CVP Centerplate,

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

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

þ     Definitive Proxy Statement

o     Definitive Additional Materials

o     Soliciting Material Pursuant to Section 240.14a-12.

 

Centerplate, Inc.

(Name of Registrant as Specified in Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TO THE SECURITY HOLDERS OF

CENTERPLATE

 

YOUR VOTE IS VERY IMPORTANT

 

Dear Security Holder:

 

On September 18, 2008, Centerplate, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Original Merger Agreement”) with KPLT Holdings, Inc., a Delaware corporation (“Parent”), and KPLT Mergerco, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”) as amended by the Amendment to Agreement and Plan of Merger dated December 23, 2008 (the “Amendment” and taken together with the Original Merger Agreement, the “Merger Agreement”). Parent and Merger Sub are entities directly and indirectly owned by Kohlberg Investors VI, L.P., an affiliate of Kohlberg & Company, L.L.C. Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”) at the effective time of the Merger. Each of our Income Deposit Securities (each an “IDS” and collectively, the “IDSs”), consists of one share of our common stock, par value $0.01 per share, and $5.70 in principal amount of our 13.5% Subordinated Notes due 2013 (the “Notes”). By this proxy statement, we are soliciting your vote as a holder of our common stock to adopt the Merger Agreement. In connection with the Merger, simultaneously with soliciting proxies from security holders, we are also commencing a tender offer (the “Debt Tender”) and consent solicitation (the “Consent Solicitation”) to purchase up to 70% of the Company’s Notes for an amount, in cash, equal to $2.49 for each Note, plus accrued and unpaid interest and deferred interest, and to amend the indenture governing the Notes. Upon completion of the Merger, you will be entitled to receive $0.01 in cash for each share of our common stock represented by an IDS of the Company. In addition, security holders who tender Notes underlying their IDSs will receive $2.49 for each such Note purchased in the Debt Tender.

 

The attached proxy statement provides you with detailed information about the special meeting, the Merger Agreement, the Merger and the other transactions contemplated thereby. Copies of the Original Merger Agreement and the Amendment are attached as Annexes A and B, respectively, to the proxy statement. We encourage you to read the entire proxy statement and the Merger Agreement carefully. As a holder of our IDSs you are also being sent, in a separate mailing, an Offer to Purchase and Letter of Transmittal and Consent dated the date hereof (the “Debt Tender Documents”) regarding the Debt Tender and Consent Solicitation. We encourage you to read the Debt Tender Documents in their entirety carefully as they contain important information about the Debt Tender and Consent Solicitation. You may also obtain more information about the Company from our public filings with the Securities and Exchange Commission.

 

A special meeting of our security holders will be held on January 27, 2009 to vote on a proposal to adopt the Merger Agreement. The special meeting will be held at 8:30 a.m., Eastern Time, in the Conference Center, Ground Level at 200 First Stamford Place, Stamford, Connecticut 06902. Notice of the special meeting and the related proxy statement is enclosed.

 

After careful consideration, our Board of Directors has unanimously determined that the Merger Agreement and the transactions contemplated thereby are advisable and in the best interests of the Company and our security holders, and has approved the Merger Agreement, the Merger and the other transactions contemplated thereby. Accordingly, our Board of Directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement.

 

Your vote is very important.   We cannot complete the Merger unless holders of a majority of all outstanding shares of our common stock entitled to vote on the matter vote to adopt the Merger Agreement

and holders of at least 50.1% of the Notes participate in the Debt Tender and consent to the proposed changes to the Notes as provided in the Consent Solicitation.

 

The failure of any security holder to vote on the proposal to adopt the Merger Agreement will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement.

 

Whether or not you plan to attend the special meeting, please take the time to vote by completing, signing and dating the enclosed proxy card and returning it in the appropriate envelope provided. If your shares are held in “street name” by a bank, brokerage firm or nominee you should follow the instructions of your bank, brokerage firm or nominee, regarding the voting of your shares. Security holders may also attend the meeting and vote in person.

 

Thank you for your cooperation and continued support.

 

Sincerely yours,

 

David M. Williams

Chairman of the Board of Directors

 

Information contained in this document is subject to completion or amendment. All references to “$” or “dollars” are to U.S. dollars.

 

THIS PROXY STATEMENT IS DATED DECEMBER 23, 2008, AND IS BEING FIRST MAILED TO SECURITY HOLDERS OF THE COMPANY ON OR ABOUT DECEMBER 23, 2008.

 

CENTERPLATE, INC.

2187 ATLANTIC STREET, 6TH FLOOR

STAMFORD, CONNECTICUT 06902

 

 

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS

TO BE HELD ON JANUARY 27, 2009

 

 

To the security holders of Centerplate, Inc.:

 

A special meeting of security holders of Centerplate, Inc., a Delaware corporation (the “Company”), will be held on January 27, 2009, at 8:30 a.m., Eastern Time, in the Conference Center, Ground Level at 200 First Stamford Place, Stamford, Connecticut 06902, for the following purposes:

 

 

 

Only security holders of record as of the close of business on November 28, 2008 are entitled to notice of and to vote at the special meeting and at any adjournment thereof. A list of these security holders will be available for inspection by security holders of record during regular business hours at the Company’s principal executive office at 2187 Atlantic Street, 6th Floor, Stamford, Connecticut 06902, for ten days prior to the date of the special meeting. Your vote is important, regardless of the number of shares of our common stock that you own. The adoption of the Merger Agreement requires the approval of the holders of a majority of the outstanding shares of our common stock entitled to vote on the matter. The adoption of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of a majority of shares of our common stock represented in person or by proxy at the special meeting and entitled to vote thereon.

 

The Board of Directors unanimously recommends that the security holders vote “FOR” the proposal to adopt the Merger Agreement and the transactions contemplated thereby. The Board of Directors unanimously recommends that the security holders vote “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

 

All security holders of record are invited to attend the special meeting in person. However, even if you plan to attend the meeting in person, we request that you complete, sign, date and return the enclosed proxy card and thus ensure that your shares will be represented at the special meeting should you become unable to attend. If you fail to return your proxy card and do not attend the special meeting in person, your shares will

not be counted for purposes of determining whether a quorum is present at the meeting and will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. Because approval of the proposal to adjourn the meeting, if necessary, to solicit additional proxies, and approval of any other such matters as may be properly presented incident to the conduct of the special meeting require the affirmative vote “FOR” the approval of any such matters by a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter, abstentions will count as a vote “AGAINST” the proposed matters. The failure to attend the meeting and vote in person, to submit a proxy, or to instruct your bank, brokerage firm or nominee on how to vote your shares will not affect the outcome of the proposal. If you hold your shares through a bank, brokerage firm or nominee, you should follow the instructions of your bank, brokerage firm or nominee regarding voting your shares.

 

Record holders of common stock who do not vote in favor of the adoption of the Merger Agreement will have the right to seek appraisal of the fair value of their shares of Company common stock if they deliver a demand for appraisal before the vote is taken on the Merger Agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

 

Whether you attend the meeting or not, you may revoke a proxy at any time before it is voted at the meeting. You may do so by executing and returning a proxy card dated later than the previous one or by attending the special meeting and voting in person. Simply attending the meeting, however, will not revoke your proxy. If you hold your shares through a bank, brokerage firm or nominee, you should follow the instructions of your bank, brokerage firm or nominee regarding revocation of proxies. If your bank, brokerage firm or nominee allows you to submit a proxy by telephone or the Internet, you may be able to change your vote by submitting a subsequent proxy by telephone or the Internet.

 

By Order of the Board of Directors,

 

Rina E. Terán

Corporate Secretary

 

TABLE OF CONTENTS

 

 

The following summarizes information from this proxy statement and may not contain all of the information that may be important to you. Accordingly, security holders are encouraged to carefully read this entire proxy statement and its annexes. Each item in this summary includes a page reference directing you to a more complete description of that item.

 

The Merger (Page 21)

 

On September 18, 2008, Centerplate, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Original Merger Agreement”) with KPLT Holdings, Inc., a Delaware corporation (“Parent”), and KPLT Mergerco, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”) as amended by the Amendment to Agreement and Plan of Merger dated December 23, 2008, (the “Amendment” and taken together with the Original Merger Agreement, the “Merger Agreement”). Parent and Merger Sub are entities directly and indirectly owned by Kohlberg Investors VI, L.P. (the “Sponsor”) an affiliate of Kohlberg & Company (“Kohlberg”). The Merger Agreement contemplates that the approval of the Merger (as defined below) will be effected through (i) a proxy solicitation to approve the Merger and (ii) a tender offer (the “Debt Tender”) and a consent solicitation (the “Consent Solicitation”) to purchase up to 70% of the Company’s 13.5% Subordinated Notes due 2013 (the “Notes”). Following receipt of the vote of holders of a majority of our common stock to approve the Merger (and satisfaction of the other conditions thereto, including the tender of at least 50.1% of the Notes pursuant to the Debt Tender), at the closing, Merger Sub will be merged (the “Merger”) with and into the Company, with the Company being the surviving corporation and a wholly owned subsidiary of Parent (the “Surviving Corporation”).

 

Debt Tender and Consent Solicitation (Page 73)

 

Simultaneously with this proxy solicitation, the Company is commencing the Debt Tender and Consent Solicitation. The Company will purchase (with funds provided by Parent at closing) up to 70% of the Notes in the Debt Tender, which means that at least 30% (and as much as 49.9% depending on the amount tendered) of the Notes will remain outstanding after the Effective Time (as defined below) of the Merger. If holders of more than 70% of the Notes elect to participate in the Debt Tender, the amount of Notes purchased will be prorated among such participating holders. In order to tender any Notes, holders will be required to consent to the proposed amendments (the “Proposed Amendments”) to the indenture governing the Notes (the “Indenture”) which will (a) eliminate substantially all of the covenants, certain events of default and the change of control offer, (b) modify certain provisions relating to the defeasance of the Notes and the manner in which the Company may extend the maturity of the Notes and (c) provide for the automatic separation of the Company’s Income Deposit Securities (each an “IDS” and collectively, the “IDSs”) upon the consummation of the Merger. The consummation of the Debt Tender is conditioned upon the tender of at least 50.1% of the Notes pursuant to the Debt Tender and the receipt of the vote of holders of a majority of our common stock to approve the Merger. As a holder of our IDSs you are also being sent, in a separate mailing, an Offer to Purchase and Letter of Transmittal and Consent dated the date hereof (the “Debt Tender Documents”) regarding the Debt Tender and Consent Solicitation.

 

Merger Consideration; Tender Consideration; Total Consideration (Page 64)

 

At the closing of the Merger, each holder of an IDS will receive an amount, in cash, equal to $2.49, plus accrued and unpaid interest and deferred interest, for each Note properly tendered and accepted for payment pursuant to the Debt Tender (the “Tender Consideration”), and an amount in cash equal to $0.01 per share for each share of common stock underlying an IDS (the “Merger Consideration” and such amounts together, the “Total Consideration”). To be eligible to receive the Total Consideration, a security holder must submit a valid and timely Letter of Transmittal and Consent in the Debt Tender. Because the Debt Tender is for a maximum of 70% of the outstanding Notes, assuming 100% of the Notes are validly tendered the maximum amount a security holder could receive in the Merger is $2.50 per IDS for 70% of the security holder’s IDSs plus $0.01 per share for each share of common stock underlying the remaining 30% of the security holder’s IDS. The Notes underlying the remaining 30% of IDSs will continue to be outstanding and entitle the security holder to

the rights under the Indenture governing the Notes, as amended by the Consent Solicitation. If the Merger Agreement is adopted by our security holders and the Merger is consummated, a security holder who failed to submit a valid and timely Letter of Transmittal and Consent in the Debt Tender, will receive $0.01 per share of common stock underlying such holder’s IDSs and will continue to own the Notes underlying those IDSs in accordance with the Indenture, as amended.

 

Recommendations of the Board of Directors (Page 35)

 

The Board of Directors has determined that the Merger is in the best interests of the Company and our security holders and has unanimously approved the Merger Agreement and the transactions it contemplates and has declared the Merger Agreement advisable. For the factors considered by the Board of Directors in reaching its decision to approve, and declare the advisability of entering into, the Merger Agreement and the transactions it contemplates, see “Adoption of the Merger Agreement (Proposal 1) — The Merger — Reasons for the Merger; Recommendation of the Board of Directors.”

 

The Board of Directors unanimously recommends that the security holders vote “FOR” the proposal to adopt the Merger Agreement and the transactions contemplated thereby and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

 

Reasons for the Merger (See page 35)

 

The Board of Directors’ decision to approve the Merger was the outcome of a six-month Board-directed process to evaluate a range of capital structure and other alternatives to allow the Company to operate in a competitive business environment with rapidly deteriorating financial and credit markets. In the course of reaching the decision to approve the Merger, the Board of Directors considered a number of factors in its deliberations. The primary factors considered by the Board included: (i) the Board of Directors’ belief, based on the Company’s IDS capital structure, the extreme volatility of, and the deterioration in, international and national economic conditions, and the equity and credit markets and discussions with the Company’s lenders, that (1) in the absence of a sale transaction or other restructuring of the Company’s debt, its lenders would not agree to further amendments or waivers to the Company’s credit agreement, (2) the Company would not be able to comply with the monthly financial maintenance covenants after expiration of the amendment in September 2008, which would result in a default under the credit agreement and (3) such default could likely have led to the acceleration of payment of the Company’s indebtedness with the likely consequence that the holders of the IDSs would receive substantially less cash consideration, if any, than in the Merger; (ii) the results of a Board of Directors-directed process to evaluate a broad range of capital structure and other alternatives which included the sale of the Company, a variety of methods to raise new capital to refinance the Company’s indebtedness, and continuing under the current capital structure and significantly reducing operating costs and capital expenditures to attempt to comply with applicable monthly financial maintenance covenants under the credit agreement and (iii) alternatives to the Merger being unlikely, if not impossible. In making its decision the Board of Directors also relied on the opinions of its financial advisor Evercore Group L.L.C. (“Evercore”) delivered on September 18, 2008 and on December 22, 2008, that the Aggregate Consideration (as defined in the Evercore Opinion) was within the range of the Company’s Net Enterprise Values (as defined in the Evercore Opinion) that Evercore estimated for the Company on each such date. The Board of Directors believes that prior to entering into the Merger Agreement it had used all reasonable efforts to identify, pursue and evaluate other strategic alternatives.

 

Opinion of Evercore Group L.L.C. (Page 39)

 

In deciding to approve the Merger and recommend that security holders adopt the Merger Agreement, the Board of Directors considered the opinions of its financial advisor, Evercore, provided to the Board of Directors on September 18, 2008 in connection with the Original Merger Agreement and on December 22, 2008 in connection with the Amendment, that as of each such date and based upon and subject to the considerations and limitations set forth in each such opinion, its work described in each such opinion and other factors it deemed relevant, the Aggregate Consideration (as defined in each such opinion) was within the range of Net Enterprise Values (as defined in each such opinion) that Evercore estimated for the Company as

of each such date. Copies of Evercore’s opinions are attached to this document as Annexes C and D respectively. Security holders should read the opinions completely and carefully to understand, among other things, the assumptions made, procedures followed, matters considered and limits on the review undertaken by Evercore in providing its opinions. The Evercore opinions are not a recommendation as to how any security holder should vote with respect to the proposal to adopt the Merger Agreement or any other matter.

 

Interests of Certain Persons in the Merger (Page 50)

 

Our executive officers and the members of the Board of Directors may have interests in the Merger that are different from, or in addition to, the interests of security holders generally.

 

These interests include the right of executive officers to receive severance payments and benefits under the terms of existing employment agreements and the potential receipt of change in control benefits under our Long-Term Performance Plan (“LTPP”) as a result of the Merger. On September 18, 2008, the Company entered into indemnity agreements with the directors and executive officers. In addition, Parent has agreed to continue certain indemnification arrangements for our directors and executive officers. As of the record date, our directors owned 6,660 shares of common stock of the Company, or less than 1% of the outstanding common stock.

 

The Board of Directors was aware of these interests and considered them, among other matters, in approving and recommending that security holders adopt the Merger Agreement.

 

Financing (Page 53)

 

In connection with the Merger, we have entered into an amendment and restatement of our senior secured credit agreement with General Electric Capital Corporation (the “Restatement”), the effectiveness of which is contingent upon various factors, including the consummation of the Merger and the Debt Tender and Consent Solicitation, the approval of the Proposed Amendments, the prepayment of $25 million of the outstanding term loan and a paydown of at least $22.5 million of the outstanding revolving loan, no material adverse change in the Company’s business and the payment of the fees and expenses of the lenders. Upon its effectiveness, the Restatement would, among other things:

 

 

 

 

 

 

 

 

 

 

Additionally, subject to the satisfaction of the conditions in the Merger Agreement and the Restatement, Sponsor has committed to invest up to $125 million in the equity of Parent. The proceeds of the equity financing will be used to pay the Merger Consideration and the Tender Consideration, to pay all amounts required to be repaid or paid down under the Restatement and to pay fees and expenses related to the transaction.

 

The Merger Agreement does not contain a condition that the financing shall have been obtained. If (A) the lenders under the Restatement deny their obligation to provide on the closing date the credit facility as amended thereby or any of them become unable to or prohibited from being a lender thereunder, (B) no event has occurred and no condition exists that would cause any of the conditions to Parent and Merger Sub’s

obligation to close to fail to be satisfied assuming the closing were to occur on the date of termination and (C) within thirty days after the Company has delivered written notice to Parent of the occurrence of an event described in (A) above the Merger has not been consummated, the Company may terminate the Merger Agreement and Parent will be required to pay us a termination fee of $2,500,000. If Parent refuses to close the transaction, the Company cannot seek court action to force Parent to close but Parent will be required to pay us a reverse termination fee of $2,500,000 if the conditions to its obligation to close have been satisfied.

 

Conditions to the Merger (Page 74)

 

Each party’s obligation to complete the Merger is subject to the satisfaction or waiver of the following conditions:

 

 

The obligations of Parent and Merger Sub to complete the Merger are subject to the satisfaction or waiver of the following additional conditions:

 

 

 

 

The obligation of the Company to complete the Merger is subject to the satisfaction or waiver of the following additional conditions:

 

 

Restrictions Regarding Other Offers (Page 72)

 

The Merger Agreement restricts the Company from soliciting and engaging in discussions and negotiations with respect to any proposal or offer (i) for an alternative transaction involving the Company or any of our subsidiaries or (ii) to acquire in any manner, directly or indirectly, 33 1 / 3 % or more of (A) the equity securities, debt securities or IDSs of the Company or any of our subsidiaries or (B) the assets of the Company or any of our subsidiaries (a “Company Proposal”), and our Board of Directors is prohibited from:

 

 

Notwithstanding the foregoing, if our Board of Directors determines after considering the advice of outside counsel that it should take such action to comply with its fiduciary duties, the Board of Directors may:

 

 

Termination of the Merger Agreement (Page 75)

 

The Merger Agreement may be terminated at any time before completion of the Merger by written mutual consent of Parent, Merger Sub and the Company. The Merger Agreement may also be terminated in certain other circumstances, including:

 

 

 

 

 

 

 

 

 

Termination Fees and Expenses (Page 75)

 

If Parent terminates the Merger Agreement (i) due to the failure to obtain the necessary security holder approval or (ii) in the event of a breach by the Company that has not been cured within 30 calendar days, then we will be required to pay Parent and Merger Sub their expenses, up to a maximum of $2,500,000, and if, in connection with the failure to obtain security holder approval, there was another Company Proposal at the time of the security holder meeting and the Company consummates a transaction with a higher consideration within 6 months after termination of the Merger Agreement, then we will be required to pay Parent and Merger Sub a termination fee in the amount of $2,500,000 (the “Termination Fee”) less the amount of any expenses previously paid to Parent and Merger Sub. In addition, if either Parent or the Company terminates the Merger Agreement because the Board of Directors approves or recommends any other Company Proposal or because the Board of Directors makes an Adverse Recommendation Change, then we will be required to pay Parent and Merger Sub the Termination Fee.

 

If the Company terminates the Merger Agreement in the event of a breach by Parent or Merger Sub that has not been cured within 30 calendar days, then Parent will be required to pay the Company its expenses, up to a maximum of $2,500,000. If the Company terminates the Merger Agreement because (i) Parent and Merger Sub have refused to close despite the satisfaction of the conditions to their obligation to close or (ii) (A) the lenders under the Restatement deny their obligation to provide on the closing date the credit facility as amended thereby or any of them become unable to or prohibited from being a lender thereunder, (B) no event has occurred and no condition exists that would cause any of the conditions to Parent and Merger Sub’s

obligation to close to fail to be satisfied assuming the closing were to occur on the date of termination and (C) within thirty days after the Company has delivered written notice to Parent of the occurrence of an event described in (A) above the Merger has not been consummated then Parent will be required to pay the Company a reverse termination fee in the amount of $2,500,000 (the “Reverse Termination Fee”), less the amount of any expenses previously paid to the Company. Sponsor has guaranteed any such required payments by Parent to the Company.

 

If any party fails to pay amounts due in respect of the Termination Fee or the Reverse Termination Fee, interest will accrue on such unpaid amount at a rate of 8% per annum.

 

The Merger Agreement also contemplates that if the Company, despite satisfaction of all conditions precedent to the Company consummating the Merger, fails to consummate the Merger, Parent may specifically enforce the terms of the Merger Agreement in the United States District Court of Delaware or in any state courts in the State of Delaware. The Company has no specific enforcement rights against Parent (or Sponsor).

 

Material U.S. and Certain Canadian Federal Income Tax Consequences (See page 55)

 

The receipt of the Merger Consideration, or cash pursuant to the exercise of dissenters’ rights, by security holders in exchange for our common stock and the receipt of the Tender Consideration in exchange for the Notes will be taxable transactions for U.S. and Canadian federal income tax purposes. You should read “Adoption of the Merger Agreement (Proposal 1) — The Merger — Material U.S. Federal Income Tax Consequences” and “Certain Canadian Federal Income Tax Consequences” for a more complete description of the U.S. and Canadian federal income tax consequences of the Merger. In addition, you should read the Debt Tender Documents for a complete description of the U.S. and Canadian federal income tax consequences of the Debt Tender.

 

Tax matters are very complicated, and the tax consequences to you of the Merger and the Debt Tender will depend on your own situation. You should consult your own tax advisor to determine the effect of the Merger and the Debt Tender on you under U.S. federal, state, local, Canadian and other foreign tax laws.

 

Appraisal Rights (Page 60)

 

Under Delaware law, if the Merger is completed, record holders of common stock who demand an appraisal of their shares, do not vote in favor of the Merger and properly perfect their appraisal rights pursuant to, and in accordance with, Section 262 of the DGCL (and do not subsequently lose or withdraw such rights) will be entitled to receive payment in cash for the judicially determined fair value of their shares of common stock and, unless the court determines otherwise, interest at an annual rate of 5% over the Federal Discount Rate on the amount determined to be the fair value of the shares. The relevant provisions of the DGCL relating to the rights of security holders to such appraisal are included as Annex E to this proxy statement.

 

The Special Meeting (Page 18)

 

The special meeting will be held in the Conference Center, Ground Level at 200 First Stamford Place, Stamford, Connecticut 06902, on January 27, 2009, at 8:30 a.m., Eastern Time, for the following purposes:

 

 

Only record holders of our common stock at the close of business on November 28, 2008 will be entitled to vote at the special meeting. Each share of common stock is entitled to one vote for each matter presented at the meeting. As of the record date of November 28, 2008, there were 20,981,813 shares of common stock entitled to vote at the special meeting.

The proposal to adopt the Merger Agreement and the transactions contemplated thereby requires an affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting. A security holder’s failure to vote or an abstention will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement and the transactions contemplated thereby.

 

The adoption of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of a majority of shares of our common stock represented in person or by proxy at the special meeting and entitled to vote thereon. Accordingly, abstentions will count as a vote “AGAINST” these proposed matters, and the failure to attend the meeting and vote in person, to submit a proxy, or to instruct your bank, brokerage firm or nominee on how to vote your shares will not affect the outcome of the proposal.

 

As of the record date, our directors had the right to vote 6,660 shares of common stock, or less than 1% of the outstanding common stock entitled to be voted at the special meeting.

 

The questions and answers below highlight only selected procedural information from this document. They do not contain all of the information that may be important to you. You should read carefully the entire document because it contains important information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MacKenzie Partners, Inc.

105 Madison Avenue,

New York, New York 10016

Telephone: (800) 322-2885

(212) 929-5500

Attn: Jeanne Carr

 

 

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

Telephone: (800) 322-2885

(212) 929-5500

Attn: Jeanne Carr

 

The Company

 

The Company is a leading provider of food and related services, including concessions, catering and merchandise services, in sports facilities, convention centers and other entertainment facilities throughout the United States and in Canada. Based on the number of facilities served, we are one of the largest providers of food and beverage services to a variety of recreational facilities in the United States.

 

The Company, including our subsidiaries and their predecessors, has been in operation for over 35 years. We were organized as a Delaware corporation on November 21, 1995 under the name VSI Acquisition II Corporation. In August 1998, through our wholly owned subsidiary, Volume Services America, Inc., the parent company of Volume Services Inc., then one of the leading suppliers of food and beverage services to sports facilities in the United States, we acquired Service America Corporation, then one of the leading suppliers of food and beverage services to convention centers in the United States. This acquisition allowed us to enter the convention center market with a significant presence in major convention centers and resulted in our having a substantially more diversified client base and revenue stream. As a result of this acquisition, in October 1998 we changed our corporate name to Volume Services America Holdings, Inc. In October 2004, we changed our corporate name to our current name, Centerplate, Inc.

 

Additional information about the Company is contained in our Annual Report on Form 10-K for the fiscal year ended January 1, 2008 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended April 1, 2008, July 1, 2008 and September 30, 2008, which are incorporated herein by reference. See “Where You Can Find More Information” on page 72.

 

The address and telephone number of our principal executive office are:

 

2187 Atlantic Street, 6th Floor

Stamford, Connecticut 06902

(203) 975-5900

 

Parent and Merger Sub

 

Parent and Merger Sub are entities directly and indirectly owned by Sponsor, an affiliate of Kohlberg. Kohlberg is a leading U.S. private equity firm with offices in Mt. Kisco, New York and Menlo Park, California. Since its inception in 1987, Kohlberg has completed more than 90 platform and add-on acquisitions as the control investor in a variety of industries including manufacturing, healthcare, consumer products and service industries. Kohlberg has invested a total of $2 billion in equity across six private equity funds with an aggregate transaction value of approximately $7 billion.

 

In addition to general investment risks and the other information included herein, you should carefully consider the risk factors described below in evaluating whether to adopt the Merger Agreement and the transactions contemplated thereby, including the Debt Tender. Described below are the risks associated with the Merger and the transactions contemplated thereby. In addition, the Company’s business is and will continue to be subject to the risks described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 1, 2008, and our Quarterly Reports on Form 10-Q for the fiscal quarters ended April 1, 2008, July 1, 2008 and September 30, 2008, which are incorporated herein by reference. See “Where You Can Find More Information” on page 72.

 

Failure to complete the Merger will result in a default under our indebtedness and would likely result in the Company resorting to bankruptcy protection, which would negatively affect our IDS price and could result in our security holders receiving less value than in the Merger.

 

If the Merger is not completed for any reason, we would likely be subject to a number of material risks, including the following:

 

 

 

 

 

 

The occurrence of any of the above would likely impair our ability to conduct our operations and business, reducing the value of the business and, therefore, the value that our security holders and other creditors would receive in a bankruptcy or any other transaction. Any of these outcomes would likely cause the price of our IDSs to decline further. In addition, the price of our IDSs may decline further if the current market price of our IDSs reflects an assumption that the Merger will be completed.

 

Even if our security holders approve the Merger, the Merger may not be completed.

 

The completion of the Merger is subject to several closing conditions, some of which are out of our control, and there can be no guarantee that we will be able to satisfy all of the closing conditions set forth in the Merger Agreement. Conditions to closing under the Merger Agreement include, for example, no material

adverse change having occurred with respect to the Company during the period prior to the closing of the Merger. As a result, even if the Merger is approved by the required vote of our security holders at the special meeting and the 50.1% Debt Tender condition is satisfied, we cannot guarantee that the Merger will be completed. In addition, if Parent and Merger Sub were to breach the Merger Agreement or fail to consummate the Merger as a result of a failure of the Restatement to become effective or any alternative lender to finance the Merger, we would not be entitled to seek court action to force Parent to close. If the Merger is not completed, we would be in default under our credit agreement and would not have sufficient capital to repay our outstanding indebtedness when due, and this would likely force the Company to resort to bankruptcy protection.

 

The Merger Agreement limits our ability to pursue alternatives to the Merger.

 

The Merger Agreement contains “no shop” provisions that, subject to limited exceptions, limit our ability to discuss, facilitate or commit to competing third party proposals to acquire all or a significant part of the Company, as well as a termination fee that is payable by us under certain circumstances.

 

These provisions could discourage a third party that might have an interest in acquiring all of or a significant part of the Company from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by Parent.

 

Furthermore, the termination fee may result in a potential competing acquiror offering to pay a lower per share price to acquire the Company than it might otherwise have offered to pay. The payment of the termination fee could also have an adverse effect on our financial condition.

 

Some of our directors and executive officers have interests in the Merger that may differ from the interests of our security holders.

 

When considering the Board of Directors’ unanimous recommendation that the security holders vote “FOR” the proposal to adopt the Merger Agreement and the transactions contemplated thereby, you should be aware that certain of our directors and executive officers have interests in the Merger Agreement and the Merger that are different from, and may conflict with, your interests. These directors and executive officers will receive certain benefits in connection with the Merger. Additionally, certain executive officers may be entitled to receive severance payments in connection with the Merger. Parent has agreed to continue certain indemnification arrangements for our directors and executive officers. The Board of Directors was aware of these interests and considered them, among other matters, in authorizing and advising security holder approval of the Merger Agreement. See “Adoption of the Merger Agreement (Proposal 1) — The Merger — Interests of Certain Persons in the Merger.”

 

Holders of the Notes that remain outstanding after the closing of the Merger will no longer have many of the benefits currently contained in the Indenture governing the Notes.

 

If the Debt Tender is consummated and the Proposed Amendments become operative, holders of Notes that are not purchased pursuant to the Debt Tender will no longer have the benefit of substantially all of the covenants, certain events of default and the change of control offer provided in the Indenture. While the Proposed Amendments will not relieve the Company from its obligation to make scheduled payments of principal and accrued interest on the remaining Notes, the elimination of the foregoing provisions would permit the Company to take actions that could increase the credit risks faced by the holders of the remaining Notes, adversely affect any market price of such Notes or otherwise be adverse to the interests of the holders of the remaining Notes.

 

After the Merger there will be no active trading market for the Notes.

 

The Company’s IDSs currently trade on the AMEX and the TSX. Effective as of the consummation of the Merger, the IDSs will be separated into their components with the underlying common stock being converted into the right to receive the Merger Consideration and up to 70% of the Notes being purchased in the Debt Tender. The remaining Notes will not be listed on a stock exchange and we do not intend to create or sustain a market for any Notes that remain outstanding following consummation of the Merger. Thus, the extent of any market for the remaining Notes will depend upon, among other things, the principal amount of

the Notes that remain outstanding after the Merger, the number of holders remaining at such time and the interest in maintaining a market in the Notes on the part of securities firms. Holders may need to hold their Notes until maturity or an earlier redemption, if any, by the Company.

 

The Company and Sponsor may make subsequent repurchases of Notes or redemptions at different prices.

 

From time to time after the consummation of the Merger, Sponsor or the Company may acquire Notes that remain outstanding through open market purchases, privately negotiated transactions or otherwise, upon terms and at prices as they may determine, which may be more or less than the price to be paid for the Notes pursuant to the Debt Tender. The Company also may discharge or redeem the remaining Notes not tendered pursuant to the terms of the Indenture. If the Company does not purchase, redeem or discharge the Notes prior to maturity, you may not be able to transfer or otherwise realize value on your Notes until maturity.

 

Subordination of the remaining Notes.

 

At the effective time of the Merger the Restatement will have become effective and will constitute “senior indebtedness” under the Indenture. The Restatement will be secured by substantially all of the Company’s assets. Pursuant to the Indenture, the Notes are subordinated to the prior payment in full of all existing and future senior indebtedness of the Company and, as such, holders of senior indebtedness have the right to receive payment in full in cash prior to any payments being made on the Notes. In addition, in the event of a bankruptcy, liquidation or reorganization or similar proceeding, holders of Notes will participate with all other holders of unsecured indebtedness of the Company who are similarly subordinated in the assets remaining after the Company has paid all such senior indebtedness. In any of these cases, the Company may not have sufficient funds to pay all of its creditors, and holders of the remaining Notes may receive less, ratably, than the holders of senior indebtedness. See “Adoption of the Merger Agreement (Proposal 1) — The Merger Agreement — Financing.”

 

After the Merger you will no longer be entitled to receive information.

 

The Indenture currently requires that the Company file annual, quarterly and other reports with the SEC even if the Company is not required to do so under the Exchange Act. Following the Merger, the Company will no longer be obligated to file reports under the Exchange Act and if the Proposed Amendments become operative, the Company will no longer be obligated by the Indenture to make such filings. Therefore, public information related to capitalization, cash flows, net income and results of operations of the Company and its subsidiaries will not be available to holders of the Notes and other investors, which will affect liquidity and prices for the remaining Notes.

 

Some of the statements contained or incorporated by reference into this proxy statement, including those relating to the Company’s strategies and other statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “will,” “should,” “may,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include the information concerning possible or assumed future results of the Company as set forth under “Adoption of the Merger Agreement (Proposal 1) — The Merger — Reasons for the Merger; Recommendation of the Board of Directors” and “Adoption of the Merger Agreement (Proposal 1) — The Merger — Opinion of Evercore Group L.L.C.” These statements are not historical facts but instead represent only the Company’s expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include the risk factors set forth above and other market, business, legal and operational uncertainties discussed elsewhere in this document and the documents that are incorporated herein by reference. Those uncertainties include, but are not limited to:

 

 

The Company’s actual results and financial conditions may differ, perhaps materially, from the anticipated results and financial conditions in any forward-looking statements, and, accordingly, readers are cautioned not to place undue reliance on such statements.

 

For more information concerning factors that could affect the Company’s future results and financial condition, see, in addition to the factors discussed under “Risk Factors” of this proxy statement, “Management’s Discussion and Analysis” in our annual report on Form 10-K for the year ended January 1, 2008, and Quarterly Reports on Form 10-Q for the fiscal quarters ended April 1, 2008, July 1, 2008 and September 30, 2008, which are incorporated herein by reference. Parent and the Company undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Date, Time and Place

 

This proxy statement is being furnished to security holders as part of the solicitation of proxies by the Board of Directors for use at the special meeting to be held on January 27, 2009, at 8:30 a.m., Eastern Time, in the Conference Center, Ground Level at 200 first Stamford Place, Stamford, Connecticut 06902.

 

Purpose of the Special Meeting

 

At the special meeting, security holders will be asked:

 

 

The Board’s Recommendation

 

The Board of Directors has unanimously determined that the Merger is advisable and in the best interests of the Company and our security holders and has approved the Merger Agreement and the Merger. Accordingly, the Board of Directors unanimously recommends that security holders vote “FOR” the proposal to adopt the Merger Agreement and the transactions contemplated thereby. Additionally, the Board of Directors unanimously recommends that the security holders vote “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies. See “Adoption of the Merger Agreement (Proposal 1) — The Merger — Reasons for the Merger; Recommendation of the Board of Directors” and “Approval of the Adjournment or Postponement of the Special Meeting (Proposal 2).”

 

Record Date

 

The record holders of shares of common stock as of the close of business on November 28, 2008, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. On the record date, there were 20,981,813 outstanding shares of common stock.

 

Required Vote; How to Vote

 

Each IDS includes one share of common stock. Each outstanding share of common stock on November 28, 2008 entitles the holder to one vote at the special meeting. Adoption of the Merger Agreement and the transactions contemplated thereby requires the affirmative vote “FOR” the proposal to adopt the Merger Agreement by the holders of a majority of the shares of our common stock outstanding on the record date and entitled to vote on the matter. Adoption of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote “FOR” the proposal by the holders of a majority of shares of our common stock represented in person or by proxy at the special meeting and entitled to vote thereon. In the absence of a quorum, holders of a majority of the shares present in person or represented by proxy may adjourn the meeting until a quorum shall be attained. The approval of any other such other matters as may be properly presented incident to the conduct of the special meeting requires the affirmative vote “FOR” the approval of any such proposed matter by a majority of the shares present in person or by proxy at the meeting and entitled to vote on the matter. In order for your shares of common stock to be included in the vote, you must submit a proxy to have your shares voted by completing, signing, dating and returning the enclosed proxy or you must vote in person at the special meeting.

If your shares of common stock are held in street name by your bank, brokerage firm or nominee, you should instruct them how to vote your shares of common stock using the instructions provided by them. If you have not received such voting instructions or require further information regarding such voting instructions, you may contact your bank, brokerage firm or nominee to request directions on how to vote your shares. If your shares are held in street name and you do not provide your bank, brokerage firm or nominee with instructions as to how such shares are to be voted, your shares will not be voted at with the special meeting. Because adoption of the Merger Agreement and the transactions contemplated thereby requires the affirmative vote “FOR” the approval of the proposal to adopt the Merger Agreement by the holders of a majority of the shares of our common stock outstanding on the record date and entitled to vote on the matter, abstentions and your failure to vote or to instruct your bank, brokerage firm or nominee how to vote will have the same effect as a vote “AGAINST” the proposal. Because approval of the proposal to adjourn the meeting, if necessary, to solicit additional proxies, and approval of any other such matters as may be properly presented incident to the conduct of the special meeting requires the affirmative vote “FOR” the approval of any such matters by holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote on the matter, abstentions will count as a vote “AGAINST” the proposed matters, and the failure to attend the meeting and vote in person, to submit a proxy, or to instruct your bank, brokerage firm or nominee on how to vote your shares will not affect the outcome of the proposal.

 

Quorum

 

A quorum is necessary to hold the special meeting. The holders of one-third of the outstanding shares of common stock, represented in person or by proxy and entitled to vote at the special meeting, will constitute a quorum for purposes of the special meeting. For purposes of determining the presence of a quorum, abstentions will be included in determining the number of shares present and entitled to vote at the meeting; however, because brokers are not entitled to vote on the proposal to adopt the Merger Agreement absent specific instructions from the beneficial owner, shares held by brokers with respect to which instructions have not been provided will not be included in the number of shares present and entitled to vote at the meeting for purposes of establishing a quorum. Any shares of common stock held in treasury by the Company or by any of our subsidiaries are not considered to be outstanding for purposes of determining a quorum. In the absence of a quorum, holders of a majority of the shares present or represented by proxy at the special meeting may adjourn the meeting until a quorum is present. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and any adjournment or postponement of the special meeting. If a new record date is set for the adjourned special meeting, however, then a new quorum will have to be established.

 

Proxies; Revocation

 

Each copy of this proxy statement mailed to security holders is accompanied by a form of proxy or voting instruction card and a self-addressed postage prepaid envelope. You should complete and return the proxy card accompanying this proxy statement to ensure that your vote is counted at the special meeting, or at any adjournment thereof, regardless of whether you plan to attend the special meeting.

 

If you vote your shares of common stock by properly completing, signing and dating the enclosed proxy card, your shares will be voted at the special meeting as you indicate on your proxy card. If no instructions are indicated on your signed and dated proxy card, your shares of common stock will be voted “FOR” the adoption of the Merger Agreement and transactions contemplated thereby, “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies and will be counted in accordance with the recommendations of the Board of Directors on any other matters properly brought before the special meeting for a vote.

 

You may revoke your proxy at any time before the vote is taken at the special meeting. To revoke your proxy, you must either properly advise the Company’s Secretary in writing, deliver a proxy dated after the date of the proxy you wish to revoke or attend the special meeting and vote your shares in person. Attendance at the special meeting will not by itself constitute revocation of a proxy. If you have instructed your bank,

brokerage firm or nominee to vote your shares, the above-described options for revoking your proxy do not apply and instead you must follow the directions provided by them to revoke your proxy.

 

To submit a written notice of revocation or other communications about revoking your proxy with respect to your shares of common stock, or to request a new proxy card, you should contact:

 

MacKenzie Partners, Inc.

105 Madison Avenue

New York, New York 10016

Telephone: (800) 322-2885

(212) 929-5500

Attn: Jeanne Carr

 

The Company does not expect that any matter other than the proposal to adopt the Merger Agreement and the transactions contemplated thereby and the proposal to adjourn the special meeting, if necessary, to solicit additional proxies will be brought before the special meeting. If, however, such a matter is properly presented at the special meeting or any adjournment thereof, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment.

 

Solicitation of Proxies

 

The Company will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, directors, officers and employees of the Company may solicit proxies personally and by telephone, facsimile or other electronic means of communication. These persons will not receive additional or special compensation for such solicitation services. Arrangements may also be made with brokerage firms and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of shares held of record by those persons, and we will reimburse those brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection with those actions. In addition, MacKenzie Partners has been retained by us to assist in the solicitation of proxies. MacKenzie Partners may contact holders of shares of common stock by mail, telephone, facsimile, telegraph or personal interviews and may request brokers, dealers and other nominee security holders to forward materials to beneficial owners of shares of our common stock. MacKenzie Partners will receive reasonable and customary compensation for its services (estimated at $15,000) and will be reimbursed for certain reasonable out-of-pocket expenses and other customary costs.

 

Adjournments

 

Although it is not expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies or for any other reason. Any adjournment may be made without notice, other than by an announcement made at the special meeting, by approval of the holders of a majority of the shares of our common stock present in person or represented by proxy at the special meeting. Any signed proxies received by the Company which are otherwise silent on the matter will be voted in favor of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow security holders who have already sent in their proxies to revoke them at any time prior to their use.

 

Share Ownership of Directors and Executive Officers

 

At the close of business on the record date, our directors owned, through ownership of our IDSs, in the aggregate, 6,600 shares of common stock, or less than 1% of the outstanding shares of common stock entitled to vote. The executive officers of the Company do not own any of our IDSs or common stock. The directors have informed us that they intend to vote all of their shares of common stock “FOR” the proposal to adopt the Merger Agreement and the transactions contemplated thereby and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies. See “Share Ownership of Certain Beneficial Owners and Management.”

 

On September 18, 2008, the Company entered into the Original Merger Agreement with Parent and Merger Sub, as amended by the Amendment thereto dated December 23, 2008. Parent and Merger Sub are entities directly and indirectly owned by Sponsor. The Merger Agreement contemplates that the Merger will be effected through (i) a proxy solicitation to approve the Merger and (ii) a Debt Tender and a Consent Solicitation to purchase up to 70% of the Company’s Notes, with noteholders receiving $2.49 in cash, plus accrued and unpaid interest and deferred interest as the Tender Consideration for each Note accepted for payment. Following receipt of a vote of holders of a majority of our common stock to approve the Merger (and satisfaction of the other conditions thereto, which includes a minimum of 50.1% of the Notes being tendered pursuant to the Debt Tender), at the closing, Merger Sub will be merged with and into the Company with the Company being the Surviving Corporation and a wholly owned subsidiary of Parent, and each share of our common stock will be converted into the right to receive $0.01 as the Merger Consideration.

 

The Board’s decision to approve the Merger Agreement was the outcome of an approximately six-month Board of Directors-directed process to assess the Company’s capital structure and to identify, pursue and evaluate capital structure and other alternatives that would allow the Company to operate under the business conditions it was facing in light of rapidly deteriorating financial and credit markets.

 

Set forth below is a chronology of the events leading up to the Board of Directors decision to approve the Merger Agreement.

 

On March 10, 2008, the Company disclosed that beginning in January 2008, it faced declining cash flows from operations caused by lower revenues from its clients’ convention centers primarily due to the weakening economy. Those declines, as well as more stringent monthly financial covenants required to be satisfied for the payment of dividends on the common stock underlying the IDSs, which became effective under the credit agreement as of January 2008, led the Company to seek and obtain from its lenders a waiver of such covenants and an amendment to the credit agreement that allowed the Company to pay the monthly dividends through March 2008. The Company paid the lenders approximately $250,000 in fees as part of the waiver and amendment. At this time, the Company disclosed that it was seeking a permanent amendment to the credit agreement to enable it to meet the monthly financial covenants for the payment of dividends and to give it the flexibility necessary to address business needs that arise from time to time with respect to cash flow and capital expenditures, such as variations in event scheduling or the timing of when accounts come online. The Company also disclosed on March 17, 2008, that if it was not able to obtain a permanent amendment it would need to suspend payment of dividends beginning in April 2008. On March 21, 2008 the Board of Directors met and approved the retention of UBS Securities LLC (“UBS”) to assist the Company in reviewing its capital structure and obtaining the permanent amendment to its credit agreement.

 

As disclosed, on April 1, 2008, the Company sought and obtained another amendment to the credit agreement which allowed it to invest in a potential new service contract, increased the amount of capital expenditures it could make in 2008 and relaxed the monthly financial covenants it was required to meet in order to continue to pay monthly dividends on its common stock and monthly interest payments on the Notes through May 2008. The amendment increased the interest rate on the Company’s term loan to 1.75% (from 1.25%) over the alternate base rate and to 3.75% (from 3.25%) over the Eurodollar rate. The Company paid the lenders approximately $750,000 in fees as part of the amendment. The Company disclosed that without a further amendment to the credit agreement it would be required to suspend monthly dividend payments beginning in June and, if it could no longer meet the monthly financial covenants under the credit agreement, the Company could be required to defer interest payments on the Notes. The Company stated that the deteriorating credit markets may make it difficult to obtain such an amendment on favorable terms, if at all, and also disclosed that, in light of the Company’s growth strategy and current business requirements, the

Board of Directors could determine that it was more prudent to change the dividend policy. The IDS price dropped over 50% from $8.99 to $4.43 per IDS with over 4 million units trading on the day following this announcement.

 

On April 2, 2008, the Company disclosed that it had been informed by the New York Yankees that the Company would not be a concessionaire at the team’s new stadium scheduled to open in 2009. The Company also disclosed that if it did not obtain new business to offset the resulting loss in revenues from not having the contract at the new stadium, there would be a material adverse effect on its Adjusted EBITDA (as defined in the credit agreement) beginning in 2009.

 

On April 3, 2008, Janet Steinmayer, the Company’s President and Chief Executive Officer, received a telephone call from the President and Chief Operating Officer of Company A, during which the executive raised the prospect of Company A acquiring the Company.

 

On April 4, 2008, the Board of Directors held a telephonic meeting during which Ms. Steinmayer briefed the Board of Directors on Company A’s expression of interest. There was a full discussion, and the Board of Directors requested that Cahill Gordon & Reindel LLP (“Cahill”) be engaged to advise the Company and the directors as to their duties and responsibilities in this situation.

 

On April 7, 2008, the Board of Directors held a telephonic meeting, which representatives of Cahill attended. Cahill representatives led a full discussion regarding the directors’ duties and responsibilities in connection with the unsolicited offer from Company A. Following the discussion, the consensus of the Board of Directors was not to pursue Company A’s expression of interest at that time. The Board of Directors also decided that the Company would continue to pursue the reduction of costs and a permanent amendment to the credit agreement to provide more operating flexibility and permit the continued payment of dividends and interest on its Notes. Thereafter, Ms. Steinmayer advised Company A that the Company would not pursue Company A’s expression of interest at that time.

 

On April 18, 2008, David M. Williams, Chairman of the Board, received a letter from the President and Chief Operating Officer of Company A, expressing Company A’s interest in acquiring all of the Company’s IDSs for $8.25 per IDS in cash and estimated it could complete its diligence process in approximately two weeks. The offer was conditioned on obtaining financing, satisfactory completion of Company A’s due diligence, the negotiation and execution of mutually acceptable transaction agreements and customary conditions set forth in those agreements.

 

On April 21, 2008, the Board of Directors held a telephonic meeting attended by representatives of Cahill and UBS. Ms. Steinmayer updated the Board of Directors on the status of discussions with the Company’s lenders to amend the credit agreement and the challenges regarding the Company’s capital structure. Representatives of UBS and Cahill discussed various capital structure and other alternatives and UBS representatives proposed a process to explore such alternatives. Following a full discussion of the expression of interest received from Company A, the Board of Directors again determined not to pursue Company A’s expression of interest at that time.

 

On April 28, 2008, Ms. Steinmayer responded to Company A’s expression of interest by sending the President and Chief Operating Officer of Company A a letter conveying the Board of Directors’ determination not to pursue Company A’s expression of interest at that time.

 

On April 30, 2008, Mr. Williams received a second letter from Company A, reiterating its interest in acquiring the Company on the same terms as in the first letter and setting a May 9, 2008 deadline for the Company to agree to begin negotiating a definitive merger agreement and to permit Company A to begin a diligence process.

 

On April 30, 2008, the Board of Directors met. Ms. Steinmayer first reviewed the Company’s business and prospects, the history of the Company’s capital structure and the limitations it imposed, the increased capital expenditures required to secure new client contracts and renew existing ones, the status of management’s discussions with the lenders to amend the credit agreement, the Company’s ability to continue to pay dividends, efforts to reduce operating costs and the contents of Company A’s second letter.

Representatives of UBS then reviewed for the Board of Directors the Company’s dividend policy and capital structure, the history of amendments to the credit agreement and potential capital structure alternatives. Representatives of UBS next outlined the specifics of a process by which the Company could undertake a thorough review of capital structure and other alternatives. The Board of Directors then discussed the credit agreement amendment process and status and whether it would be in the best interest of the Company’s security holders to eliminate the payment of dividends. The Board of Directors then determined to begin the process outlined by representatives of UBS to identify, pursue and evaluate capital structure and other alternatives.

 

On May 2, 2008, the Board of Directors held a telephonic meeting to review again the content of Company A’s second letter, the process for identifying, pursuing and evaluating various capital structure and other alternatives, and the Company’s business and prospects. The Board of Directors discussed the status of the credit agreement amendment and how timing of the amendment could delay completion of the financial statements for the first quarter and the filing with the SEC of the Company’s quarterly report on Form 10-Q. The Board of Directors requested that management continue to seek a permanent amendment to the credit agreement.

 

In early May, 2008, representatives of UBS began exploring several alternatives on the Company’s behalf, including raising new secured debt to refinance the indebtedness under the credit agreement, raising new equity and using the proceeds to tender for a portion of the IDSs or Notes, exchanging the Notes for equity and cash proceeds from new mezzanine debt or preferred stock, and a sale the Company.

 

On May 7, 2008, the Company executed an amended and restated letter agreement confirming its engagement of UBS to act as the Company’s financial advisor in connection with the evaluation of capital structure and other alternatives, including a sale of the Company. The amended and restated letter agreement provided that the Company would pay UBS an advisory fee of $2 million and a transaction fee of 1.25% of the value of any capital transaction entered into by the Company, subject to a minimum transaction fee of $2.5 million, which transaction fee would be offset by credits to the advisory fee of up to $1 million. Also on May 7, 2008, the Company announced that the Board of Directors had determined to commence a process to explore a range of capital structure and other alternatives which was expected to take up to six months to complete, and that the Company had engaged UBS as the Company’s financial advisor to assist in that process. The Company stated that the IDS structure may limit its ability to invest in strengthening and growing its business. The Company also stated that it was pursuing a permanent amendment to the credit agreement to allow for increased flexibility on capital expenditures and acquisitions and, as a result, the filing with the SEC of the Company’s first quarter report on Form 10-Q would be delayed, but would contain details of the amendment once filed. In addition, the Company said that it was likely to determine it was in the best interest of the Company to eliminate monthly dividend payments beginning in June 2008.

 

On May 8, 2008, representatives of UBS telephonically responded to Company A regarding its second letter, advising Company A that the Board of Directors had determined to commence a process to explore capital structure and other alternatives, including a possible sale of the Company, and invited Company A to participate in that process.

 

In early May 2008, UBS commenced a process to pursue a sale of the Company to a third party. Representatives of UBS contacted 54 parties, including 7 strategic companies and 47 private equity investors, including Kohlberg.

 

On May 19, 2008, the Company obtained the sixth amendment to the credit agreement which adjusted certain monthly financial covenants to levels that, based on the Company’s projected financial performance at the time, were expected to permit the Company to pay interest on the Notes through October 2008. Thereafter, those monthly financial covenant levels were to be reset to the more stringent levels that would have been in effect absent the prior amendments obtained by the Company. In order to obtain the amendment, the Company agreed to eliminate the monthly dividend after the May 2008 payment, reduce the size of the revolving credit facility to $77.5 million from $107.5 million, increase the interest rate on the term loan and revolving credit facility to 3.50% (from 1.75%) over the alternate base rate and 4.50% (from 3.25%) over the Eurodollar rate, and prepay $8 million on the term loan. The Company paid the lenders approximately $2.3 million in fees as

part of the amendment. The amendment provided relief under monthly financial covenants to permit payment of interest on the Notes and monthly financial maintenance covenants in the credit agreement only through October 2008. The Company disclosed that if it was not able to comply with the monthly financial covenants for the payment of interest on the Notes as set forth in the May 2008 amendment or as set forth in the credit agreement after the expiration of the May 2008 amendment, it would have to defer payment of interest on the Notes. The Company also disclosed that its ability to comply with the monthly financial maintenance covenants may be affected by prevailing economic, financial and industry conditions that are beyond its control, and that a breach of such covenants would result in an event of default under the credit agreement and in turn a cross default under the Indenture. Such an event of default could lead to acceleration of the payment of the principal and accrued interest under the credit agreement and Notes, and if the Company were unable to repay those amounts, its assets may not be sufficient to repay the Company’s full amount of indebtedness.

 

On May 23, 2008, the Board of Directors held a telephonic meeting for an update on the exploration process. During the meeting the Board of Directors directed the Company’s management not to discuss the terms or conditions of potential post-acquisition employment with any of the potential bidders until after a merger agreement is signed.

 

On May 27, 2008, the Board of Directors held a telephonic meeting in which Cahill summarized the open issues in draft non-disclosure agreements with potential strategic buyers. Representatives of UBS also attended the meeting and summarized the importance of the involvement of interested strategic buyers in the exploration process. The Board of Directors authorized Cahill to continue negotiations with these strategic buyers as discussed at the meeting. Ms. Steinmayer abstained from voting on the issues to avoid the possible appearance of conflict.

 

During May and early June, the Company entered into non-disclosure agreements with 36 potential bidders, including 3 strategic companies and 33 private equity investors, including Kohlberg. Representatives of UBS distributed to each of those bidders a confidential information memorandum containing information about the Company’s business and operations.

 

By June 12, 2008, UBS had received non-binding indications of interest from 11 potential bidders, including 3 strategic companies and 8 private equity investors, with a range of prices from $5.01 to $16.08 per IDS. Kohlberg was one of those potential bidders with an initial indication of interest between $8.50 and $9.00 per IDS. Company A was also among the initial potential bidders with an indication of interest between $8.25 and $9.25 per IDS.

 

On June 13, 2008, the Board of Directors held a telephonic meeting to discuss developments in the exploration process. Representatives of UBS first updated the Board of Directors on the status of the solicitations of interests to purchase the Company. Representatives of UBS reported to the Board of Directors that it had received 11 first-round indications of interest and that UBS recommended that the Board of Directors move forward with each of them. Representatives of UBS then reviewed with the Board of Directors three different capital structure alternatives being explored, each of which had significant obstacles to execution. Alternatives discussed included refinancing the credit agreement with the proceeds of a new secured note offering, exchanging the Notes for new equity and cash proceeds from new mezzanine debt, and issuing new equity and using the proceeds to tender for a portion of the Notes. Representatives of UBS advised the Board of Directors that each of these options posed substantial challenges due to the Company’s need to make capital expenditures, the market price of the IDSs and the state of the financial markets. Management then reviewed the option of continuing with the current capital structure and significantly reducing operating costs and capital expenditures as much as possible to try to maintain compliance with the reinstated levels of the monthly financial covenants to permit the payment of interest on the Notes and the monthly financial maintenance covenants in the credit agreement. Ms. Steinmayer reported that management was in discussions with the Company’s lenders regarding the possibility of further amending the credit agreement and that the Company’s lenders were working on possible alternatives for the Company. The Board of Directors determined to proceed with the auction process with all 11 potential bidders and to continue to explore the viability of the other capital structure alternatives.

On June 17, 2008, all of the 11 potential bidders were given access to a data room which contained detailed confidential information about the Company’s business and operations.

 

From mid-June to mid-July 2008, Ms. Steinmayer and the other executive officers, with representatives of UBS in attendance, gave management presentations to each of the 11 potential bidders and responded to their diligence inquiries. Also during this time, representatives of UBS sent second round process letters to all of the remaining bidders setting July 17, 2008, as the deadline for final bids and other terms to be addressed. Representatives of UBS also sent two forms of a merger agreement which reflected either a cash-out merger with a tender offer for the Notes, or a tender for the IDSs, with instructions that each bidder, as part of its bid, provide a detailed mark-up of one of the forms. From mid-June to mid-July, representatives of UBS also pursued other capital structure alternatives, including approaching potential debt investors to gauge their interest in participating in the issuance of new senior secured notes to refinance the indebtedness under the credit agreement. In addition, representatives of UBS and management engaged in discussions with the administrative agent under the credit agreement regarding a further amendment to the credit agreement.

 

On June 23, 2008, the Board of Directors held a telephonic meeting during which Ms. Steinmayer updated the Board of Directors on a new expression of interest that had been received from Company B with a price indication of 8.5x to 9.5x EBIT. Ms. Steinmayer advised that representatives of UBS had evaluated the bid to imply a range from $5.10 to $6.38 per IDS based on the most recent balance sheet data. Based on the fact that the Company had 11 active bids, the higher end of Company B’s bid was lower than the lowest of all of the other 11 bids but one, and that the process would be slowed down significantly to get Company B to the same diligence level as the 11 other bidders, the Board of Directors determined not to include Company B in the process unless circumstances changed. Representatives of UBS subsequently communicated the Board’s decision to Company B.

 

By July 18, 2008, the Company had received 3 second-round bids (including revised drafts of the proposed merger agreement) and one alternate proposal. Kohlberg’s bid was for $7.50 per IDS and was structured as a merger with a tender for the Notes. Kohlberg had conditioned its bid on obtaining financing, for which they had initiated negotiations with Lender A and National City Bank (the “Original Commitment Lender”), but did not yet have a firm commitment, and on obtaining consents of certain of the Company’s clients.

 

Company C’s bid was for $5.00 to $6.00 per IDS and was also structured as a merger with a tender for the Notes. Company C’s bid was conditioned on obtaining financing, for which it did not yet have a firm commitment, and was subject to the consummation of another acquisition. In addition, Company C required more due diligence.

 

Company D’s bid was for an enterprise value of $225.0 million, which representatives of UBS estimated (based on the most recent balance sheet and adjusting for transaction costs) implied a value of $4.62 to $5.34 per IDS, but which would vary depending on the Company’s aggregate indebtedness. The bid was structured as a tender offer for the IDSs. Company D’s proposal was conditioned on receipt of tenders from 90% of the security holders, receipt of Company client consents and other conditions and included substantial revisions to the proposed merger agreement that created additional closing risk, but was not conditioned on obtaining financing.

 

Company E submitted an alternative proposal that involved no cash payments to security holders, an offer to exchange Company equity for each outstanding IDS and an infusion of $15 million of cash in exchange for the payment by the Company of a management fee to Company E to manage the business. Alternatively, Company E offered to purchase select portions of the Company’s business.

 

On July 19, 2008, the Board of Directors held a telephonic meeting to discuss the outcome of the second round of the bidding process during which representatives of UBS presented the Board of Directors with the four proposals received. The Kohlberg bid was the highest at $7.50 per IDS, Company C’s bid was $5.00 to $6.00 per IDS and Company D’s bid had an enterprise value of $225 million, which representatives of UBS estimated (based on the most recent balance sheet and adjusting for transaction costs) an implied value of $4.62 to $5.34 per IDS, but which would vary depending on the Company’s aggregate indebtedness. The

bidders were at different stages of completion of their diligence and could proceed to a signing on different timetables. Kohlberg had substantially completed its due diligence review and requested a 30-day exclusivity period. Company C, which had only conducted preliminary diligence at this point, requested a 45-day exclusivity period to move forward. Representatives of UBS reviewed the terms and conditions of each proposal and recommended the Company proceed with the bids from Kohlberg, Company C and Company D. Representatives of Cahill explained the main issues raised by the mark-ups of the form merger agreement. Representatives of UBS also reviewed Company E’s alternative proposal. Representatives of UBS then reviewed other capital structure alternatives being explored, focusing on a plan to refinance the Company’s indebtedness under the credit agreement with the sale of new senior secured notes. Representatives of UBS explained that the financing markets had deteriorated significantly since early June due to volatility in equities, high oil prices, and economic concerns. Representatives of UBS also indicated that 3 of the 7 investors approached by UBS had expressed interest in evaluating an investment in the new senior secured notes, but that their interest had waned since initially being approached by UBS in June due to the deteriorating economic conditions and the poor performance of Company’s IDS market price. As a result of the deteriorating financial markets and the preliminary feedback from the potential investors, representatives of UBS indicated that successfully executing on this alternative would be extremely challenging. Management then updated the Board of Directors regarding the alternative to reduce significantly operating costs and capital expenditures. Representatives of UBS explained that under this alternative they would recommend seeking a refinancing with the existing lenders under the credit agreement that would involve a three-year extension to the credit agreement and further suspending interest payments on the Notes. Problems noted with this approach included the likelihood that if such an amendment could be obtained, it would probably require the Company to incur higher interest rates and higher amortization. The Board of Directors determined not to pursue the proposal from Company E as it presented an alternative that, if achievable, could be effected by the Company on its own without incurring a management fee. The Board of Directors decided to move forward with the proposals from Kohlberg, Company C and Company D simultaneously and to refuse any requests for exclusivity in order to keep all options open.

 

On July 19, 2008, UBS representatives reported to Kohlberg, Company C and Company D that each of them was selected to continue to the final round. Kohlberg and Company C agreed to proceed. Company D said it would not continue its efforts without a period to negotiate exclusively with the Company. UBS also advised Company E that its proposal would not be pursued at that time.

 

On July 22, 2008, representatives of Cahill sent a revised draft of the merger agreement to Kohlberg’s counsel Ropes & Gray LLP (“Ropes & Gray”) reflecting the Company’s responses to Kohlberg’s comments and a revised draft of the merger agreement to Company C reflecting the Company’s responses to Company C’s comments.

 

On July 24, 2008, management of the Company, with representatives of UBS in attendance, met with each of Kohlberg and Company C, separately, to provide additional information about the Company’s business.

 

The draft merger agreement Cahill sent in response to Ropes & Gray’s mark-up had fewer representations and warranties and conditions precedent than the Ropes & Gray draft in order to reduce the risk of the Company not being able to close the Merger. The changes made in the Cahill draft included the deletion of conditions that there be no material adverse change in the Company, that financing be available at the time of the Merger and that the Company’s clients consent to the transaction. On July 31, 2008, Ropes & Gray responded to the Company by sending a new draft of the merger agreement to Cahill which included the conditions that Cahill had deleted. Kohlberg also revised the no-shop provision to require the Company to keep Parent informed of any Company proposal.

 

On August 5, 2008, the Board of Directors held a telephonic meeting during which representatives of UBS provided an update on the exploration process. Representatives of UBS updated the Board of Directors on the sale process. The Board of Directors was informed that one of Kohlberg’s potential lenders (“Lender A”) was willing to provide $130 million of financing to Kohlberg and that Kohlberg was now considering a structure that involved a tender offer and consent solicitation for a minimum of 50.1% and a maximum of

70% of the Notes, leaving at least 30% of the Notes outstanding. Representatives of Cahill summarized Kohlberg’s position regarding conditions to the Merger, including receipt of financing, no material adverse change in the Company, obtaining consents from a specified group of the Company’s clients and that Kohlberg was requiring the Company to drop its request for specific performance. Representatives of UBS also updated the Board of Directors on the bids from Company C and Company D. Company C’s bid had been subject to the simultaneous consummation of another transaction. That other transaction was encountering issues so Company C had informed representatives of UBS that it was now analyzing the Company as a stand-alone enterprise. Representatives of UBS also relayed that Company C was also experiencing difficulty in obtaining committed financing. Representatives of UBS also reported that Company D was not prepared to move forward with the merger process unless it was granted exclusivity. The Board of Directors decided that granting exclusivity to Company D, the lowest bidder, was not in the best interest of the Company at that time. Representatives of UBS then reviewed in detail the other capital structure alternatives being explored. Representatives of UBS reported that the financing markets had deteriorated even further and that a successful offering of new senior secured notes would be extremely challenging to achieve given market conditions. In light of the Company’s expectation that it would be unable to comply with the monthly financial maintenance covenants in the credit agreement as early as the fourth quarter of 2008 and the Company’s inability to obtain an amendment to the credit agreement without restructuring the IDSs, representatives of Cahill reviewed with the Board of Directors the considerations relevant to seeking to effect a permanent solution to the capital structure issues in bankruptcy. Representatives of each of UBS and Cahill noted that in a bankruptcy the IDSs and Notes could potentially lose all of their value.

 

On August 9, 2008, the Board of Directors held a telephonic meeting without any executive officers where it determined to designate independent director Glenn Zander as the sole member of a special committee to work directly with the Company’s advisors and management to evaluate the alternatives.

 

On August 12, 2008, in the report on Form 10-Q filed with the SEC for the fiscal quarter ended July 1, 2008, the Company disclosed that if the process it initiated to evaluate its capital structure and other alternatives was not completed by October 2008, and it was not otherwise able to obtain a further amendment to the credit agreement by such time, it intended to implement a restructuring plan designed to significantly reduce costs and future capital expenditures, which would limit the Company’s ability to make capital investments to obtain new contracts at levels consistent with recent years. These actions would be required to attempt to satisfy monthly financial maintenance covenants in the credit agreement that would be reinstated unless the existing amendment was extended. If the Company were unable to significantly reduce costs and capital expenditures, it expected (i) it would be required to defer interest payments on the Notes beginning in November 2008, and (ii) eventually it would be unable to comply with the reinstated monthly financial maintenance covenants, which would result in an event of default under the credit agreement. Upon occurrence of an event of default the Company would no longer be able borrow under the revolving credit facility and the lenders could elect to accelerate all principal and accrued interest. If the lenders were to accelerate all payments due, this would result in a default under the indenture governing the Notes. The Company cautioned that its assets may be insufficient to repay the Company’s indebtedness in full.

 

On August 15, 2008, the Board of Directors engaged Abrams & Laster LLP as special Delaware counsel to the Board of Directors.

 

On August 19, 2008, representatives of Ropes & Gray sent further comments on the draft merger agreement to representatives of Cahill.

 

On August 21, 2008, the Board of Directors held a meeting in New York City. Representatives of UBS presented an update on the various capital structure and other alternatives being explored. Representatives of UBS reviewed the status of the sale process. Representatives of UBS informed the Board of Directors that, in light of the worsening financing markets, the decrease in the market price for the IDSs, and further diligence on the Company’s cash flow and capital expenditure needs, each of Company C and Kohlberg had lowered their bids. Kohlberg’s bid was lowered to $6.00 per IDS and Company C’s bid was lowered to a range of $4.50 to $5.00 per IDS. Representatives of UBS reported that there was significant uncertainty around Company C’s bid due to its remaining diligence and lack of progress on obtaining committed financing.

Representatives of UBS also noted that Kohlberg had progressed much further in its diligence and in its efforts to secure financing. Therefore, the Board of Directors determined it was in the best interest of the Company’s security holders not to agree to Company C’s request, but to continue to negotiate with Kohlberg. Representatives of each of UBS and Cahill then reviewed the terms of the latest Kohlberg offer, which included certain closing risks such as a financing condition, the absence of a material adverse effect on the business, the condition that the Company obtain specified client consents and Kohlberg’s position that the Company not have any specific enforcement rights. The Board of Directors discussed requesting Kohlberg to pay a reverse termination fee if the financing was not available in lieu of specific enforcement rights. Representatives of UBS then reviewed with the Board of Directors the status of the exploration of other capital structure alternatives. Representatives of UBS reported that their latest round of calls to potential investors had yielded only one possible interested party with whom they would continue to try to move forward. Representatives of UBS advised that it was difficult to generate investor interest because of, among other reasons, the deterioration in the financial markets, but that it would continue to pursue a financing with investors if the opportunity was there. Mr. Zander then reviewed for the Board of Directors the alternative being considered that would maintain the current capital structure and require substantial reductions in operating costs and capital expenditures in order to meet reinstated monthly financial maintenance covenants in the credit agreement. He reported that in addition to reducing costs, the Company would need to sell assets to pay down debt and increase cash through reduction of receivables. He reported that this alternative had substantial uncertainty and that it could jeopardize the business, reduce the Company’s value and would also require the consent of the lenders under the credit agreement. Mr. Zander emphasized that this alternative should only be considered as a last resort if no other more attractive alternative was achievable. The Board of Directors also explored with Cahill representatives what could happen in the event there were no sale of the Company, including the possibility of a bankruptcy proceeding. The Board of Directors then discussed the financial advisor opinion.

 

On August 22, 2008, a representative from Abrams & Laster, special Delaware counsel to the Board of Directors, contacted the investment bank Evercore to discuss its potential engagement to provide an opinion as to the consideration being offered in the Merger. Evercore was not engaged to render a fairness opinion, but instead agreed to render an opinion based on methodologies that analyzed the relative value of the consideration being offered to securityholders as compared to the Company’s estimated enterprise value.

 

In August, as the financing markets further deteriorated, Kohlberg found it increasingly difficult to secure committed financing. On August 22, 2008, Kohlberg advised representatives of UBS that they were having problems securing debt financing and that they would provide an update the following week. On August 27, 2008, Kohlberg indicated to representatives of UBS that Lender A would not provide a debt financing commitment, but that they had received a commitment letter from the Original Commitment Lender which provided for $90 million of senior debt financing and that, after performing further diligence, it had lowered its price to $4.00 per IDS.

 

On September 2, 2008, the Board of Directors held a meeting in New York City. Representatives of UBS provided an update on the exploration process and informed the Board of Directors that Kohlberg had lowered its price to $4.00 per IDS, but that they believed that Kohlberg might increase its offer, particularly if the Company committed to negotiating exclusively with Kohlberg. Representatives of UBS stated that Company C still had not finished its diligence or secured financing and would need at least 30 days to complete a deal. UBS representatives reminded the Board of Directors that although Company D had no financing contingency, it had significant outstanding diligence to complete, it had submitted a substantial mark-up to the proposed merger agreement, which increased the uncertainty of reaching a deal, and required a 30-day exclusivity period during which negotiations with Kohlberg would need to be deferred. Representatives of UBS further noted that Company D’s price would vary depending on the Company’s aggregate indebtedness, the per IDS price was calculated after transaction costs and Company D was likely to reduce its price after conducting further due diligence (as other bidders had). The Board of Directors determined it was in the best interest of the Company’s security holders to continue to pursue a transaction with Kohlberg. Ms. Steinmayer summarized the alternative being explored by management and Mr. Zander that would maintain the current capital structure but would require substantial reductions in operating costs and capital expenditures to comply with the

reinstated monthly financial maintenance covenants under the credit agreement. This alternative would involve recording restructuring charges and therefore would also require obtaining waivers to certain monthly financial maintenance covenants from lenders under the credit agreement. Representatives of each of UBS and Cahill then led an in-depth discussion of each of the capital structure and other alternatives being considered, including (i) selling the Company to a third party, (ii) refinancing the Company’s indebtedness under the credit agreement with the proceeds of an issuance of new senior secured notes, (iii) exchanging the Notes for new equity and cash proceeds from new preferred stock , (iv) exchanging the Notes for new common equity, (v) refinancing the IDSs with cash raised from a new equity offering, (vi) operating under the current capital structure by significantly reducing operating costs and capital expenditures, deferring interest payments on the Notes and either securing a new credit facility with the existing lenders or seeking a permanent amendment of the monthly financial maintenance covenants under the credit agreement, (vii) restructuring the balance sheet in bankruptcy, either through a pre-arranged restructuring agreed to with the lenders or otherwise, (viii) conducting a process to sell the Company under the protections and procedures of the bankruptcy laws and (ix) liquidating the Company in bankruptcy. The discussion included consideration of the risks to the business posed by each of the alternatives. At the conclusion of this in-depth review, representatives of each of UBS and Cahill recommended to the Board of Directors that in light of all the alternatives, the Company should proceed with Kohlberg. The Board of Directors determined to proceed with the Kohlberg offer and instructed the representatives of UBS to pursue a higher price if possible. The Board of Directors then met in executive session, with only independent directors and a representative of Abrams & Laster present, and determined that the sole member of the special committee would be paid a fee of $100,000 for his work in evaluating the alternatives.

 

On September 4, 2008, representatives of each of UBS and Cahill and Mr. Zander met with representatives from Kohlberg and Ropes & Gray at Kohlberg’s office in Mount Kisco, New York. Representatives of UBS proposed to representatives of Kohlberg a price of $5.00 per IDS, reducing conditionality to increase the certainty of the closing and lowering the tender offer minimum condition to a majority. After further discussion and negotiation, Kohlberg responded that it would raise its offer price to $4.50 per IDS if the Company agreed to a termination fee of $10 million, a reverse termination fee of $2.5 million in exchange for dropping the Company’s request for specific performance, a closing condition that the Company shall have obtained the consent of certain clients, and the tender offer for the Notes having a minimum condition of 70%. The Company countered with a request for $4.75 per IDS, a termination fee of $3.0 million and a reverse termination fee of $4.0 million, a much narrower condition regarding client consents and that the minimum tender be only 50.1% of the Notes. The parties discussed the proposals further. Mr. Zander advised Kohlberg that he was prepared to recommend to the Board of Directors a deal at $4.75 per IDS with equivalent termination fees, narrower consent conditions and a brief exclusivity period. Kohlberg agreed to reduce the minimum tender condition for the Notes to 50.1%, but only if there was a maximum of 70% debt tenders in order to enable the remaining 30% of the Notes to serve as the mezzanine debt financing, and the removal of the condition in the debt commitment letter that Kohlberg obtain mezzanine financing. Kohlberg also agreed to seek to negotiate further changes to its debt commitment letter to reduce as many of the conditions as possible. Kohlberg also required the Company to obtain a waiver or amendment from lenders under the credit agreement to extend the terms of the May 2008 amendment that relaxed certain monthly financial maintenance covenants until the closing of the Merger and that the Company obtain a financial advisor opinion regarding the Merger. The parties adjourned to consider the open issues.

 

Later in the day on September 4, 2008, after discussion with Mr. Zander, representatives of UBS proposed to Kohlberg a two-tiered pricing structure in which Kohlberg would pay $4.75 per IDS if 70% or more of the IDS units were tendered and $4.50 per IDS if less than 70% but at least 50.1% were tendered.

 

On September 5, 2008, the Board of Directors held a telephonic meeting, during which representatives of each of UBS and Cahill provided a summary of the September 4 meeting with Kohlberg and an update on the sale process. Mr. Zander informed the Board of Directors that he had met with the Administrative Agent under the credit agreement, and relayed that he had asked GE for the ability to pay interest on the Notes through the end of the year. Management noted that they would reach out to GE when more progress had been made on the merger agreement. Management then updated the Board of Directors on the Company’s compliance with

the monthly financial maintenance covenants under the credit agreement and informed the Board of Directors that due to unexpected additional expenses associated with the sale of the Company, the Company could be in default much earlier than January 2009 without a further amendment. A representative of Abrams & Laster then provided the Board of Directors with an update on Kohlberg’s request for the Company to obtain an opinion of its financial advisor. The Board of Directors agreed to offer Kohlberg a brief period of exclusivity. The Board of Directors then approved the retention of Evercore to serve as the Board’s financial advisor to provide an opinion regarding the consideration offered in the Merger. Kohlberg was informed by representatives of UBS immediately subsequent to the meeting that it was granted exclusivity and on September 12, 2008 a formal agreement was signed by the Company and Kohlberg granting Kohlberg exclusivity until September 16, 2008.

 

On September 6, 2008, representatives of Cahill sent a revised draft merger agreement to representatives of Ropes & Gray reflecting the Company’s responses to the August 19, 2008 mark-up from Ropes & Gray and the agreements reached on September 4. The Company also added provisions which under certain circumstances would broaden the Company’s right to terminate the merger agreement, require the Company to reimburse Parent for its expenses rather than pay a termination fee and require Parent to pay the Company a reverse termination fee.

 

On September 9, 2008, the Company’s management and representatives of UBS met with additional members of Kohlberg in New York for a brief presentation of the Company’s business plan.

 

On September 9, 2008, representatives of Ropes & Gray sent further comments to the draft merger agreement to representatives of Cahill. The new Ropes & Gray draft merger agreement included revisions to the representations and warranties and other conditions to the Merger, as well as revisions which broadened the scope as to when the Company would have to pay a termination fee to Parent, reduced the circumstances under which Parent would have to pay the Company a reverse termination fee and eliminated a reverse termination fee under certain circumstances.

 

On September 10, 2008, Kohlberg advised representatives of UBS that it was prepared to agree on two alternative price structures: a two-tiered price structure in which Kohlberg paid $4.50 per IDS if less than 70% (but more than 50.1%) of the Notes were tendered and $4.75 per IDS if greater than 70% of the Notes were tendered; or a single price structure in which Kohlberg paid $4.65 for each IDS tendered. Under either structure, however, a maximum of 70% of the Notes would be purchased. Kohlberg also requested a $2.5 million termination fee and reverse termination fee and that the Company obtain consents from 15 clients. Kohlberg also advised representatives of UBS on the progress of financing discussions with the Original Commitment Lender, and advised UBS that it was expecting a revised commitment letter shortly.

 

On September 11, 2008, the Board of Directors held a telephonic meeting during which representatives of UBS and Cahill summarized their September 10 discussions with Kohlberg and provided an update on Kohlberg’s negotiations with its lender. A representative of Cahill reported that, in view of the then current financing market conditions, it was unlikely that the Original Commitment Lender would eliminate all financing conditions in the commitment letters, including a condition that there has been no material adverse change in the financial markets that would affect syndication. Management informed the Board of Directors that it was negotiating to amend the credit agreement to allow for the continuation of the existing amendment (which contained relaxed monthly financial maintenance covenants) until the closing of the Merger, and hoped to sign an amendment in the next week. Management reported that the lenders were requiring the deferral of interest on the Notes after year-end. Management also said it would begin contacting key clients that week so that calls to them which Kohlberg required prior to signing the merger agreement could be made. There was a discussion as to the advantages and disadvantages of the two pricing structures offered by Kohlberg, including the relative simplicity of the single price structure and the potential for investors to receive greater value under the two-tiered structure. The Board of Directors determined to obtain the advice of its advisors on the alternative pricing structure in order to make a decision at a subsequent meeting. The Board of Directors confirmed that Ms. Steinmayer would inform the lenders with which management was negotiating the credit agreement amendment that the Company would agree to defer interest on the Notes after November.

 

On September 12, 2008, Cahill representatives responded to Kohlberg by sending a new draft merger agreement to Ropes & Gray which included an expansion of the ability of the Board of Directors to effect an adverse recommendation change, an expansion of the rights of the Company to terminate the merger agreement, the circumstances in which Parent would have to pay a reverse termination fee, the amount of the termination and reverse termination fees and reflecting other issues discussed during the September 10, 2008 meeting.

 

On September 15, 2008, the Board of Directors held a telephonic meeting to discuss the proposed alternative price structures of the Kohlberg offer and to update the Board of Directors generally. Representatives from UBS informed the Board of Directors that approximately 70% of the security holders are retail investors who generally have smaller holdings and are typically disinclined to sell or participate in debt tender offers. UBS representatives said that they believed that retail investors would view the two price offer as an offer for $4.50 per IDS since it could not be certain of the higher price and therefore would find the guaranteed offer of $4.65 more appealing. They then summarized the pros and cons of each, and advised the Board of Directors to pursue the single price structure of $4.65 per IDS. The representatives of UBS focused their analysis on how best to ensure that the simple majority of consents and tenders of the Notes be obtained. They expressed that there would be a greater risk of not attracting a majority under the two-price structure alternative because it is more complex and therefore may be more difficult for the Company’s largely retail investor base to appreciate. Representatives of UBS also confirmed to the Board of Directors that if the Company pushed for a higher price from Kohlberg at this point it risked losing Kohlberg’s current offer. Following the discussion, the Board of Directors approved moving forward with the single price structure of $4.65 per IDS, assuming all final terms were agreed to. Ms. Steinmayer abstained.

 

On September 16, 2008, Ropes & Gray responded to the Company by sending a new draft merger agreement to Cahill which included a $2.5 million cap on expenses that would have to be reimbursed by either party to the other, narrower conditions under which Parent would have to pay a reverse termination fee and restrictions on the Company’s right to terminate the merger agreement.

 

On September 17, 2008, the Company secured a six-month amendment to the credit agreement which allowed for payment of interest on the IDSs through November 2008, and requires that the interest be deferred thereafter until the closing with Kohlberg. This amendment to the credit agreement was contingent upon the execution of the Merger Agreement with Kohlberg and would automatically expire if the deal with Kohlberg does not close. If the amendment expires, the Company would be in immediate default of the monthly financial maintenance covenants under the credit agreement.

 

On September 17, 2008, Kohlberg advised UBS that it reduced its offer price from $4.65 per IDS to $4.00 per IDS based on management’s latest cash flow forecast, a revision to the financing terms by the Original Commitment Lender (including an increase in fees payable) and the further deteriorating financing market conditions. Kohlberg stated that their proposal was subject to a call with management to walk through the revised cash flow forecast and Kohlberg’s satisfaction that the forecast was achievable.

 

Also on September 17, 2008, representatives of Cahill responded to Kohlberg by sending a new draft Merger Agreement which included a $1.5 million expense reimbursement cap and narrowed the circumstances of the termination fee such that it would not be payable to Parent where the Board of Directors makes an adverse recommendation change as the result of a material adverse change relating to Parent, Merger Sub, the Sponsor or the lender. On the same date, Kohlberg counsel Ropes & Gray responded to the Company by sending a new draft Merger Agreement to Cahill which included a $2.5 million expense reimbursement cap, a clarification that such expenses would include all fees and expenses payable to the Company pursuant to the Merger Agreement and expanded the circumstances of the termination fee that would be payable in connection with any adverse recommendation change by the Board of Directors.

 

Later on September 17, 2008, the Board of Directors held a telephonic meeting during which representatives of UBS briefed the Board of Directors on Kohlberg’s revised offer and representatives of Cahill summarized the outstanding issues with the Merger Agreement. Ms. Steinmayer reviewed the latest cash flow forecast and explained that the Company could be required to reduce substantially its capital expenditures earlier than expected or be in default under the credit agreement. Representatives of UBS said that the capital

markets had deteriorated rapidly given the recent developments, including the bankruptcy of investment bank Lehman Brothers and the bailout of insurance company AIG by the government. Mr. Zander said that absent execution of the Merger Agreement and the credit agreement amendment, the Company would be in default under the monthly financial maintenance covenants under the credit agreement upon the release in November of the Company’s September financial statements. A representative of Abrams & Laster informed the Board of Directors that Evercore’s engagement letter had been executed. A motion to move forward with the Kohlberg merger process was approved by all members of the Board of Directors present, with Ms. Steinmayer abstaining from the vote.

 

On September 18, 2008, representatives of UBS proposed to Kohlberg a counter-offer price of $4.35 per IDS. Kohlberg maintained its offer of $4.00 per IDS, citing again as reasons the Company’s revised cash flow forecast, the revised terms of its debt commitment and the deteriorating market conditions.

 

Later on September 18, 2008, the Board of Directors held a meeting in Stamford, Connecticut during which representatives of UBS informed the Board of Directors that Kohlberg was prepared to sign the Merger Agreement at a price of $4.00 per IDS. Representatives of UBS told the Board of Directors that, after having reviewed various strategic alternatives and given the rapid deterioration of the financing markets, they recommended that the Company pursue Kohlberg’s offer. They also told the Board of Directors that the Original Commitment Lender was expected to be prepared to execute commitment letters (the “Original Commitment Letter”) by that evening. Representatives of UBS then summarized certain risks that the Company faces prior to closing, including the requirement to obtain consents from certain clients, that no Company Material Adverse Effect (as defined in the Merger Agreement) will have occurred prior to the closing, and that the tender and votes of holders of a majority of the shares of Company common stock and Notes underlying the IDSs must be obtained. Representatives of Cahill then informed the Board of Directors that there were no major issues left to negotiate on the Merger Agreement and that Ropes & Gray had signed off on the agreement. Representatives of Cahill summarized the terms and conditions of the Merger Agreement, including that the Company is not permitted to solicit other offers, although it can pursue an unsolicited offer which constitutes or is reasonably likely to result in a Superior Proposal (as defined in the Merger Agreement). Representatives of Evercore then orally presented its opinion. They explained that consideration received by debt holders is not typically evaluated as “fair” because, among other reasons, debt holders’ ability to benefit from a company’s future prospects is capped, and therefore Evercore was opining as to whether the consideration was within the range of the Company’s Net Enterprise Values (defined by Evercore as enterprise value minus the amount of the Company’s indebtedness under the credit agreement, plus the amount by which the Company’s cash balances exceeded $23.3 million, with the amounts of such indebtedness and cash balances as estimated by management as of September 30, 2008). Representatives of Evercore then described the analysis it performed, including the conditions and assumptions it relied upon, its review of the sales process, its review of the Company’s financial statements and debt obligations, its review of sensitivity cases, and the performance of public market trading and precedent transaction analyses. Representatives of Evercore concluded to the Board of Directors that the Aggregate Consideration offered by the Merger (which Evercore defined as the $4.00 per IDSs for 70% of the outstanding IDS plus an assumed value of $3.99 per Note for the Notes not acquired in the Tender offer) is within the range of the Company’s Net Enterprise Values as estimated by Evercore. A representative of Abrams & Laster then reviewed the Board’s fiduciary duties in connection with evaluating the Merger. Mr. Zander, the member of the special committee, then recommended to the Board of Directors that the Company move forward with the Merger with Kohlberg. The Board of Directors after careful consideration determined, by the vote of all independent directors and a unanimous vote of all directors, that the Merger Agreement and the transactions contemplated thereby are advisable and in the best interests of the Company and the security holders, and approved the Merger Agreement, the Merger and the other transactions contemplated thereby.

 

On the evening of September 18, 2008, Parent, Merger Sub and the Company executed the Original Merger Agreement and announced the deal.

 

Since September 18, 2008, two lawsuits, purported to be class actions, have been filed against the Company and the Board of Directors alleging breach of fiduciary duties in entering into the Original Merger Agreement. The lawsuits seek an injunction to prevent the consummation of the Merger (or alternatively,

rescission or damages), and an award of fees and costs. One of the actions was subsequently withdrawn by the plaintiff to allow the plaintiff to attempt to become a co-plaintiff in the other action.

 

On October 29, 2008, Kohlberg advised the Company that it had received a letter from the Original Commitment Lender stating that in its reasonable judgment, events had occurred in the financial, banking and capital markets since the execution of the Original Commitment Letter that “could reasonably be expected to have an adverse impact in a material respect on the Successful Syndication of the proposed Senior Credit Facilities.”

 

On October 31, 2008, the Board of Directors held a telephonic meeting to discuss the letter delivered to Kohlberg by the Original Commitment Lender. Representatives of UBS and Cahill were in attendance. At the meeting the implications of the letter delivered to Kohlberg by the Original Commitment Lender for the transaction were discussed. UBS informed the Board members of the current state of the financial, banking and capital markets and the prospects of Kohlberg obtaining similar alternative financing.

 

On November 4, 2008, the Company was advised by Kohlberg’s representatives that the Original Commitment Lender informed Kohlberg that it would not fund its commitment or perform the services described in the Original Commitment Letter. Subsequent to denying its financing commitment to Kohlberg, the Original Commitment Lender and Kohlberg discussed the possibility of an alternative financing commitment.

 

On November 14, 2008, UBS informed the Company that the Original Commitment Lender had informed Kohlberg that it would not be able to provide any alternative financing.

 

On November 14, 2008, Kohlberg informed the Company that it intended to seek an amendment to the Company’s existing credit agreement in order to finance the transaction due to the unavailability of debt financing in the capital markets. Kohlberg further informed the Company that the proposed amendment to the credit agreement could necessitate a change in the structure of the transaction and could result in a reduction of the amount of Notes to be purchased pursuant to the tender offer from the level agreed in the Original Merger Agreement.

 

On November 18, 2008, the Board of Directors held a telephonic meeting to discuss the status of the transaction with Kohlberg, including Kohlberg’s efforts to obtain alternative financing. Representatives of UBS and Cahill were in attendance. UBS informed the Board that Kohlberg’s discussions with the Original Commitment Lender had failed to produce alternative financing and that Kohlberg was now in discussions with the Company’s lenders to procure an amendment to the Company’s credit agreement due to the unavailability of debt financing in the capital markets. The Board was further informed that the amount of Notes to be purchased pursuant to the tender offer may need to be reduced to 50.1% under the amendment envisaged by Kohlberg if necessary to achieve leverage ratios acceptable to the lenders.

 

From November 12, 2008 until December 23, 2008, Ropes & Gray negotiated the specific terms of the amended and restated credit agreement with the Company’s lenders and their counsel.

 

On December 17, 2008, a representative of Ropes & Gray delivered to representatives of Cahill drafts of amendments to the Original Merger Agreement and Equity Commitment Letter reflecting a revised tender offer to purchase 50.1% of the Notes and the entering into of the amended and restated credit agreement. The draft amendment to the Original Merger Agreement included the elimination of the payment of the reverse termination fee if the replacement financing provided by the restated credit agreement was unavailable at closing and added a condition to Kohlberg’s obligation to close that the restated credit agreement was effective.

 

On December 19, 2008 Cahill responded to the Ropes & Gray amendment by, among other things, rejecting the addition of the new closing condition and the elimination of the payment of the reverse termination fee if the restated credit agreement did not become effective.

 

Later in the day on December 19, 2008, a representative of Kohlberg indicated to representatives of UBS that, based on Kohlberg’s most recent review of the financial results of the Company which reflected a softening of revenues and a reduction in the Company’s EBITDA from the amount Kohlberg had expected in

2008, Kohlberg was no longer prepared to move forward with the deal as agreed to in the Original Merger Agreement and, if a revised deal could not be agreed to, Kohlberg would terminate the Merger Agreement and pay the Company the reverse termination fee. Kohlberg further advised UBS that it would be prepared to agree to a new deal at $2.00 per IDS.

 

On December 20, 2008, a meeting of the Board of Directors was held by telephone. Representatives of Management, UBS, Cahill and Abrams & Laster were in attendance. At the meeting a representative of UBS informed the Board of Kohlberg’s proposed new price of $2.00 per IDS and of Kohlberg’s reasons for offering such a reduced price. A representative of Cahill then discussed with the Board the proposed terms of the draft amendment to the Original Merger Agreement. The Board then discussed what response would be in the best interests of the Company and its security holders given continued deterioration in economic conditions and the Company’s liquidity position, lack of alternatives to the current transaction and likelihood of default under its credit agreement in the event the transaction was terminated. The Board also discussed the possibility that Kohlberg might decide not to pursue the transaction and, instead, pay the reverse termination fee under the Original Merger Agreement. It was agreed that UBS would contact Kohlberg to inform them that the Company was still interested in proceeding with the transaction and prepared to negotiate a reduction in price in exchange for greater certainty with regard to closing the transaction by removing unresolved closing conditions under the terms of the Original Merger Agreement. The Board authorized UBS to discuss with Kohlberg a possible price of $3.60 per IDS. UBS shared the Board’s reaction with Kohlberg. Kohlberg responded it would not even consider that price and reiterated it was prepared to terminate the deal and pay the reverse termination fee, although Kohlberg did express some limited flexibility on price and certain conditions.

 

On December 21, 2008 the Board of Directors held a telephone meeting at which UBS updated the Board as to its discussions with Kohlberg. After discussion, the Board determined to reconvene the next day to continue to consider with the Company’s advisers the implications of Kohlberg possibly terminating the deal and other alternatives that might be available to the Company, including bankruptcy.

 

On the morning of December 22, 2008, the Board of Directors held a telephonic meeting to consider the proposed terms of the renegotiated transaction and evaluate the Company’s options in a bankruptcy scenario. Representatives of UBS presented their preliminary financial analysis of the revised purchase price contemplated by the proposed amendment to the Original Merger Agreement and discussed certain aspects of several bankruptcy alternatives. Following a thorough discussion of the alternatives, the Board of Directors unanimously concluded that continuing to pursue a transaction with Kohlberg, in spite of the revised terms, was in the best interests of the Company’s security holders and other creditors and instructed UBS to contact Kohlberg regarding the potential terms for a transaction.

 

Also on December 22, 2008, the Board of Directors engaged Evercore to render an opinion as to the consideration being offered to the Company’s security holders by Kohlberg under the proposed revised terms of the Merger, based on methodologies that analyzed the relative value of such consideration as compared to the Company’s estimated enterprise value.

 

On the afternoon of December 22, 2008, the Board of Directors held a telephonic meeting during which representatives of UBS informed the Board of Directors that Kohlberg was prepared to sign an amendment to the Original Merger Agreement at a price of $2.50 per IDS and was willing to reduce the conditionality of closing and make the reverse termination fee payable in the event the conditions to Parents and Merger Sub’s obligations to closing are satisfied but the Restatement does not become effective and the closing does not occur despite satisfaction of the conditions to closing. The Board of Directors approved such terms, subject to the negotiation of definitive documentation and the receipt of a favorable opinion from Evercore.

 

On the evening of December 22, 2008, the Board of Directors held a telephonic meeting during which representatives of UBS told the Board of Directors that, in light of the thorough sales process conducted and various strategic alternatives considered, including the bankruptcy options discussed at length earlier that day, they continued to recommend that the Company pursue a transaction with Kohlberg on the terms embodied in the Amendment. Representatives of Cahill summarized for the Board of Directors the terms of the proposed amendment. Representatives of Evercore then orally presented its opinion, describing the analysis it performed, including the conditions and assumptions it relied upon, its review of the sales process, its review of the

Company’s financial statements and debt obligations, its review of sensitivity cases, and the performance of public market trading and precedent transaction analyses. Representatives of Evercore concluded to the Board of Directors that the Aggregate Consideration offered by the Merger (which Evercore defined as the $2.50 per IDS for 70% of the outstanding IDSs plus an assumed value of $2.49 per Note for the Notes not acquired in the Tender Offer) is within the range of the Company’s Net Enterprise Values as estimated by Evercore. The Board of Directors then determined, by the vote of all independent directors present at the meeting and by a unanimous vote of all directors present at the meeting, that the Amendment and the transactions contemplated by the Merger Agreement are advisable and in the best interests of the Company and the security holders and, subject to final documentation thereof, approved the Amendment, the Merger Agreement and the other transactions contemplated thereby.

 

On December 23, 2008, the Amendment was executed and delivered by the respective parties and the revised transaction was announced.

 

Reasons for Approval of the Original Merger Agreement

 

In determining to enter into and approve the Original Merger Agreement, the Merger and the transactions contemplated thereby and recommend that the Company’s security holders vote in favor of the Original Merger Agreement, the Board of Directors consulted with its legal and financial advisors, the special committee and senior management and considered the following factors:

 

 

 

 

 

 

 

The Board of Directors also considered a variety of risks and other potentially negative factors concerning the Original Merger Agreement, the Merger and the transactions contemplated thereby. The material risks and negative factors considered by the Board of Directors were as follows:

 

 

 

 

 

 

The Board of Directors concluded, however, that overall, the negative factors associated with the Merger were outweighed by the benefits of the Merger to the holders of the Company’s IDSs and approved the Original Merger Agreement.

 

Approval of the Amendment to the Original Merger Agreement

 

In reaching its decision to approve the Amendment to the Original Merger Agreement, and to reaffirm its approval of the Merger, the Merger Agreement, and the other transactions contemplated by the Merger Agreement and to reaffirm its recommendation that the Company’s security holders vote in favor of the Merger Agreement, the Board of Directors consulted with its legal and financial advisors, the special committee and senior management and considered all of the factors it considered in September 2008, as described above, and the following additional factors:

 

 

 

 

 

 

 

 

 

 

 

Additionally, the Board of Directors considered as a negative factor the substantial reduction in the consideration payable to the Company’s security holders when compared to the consideration payable on the terms specified in the Original Merger Agreement and the fact that prior to entering into the Original Merger Agreement Kohlberg had already substantially reduced its proposed consideration in light of the Company’s cash flow forecast and the further deteriorating financial market conditions.

 

The foregoing discussion summarizes the material factors considered by the Board of Directors in its consideration of the Merger. In view of the wide variety of factors considered by the Board of Directors, and the complexity of these matters, the Board of Directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of the Board of Directors may have assigned different weights to various factors. The Board of Directors unanimously approved the Merger and recommended the adoption of the Merger Agreement based upon the totality of the information presented to and considered by the Board of Directors.

 

The Company engaged Evercore to provide financial advisory services in connection with evaluating the Merger and the Debt Tender (together, the “Transaction”). At a meeting of the Board of Directors of the Company on September 18, 2008, Evercore presented its financial analyses with respect to whether the aggregate consideration (the aggregate amount of the cash received in the Transaction and the remaining Notes outstanding, the “Aggregate Consideration”) to be received by the holders of the Company’s IDSs (which, pursuant to the Original Merger Agreement, was based on a Debt Tender price of $3.99 per Note) was within the range of “Net Enterprise Values” (defined for purposes of the September 18, 2008 opinion as enterprise values minus the amount of the Company’s indebtedness under its term loan and revolving credit facility and plus the amount by which the Company’s cash balance exceeds $23.3 million, with the amounts of such indebtedness and cash balance as estimated by the Company as of September 30, 2008) that Evercore estimated for the Company. In the course of this presentation, the members of the Board were reminded or informed of the material assumptions that Evercore made in carrying out its analyses, the matters considered by Evercore and the limits of Evercore’s review. At that meeting Evercore orally rendered its opinion to the Board, which oral opinion was subsequently confirmed in a written opinion dated September 18, 2008, that, as of such date, based upon and subject to the assumptions made, matters considered and limits of the review undertaken by Evercore, the aggregate consideration was within the range of Net Enterprise Values that Evercore estimated for the Company.

 

On December 20, 2008, in light of the Amendment, Evercore was asked to render an opinion with respect to the Aggregate Consideration to be received by the holders of the Company’s IDSs pursuant to the Merger Agreement. At a meeting of the Board of Directors of the Company on December 22, 2008, Evercore presented to the Board of Directors Evercore’s financial analyses with respect to whether the Aggregate Consideration to be received by the holders of the Company’s IDSs was within the range of “Net Enterprise Values” (defined for purposes of the December 22, 2008 opinion as enterprise values minus the amount of the Company’s indebtedness under its term loan and revolving credit facility and plus the amount by which the Company’s cash balance exceeds $20 million, with the amounts of such indebtedness and cash balance as estimated by the Company as of December 31, 2008) that Evercore estimated for the Company. In the course of this presentation, the members of the Board were reminded or informed of the material assumptions that Evercore made in carrying out its analyses, the matters considered by Evercore and the limits of Evercore’s review. At that meeting Evercore orally rendered its opinion to the Board, which oral opinion was subsequently confirmed in a written opinion dated December 22, 2008, that, as of such date, based upon and subject to the assumptions made, matters considered and limits of the review undertaken by Evercore, the Aggregate Consideration was within the range of Net Enterprise Values that Evercore estimated for the Company.

 

The full text of Evercore’s written opinions, dated September 18, 2008 and December 22, 2008, is attached as Annexes C and D to this proxy statement, respectively. You are encouraged to read Evercore’s opinions carefully in their entirety, as they set forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Evercore in rendering its opinions. The following is a summary of Evercore’s opinions and the methodology that Evercore used to render its opinions. This summary is qualified in its entirety by reference to the full text of the opinions.

 

Evercore’s opinions addressed only whether the Aggregate Consideration was within the range of Net Enterprise Values that Evercore estimated for the Company as of the dates of such opinions, and Evercore was not asked to express, nor has it expressed, any opinion with respect to any other aspect of the Transaction. Evercore did not express any view on, and its opinions did not address, (i) the relationship between the Aggregate Consideration and any other consideration received in connection with the Transaction by the creditors or other constituencies of the Company, (ii) the allocation of consideration between the Merger Consideration and the Tender Consideration, or (iii) the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or any class of such persons, whether relative to the Merger Consideration, the Tender Consideration, the Aggregate Consideration or otherwise. In each case, Evercore assumed that the structure of the Transaction will not be modified in any respect material to its analysis.

 

In September 2008, Evercore was advised that the Company faced serious liquidity and capital constraints, and absent some restructuring transaction, the Company expected to default under its credit facility and the Notes. In December 2008, Evercore was advised that, unless the Company completes the Transaction, the Company will be in default under its credit facility and the Notes, and that, after January 2009, the Company expected to have insufficient liquidity to conduct its business operations. In arriving at its opinions, Evercore took into account the view of the Company’s management, given the Company’s current financial condition and the state of the capital markets as of the dates of Evercore’s opinions, that the Company is unlikely to be able to obtain, in the near term, the additional capital required to execute its business plan, and the likelihood that, in the absence of obtaining such additional capital, the Company will need to undertake a restructuring, either in bankruptcy or out of bankruptcy, that will diminish the Company’s value. Evercore understands that the management of the Company considered the feasibility of refinancing its credit facility and determined that under current market conditions, a refinancing was not feasible. Evercore further understands that management of the Company believes, in the absence of a sale transaction, obtaining additional amendments or waivers from its lenders likely would require additional payments and restructuring steps, which management expects would diminish the value of the Company.

 

Evercore’s opinions do not address the relative merits of the Transaction as compared to other business or financial strategies that might be available to the Company, whether in bankruptcy or out of bankruptcy, nor do they address the underlying business decision of the Company to engage in the Transaction.

 

In arriving at its opinions, Evercore assumed that the Notes not acquired in the Debt Tender should be deemed part of the Aggregate Consideration with a value following consummation of the Transaction equal to at least the per Note price paid in the Debt Tender.

 

In arriving at its opinions, Evercore was not authorized to solicit, and did not solicit, interest from any third party with respect to the acquisition of any or all of the Company Common Stock or any business combination or other extraordinary transaction involving the Company. Evercore understands that the Company has considered all refinancing , restructuring, sale (including conducting a broad sale process) and other strategic options and that the Board has concluded that the Transaction is the superior strategic alternative available to the Company. Evercore’s letters and opinions do not constitute a recommendation to the Board or to any other persons in respect of the Transaction, including as to how any holder of IDSs or any other securities of the Company should vote or act in respect of the Transaction. Evercore is not a legal, regulatory, accounting or tax expert and has assumed the accuracy and completeness of assessments by the Company and its advisors with respect to legal, regulatory, accounting and tax matters.

 

Evercore’s opinions were addressed to, and for the information and benefit of, the Board in connection with its evaluation of the Transaction. Evercore expresses no opinion as to the price at which any securities of the Company will trade at any future time.

 

September 18, 2008 Opinion

 

In connection with rendering its September 18, 2008 opinion, Evercore, among other things:

 

 

 

 

 

 

 

 

 

 

In arriving at its September 18, 2008 opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and Evercore assumes no liability therefor. For purposes of rendering its opinion, members of the management of the Company provided Evercore with certain financial projections that reflected a large drop in sales in 2009 and essentially flat sales thereafter and if the Company had to continue to operate as a stand-alone entity under its existing IDS structure and liquidity constraints. With respect to the management projections, Evercore assumed that they were reasonably prepared on bases reflecting the best available estimates and good faith judgments of the Company’s management as to the future matters covered by the management projections. Evercore also prepared a sensitivity case to the management projections that utilized different assumptions relating to cost savings (including related restructuring charges) and improvements in working capital management. Management confirmed that these sensitivity assumptions represented a reasonable set of assumptions for a sensitivity case.

 

In arriving at its September 18, 2008 opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the Original Merger Agreement were true and correct, that each party would perform all of the covenants and agreements required to be performed by it under the Original Merger Agreement and that all conditions to the consummation of the Transaction would be satisfied without material waiver or modification thereof.

 

Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the Transaction would be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on the Company or the consummation of the Transaction or materially reduce the benefits of the Transaction to the holders of the IDSs.

 

Evercore did not make or assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of the Company, nor has Evercore been furnished with any such appraisals, nor has Evercore evaluated the solvency or fair value of the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore has not evaluated, and expresses no opinion as to, the recovery that might be available to the holders of any securities of the Company in a bankruptcy proceeding or other restructuring, relative to the Tender Consideration, the Merger Consideration, the Aggregate Consideration or otherwise. Evercore’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to Evercore as of, September 18, 2008. Subsequent developments have affected and may continue to affect its opinion and Evercore does not have any obligation to update, revise or reaffirm its opinion.

 

In receiving Evercore’s opinion on September 18, 2008 and reviewing with Evercore the written materials prepared by Evercore in support of its opinion, the Board was aware of and consented to the assumptions and other matters discussed above. The opinion was approved by the Opinion Committee of Evercore.

 

Evercore’s opinion was only one of many factors considered by the Board in its evaluation of the Original Merger Agreement and should not be viewed as determinative of the views of the Board or management of the Company with respect to the Transaction or the Aggregate Consideration provided for in the Original Merger Agreement.

 

Summary of Analyses for September 18, 2008 Opinion

 

The following is a summary of the material analyses performed by Evercore and presented to the Board in connection with rendering its September 18, 2008 opinion.

 

Some of the financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully the financial analyses, the summary data and tables must be read together with the full text of the analyses. The summary data and tables alone are not a complete description of the financial analyses. Considering the summary data and tables alone could create a misleading or incomplete view of Evercore’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before September 18, 2008, and is not necessarily indicative of current market conditions.

 

Public Market Trading Analysis

 

Evercore reviewed the historical high and low closing prices of the Company’s IDSs since its initial public offering (“IPO”).

 

 

Using publicly available information, Evercore reviewed the market values and implied trading multiples of selected publicly traded caterers and concession operators. Evercore noted, however, that none of the selected publicly traded companies was directly comparable to the Company due to differences in business, financial, trading and geographic characteristics.

 

 

Evercore calculated and analyzed the ratio of total enterprise value, which we refer to as TEV, to estimated 2008 calendar year earnings before interest, taxes, depreciation and amortization, or EBITDA, less normalized capital expenditures (estimated as average capital expenditures as a percentage of sales from 2005 to 2007, multiplied by estimated 2008 revenue) for the above selected publicly traded companies, as well as the ratio of TEV to estimated 2009 calendar year EBITDA less normalized capital expenditures (estimated as average capital expenditures as a percentage of sales from 2005 to 2007, multiplied by estimated 2009 revenue). Evercore also calculated and analyzed the ratio of price to estimated 2008 and 2009 earnings per share for the above selected publicly traded companies. Evercore also calculated and analyzed the ratio of price to book value per share per the latest publicly available balance sheet. Evercore calculated all multiples for the selected companies based on each respective company’s closing share prices as of September 17, 2008.

These calculations were based on publicly available financial data including estimates from equity research analysts. The range of implied multiples that Evercore calculated is summarized below:

 

 

Precedent Transaction Analysis

 

Evercore performed an analysis of selected merger and acquisition transactions. Evercore identified and analyzed a group of three acquisitions of caterer and concession operators that were announced between 2006 and 2007. Evercore noted that the target companies identified were not directly comparable to the Company due to differences in business, financial, trading and geographic characteristics. Evercore also noted that these transactions occurred at a time when the availability of financing for transactions was greater and terms were substantially more favorable than at the time of the Transaction. Evercore calculated the TEV as a multiple of EBITDA during the last 12 months prior to the acquisition, or LTM, less normalized capital expenditures (defined as the average of the last three fiscal year capital expenditures as a percentage of sales multiplied by the revenue for the last 12 months) implied by these transactions. Evercore also calculated the ratio of the offer price to LTM earnings per share. Multiples for the selected transactions were based on publicly available financial information.

 

 

The range of implied multiples that Evercore calculated is summarized below:

 

 

Discounted Cash Flow Analysis

 

Evercore performed a discounted cash flow, or DCF, analysis, which calculates the present value of a company’s future unlevered, after-tax free cash flow based upon assumptions with respect to such cash flow and assumed discount rates. The financial forecast used in Evercore’s DCF analysis was based upon the management projections provided to Evercore in September 2008.

 

Evercore calculated ranges of estimated terminal values by using a range of perpetuity growth rates from 2.0% to 6.0%. The estimated interim after-tax free cash flows and terminal values were then discounted to

present value at September 30, 2008 using discount rates of 12.0% to 20.0%. This analysis indicated the following implied net enterprise value ranges for the Company:

 

 

Evercore also prepared a sensitivity case to the management projections that utilized different assumptions relating to cost savings and improvements in working capital management. Management confirmed that these sensitivity assumptions represented a reasonable set of assumptions for a sensitivity case. The analysis indicated the following implied net enterprise value ranges for the Company:

 

 

These Implied Net Enterprise Value Ranges compared to Aggregate Consideration of $83.9 million to be received by holders of the Company’s IDSs. While discounted cash flow analysis is a widely used valuation methodology, it necessarily relies on numerous assumptions, including assets and earnings growth rates, terminal values and discount rates. As a result, it is not necessarily indicative of actual, present or future value or results, which may be significantly more or less favorable than suggested by such analysis.

 

December 22, 2008 Opinion

 

In connection with rendering its December 22, 2008 opinion, Evercore, among other things:

 

 

 

 

 

 

 

 

 

 

 

In arriving at its December 22, 2008 opinion, Evercore assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and

Evercore assumes no liability therefor. For purposes of rendering its opinion, members of the management of the Company provided Evercore with certain revised financial projections, which it refers to as the management projections. With respect to the management projections, Evercore assumed that they were reasonably prepared on bases reflecting the best available estimates and good faith judgments of the Company’s management as to the future matters covered by the management projections. These projections had been revised downward from previous versions to reflect worsening market conditions and to reflect planned asset sales occurring at a later date and with lower sale proceeds than previously assumed. Evercore also prepared a sensitivity case to the management projections that utilized different assumptions relating to cost savings (including related restructuring charges). Management confirmed that these sensitivity assumptions represented a reasonable set of assumptions for a sensitivity case.

 

In arriving at its opinion, Evercore assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the Merger Agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the Merger Agreement and that all conditions to the consummation of the Transaction will be satisfied without material waiver or modification thereof.

 

Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the Transaction will be obtained without any material delay, limitation, restriction or condition that would have an adverse effect on the Company or the consummation of the Transaction or materially reduce the benefits of the Transaction to the holders of the IDSs.

 

Evercore does not make or assume any responsibility for making any independent valuation or appraisal of the assets or liabilities of the Company, nor has Evercore been furnished with any such appraisals, nor has Evercore evaluated the solvency or fair value of the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore has not evaluated, and expresses no opinion as to, the recovery that might be available to the holders of any securities of the Company in a bankruptcy proceeding or other restructuring, relative to the Tender Consideration, the Merger Consideration, the Aggregate Consideration or otherwise. Evercore’s opinion is based on economic, market and other conditions as in effect on, and the information made available to Evercore as of, December 22, 2008. Subsequent developments may affect its opinion and Evercore does not have any obligation to update, revise or reaffirm its opinion.

 

In receiving Evercore’s opinion on December 22, 2008 and reviewing with Evercore the written materials prepared by Evercore in support of its opinion, the Board was aware of and consented to the assumptions and other matters discussed above. The opinion was approved by the Opinion Committee of Evercore.

 

Evercore’s opinion was only one of many factors considered by the Board in its evaluation of the Transaction and should not be viewed as determinative of the views of the Board or management of the Company with respect to the Transaction or the Aggregate Consideration pursuant to the Merger Agreement.

 

Summary of Analyses for December 22, 2008 Opinion

 

The following is a summary of the material analyses performed by Evercore and presented to the Board in connection with rendering its opinion dated December 22, 2008.

 

Some of the financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully the financial analyses, the summary data and tables must be read together with the full text of the analyses. The summary data and tables alone are not a complete description of the financial analyses. Considering the summary data and tables alone could create a misleading or incomplete view of Evercore’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 22, 2008, and is not necessarily indicative of current market conditions.

 

Public Market Trading Analysis

 

Evercore reviewed the historical high and low closing prices of the Company’s IDSs since its IPO.

 

Using publicly available information, Evercore reviewed the market values and implied trading multiples of selected publicly traded caterers and concession operators. Evercore noted, however, that none of the selected publicly traded companies was directly comparable to the Company due to differences in business, financial, trading and geographic characteristics.

 

 

Evercore calculated and analyzed the ratio of TEV to estimated 2008 calendar year EBITDA, less normalized capital expenditures (estimated as average capital expenditures as a percentage of sales from the last three fiscal years, multiplied by estimated 2008 revenue) for the above selected publicly traded companies, as well as the ratio of TEV to estimated 2009 calendar year EBITDA less normalized capital expenditures (estimated as average capital expenditures as a percentage of sales from the last three fiscal years, multiplied by estimated 2009 revenue). Evercore also calculated and analyzed the ratio of price to estimated 2008 and 2009 earnings per share for the above selected publicly traded companies. Evercore also calculated and analyzed the ratio of price to book value per share per the latest publicly available balance sheet. Evercore calculated all multiples for the selected companies based on each respective company’s closing share prices as of December 19, 2008. These calculations were based on publicly available financial data including estimates from equity research analysts. The range of implied multiples that Evercore calculated is summarized below:

 

 

Precedent Transaction Analysis

 

Evercore performed an analysis of selected merger and acquisition transactions. Evercore identified and analyzed a group of three acquisitions of caterer and concession operators that were announced between 2006 and 2007. Evercore noted that the target companies identified were not directly comparable to the Company due to differences in business, financial, trading and geographic characteristics. Evercore also noted that these transactions occurred at a time when the availability of financing for transactions was greater and terms were substantially more favorable than at the time of the Transaction. Evercore calculated the TEV as a multiple of LTM EBITDA, less normalized capital expenditures (defined as the average of the last three fiscal year capital expenditures as a percentage of sales multiplied by the revenue for the last 12 months) implied by these transactions. Evercore also calculated the ratio of the offer price to LTM earnings per share. Multiples for the selected transactions were based on publicly available financial information.

 

 

The range of implied multiples that Evercore calculated is summarized below:

 

 

Discounted Cash Flow Analysis

 

Evercore performed a DCF analysis, which calculates the present value of a company’s future unlevered, after-tax free cash flow based upon assumptions with respect to such cash flow and assumed discount rates. The financial forecast used in Evercore’s DCF analysis was based upon the updated management projections provided to Evercore in December 2008.

 

Evercore calculated ranges of estimated terminal values by using a range of perpetuity growth rates from 2.0% to 6.0%. The estimated interim after-tax free cash flows and terminal values were then discounted to present value at December 31, 2008 using discount rates of 12.0% to 20.0%. This analysis indicated the following implied net enterprise value ranges for the Company:

 

 

Evercore also prepared a sensitivity case to the management projections that utilized different assumptions relating to cost savings. Management confirmed that these sensitivity assumptions represented a reasonable set of assumptions for a sensitivity case. The analysis indicated the following implied net enterprise value ranges for the Company:

 

 

These Implied Net Enterprise Value Ranges compared to Aggregate Consideration of $52.5 million to be received by holders of the Company’s IDSs. While discounted cash flow analysis is a widely used valuation methodology, it necessarily relies on numerous assumptions, including assets and earnings growth rates, terminal values and discount rates. As a result, it is not necessarily indicative of actual, present or future value or results, which may be significantly more or less favorable than suggested by such analysis.

 

General

 

The preparation of an opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. As a result, an opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinions, Evercore made qualitative judgments as to the significance and relevance of each analysis and factor that it considered. Accordingly, Evercore believes that its analyses for each of its opinions must be considered as a whole and that selecting portions of its analyses and factors, without considering all analyses and factors, could create a misleading or incomplete view of the processes underlying its analyses and opinion. In addition, Evercore may have given various analyses and factors more or less weight than other

analyses and factors and may have deemed various assumptions more or less probable than other assumptions, so that the ranges of valuations resulting from any of the foregoing analyses should not be taken to be Evercore’s view of the actual value of the Company. The foregoing summary does not purport to be a complete description of all analyses performed by Evercore.

 

Evercore made numerous assumptions with respect to risks associated with industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. Any estimates contained in Evercore’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates. The analyses performed were prepared solely as part of Evercore’s analysis of the Aggregate Consideration to be received by the holders of IDSs of the Company pursuant to the Original Merger Agreement and the Merger Agreement, from a financial point of view, and were prepared in connection with the delivery by Evercore of its opinions to the Board.

 

The Merger Consideration and the Tender Consideration were determined through arm’s length negotiations between the Company and Sponsor and were approved by the Board. Evercore did not provide any advice to the Company during these negotiations.

 

Evercore is an internationally recognized investment banking and advisory firm. Evercore, as part of its investment banking business, is continuously engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, competitive biddings and valuations for corporate, estate and other purposes. The Board selected Evercore because its investment banking professionals have had substantial experience in merger and acquisition transactions. In the ordinary course of its business, Evercore and its affiliates may from time to time trade in the securities or the indebtedness of the Company, or affiliates of Sponsor or any currencies or commodities (or derivatives thereof) (i) for its own account, (ii) for the accounts of investment funds and other clients under the management of Evercore and (iii) for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities, indebtedness, currencies or commodities (or derivatives thereof) for any such account.

 

Pursuant to the terms of Evercore’s engagement by the Company, the Company has agreed to pay Evercore an advisory fee of $1,000,000, (i) $200,000 of which was paid to Evercore upon signing the engagement letter, (ii) $200,000 of which was paid to Evercore when it delivered its written opinion on September 18, 2008, (iii) $200,000 of which is to be paid upon delivery of Evercore’s written opinion on December 22, 2008 and (iv) the remainder of which is contingent upon, and payable upon, consummation of the Merger. The Company has also agreed to reimburse Evercore for reasonable out of pocket expenses (including legal fees) incurred in performing its services not to exceed $100,000. In addition, the Company has agreed to indemnify Evercore and certain related parties for certain liabilities that may arise out of Evercore’s engagement by the Company.

Company Projected Financial Information

 

The Company does not as a matter of course make public projections as to future sales, earnings, or other results. However, our senior management prepared certain sets of financial forecasts for internal use and for the use of Evercore and Parent and its advisors in connection with the transaction described in this proxy statement. The accompanying financial forecasts were not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our management, were prepared on a reasonable basis, and reflect our best available estimates and judgments and the expected future financial performance of the Company at the time the projections were prepared. However, this information is not factual and should not be relied upon as being indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information. Furthermore, neither set of financial projections take into account any circumstances or events occurring after the respective dates the projections were prepared and, in particular, do not take into account or give effect to the Merger or the proposed financing of the Merger.

 

Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

 

The accompanying financial projections were, in one case, made available to the 11 potential bidders, including Parent, that were invited to the second phase of the process in connection with a potential sale of the Company and, in the other case, to our financial advisor Evercore. We have included subsets of these projections in this proxy statement to give security holders access to certain nonpublic information that served as the basis for Parent’s offer and Evercore’s evaluation. The inclusion of this information should not be regarded as an indication that we, Evercore, Parent or any other person considered, or now considers, it to be predictive of actual future results. The Company does not intend to update or otherwise revise either set of financial projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the projections are shown to be in error.

 

Third-Party
Buyer Projections

 

These projections, dated June 16, 2008, were provided to the 11 potential bidders that were invited to the second phase of the process in connection with a potential sale of the Company. These projections reflect the Net Sales and Adjusted EBITDA that the Company might achieve if it were able to enter into an agreement whereby a third party would purchase the Company and, in connection with such purchase, invest equity in the Company. These projections reflect strong sales and Adjusted EBITDA growth driven by significant capital investments in 2008 and 2009 to maintain existing business, obtain new business and make several acquisitions.

 

 

Management Projections Provided to Evercore in September 2008

 

These projections, dated September 9, 2008, were provided to Evercore in connection with its prior opinion to the Board of Directors of the Company on September 18, 2008. These projections reflected the Net Sales and Adjusted EBITDA that the Company might achieve as a stand-alone entity if it had to continue under its existing IDS capital structure and liquidity constraints. These projections reflected a large drop in sales in 2009 and essentially flat sales thereafter primarily due to the termination of the Yankees contract at the end of 2008, the sale of several business segments to third parties (with 100% of the proceeds going to pay down the term loan as required under our credit agreement) and minimal new business due to the Company’s inability to access new capital. In addition, the loss of business was projected to be higher than historical levels in the next two years due to the weak economy and business environment and competitive pressures. These projections also reflected significant cuts in overhead expenses and working capital which would be necessary to satisfy the monthly financial maintenance covenants under the credit agreement. To implement this scenario the Company, would have needed the cooperation of the lenders and an amendment to the credit agreement to be able to execute several of these initiatives.

 

 

Updated Management Projections Provided to Evercore in December 2008

 

These projections, dated December 21, 2008, were provided to Evercore in connection with its evaluation of the Transaction for purposes of delivering its opinion to the Board of Directors of the Company on December 22, 2008. The period between the September and December projections were marked by unprecedented upheaval in the financial system and broader economy. The Company revised its projections to reflect the market outlook, operational issues with respect to certain contracts, customer attrition related to concerns regarding the Company’s capital structure and a challenging M&A environment likely to cause the Company to take longer to sell assets and to realize lower sales proceeds. These updated projections otherwise are subject to the assumptions and qualifications applicable to the projections dated September 9, 2008.

 

 

The foregoing projections reflect numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions, as well as matters specific to our business, all of which are difficult to predict and beyond our control. As a result, there can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than projected. Since the projections cover multiple years, such information by its nature becomes less reliable with each successive year.

 

We have made publicly available our actual results of operations for fiscal year 2007 and for the subsequent fiscal quarters ending April 1, 2008, July 1, 2008 and September 30, 2008. You should review our Annual Report on Form 10-K for the fiscal year ended January 1, 2008, and our Quarterly Reports on Form 10-Q for the fiscal quarters ended April 1, 2008, July 1, 2008 and September 30, 2008 to obtain this information. See “Where You Can Find More Information.” Readers of this proxy statement are cautioned not to place undue reliance on the projections set forth above. No one has made or makes any representation to any security holder regarding the information included in these projections.

 

In considering the recommendations of the Board of Directors, you should be aware that the directors and executive officers of the Company may have interests in the Merger Agreement and the Merger that are different from, or in addition to, your interests as a security holder. These interests may present them with actual or potential conflicts of interest, and, to the extent material, are described below. The Board of Directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to unanimously authorize and declare the advisability of the Merger Agreement and the transactions contemplated by the Merger Agreement.

 

LTPP Payments following a Change in Control

 

Our Long-Term Performance Plan (“LTPP”) permits the Compensation Committee of our Board of Directors to grant change in control benefits to participants under the LTPP. In the event of a Change-in-Control (as defined below), a designated participant’s performance goals and performance objectives in respect of all outstanding LTPP awards will be deemed to have been achieved and the designated participant will be

entitled to receive the greater of (i) the applicable target award with respect to each outstanding award and (ii) the initial amount of the participant’s award that would be payable at the conclusion of the applicable performance period, after applying the criteria established for the applicable class award program. Such amount will be paid in a lump sum at the earlier of (i) the time of the termination of the designated participant’s employment with the Company or (ii) the time that the award would otherwise be paid where there is no termination of employment. If a designated participant’s employment is terminated by the Company within two years of a Change-in-Control, or if a designated participant resigns for “Good Reason” (as defined below) within two years from the date of a Change-in-Control, the designated participant will receive the Change-in-Control benefits described above, to the extent not already paid, plus an additional amount equal to such previously described Change-in-Control benefits. Such amount will be paid in a lump sum at the time of termination of employment. Janet L. Steinmayer, our President and Chief Executive Officer, Kevin F. McNamara, our Chief Financial Officer, and William H. Peterson, our Executive Vice President of Operations, will have the right to receive Change-in-Control benefits for their 2007 class awards under the LTPP.

 

For purposes of the plan, a “ Change-in-Control ” means (i) an event by which any “person” (as such term is used in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 51% or more of the combined voting power of the then outstanding securities of the Company; (ii) a change in the composition of a majority of the Board of Directors within 12 months after any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% of the combined voting power of the then outstanding securities of the Company; or (iii) the sale of substantially all the assets of the Company and/or our operating subsidiaries. A resignation for “ Good Reason ” means a voluntary termination by a designated participant that otherwise entitles the designated participant to severance benefits pursuant to the terms of an employment agreement between the designated participant and the Company. Ms. Steinmayer’s employment agreement entitles her to severance for voluntary termination of employment for good reason, including a voluntary termination of employment within 6 months of a change in control (as defined in her employment agreement) of the Company. The employment agreements of Messrs. McNamara and Peterson do not contain provisions for severance in the event of voluntary termination.

 

Completion of the Merger will constitute a Change-in-Control under the LTPP. Following the consummation of the Merger our executive officers will be entitled to the following payments in respect of their 2007 class awards under the LTPP: $1,065,000 for Ms. Steinmayer, $573,000 for Mr. McNamara and $590,000 for Mr. Peterson. If the employment of these officers were terminated immediately after the Merger by the Company or by Ms. Steinmayer for Good Reason, the total amounts payable for the 2007 class awards would be increased to: $2,130,000 for Ms. Steinmayer, $1,146,000 for Mr. McNamara and $1,180,000 for Mr. Peterson. The 2006 class awards for these executives will expire without payment at the end of fiscal year 2008.

 

Severance under Employment Agreements

 

Janet L. Steinmayer Employment Agreement.   Our employment agreement with Ms. Steinmayer provides that if her employment is terminated by us without cause or by her for good reason as defined in the employment agreement, including a voluntary termination within 6 months of a change in control of the Company, she will receive a one-time payment equal to twice her annual base salary then in effect, plus a continuation for a period of up to 18 months of certain employee benefits available to her as an employee.

 

Kevin F. McNamara Employment Agreement.   Under the terms of Mr. McNamara’s employment agreement, upon a termination of his employment by us without cause (as defined in his employment agreement), he is entitled to one year’s base salary as severance, payable over the one-year period following termination, in accordance with the Company’s normal payroll practice.

 

William H. Peterson Employment Agreement.   Under the terms of Mr. Peterson’s employment agreement, upon a termination of his employment by us without cause (as defined in his employment agreement), he is entitled to one year’s base salary as severance, payable over the one-year period following termination, in accordance with the Company’s normal payroll practice.

Assuming that the employment of each of our current executive officers was terminated by the Company without “cause” (as defined in the applicable employment agreement) or by Ms. Steinmayer’s resignation for “good reason” (as defined in her employment agreement) immediately following the Merger, the approximate amounts of cash severance benefits that would be payable under the employment agreements are as follows: $1,400,000 for Ms. Steinmayer, $365,750 for Mr. McNamara and $376,200 for Mr. Peterson.

 

Continued Benefits for Employees under the Merger Agreement

 

For a period of one year following the closing of the Merger, the Surviving Corporation will provide current employees, including executive officers, of the Company and our subsidiaries (other than those employees covered by a collective bargaining agreement) as of the Effective Time who continue employment with the Surviving Corporation with base salary, the opportunity for cash bonus compensation, and benefits that are no less favorable in the aggregate than those provided under the Company’s compensation and benefit plans, programs, policies, practices and arrangements (excluding equity-based programs) in effect at the Effective Time. However, such obligations of the Surviving Corporation would not prevent the Surviving Corporation from amending or terminating any specific plan, program or arrangement or terminating the employment of an employee for any reason for which the Company could have terminated such employee prior to the Merger.

 

Subject to certain exceptions, the Surviving Corporation will (i) give continuing Company employees full credit for purposes of eligibility to participate, vesting and benefit accrual (other than with respect to any defined benefit plan) under the employee benefit plans or arrangements maintained by the Surviving Corporation to the same extent recognized by the Company or our subsidiaries under the corresponding Company benefit plans immediately prior to the Effective Time; and (ii) with respect to certain welfare benefit plans maintained for the benefit of continuing Company employees following the Effective Time, (x) waive eligibility requirements or preexisting condition limitations, to the same extent waived under comparable Company plans immediately prior to the Effective Time, and (y) recognize deductible amounts paid by such continuing Company employees under the corresponding Company benefit plans immediately prior to the Effective Time.

 

Indemnification Arrangements and Directors’ and Officers’ Liability Insurance Policy

 

On September 18, 2008, the Board of Directors authorized the Company to enter into Indemnity Agreements with each of its directors, including Janet L. Steinmayer, and also with Kevin F. McNamara and William H. Peterson.

 

The Company’s Certificate of Incorporation and Bylaws each require that the Company indemnify and advance expenses to its directors and officers to the full extent permitted by law. Each Indemnity Agreement requires the Company to indemnify, hold harmless and exonerate the individual director or executive officer against all expenses, judgments, liabilities, fines, penalties and amounts paid in settlement incurred by such person for or as a result of action taken or not taken while such person was acting in his or her capacity as a director or executive officer of the Company. Each Indemnity Agreement requires the Company, subject to specific terms and conditions, to advance expenses to the indemnitee and also sets forth certain other procedures with respect to indemnification and advancement of expenses. The Company is also obligated, upon written request, to establish and fund a trust for the benefit of the indemnitee in the event of a Potential Change in Control (as defined in the form of Indemnity Agreement). Recovery under an Indemnity Agreement is not exclusive of other rights to indemnification that the indemnitee may have.

 

Parent has agreed to maintain in effect after completion of the Merger, for the benefit of current and former Company directors and officers, the existing rights to indemnification and limitations on liability for acts or omissions occurring prior to the closing of the Merger under the Company’s Certificate of Incorporation, Bylaws, Indemnity Agreements and other agreements of the Company. In addition, the Merger Agreement provides that Parent will maintain, at its expense, directors’ and officers’ liability insurance policies with a claims period of at least six years from the Effective Time of the Merger. For further details on these indemnification and insurance arrangements, please see “Adoption of the Merger Agreement (Proposal 1) —

The Merger Agreement — Covenants and Agreements — Indemnification; Exculpation and Insurance; and Employees; Certain Benefit Plans.”

 

Parent estimates that the total amount of funds necessary to consummate the Merger and related transactions, if 70% of the Notes are accepted in the Debt Tender, is approximately $125 million, consisting of (i) approximately $36.6 million to pay the Tender Consideration not including accrued and unpaid or deferred interest, (ii) approximately $200,000 to pay the Merger Consideration, assuming that no security holder validly exercises its appraisal rights, (iii) $25.0 million to prepay a portion of the outstanding term loan and approximately $28.0 million to pay down a portion of the outstanding revolving loan and (iv) approximately $30.0 million to pay fees and expenses in connection with the Merger and related transactions. In addition, if 70% of the Notes are accepted in the Debt Tender, the outstanding Notes following the transaction will total $35.9 million. The Merger and related transactions may be consummated with as low as 50.1% of the Notes tendered. In the event that 50.1% of the Notes are tendered Parent estimates that the funds necessary to pay the Tender Consideration, not including accrued and unpaid or deferred interest is approximately $26.2 million with approximately $59.7 million in outstanding Notes following the transaction.

 

These funds are anticipated to come from a cash investment made by Sponsor and any of its affiliated investment funds in Parent of up to $125 million (the “Equity Financing”). Certain terms of the Equity Financing are described below.

 

Equity Financing

 

Parent has received a fully executed commitment letter, dated September 18, 2008, as amended by an amendment thereto dated December 23, 2008 (the “Equity Commitment Letter”), from Sponsor, pursuant to which Sponsor has committed to provide to Parent up to $125 million in cash, subject to the satisfaction of all conditions to Parent’s obligations to consummate the Merger in the Merger Agreement and the contemporaneous effectiveness of the Restatement.

 

The Original Merger Agreement initially contemplated that new senior secured debt financing would be obtained. The Original Commitment Lender for such financing has since indicated that, due to market conditions, it believes it is no longer obligated to fund the Merger and related transactions, and will not be providing such financing.

 

Since then, we have entered into an amendment and restatement of our senior credit agreement, the effectiveness of which is contingent upon certain conditions precedent, including the consummation of the Merger and the Debt Tender and Consent Solicitation, the approval of the Proposed Amendments, the prepayment of $25 million of the outstanding term loan and paydown of at least $22.5 million of the outstanding revolving loan, no material adverse change in the Company’s business and the payment of the fees and expenses of the lenders. Upon its effectiveness, the Restatement would:

 

 

 

 

 

 

 

 

 

 

In connection with the Restatement, we have agreed to pay to each senior credit agreement lender who consents to the Restatement prior to the deadline specified in the Restatement a fee equal to 2.5% of such lender’s loans and commitments under our senior credit agreement. However, unless all conditions precedent are satisfied, and until the Merger is consummated, no such fees will be payable and the changes contemplated by the Restatement will not become effective. In connection with the Restatement, we agreed that our failure to consummate the Tender Offer and Consent Solicitation and the Merger by February 28, 2009 will constitute an immediate event of default under our senior credit agreement, which may result in the acceleration of all our indebtedness outstanding thereunder and, as a consequence thereof, acceleration of our indebtedness outstanding under the Indenture. The Amendment incorporates changes to reflect the revised plans to finance the Merger.

 

The Merger Agreement does not contain a condition that the financing shall have been obtained. If (A) the lenders under the Restatement deny their obligation to provide on the closing date the credit facility as amended thereby or any of them become unable to or prohibited from being a lender thereunder, (B) no event has occurred and no condition exists that would cause any of the conditions to Parent and Merger Sub’s obligation to close to fail to be satisfied assuming the closing were to occur on the date of termination and (C) within thirty days after the Company has delivered written notice to Parent of the occurrence of an event described in (A) above the Merger has not been consummated, then the Company may terminate the Merger Agreement and Parent will be required to pay us a termination fee of $2,500,000. If Parent refuses to close the transaction, the Company, under the terms of the Merger Agreement, is not entitled to seek court action to force Parent to close, but Parent will be required to pay us a reverse termination fee of $2,500,000 if the conditions to its obligation to close have been satisfied.

 

As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the Restatement described herein does not become effective as anticipated.

 

Liquor Licensing and Permit Approvals.   In certain jurisdictions it is necessary to obtain the prior approval of the state regulatory authority or commission in charge of granting liquor licenses and/or health permits to effect a change in control of a licensee or permit holder.

 

Third Party Consents.   Certain of our contracts contain provisions that may require the consent of the other party to effect the Merger.

 

Other Approvals.   The Company is required to file a Certificate of Merger with the Secretary of State of the State of Delaware and comply with any requirements of applicable securities laws and the rules and regulations of AMEX and TSX. Other than the consents and approvals described above, neither Parent nor the Company is aware of any regulatory or other notifications that must be filed, approvals that must be obtained, or waiting periods that must be observed, in order to complete the Merger. If the parties discover that other notifications, approvals or waiting periods are necessary, they will seek to observe or obtain them. If any such approval or action is needed, however, Parent and the Company may not be able to obtain it or any of the other necessary approvals.

 

General.   It is possible that any of the governmental entities with which filings have been made or notices sent may seek additional information or seek to impose additional conditions on the Merger or such governmental entities or private parties may commence litigation to prevent the completion of the Merger. There can be no assurance that:

 

 

Even if the parties obtain all necessary approvals and the Merger Agreement is adopted by our security holders, conditions may be placed on the Merger, or the Merger could be delayed in a manner, that could cause Parent to abandon it. See “Adoption of the Merger Agreement (Proposal 1) — The Merger Agreement — Covenants and Agreements,” beginning on page 59, and “Adoption of the Merger Agreement (Proposal 1) — The Merger Agreement — Termination.”

 

Generally, all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring those expenses, subject to the specific exceptions discussed in this document. Upon termination of the Merger Agreement under specified circumstances, Parent or the Company may be required to pay the other party a termination fee and reimburse expenses, each in respective amounts of up to $2.5 million. See “Adoption of the Merger Agreement (Proposal 1) — The Merger Agreement — Termination Fees and Expenses” for a discussion of the circumstances under which termination fees will be paid and expenses will be reimbursed.

 

Approval of the transaction will be effected through (i) a proxy solicitation to approve the Merger and (ii) the Debt Tender and Consent Solicitation to buy up to 70% of the Notes and amend the Indenture. Following receipt of a vote of holders of a majority of our common stock to approve the Merger, and satisfaction of the other conditions thereto, which include a minimum of 50.1% of the Notes being tendered, at the closing, Merger Sub will be merged with and into the Company with the Company being the Surviving Corporation and a wholly owned subsidiary of Parent.

 

The following is a summary of the material U.S. federal income tax consequences of the Merger to the Company and certain “U.S. holders” and “non-U.S. holders” of our IDSs. For purposes of this discussion, a “U.S. holder” means a beneficial owner of our IDSs that is:

 

 

A “non-U.S. holder” means a beneficial owner of our IDSs that is not a U.S. holder or an entity treated as a partnership for U.S. federal income tax purposes.

 

This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury regulations thereunder, judicial authority, and administrative rulings and practice as of the date of this proxy statement, all of which are subject to change, possibly on a retroactive basis.

 

The following discussion is addressed to a U.S. holder that holds our IDSs as a capital asset within the meaning of Section 1221 of the Code. This discussion does not address all aspects of U.S. federal income taxation that might be relevant to a holder in light of its particular circumstances, or that might apply to a holder that is subject to special treatment under the U.S. federal income tax laws, including, without limitation, financial institutions, insurance companies, broker dealers, tax-exempt organizations, persons holding our IDSs as part of a straddle, hedge, synthetic security transaction, or other integrated investment, including a “conversion transaction,” partners of a partnership or other beneficial owners of pass-through entities holding our IDSs, persons that have a functional currency other than the U.S. dollar, persons subject to the alternative minimum tax, or persons who acquired our IDSs through the exercise of an employee stock option or other compensation arrangement.

 

If any entity that is treated as a partnership for U.S. federal income tax purposes holds our IDSs, the tax treatment of its partners or members generally will depend upon the status of the partner or member and the activities of the entity. If you are a partner of a partnership or a member of a limited liability company or

other entity classified as a partnership for U.S. federal tax purposes and that entity is holding our IDSs, you should consult your tax advisor regarding the consequences of the Merger to you.

 

No statutory, administrative or judicial authority directly addresses the treatment of the IDSs or instruments similar to the IDSs for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of the acquisition, ownership and disposition of the common stock and Notes (or any interest therein) underlying the IDSs are uncertain. We believe, however, and the remainder of this discussion assumes that, for U.S. federal income tax purposes, (i) a holder of an IDS should be treated as having acquired and owned the share of common stock and Note underlying the IDS, and (ii) the Notes should be treated as debt.

 

The Company

 

Cancellation of Indebtedness Income

 

The Company will realize cancellation of indebtedness income (“COD income”) on the acquisition of its Notes pursuant to the Debt Tender in connection with the Merger. The amount of COD income realized will be equal to the excess of the adjusted issue price of the Notes acquired by the Company over the aggregate consideration paid for the Notes. The adjusted issue price of the Notes acquired will be equal to their issue price increased by accrued original issue discount (“OID”), if any, and reduced by any payments on the notes other than payments of qualified stated interest. Qualified stated interest is interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually at a single fixed rate.

 

The Company will not recognize COD income to the extent that it is considered insolvent from a U.S. federal tax perspective immediately prior to the Effective Time of the Merger. If and to the extent that COD income is excluded from the Company’s taxable income as a result of insolvency, we will be required to reduce certain of our tax attributes, including our net operating loss carryforwards. Consequently, a significant amount of the Company’s tax attributes may be eliminated.

 

To the extent that the COD income exceeds the amount by which the Company is considered insolvent immediately prior to the Effective Time of the Merger, we will recognize that excess amount of COD income. That income may be offset by available net operating losses for regular income tax purposes. For purposes of the alternative minimum tax, however, only 90% of alternative minimum taxable income for a taxable year may be offset by net operating loss carryforwards to that year. As a result, the COD income may result in an alternative minimum tax liability even if that income is fully offset by available net operating losses for regular income tax purposes. COD income recognized in excess of available losses will result in a tax liability.

 

Limitation on Use of Tax Attributes

 

The Merger will result in an “ownership change” of the Company within the meaning of Section 382 of the Code. Consequently, the Company’s ability to use certain of its tax attributes that remain after taking into account COD income will be significantly limited after the Merger.

 

U.S. Holders

 

Disposition of Common Stock

 

The receipt of the Merger Consideration, or cash pursuant to the exercise of dissenters’ rights of appraisal, by a U.S. holder in exchange for our common stock will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the cash received (other than any cash received by dissenters that is treated as actual or imputed interest, which will be taxable as ordinary income) and the U.S. holder’s adjusted tax basis in the share of our common stock exchanged therefor. Any such gain or loss will be long-term capital gain or loss if the holding period for those shares exceeds one year as of the Effective Time of the Merger. Long term capital gains of non- corporate U.S. holders generally are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Debt Tender

 

The receipt of the Tender Consideration in exchange for Notes will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the cash received (other than any cash attributable to accrued but unpaid interest or OID, if any, which will be taxable as ordinary income to the extent not previously included in income) and the U.S. holder’s adjusted tax basis in the Notes (or portions thereof) exchanged therefor. Any such gain or loss will be long-term capital gain or loss if the holding period for the Notes exceeds one year at the time of the repurchase. Long-term capital gains of non-corporate U.S. holders generally are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

 

The U.S. federal income tax consequences of the Debt Tender to U.S. holders, including the tax treatment of accrued and unpaid interest or OID and Notes that remain outstanding after the Debt Tender, are described in greater detail in the Debt Tender Documents, which are being sent simultaneously with this proxy statement to holders of our IDSs in a separate mailing.

 

Information Reporting and Backup Withholding

 

The payment of cash to a U.S. holder in exchange for shares of our common stock pursuant to the Merger Agreement or the exercise of appraisal rights, or as Tender Consideration, will be subject to information reporting and may be subject to backup withholding at the current rate of 28% unless the holder (1) is a corporation or other exempt recipient and, when required, demonstrates that fact, or (2) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with the applicable requirements of the backup withholding rules.

 

To prevent the possibility of backup withholding on payments to certain U.S. holders in exchange for shares of our common stock or as Tender Consideration, each U.S. holder must provide the paying agent with a properly executed Form W-9 or Substitute Form W-9. A U.S. holder that does not furnish a properly executed form may be subject to penalties imposed by the Internal Revenue Service (the “IRS”) and to backup withholding. Any amount withheld under these rules will be refundable or creditable against the U.S. holder’s U.S. federal income tax liability if the required information is timely furnished to the IRS.

 

Non-U.S. Holders

 

Disposition of Common Stock

 

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain recognized on the Merger unless:

 

 

Debt Tender

 

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain recognized on the receipt of the Tender Consideration unless (1) the gain is effectively connected with the conduct of a trade or business by the non-U.S. holder in the U.S. and, if required by an applicable tax treaty, is attributable to a U.S. permanent establishment, or (2) the non-U.S. holder is an individual who is present in the U.S. for 183 days or more in the taxable year of the Merger, and certain other conditions are met.

The U.S. federal income tax consequences of the Debt Tender to non-U.S. holders, including the tax treatment of accrued and unpaid interest or OID and Notes that remain outstanding after the Debt Tender, are described in greater detail in the Debt Tender Documents, which are being sent simultaneously with this proxy statement to holders of our IDSs in a separate mailing.

 

Information Reporting and Backup Withholding

 

The payment of cash to a non-U.S. holder in exchange for shares of our common stock pursuant to the Merger Agreement or the exercise of appraisal rights, or as Tender Consideration, will generally be subject to information reporting and backup withholding at the current rate of 28% unless the holder (1) is a corporation or other exempt recipient and, when required, demonstrates that fact, or (2) otherwise establishes an exemption from information reporting and backup withholding.

 

To prevent the possibility of backup withholding on payments to certain non-U.S. holders, each non-U.S. holder must provide the paying agent with a properly executed Form W-8BEN or Substitute Form W-8BEN, or other applicable Form W-8 or substitute form. A non-U.S. holder that does not furnish a properly executed form may be subject to penalties imposed by the IRS and to backup withholding. Any amount withheld under these rules will be refundable or creditable against the non-U.S. holder’s U.S. federal income tax liability if the required information is furnished to the IRS.

 

The discussion of U.S. federal income tax consequences of the Merger in this proxy statement is for general information only. The tax consequences to a particular holder will depend upon the facts and circumstances applicable to that holder. Accordingly, each holder is urged to consult a tax advisor to determine the tax consequences of the Merger to the holder in light of the holder’s particular circumstances, including the applicability and effect of state, local, foreign and other tax laws, and any possible changes in those laws.

 

The following is a summary of the principal Canadian federal income tax consequences of the Merger to certain “Canadian holders” of our IDSs. For purposes of this discussion, a Canadian holder means a beneficial owner of our IDSs who, for purposes of the Income Tax Act (Canada) as amended (the “Canadian Tax Act”) and any applicable income tax treaty or convention:

 

 

Generally, shares of Company common stock and Notes will be capital property to a Canadian holder unless the shares or Notes are held or were acquired in the course of carrying on a business or as part of an adventure or concern in the nature of trade. Canadian resident security holders who are “financial institutions” or for whom the Company is a “foreign affiliate” or a “foreign investment entity” should consult their own tax advisors.

 

This summary is based upon the current provisions of the Canadian Tax Act, the regulations thereunder (the “Regulations”) and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (“CRA”) made publicly available in writing prior to the date hereof. This summary also takes into account all specific proposals to amend the Canadian Tax Act and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the

“Proposed Tax Amendments”) and assumes that all Proposed Tax Amendments will be enacted in the form proposed. No assurances can be given that the Proposed Tax Amendments will be enacted as proposed, or at all. This summary is not exhaustive of all possible Canadian federal income tax consequences and except for the Proposed Tax Amendments does not take into account or anticipate any changes in law or administrative policies or assessing practices whether by legislative, regulatory, administrative or judicial action or decision nor does it take into account provincial, territorial or foreign tax legislation or considerations, which may be different from those discussed in this summary.

 

For purposes of the Canadian Tax Act, all amounts relating to the acquisition, holding or disposition of the Notes and shares of Centerplate common stock, including any proceeds of disposition, must be determined in Canadian dollars at the prevailing exchange rates at the relevant time. The amount of interest and any capital gain or capital loss may be affected by fluctuations in Canadian dollar exchange rates.

 

Canadian Holders

 

Disposition of Common Stock

 

The receipt by a Canadian holder of the Merger Consideration (or cash pursuant to the exercise of dissenters’ rights of appraisal) in exchange for shares of Company common stock will be a taxable transaction for Canadian federal income tax purposes.

 

In general, a Canadian holder (other than a person who has exercised dissenters’ rights of appraisal) will realize a capital gain (or capital loss) equal to the difference, if any, between the cash received (net of reasonable costs of disposition) and the Canadian holder’s adjusted cost base of the shares of Company common stock to the Canadian holder. The tax treatment of any such capital gain (or capital loss) is the same as described below under “Taxation of Capital Gains and Capital Losses.”

 

The appropriate income tax treatment of an amount received by a Canadian holder who exercises dissenters’ rights of appraisal, is not clear. However, it is the CRA’s administrative position that the entire amount received on a redemption or purchase for cancellation of shares of a non-resident corporation (other than interest awarded by a court, which is taxable as ordinary income) is proceeds of disposition. On this basis, and assuming that the Company is not resident in Canada for purposes of the Canadian Tax Act at such time as it purchases the shares held by a dissenting Canadian holder, such dissenting Canadian holder will realize a capital gain (or capital loss) equal to the difference, if any, between the cash received (net of reasonable costs of disposition) and the dissenting Canadian holder’s adjusted cost base of the shares of Company common stock to the dissenting Canadian holder.

 

Debt Tender

 

A Canadian holder will be considered to have disposed of the Notes upon the receipt of the Tender Consideration in exchange for such Notes. A Canadian holder that is a corporation, partnership, unit trust or any trust of which a corporation or partnership is a beneficiary will generally be required to include in income the amount of interest accrued or deemed to have accrued on the Notes or that became receivable or was received on or before the closing of the Merger. Any other Canadian holder, including an individual, will be required to include in income for a taxation year any interest on the Notes received or receivable by such Canadian holder in the year (depending upon the method regularly followed by the Canadian holder in computing income) except to the extent that such amount was otherwise included in the Canadian holder’s income for the year or a preceding year.

 

In general, a Canadian holder will realize a capital gain (or capital loss) on the disposition of the Notes equal to the amount by which the amount of cash received (other than cash attributable to accrued but unpaid interest) exceeds (or is exceeded by) the adjusted cost base of the Notes, plus any reasonable costs of disposition. The tax treatment of any such capital gain (or capital loss) is the same as described below under “Taxation of Capital Gains and Capital Losses.”

Taxation of Capital Gains and Capital Losses

 

In general, one-half of the amount of any capital gain (a “taxable capital gain”) realized by a Canadian holder in a taxation year will be included in the Canadian holder’s income. One-half of the amount of any capital loss realized by a Canadian holder in a taxation year may be deducted from net taxable capital gains realized by the Canadian holder in the year and any of the three preceding taxation years, to the extent and under the circumstances described in the Canadian Tax Act. The amount of any capital loss realized by a corporation on the disposition of a share may be reduced by the amount of dividends received or deemed to be received by it on such share (or on a share for which the share has been substituted). Similar rules may apply where a corporation is a member of a partnership or a beneficiary of a trust that owns shares, directly or indirectly, through a partnership or a trust. Capital gains realized by an individual or a trust, other than certain trusts, may give rise to alternative minimum tax under the Canadian Tax Act.

 

A Canadian holder that is throughout the year a “Canadian-controlled private corporation” (as defined in the Canadian Tax Act) may be liable to pay an additional refundable tax of 6 2 / 3 % on certain investment income, including amounts in respect of interest and taxable capital gains.

 

The foregoing discussion of Canadian federal income tax consequences of the Merger in this proxy statement is for general information only. The tax consequences to a particular Canadian holder will depend upon the facts and circumstances applicable to that holder. Accordingly, each Canadian holder is urged to consult a Canadian tax advisor to determine the Canadian tax consequences of the Merger to the Canadian holder in light of the holder’s particular circumstances.

 

In connection with the Merger, holders of record of our common stock who comply with the procedures summarized below will be entitled to appraisal rights for our common stock if the Merger is completed. Under Section 262 of the DGCL (“Section 262”), as a result of completion of the Merger, holders of shares of our common stock with respect to which appraisal rights are properly demanded and perfected and not withdrawn or lost are entitled, in lieu of receiving the Merger Consideration, to have the “fair value” of their shares at the Effective Time of the Merger (exclusive of any element of value arising from the accomplishment or expectation of the Merger), to be paid the amount determined to be the fair value, judicially determined and paid to them in cash by complying with the provisions of Section 262 together with a fair rate of interest, if any, unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the Effective Date of the Merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at an annual rate of 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the Effective Time of the Merger and the date of payment of the judgment. The Company is required to send a notice to each stock holder of the availability of appraisal rights not less than twenty days prior to the special meeting. This proxy statement constitutes such notice to stock holders.

 

The following is a brief summary of Section 262 that sets forth the procedures for demanding statutory appraisal rights. This summary is qualified in its entirety by reference to Section 262, a copy of the text of which is attached to this proxy statement as Annex E.

 

Stock holders of record of the Company who desire to exercise their appraisal rights must satisfy all of the following conditions.

 

A stock holder who desires to exercise appraisal rights must (i) not vote in favor of adoption of the Merger Agreement and (ii) deliver in the manner set forth below a written demand for appraisal of the stock holders’ shares to the Company before the vote on the Merger at the special meeting.

 

A demand for appraisal must be executed by or for the stock holder of record, fully and correctly, as the stock holder’s name appears on the certificates representing shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, such demand must be executed by the fiduciary. If shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by all joint owners. An authorized agent, including an agent of two or more joint owners, may

execute the demand for appraisal for a stock holder of record; however, the agent must identify the record owner and expressly disclose that, in exercising the demand, the agent is acting as agent for the record owner. In addition, the stock holder must continuously hold the shares of record from the date of making the demand through the Effective Time of the Merger.

 

A record owner, such as a broker, who holds shares as a nominee for others may exercise appraisal rights with respect to the shares held for all or less than all beneficial owners of shares as to which the holder is the record owner. In that case, the written demand must set forth the number of shares covered by the demand. Where the number of shares is not expressly stated, the demand will be presumed to cover all shares outstanding in the name of the record owner.

 

Beneficial owners who are not record owners and who intend to exercise appraisal rights should instruct the record owner to comply strictly with the statutory requirements with respect to the exercise of appraisal rights before the vote on the adoption of the Merger Agreement at the special meeting. A beneficial owner of shares held in street name who desires to assert appraisal rights with respect to those shares must take such actions as may be necessary to ensure that a timely and proper demand for appraisal is made by the record owner of the shares. Shares held through banks, brokerage firms and other financial institutions are frequently deposited with and held of record in the name of a nominee of a central security depositary, such as Cede & Co., The Depository Trust Company’s nominee. Any holder of shares desiring to assert appraisal rights with respect to such shares who held such shares through a brokerage firm, bank or other financial institution is responsible for ensuring that the demand for appraisal is made by the record holder. The stock holder should instruct such firm, bank or institution that the demand for appraisal must be made by the record holder of the shares, which might be the nominee of a central security depositary if the shares have been so deposited.

 

As required by Section 262, a demand for appraisal must be in writing and must reasonably inform the Company of the identity of the stock holder of record (which might be a nominee as described above) and of such holder’s intention to seek appraisal of such shares.

 

Stock holders of record who elect to demand appraisal of their shares must mail or deliver their written demand to: Centerplate, Inc., 2187 Atlantic Street, 6th Floor, Stamford, Connecticut 06902, Attention: Corporate Secretary. The written demand for appraisal should specify the stock holder’s name and mailing address, the number of shares owned, and that the stock holder is demanding appraisal of his or her shares. The written demand must be received by the Company prior to the taking of the vote on the proposal to adopt the Merger Agreement at the special meeting. Neither voting (in person or by proxy) against, abstaining from voting on or failing to vote on the proposal to adopt the Merger Agreement will alone suffice to constitute a written demand for appraisal within the meaning of Section 262.

 

In addition, the stock holder must not vote its shares of common stock in favor of adoption of the Merger Agreement. A proxy that is signed and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the Merger Agreement, will constitute a waiver of that stock holder’s right of appraisal and will nullify any previously written demand for appraisal. Therefore, a stock holder who submits a proxy and who wishes to exercise appraisal rights must indicate that such stock holder’s shares are to be voted against the proposal to adopt the Merger Agreement or to abstain from voting on that proposal.

 

Within 120 days after the Effective Time of the Merger, either the Company, as the Surviving Corporation in the Merger, or any stock holder who has timely and properly demanded appraisal of such stock holder’s shares and who has complied with the required conditions of Section 262 and is otherwise entitled to appraisal rights may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of all stock holders who have properly demanded appraisal. The Company, as the Surviving Corporation, has no obligation, and no present intention, to file such a petition. Accordingly, the failure of a stock holder to file a petition within the specified period could nullify the stock holder’s previously written demand for appraisal. A person who is the beneficial owner of shares of common stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file such a petition.

 

Within 120 days after the Effective Time of the Merger, any stock holder who has complied with the provisions of Section 262 of the DGCL to that point in time may receive from the Surviving Company, upon

written request, a statement setting forth the aggregate number of shares not voted in favor of the Merger and with respect to which the Company has received demands for appraisal, and the aggregate number of holders of those shares. The Surviving Company must mail this statement to the stock holder within the later of 10 days of receipt of the request or 10 days after expiration of the period for delivery of demands for appraisal.

 

If a petition for an appraisal is timely filed, after a hearing on such petition, the Delaware Court of Chancery will determine which stock holders are entitled to appraisal rights and may require the stock holders demanding appraisal who hold certificated shares to submit their stock certificates to the court for notation of the pendency of the appraisal proceedings, and any stock holder who fails to comply with such direction may be dismissed from such proceedings. The Delaware Court of Chancery thereafter will appraise the shares owned by those stock holders, determining the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest to be paid, if any, upon the amount determined to be the fair value. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the Effective Date of the Merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at an annual rate of 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the Effective Time of the Merger and the date of payment of the judgment.

 

In determining fair value, the Delaware Court of Chancery is to take into account all relevant factors. In Weinberger v. UOP, Inc., et al. , the Delaware Supreme Court discussed the considerations that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that in making this determination of fair value the court must consider “market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of merger and which throw any light on future prospects of the merged corporation . . . .” The Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.” The Delaware Supreme Court noted, however, that Section 262 provides that fair value is to be determined “exclusive of any element of value arising from the accomplishment or expectation of the merger.”

 

Stock holders considering seeking appraisal should bear in mind that the fair value of their shares determined under Section 262 could be more than, the same as, or less than the Merger Consideration they are entitled to receive pursuant to the Merger Agreement if they do not seek appraisal of their shares, and that opinions of investment banking firms are not necessarily opinions as to fair value under Section 262.

 

The cost of the appraisal proceeding may be determined by the Delaware Court of Chancery and taxed upon the parties as the Delaware Court of Chancery deems equitable in the circumstances. Upon application of a stock holder seeking appraisal rights, the Delaware Court of Chancery may order that all or a portion of the expenses incurred by such stock holder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of assessment, each party bears its own expenses.

 

From and after the Effective Time of the Merger, no stock holder who has demanded appraisal rights shall be entitled to vote any shares subject thereto for any purpose or to receive payment of dividends or other distributions thereon (except dividends or other distributions payable to the stock holders of record at a date prior to the Effective Time of the Merger).

 

At any time within 60 days after the date of completion of the Merger, any former stock holder of the Company who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stock holder’s demand for appraisal and to accept the Merger Consideration as provided in the Merger Agreement. After this period, the stock holder may withdraw such stock holder’s demand for appraisal and receive the Merger Consideration as provided in the Merger Agreement only with

the written consent of the Surviving Corporation in the Merger. If no petition for appraisal is filed with the Delaware Court of Chancery within 120 days after the Effective Time of the Merger, stock holders’ rights to appraisal shall cease and all stock holders shall be entitled only to receive the Merger Consideration as provided in the Merger Agreement. Inasmuch as the parties to the Merger Agreement have no obligation to file such a petition, and have no present intention to do so, any stock holder who desires that such petition be filed is advised to file it on a timely basis. No appraisal proceeding in the Delaware Court of Chancery may be dismissed as to any stock holder without the approval of the Delaware Court of Chancery, which may be conditioned upon such terms as the Delaware Court of Chancery deems just.

 

The foregoing is a brief summary of Section 262 that sets forth the procedures for demanding statutory appraisal rights. This summary is qualified in its entirety by reference to Section 262, a copy of the text of which is attached hereto as Annex E.

 

If you are a holder of our IDSs, following consummation of the Merger and the transactions contemplated thereby, (i) the shares of common stock underlying your IDSs will be cancelled and, subject to your exercise and perfection of appraisal rights under Delaware law, converted into the right to receive the Merger Consideration, and (ii) the Notes underlying your IDS will either be purchased in the Debt Tender for the Tender Consideration or remain outstanding. If the Merger is completed, our IDSs will be delisted from the AMEX and the TSX and deregistered under the Exchange Act, we will make an application to cease to be a reporting issuer in Canada and we will no longer file periodic and other reports with the SEC or Canadian securities regulatory authorities on account of our IDSs.

 

The following is a summary of the material provisions of the Merger Agreement. This summary is qualified in its entirety by reference to the Original Merger Agreement and the Amendment, which are incorporated by reference in their entirety and attached to this proxy statement as Annexes A and B respectively. We encourage you to read the Original Merger Agreement and the Amendment in their entirety because they are the legal documents that govern the Merger. This summary is not intended to provide you with any other factual information about Parent or the Company. Such information can be found elsewhere in this proxy statement and in our public filings with the SEC, as described in the section entitled “Where You Can Find More Information.”

 

Under the Merger Agreement, Merger Sub, a wholly owned subsidiary of Parent, will be merged with and into the Company at the Effective Time (defined below). The Company will continue as the Surviving Corporation and the separate corporate existence of Merger Sub will cease. The Company will become a wholly owned subsidiary of Parent. Upon the consummation of the Merger, our IDS units will be delisted from the AMEX and TSX and deregistered under the Exchange Act, we will make an application to cease to be a reporting issuer in Canada and we will no longer file periodic and other reports with the SEC or Canadian securities regulatory authorities.

 

We expect the closing date for the Merger to be no later than the second business day after the satisfaction or waiver of the conditions set forth in the Merger Agreement (which are described below under “The Merger Agreement — Conditions to the Merger” beginning on page 66). We will seek to complete the Merger prior to February 28, 2009, the date set forth in the Merger Agreement by which time if the Merger is not consummated Parent and the Company may exercise their termination rights under the Merger Agreement (see “The Merger Agreement — Termination” beginning on page 66). However, we cannot assure you when, or if, all of the conditions to completion of the Merger will be satisfied or waived. Completion of the Merger could be delayed if there is a delay satisfying any of the conditions to the Merger.

 

The Merger will become effective at such time when we file a Certificate of Merger with the Secretary of State of the State of Delaware, or at such later time as we and Parent specify in the Certificate of Merger (the time the Merger becomes effective being the “Effective Time”). We expect to make the filing of such Certificate of Merger on or shortly after the closing date of the Merger.

 

At the Effective Time, each share of our common stock outstanding as of the Effective Time of the Merger, including the shares of our common stock represented by the IDSs, will automatically be cancelled and converted into the right to receive $0.01 in cash, other than shares of our common stock:

 

 

Prior to the Effective Time, the Company will appoint, subject to Parent’s approval, an exchange agent that will pay the Merger Consideration to our security holders in exchange for stock certificates representing shares of our common stock or for non-certificated shares represented by book-entry (to which we refer as “Book-Entry Shares”). At the Effective Time, Parent will, or will cause the Surviving Corporation to, deposit with the exchange agent an amount in immediately available funds equal to the aggregate Merger Consideration and promptly after the Effective Time, the exchange agent will mail each security holder a Letter of Transmittal and instructions for surrendering stock certificates and Book-Entry Shares. The exchange agent

will pay the Merger Consideration, less any applicable withholding taxes, to our security holders promptly following the exchange agent’s receipt of the stock certificates (or Book-Entry Shares). No interest will be paid or accrued on the cash payable upon the surrender of any stock certificate (or Book-Entry Shares). Until so surrendered, each such certificate (or Book-Entry Share) will represent after the Effective Time for all purposes only the right to receive such Merger Consideration. Any funds that have not been distributed within six months after the Effective Time will be returned upon demand to Parent, and security holders who have not complied with the instructions to exchange their stock certificates (or Book-Entry Shares) will be entitled to look only to Parent and the Surviving Corporation for payment of the applicable per share Merger Consideration, without interest.

 

Parent and the Surviving Corporation generally will each be entitled to deduct and withhold from the Merger Consideration otherwise payable to any holder of shares of our common stock any applicable withholding taxes that it is required to deduct and withhold under the Code, the rules and regulations promulgated thereunder, or any other applicable state, local or foreign tax law. Our security holders are entitled to assert appraisal rights instead of receiving the Merger Consideration. For a description of these appraisal rights, see “The Merger Agreement — Dissenter’s Rights” below beginning on page 56.

 

As of the Effective Time, each IDS separated by virtue of the Debt Tender, Consent Solicitation and the Merger, each IDS will be automatically separated and will entitle the IDS holder to receive (i) for the underlying share of our common stock, the Merger Consideration, (ii) for the underlying Note (or portion thereof) accepted for payment in the Debt Tender, the Tender Consideration and (iii) for the underlying Note (or portion thereof) not accepted for payment in the Debt Tender, a Note of the Surviving Corporation representing the amount thereof that will remain outstanding. Each Note that will remain outstanding will be represented by the global note certificate and have the rights set forth in the Indenture as amended by the Proposed Amendments.

 

After the Effective Time, all IDSs having been separated will be delisted from the AMEX and TSX and deregistered under the Exchange Act, we will make an application to cease to be a reporting issuer in Canada and we will no longer file periodic and other reports with the SEC or Canadian securities regulatory authorities.

 

In the event any certificates shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificates to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such sum as the Surviving Corporation may reasonably direct as indemnity against any claim that may be made against it with respect to such certificates, the exchange agent will pay the Merger Consideration payable in respect of the shares of our common stock represented by such lost, stolen or destroyed certificates.

 

Shares of our common stock that are outstanding immediately prior to the Effective Time and that are held by any person who properly demands appraisal of such shares pursuant to Section 262 of the DGCL, who did not vote in favor of adopting the Merger Agreement or consent thereto in writing, and who complies in all other respects with Section 262 of the DGCL, shall not be converted into the right to receive the Merger Consideration as provided in the Merger Agreement, but shall instead be entitled to receive payment of the fair value of such shares in accordance with Section 262 of the DGCL. The appraisal rights of and procedures applicable to such dissenting stock holders are described further under “Adoption of the Merger Agreement (Proposal 1) — The Merger — Appraisal Rights.”

 

The Company’s Certificate of Incorporation, as in effect immediately prior to the Effective Time will be the Certificate of Incorporation of the Surviving Corporation until changed or amended as provided in the Certificate of Incorporation or by applicable law.

 

The Company’s Bylaws, as in effect immediately prior to the Effective Time, will be the Bylaws of the Surviving Corporation until such time as they are changed or amended as provided by the Bylaws or by applicable law.

 

The directors of Merger Sub immediately prior to the Effective Time will be the directors of the Surviving Corporation until their successors are duly elected or appointed and qualified or until the earlier of their resignation or removal.

 

The officers of the Company immediately prior to the Effective Time will be the officers of the Surviving Corporation until their successors are duly elected or appointed and qualified or until the earlier of their resignation or removal.

 

The Merger Agreement contains representations and warranties that the parties have made to each other as of specific dates. Except for its status as a contractual document that establishes and governs the legal relations among the parties with respect to the Merger described therein, the Merger Agreement is not intended to be a source of factual, business or operational information about the parties. The representations and warranties contained in certain reports, forms, statements and other documents filed with the SEC and the Merger Agreement were made only for purposes of that agreement and as of specific dates, were solely for the benefit of the parties to that agreement, and may be subject to limitations agreed among those parties, including being qualified by disclosures among those parties. Those representations and warranties may have been made to allocate risks among the parties to the Merger Agreement, including where the parties do not have complete knowledge of all facts, instead of establishing matters as facts. Furthermore, those representations and warranties may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. The assertions embodied in such representations and warranties are qualified by information contained in disclosure schedules that the parties exchanged in connection with signing the Merger Agreement. Accordingly, investors and security holders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances, since they were only made as of the date of the Merger Agreement and are modified in important part by the underlying disclosure schedules. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Merger Agreement.

 

The Merger Agreement contains customary representations and warranties of the Company, Parent and Merger Sub relating to their respective businesses. The representations and warranties in the Merger Agreement do not survive the Effective Time of the Merger.

 

Each of Parent, Merger Sub and the Company has made representations and warranties to the other regarding, among other things:

 

 

In addition, the Company has made other representations and warranties about itself to Parent as to:

 

 

 

 

 

Also, Parent and Merger Sub have made other representations and warranties to the Company regarding:

 

 

 

Some of our representations and warranties are qualified by a materiality or material adverse effect standard. Subject to certain exclusions, a “Company material adverse effect” means any change, state of facts, event, occurrence or effect that, individually or in the aggregate with all such other changes, states of facts, events, occurrences or effects, would have a material adverse effect on (i) the ability of the Company to consummate the Merger or (ii) the business, assets, financial condition, operations or results of operations of the Company and our subsidiaries, taken as a whole; provided that none of the following shall constitute a Company material adverse effect or (with the exception of the third and fourth bullet points below) be taken into account in determining whether there has been or is reasonably expected to be a Company material adverse effect:

 

 

 

 

 

Conduct of Business by the Company

 

The Company has agreed that, subject to certain exceptions and the prior written consent of Parent, between September 18, 2008 and the Effective Time, we and our subsidiaries will carry on our business in the ordinary course. We have also agreed that during that same period, subject to certain exceptions and the prior written consent of Parent, the Company and our subsidiaries will not:

 

 

 

Security Holder Meeting; Proxy Material

 

The Company has agreed that, as promptly as reasonably practicable after the execution of the Merger Agreement, we will prepare and file with the SEC and the Canadian Securities Commissions (“CSC”) a preliminary proxy statement, together with a form of proxy. We further agreed that promptly after the proxy statement and form of proxy were cleared with the SEC and CSC we would mail the definitive proxy statement and form of proxy to our security holders.

 

Parent and Merger Sub have agreed to cooperate with us in connection with the preparation of the proxy statement including furnishing to us any and all information regarding Parent, Merger Sub and their respective affiliates as may be required to be disclosed in the proxy statement.

 

We will take all action necessary in accordance with the DGCL and our Certificate of Incorporation and Bylaws to call, give notice of, convene and hold a meeting of our security holders to consider the adoption of the Merger Agreement, including the Merger, as promptly as reasonably practicable after the mailing of the proxy. The Company’s obligation to call, hold and convene the security holder meeting will not be affected by (i) the commencement, proposal, disclosure or announcement of any Company Proposal or (ii) any Adverse Recommendation Change, unless in either case the Merger Agreement is terminated (see “Merger Agreement — Termination” beginning on page 66). The Merger Agreement requires the Board of Directors, subject to complying with its fiduciary duties, to (i) recommend that the security holders vote in favor of the adoption of the Merger Agreement and (ii) use its reasonable best efforts to solicit from security holders of the Company proxies in favor of the adoption of the Merger Agreement and the Merger. The Merger Agreement also requires that the proxy statement include a statement to the effect that the Board of Directors has recommended that the security holders vote in favor of adoption of the Merger Agreement at the security holder meeting.

 

Employees; Benefit Plans

 

For a period of one year following the closing of the Merger, the Surviving Corporation will provide current employees of the Company and our subsidiaries (other than those employees covered by a collective bargaining agreement) as of the Effective Time who continue employment with the Surviving Corporation with base salary, the opportunity for cash bonus compensation, and benefits that are no less favorable in the aggregate than those provided under the Company’s compensation and benefit plans, programs, policies, practices and arrangements (excluding equity-based programs) in effect at the Effective Time. However, such obligations of the Surviving Corporation would not prevent the Surviving Corporation from amending or terminating any specific plan, program or arrangement or terminating the employment of an employee for any reason for which the Company could have terminated such employee prior to the Merger.

 

The Surviving Corporation and its affiliates will honor all employee benefit plans and employment agreements (including any severance, retention, change of control and similar plans, agreements and written arrangements) in accordance with their terms as in effect immediately prior to the Effective Time. For all purposes under the employee benefits plans of the Surviving Corporation and its subsidiaries providing benefits to any employees after the Effective Time (the “New Plans”), each employee will be credited with his or her years of service with the Company and its affiliates prior to the Effective Time, to the same extent as such employee was entitled, before the Effective Time, to credit for such service under the corresponding employee benefit plan, except for benefit accrual purposes under defined benefit plans. In addition, and

without limiting the foregoing, (i) each employee immediately will be eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under such New Plan replaces coverage under a similar or comparable employee benefit plan in which such employee participated immediately before the Effective Time (such plans, the “Old Plans”) and (ii) for the purposes of each New Plan providing medical, dental, pharmaceutical and/or vision benefits to any employee and his or her covered dependents, to the extent any such exclusions or requirements were waived or inapplicable under any Old Plan, and the Surviving Corporation will cause any eligible expenses incurred by such employee and his or her covered dependents during the portion of the plan year of the Old Plans ending on the date such employee’s participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan.

 

Reasonable Best Efforts

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, each of the Company, Parent and Merger Sub has agreed to use its reasonable best efforts 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 transactions contemplated by the Merger Agreement, including using reasonable best efforts to accomplish the following:

 

 

The Company and Parent have each agreed to use its reasonable best efforts to take promptly any and all steps necessary to avoid or eliminate each and every impediment under any antitrust or competition laws as expeditiously as possible, including committing to or effecting, by consent decree, hold separate orders, trust or otherwise, the sale or disposition of such of their assets or businesses as are required to be divested in order to avoid the entry of, or to effect the dissolution of, any decree, order, judgment, injunction, temporary restraining order or other order in any suit or proceeding, that would otherwise have the effect of preventing or materially delaying the consummation of the Merger and the other transactions contemplated by the Merger Agreement.

 

In addition, each of the Company and Parent has agreed to use its reasonable best efforts to take promptly any and all steps necessary to vacate or lift any order relating to antitrust or competition that would have the effect of making any of the transactions contemplated by the Merger Agreement illegal or otherwise prohibiting or materially delaying their consummation. “Reasonable best efforts” will impose on the Company and our subsidiaries the obligation to pay filing, application and similar fees but will not require the Company or our subsidiaries to make payments, incur liabilities or grant contractual or other concessions to counterparties in order to secure any consents, waivers, approvals or authorizations.

 

Indemnification; Exculpation and Insurance.

 

From and after the Effective Time, Parent will cause the Surviving Corporation to, and the Surviving Corporation will, indemnify and hold harmless, to the same extent provided under the Company’s Certificate of Incorporation and Bylaws in effect on the date of the Merger Agreement, the individuals who on or prior to the Effective Time were directors, officers or employees of the Company or any of our subsidiaries

(collectively, the “Indemnitees”) with respect to all acts or omissions by them in their capacities as such or taken at the request of the Company or any of our subsidiaries at any time prior to the Effective Time. All obligations with respect to all rights of the Indemnitees to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time as provided in the respective Certificates of Incorporation or Bylaws (or comparable organizational documents) of the Company or any of our subsidiaries as now in effect, and any indemnification agreements or arrangements of the Company or any of our subsidiaries, will survive the Merger and continue in full force and effect in accordance with their terms. For a period of not less than six (6) years from the Effective Time, such rights shall not be amended, or otherwise modified in any manner that would adversely affect the rights of the Indemnitees with respect to indemnification and exculpation from liabilities for acts or omissions occurring prior to the Effective Time, unless such modification is required by law.

 

As of the Effective Time, the Company will have obtained, and the Surviving Corporation has agreed to maintain in effect for a six-year period thereafter, a so-called “tail” policy for such six-year period covering acts or omissions occurring prior to the Effective Time with respect to those persons who are currently covered by the Company’s directors’ and officers’ liability insurance policy on terms with respect to such coverage and amount no less favorable to our directors and officers currently covered by such insurance than those of such policy in effect on the date of the Merger Agreement.

 

Fees and Expenses

 

Except as described in “Merger Agreement — Termination Fees and Expenses” beginning on page 67, all expenses incurred in connection with the Merger Agreement, the Merger and the other transactions contemplated thereby will be paid by the party incurring such expenses, whether or not the Merger is consummated, except that the Company or, if the Merger is consummated, the Surviving Corporation will bear and pay the costs and expenses incurred in connection with the filing fees for any applicable foreign or supranational antitrust laws and all separation fees. Except as otherwise provided in the Merger Agreement, all transfer, documentary, sales, use, real property transfer, stock transfer, stamp, registration and other similar taxes and fees (including any penalties and interest) incurred in connection with the transaction contemplated by this Agreement will be borne equally by the Company and Parent.

 

Public Announcements

 

Parent and the Company have agreed to consult with each other before issuing, and give each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by the Merger Agreement, including the Merger, and will not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law or court process.

 

Notification of Certain Matters

 

Each of the Company and Parent has agreed to give prompt notice to the other of:

 

 

Access to Information

 

The Company has agreed that from the date of the Merger Agreement until the Effective Time, to the extent consistent with applicable antitrust and other laws, to provide Parent and Merger Sub and their

representatives reasonable access upon notice, to the officers, directors, employees, accountants, properties, offices and other facilities and to the books and records of the Company and our subsidiaries and will cause the our representatives and subsidiaries to:

 

 

The Merger Agreement restricts the Company from soliciting and engaging in discussions and negotiations with respect to a Company Proposal, and the Board of Directors of the Company is prohibited from:

 

 

Notwithstanding the foregoing, if our Board of Directors determines after considering the advice of outside counsel that it should take such action to comply with its fiduciary duties, the Board of Directors may:

 

 

Obligations of Parent and Merger Sub

 

Parent and Merger Sub have agreed to use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange the financing pursuant to the terms of the Equity Commitment Letter, as amended, and to satisfy the conditions to effectiveness of the Restatement, including using their reasonable best efforts to:

 

 

 

 

 

 

 

In the event that the lenders under the Restatement notify either party that they no longer intend for the Restatement to become effective or challenge its effectiveness, the party so notified will promptly notify the other parties and Parent will use its reasonable best efforts to obtain financing from alternative financing sources on (A) terms and conditions (other than those relating to conditions to the funding thereof), not materially less favorable to Parent and Merger Sub (as determined in the reasonable judgment of Parent and Merger Sub) and (B) terms and conditions relating to conditions to the funding thereof not materially more onerous to Parent or Merger Sub (as determined in the reasonable judgment of the Company), in each case, in

the aggregate than those contained in the Restatement, as promptly as practicable following the occurrence of such event and prior to closing.

 

Parent and Merger Sub are obligated not to take any action that would impede the consummation of the equity financing or the effectiveness of the Restatement as contemplated. Parent is obligated to keep us informed of all material activity concerning the status of the financing arrangements, and to give prompt notice of any material adverse change with respect to the financing, which includes notice that:

 

 

 

 

Cooperation of the Company

 

Prior to the closing, we are required to provide Parent and Merger Sub, and must use our reasonable best efforts to cause our officers, directors, employees, lenders and legal, financial and accounting advisors to provide, at Parent’s expense, Parent and Merger Sub with all cooperation reasonably requested by Parent in connection with the equity financing and the effectiveness of the Restatement; provided that the Company will not be required to pay any commitment or other similar fee or incur any other liability in connection with the equity financing or the Restatement prior to the closing date of the Merger except for any liabilities that are conditioned on the closing date having occurred:

 

If the Merger Agreement is terminated prior to the closing date, Parent and Merger Sub will, on a joint and several basis, indemnify and hold harmless the Company, our subsidiaries and our officers, directors, employees, lenders and legal, financial and accounting advisors for and against any and all losses suffered or incurred by them in connection with the equity financing, any alternative financing or the Restatement and any information utilized in connection with the equity financing, any alternative financing or the Restatement (other than information provided by the Company and our subsidiaries for use in connection therewith).

 

Simultaneously with the mailing of the Proxy Statement, the Company will commence: