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 (Amendment No.      )

 

Filed by the Registrant ☑
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☑		Preliminary Proxy Statement
☐		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☐		Definitive Proxy Statement
☐		Definitive Additional Materials
☐		Soliciting Material under §240.14a-12

Buffalo Wild Wings, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☐		No fee required.
☑		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies: Common stock, no par value, of Buffalo Wild Wings, Inc.
		(2)		Aggregate number of securities to which transaction applies: The maximum number of shares of common stock to which this transaction applies is estimated to be 16,022,644, which consists of (A) 15,530,075 shares of common stock issued and outstanding as of December 15, 2017; (B) 144,220 shares of common stock issuable upon exercise of options to purchase shares of common stock outstanding as of December 15, 2017; (C) 68,563 shares of common stock underlying restricted stock units outstanding as of December 15, 2017; (D) 268,639 shares of common stock underlying performance-based restricted stock units outstanding as of December 15, 2017; and (E) 11,167 shares of common stock that we estimate as the maximum number of shares that could be issued under the Buffalo Wild Wings, Inc.’s Employee Stock Purchase Plan prior to the completion of the merger.
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): Solely for the purposes of calculating the filing fee, the maximum aggregate value of the transaction was determined based upon the sum of: (A) 15,530,075 shares of common stock multiplied by the merger consideration of $157.00 per share; (B) 112,930 shares of common stock issuable upon exercise of options to purchase shares of common stock with an exercise price of less than $157.00 per share multiplied by $25.1325 (the difference between the merger consideration of $157.00 and the weighted average exercise price of such options of $131.8675); (C) 68,563 shares of common stock underlying restricted stock units multiplied by the merger consideration of $157.00 per share; (D) 101,856 shares of common stock underlying performance-based restricted stock units based upon an assumed attainment of the target level of performance applicable thereto multiplied by the merger consideration of $157.00; and (E) 11,167 shares of common stock that we estimate as the maximum number of shares that could be issued under the Buffalo Wild Wings, Inc.’s Employee Stock Purchase Plan prior to the completion of the merger, multiplied by the merger consideration of $157.00 per share. In calculating the maximum aggregate value of the transaction, no value was attributed to (A) 31,290 shares of common stock issuable upon exercise of options to purchase shares of common stock with an exercise price of $157.00 or more, which will be cancelled in the merger without any consideration; (B) 65,095 shares of common stock underlying performance-based restricted stock units (assuming performance at the maximum level) that are to be forfeited prior to the special meeting to which this proxy statement relates due to failure of the performance considerations; or (C) 101,688 shares of common stock underlying other performance-based restricted stock units for which no consideration will be payable in the merger because they are in excess of the shares that would be issued based upon an assumed attainment of the target level of performance applicable thereto.
		(4)		Proposed maximum aggregate value of transaction: $2,469,568,990
		(5)		Total fee paid: $307,462
☐		Fee paid previously with preliminary materials.
☐		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

 

                    ,

To our shareholders:

Buffalo Wild Wings, Inc. has entered into an agreement to be acquired by way of a merger. If the proposed merger is completed, Buffalo Wild Wings, Inc. will become a wholly owned subsidiary of Arby’s Restaurant Group, Inc. and each share of our common stock will be converted into the right to receive $157.00 in cash, without interest and less any applicable withholding taxes.

Our board of directors unanimously approved the merger agreement and has called a special meeting of our shareholders at which shareholders will have the opportunity to consider and vote upon a proposal to approve the merger agreement. Shareholder approval is one of several conditions to the proposed merger. Our board of directors unanimously recommends that you vote “FOR” each of the proposals to be considered at the special meeting, including approval of the merger agreement. The attached notice of special meeting includes further details about the special meeting, which will be held at                 , Minneapolis, Minnesota, at          Central Standard Time on                 , 2018.

You’re invited to attend the special meeting in person but, whether or not you plan to attend, please vote your shares as promptly as possible. Depending on how you hold your shares, you’ll find voting instructions on page 21 of the enclosed proxy statement and on the enclosed proxy or voting instruction card. Your vote is very important, because the merger cannot be completed unless holders of a majority of all of the outstanding shares of our common stock vote in favor of the proposal to approve the merger agreement. A failure to vote your shares of our common stock on the proposal to approve the merger agreement will have the same effect as a vote against the proposal.

The attached proxy statement provides you with detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Appendix A. I encourage you to read the proxy statement, including its appendices and the documents incorporated by reference, carefully and in its entirety.

If you have any questions or need assistance in voting your shares, please contact our proxy solicitor, Morrow Sodali LLC, by telephone at +1 (800) 662-5200 or by email at BWLD@morrowsodali.com.

Thank you for your continued support.

Sincerely,

 

Sally J. Smith

Chief Executive Officer and President

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger, the merger agreement or the other transactions contemplated thereby or passed upon the adequacy or accuracy of the disclosure in this proxy statement. Any representation to the contrary is a criminal offense.

This proxy statement is dated                  and is first being mailed to shareholders on or about                 ,      .

PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

 

BUFFALO WILD WINGS, INC.

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS to be held                 , 2018

 

 

TO THE SHAREHOLDERS OF BUFFALO WILD WINGS, INC.:

You are cordially invited to attend a special meeting of shareholders, to be held at                     , Minneapolis, Minnesota, at          Central Standard Time on                 , 2018. The purpose of the special meeting is to consider and vote upon the following proposals:

 

1.

Merger Proposal. To approve the Agreement and Plan of Merger, dated as of November 27, 2017 (which, as it may be amended from time to time, we refer to as the “merger agreement”), by and among Buffalo Wild Wings, Inc., Arby’s Restaurant Group, Inc., and IB Merger Sub I Corporation, pursuant to which Buffalo Wild Wings, Inc. would be acquired by way of a merger and become a wholly owned subsidiary of Arby’s Restaurant Group, Inc., which we refer to as the “merger.”

 

2.

Golden Parachute Proposal. To approve, in a non-binding advisory vote, certain compensation that may be paid or become payable to our named executive officers in connection with the merger.

 

3.

Adjournment Proposal. To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting.

Accompanying this notice of special meeting of shareholders is a proxy statement, which describes these proposals in more detail, and a form of proxy, which allows you to vote on these proposals. Please carefully review these materials, including the information incorporated by reference into the proxy statement.

We welcome you to attend the meeting, but whether or not you plan to attend, please submit your completed proxy via phone, mail or internet as soon as possible. Proxies are revocable and will not affect your right to vote in person in the event you revoke the proxy and attend the meeting. Instructions on how to vote are found in the section titled “The Special Meeting—How to Cast your Vote” on page 21. Our board of directors unanimously recommends our shareholders vote “FOR” each of these proposals.

Only shareholders of record as shown on our books at the close of business on                 ,          will be entitled to vote at the special meeting. Each shareholder is entitled to one vote per share on all matters to be voted on at the meeting.

 

				BY ORDER OF THE BOARD OF DIRECTORS,
Dated:		, Minneapolis, Minnesota		Emily C. Decker Senior Vice President, General Counsel and Secretary

PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

 

BUFFALO WILD WINGS, INC.   PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS to be held                 , 2018   The date of this Proxy Statement is                 ,

TABLE OF CONTENTS

 

 

 

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PREFACE

ABOUT THIS PROXY STATEMENT

 

This document is being sent by Buffalo Wild Wings, Inc., a Minnesota corporation, which we refer to as “we,” “us,” “our,” “Buffalo Wild Wings,” or the “company,” and our board of directors to solicit proxies from our shareholders to vote their shares of our common stock at the special meeting of our shareholders to be held on                 , 2018. At the special meeting, our shareholders will be asked, among other things, to approve the Agreement and Plan of Merger, which, as it may be amended from time to time, we refer to as the “merger agreement,” entered into on November 27, 2017, by and among Buffalo Wild Wings, Arby’s Restaurant Group, Inc., which we refer to as “Arby’s” or “Parent,” and IB Merger Sub I Corporation, which we refer to as “Merger Sub.” Pursuant to the terms of the merger agreement, Merger Sub will merge with and into Buffalo Wild Wings, with Buffalo Wild Wings continuing as the surviving corporation and becoming a wholly owned subsidiary of Arby’s, which we refer to as the “merger.”

The merger agreement permits a party to assign the merger agreement in certain circumstances, as described under “The Merger Agreement—Assignment” on page 88. References in this proxy statement to a party to the merger agreement are also to its permitted successors and assigns.

For a description of the company and some of the other parties involved in the transactions described in this proxy statement, including Roark Capital Management LLC, which we refer to as “Roark,” please see “Parties” on page 24.

ADDITIONAL INFORMATION

 

We have elected to “incorporate by reference” certain information into this proxy statement, which means that we are disclosing important information to you by referring you to certain other documents that we have filed separately with the U.S. Securities and Exchange Commission, which we refer to as the “SEC,” and certain other documents that we may file with the SEC after the date of this proxy statement but prior to the special meeting. Because these documents contain important information and may subsequently amend this proxy statement, you should monitor and review our SEC filings until the special meeting is completed. References to this proxy statement are meant to include not only the main body of this proxy statement, but also the accompanying notice of special meeting and proxy card, each of the appendices, and all of the information incorporated by reference. See “Where You Can Find More Information” on page 104.

We have not authorized anyone to provide any information other than what is contained in or incorporated by reference in this proxy statement, and take no responsibility for any information others may give you. See “Miscellaneous—Legal and Cautionary Disclosures—Other Information Not Authorized by Buffalo Wild Wings” on page 102.

FORWARD-LOOKING STATEMENTS

 

This proxy statement contains forward-looking statements, including statements related to our financial projections, the consequences of the outcome of the proposals to be considered and voted upon at the special meeting, the completion of the merger, or the consequences thereof. Forward-looking statements can usually be identified by the use of words such as “aim,”

 

 

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“anticipate,” “believe,” “continue,” “could,” “estimate,” “evolve,” “expect,” “forecast,” “intend,” “looking ahead,” “may,” “opinion,” “plan,” “possible,” “potential,” “project,” “should,” “will” and other expressions which indicate future events or trends.

These forward-looking statements are based upon certain expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those anticipated as a result of various factors, including:

 

(1)

Risks related to the consummation of the merger, including the risks that:

 

a.

The merger may not be consummated within the anticipated time period, or at all.

 

b.

We may fail to obtain shareholder approval of the merger agreement.

 

c.

We may fail to secure the termination or expiration of any waiting period applicable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the “HSR Act.”

 

d.

Other conditions to the consummation of the merger under the merger agreement may not be satisfied.

 

e.

All or part of the financing to be obtained by Arby’s may become unavailable.

 

f.

The significant limitations on remedies contained in the merger agreement may limit or entirely prevent us from specifically enforcing Arby’s obligations under the merger agreement or recovering damages for any breach by Arby’s.

 

(2)

The effects that any termination of the merger agreement may have on us and our business, including the risks that:

 

a.

Our stock price may decline significantly if the merger is not completed.

 

b.

The merger agreement may be terminated in circumstances requiring us to pay Arby’s a termination fee of $74 million.

 

c.

The circumstances of the termination, including the possible imposition of a 12-month tail period during which the termination fee could be payable upon certain subsequent transactions, may have a chilling effect on alternatives to the merger.

 

(3)

The effects that the announcement or pendency of the merger may have on us and our business, including the risks that:

 

a.

Our business, operating results or stock price may suffer.

 

b.

Our current plans and operations may be disrupted.

 

c.

Our ability to retain or recruit key employees may be adversely affected.

 

d.

Our business relationships (including customers, franchisees and suppliers) may be adversely affected.

 

e.

Our management’s or other employees’ attention may be diverted from other important matters.

 

(4)

The effect of limitations that the merger agreement places on our ability to operate our business, return capital to shareholders or engage in alternative transactions.

 

 

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(5)

The nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the merger and instituted against us and others.

 

(6)

The risk that the merger and related transactions may involve unexpected costs, liabilities or delays.

 

(7)

Other economic, business, competitive, legal, regulatory, and/or tax factors.

 

(8)

The risks described from time to time in our reports filed with the SEC under the heading “Risk Factors,” including Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 25, 2016, subsequent Quarterly Reports on Form 10-Q and in our other filings with the SEC.

All forward-looking statements are qualified by, and should be considered together with, these cautionary statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which such statements were made.

Except as required by applicable law, we undertake no obligation to update forward-looking statements (whether as a result of new information, future events or otherwise). However, we do advise you to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.

DATE OF MAILING

 

We expect that this proxy statement, the related form of proxy, and notice of special meeting will first be mailed to shareholders on or about                     ,          .

 

 

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QUESTIONS AND ANSWERS

Below are brief answers to some of the key questions that we anticipate you might have. These questions do not address all of the material topics covered by this proxy statement, nor do the answers include all of the material information provided by this proxy statement. Please refer to the complete proxy statement for additional information and before you vote.

 

Q:	Why am I receiving this document?

 

A:

On November 27, 2017, Buffalo Wild Wings entered into a definitive agreement providing for Buffalo Wild Wings to be acquired by way of a merger and become a wholly owned subsidiary of Arby’s. You are receiving this document in connection with the solicitation of proxies by our board of directors in favor of the proposal to approve the merger agreement, which we refer to as the merger proposal, and related proposals to be voted on at the special meeting. In addition, this document is our formal notice to you of your dissenters’ rights under Minnesota law.

 

Q:	What is a proxy?

 

A:

A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of our common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of our common stock is called a “form of proxy” or “proxy card.” Our board of directors has designated each of Alexander H. Ware and Emily C. Decker, and each of them with full power of substitution, as proxies for the special meeting.

 

Q:	When and where is the special meeting?

 

A:	The special meeting will be held at                 , Minneapolis, Minnesota                 , on                 , 2018, at      Central Standard Time.

In certain circumstances, the special meeting could be adjourned to another time or place. All references in our proxy materials to the special meeting include any adjournment or postponement of the special meeting.

 

Q:	Who can vote at the special meeting?

 

A:

Only holders of record of our common stock as of the close of business on                 ,                 , the record date for the special meeting, are entitled to receive these proxy materials and to vote their shares at the special meeting. As of the close of business on the record date, there were                  shares of our common stock outstanding and entitled to vote at the special meeting, held by          holders of record. Each share of our common stock issued and outstanding as of the record date will be entitled to one vote on each matter submitted to a vote at the special meeting.

 

 

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Q:	What is the difference between holding shares as a “shareholder of record” and as a “beneficial owner”?

 

A:	If your shares are registered directly in your name with our transfer agent, Continental Stock Transfer & Trust Company, you are considered, with respect to those shares, to be the “shareholder of record.” In this case, we have sent this proxy statement and your proxy card to you directly.

If your shares are held through a broker, bank or other nominee, you are considered the “beneficial owner” of the shares of our common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, to be the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by following their instructions for voting. You are also invited to attend the special meeting. However, because you are not the shareholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid legal proxy from your broker, bank or other nominee.

 

Q:	What matters will be voted on at the special meeting?

 

A:	You will be asked to consider and vote on the following proposals:

 

•

to approve the merger agreement (which we describe in greater detail on page 92);

 

•

to approve, in a non-binding advisory vote, certain compensation that may be paid or become payable to our named executive officers in connection with the merger (which we describe in greater detail on page 93); and

 

•

to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting (which we describe in greater detail on page 95).

 

Q:	What is the proposed merger and what effects will it have on Buffalo Wild Wings?

 

A:

The proposed merger is the acquisition of Buffalo Wild Wings by Arby’s pursuant to the merger agreement. If the merger proposal is approved by the holders of our common stock and the other closing conditions under the merger agreement are satisfied or waived, Merger Sub will merge with and into Buffalo Wild Wings, with Buffalo Wild Wings continuing as the surviving corporation. As a result of the merger, Buffalo Wild Wings will become a wholly owned subsidiary of Arby’s. We would de-list our common stock from Nasdaq and de-register our common stock under the Exchange Act as soon as reasonably practicable following the effective time of the merger, and at such time, we will no longer be a publicly traded company and will no longer file periodic reports with the SEC. If the merger is consummated, you will not own any shares of the capital stock of the surviving corporation.

 

 

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Q:	What happens if the merger is not completed?

 

A:

If the merger agreement is not approved by our shareholders or if the merger is not consummated for any other reason, our shareholders will not receive any payment for their shares of common stock in connection with the merger. Instead, we will remain a public company, the common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act and we will continue to file periodic reports with the SEC.

Under specified circumstances, we may receive payment from or be required to pay to Arby’s a termination fee upon the termination of the merger agreement, as described under “The Merger Agreement—Termination Fees” on page 87.

 

Q:	What will I receive if the merger is completed?

 

A:

Upon completion of the merger, you will be entitled to receive the merger consideration of $157.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own. For example, if you own 100 shares of our common stock, you will receive $15,700.00 in cash in exchange for your shares of our common stock, less any applicable withholding taxes. Following the merger, you will not own shares in the surviving corporation.

 

Q:	How does the merger consideration compare to the market price of Buffalo Wild Wings common stock prior to the public announcement of the merger agreement?

 

A:

The merger consideration represents a premium of (1) approximately 34% to our closing stock price on November 13, 2017, the last trading day before the publication of articles suggesting that we and Arby’s were engaged in sale discussions, and (2) approximately 7% to our closing stock price on November 27, 2017, the last trading day before the public announcement of the merger agreement.

 

Q:	What will the holders of Buffalo Wild Wings equity awards, such as options and restricted stock units, receive in the merger?

 

A:

Until the effective time of the merger, equity awards will continue to be subject to vesting, exercise or forfeiture in accordance with their terms. At the effective time of the merger, all of our then-outstanding equity awards will be treated as summarized below and as described in more detail under “The Merger Agreement—Treatment of Buffalo Wild Wings Equity Awards” on page 68. These payments will be made shortly following the effective time of the merger, without interest and subject to any applicable withholding tax.

Stock Options. Each then-outstanding unexercised option to acquire shares of our common stock will be cancelled in exchange for an amount in cash equal to the excess, if any, of $157.00 over the exercise price per share of our common stock subject to such option multiplied by the number of shares of our common stock subject to such option. So-called “underwater” or out-of-the-money options, where the exercise price is more than or equal to $157.00, will be cancelled without consideration.

 

 

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Time-Based Restricted Stock Units. Each then-outstanding restricted stock unit award subject solely to time-based vesting (sometimes referred to as an “RSU”) will be cancelled in exchange for an amount in cash equal to $157.00 multiplied by the number of shares of our common stock then subject to such time-based restricted stock unit award.

Performance-Based Restricted Stock Units. Each then-outstanding restricted stock unit award subject to performance-based vesting (sometimes referred to as a “PRSU” or “PSU”) will be cancelled in exchange for an amount in cash equal to $157.00 multiplied by the number of shares of our common stock attributable to such performance-based restricted stock unit award based upon an assumed attainment of the target level of performance applicable to such award, regardless of actual performance. Performance-based restricted stock unit awards that we granted in 2015 will be forfeited as of December 31, 2017 due to failure to satisfy the performance-based objectives for the applicable performance period and, therefore, no consideration will be payable in the merger for such performance-based restricted stock unit awards.

Restricted Stock. The merger agreement also provides that, at the effective time of the merger, each then-outstanding share of restricted stock will terminate and be cancelled in exchange for $157.00. However, we currently do not have and do not expect to have any shares of restricted stock outstanding.

 

Q:	What will happen to the Buffalo Wild Wings Employee Stock Purchase Plan?

 

A:

If the merger is completed, our Employee Stock Purchase Plan, which we refer to as the “ESPP,” will be terminated. The accumulated contributions of each participant will be used to purchase shares of our common stock on a special exercise date shortly prior to the merger, and any remaining contributions that are not used to purchase shares of our common stock will be refunded without interest.

Pending the merger, (1) we will not commence any new offering periods under the ESPP after the current offering period expires, (2) existing payroll deductions will continue in effect until shortly prior to the effective time of the merger (or, if earlier, the expiration of the current offering period), (3) payroll deductions may not be increased (other than increases made in accordance with payroll deduction elections that were in effect as of the date of the merger agreement), and (4) individuals cannot commence participation in the ESPP.

 

Q:	When do you expect the merger to be completed?

 

A:

We are working toward completing the merger as soon as possible after the date of the special meeting, and currently expect to consummate the merger during the first quarter of 2018. However, the exact timing of completion of the merger cannot be predicted because the merger is subject to conditions, including approval of the merger agreement by our shareholders and the receipt of regulatory approvals. See “The Merger Agreement—Timing of the Merger” on page 66 and “The Merger Agreement—Conditions to Completion of the Merger” on page 92.

 

 

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Q:	Am I entitled to appraisal or dissenters’ rights under Minnesota law?

 

A:	Yes. As a holder of our common stock, you are entitled to exercise dissenters’ rights under the Minnesota Business Corporation Act in connection with the merger if you take certain actions and meet certain conditions. See “The Merger—Dissenters’ Rights” on page 62.

 

Q:	Will I be subject to U.S. federal income tax upon the exchange of Buffalo Wild Wings common stock for cash pursuant to the merger?

 

A:

Generally, yes, if you are a U.S. holder. The exchange of our common stock for cash pursuant to the merger generally will require a U.S. holder to recognize a gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (1) the amount of cash received by such U.S. holder pursuant to the merger plus the amount used to satisfy any applicable withholding taxes and (2) such U.S. holder’s adjusted tax basis in the shares of our common stock surrendered pursuant to the merger. Backup withholding may apply to the cash payment made pursuant to the merger unless the U.S. holder or other payee provides a valid taxpayer identification number and complies with certain certification procedures (generally, by providing a properly completed and executed IRS Form W-9) or otherwise establishes an exemption from backup withholding. A more complete description of the U.S. federal income tax consequences of the merger is provided under “The Merger—Material U.S. Federal Income Tax Consequences” on page 60.

This discussion does not address U.S. federal income tax consequences with respect to holders other than U.S. holders. Because particular circumstances may differ, we recommend that you consult your own tax advisor to determine the U.S. federal income tax consequences relating to the merger in light of your own particular circumstances and any consequences arising under any state, local or non-U.S. tax laws or tax treaties.

 

Q:	How do I attend the special meeting?

 

A:

To attend the meeting, you will need to present valid photo identification, such as a driver’s license or passport, and proof of ownership of our common stock. If you hold your shares in street name (i.e. through a bank, broker or other nominee), you must also provide proof of share ownership as of the record date, such as a letter from your bank, broker or other nominee or a recent brokerage statement, in order to attend the meeting. If you are not a holder of record as of the record date, you will be permitted to vote at the meeting only if you have a valid legal proxy from a holder of record as of the record date.

Please do not bring weapons, cameras, recording equipment, electronic devices, large bags, briefcases or packages to the special meeting. You and your belongings may be subject to search prior to your admittance to the meeting. We may implement additional security procedures. If you do not comply with these procedures, you may not be admitted to the special meeting.

 

 

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Q:	What vote of Buffalo Wild Wings shareholders is required to approve the merger agreement?

 

A:

Approval of the merger agreement requires that shareholders holding a majority of the shares of our common stock outstanding at the close of business on the record date for the special meeting and entitled to be cast on such proposal vote “FOR” the merger proposal. A failure to vote your shares of our common stock or an abstention from voting will have the same effect as a vote “AGAINST” the merger proposal. If your shares are held in “street name” by your broker, bank or other nominee and you do not instruct such broker, bank or other nominee how to vote your shares, such failure to instruct your broker, bank or other nominee will have the same effect as a vote “AGAINST” the merger proposal.

 

Q:	How does Buffalo Wild Wings’ board of directors recommend that I vote?

 

A:	Our board of directors unanimously recommends that our shareholders vote “FOR” each of the proposals.

For a discussion of the factors that our board of directors considered in determining to recommend the approval of the merger agreement, please see the section entitled “The Merger—Reasons for our Board’s Recommendation in Favor of the Merger” on page 34. In addition, in considering the recommendations of our board of directors, you should be aware that some of our directors and executive officers have potential interests that may be different from, or in addition to, the interests of our shareholders generally. For a discussion of these interests, please see the section entitled “The Merger—Interests of Our Directors and Executive Officers in the Merger” on page 54.

 

Q:	How do Buffalo Wild Wings’ directors and officers intend to vote?

 

A:	We currently expect that our directors and officers will vote their shares in favor of the merger proposal and the golden parachute proposal, although they have no obligation to do so.

 

Q:	Have any shareholders already agreed to vote “FOR” approval of the merger agreement?

 

A:

Yes. Certain investment funds advised by Marcato Capital Management, LP, which collectively beneficially owned approximately 6.4% of our outstanding shares as of November 27, 2017, have entered into an agreement to vote the shares beneficially owned by such funds as of the record date in favor of the merger proposal, subject to the terms and conditions of such agreement. See “Voting Agreement” on page 90.

 

Q:	Why am I being asked to cast a non-binding advisory vote to approve certain “golden parachute” compensation that may be payable to the company’s named executive officers in connection with the consummation of the merger?

 

A:

The inclusion of this proposal is required by the SEC rules. However, the approval of this proposal is not a condition to the completion of the merger and the vote on this proposal is an advisory vote by shareholders and is not binding on Buffalo Wild Wings or Arby’s. If the merger agreement is approved by our shareholders and the merger is completed, the merger-related compensation will be paid to Buffalo Wild Wings’ named

 

 

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executive officers in accordance with the terms of their compensation agreements and arrangements even if shareholders do not approve this proposal. See the section entitled “The Golden Parachute Proposal (Proposal #2)” on page 93.

 

Q:	What do I need to do now? How do I vote my shares of Buffalo Wild Wings common stock?

 

A:

We urge you to read this entire document carefully, including its appendices and the documents incorporated by reference, and to consider how the merger affects you. Your vote is important, regardless of the number of shares of our common stock you own. You’ll find voting instructions on page 21 of this proxy statement or on the enclosed proxy card. You can vote your shares in person or by proxy over the internet, by telephone or by mail.

 

Q:	Can I revoke my proxy?

 

A:

Yes. You may revoke your proxy and change your vote at any time before your proxy is voted at the special meeting. To revoke your proxy, you must (1) submit a new proxy by internet or telephone no later than 11:59 p.m. Eastern Standard Time on                 , 2018; (2) complete, sign, date and return a new proxy card to us, which must be received by us before the time of the meeting; or (3) if you are a record shareholder (or a beneficial owner with a legal proxy from the record shareholder), attend the meeting in person and deliver a proper written notice of revocation of your proxy. Attendance at the meeting will not by itself revoke a previously granted proxy. Unless you decide to vote your shares in person, please revoke your prior proxy in the same way you initially submitted it—that is, by internet, telephone or mail.

 

Q:	Will my shares of Buffalo Wild Wings common stock held in “street name” or another form of record ownership be combined for voting purposes with shares I hold of record?

 

A:

No. Because any shares of our common stock you may hold in “street name” will be deemed to be held by a different shareholder (that is, your bank, broker or other nominee) than any shares of our common stock you hold of record, any shares of our common stock held in “street name” will not be combined for voting purposes with shares of our common stock you hold of record. Similarly, if you own shares of our common stock in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares of our common stock because they are held in a different form of record ownership. Shares of our common stock held by a corporation or business entity must be voted by an authorized officer of the entity. Please indicate title or authority when completing and signing the proxy card. Shares of our common stock held in an individual retirement account must be voted under the rules governing the account. This means that, to ensure all your shares are voted at the special meeting, you should read carefully any proxy materials received and follow the instructions included therewith.

 

Q:	What does it mean if I get more than one proxy card or voting instruction card?

 

A:	If your shares of our common stock are registered differently or are held in more than one account, you will receive more than one proxy or voting instruction card. Please

 

 

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complete and return all of the proxy cards and voting instruction cards you receive (or submit each of your proxies by telephone or the internet, if available to you) to ensure that all of your shares of our common stock are voted.

 

Q:	What happens if I sell my shares of Buffalo Wild Wings common stock before completion of the merger?

 

A:

In order to receive the merger consideration, you must hold your shares of our common stock through completion of the merger. Consequently, if you transfer your shares of our common stock before completion of the merger, you will have transferred your right to receive the merger consideration in the merger.

The record date for shareholders entitled to vote at the special meeting is earlier than the consummation of the merger. If you transfer your shares of our common stock after the record date but before the closing of the merger, you will have the right to vote at the special meeting but not the right to receive the merger consideration. We urge you to vote even if you have subsequently transferred your shares.

 

Q:	Should I send in my stock certificates or other evidence of ownership now?

No. If the merger is completed, the paying agent will send information to our shareholders of record explaining how to exchange shares of our common stock for the merger consideration. You should not send in your Buffalo Wild Wings stock certificates before you receive these transmittal materials. If your shares of our common stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to receive the merger consideration. Do not send in your certificates now.

 

Q:	Where can I find the voting results of the special meeting?

 

A:

We intend to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that we file with the SEC are publicly available when filed. See “Where You Can Find More Information” on page 104.

 

Q:	Where can I find more information about Buffalo Wild Wings?

 

A:	You can find more information about us from various sources described in the section entitled “Where You Can Find More Information” on page 104.

 

Q:	Who can help answer my other questions?

 

A:

If you have more questions about the merger, or require assistance in submitting your proxy or voting your shares or need additional copies of this proxy statement or the enclosed proxy card, please contact our proxy solicitor, Morrow Sodali LLC, by telephone at +1 (800) 662-5200 or by email at BWLD@morrowsodali.com.

 

 

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THE SPECIAL MEETING

THE SPECIAL MEETING

 

Date, Time, Place

We will hold a special meeting of shareholders, at                 , Minneapolis, Minnesota, at          Central Standard Time on                 , 2018.

Purpose

The purpose of the special meeting is to consider and vote upon the following proposals:

 

1.

Merger Proposal. To approve the Agreement and Plan of Merger, dated as of November 27, 2017 (as it may be amended from time to time), by and among Buffalo Wild Wings, Arby’s and Merger Sub, pursuant to which Buffalo Wild Wings would be acquired by way of a merger and become a wholly owned subsidiary of Arby’s. For more information on this proposal, see “The Merger Proposal (Proposal #1)” on page 92.

 

2.

Golden Parachute Proposal. To approve, in a non-binding advisory vote, certain compensation that may be paid or become payable to our named executive officers in connection with the merger. For more information on this proposal, see “The Golden Parachute Proposal (Proposal #2)” on page 93.

 

3.

Adjournment Proposal. To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting. For more information on this proposal, see “The Adjournment Proposal (Proposal #3)” on page 95.

Our board of directors unanimously recommends our shareholders vote “FOR” each of these proposals.

Other Business

Our management knows of no other matters to be presented at the special meeting. Applicable Minnesota law and our bylaws prohibit the transaction at the special meeting of any business that is not stated in the notice of special meeting.

Admission

Only shareholders and authorized guests may attend the meeting and all attendees will be required to show a valid form of ID (such as a government-issued form of photo identification).

If you hold your shares in street name (i.e. through a bank, broker or other nominee), you must also provide proof of share ownership as of the record date, such as a letter from your bank, broker or other nominee or a recent brokerage statement, in order to attend the meeting.

Security Procedures

Please do not bring weapons, cameras, recording equipment, electronic devices, large bags, briefcases or packages to the special meeting. You and your belongings may be subject to

 

 

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search prior to your admittance to the meeting. We may implement additional security procedures. If you do not comply with these procedures, you may not be admitted to the special meeting.

Adjournment

Although it is not currently expected, we may adjourn the special meeting one or more times, including if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting. The meeting may be adjourned either (1) by our chairperson without a vote of our shareholders or (2) pursuant to a vote of our shareholders on the adjournment proposal.

All references in our proxy materials to the special meeting include any adjournment or postponement of the special meeting.

RECORD DATE – WHO CAN VOTE – SHARES OUTSTANDING

 

Our board of directors has fixed                 ,          as the record date for the special meeting. Shareholders of record as shown on our books at the close of business on the record date will be entitled to vote at the special meeting. Persons who were not shareholders on the record date will not be eligible to vote.

At the close of business on the record date, there were                  shares of our common stock issued and outstanding. The common stock is our only outstanding class of capital stock.

HOW TO CAST YOUR VOTE

 

Your vote is important! Please cast your vote as soon as possible, using the instructions on the enclosed proxy card.

The Buffalo Wild Wings board of directors unanimously recommends that you vote “FOR” each of the proposals.

Instructions for voting your shares depend on how you hold them and whether you wish to vote in-person or by proxy:

 

•

Shareholders of record, who hold shares registered in their own name, can vote by signing, dating and returning the enclosed proxy card in the postage-paid return envelope, or by telephone or via the internet, following the easy instructions shown on the enclosed proxy card.

 

•

Beneficial owners, who own shares through a bank, broker or other nominee, can vote by returning the voting instruction form, or by following the instructions for voting via telephone or the internet, as provided by the bank, broker or other nominee. If you own shares in different accounts or in more than one name, you may receive different voting instructions for each type of ownership. Please vote all your shares.

 

•

If you are a shareholder of record or a beneficial owner who has a legal proxy to vote the shares, you may choose to vote in person at the special meeting. Even if you plan to attend the special meeting in person, please cast your vote as soon as possible by using the proxy card.

If you have any questions or need assistance voting, please contact Morrow Sodali LLC, our proxy solicitor assisting us in connection with the special meeting, toll-free at +1 (800) 662-5200 or by email at BWLD@morrowsodali.com.

 

 

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Proxies will be voted as directed therein. If you sign and return the enclosed proxy card or submit a proxy by telephone or over the internet and do not specify how your shares are to be voted, your shares will be voted “FOR” the merger proposal, “FOR” the golden parachute proposal and “FOR” the adjournment proposal.

REVOKING YOUR PROXY

 

Any shareholder giving a proxy may revoke it any time prior to its use at the special meeting (1) by giving written notice of such revocation to our corporate secretary or any one of our other officers, (2) by submitting a timely, later dated written proxy (or voting instruction form if you hold shares through a broker, bank or other nominee), or (3) providing timely subsequent telephone or internet voting instructions.

Personal attendance at the special meeting is not, by itself, sufficient to revoke a proxy unless written notice of the revocation or a later dated proxy is delivered to an officer before the revoked or superseded proxy is used at the special meeting.

VOTING INTENTIONS OF OUR DIRECTORS AND OFFICERS AND CERTAIN SHAREHOLDERS

 

We currently expect that each of our directors and executive officers will vote their shares in favor of the merger proposal and the golden parachute proposal, although they have no obligation to do so.

Certain investment funds advised by Marcato Capital Management, LP, which collectively beneficially owned approximately 6.4% of our outstanding shares as of November 27, 2017, have entered into an agreement to vote the shares beneficially owned by such funds as of the record date in favor of approval of the merger agreement, subject to the terms and conditions of such agreement. See “Voting Agreement” on page 90.

VOTING PROCEDURES AND TECHNICALITIES

 

One Vote per Share

Each share of our common stock is entitled to one vote on each matter to be voted upon at the special meeting. Holders of our common stock are not entitled to cumulative voting rights.

Quorum

A “quorum” is the minimum number of shareholders who must be present at the special meeting for business to be conducted. The holders of least                  shares of our common stock (which represents a majority of the voting power of the shares expected to be entitled to vote at the special meeting) will be a quorum for a vote to be taken on the merger proposal and the golden parachute proposal.

If a quorum is present when the special meeting is convened, the shareholders present may continue to transact business until adjournment, even if the withdrawal of shareholders originally present leaves less than a quorum.

 

 

22

Abstentions

If a shareholder indicates on their proxy that they wish to abstain from voting, including banks, brokers or other nominees holding their customers’ shares who cause abstentions to be recorded, these shares are considered present and entitled to vote at the special meeting and those shares will count toward determining whether or not a quorum is present at the meeting. An abstention will have the same effect as a vote against the merger proposal and the adjournment proposal, but will have no effect on the golden parachute proposal.

Broker Non-Votes

If a shareholder who holds their shares through a bank, broker or other nominee does not give instructions to the bank, broker or other nominee as to how to vote the shares, the bank, broker or other nominee has authority under applicable stock exchange to vote those shares for or against “routine” proposals. However, banks, brokers and other nominees without discretionary authority cannot vote on their customers’ behalf on “non-routine” proposals. All of the proposals to be considered at the special meeting are “non-routine.”

If a bank, broker or other nominee does not receive voting instructions as to a non-routine proposal and does not have discretionary authority to vote on the proposal, a “broker non-vote” may occur. Shares that are subject to broker non-votes are considered not entitled to vote, and therefore will not count toward determining whether or not a quorum is present at the meeting and will be ignored for purposes of determining the outcome of any vote on the golden parachute proposal or the adjournment proposal. However, a broker non-vote will have the same effect as a vote against the merger proposal.

SOLICITATION OF PROXIES

 

Our board of directors is soliciting your proxy, and we will bear the cost of this solicitation of proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock.

We have retained Morrow Sodali LLC, a proxy solicitation firm, which we refer to as “Morrow Sodali,” to assist our board of directors in the solicitation of proxies for the special meeting, and we expect to pay Morrow Sodali $        , plus reimbursement of out-of-pocket expenses. Proxies may be solicited by mail, personal interview, email, telephone, or via the internet by Morrow Sodali or, without additional compensation, by certain of our directors, officers and employees.

 

 

23

PARTIES

BUFFALO WILD WINGS

 

Buffalo Wild Wings, Inc. (referred to in this proxy statement as “we,” “us,” “our,” “Buffalo Wild Wings,” or the “company”) is a Minnesota corporation. This entity was incorporated in 1995, but our Buffalo Wild Wings brand was originally founded by a predecessor entity in 1982 at a location near The Ohio State University.

We are an established and growing owner, operator, and franchisor of restaurants featuring a variety of boldly-flavored, crave-able menu items, including our Buffalo, New York-style chicken wings. Buffalo Wild Wings restaurants create a welcoming neighborhood atmosphere that includes an extensive multi-media system, a full bar and an open layout, which appeals to sports fans and families alike. We differentiate our restaurants by the social environment we create and the connection we make with our team members, guests and the local community. Our guests have the option of watching sporting events or other popular programs on our projection screens and approximately 60 additional televisions, competing in Buzztime^® Trivia or playing video games. The open layout of our restaurants offers dining and bar areas that provide distinct seating choices for sports fans and families. Our restaurants offer flexibility and allow our guests to customize their Buffalo Wild Wings experience to meet their time demands, service preferences or the experience they are seeking for a workday lunch, a dine-in dinner, a take-out meal, an afternoon or evening enjoying a sporting event or a late-night craving. Buffalo Wild Wings restaurants are the place people want to be, where any excuse to get together is a good one.

Our common stock is currently listed on Nasdaq under the ticker symbol “BWLD.” For more information about our common stock, see “Market Prices and Dividend Data” on page 99.

The members of our board of directors are:

 

•

Janice L. Fields, Chair

 

•

Scott O. Bergren

 

•

Cindy L. Davis

 

•

Andre J. Fernandez

 

•

Harry A. Lawton

 

•

Richard T. McGuire III

 

•

Jerry R. Rose

 

•

Sam B. Rovit

 

•

Harmit J. Singh

Our current executive officers are:

 

•

Sally J. Smith, Chief Executive Officer and President

 

•

Alexander H. Ware, Executive Vice President and Chief Financial Officer

 

•

Emily C. Decker, Senior Vice President, General Counsel and Secretary

 

 

24

•

Andrew D. Block, Senior Vice President, Talent Management Services

 

•

Santiago Abraham, Chief Information Officer

Our principal executive offices are located at 5500 Wayzata Boulevard, Suite 1600, Minneapolis, Minnesota 55416, and our telephone number is +1 (952) 593-9943. Our investor website is ir.buffalowildwings.com. The information contained on, or accessible through, our website is not incorporated into this proxy statement. More information about the company, our board of directors, and our executive officers is available as described under “Where You Can Find More Information” on page 104.

ARBY’S

 

Arby’s Restaurant Group, Inc. (referred to in this proxy statement as “Arby’s” or “Parent”) is a Delaware corporation. It was originally incorporated in Delaware in 2004.

Arby’s is the parent company, owner-operator, and franchisor of the Arby’s brand. The Arby’s brand, founded in 1964, is the second-largest sandwich restaurant brand in the world with more than 3,300 restaurants in seven countries. Arby’s is majority owned by funds advised by Roark and is headquartered in Atlanta, Georgia.

Arby’s principal executive offices are located at 1511 Perimeter Center West, Atlanta, Georgia, 30338, and its telephone number is +1 (678) 514-4100. Its website is www.arbys.com. The information contained on, or accessible through, Arby’s website is not incorporated into this proxy statement.

MERGER SUB

 

IB Merger Sub I Corporation (referred to in this proxy statement as “Merger Sub”) is a Minnesota corporation and a wholly owned subsidiary of Arby’s. Merger Sub was formed on November 22, 2017 solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, and it currently has no other business or operations. Upon completion of the merger, Merger Sub will cease to exist and Buffalo Wild Wings will continue as the surviving corporation.

Merger Sub’s principal executive offices are located at 1511 Perimeter Center West, Atlanta, Georgia, 30338, and its telephone number is +1 (678) 514-4100.

ROARK

 

Roark Capital Management LLC (referred to in this proxy statement as “Roark”) is a Delaware limited liability company. Roark is a registered investment adviser and manages several private equity funds and other investment vehicles, including the fund that is the majority owner of Arby’s.

In connection with the merger, another fund advised by Roark, which we refer to as the “Roark fund,” has agreed to capitalize Arby’s with up to $783 million, subject to the terms and conditions set forth in an equity commitment letter entered into by the Roark fund and Arby’s. For more information about the equity commitment letter, see “The Merger—Financing of the Merger” on page 51.

Roark focuses on investing in franchised and multi-unit businesses in the retail, restaurant, consumer and business services sectors. Since inception, affiliates of Roark have invested in 62 franchise/multi-unit brands, which collectively generate approximately $27 billion in annual system revenues from approximately 29,000 locations in 50 states and 78 countries.

 

 

25

Roark’s and the Roark fund’s principal executive offices are located at 1180 Peachtree St NE, Suite 2500, Atlanta, Georgia 30309, and their telephone number is +1 (404) 591-5200. Roark’s website is www.roarkcapital.com. The information contained on, or accessible through, Roark’s website is not incorporated into this proxy statement.

 

 

26

THE MERGER

THE MERGER AND ITS EFFECTS

 

If the merger agreement is approved by our shareholders and the other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into Buffalo Wild Wings, and the separate corporate existence of Merger Sub will cease. Buffalo Wild Wings will be the surviving corporation in the merger and will continue its corporate existence as a Minnesota corporation and a wholly owned subsidiary of Arby’s.

Upon the terms and subject to the conditions of the merger agreement, at the effective time of the merger, each share of our common stock issued and outstanding immediately before the effective time of the merger (other than cancelled shares, dissenting shares and shares subject to restricted stock awards) will be converted into the right to receive $157.00 in cash, without interest and less any applicable withholding taxes. At the effective time of the merger, our current shareholders will cease to have ownership interests in the company or rights as its shareholders. Therefore, our current shareholders will not participate in any of our future earnings or growth and will not benefit from any appreciation in our value.

Our common stock is currently registered under the Exchange Act and is quoted on Nasdaq under the symbol “BWLD.” As a result of the merger, Buffalo Wild Wings will cease to be a publicly traded company and will be a wholly owned subsidiary of Arby’s. Following the consummation of the merger, our common stock will be delisted from Nasdaq and deregistered under the Exchange Act, and Buffalo Wild Wings will no longer be required to file periodic reports with the SEC with respect to our common stock, in each case in accordance with applicable law, rules and regulations.

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

BUFFALO WILD WINGS WITHOUT THE MERGER

 

If the merger agreement is not approved by our shareholders or if the merger is not consummated for any other reason, our shareholders will not receive any payment for their shares of our common stock. Instead, we will remain a public company, our common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act and we will continue to file periodic reports with the SEC. In addition, if the merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that our shareholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, general industry, economic and market conditions. If the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock. From time to time, if the merger is not consummated, our board of directors will evaluate and review our business operations, properties, dividend policy and capitalization and, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to maximize shareholder value. If the merger agreement is not approved by our shareholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely impacted.

 

 

27

If the merger agreement is terminated, under specified circumstances, we may receive from or be required to pay Arby’s a termination fee, as described under “The Merger Agreement—Termination Fees” on page 87.

BACKGROUND TO THE MERGER

 

The following chronology summarizes certain key events and contacts that led to the signing of the merger agreement. It does not purport to catalogue every conversation among our board of directors, members of our management, or the company’s representatives and other parties.

During the past several years, as part of the company’s ongoing strategic-planning process, our board of directors and management regularly reviewed and assessed, among other things, the company’s long-term strategic goals and opportunities, competitive environment, and short- and long-term performance in light of the company’s strategic plan, with the goal of enhancing shareholder value.

During late February 2017, representatives of Roark, which advises funds that are majority owners of Arby’s, contacted Sally Smith, our chief executive officer, seeking to arrange a meeting between the two organizations.

On March 9, 2017, Neal Aronson, Roark’s managing partner, and Geoff Hill, a Roark principal, had an initial introductory meeting with Ms. Smith.

On March 23, 2017, Mr. Aronson and Ms. Smith held a meeting during which Mr. Aronson shared Roark’s long-term vision for Arby’s and Roark. Later that day, Ms. Smith connected Jerry Rose, then chair of our board of directors, with Mr. Aronson by e-mail to arrange a potential meeting.

On April 4, 2017, Mr. Aronson and Erik Morris, senior managing director of Roark, met with Mr. Rose to discuss Roark’s interest in learning more about the company and to explain Roark’s investment strategy.

On April 7, 2017, Mr. Aronson provided Ms. Smith with an initial due diligence request list of non-public company information that Roark would like to review in order to validate Roark’s interest in the company.

On April 8, 2017, Ms. Smith and Mr. Aronson had a telephone conversation about the nature of Roark’s interest in the company and the specific information requested by Roark.

On April 18, 2017, the company and Arby’s entered into a mutual non-disclosure agreement.

On May 4, 2017, the company provided Arby’s with certain of the non-public written information that Roark had requested regarding the company.

During the company’s annual meeting of shareholders held on June 2, 2017, our shareholders elected four new members to our board of directors, and Ms. Smith announced her intention to retire as the company’s chief executive officer when her successor was named, which was expected to occur prior to the end of the 2017 calendar year.

On June 27, 2017, our board of directors held an off-site orientation meeting for its new and continuing directors, during which Mr. Rose summarized for our board of directors his and Ms. Smith’s prior discussions with Roark as well as the nature of the non-public written information the company had provided to Arby’s.

 

 

28

On July 7, 2017, our board of directors held a meeting to discuss Roark’s continued interest in the company.

On July 14, 2017, Andre Fernandez, the chair of the governance committee of our board of directors, called Mr. Aronson seeking clarification of what additional company information was being requested by Arby’s.

On July 18, 2017, the company provided Roark with access to an electronic data repository containing certain limited information about the company.

On July 21, 2017, Emily Decker, the company’s general counsel, and Mick McGuire, a member of our board of directors, called Mr. Morris seeking further clarification of Roark’s information request and stated that the company would provide an additional subset of the requested information.

On July 28, 2017, Ms. Decker and Alex Ware, the company’s chief financial officer, provided certain additional information to Roark.

On August 18, 2017, Mr. Aronson, Mr. Morris, and Paul Brown, chief executive officer of Arby’s, met with our board of directors at a regularly-scheduled board meeting in Minneapolis and discussed with our board of directors Roark’s investment philosophy and Arby’s interest in the company.

On August 21, 2017, Mr. Aronson contacted Jan Fields, chair of our board of directors, to advise her that Arby’s would be submitting on the next day a written indication of interest regarding a potential acquisition of the company.

On August 22, 2017, Arby’s delivered a letter to our board of directors requesting certain additional non-public information from the company and conveying a non-binding indication of interest in acquiring the company at a per-share price between $145.00 and $150.00 in cash, subject to confirmatory due diligence and the negotiation of a mutually acceptable merger agreement. The company’s closing stock price on that date was $106.85 per share.

On several occasions following the submission by Arby’s of its August 22 proposal, a representative of Barclays Capital Inc., financial advisor to Arby’s, which we refer to as “Barclays Capital,” contacted Mr. McGuire, at the request of Arby’s, to explain Arby’s perspectives on certain transaction terms and to seek clarification on the company’s positions on those terms. During such discussions on several occasions, Mr. McGuire reiterated that he believed our board of directors likely would require a higher price per share than that stated in the applicable proposal by Arby’s before exploring a potential transaction with Arby’s. In response, the representative of Barclays reiterated the position of Arby’s that, among other things, additional due diligence information will be required before Arby’s could consider increasing the proposed purchase price.

On August 25, 2017, our board of directors held a meeting to discuss Arby’s indication of interest. Ms. Decker attended the meeting, as did representatives of Faegre Baker Daniels LLP, the company’s outside legal counsel, which we refer to as “FaegreBD.” At the end of the discussion, our board of directors directed Ms. Fields to advise Roark that our board of directors was focused on its ongoing search for a new chief executive officer and executing on the company’s strategic plan and was not interested in pursuing a sale of the company.

On August 29, 2017, Ms. Fields called Mr. Morris to advise him of our board of directors’ August 25 determination.

 

 

29

On September 13, 2017, Mr. Aronson called Ms. Fields to advise her that Arby’s would be submitting a revised non-binding indication of interest in acquiring the company. Later that day, Arby’s delivered a letter to our board of directors reiterating its August 22 request for certain non-public information from the company and conveying a revised non-binding indication of interest in acquiring the company at a per-share price between $150.00 and $157.00 in cash, subject to confirmatory due diligence and the negotiation of a mutually acceptable merger agreement. The company’s closing stock price on that date was $104.15 per share.

On September 14, 2017, our board of directors held a meeting to discuss the latest indication of interest from Arby’s, including whether the company should provide the additional non-public information that Arby’s requested. Mr. Ware and Ms. Decker attended the meeting, as did representatives of FaegreBD. The directors engaged in a discussion of the risks and opportunities facing the company as a stand-alone entity, including the status of our board of directors’ continuing search for a new chief executive officer and the implementation of other strategic initiatives. Our board of directors also discussed the potential merits and risks of engaging in substantive discussions with Arby’s that might lead to a potential sale of the company. At the conclusion of the meeting, our board of directors determined to take no action at the time but to continue its discussion at a meeting to be held the following week.

On September 22, 2017, our board of directors held a meeting to continue its discussion of Arby’s September 13 proposal, including Arby’s request for additional non-public information regarding the company. Mr. Ware and Ms. Decker attended the meeting, as did representatives of FaegreBD. At the conclusion of the discussion, our board of directors noted that it was not making any determination as to the advisability of selling the company but rather that it had decided to provide the requested information so as to enable Arby’s to submit a more refined indication of interest to our board of directors. In the two weeks following the meeting, Mr. Ware provided the requested information to Arby’s, as directed by our board of directors.

On October 13, 2017, Mr. Aronson called Ms. Fields to advise her that Arby’s would be submitting a further revised non-binding indication of interest in acquiring the company. Later that day, Arby’s delivered a letter dated October 12 to our board of directors conveying a revised non-binding indication of interest in acquiring the company at a per-share price of $152.00 in cash, subject to continued confirmatory due diligence and the negotiation of a mutually acceptable merger agreement. The proposal contained in the letter had a stated expiration date of October 20, 2017. The letter was accompanied by a draft merger agreement and debt and equity commitment letters. The company’s closing stock price on that date was $102.35 per share.

On October 16, 2017, our board of directors held a meeting to discuss Arby’s revised indication of interest. Ms. Smith, Mr. Ware and Ms. Decker attended the meeting, as did representatives of FaegreBD. At the end of the discussion, our board of directors directed Ms. Fields to advise Roark that our board of directors was considering the revised indication of interest but had not authorized our management to engage in substantive discussions with Roark regarding a potential transaction.

On October 17, 2017, following discussions with the other directors, Ms. Fields contacted representatives of Goldman Sachs to explore the possibility of Goldman Sachs serving as financial advisor to the company in connection with our board of directors’ review of strategic alternatives, including our board of directors’ evaluation of, and response to, indications of

 

 

30

interest from Arby’s. The company subsequently engaged Goldman Sachs to serve as its financial advisor.

On October 20, 2017, Ms. Fields sent a letter to Arby’s on behalf of our board of directors. The letter stated that our board of directors was in receipt of Arby’s October 12 proposal letter and that our board of directors was in the process of considering the indication of interest.

After the close of the markets on October 25, 2017, the company publicly reported its third-quarter earnings and revised full-year forecast. On October 26, 2017, the company’s closing stock price was $120.95 per share, up from $101.15 the prior day.

On November 9, 2017, Messrs. Aronson and McGuire met, during which time Mr. Aronson expressed Roark’s continued interest in exploring a transaction with the company and inquired as to the status of our board of directors’ consideration of the October 12 proposal submitted by Arby’s. Mr. McGuire reiterated the position of our board of directors that had been previously communicated to Mr. Aronson regarding the status of our board of directors’ consideration of the proposal and noted that our board of directors planned to further consider Arby’s indication of interest at the regularly scheduled board meeting scheduled to be held the following week.

After the close of the markets on November 13, 2017, various media outlets reported unconfirmed speculation that Roark had made an offer to acquire the company for more than $150.00 per share. Consistent with its policy for such rumors, the company declined to comment in response to inquiries from media outlets and investors regarding these reports. On November 14, 2017, the company’s closing stock price was $145.35 per share, up from $117.25 the prior day. We did not receive any proposals to acquire the company from other potential acquirors in response to these reports, but three potential acquirors did contact Goldman Sachs following these reports.

On November 16 and 17, 2017, our board of directors held regularly scheduled meetings in Minneapolis, which Mr. Ware and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. Our board of directors engaged in extensive discussions of the company’s historical and projected financial performance, operating initiatives, and strategic plans. Our board of directors also discussed its continuing efforts to hire a new chief executive officer and discussed information provided by an outside consulting firm that was engaged to assist us with an assessment of the costs and benefits associated with our current strategy as an independent public company. During the meetings, representatives of Goldman Sachs engaged in discussions with the board regarding general capital markets conditions, the performance of publicly traded restaurant companies generally, certain non-public, unaudited prospective financial information regarding the company prepared by our management, and preliminary, illustrative financial matters regarding the company. Representatives of Goldman Sachs also discussed with our board of directors the most recent indication of interest from Arby’s, including illustrative financing structures for the proposed acquisition. Representatives of FaegreBD advised the directors on their fiduciary duties under Minnesota law generally and with respect to a possible sale transaction. At the conclusion of the two-day meeting, our board of directors directed Goldman Sachs to engage with Barclays Capital, and to provide Arby’s and its representatives with additional due diligence information provided by the company, including access to Mr. Ware and Ms. Decker, in an effort to induce Arby’s to increase its proposed price per share. Our board of directors also directed Goldman Sachs to contact a limited number of potential alternative acquirors identified by our board of directors following discussions with Goldman Sachs. Finally, our board of directors directed FaegreBD to

 

 

31

begin to review Arby’s proposed merger agreement and its debt and equity commitment letters. The company’s closing stock price on November 17 was $138.25 per share.

From November 17 through 20, 2017, representatives of Goldman Sachs, at the direction of our board of directors, contacted seven potential strategic and financial acquirors, including the three which had initiated contact with Goldman Sachs following the November 13 media reports. Citing the media reports but without providing any non-public information regarding the company, Goldman Sachs invited the potential acquirors to submit written indications of interest in acquiring the company. Each of the parties contacted by Goldman Sachs declined to submit such an indication of interest.

Beginning on November 19, 2017, the company granted Arby’s and its representatives access to certain additional due diligence information requested by Arby’s.

On November 20, 2017, Arby’s and its representatives conducted a due diligence call with Mr. Ware and Ms. Decker, which call was also attended by representatives of Barclays Capital and Goldman Sachs. Later that day, our board of directors held a meeting, which Mr. Ware and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. During the meeting, our management, Goldman Sachs, and FaegreBD provided the directors with an update regarding the recent interactions with Arby’s and its representatives and other potential acquirors and discussed potential next steps. Mr. Ware also provided the directors with an update on the company’s recent financial and operational performance and recent downward trends in chicken wing prices.

On November 21, 2017, Arby’s and its representatives conducted a due diligence meeting in Minneapolis with Mr. Ware and Ms. Decker, which meeting was also attended by representatives of Barclays Capital and Goldman Sachs. Later that evening, Arby’s delivered a letter to the board containing a revised non-binding indication of interest in acquiring the company at a per-share price of $155.00 in cash. The proposal contained in the letter had a stated expiration date of November 26. The company’s closing stock price on that date was $142.60 per share.

On November 22, 2017, our board of directors held a meeting, which Mr. Ware and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. Prior to the meeting, Goldman Sachs provided our board of directors a draft disclosure letter regarding certain of its relationships with Roark and portfolio companies owned by funds advised by Roark. During the meeting, the board discussed Arby’s revised indication of interest with representatives of Goldman Sachs and directed Goldman Sachs to continue to seek a higher per share price and to advise Arby’s that our board of directors would require that any definitive merger agreement would contain a go-shop provision.

On the morning of November 23, 2017, at the direction of Arby’s, Barclays Capital called representatives of Goldman Sachs to convey the message that Arby’s would consider raising its proposed price to $157.00 per share in cash if our board of directors agreed to engage promptly with Arby’s on the draft merger agreement and other legal documentation. That afternoon, our board of directors held a meeting, which Mr. Ware and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. During the meeting, our board of directors discussed Arby’s revised indication of interest with representatives of Goldman Sachs and directed Goldman Sachs to make a counterproposal that our board of directors would move forward either at $157.00 per share in cash, with the understanding that the definitive merger agreement would contain a go-shop provision, or at $158.00 per share in cash with no

 

 

32

go-shop provision. Later that day, FaegreBD submitted comments on the draft merger agreement and other legal documentation to Arby’s and its representatives.

From November 23 through November 27, 2017, Ms. Decker, FaegreBD, Stephen Aronson, Roark’s general counsel and counsel to Arby’s, and White & Case LLP, outside legal counsel to Arby’s, negotiated the terms and conditions of the merger agreement and other legal documentation in connection with the merger.

On November 24, 2017, our board of directors held a meeting, which Mr. Ware and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. During the meeting, Goldman Sachs updated our board of directors regarding its discussions with Barclays Capital over the past day, and FaegreBD provided an update regarding an illustrative timetable for entry into the merger agreement and the status of other legal documentation.

On November 25, 2017, our board of directors held a meeting, which Mr. Ware and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. During the meeting, FaegreBD updated our board of directors regarding the material open points in the merger agreement, including the absence of a go-shop provision, the existence of a reverse termination fee and the magnitude thereof, and the magnitude of the company termination fee.

On Sunday evening, November 26, 2017, certain media outlets reported unconfirmed speculation that the company was engaged in discussions with Roark and that Roark had made an improved proposal to acquire the company for approximately $155.00 per share. When contacted by media outlets and investors, the company continued to abide by its policy not to comment on such rumors. We did not receive any proposals to acquire the company from other potential acquirors in response to these reports.

Midday on November 27, 2017, Arby’s delivered a letter to our board of directors containing what Arby’s stated was its last, best, and final indication of interest in acquiring the company at a per-share price of $157.00 in cash. The proposal contained in the letter had a stated expiration date of November 28 and was accompanied by fully-negotiated debt and equity commitment letters and a proposed merger agreement that did not contain a go-shop provision but that did increase the amount of the reverse termination fee payable by Arby’s in certain circumstances from 4.0% to 5.4% of the company’s equity value.

Later in the afternoon of November 27, 2017, our board of directors held a meeting, which Mr. Ware and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. During the meeting, Goldman Sachs discussed with our board of directors certain preliminary financial aspects of Arby’s final proposal and FaegreBD reviewed the material legal terms of Arby’s indication of interest.

During the evening of November 27, 2017, our board of directors held a second meeting of the day, which Ms. Smith, Mr. Ware, and Ms. Decker attended along with representatives of Goldman Sachs and FaegreBD. Prior to the meeting, the members of our board of directors were provided with materials relating to the proposed acquisition, including, among other things, a summary of the material terms of the merger agreement prepared by FaegreBD and certain financial analyses of the merger consideration prepared by Goldman Sachs. At the meeting:

 

•

Representatives of Goldman Sachs reviewed with our board of directors Goldman Sachs’ financial analysis of the merger consideration and delivered to our board of

 

 

33

directors an oral opinion, which was confirmed by delivery of a written opinion dated November 27, 2017, to our board of directors that, as of that date and based upon and subject to factors and assumptions set forth therein, the merger consideration to be paid to the holders (other than Arby’s and its affiliates) of shares of the company’s common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

•

Representatives of FaegreBD presented a summary of the material terms of the merger agreement.

 

•

Representatives of FaegreBD reviewed with the directors their fiduciary duties under Minnesota law in connection with their consideration of the merger.

Following consideration and discussion of the proposed merger agreement and the transactions contemplated thereby:

 

•

The compensation committee of the board unanimously approved the acceleration and cash-out of the company’s equity awards, as contemplated by the merger agreement.

 

•

Our board of directors unanimously (1) approved the merger agreement, the merger, and the other transactions contemplated by the merger agreement, (2) declared the merger agreement, the merger, and the other transactions contemplated by the merger agreement to be fair, advisable, and in the best interests of the company and its shareholders; (3) directed that the approval of the merger agreement be submitted to a vote at a meeting of our shareholders; and (4) recommended to our shareholders that they approve the merger agreement.

The parties executed the merger agreement late in the evening of November 27, 2017, and Arby’s and the company issued a joint press release early on November 28, 2017, announcing the parties’ entry into the merger agreement. The company’s closing stock price on November 27, 2017 was $146.40 per share.

REASONS FOR OUR BOARD’S RECOMMENDATION IN FAVOR OF THE MERGER

 

In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, our board of directors consulted with our executive management, our outside legal counsel (FaegreBD) and an outside financial advisor (Goldman Sachs). Our board of directors also considered the results of an assessment of the costs and benefits associated with our current strategy as an independent public company, which we conducted with the assistance of an outside consulting firm in the fall of 2017.

In recommending that our shareholders vote in favor of the merger proposal, our board of directors also considered a number of factors potentially weighing in favor of the merger, including the following (which are not presented in order of relative importance):

 

•

The belief of our board of directors, after a review of our current and historical financial condition, results of operations, prospects, business strategy, management team, competitive position, and the broader industry, including the potential impact (which cannot be quantified numerically) of those factors on the trading price of our common stock, that the value offered to our shareholders under the merger agreement is more favorable to our shareholders than the potential value that might have resulted from the possible alternatives to the merger, including continuing execution of our current strategy as an independent public company.

 

 

34

•

The challenges and risks that we have faced, and would likely continue to face, if we remained an independent company, including:

 

○

turnover in our management, including the pending retirement of our chief executive officer, the recent departures of several of our other senior officers and the challenges of timely hiring qualified replacements, and concerns relating to the remaining management team’s ability to execute on our strategic plan;

 

○

increases and volatility in the ingredient costs, particularly chicken wing prices;

 

○

industry trends, including higher labor costs, increased litigation, lower traffic and shifting consumer preferences;

 

○

the excess supply of restaurants and competitive landscape in our industry;

 

○

increased need for significant investment in technology, menu improvement, supply chain processes, consumer research and marketing;

 

○

the additional costs and burdens involved with being a public company; and

 

○

the volatility in our financial performance resulting from various factors, including the factors described above.

 

•

The risks and uncertainties inherent in our ability to execute on our strategic plan and achieve management’s related financial projections, including those relating to our proposed refranchising plan, those relating to our ability to align our franchisees with any shifts in our strategy, and the other risks and uncertainties described in the section entitled “risk factors” set forth in our Form 10-K for the fiscal year ended December 25, 2016.

 

•

The relationship of the merger consideration to the historic trading ranges of our common stock and the potential trading range of the common stock absent announcement of the merger agreement, and the possibility that absent such announcement it could take a considerable period of time before our common stock would trade at a price in excess of the merger consideration on a present-value basis, including considering the fact that the merger consideration constitutes:

 

○

a premium of approximately 36.5% over the volume-weighted average price per share of our common stock over the one-month period ended on November 13, 2017, the last trading day prior to media reports of speculation that Roark had made an offer to acquire our company;

 

○

a premium of 16.1% over the volume-weighted average price per share of our common stock over the one-year period ended on November 13, 2017; and

 

○

a premium of approximately 7.2% over the closing price of our common stock on November 27, 2017, the date the merger agreement was executed.

 

•

Our board of director’s belief that the merger consideration was the best price reasonably attainable for our shareholders, considering:

 

○

the absence of any expression of interest in acquiring the company on terms competitive with the proposals made by Arby’s, despite media reports speculating about a potential transaction in advance of its announcement and our financial advisor’s efforts (at the direction of our board of directors) to solicit competing proposals from other potential acquirors;

 

 

35

○

the improvement in the merger consideration proposed by Arby’s from a range of $145.00 to $150.00 per share at the time of its initial indication of interest on August 22, 2017 to $157.00 per share when it delivered its final indication of interest on November 27, 2017; and

 

○

our board of directors’ belief, based on the nature of the negotiations and the fact that Arby’s referred to the per-share price and key terms as its “last, best and final offer,” that the price to be paid by Arby’s is the highest price per share that Arby’s was willing to pay and that the terms and conditions of the merger agreement were, in our board of directors’ view, the most favorable to us and our shareholders to which Arby’s was willing to agree.

 

•

The fact that the all-cash merger consideration will provide certainty of value and liquidity to our shareholders.

 

•

The oral opinion, provided to our board at its meeting on November 27, 2017 by representatives of Goldman Sachs and subsequently confirmed in writing, that, as of that date, the $157.00 in cash per share of our common stock to be paid to our shareholders (other than Arby’s and its affiliates) pursuant to the merger agreement was fair from a financial point of view to such shareholders, based upon and subject to the qualifications, assumptions and other matters considered in connection with the preparation of such opinion. The opinion of Goldman Sachs is more fully described below under “Opinion of Our Financial Advisor” on page 39, and full text of their written opinion is attached hereto as Appendix C.

 

•

The likelihood that the merger would be completed based on, among other things:

 

○

our board of directors’ belief that there were not likely to be significant antitrust or other regulatory impediments to the closing;

 

○

the agreement of Arby’s to use reasonable best efforts to take, all actions necessary, proper or advisable to consummate the merger as promptly as reasonably practicable, subject to certain exceptions;

 

○

our board of directors’ belief that the outside date provisions of the merger agreement allow for sufficient time to complete the merger;

 

○

the fact that the conditions to the closing of the merger are specific and limited in scope and that the definition of “material adverse effect” in the merger agreement contains certain carve-outs that make it less likely that adverse changes in our business between announcement and closing of the merger will provide a basis for Arby’s to refuse to consummate the merger;

 

○

our board of directors’ perception that Roark and Arby’s are willing to devote the resources necessary to complete the merger in an expeditious manner based upon, among other things, the business reputation and capabilities of Roark and Arby’s and the provisions of the merger agreement requiring Arby’s to pay us a termination fee of $134 million if the merger agreement is terminated in certain circumstances following Arby’s failure to consummate the merger when required to do so;

 

○

the fact that there is no financing condition to the completion of the merger in the merger agreement;

 

 

36

○

the representation of Arby’s that it has, through a combination of committed financing and existing cash and cash equivalents, all funds necessary for the payment of the aggregate merger consideration; and

 

○

the receipt of debt and equity commitment letters, the terms thereof and the reputation of the parties providing the commitment, which increase the likelihood of the financing being available.

 

•

Our board of directors’ view that the terms of the merger agreement would not preclude or unreasonably restrict a superior offer from another party, considering:

 

○

our board of directors’ right under the merger agreement to respond to third parties submitting unsolicited acquisition proposals by providing non-public information subject to an acceptable confidentiality agreement, and to engage in negotiations or substantive discussions with any such person, if our board of directors, prior to taking any such actions, determines in good faith (after consultation with its financial advisor and legal counsel) that (i) the failure to take such action is reasonably likely to be inconsistent with the directors’ fiduciary duties under applicable law and (ii) the competing proposal either constitutes a superior proposal or is reasonably likely to constitute a superior proposal;

 

○

our ability to terminate the merger agreement to enter into an alternative acquisition agreement that our board of directors determines to be a superior proposal, subject to certain conditions, including Arby’s matching right and payment of a termination fee to Arby’s; and

 

○

our board of directors’ belief that the termination fee of $74 million, or approximately 3% of the equity value of our company, is reasonable in light of, among other things, the benefits of the merger to our shareholders, the typical size of such fees in similar transactions and the likelihood that a fee of such size would not be preclusive or unreasonably restrictive of other offers.

 

•

The other terms of the merger agreement.

 

•

The fact that the merger is subject to approval by our shareholders, and our board of directors’ right, under certain circumstances, to withhold, withdraw, rescind or adversely modify its recommendation that our shareholders approve the merger agreement.

 

•

The availability of dissenters’ rights to our shareholders who comply with specified procedures under Minnesota law.

In its deliberations concerning the merger and the other transactions contemplated by the merger agreement, our board of directors also considered and balanced against the factors potentially weighing in favor of the merger a number of uncertainties, risks, restrictions and other factors potentially weighing against the merger, including the following (not necessarily in order of relative importance):

 

•

The fact that the merger would preclude our shareholders from having the opportunity to realize the potential long-term value of the successful execution of our current strategy as an independent public company or to otherwise participate in any future earnings or growth or in any future appreciation in value of shares of our common stock.

 

 

37

•

The fact that receipt of the all-cash merger consideration would be taxable to those of our shareholders that are treated as U.S. holders for U.S. federal income tax purposes.

 

•

The fact that, under specified circumstances, we may be required to pay fees and expenses in the event the merger agreement is terminated and the effect this could have on us, including:

 

○

the possibility that the $74 million termination fee payable by us to Arby’s upon the termination of the merger agreement under certain circumstances could discourage other potential acquirors from making a competing proposal, although our board of directors believed that the termination fee was reasonable in amount and would not unduly deter any other party that might be interested in acquiring us; and

 

○

if the merger is not consummated, we will generally be required to pay our own expenses associated with the merger agreement and the transactions contemplated thereby.

 

•

The restrictions in the merger agreement on our ability to actively solicit competing bids to acquire our company.

 

•

The significant costs involved in connection with entering into and completing the merger and the substantial time and effort of management required to consummate the merger, which could disrupt our business operations.

 

•

The potential harm that the announcement and pendency of the merger, or the failure to complete the merger, may cause to our relationships with our franchisees, employees (including making it more difficult to attract and retain key personnel and the possible loss of key management and other personnel), vendors and customers.

 

•

The restrictions on our conduct of business prior to completion of the merger, which could delay or prevent us from undertaking business opportunities that may arise or taking other actions with respect to our operations during the pendency of the merger, whether or not the merger is completed.

 

•

The fact that, although we expect the merger to be consummated if the merger proposal is approved by our shareholders, there can be no assurance that all conditions to the parties’ obligations to consummate the merger will be satisfied.

 

•

The risks and potential delays related to the financing of the merger.

 

•

The terms of the merger agreement and financing commitment letters that significantly limit our remedies if Arby’s fails to complete the merger when required to do so, whether as a result of a failure of its financing or otherwise.

 

•

The fact that the market price of our common stock could be affected by many factors, including: (1) if the merger agreement is terminated, the reason or reasons for such termination and whether such termination resulted from factors adversely affecting us; (2) the possibility that, as a result of the termination of the merger agreement, possible acquirors may consider us to be an unattractive acquisition candidate; and (3) the possible sale of our common stock by short-term investors following an announcement that the merger agreement was terminated.

 

 

38

•

The fact that certain of our directors and executive officers may have interests in the merger that may be deemed to be different from, or in addition to, those of our shareholders.

 

•

The fact that the completion of the merger would require antitrust clearance in the United States.

After taking into account all of the factors set forth above, as well as others, our board of directors concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the merger were outweighed by the potential benefits of the merger to our shareholders.

The foregoing discussion of factors considered by our board of directors is not intended to be exhaustive, but summarizes the material factors considered by our board of directors. In light of the variety of factors considered in connection with its evaluation of the merger, our board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. Moreover, each member of our board of directors applied his or her own personal business judgment to the process and may have given different weight to different factors. Our board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. Our board of directors based its recommendation on the totality of the information presented, including thorough discussions with, and questioning of, our executive management, financial advisor and legal counsel. It should be noted that this explanation of the reasoning of our board of directors and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth under “Preface—Forward-Looking Statements” on page iii.

OPINION OF OUR FINANCIAL ADVISOR

 

Goldman Sachs rendered its opinion to our board of directors that, as of November 27, 2017 and based upon and subject to the factors and assumptions set forth therein, the $157.00 in cash per share of our common stock to be paid to the holders (other than Arby’s and its affiliates) of shares of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated November 27, 2017, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix C. Goldman Sachs provided its opinion for the information and assistance of our board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of our common stock should vote with respect to the merger or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

•

the merger agreement;

 

•

annual reports to our shareholders and Annual Reports on Form 10-K of the company for the five fiscal years ended December 25, 2016;

 

•

certain interim reports to our shareholders and Quarterly Reports on Form 10-Q of the company;

 

 

39

•

certain other communications from us to our shareholders;

 

•

certain publicly available research analyst reports for the company; and

 

•

certain internal financial analyses and forecasts for the company prepared by our management, as approved for Goldman Sachs’ use by the company (which are referred to as our projections and are described below under “Certain Prospective Financial Information” on page 47).

Goldman Sachs also held discussions with members of our senior management regarding their assessment of the past and current business operations, financial condition and future prospects of the company; reviewed the reported price and trading activity for shares of our common stock; compared certain financial and stock market information for the company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the U.S. restaurant industry; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering its opinion, Goldman Sachs, with our consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with our consent that our projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of our management. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the company or any of our subsidiaries and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion did not address our underlying business decision to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to the company; nor did it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addressed only the fairness from a financial point of view to the holders (other than Arby’s and its affiliates) of shares of our common stock, as of the date of the opinion, of the $157.00 in cash per share of our common stock to be paid to such holders pursuant to the merger agreement. Goldman Sachs’ opinion did not express any view on, and did not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of our officers, directors or employees, or class of such persons, in connection with the merger, whether relative to the $157.00 in cash per share of our common stock to be paid to the holders (other than Arby’s and its affiliates) of shares of our common stock pursuant to the merger agreement or otherwise. Goldman Sachs did not express any opinion as to the impact

 

 

40

of the merger on the solvency or viability of the company, Arby’s or Merger Sub or the ability of the company, Arby’s or Merger Sub to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

The following is a summary of the material financial analyses delivered by Goldman Sachs to our board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before November 24, 2017, the last trading day before the day on which the merger agreement was executed, and is not necessarily indicative of current market conditions.

Historical Stock Trading Analysis. Goldman Sachs analyzed the merger consideration to be paid to holders of shares of our common stock pursuant to the merger agreement in relation to (1) the closing price per share of our common stock on November 24, 2017, the last trading day before the day on which the merger agreement was executed, (2) the undisturbed trading price per share of our common stock, which is the closing price per share of our common stock on November 13, 2017, the last full trading day prior to published reports that Roark had submitted a proposal to acquire the company, (3) the high and low trading prices per share of our common stock over the 52-week period ended November 13, 2017 and (4) the volume weighted average price per share of our common stock, which we refer to as “VWAP,” for the preceding one-month period ended November 13, 2017. This analysis indicated that the merger consideration to be paid to our shareholders pursuant to the merger agreement represented:

 

•

a premium of 7.6% based on the closing price per share of our common stock of $145.85 on November 24, 2017;

 

•

a premium of 33.9% based on the closing price per share of our common stock of $117.25 on November 13, 2017;

 

•

a premium of 65.3% based on $95.00 per share of our common stock, the lowest trading price per share of our common stock over the 52-week period ended November 13, 2017;

 

•

a discount of 10.3% based on $175.10 per share of our common stock, the highest trading price per share of our common stock over the 52-week period ended November 13, 2017; and

 

•

a premium of 36.5% based on the VWAP for the one-month period ended November 13, 2017 of $115.05.

Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information for the company to corresponding financial information, ratios and public market

 

 

41

multiples for the following publicly traded corporations in the U.S. casual dining industry, which we collectively refer to as the “selected companies”:

 

•

Bloomin’ Brands, Inc.;

 

•

BJ’s Restaurants, Inc.;

 

•

Brinker International, Inc.;

 

•

The Cheesecake Factory Incorporated;

 

•

Cracker Barrel Old Country Store, Inc.;

 

•

Darden Restaurants, Inc.;

 

•

Dave & Buster’s Entertainment, Inc.;

 

•

Red Robin Gourmet Burgers, Inc.; and

 

•

Texas Roadhouse, Inc.

Although none of the selected companies is directly comparable to the company, the selected companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain of our operations, in Goldman Sachs’ professional judgment and experience.

Goldman Sachs calculated and compared various financial multiples based on information obtained from SEC filings, market data, Institutional Brokers’ Estimate System, which we refer to as “IBES,” estimates and research analyst reports available as of November 24, 2017 and, in the case of the company, both IBES estimates and our projections. With respect to its analysis, Goldman Sachs calculated the following financial multiples for the company, including as implied by the merger consideration, and the selected companies:

 

•

Enterprise value (which is defined as fully diluted equity value plus total debt and noncontrolling interests, less total cash and cash equivalents), which we refer to as “EV,” as a multiple of earnings before interest, income taxes, depreciation and amortization, which we refer to as “EBITDA” (which, in the case of the company, excludes loss on asset disposals and impairments, proxy costs for contested election, and certain advisory, consulting and restructuring fees) for the years ended December 2017 and December 2018, which we refer to as “2017 EV/EBITDA” and “2018 EV/EBITDA,” respectively; and

 

 

42

•

Closing price per share, as of November 24, 2017, in the case of the selected companies (except in the case of Bloomin’ Brands, Inc., the closing price per share as of November 17, 2017, the last full trading day prior to the public filing by Jana Partners LLC of a Schedule 13D with the SEC with respect to Bloomin’ Brands, Inc.), and, for the company, the undisturbed trading price per share of our common stock of $117.25, as a multiple of calendarized estimated earnings per share, which we refer to as “EPS” (which, in the case of the company, excludes loss on asset disposals and impairments, proxy costs for contested election, advisory, consulting and restructuring fees, gain on sale of investment in affiliate, and other), for the years ended December 2017 and December 2018, which we refer to as “2017 P/E” and “2018 P/E,” respectively. The results of these analyses are summarized as follows:

 

2017 EV/EBITDA

2018 EV/EBITDA

2017 P/E

2018 P/E

Selected Companies

Range

6.7x–11.6x

6.2x–10.7x

10.2x–25.0x

9.9x–22.8x

Median

8.8x

7.9x

18.8x

17.1x

Company

Projections

8.0x

8.2x

23.4x

21.9x

IBES

8.2x

7.9x

23.6x

21.0x

Merger Consideration ($157.00)

Projections

10.3x

10.5x

31.4x

29.4x

IBES

10.5x

10.1x

31.6x

28.2x

Illustrative Discounted Cash Flow Analysis. Using our projections, Goldman Sachs performed an illustrative discounted cash flow analysis of the company. Using discount rates ranging from 7.50% to 8.50%, reflecting estimates of our weighted average cost of capital, Goldman Sachs discounted to present value as of September 24, 2017 (1) estimates of unlevered free cash flow for the company from September 24, 2017 through December 26, 2021 as reflected in our projections and (2) a range of illustrative terminal values for the company, which were calculated by applying perpetuity growth rates ranging from 2.50% to 3.50%, to a terminal year estimate of the free cash flow to be generated by the company, as reflected in our projections (which analysis implied terminal year exit LTM EV/EBITDA multiples ranging from 6.9x to 10.4x). Goldman Sachs derived such discount rates by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including our target capital structure weightings, the cost of long-term debt, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. In addition, stock based compensation expense was treated as a cash expense for purposes of determining unlevered free cash flow. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account our projections and market expectations regarding long-term real growth of gross domestic product and inflation. Goldman Sachs derived ranges of illustrative enterprise values for the company by adding the ranges of present values it derived as described above. Goldman Sachs then subtracted, from the range of illustrative enterprise values it derived for the company, the amount of net debt and noncontrolling interests as of September 24, 2017, in each case, as per our latest reported figures to derive a range of illustrative equity values for the company. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of the company, as

 

 

43

provided by our management, to derive a range of illustrative implied present values per share ranging from $111 to $167.

Illustrative Present Value of Future Share Price Analysis. Goldman Sachs performed an illustrative analysis of the implied present value of the future value per share of our common stock, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of (1) such company’s estimated future EBITDA and its assumed next 12-month EV to EBITDA multiple and (2) such company’s estimated future earnings per share of common stock and its assumed next 12-month price to future earnings per share multiple. For this analysis, Goldman Sachs used our projections for each of the fiscal years 2018 through 2021 to calculate a range of implied present values per share of our common stock as of September 24, 2017. Goldman Sachs first calculated illustrative implied future equity values per share of our common stock as of December 2020 by (a) applying the next 12-month enterprise value to EBITDA multiples, which we refer to as “NTM EV/EBITDA,” ranging from 8.0x to 10.0x to estimated EBITDA for the fiscal year 2021 and subtracting estimated net debt as of December 2020, each as reflected in our projections, and (b) applying the next 12-month price to earnings per share, which we refer to as “NTM P/E,” ranging from 20.0x to 25.0x to estimated EPS for the fiscal year 2021, as reflected in our projections. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account, among other things, historical average NTM P/E and NTM EV/EBITDA multiples for our common stock during the three-year period ended November 13, 2017 and the undisturbed and current NTM P/E and NTM EV/EBITDA multiples for the company and the selected companies, respectively. These implied per share values were then discounted back to September 24, 2017, using an illustrative discount rate of 9.5%, reflecting an estimate of our cost of equity. Goldman Sachs derived such discount rate by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally. This analysis resulted in a range of illustrative implied present values per share of our common stock of (i) $119 to $154 based on NTM EV/EBITDA multiples and (ii) $141 to $176 based on NTM P/E multiples.

 

 

44

Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to the following 13 selected transactions in the U.S. restaurant industry with an EV above $500 million since May 1, 2010, including the U.S. casual dining industry (indicated in italics). For each of the selected transactions, Goldman Sachs calculated and compared the transaction EV as a multiple of last 12-month EBITDA, which we refer to as “LTM EBITDA,” based on publicly available information and research analyst reports, which resulted in the following:

 

Announcement Date		Target		Acquiror		EV / LTM EBITDA
Apr-17		Panera Bread Company		JAB Holdings B.V.			18.5x
Mar-17		Cheddar’s Restaurant Holding Corp.(1)		Darden Restaurants, Inc.			10.8
Mar-17		Checkers Drive-In Restaurants, Inc.		Oak Hill Capital Partners			11.0
Feb-17		Popeye’s Louisiana Kitchen, Inc.		Restaurant Brands International Inc.			20.6
Mar-15		Del Taco Restaurants, Inc.		Levy Acquisition Corp.			8.7
May-14		Red Lobster		Golden Gate Capital			9.2
Feb-14		CEC Entertainment, Inc.		Apollo Global Management, LLC			7.9
Jul-12		Yard House USA, Inc.(2)		Darden Restaurants, Inc.			15.0
May-12		P.F. Chang’s China Bistro, Inc.		Centerbridge Partners, L.P.			8.7
Nov-11		NPC International, Inc.		Olympus Partners, L.P.			7.5
Sep-10		Burger King Holdings, Inc.		3G Capital Partners, Ltd.			9.0
Jul-10		CKE Restaurants, Inc.		Apollo Global Management, LLC			6.8
May-10		Dave & Buster’s		Oak Hill Capital			7.3

Note: LTM EBITDA excludes adjustments for stock-based compensation and preopening costs, where applicable.

(1) Transaction EV before expected tax benefits.

(2) LTM EBITDA as of December 2011. Transaction EV before expected tax benefits.

While none of the companies that participated in the selected transactions are directly comparable to the company, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, in Goldman Sachs’ professional judgment and experience, may be considered similar to certain of our results, market size and product profile.

Based on its review of the selected transactions, Goldman Sachs applied an illustrative range of EV/LTM EBITDA multiples of 8.0x to 11.0x to the LTM EBITDA of the company, as of September 24, 2017, as derived from our reported figures, which resulted in a range of illustrative implied prices per share of our common stock of $112 to $163.

Transaction Premia Analysis.   Using publicly available information, Goldman Sachs reviewed and analyzed the acquisition premia for publicly disclosed U.S. all-cash acquisitions announced during the period from January 1, 2010 through November 24, 2017 with an EV above $500 million. Goldman Sachs calculated, for this period, the premia represented by the prices per share paid in these transactions relative to the target companies’ closing share prices (1) one day and (2) one week prior to announcement. Using such data, Goldman Sachs calculated the 25^th percentile, median, and 75^th percentile acquisition premia for these transactions as 16.5%, 28.2%, and 44.2%, respectively, for these one-day premia and 17.4%, 30.9%, and 45.6%, respectively, for these one-week premia. Goldman Sachs then

 

 

45

applied an illustrative range of acquisition premia of 15% to 45% to $117.25, the undisturbed trading price per share of our common stock, to derive a range of illustrative implied prices per share of our common stock of $135 to $170.

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

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to our board of directors as to the fairness from a financial point of view of the $157.00 in cash per share of our common stock to be paid to the holders (other than Arby’s and its affiliates) of shares of our common stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of us, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The merger consideration to be paid pursuant to the merger agreement was determined through arm’s-length negotiations between us and Arby’s and was approved by our board of directors. Goldman Sachs provided advice to us during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to us or our board of directors or that any specific amount of consideration constituted the only appropriate consideration for the merger.

As described above, Goldman Sachs’ opinion to our board of directors was one of many factors taken into consideration by our board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Appendix C.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the company, Arby’s, any of their respective affiliates and third parties, including Roark, an affiliate of Arby’s, and any of its affiliates and portfolio companies, or any currency or commodity that may be involved in the transaction contemplated by the merger agreement for the accounts of Goldman Sachs and its affiliates and employees and their customers. Goldman Sachs acted as financial advisor to us in connection with, and participated in certain of the negotiations leading to, the merger. Goldman Sachs has provided certain investment banking services to Roark and its affiliates and/or portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may

 

 

46

receive, compensation, including having acted (1) as joint bookrunner with respect to a public offering of 5,750,000 shares of common stock of Wingstop Inc., a former portfolio company of Roark, in March 2016; and (2) as joint lead arranger and joint bookrunner with respect to senior secured credit facilities (aggregate principal amount $725,000,000) of International Car Wash Group Limited, a portfolio company of Roark, in September 2017. During the two-year period ended November 27, 2017, Goldman Sachs has received compensation for the financial advisory and/or underwriting services provided by its Investment Banking Division of approximately $6.5 million in aggregate. Goldman Sachs may also in the future provide investment banking services to our company, Arby’s and their respective affiliates, and Roark and any of its affiliates and portfolio companies, for which the Investment Banking Division of Goldman Sachs may receive compensation. Affiliates of Goldman Sachs also may have co-invested with Roark and its affiliates from time to time and may have invested in limited partnership units of affiliates of Roark from time to time and may do so in the future.

Our board of directors selected Goldman Sachs as our financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated November 21, 2017, we engaged Goldman Sachs to act as its financial advisor in connection with the merger. The engagement letter between us and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $27 million, all of which is contingent upon consummation of the merger. In addition, we have agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

CERTAIN PROSPECTIVE FINANCIAL INFORMATION

 

We do not, as a matter of course, develop or publicly disclose long-term projections or internal projections of our future financial performance, revenues, earnings, financial condition or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with our board of directors’ evaluation of the merger, our board of directors considered certain non-public unaudited prospective financial information provided by our management relating to Buffalo Wild Wings for the fiscal years ending 2017 through 2021, which we refer to as our “projections.” Our projections were also provided to Goldman Sachs for its use and reliance in connection with its financial analyses and opinion summarized under “Opinion of Our Financial Advisor” on page 39.

Limitations on Our Projections

Our projections were not prepared with a view to public disclosure, but are included in this proxy statement because such information was made available to our board of directors and Goldman Sachs and used in the process leading to the execution of the merger agreement. Our projections were not prepared with a view to compliance with generally accepted accounting principles as applied in the United States (which we refer to as “GAAP”), the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, our independent auditors have not examined, reviewed, compiled or otherwise applied procedures to our projections and, accordingly, assume no responsibility for, and express no opinion on, them.

 

 

47

Although a summary of our projections is presented with numerical specificity, this information is not fact and should not be relied upon as being necessarily predictive of actual future results. Our projections are forward-looking statements. Important factors that may affect actual results and cause our projections not to be achieved include general economic conditions, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures, changes in tax laws, and the other factors described under “Preface—Forward-Looking Statements” on page iii. In addition, our projections do not take into account any circumstances or events occurring after the date that they were prepared and do not give effect to the merger. As a result, there can be no assurance that our projections will be realized, and actual results may be materially better or worse than those contained in our projections. The inclusion of this information should not be regarded as an indication that our board of directors, our financial advisor or any other recipient of this information considered, or now considers, our projections to be material information of the company or necessarily predictive of actual future results nor should it be construed as financial guidance, and it should not be relied upon as such. The summary of our projections is not included in this proxy statement in order to induce any shareholder to vote in favor of the merger proposal or other proposals to be voted on at the special meeting or to influence any shareholder to make any investment decision with respect to the merger, including whether or not to seek dissenters’ rights with respect to shares of our common stock.

Our projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Buffalo Wild Wings contained in our public filings with the SEC.

Except to the extent required by applicable federal securities laws, we do not intend, and expressly disclaim any responsibility, to update or otherwise revise our projections to reflect circumstances existing after the date when we prepared our projections or to reflect the occurrence of future events or changes in general economic or industry conditions, even in the event that any of the assumptions underlying our projections are shown to be in error. We can give no assurance that, had our projections been prepared either as of the date of the merger agreement or as of the date of this proxy statement, similar estimates and assumptions would be used. Neither Buffalo Wild Wings nor any of its affiliates, directors, officers, advisors or other representatives has made or makes any representation to any of our shareholders regarding the ultimate performance of Buffalo Wild Wings compared to the information contained in our projections or that our projections will be achieved.

In light of the foregoing factors and the uncertainties inherent in our projections and considering that the special meeting will be held several months after our projections were prepared, shareholders are cautioned not to rely on our projections included in this proxy statement.

Certain Underlying Assumptions

Our projections reflect numerous assumptions and estimates as to future events made by our management using information available to them at the time. Among other things, some of these assumptions include:

 

•

Our overall store count would continue to grow, with the openings of new U.S. company-owned restaurants, U.S. franchised restaurants, and international franchised restaurants exceeding closures of such restaurants in each year throughout the period.

 

 

48

•

We would successfully execute on our refranchising program, selling approximately 153 of our company-owned restaurants to franchisees during the four fiscal year period ending in 2021.

 

•

Traffic would modestly decline in 2018, then modestly increase each year thereafter.

 

•

Chicken wing prices would remain constant throughout the period at our 2017 forecast, and overall our gross menu pricing would increase at a faster rate than our costs of goods throughout the four fiscal year period ending in 2021.

 

•

Excess cash flow would be used to repurchase shares of our common stock.

 

•

The U.S. tax laws in effect on the date the projections were prepared would remain in effect throughout the period.

Our Projections

Our projections included the following estimates of our future financial performance:

 

		Fiscal year
(amounts in millions, except per share figures)		2017E				2018E				2019E				2020E				2021E
Revenue		$	2,072			$	2,023			$	1,950			$	1,882			$	1,861
Earnings before income tax		$	99			$	104			$	119			$	147			$	173
Net earnings including noncontrolling interests		$	71			$	74			$	79			$	96			$	111
EBITDA(1)		$	259			$	266			$	265			$	277			$	296
Adjusted EBITDA(1)		$	279			$	274			$	269			$	281			$	300
Cash flows from operations		$	232			$	226			$	226			$	219			$	222
Capital expenditures		$	(80)			$	(94)			$	(117)			$	(117)			$	(114)
Sale of franchise units		$	0			$	19			$	78			$	95			$	42
Cash flows from investing activities		$	(80)			$	(74)			$	(39)			$	(22)			$	(71)
Unlevered free cash flow(1)(2)		$	148			$	151			$	187			$	200			$	159
Net debt at end of period(3)		$	384			$	377			$	369			$	387			$	565
Earnings per share (EPS)		$	4.44			$	4.97			$	5.65			$	7.27			$	9.25
Adjusted earnings per share (Adjusted EPS)(1)		$	5.01			$	5.35			$	5.83			$	7.45			$	9.44

 

(1)

Non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures” below.

 

(2)

Goldman Sachs calculated unlevered free cash flows using our projections and such unlevered free cash flows were reviewed and approved by us for Goldman Sachs’ use in connection with its financial analyses and opinion.

 

(3)

We define net debt as gross indebtedness, net of cash and marketable securities.

Reconciliation of Non-GAAP Financial Measures

Certain of the measures included in our projections may be considered non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by us may not be comparable to similarly titled amounts used by other companies. These non-GAAP measures are included in this proxy statement because such information was made available to our board of directors and Goldman Sachs and used in

 

 

49

the process leading to the execution of the merger agreement, as described elsewhere in this proxy statement.

Reconciliations of certain of these measures are provided below. The figures included in the reconciliation are part of our projections, and are subject to and should be read together with the disclosures above.

EBITDA, Adjusted EBITDA and Unlevered Free Cash Flow

EBITDA, adjusted EBITDA and unlevered free cash flow are non-GAAP financial measures. We define EBITDA as net earnings including noncontrolling interests plus interest expense, income tax expense, and depreciation and amortization minus other income (expenses). We define adjusted EBITDA as EBITDA plus loss on asset disposals and impairment, proxy costs for contested election, and certain advisory, consulting and restructuring fees. Unlevered free cash flow was calculated as adjusted EBITDA minus unlevered cash taxes and capital expenditures; plus proceeds from the sale of franchise units; and adjusted for changes in working capital. For purposes of the calculation of unlevered free cash flow, stock based compensation expense was treated as a cash expense. A reconciliation of net earnings including noncontrolling interests to EBITDA, adjusted EBITDA and unlevered free cash flow is provided below:

 

		Fiscal year
(amounts in millions)		2017E				2018E				2019E				2020E				2021E
Net earnings including noncontrolling interests(1)		$	71			$	74			$	79			$	96			$	111
Plus: Interest expense(1)			13				19				19				19				24
Plus: Income tax expense(1)			28				30				40				51				62
Plus: Depreciation and amortization(1)			152				143				127				112				99
Minus: Other income (expenses)(2)			4				—				—				—				—
EBITDA (non-GAAP)		$	259			$	266			$	265			$	277			$	296
Plus: Loss on asset disposals and impairment(1)			11				8				4				4				4
Plus: Proxy costs for contested election(3)			6				—				—				—				—
Plus: Certain advisory, consulting and restructuring fees(4)			3				—				—				—				—
Adjusted EBITDA (non-GAAP)		$	279			$	274			$	269			$	281			$	300
Minus: Unlevered cash taxes(5)			45				46				50				59				70
Minus: Capital expenditures(6)			80				94				117				117				114
Plus: Sale of franchise units(7)			—				19				78				95				42
Minus: Decrease (increase) in net working capital(8)			(7)				(3)				7				1				—
Unlevered free cash flow (non-GAAP)		$	148			$	151			$	187			$	200			$	159

 

(1)

As would be shown on our consolidated statement of earnings.

 

(2)

Other income (expenses) generally consists of our gain (loss) on our minority investment in Pie Squared Holdings, changes in the valuation of our contingent consideration, and changes in the valuation of our investments held for our deferred compensation plan.

 

(3)

Represents costs related to the advisory fees and preparation of proxy materials in a contested election for the board of directors.

 

(4)

Represents costs related to consulting services pertaining to the identification of best practices and improving efficiencies, and organizational restructuring costs.

 

(5)

Represents an approximation of unlevered cash taxes used solely for purposes of this calculation, and was calculated as 35% of adjusted EBIT (adjusted EBITDA minus depreciation and amoritization).

 

(6)

Represents acquisition of property and equipment as would be shown on our consolidated statements of cash flows.

 

 

50