidiary
of the Company has good, valid and marketable fee simple title to the Owned Real
Property, free and clear of any Lien, except Permitted Liens.
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(c) For purposes of this Agreement, "Leased Real Property"
shall mean each of the leasehold interests held by the Company or any of its
Subsidiaries under the Real Property Leases.
(d) For purposes of this Agreement, "Permitted Liens" shall
mean (i) liens for current Taxes that are not yet due or delinquent or are being
contested in good faith by appropriate proceedings; (ii) statutory liens or
landlords', carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's liens or other like Liens arising in the ordinary course of business
with respect to amounts not yet overdue; (iii) with respect to the Real
Property, minor title defects or irregularities that do not, individually or in
the aggregate, impair the value or present use of such property; and (iv) as to
any Real Property Lease, any Lien affecting solely the interest of the landlord
thereunder and not the interest of the tenant thereunder, which do not
materially impair the value or present use of such Real Property Lease.
(e) For purposes of this Agreement, "Real Property" shall mean
the Leased Real Property and the Owned Real Property.
(f) For purposes of this Agreement, "Real Property Leases"
shall mean the real property leases (and/or guarantees thereof) to which the
Company or any of its Subsidiaries is a party.
3.15 REAL PROPERTY.
(a) To the best knowledge of the Company, there are no
defects, shortages or restrictions in or affecting the stores, buildings,
improvements and structures, fixtures or equipment located on or at the Real
Property which, individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.15(b), neither the
Company nor any of its Subsidiaries has granted to any Person (other than
pursuant to this Agreement) any right to occupy or possess or otherwise encumber
any portion of the Real Property. Except as set forth on Schedule 3.15(b),
neither the Company's nor any of its Subsidiaries' interests with respect to the
Real Property Leases has been assigned or pledged and are not subject to any
Liens other than Permitted Liens. Neither the Company nor any of its
Subsidiaries has vacated or abandoned any portion of the Real Property or given
notice to any Third Party of their intent to do the same.
(c) Neither the Company nor any of its Subsidiaries is a party
to or obligated under any option, right of first refusal or other contractual
right to sell, dispose of or lease any of the Real Property or any portion
thereof or interest therein to any Person.
(d) Except as set forth in Schedule 3.15(d), there is no
contract or agreement to which the Company or any of its Subsidiaries is a
party, affecting any of the Real Property, except those which (i) are terminable
on not more than sixty days' notice without premium or penalty or (ii) require
payment of less than $5,000 per month per location but will expire or be
terminated within one year of the Effective Date.
(e) Neither the Company nor any of its Subsidiaries has
received any written notice of any pending, threatened or contemplated
condemnation proceeding affecting any of the Real Property or any part thereof
or of any sale or other disposition of any of the Real Property or any part
thereof in lieu of condemnation.
(f) Neither the Company nor any of its Subsidiaries has
received any written notices from any Governmental Entity or any entity
responsible for the enforcement of applicable restrictive covenants stating or
alleging that any improvements located on the Real Property have not been
constructed in compliance with applicable laws or covenants or are being
operated in violation of applicable law, except for such as, individually or in
the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect.
(g) Neither the Company nor any of its Subsidiaries has
received any written notices from any Governmental Entity requiring or advising
as to the need for any material repair, alteration, restoration or improvement
in connection with the Real Property.
(h) To the best knowledge of the Company, the Real Property is
in all material respects in good condition and repair (ordinary wear and tear
excepted) and adequate in all material respects for the continued conduct of the
business to which it relates.
(i) With respect to the Leased Real Property, except as set
forth on Schedule 3.15(i):
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(i) the Real Property Leases are in full force and
effect; neither the Company nor any of its Subsidiaries has received
any written notice or, to the best knowledge of the Company, oral
notice, that any material default, or condition which with the passage
of time would constitute a default, exists under the Real Property
Leases, except such notices as to which the alleged defaults have been
cured or otherwise resolved;
(ii) true, correct and complete copies of the Real
Property Leases have been delivered to Purchaser prior to the date
hereof and such Real Property Leases have not been amended, modified or
supplemented since that date;
(iii) no consent by the landlord under the Real
Property Leases is required in connection with the consummation of the
transaction contemplated herein;
(iv) the Company or a Subsidiary of the Company has
non-disturbance agreements with the landlord's lender with respect to
each Real Property Lease;
(v) none of the Leased Real Property has been pledged
by the Company or any of its Subsidiaries or is subject to any Liens
(other than pursuant to this Agreement or Permitted Liens);
(vi) neither the Company nor any of its Subsidiaries
has given any notice to any landlord under any of the Real Property
Leases indicating that it will not be exercising any extension or
renewal options under the Real Property Leases. All security deposits
required under the Real Property Leases have been paid to and, to the
best knowledge of the Company, are being held by the applicable
landlord under the Real Property Leases;
(vii) Schedule 3.15(i) sets forth a summary of all
construction allowances payable under the Real Property Leases and the
amounts thereof which, as of the date hereof, have been drawn by Seller
or any of its Subsidiaries; and
(viii) except as set forth on Schedule 3.15(i), the
Company or its Subsidiaries has taken possession of each of the Leased
Real Properties.
(j) The current use of the Real Property does not violate any
instrument of record or agreement affecting such Real Property, except for any
such violations as, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect. There are no
violations of any covenants, conditions, restrictions, easements, agreements or
orders of any Governmental Entity having jurisdiction over any of the Real
Property that affect such Real Property or the use or occupancy thereof other
than those (i) arising in the ordinary course of business or (ii) which,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect. No damage or destruction has
occurred with respect to any of the Real Property that, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect.
(k) There are currently in effect such insurance policies for
the Real Property as are customarily maintained with respect to similar
properties. All premiums due on such insurance policies have been paid by the
Company and the Company will maintain such insurance policies from the date
hereof through the Effective Time or earlier termination of this Agreement. The
Company has not received and has no knowledge of any notice or request from any
insurance company requesting the performance of any work or alteration with
respect to the Real Property or any portion thereof. The Company has received no
notice from any insurance company concerning, nor is the Company aware of, any
defects or inadequacies in the Real Property, which, if not corrected, would
result in the termination of insurance coverage or increase its cost.
(l) Set forth in Schedule 3.15(l) is a true, correct and
complete list of all construction and material alteration projects currently
ongoing with respect to any Real Property (the "Improvements"). The Improvements
are, in all material respects, in good condition and repair and adequate to
operate such facilities as currently used, and, to the Company's knowledge,
there are no facts or conditions affecting any of the Improvements which would,
individually or in the aggregate, interfere in any significant respect with the
current use, occupancy or operation thereof which interference, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect. No Improvement or portion thereof is dependent for its access,
operation or utility on any land, building or other improvement not included in
the Real Property.
(m) To the knowledge of the Company, each parcel of Real
Property is currently being used in a manner that is consistent with and in
compliance with the property classification assigned to it for real estate tax
assessment purposes. To the knowledge of the Company, there are no special taxes
or assessments, or any planned public improvements that may result in a special
tax or assessment, with respect to any Real Property. There is no special or
other proceeding pending or, to the Company's knowledge, threatened in which any
taxing authority having jurisdiction over any of the Real Property is seeking to
A-16
review or increase the assessed value thereof, except for any regular periodic
assessment or reassessment in accordance with applicable law.
3.16 INTELLECTUAL PROPERTY. Except as set forth in Schedule
3.16, the Company owns, or is licensed or otherwise possesses rights to use all
patents, trademarks and service marks (registered or unregistered), trade names,
domain names, computer software and copyrights and applications and
registrations therefor, in each case, which are material to the conduct of the
business of the Company, (collectively, the "Intellectual Property Rights").
Except as set forth in Schedule 3.16, there are neither any outstanding nor, to
the Company's knowledge, threatened material disputes or disagreements with
respect to any of the Intellectual Property Rights nor to the Company's
knowledge is there any basis therefor, which disputes, individually or in the
aggregate, have had or would reasonably be expected to have a Material Adverse
Effect.
3.17 MATERIAL CONTRACTS.
(a) Except as set forth in the SEC Reports filed prior to the
date of this Agreement or Schedule 3.17, neither the Company nor any of its
Subsidiaries is a party to or bound by:
(i) any "material contract" (as defined in Item
601(b)(10) of Regulation S-K of the SEC);
(ii) any contract or agreement for the purchase of
materials or personal property from any supplier or for the furnishing
of services to the Company or any of its Subsidiaries that individually
involves future aggregate annual payments by the Company or any of its
Subsidiaries of $500,000 or more;
(iii) any contract or agreement for the sale, license
or lease (as lessor) by the Company or any of its Subsidiaries of
services, materials, products, supplies or other assets, owned or
leased by the Company or any of its Subsidiaries, that individually
involves future aggregate annual payments to the Company or any of its
Subsidiaries of $500,000 or more;
(iv) any contract, agreement or instrument relating
to or evidencing indebtedness for borrowed money of the Company or any
of its Subsidiaries in the amount of $250,000 or more;
(v) any non-competition agreement or any other
agreement or obligation which purports to limit in any material respect
the manner in which, or the localities in which, the business of the
Company or any of its Subsidiaries may be conducted;
(vi) any voting or other agreement governing how any
shares of Common Stock shall be voted; or
(vii) any contract, agreement or arrangement to
allocate, share or otherwise indemnify for Taxes.
The foregoing contracts and agreements to which the Company or
any of its Subsidiaries is a party or are bound are collectively referred to
herein as "Company Material Contracts."
(b) Except as set forth on Schedule 3.17(b), each Company
Material Contract is valid and binding on the Company or any of its Subsidiaries
of the Company and is in full force and effect, and the Company or any of its
Subsidiaries of the Company, as applicable, has performed all obligations
required to be performed by it to date under each Company Material Contract,
except where such noncompliance or nonperformance, individually or in the
aggregate, has not had and would not reasonably be expected to have a Material
Adverse Effect. The Company does not know, nor has given or received notice of,
any violation or default under (nor, to the knowledge of the Company, does there
exist any condition which with the passage of time or the giving of notice or
both would result in such a violation or default under) any Company Material
Contract, except where such violations or defaults, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect.
3.18 .BROKERS. No broker, finder or investment banker (other
than Houlihan, Lokey, Howard & Zukin) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of the Company. The
Company has heretofore furnished to Purchaser true and complete information
concerning the financial arrangements between the Company and Houlihan, Lokey,
Howard & Zukin pursuant to which such firm would be entitled to any payment as a
result of the transactions contemplated hereby.
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3.19 BOARD AND SPECIAL COMMITTEE ACTION.
(a) The Board of Directors of the Company, at a meeting duly
called and held, duly and unanimously adopted resolutions: (i) approving this
Agreement, the Support and Exchange Agreement, the Offer and the Merger; (ii)
determining that the terms of the Offer and the Merger are fair from a financial
point of view to and in the best interests of the Company and its stockholders;
(iii) recommending that the holders of Common Stock accept and tender their
shares of Common Stock pursuant to the Offer; and (iv) recommending that the
Company's stockholders adopt this Agreement.
(b) The Special Committee, at a meeting duly called and held,
at which all the Special Committee members were present duly and unanimously
adopted resolutions: (i) approving this Agreement, the Support and Exchange
Agreement, the Offer and the Merger; (ii) determining that the terms of the
Offer and the Merger are fair from a financial point of view to and in the best
interests of the Company and its stockholders; (iii) recommending that the
holders of Common Stock accept and tender their shares of Common Stock pursuant
to the Offer; (iv) recommending that the Company's stockholders adopt this
Agreement; (v) approving this Agreement, the Support and Exchange Agreement, the
Offer and the Merger for purposes of the provisions of Section 351.459 of the
Missouri BCL; and (vi) approving such amendments to the Bylaws of the Company or
other actions as shall be necessary to opt out of the provisions of Section
351.407 of the Missouri BCL.
3.20 OPINION OF FINANCIAL ADVISOR. The Special Committee and
the Company have received the opinion of Houlihan, Lokey, Howard & Zukin, the
Special Committee's financial advisor, to the effect that, as of the date
hereof, the Merger Consideration to be received by the Company's stockholders as
provided herein is fair to such stockholders from a financial point of view. The
written confirmation of such opinion has been provided to Purchaser.
3.21 CONTROL SHARE ACQUISITION. Following the actions of the
Board of Directors of the Company and the Special Committee as described in
Section 3.19, there is no "fair price," "moratorium," "control share" or other
similar state takeover statute or regulation (each, a "Takeover Statute") or
comparable takeover provision of the Restated Articles of Incorporation or
Bylaws of the Company that applies or purports to apply to the Company, the
Offer, the Merger or the transactions contemplated by this Agreement.
3.22 RIGHTS AGREEMENT. The Company has taken all necessary
action so that none of the execution of this Agreement and the Support and
Exchange Agreement, the making of the Offer, the acquisition of shares of Common
Stock pursuant to the Offer or the consummation of the Merger will (i) cause the
Rights to become exercisable, (ii) cause Purchaser or any of its affiliates to
become an Acquiring Person (as such term is defined in the Rights Agreement) or
(iii) give rise to a Distribution Date (as such term is defined in the Rights
Agreement). The Company has furnished Purchaser with true and complete copies of
evidence of all actions taken and all other documents that fulfill the
requirements of this Section 3.22.
3.23 VOTE REQUIRED. The affirmative vote of the holders of
two-thirds of the outstanding shares of Common Stock is the only vote necessary
(under applicable law or otherwise) to approve the Merger (the "Company
Stockholder Approval").
3.24 INSURANCE. Each of the Company and its Subsidiaries
maintains insurance policies (the "Insurance Policies") against all risks of a
character and in such amounts as are usually insured against by similarly
situated companies in the same or similar businesses. Each Insurance Policy is
in full force and effect and is valid, outstanding and enforceable, and all
premiums due thereon as of the date hereof have been paid in full. Except as set
forth on Schedule 3.24, none of the Insurance Policies will terminate or lapse
(or be affected in any other materially adverse manner) by reason of the
transactions contemplated by this Agreement. Each of the Company and its
Subsidiaries has complied in all material respects with the provisions of each
Insurance Policy under which it is the insured party. No insurer under any
Insurance Policy has cancelled or generally disclaimed liability under any such
policy or, to the Company's knowledge, indicated any intent to do so or not to
renew any such policy. All material claims under the Insurance Policies have
been filed in a timely fashion. Since the Company's formation, there have been
no historical gaps in insurance coverage of the Company or any of its
Subsidiaries.
3.25 SUPPLIERS. Set forth in Schedule 3.25 is a list of the
ten largest suppliers of the Company on a consolidated basis based on the dollar
value of materials or products purchased by the Company or any of its
Subsidiaries for the fiscal year ended February 3, 2002. Since such date, there
has not been, nor as a result of the Offer or the Merger does the Company have a
reason to anticipate there to be, any change in relations with any of the major
suppliers of the Company or its Subsidiaries that, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect. The existing suppliers of the Company and its Subsidiaries are adequate
in all material respects for the operation of the Company's business as operated
on the date hereof.
3.26 LABOR. Since the enactment of Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN Act"), neither the Company nor
any of its Subsidiaries has effectuated a "plant closing" or a "mass layoff" (as
such terms are defined in the WARN Act); nor has the Company or any of its
Subsidiaries been affected by any transaction or engaged in
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layoffs or employment terminations sufficient in number to trigger application
of any similar state, local or foreign law. None of the employees of the Company
and any of its Subsidiaries has suffered an "employment loss" (as defined in the
WARN Act).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser represent and warrant to the Company as
follows:
4.1 ORGANIZATION . Each of Parent and Purchaser is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has full corporate power
and authority to own its properties and to conduct its businesses as presently
conducted.
4.2 AUTHORITY AND RELATED MATTERS. Each of Parent and
Purchaser has all requisite corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery by each of Parent and Purchaser of this Agreement and the performance
by it of its obligations have been duly authorized by all necessary corporate
action on the part of Parent and Purchaser. Parent, as sole stockholder of
Purchaser, has approved and adopted this Agreement. Each of Parent and Purchaser
has duly executed and delivered this Agreement, and this Agreement constitutes
its legal, valid and binding obligation, enforceable against it in accordance
with its terms and conditions.
4.3 NO CONFLICTS; CONSENTS. The execution and delivery of this
Agreement by each of Parent and Purchaser, do not, and the consummation of the
Offer and the Merger and compliance with the terms hereof and thereof will not,
(i) conflict with any of the provisions of the charter or organizational
documents of Parent or Purchaser; (ii) conflict with, result in a breach of or
default under (with or without notice or lapse of time, or both) any contract,
agreement, indenture, mortgage, deed of trust, lease or other instrument to
which Parent or Purchaser is a party or by which any of their respective
properties or assets is bound or subject; or (iii) subject to the filings and
other matters referred to in the following sentence, contravene any domestic or
foreign law, rule or regulation, or any order, writ, judgment, injunction,
decree, determination or award currently in effect, other than, in the case of
clauses (ii) and (iii) above, any such items that, individually or in the
aggregate, have not had and could not reasonably be expected to have a material
adverse effect on the ability of Parent and Purchaser to consummate the Offer
and the Merger. No consent, approval or authorization of, or registration,
declaration or filing with, or notice to, any Governmental Entity which has not
been received or made, is required to be obtained or made by or with respect to
Parent or Purchaser in connection with the execution, delivery and performance
of this Agreement or its obligations hereunder, other than: (i) compliance with
and filings under the HSR Act, if applicable; (ii) the filing with the SEC of
(A) the Offer Documents and (B) such reports under Sections 13 and 16 of the
Exchange Act, as may be required in connection with this Agreement, the Offer
and the Merger; (iii) the filing of the Articles of Merger with the Secretary of
State of the State of Missouri; and (iv) any other consents, approvals,
authorizations, filings or notices which, if not made or obtained, individually
or in the aggregate, have not had and could not reasonably be expected to have a
material adverse effect on the ability of Parent and Purchaser to consummate the
Offer and the Merger.
4.4 INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Parent or Purchaser for inclusion or incorporation by
reference in the Offer Documents or the Schedule 14D-9 will, at the time such
document is filed with the SEC, at any time it is amended or supplemented or at
the time it is first published, sent or given to the Company's stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Offer Documents will comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations thereunder, except that no representation is made by Parent or
Purchaser with respect to statements made or incorporated by reference therein
based on information supplied by the Company for inclusion or incorporation by
reference therein.
4.5 FINANCING. Parent and Purchaser have provided the Company
with true and correct copies of signed written financing commitments with
respect to the Offer and the Merger obtained as of the date of this Agreement.
Parent has accepted the financing commitments and paid all fees due thereunder
as of the date of this Agreement. Purchaser will use its commercially reasonable
efforts to obtain financing sufficient to consummate the Offer and the Merger.
Notwithstanding the foregoing or delivery of the financing commitments, Parent,
Purchaser and the Company acknowledge and agree that the obligations of Parent
and Purchaser to consummate the Offer and the Merger and to perform the other
obligations hereunder are not conditioned upon Parent's or Purchaser's ability
to obtain financing pursuant to the financing commitments or otherwise.
4.6 BROKERS. Except for UBS Warburg and DB Securities, no
broker, investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with this Agreement, the Offer and the Merger based upon arrangements
made by or on behalf of Parent or Purchaser.
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4.7 NO PRIOR ACTIVITIES. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the negotiation
and consummation of this Agreement and the transactions contemplated hereby
(including any financing arrangements), neither Parent nor Purchaser has
incurred any obligations or liabilities, and has not engaged in any business or
activities of any type or kind whatsoever.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
5.1 CONDUCT OF BUSINESS.
(a) Except for matters set forth in Schedule 5.1 or otherwise
contemplated by this Agreement, from the date of this Agreement to the Effective
Time, the Company shall, and shall cause each of its Subsidiaries to, conduct
its business in the usual, regular and ordinary course in substantially the same
manner as previously conducted (subject to the express restrictions set forth
below) and, to the extent consistent therewith, use its reasonable efforts to
preserve intact its current business organization, keep available the services
of its current officers and key employees and keep its relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them so that its goodwill and ongoing business shall not
be materially impaired at the Effective Time. In addition, and without limiting
the generality of the foregoing, except for matters set forth in Schedule 5.1 or
otherwise contemplated by this Agreement, from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any of its
Subsidiaries to, do any of the following without the prior written consent of
Parent:
(i) (A) declare, set aside or pay any dividends on,
or make any other distributions in respect of, any of its capital
stock, other than dividends and distributions by a direct or indirect
wholly-owned subsidiary of the Company to its parent, (B) split,
combine, subdivide or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or (C) purchase,
redeem or otherwise acquire, directly or indirectly, any shares of
capital stock of the Company or any Subsidiary or any other securities
thereof or any rights, warrants or options to acquire any such shares
or other securities;
(ii) authorize for issuance, issue, deliver, sell,
pledge or grant (A) any shares of its capital stock, (B) any Voting
Debt or other voting securities, (C) any securities convertible into or
exchangeable for, or any options, warrants or rights to acquire, any
such shares, voting securities or convertible or exchangeable
securities, or (D) any "phantom" stock, "phantom" stock rights, stock
appreciation rights or stock-based performance units, other than the
issuance of Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement and in accordance with their
present terms;
(iii) amend its certificate of incorporation, bylaws
or other comparable charter or organizational documents;
(iv) (A) enter into, or propose or negotiate to enter
into, any material contract (other than as contemplated in clause (xv)
below or otherwise required by this Agreement), (B) amend, or propose
or negotiate to amend, the terms of any existing Company Material
Contracts, (C) acquire, or propose or negotiate to acquire, any
interest in a corporation, partnership or joint venture arrangement, or
(D) sell, transfer, assign, relinquish, terminate or make any other
material change (taken on an individual basis) in, or propose or
negotiate to take any such action with respect to, the Company's
material interests (as of the date of this Agreement) in the equity or
debt securities of any corporation, partnership or joint venture
arrangement which holds such an interest, including, without
limitation, the imposition of any Lien on any of the foregoing;
(v) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization
or division thereof, or (B) any assets that are material, individually
or in the aggregate, to the Company and the Subsidiaries taken as a
whole;
(vi) (A) grant to any officer or director of the
Company or any Subsidiary any increase in compensation, except to the
extent required under employment agreements in effect as of the date of
the most recent audited financial statements included in the Company
SEC Documents and except for fees payable to the members of the Special
Committee, (B) grant to any officer or director of the Company or any
Subsidiary any increase in severance or termination pay, except to the
extent required under any agreement in effect as of the date of the
most recent audited financial statements, (C) enter into or amend any
employment, consulting, indemnification, severance or termination
agreement with any such officer or director, (D) establish, adopt,
enter into or amend in any material respect any
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collective bargaining agreement or Employee Plan, except as required by
applicable law, or (E) take any action to accelerate any rights or
benefits (including vesting under the Company's 401(K) Plan), or make
any material determinations not in the ordinary course of business
consistent with prior practice, under any collective bargaining
agreement or Employee Plan;
(vii) make any change in accounting methods,
principles or practices materially affecting the reported consolidated
assets, liabilities or results of operations of the Company, except
insofar as may have been required by a change in GAAP;
(viii) sell, lease, license or otherwise dispose of
or subject to any Lien any properties or assets, except in the ordinary
course of business consistent with past practice;
(ix) (A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or any Subsidiary, guarantee any debt
securities of another Person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another
Person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice, or (B) make
any loans, advances or capital contributions to, or investments in, any
other Person, other than to or in the Company or any direct or indirect
wholly-owned subsidiary of the Company;
(x) make or agree to make any new capital expenditure
or expenditures other than capital expenditures which do not exceed the
amount budgeted therefor in the Company's annual capital expenditures
budget for fiscal year 2002 previously provided to Parent.
(xi) make any material Tax election or settle or
compromise any material Tax liability or refund or consent to any
extension or waiver of the statute of limitations period applicable to
any Tax claim or action;
(xii) (A) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company or incurred
in the ordinary course of business consistent with past practice, (B)
cancel any material indebtedness (individually or in the aggregate) or
waive any claims or rights of substantial value, or (C) waive the
benefits of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement to which the Company or any Subsidiary
is a party;
(xiii) make any material change (including failing to
renew) in the amount or nature of the insurance policies covering the
Company and the Subsidiaries;
(xiv) waive any material claims or rights relating to
the Company's or any of the Subsidiaries' business;
(xv) (i) redeem the rights outstanding under the
Rights Agreement, or amend or modify or terminate the Rights Agreement
or render it inapplicable to (or otherwise exempt from the application
of the Rights Agreement) any Person or action, other than to delay the
Distribution Date (as defined therein) or to render the Rights
inapplicable to the execution, delivery and performance of this
Agreement, the Offer and the Merger or (ii) permit the Rights to become
non-redeemable at the redemption price currently in effect
(notwithstanding the foregoing, immediately prior to the Effective
Time, the Company shall, if so requested by Purchaser, redeem the
Rights); or
(xvi) authorize any of, or commit or agree to take
any of, the foregoing actions.
(b) The Company and Parent shall not, and shall not permit any
of their respective subsidiaries to, take any action that would, or that could
reasonably be expected to, result in: (i) any of the representations and
warranties of such party set forth in this Agreement that is qualified as to
materiality becoming untrue; (ii) any of such representations and warranties
that is not so qualified becoming untrue in any material respect; or (iii) any
condition to the Offer set forth in Exhibit A, or any condition to the Merger
set forth in Article VII, not being satisfied.
5.2 NO SOLICITATION.
(a) The Company shall not, nor shall it permit any of its
Subsidiaries to, nor shall it authorize or permit any officer, director or
employee of, or any investment banker, attorney or other advisor, agent or
representative of the Company
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or any Subsidiary (collectively, "Company Representatives") to: (i) solicit,
initiate or knowingly encourage the submission of, any Company Takeover Proposal
(as defined below); (ii) enter into any agreement with respect to any Company
Takeover Proposal; or (iii) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Company Takeover
Proposal; provided, however, that, at any time prior to the consummation of the
Offer, the Company's Board of Directors may, in response to a Superior Proposal
(as defined below) that was not solicited by the Company or any Company
Representative on or after the date hereof and that did not otherwise result
from a breach of this Section 5.2(a), and subject to providing prior written
notice of its decision to take such action to Parent and compliance with Section
5.2(b), participate in discussions and negotiations regarding such Superior
Proposal and furnish information concerning the Company to the Person making
such Superior Proposal. For purposes of this Agreement, "Takeover Proposal"
means any inquiry, proposal or offer from any Person relating to any direct or
indirect acquisition or purchase of a business that constitutes 25% or more of
the net revenues, net income or the assets of the Company and the Subsidiaries
taken as a whole, or 25% or more of any class of equity securities of the
Company or any Subsidiary, any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 25% or more of any
class of equity securities of the Company or any Subsidiary, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any Subsidiary, other than the
transactions contemplated by this Agreement. For purposes of this Agreement, a
"Superior Proposal" means any bona fide proposal made by a third party to
acquire, directly or indirectly, including pursuant to a tender offer, exchange
offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting of
cash and/or securities, 100% of the outstanding shares of Common Stock or all or
substantially all the assets of the Company and otherwise on terms which the
Board of Directors determines in its good faith judgment (based on the written
advice of its financial advisors) (x) is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of the
proposal and the third party making such proposal, and (y) provides greater
present value to the Company's stockholders than the cash consideration to be
received by such stockholders pursuant to the Offer and the Merger, as the Offer
and the Merger may be amended from time to time.
(b) The Company's Board of Directors shall promptly advise
Parent orally and in writing of the existence of any Takeover Proposal or
Superior Proposal.
(c) Nothing contained in this Section 5.2 shall prohibit the
Board of Directors from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from
changing its recommendation with respect to the Offer and this Agreement, or
making any disclosure to the Company's stockholders, if, in the good faith
judgment of the Company, after consultation with outside counsel, failure to
take any such action would result in a breach of its fiduciary duties to
stockholders under applicable law.
ARTICLE VI
ADDITIONAL COVENANTS
6.1 PREPARATION OF PROXY STATEMENT; STOCKHOLDERS MEETING.
(a) If the approval and adoption of this Agreement by the
Company's stockholders is required by law, the Company shall, at Parent's
request, as soon as practicable following the expiration of the Offer, prepare
and file with the SEC the Proxy Statement in preliminary form, and the Company
shall use its best efforts to respond as promptly as practicable to any comments
of the SEC with respect thereto. The Company shall notify Parent promptly of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and shall supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement. If at any
time prior to receipt of the Company Stockholder Approval there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company shall promptly prepare and mail to its stockholders such
an amendment or supplement. The Company shall not mail any Proxy Statement, or
any amendment or supplement thereto, to which Parent reasonably objects. The
Company shall use its best efforts to cause the Proxy Statement to be mailed to
the Company's stockholders as promptly as practicable after filing with the SEC.
(b) To the extent that this Agreement requires Company
Stockholder Approval, the Company shall, if requested by Parent and as soon as
practicable following the expiration of the Offer, duly call, give notice of,
convene and hold a meeting of its stockholders (the "Company Stockholders
Meeting") for the purpose of seeking the Company Stockholder Approval (including
establishing the record date, if requested by Parent, to be the date immediately
after the date Purchaser first purchases any shares of Common Stock pursuant to
the Offer). The Board of Directors, subject to Section 5.2(c), shall recommend
to its stockholders that they give the Company Stockholder Approval. If
Purchaser or any other subsidiary of Parent shall acquire at least 90% of the
Fully Diluted Shares, the parties shall, at the request of Parent, take all
necessary and appropriate
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action to cause the Merger to become effective as soon as practicable after the
expiration of the Offer without a stockholders meeting in accordance with
Section 351.447 of the Missouri BCL.
(c) Parent agrees to cause all shares of Common Stock
purchased pursuant to the Offer and all other shares of Common Stock owned by
Purchaser or any other subsidiary of Parent to vote to adopt and approve this
Agreement and the Merger at the Company Stockholders Meeting or, at the election
of Parent, to be subject to action by written consent in favor of the Company
Stockholder Approval pursuant to Section 351.273 of the Missouri BCL.
6.2 ACCESS TO INFORMATION; CONFIDENTIALITY. The Company shall,
and shall cause each of its Subsidiaries to, afford to Parent, and to Parent's
directors, officers, employees, accountants, counsel, financial advisers,
financing sources and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall, and shall cause each of its Subsidiaries
to, furnish promptly to Parent: (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities laws; and (ii) all
other information concerning its business, properties and personnel as Parent
may reasonably request. All nonpublic information exchanged pursuant to this
Section 6.2 shall be subject to the confidentiality agreement dated as of March
26, 2002, as amended and/or supplemented from time to time thereafter, between
the Company and Investcorp International Inc. (the "Confidentiality Agreement").
6.3 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties shall use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Offer, the Merger and the other obligations of such party
hereunder, including: (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity; (ii) the obtaining of all necessary consents, approvals or
waivers from third parties; (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of this Agreement, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed; and (iv) the execution and delivery of any additional
instruments necessary to consummate this Agreement and to fully carry out the
purposes of this Agreement. In connection with and without limiting the
foregoing, the Company shall: (x) take all action necessary to ensure that no
state takeover statute or similar statute or regulation is or becomes applicable
to this Agreement; and (y) if any state takeover statute or similar statute or
regulation becomes applicable to this Agreement, take all action necessary to
ensure that the Offer and the Merger may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Offer and the Merger.
Nothing in this Agreement shall be deemed to require any party to waive any
substantial rights or agree to any substantial limitation on its operations.
(b) The Company shall give prompt notice to Parent, and Parent
or Purchaser shall give prompt notice to the Company, of: (i) any representation
or warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect; or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
6.4. BENEFIT PLANS.
(a) For one year after the Effective Time, Parent shall either
(i) cause the Surviving Corporation to continue to sponsor and maintain the
Employee Plans (except for any Company Stock Plan), or (ii) provide benefits to
the employees of the Company who continue to be employed by the Surviving
Corporation (the "Company Employees") under employee benefit plans, programs,
policies or arrangements that in the aggregate are substantially similar to
those benefits provided to the Company Employees by the Company immediately
prior to the Closing Date (excluding any stock option or other equity
compensation plan or program). With respect any employee benefit plan, program,
policy or arrangement (other than stock options or stock based compensation)
sponsored or maintained by Parent and offered to the Company Employees in
addition to or as a substitute for the Employee Plans, Parent shall give the
Company Employees service credit for their employment with the Company for
eligibility and vesting purposes as if such service had been performed with
Parent. If Parent offers health benefits to the Company Employees under a group
health plan that is not a Employee Plan, Parent shall waive any pre-existing
condition exclusions under such group health plan to the extent coverage exists
for such condition under the Employee Plan and shall credit
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each Company Employee with all deductible payments and co-payments paid by such
Company Employee under the Company's health plan prior to the Closing Date
during the current plan year for purposes of determining the extent to which any
such Company Employee has satisfied his or her deductible and whether he or she
has reached the out-of-pocket maximum under any health plan for such plan year.
(b) Following the Effective Time, Parent shall cause the
Surviving Corporation and the Subsidiaries to honor (subject to this Section 6.4
and Section 6.5) all obligations under all of the employment, severance,
consulting and similar agreements of the Company and its Subsidiaries existing
on the date hereof that are set forth on Schedule 6.4(b).
(c) Nothing herein shall be construed as giving any employee
of the Company or any Subsidiary, except as set forth in Schedule 6.4(c), any
right to continued employment following the Effective Time.
6.5 INDEMNIFICATION.
(a) After the earlier of (1) the Effective Time or (2) the
consummation of the Offer, Parent shall cause the Surviving Corporation (or any
successor to the Surviving Corporation) to indemnify, defend and hold harmless
the present and former officers and directors of the Company and its
Subsidiaries (each an "Indemnified Party"), against all losses, claims, damages,
liabilities, fees and expenses (including reasonable fees and disbursements of
counsel and judgments, fines, losses, claims, liabilities and amounts paid in
settlement (provided that any such settlement is effected with the written
consent of the Parent or the Surviving Corporation)) incurred by reason of the
fact that such Person is or was an officer or director of the Company or any of
its Subsidiaries and arising out of actions or omissions occurring at or prior
to the Effective Time to the full extent permitted by law, such right to include
advancement of expenses incurred in the defense of any action or suit to the
extent permitted by the Missouri BCL; provided, however, that any determination
required to be made with respect to whether such Indemnified Party is entitled
to indemnity hereunder (including without limitation whether, with respect to
the indemnification of such Indemnified Party by the Surviving Corporation, an
Indemnified Party's conduct complies with the standards set forth under the
Missouri BCL), shall be made at Parent's expense by independent counsel mutually
acceptable to Parent and the Indemnified Party; provided further, that nothing
herein shall impair any rights or obligations of any present or former directors
or officers of the Company.
(b) Parent shall, to the fullest extent permitted by law,
cause the Surviving Corporation to honor all the Company's obligations to
indemnify (including any obligations to advance funds for expenses) the members
of the Special Committee and current or former directors or officers of the
Company and the Subsidiaries for acts or omissions by such directors and
officers occurring prior to the Effective Time to the extent that such
obligations of the Company exist on the date of this Agreement, whether pursuant
to the Company's Restated Articles of Incorporation, Bylaws, individual
indemnity agreements or otherwise, and such obligations shall survive the Merger
and shall continue in full force and effect in accordance with the terms of the
Company's Restated Articles of Incorporation, Bylaws and such individual
indemnity agreements from the Effective Time until the expiration of the
applicable statute of limitations with respect to any claims against such
directors or officers arising out of such acts or omissions.
(c) For a period of six years after the Effective Time, Parent
shall cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided that Parent
may substitute therefor policies with reputable and financially sound carriers
of at least the same coverage and amounts containing terms and conditions which
are no less advantageous) with respect to claims arising from or related to
facts or events which occurred at or before the Effective Time; provided,
however, that Parent shall not be obligated to make annual premium payments for
such insurance to the extent such premiums exceed 150% of the annual premiums
paid as of the date hereof by the Company for such insurance (such 150% amount,
the "Maximum Premium"). If such insurance coverage cannot be obtained at all, or
can only be obtained at an annual premium in excess of the Maximum Premium,
Parent shall maintain the most advantageous policies of directors' and officers'
insurance obtainable for an annual premium equal to the Maximum Premium. The
Company represents to Parent that the Maximum Premium is as set forth on
Schedule 6.5.
6.6 FEES AND EXPENSES. All fees and expenses incurred in
connection with the Merger shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated, except as provided in
Section 8.2.
6.7 PUBLIC ANNOUNCEMENTS.
(a) Through the Effective Time, Parent and Purchaser, on the
one hand, and the Company, on the other hand, shall consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statements with respect to the Offer,
the Merger and the other obligations under this Agreement and shall not issue
any such press release or make any such public statement relating thereto prior
to such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national securities
exchange.
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(b) The Company shall give at least 24 hours' prior written
notice to Parent Sub of any proposed press release or other public statement not
relating to the Offer, the Merger or any of the obligations under this
Agreement, which notice shall include the text of such press release or public
statement.
6.8 DIRECTORS. Promptly upon the acceptance for payment of,
and payment by Purchaser for, any shares of Common Stock pursuant to the Offer,
Purchaser shall be entitled to designate such number of directors on the
Company's Board of Directors as will give Purchaser, subject to compliance with
Section 14(f) of the Exchange Act, representation on the Board of Directors
equal to at least that number of directors, rounded up to the next whole number,
which is the product of (a) the total number of directors on the Board of
Directors (giving effect to the directors elected pursuant to this sentence)
multiplied by (b) the percentage that (i) such number of shares of Common Stock
so accepted for payment and paid for by Purchaser plus the number of shares of
Common Stock otherwise owned by Purchaser or any other subsidiary of Parent
bears to (ii) the number of such shares outstanding, and the Company shall, at
such time, cause Purchaser's designees to be so elected; provided, however, that
in the event that Purchaser's designees are appointed or elected to the Board of
Directors, until the Effective Time the Board of Directors shall have at least
two directors who are directors on the date of this Agreement and who are not
officers of the Company (the "Independent Directors"); and provided further
that, in such event, if the number of Independent Directors shall be reduced
below two for any reason whatsoever, the remaining Independent Director shall be
entitled to designate a Person to fill such vacancy who shall be deemed to be an
Independent Director for purposes of this Agreement or, if no Independent
Directors then remain, the other directors shall designate two Persons to fill
such vacancies who shall not be officers, stockholders or affiliates of the
Company, Parent or Purchaser, and such Persons shall be deemed to be Independent
Directors for purposes of this Agreement. Subject to applicable law, the Company
shall take all action requested by Parent necessary to effect any such election,
including mailing to its stockholders the Information Statement containing the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder (the "Information Statement"), and the Company shall make
such mailing with the mailing of the Schedule 14D-9 (provided that Purchaser
shall have provided to the Company on a timely basis all information required to
be included in the Information Statement with respect to Purchaser's designees).
In connection with the foregoing, the Company shall promptly, at the option of
Purchaser, either increase the size of the Board of Directors or obtain the
resignation of such number of its current directors as is necessary to enable
Purchaser's designees to be elected or appointed to the Board of Directors as
provided above.
6.9 COOPERATION WITH FINANCING EFFORTS. The Company agrees to
provide, and will cause each of the Subsidiaries and its and their respective
officers, employees and advisors to provide, reasonable cooperation in
connection with the arrangement of any financing in respect of the transactions
contemplated by this Agreement, including without limitation, participation in
meetings, due diligence sessions, road shows, the preparation of offering
memoranda, private placement memoranda, prospectuses and similar documents, the
execution and delivery of any commitment letters, underwriting or placement
agreements, pledge and security documents, other definitive financing documents,
or other requested certificates or documents, including a customary certificate
of the chief financial officer of the Company with respect to solvency matters,
comfort letters of accountants, legal opinions and real estate title
documentation as may be reasonably requested by Purchaser.
6.10 CONSENTS. From and after the date of this Agreement and
until the Closing, the Company shall use its commercially reasonable efforts to
obtain the consents listed in Schedule 6.10.
6.11 TAKEOVER STATUTES. If any Takeover Statute shall become
applicable to the transactions contemplated hereby, the Company and the Board of
Directors of the Company shall grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of such statute or resolution on the
transactions contemplated hereby.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) If required by law, the Company shall have obtained the
Company Stockholder Approval.
(b) The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act, if any, shall have been terminated or shall
have expired. Any consents, approvals and filings under any foreign antitrust
law, the absence of which would prohibit the consummation of Merger, shall have
been obtained or made.
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(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect.
(d) Purchaser shall have previously accepted for payment and
paid for the shares of Common Stock tendered and not withdrawn pursuant to the
Offer.
(e) In the event that Section 1.3 applies, the representations
and warranties by the Company contained in this Agreement (which for purposes of
this Section 7.1(e) shall be read as though none of them contained any Material
Adverse Effect or other materiality qualifications) shall be true and correct in
all respects as of the date of this Agreement and at the Effective Time, except
where the failure of such representations and warranties in the aggregate to be
true and correct in all respects, individually or in the aggregate, have not had
and would not reasonably be expected to have a Material Adverse Effect;
provided, however, that the representations in Section 3.3 (Capital Structure)
as to the number of issued and outstanding shares of capital stock of the
Company and Company Stock Options shall be true and correct in all respects.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Company Stockholder
Approval:
(a) By mutual written consent of Parent, Purchaser and the
Company;
(b) By either Parent or the Company if:
(i) the Merger is not consummated on or before
October 31, 2002 (the "Outside Date"), unless the failure to consummate
the Merger is the result of a willful or material breach this Agreement
by the party seeking to terminate this Agreement; provided, however,
that the passage of such period shall be tolled for any part thereof
during which any party shall be subject to a nonfinal order, decree,
ruling or action restraining, enjoining or otherwise prohibiting the
consummation of the Merger;
(ii) any Governmental Entity issues an order, decree
or ruling or takes any other action permanently enjoining, restraining
or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable;
(iii) subject to Section 1.3, as the result of the
failure of any of the conditions set forth in Exhibit A to this
Agreement, the Offer shall have terminated or expired in accordance
with its terms without Purchaser having purchased any shares of Common
Stock pursuant to the Offer; or
(iv) upon a vote at a duly held stockholders meeting
to obtain the Company Stockholder Approval, the Company Stockholder
Approval is not obtained; provided, however, that this Agreement may
not be terminated by Parent pursuant to this clause (iv) if Parent or
Purchaser shall have failed to vote the shares of Common Stock held by
it in favor of the Merger;
(c) by Parent, if the Company breaches or fails to perform in
any material respect any of its covenants contained in this Agreement, which
breach or failure to perform would give rise to the failure of a condition set
forth in Exhibit A;
(d) subject to Section 1.3, by Parent, if any of the
conditions set forth in Exhibit A shall become incapable of fulfillment prior to
the Outside Date and shall not have been waived by all applicable parties, and
the Offer shall have terminated or expired by its terms without Purchaser having
purchased any shares of Common Stock pursuant to the Offer;
(e) by Parent, if the Board of Directors fails to make, or
withdraws, modifies or changes, in any manner adverse to Parent and Purchaser,
its approval or recommendation of the Offer, the Merger or this Agreement; or
(f) by the Company, (i) if Parent or Purchaser breaches or
fails to perform in any material respect any of their respective covenants
contained in this Agreement or (ii) if prior to consummation of the Offer, the
Board of Directors of the Company shall have provided written notice to Parent
that the Company is prepared, upon termination of this Agreement, to enter into
a binding written definitive agreement for a Superior Proposal; provided that in
the case of this clause (ii): (A) the Company shall have complied with Section
5.2 in all respects; (B) the Board of Directors of the Company shall have
reasonably concluded in good faith in consultation with its financial advisor
and outside counsel that such proposal is a Superior Proposal; (C) Parent
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does not make, within five business days after receipt of the Company's written
notice referred to above in this clause (ii), an offer that the Board of
Directors of the Company shall have reasonably concluded in good faith in
consultation with its financial advisor and outside counsel is at least as
favorable to the stockholders of the Company as the Superior Proposal; and (D)
the Company shall have paid Parent the amounts set forth in Section 8.2(b)
concurrently with such termination.
8.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either
the Company or Parent as provided in Section 8.1, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the part
of Parent, Purchaser or the Company, other than Section 6.2, Section 6.6, this
Section 8.2 and Article IX; provided, however, that nothing contained in this
Section 8.2 shall relieve any party from liability for any breach of this
Agreement.
(b) If this Agreement is terminated pursuant to Section 8.1(e)
or 8.1(f)(ii), the Company shall pay to Parent the sum of $5.0 million in cash.
In addition, the Company shall reimburse Parent, Purchaser and their affiliates
for all out-of-pocket fees and expenses incurred by any of them in connection
with the negotiation of this Agreement and preparation of the Offer and the
Merger and any related financings (including, without limitation, fees and costs
of attorneys and accountants and other advisors and fees payable to banks,
financial institutions and their respective agents and fees of financial
printers engaged by Parent, Purchaser or their affiliates). This Section 8.2
will survive any termination of this Agreement. The Company acknowledges that
the agreements contained in this Section 8.2 are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement; accordingly, if the Company fails to
promptly pay the amounts due pursuant to this Section 8.2, the Company shall pay
to Parent all costs and expenses (including attorney's fees) in connection with
collecting such amounts, together with interest on the amount of the unpaid
transaction expenses and termination fee at the prime rate of Citibank, N.A. in
effect on the date such payment was required to be made.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties set forth in Article III or IV of this
Agreement shall survive beyond the Effective Time.
9.2 NOTICES. All notices and other communications given or
made pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given or made (a) three business days after being sent by registered
or certified mail, return receipt requested, (b) upon delivery, if hand
delivered, (c) one business day after being sent by prepaid overnight carrier
with guaranteed delivery, with a record of receipt, or (d) upon transmission
with confirmed delivery if sent by facsimile, to the parties at the following
addresses (or at such other addresses as shall be specified by the parties by
like notice):
(a) if to Parent or Purchaser:
D&B Holdings I, Inc.
D&B Acquisition Sub, Inc.
c/o Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attention: E. Michael Greaney
Fax: (212) 351-4035
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attention: E. Michael Greaney, Esq.
Fax: (212) 351-4035
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(b) if to the Company:
Dave & Buster's, Inc.
2481 Manana Drive
Dallas, Texas 75220
Attention: General Counsel
Fax: (214) 357-1536
with a copy to:
Hallett & Perrin, P.C.
2001 Bryan Street, Suite 3900
Dallas, Texas 75201
Attention: Bruce H. Hallett, Esq.
Fax: (214) 922-4170
9.3 PARTIAL INVALIDITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
9.4 EXECUTION IN COUNTERPARTS; FACSIMILE SIGNATURES. This
Agreement may be executed in two or more counterparts, each of which shall be
considered an original instrument, but all of which shall be considered one and
the same agreement.
9.5 GOVERNING LAW, ETC. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of laws. The parties hereby irrevocably submit
to the jurisdiction of the courts of the State of New York and the Federal
courts of the United States of America located in the Borough of Manhattan, the
City of New York solely in respect of the interpretation and enforcement of the
provisions of this Agreement and the transactions contemplated hereby and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such courts. The parties consent to and grant
any such court jurisdiction over the person of such parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in Section
9.2 or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
9.6 ASSIGNMENT; SUCCESSORS AND ASSIGNS; NO THIRD PARTY
BENEFICIARIES. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned or delegated by any of the parties
hereto without the prior written consent of the other parties. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors or assigns, heirs, legatees,
distributees, executors, administrators and guardians. Nothing in this
Agreement, expressed or implied, is intended or shall be construed to confer a
benefit upon any Person other than the parties hereto (and their successors and
assigns permitted by this Section 9.6) and the Indemnified Parties and their
respective heirs, legatees and personal representatives to the extent provided
in Section 6.5.
9.7 TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
9.8 SCHEDULES AND EXHIBITS. The schedules and exhibits
referred to in this Agreement shall be construed with and as an integral part of
this Agreement to the same extent as if the same had been set forth verbatim
herein.
9.9 KNOWLEDGE. In each provision of this Agreement in which a
representation or warranty is qualified to the "knowledge" of a Person or to the
"best of the knowledge" of a Person, unless otherwise stated in such provision,
each such phrase means that the Person does not have actual knowledge after
reasonable investigation of any state of facts which is different from the facts
described in the warranty or representation. With respect to the Company, such
knowledge shall refer solely to the "knowledge" of one or more of those
individuals identified in Schedule 9.9.
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9.10 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including
the schedules and exhibits, contains the entire understanding of the parties
hereto with regard to the subject matter contained herein. The parties hereto,
by mutual agreement in writing, may amend, modify and supplement this Agreement.
Any purported amendment that does not comply with the foregoing shall be null
and void.
9.11 WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. The failure of any party hereto to enforce at
any time any provision of this Agreement shall not be construed to be a waiver
of such provision, nor shall it in any way to affect the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to constitute a waiver of any other or subsequent breach.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
D&B HOLDINGS I, INC. DAVE & BUSTER'S, INC.
By: /s/ Simon Moore By: David O. Corriveau
--------------------- ------------------------
Name: Simon Moore Name: David O. Corriveau
Title: President Title: Co-CEO and President
D&B ACQUISITION SUB, INC.
By: /s/ Simon Moore
-----------------
Name: Simon Moore
Title: President
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EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement,
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Purchaser's obligation to pay for or return tendered
shares of Common Stock promptly after the termination or withdrawal of the
Offer), to pay for any shares of Common Stock tendered pursuant to the Offer,
and, subject to the terms of the Agreement, may terminate the Offer, if there
shall not have been validly tendered and not withdrawn prior to the expiration
of the Offer that number of shares of Common Stock which would represent at
least 80% of the Outstanding Shares (the "Minimum Tender Condition"). The term
"Outstanding Shares" means all outstanding securities entitled generally to vote
in the election of directors of the Company, determined as of the scheduled
expiration date, as such date may be extended pursuant to Section 1.1(a) of this
Agreement. Furthermore, notwithstanding any other term of the Offer or this
Agreement, Purchaser shall not be required to commence the Offer, accept for
payment or, subject as aforesaid, to pay for any shares of Common Stock not
theretofore accepted for payment or paid for, and may terminate or amend the
Offer, (1) with the consent of the Company or (2) if, at any time on or after
the date of this Agreement and before the acceptance of such shares for payment
or the payment therefor, any of the following conditions exists:
(a) there shall be pending any suit, action or proceeding by
any Governmental Entity: (i) seeking to restrain or prohibit the acquisition by
Parent or Purchaser of any Common Stock or the making or consummation of the
Offer or the Merger or any other material transaction contemplated by this
Agreement, or resulting in a material delay in or material restriction on the
ability of Purchaser to consummate the Offer or the Merger or seeking to obtain
from the Company, Parent or Purchaser any damages that would reasonably be
expected to have a Material Adverse Effect; (ii) seeking to prohibit or limit
the ownership or operation by the Company, Parent or any of their respective
subsidiaries of any material portion of the business or assets of the Company,
Parent or any of their respective subsidiaries, or to compel the Company, Parent
or any of their respective subsidiaries to dispose of or hold separate any
material portion of their respective businesses or assets, as a result of the
Offer, the Merger or any other transaction; (iii) seeking to impose limitations
on the ability of Parent or Purchaser to acquire or hold, or exercise full
rights of ownership of, any shares of Common Stock, including the right to vote
the Common Stock purchased by it on all matters properly presented to the
stockholders of the Company; (iv) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of the Company and the Subsidiaries; or (v) which otherwise is
reasonably likely to have a Material Adverse Effect;
(b) any statute, rule, regulation, legislation, judgment,
order or injunction shall be enacted, entered, enforced, promulgated, amended or
issued with respect to, or deemed applicable to, or any consent or approval
withheld with respect to: (i) Parent, the Company or any of their respective
subsidiaries; or (ii) the Offer, the Merger or any other Transaction, by any
Governmental Entity that is reasonably likely to result, directly or indirectly,
in any of the consequences referred to in subparagraph (a) above;
(c) there shall have occurred any event, change, effect or
development that, individually or in the aggregate, has had or would reasonably
be expected to have a Material Adverse Effect (except for such as may relate to
or arise from (i) economic conditions generally in the United States, or (ii)
the transactions contemplated by this Agreement as specifically relating to
Parent or Purchaser as the acquiror of the Company);
(d) there shall have occurred: (i) any general suspension of
trading of securities on any national securities exchange or in the
over-the-counter market in the United States (excluding any coordinated trading
halt triggered solely as a result of a specified decrease in a market index);
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States; (iii) a commencement of a war or armed
hostilities or other national or international calamity directly or indirectly
involving the United States; or (iiv) in the case of any of the foregoing
existing on the date of this Agreement, a material acceleration or worsening
thereof;
(e) the representations and warranties by the Company
contained in this Agreement (which for purposes of this paragraph (e) of Exhibit
A shall be read as though none of them contained any Material Adverse Effect or
other materiality qualifications) shall not be true and correct in all respects
as of the date of this Agreement and at the scheduled or extended expiration of
the Offer, except where the failure of such representations and warranties in
the aggregate to be true and correct in all respects, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect; provided, however, that the representations in Section 3.3
(Capital Structure) as to the number of issued and outstanding shares of capital
stock of the Company and Company Stock Options shall be true and correct in all
respects;
(f) the Company shall have failed to perform in any material
respect any obligation or to comply in any material respect with any agreement
or covenant of the Company to be performed or complied with by the Company under
this Agreement;
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(g) this Agreement shall have been terminated in accordance
with its terms;
(h) the Company's Board of Directors fails to make, or
withdraws, modifies or changes, in any manner adverse to Parent and Purchaser,
its approval or recommendation of the Offer, the Merger or this Agreement; or
(i) the Company shall have failed to obtain (i) any third
party or governmental consents or approvals required in connection with this
Agreement or the transactions contemplated hereby, the failure of which to
obtain, individually or in the aggregate, have had or would reasonably be
expected to have a Material Adverse Effect or (ii) any of the following consents
and approvals:
(A) landlord consents required pursuant to the leases
governing the following Leased Real Properties: 4821 Mills Circle,
Ontario, California; 4661 Palisades Ctr. Drive, West Nyack, New York;
and 20 City Boulevard West, Building G, Suite 1, Orange, California;
and
(B) consents, approvals or authorizations required by
all state, city or local liquor licensing boards, agencies or other
similar entities for the Company's operations in the following states:
Michigan, Missouri, Rhode Island and Texas.
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FIRST AMENDMENT
TO THE
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
D&B HOLDINGS I, INC.,
D&B ACQUISITION SUB, INC.
AND
DAVE & BUSTER'S, INC.
This FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF MERGER (this
"Amendment"), dated as of July 12, 2002, is entered into by and among D&B
Holdings I, Inc., a Delaware corporation ("Parent"), D&B Acquisition Sub, Inc.,
a Missouri corporation and wholly-owned subsidiary of Parent ("Purchaser") and
Dave & Buster's, Inc., a Missouri corporation (the "Company").
A. Parent, Purchaser and the Company entered into an Agreement
and Plan of Merger, dated as of May 30, 2002 (the "Agreement"), providing for
the merger of Purchaser with and into the Company.
B. In accordance with Section 9.10 of the Agreement, Parent,
Purchaser and the Company desire to enter into this Amendment to amend the terms
of the Agreement as provided herein.
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants contained herein, Parent, Purchaser and the Company
agree as follows:
1. Section 1.3 of the Agreement is deleted in its entirety and replaced
with the following:
1.3 SINGLE STEP MERGER. In the event that, upon
expiration of the Offer, no shares of Common Stock are accepted by
Purchaser for purchase and payment pursuant to the Offer, Parent,
Purchaser and the Company agree to proceed with the Merger as
expeditiously as reasonably possible subject to all applicable terms
and conditions contained in this Agreement, provided that the
obligations of Parent and Purchaser to consummate the Merger shall also
be conditioned on (i) satisfaction of each of the conditions set forth
in Exhibit A (disregarding references to the Offer contained therein)
other than the Minimum Tender Condition and (ii) notwithstanding
anything to the contrary in Section 4.5 or elsewhere in this Agreement,
the funding from third party lenders of at least $155 million of new
debt financing and availability of an additional $30 million line of
credit from third party lenders, in each case on commercially
reasonable terms as determined in the good faith judgment of Parent. If
this Section 1.3 applies, (x) the "Merger Consideration" referred to in
Section 2.8(a) and elsewhere in this Agreement shall be $13.50 per
share and (y) Section 7.1(d) shall not apply.
2. Section 5.2(a)(iii) of the Agreement is amended to delete "Offer"
and insert in its place "Merger."
3. Section 7.1(e) of the Agreement is deleted in its entirety.
4. The following is inserted following Section 7.1 of the Agreement:
7.2 ADDITIONAL CONDITION TO PARENT'S AND PURCHASER'S
OBLIGATION OF EFFECT THE MERGER. The obligation of Parent and Purchaser
to effect the Merger is subject to the satisfaction or waiver on or
prior to the Closing Date of the following additional condition:
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The representations and warranties by the Company
contained in this Agreement (which for purposes of this Section 7.2
shall be read as though none of them contained any Material Adverse
Effect or other materiality qualifications) shall be true and correct
in all respects as of the date of this Agreement and at the Effective
Time, except where the failure of such representations and warranties
in the aggregate to be true and correct in all respects, individually
or in the aggregate, have not had and would not reasonably be expected
to have a Material Adverse Effect; provided, however, that the
representations in Section 3.3 (Capital Structure) as to the number of
issued and outstanding shares of capital stock of the Company and
Company Stock Options shall be true and correct in all respects.
7.3 ADDITIONAL CONDITION TO THE COMPANY'S OBLIGATION
OF EFFECT THE MERGER. The obligation of the Company to effect the
Merger is subject to the satisfaction or waiver on or prior to the
Closing Date of the following additional condition:
The representations and warranties by Parent and
Purchaser contained in this Agreement (which for purposes of this
Section 7.3 shall be read as though none of them contained any material
adverse effect or other materiality qualifications) shall be true and
correct in all respects as of the date of this Agreement and at the
Effective Time, except where the failure of such representations and
warranties in the aggregate to be true and correct in all respects,
individually or in the aggregate, have not had and would not reasonably
be expected to have a material adverse effect on the ability of Parent
and Purchaser to consummate the Merger.
5. Section 8.1(b)(iii) of the Agreement is deleted in its entirety.
6. Section 8.1(c) of the Agreement is deleted in its entirety and
replaced with the following:
(c) by Parent, if the Company breaches any
representation or warranty or breaches or fails to perform in any
material respect any of its covenants contained in this Agreement,
which breach or failure to perform would give rise to the failure of
the condition set forth in Exhibit A or Section 7.2;
7. Section 8.1(f)(i) of the Agreement is deleted in its entirety and
replaced with the following:
(i) if Parent or Purchaser breaches any
representation or warranty or breaches or fails to perform in any
material respect any of their respective covenants contained in this
Agreement which breach or failure to perform would give rise to the
failure of the condition set forth in Section 7.3 or
8. Section 8.1(f)(ii) of the Agreement is amended to delete "Offer" and
insert in its place "Merger."
9. The first sentence of Section 8.2(b) of the Agreement is amended to
delete "$5.0 million" and insert in its place "$5.68 million."
10. Except as specifically modified by this Amendment, all terms and
conditions of the Agreement shall remain in full force and effect without
modification.
(Remainder of page intentionally left blank.)
A-34
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date and year first written above.
D&B HOLDINGS I, INC. DAVE & BUSTER'S, INC.
By: /s/ Simon Moore By: /s/ David O. Corriveau
----------------- ---------------------------
Name: Simon Moore Name: David O. Corriveau
Title: President Title: Co-CEO and President
D&B ACQUISITION SUB, INC.
By: /s/ Simon Moore
-----------------
Name: Simon Moore
Title: President
A-35
APPENDIX B
THIS OPINION SERVES TO CONFIRM AND UPDATE
THE OPINION DATED MAY 30, 2002
July 12, 2002
The Special Committee of the Board Directors
Dave & Buster's, Inc.
2481 Manana Drive
Dallas, TX 75220
Dear Members of the Special Committee:
We understand that Dave & Buster's, Inc. (hereinafter the "Company") is
considering entering into an amendment to that certain Agreement and Plan of
Merger, dated as of May 30, 2002, by and among D&B Holdings I, Inc., D&B
Acquisition Sub, Inc. ("D&B Acquisition") and the Company pursuant to which D&B
Acquisition would merge with and into the Company (the "Merger"). In connection
with the Merger, the Company's shareholders would receive $13.50 per share in
exchange for their shares of Company common stock. We further understand that it
is D&B Holdings' intent to complete the Merger subject to a financing condition
and the approval by at least two-thirds of the Company's outstanding shares at a
shareholders meeting to be held to vote upon the Merger. We further understand
that certain management shareholders of the Company, including the Company's
founders, will participate as buyers in the Merger through a roll-over of
approximately $15 million of the Company's common stock held by such management
shareholders. The Merger and other related transactions disclosed to us are
referred to collectively herein as the "Transaction." It is our understanding
that the Special Committee of the Board of Directors (the "Special Committee")
has been asked to consider certain matters relating to the Transaction.
You have requested our opinion (the "Opinion") as to the matters set forth
below. This Opinion does not address the Company's underlying business decision
to effect the transactions; nor does it constitute a recommendation to any
shareholder as to whether they should vote to approve the Merger. Houlihan Lokey
has no obligation to update the Opinion. We have not been asked to negotiate,
nor have we negotiated, any portion of the Transaction.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders on Form 10-K for
the three fiscal years ended on or about January 31, 2002, the
quarterly report on Form 10-Q for the quarter ended May 5, 2002,
Company-prepared internal financial statements for the five fiscal
years ended on or about January 31, 2002, and Company-prepared interim
financial statements for the three-month period ended May 5, 2002;
2. reviewed copies of the Agreement and Plan of Merger dated as of May 30,
2002 by and among the Company, D&B Acquisition and D&B Holdings I and
the First Amendment to the Agreement and Plan of Merger dated as of
July 12, 2002;
The Special Committee of the Board of Directors
of Dave & Buster's Inc.
July 12, 2002 -2-
3. met with and held discussions with certain members of the senior
management of the Company to discuss the operations, financial
condition, future prospects and projected operations and performance of
the Company, and met with and held discussions with the Special
Committee and its counsel regarding the Transaction and related
matters;
4. held discussions with the Special Committee following their discussions
with Company management regarding the financial performance of the
Company for the months of May and June 2002 and the future prospects of
the Company;
5. visited certain facilities and business offices of the Company;
6. reviewed forecasts and projections prepared by the Company's management
with respect to the Company for the years ending on or about January
31, 2003 through 2012;
7. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
8. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Transaction;
9. reviewed various documents related to the Transaction including a Form
of Guarantee; and
10. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. Furthermore, we have assumed that all such
information was complete and accurate in all material respects, that no material
changes occurred in the information reviewed between the date the information
was provided and the date of this Opinion and that there were no facts or
information regarding the Company that would cause the information supplied to
us to be incomplete or misleading in any material respect. We have not made any
physical inspection or independent appraisal of any of the properties or assets
of the Company. Our Opinion is necessarily based on business, economic, market
and other conditions as they exist and can be evaluated by us at the date of
this letter. We have not assumed any obligation to update the Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the unaffiliated shareholders of the Company in
connection with the Merger is fair to them from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
22912/13232
APPENDIX C
SELECTED PROVISIONS OF MISSOURI LAW GOVERNING DISSENTER'S RIGHTS
RSMo 351.455. SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES,
WHEN.
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his Shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said Shares, the fair value
thereof. Such demand shall state the number and class of the Shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or consolidation
was effected the value of such Shares is agreed upon between the dissenting
shareholder and the surviving or new corporation, payment therefor shall be made
within ninety days after the date on which such merger or consolidation was
effected, upon the surrender of his certificate or certificates representing
said Shares. Upon payment of the agreed value the dissenting shareholder shall
cease to have any interest in such Shares or in the corporation.
3. If within such period of thirty days the shareholder and the surviving or new
corporation do not so agree, then the dissenting shareholder may, within sixty
days after the expiration of the thirty day period, file a petition in any court
of competent jurisdiction within the county in which the registered office of
the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such Shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporation of the certificate or certificates
representing said Shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such Shares, or in the surviving
or new corporation. Such Shares may be held and disposed of by the surviving or
new corporation as it may see fit. Unless the dissenting shareholder shall file
such petition within the time herein limited, such shareholder and all persons
claiming under him shall be conclusively presumed to have approved and ratified
the merger or consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his Shares
as herein provided shall cease if and when the corporation shall abandon the
merger or consolidation.
PROXY
DAVE & BUSTER'S, INC.
2481 Manana Drive, Dallas, Texas 75220
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS OF DAVE & BUSTER'S, INC.
CALLED FOR ______, OCTOBER __, 2002
The undersigned hereby appoints David O. Corriveau and James W. Corley, and each
of them, as proxies, each with full power of substitution, and hereby authorizes
each of them to vote and represent as designated below all shares of common
stock, par value $0.01 per share, of Dave & Buster's, Inc. held of record by the
undersigned at the Special Meeting of Stockholders of Dave & Buster's, Inc. to
be held at The Show Room at Dave & Buster's, 10727 Composite Drive, Dallas,
Texas, on _________, October __, 2002, at __:00 __.M. (Central Daylight Time)
and at any and all adjournments or postponements thereof.
(Continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
<Table>
Please mark
your votes as [X]
indicated in
this example
FOR AGAINST ABSTAIN
1. A proposal to adopt the Agreement and Plan of Merger, dated THIS PROXY WHEN PROPERLY
as of May 30, 2002, by and among D&B Holdings I, Inc., [ ] [ ] [ ] EXECUTED WILL BE VOTED IN THE
D&B Acquisition Sub, Inc., a wholly-owned direct subsidiary MANNER DIRECTED HEREIN. IF NO
of D&B Holdings I, Inc., and Dave & Buster's, Inc., as amended DIRECTION IS MADE, THIS PROXY
by the First Amendment to the Agreement and Plan of Merger, WILL BE VOTED FOR PROPOSAL 1.
dated as of July 12, 2002, by and among D&B Holdings I, Inc.,
D&B Acquisition Sub, Inc., a wholly-owned direct subsidiary
of D&B Holdings I, Inc., and Dave & Buster's, Inc.
2. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the
meeting and any and all adjournments or postponements thereof.
Signature Signature (if held jointly) Dated: , 2002
-------------------------- --------------------------------- ------------
Note: Please date this Proxy and sign exactly as your name appears thereon. Joint owners should each sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized
person. The signer hereby revokes all proxies heretofore given by the signer to vote at said meeting or any adjournments
thereof.
</Table>
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTPAID ENVELOPE