UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE TO
TENDER OFFER STATEMENT UNDER SECTION 14(D)(L) OR 13(E)(L)
OF THE SECURITIES EXCHANGE ACT OF 1934
ELMER'S RESTAURANTS, INC.
(NAME OF SUBJECT COMPANY (ISSUER))
BRUCE N. DAVIS
LINDA ELLIS-BOLTON
KAREN K. BROOKS
RICHARD P. BUCKLEY
DAVID D. CONNOR
STEPHANIE M. CONNOR
THOMAS C. CONNOR
CORYDON H. JENSEN, JR.
DEBRA A. WOOLLEY-LEE
DOUGLAS A. LEE
DAVID C. MANN
SHEILA J. SCHWARTZ
GERALD A. SCOTT
WILLIAM W. SERVICE
DENNIS M. WALDRON
GARY N. WEEKS
GREG W. WENDT
RICHARD C. WILLIAMS
DOLLY W. WOOLLEY
DONALD W. WOOLLEY AND
DONNA P. WOOLLEY, TOGETHER
WITH ERI ACQUISITION CORP., AS OFFEROR
(NAMES OF FILING PERSONS (IDENTIFYING STATUS AS OFFEROR,
ISSUER OR OTHER PERSON))
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS OF SECURITIES)
289393
(CUSIP NUMBER OF CLASS OF SECURITIES)
JEFFREY C. WOLFSTONE, ESQ.
GREGORY L. ANDERSON, ESQ.
LANE POWELL SPEARS LUBERSKY LLP
601 SW SECOND AVENUE, SUITE 2100
PORTLAND, OREGON 97204
(503) 778-2100
(NAME, ADDRESS, AND TELEPHONE NUMBERS OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF FILING PERSONS)
Calculation of Filing Fee
--------------------------------------------------------------------------------
Transaction valuation* Amount of filing fee**
$6,019,091 $708.45
--------------------------------------------------------------------------------
*Estimated for purposes of calculating the filing fee only. This calculation
assumes the purchase of 756,601 shares of common stock of Elmer's Restaurants,
Inc. at the tender offer price of $7.50 per share of common stock. The
transaction value also includes the offer price of $7.50 less $4.81, which is
the average exercise price of outstanding options, multiplied by 128,098, the
estimated number of options outstanding not held by the Filing Persons listed
above.
**The amount of filing fee, calculated in accordance with Rule 0-11 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Fee Rate
Advisory No. 6 for fiscal year 2005, equals $117.70 per million of transaction
value, or $708.45.
[ ] Check the box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: ________________________________
Form or Registration No.: ________________________________
Filing Party: Date Filed: ________________________________
[ ] Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which the
statement relates:
[X] third-party tender offer subject to Rule 14d-l.
[ ] issuer tender offer subject to Rule 13e-4.
[X] going-private transaction subject to Rule 13e-3.
[X] amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting the results
of the tender offer: [ ]
This Tender Offer Statement and Rule 13e-3 Transaction Statement filed under
cover of Schedule TO relates to the offer by ERI Acquisition Corp., a newly
formed Oregon corporation ("Purchaser"), to purchase all of the outstanding
shares of common stock, no par value per share (the "Shares"), of Elmer's
Restaurants, Inc., an Oregon corporation ("Elmer's"), not currently owned by the
Continuing Shareholders (as defined below), at a purchase price of $7.50 per
Share, in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated December 20, 2004 (the "Offer to Purchase"), a copy of
which is attached hereto as Exhibit (a)(1)(i), and in the related Letter of
Transmittal (which, together with the Offer to Purchase, constitute the
"Offer"), a copy of which" is attached hereto as Exhibit (a)(l)(ii).
ITEM 1. SUMMARY TERM SHEET
Reference is made to the information set forth under Summary Term Sheet and
Questions and Answers About the Tender Offer in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 2. SUBJECT COMPANY INFORMATION
(a) Reference is made to the information set forth under The Offer--Section 7
("Certain Information Concerning the Company") in the Offer to Purchase, which
is incorporated herein by reference.
(b) Reference is made to the information set forth under Introduction and The
Offer--Section 7 ("Certain Information Concerning the Company") in the Offer to
Purchase, which is incorporated herein by reference.
2
(c) Reference is made to the information set forth under The Offer--Section 6
("Price Range of Shares; Dividends; Ownership of and Transactions in Shares") in
the Offer to Purchase, which is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON
(a) Reference is made to the information set forth under The Offer--Section 8
("Certain Information Concerning Purchaser and the Continuing Shareholders") in
the Offer to Purchase, which is incorporated herein by reference.
(b) Reference is made to the information set forth under The Offer--Section 8
("Certain Information Concerning Purchaser and the Continuing Shareholders") in
the Offer to Purchase, which is incorporated herein by reference.
(c) Reference is made to the information set forth under The Offer--Section 8
("Certain Information Concerning Purchaser and the Continuing Shareholders") in
the Offer to Purchase, which is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION
(a) Reference is made to the information set forth under Summary Term Sheet;
Questions and Answers About the Tender Offer; Introduction; Special
Factors--Sections 2 ("Purpose and Structure of the Offer and the Merger; Reasons
of the Purchaser and the Continuing Shareholders for the Offer and the Merger;
Alternatives Considered"); and The Offer--Sections 1 ("Terms of the Offer;
Expiration Date"), 2 ("Acceptance for Payment and Payment for Shares"), 3
("Procedures for Tendering Shares), 4 ("Rights of Withdrawal") and 14 ("Certain
Effects of the Offer and the Merger") in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
(a) Reference is made to the information set forth under Special
Factors--Section 1 ("Background of the Offer"); Section 2 ("Purpose and
Structure of the Offer and the Merger; Reasons of the Purchaser and the
Continuing Shareholders for the Offer and the Merger; Alternatives Considered");
Section 6 ("Conflicts of Interests") and The Offer--Section 8 ("Certain
Information Concerning the Purchaser and the Continuing Shareholders") in the
Offer to Purchase, which is incorporated herein by reference.
(b) Reference is made to the information set forth under Special
Factors--Section 1 ("Background of the Offer"); Section 2 ("Purpose and
Structure of the Offer and the Merger; Reasons of the Purchaser and the
Continuing Shareholders for the Offer and the Merger; Alternatives Considered");
Section 6 ("Conflicts of Interests") and The Offer--Section 7 ("Certain
Information Concerning the Company") and Section 8 ("Certain Information
Concerning the Purchaser and the Continuing Shareholders") in the Offer to
Purchase, which is incorporated herein by reference.
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
(a) and (c)(l)-(7) Reference is made to the information set forth under Summary
Term Sheet, Questions and Answers about the Tender Offer, Introduction, Special
Factors--Sections 1 ("Background of the Offer"), 2 ("Purpose and Structure of
the Offer and the Merger; Reasons of the Purchaser and the Continuing
Shareholders for the Offer and the Merger; Alternatives Considered), 5
("Purchaser's Plans for the Company") and 7 ("Conduct of Company's Business if
the Offer is not Completed or if Purchaser waives the Minimum Tender Condition")
and The Offer--Section 9 ("Merger; Dissenters' Rights; Rule 13e-3"), 14
("Certain Effects of the Offer and the Merger") and Schedule A ("Oregon
Dissenters' Rights Statutes") in the Offer to Purchase, which is incorporated
herein by reference.
ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a), (b) and (d) Reference is made to the information set forth under The
Offer--Section 10 ("Source and Amount of Funds") in the Offer to Purchase, which
is incorporated herein by reference.
ITEM 8. INTEREST IN SECURITIES OF SUBJECT COMPANY
(a) and (b) Reference is made to the information set forth under Special
Factors--Sections 1 ("Background of the Offer") and 6 ("Conflicts of Interests")
and The Offer--Section 6 ("Price Range of Shares; Dividends; Ownership of and
Transactions in Shares") and Section 8 ("Certain Information Concerning the
Purchaser and the Continuing Shareholders") in the Offer to Purchase, which is
incorporated herein by reference.
3
ITEM 9. PERSONS / ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED
(a) Reference is made to the information set forth under Introduction and The
Offer--Section 15 ("Fees and Expenses") in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 10. FINANCIAL STATEMENTS
(a) The financial statements of Elmer's are not material to the Offer. (b) The
pro forma financial statements of Elmer's are not material to the Offer.
ITEM 11. ADDITIONAL INFORMATION
(a)(l) Reference is made to the information set forth under Special
Factors--Section 1 ("Background of the Offer") and Section 6 ("Conflicts of
Interests") in the Offer to Purchase, which is incorporated herein by reference.
(a)(2) Reference is made to the information set forth under Introduction, The
Offer--Sections 2 ("Acceptance for Payment and Payment for Shares"), 3
("Procedures for Tendering Shares"), 9 ("Merger; Dissenters' Rights; Rule
13e-3"), 11 ("Certain Conditions of the Offer"), 13 ("Certain Legal Matters")
and Schedule A ("Oregon Dissenters' Rights Statutes") in the Offer to Purchase,
which is incorporated herein by reference.
(a)(3) Reference is made to the information set forth under The Offer--Section
13 ("Certain Legal Matters ") in the Offer to Purchase, which is incorporated
herein by reference.
(a)(4) Reference is made to the information set forth under The Offer--Section
13 ("Certain Legal Matters") and Section 14 ("Certain Effects of the Offer and
the Merger") in the Offer to Purchase, which is incorporated herein by
reference.
(a)(5) None.
(b) The information set forth in the Offer to Purchase is incorporated herein by
reference.
ITEM 12. EXHIBITS
EXHIBIT DESCRIPTION
(a)(l)(i) Offer to Purchase dated December 20, 2004.
(a)(l)(ii) Letter of Transmittal.
(a)(l)(iii) Notice of Guaranteed Delivery.
(a)(l)(iv) Letter of Information from the Information Agent to Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(l)(v) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(l)(vi) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(l)(vii) Notice of Offer to Purchase for Cash.
(a)(l)(viii) Text of Press Release issued by ERI Acquisition Corp. on
December 20, 2004.
(a)(l)(ix)* Proposal Letter to Elmer's Restaurants, Inc. dated August 5,
2004.
(a)(1)(x) Letter to the Shareholders of Elmer's Restaurants, Inc. from ERI
Acquisition Corp., dated December 20, 2004.
(b)(i) Financing Proposal from GE Capital Franchise Finance Corporation
dated October 5, 2004.
(b)(ii) Loan Commitment from GE Capital Franchise Finance Corporation
dated December 3, 2004.
(c) Report of Veber Partners, LLC dated September 17, 2004.
(d) Exchange Agreement dated December 20, 2004.
* Previously filed with the SEC as an exhibit to that certain Schedule TO-C
dated August 9, 2004.
4
ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3
ITEM 2. SUBJECT COMPANY INFORMATION
(a) Reference is made to the information set forth under The Offer--Section 7
("Certain Information Concerning the Company") in the Offer to Purchase, which
is incorporated herein by reference.
(b) Reference is made to the information set forth under Introduction and The
Offer--Section 7 ("Certain Information Concerning the Company") in the Offer to
Purchase, which is incorporated herein by reference.
(c) Reference is made to the information set forth under The Offer--Section 6
("Price Range of Shares; Dividends; Ownership of and Transactions in Shares") in
the Offer to Purchase, which is incorporated herein by reference.
(d) Reference is made to the information set forth under The Offer--Section 6
("Price Range of Shares; Dividends; Ownership of and Transactions in Shares")
and Section 7 ("Certain Information Concerning the Company") in the Offer to
Purchase, which is incorporated herein by reference.
(e) Not Applicable.
(f) Reference is made to the information set forth under Special
Factors--Section 6 ("Conflicts of Interests") and The Offer--Section 6 ("Price
Range of Shares; Dividends; Ownership of and Transactions in Shares") and
Section 8 ("Certain Information Concerning the Purchaser and the Continuing
Shareholders") in the Offer to Purchase, which is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION
(c) None.
(d) Reference is made to the information set forth under The Offer--Section 9
("Merger; Dissenters' Rights; Rule 13e-3" and Schedule A ("Oregon Dissenters'
Rights Statutes") in the Offer to Purchase, which is incorporated herein by
reference.
(e) None.
(f) Not applicable.
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
(c) Reference is made to the information set forth under Introduction, Special
Factors--Sections 1 ("Background of the Offer"), and 2 ("Purpose and Structure
of the Offer and the Merger; Reasons of the Purchaser and the Continuing
Shareholders for the Offer and the Merger; Alternatives Considered") in the
Offer to Purchase, which is incorporated herein by reference.
(e) Reference is made to the information set forth under Introduction, Special
Factors--Section 1 ("Background of the Offer") and The Offer--Sections 1 ("Terms
of the Offer; Expiration Date"), 2 ("Acceptance for Payment and Payment for
Shares"), 3 ("Procedures for Tendering Shares"), 4 ("Rights of Withdrawal"), 10
("Source and Amount of Funds"), and 11 ("Certain Conditions of the Offer") in
the Offer to Purchase, which is incorporated herein by reference.
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
(b) Reference is made to the information set forth under Special
Factors--Section 2 ("Purpose and Structure of the Offer and the Merger; Reasons
of the Purchaser and the Continuing Shareholders for the Offer and the Merger;
Alternatives Considered") and The Offer--Sections 14 ("Certain Effects of the
Offer and Merger") and 10 ("Source and Amount of Funds") in the Offer to
Purchase, which is incorporated by reference.
(c)(8) Reference is made to the information set forth under Special
Factors--Sections 4 ("Certain Effects of the Offer and Merger") and 5
("Purchaser's Plans for the Company") in the Offer to Purchase, which is
incorporated herein by reference.
5
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS
(a), (b) and (c) Reference is made to the information set forth under
Introduction, Special Factors--Sections 1 ("Background of the Offer; Expiration
Date"), 2 ("Purpose and Structure of the Offer and the Merger; Reasons of the
Purchaser and the Continuing Shareholders for the Offer and the Merger;
Alternatives Considered"), and 4 ("Position of Purchaser and the Continuing
Shareholders Regarding the Fairness of the Offer and the Merger") and The
Offer--Section 14 ("Certain Effects of the Offer and Merger") in the Offer to
Purchase, which is incorporated herein by reference.
(d) Reference is made to the information set forth under Introduction, The
Offer--Section 14 ("Certain Effects of the Offer and Merger") and Section 9
("Merger and Dissenters' Rights; Rule 13e-3") in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION
(a), (b), (c), (d), (e) and (f) Reference is made to the information set forth
under Summary Term Sheet, Questions and Answers about the Tender Offer, Special
Factors--Sections 1 ("Background of the Offer"), 2 ("Purpose and Structure of
the Offer and the Merger; Reasons of the Purchaser and the Continuing
Shareholders for the Offer and the Merger; Alternatives Considered"), and 4
("Position of Purchaser and the Continuing Shareholders Regarding the Fairness
of the Offer and the Merger") in the Offer to Purchase, which is incorporated
herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS
(a), (b) and (c) Reference is made to the information set forth under Special
Factors--Sections 1 ("Background of the Offer; Expiration Date") and 3
("Analysis of Veber Partners, LLC") in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 10. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(c) Reference is made to the information set forth under The Offer--Section 15
("Fees and Expenses") in the Offer to Purchase, which is incorporated by
reference.
ITEM 12. THE SOLICITATION OR RECOMMENDATION
(d) Reference is made to the information set forth under Introduction and
Special Factors--Section 5 ("Purchaser's Plans for the Company") of the Offer to
Purchase, which is incorporated herein by reference.
(e) The filing persons are not aware of any officer, director or affiliate of
Elmer's who has made a recommendation either in support of or against the Offer.
ITEM 13. FINANCIAL INFORMATION.
(a) and (b) Reference is made to The Offer--Section 7 ("Certain Information
Concerning the Company") of the Offer to Purchase, which is incorporated herein
by reference. The financial statements included in Elmer's Annual Report on Form
10-K for the fiscal year ended March 29, 2004 and Quarterly Report on Form 10-Q
for the period ended October 11, 2004, are hereby incorporated herein by this
reference. Copies of such reports and other documents may be inspected and
copies obtained from the SEC as provided in The Offer--Section 7 ("Certain
Information Concerning the Company") in the Offer to Purchase, which is
incorporated herein by reference.
ITEM 14. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED
(b) Reference is made to the information set forth under Introduction and
Special Factors--Section 6 ("Conflicts of Interest") of the Offer to Purchase,
which is incorporated herein by reference.
ITEM 16. EXHIBITS. (C) ANALYSIS OF VEBER PARTNERS, LLC TO PURCHASER, DATED
SEPTEMBER 17, 2004.
(f) Oregon Business Corporation Act (included as Schedule A ("Oregon Dissenters'
Rights Statutes") of the Offer to Purchase filed herewith as Exhibit (a)(l)(i)).
6
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
Dated: December 20, 2004 ERI ACQUISITION CORP.
By: /s/ BRUCE N. DAVIS
------------------------------
Name: Bruce N. Davis
Title: President
/s/ LINDA ELLIS-BOLTON /s/ GERALD A. SCOTT
-------------------------------------- ------------------------------------
Linda Ellis-Bolton Gerald A. Scott
/s/ KAREN K. BROOKS /s/ SHEILA J. SCHWARTZ
-------------------------------------- ------------------------------------
Karen K. Brooks Sheila J. Schwartz
/s/ RICHARD P. BUCKLEY /s/ WILLIAM W. SERVICE
-------------------------------------- ------------------------------------
Richard P. Buckley William W. Service
/s/ DAVID D. CONNOR /s/ DENNIS M. WALDRON
-------------------------------------- ------------------------------------
David D. Connor Dennis M. Waldron
/s/ STEPHANIE M. CONNOR /s/ GARY N. WEEKS
-------------------------------------- ------------------------------------
Stephanie M. Connor Gary N. Weeks
/s/ THOMAS C. CONNOR /s/ GREGORY W. WENDT
-------------------------------------- ------------------------------------
Thomas C. Connor Gregory W. Wendt
/s/ BRUCE N. DAVIS /s/ RICHARD C. WILLIAMS
-------------------------------------- ------------------------------------
Bruce N. Davis Richard C. Williams
/s/ CORYDON H. JENSEN, JR. /s/ DOLLY W. WOOLLEY
-------------------------------------- ------------------------------------
Corydon H. Jensen, Jr. Dolly W. Woolley
/s/ DEBORAH A. WOOLLEY-LEE /s/ DONALD W. WOOLLEY
-------------------------------------- ------------------------------------
Debra A. Woolley-Lee Donald W. Woolley
/s/ DOUGLAS A. LEE /s/ DONNA P. WOOLLEY
-------------------------------------- ------------------------------------
Douglas A. Lee Donna P. Woolley
/s/ DAVID C. MANN
--------------------------------------
David C. Mann
7
EXHIBIT INDEX
EXHIBIT DESCRIPTION
(a)(l)(i) Offer to Purchase dated December 20, 2004.
(a)(l)(ii) Letter of Transmittal.
(a)(l)(iii) Notice of Guaranteed Delivery.
(a)(l)(iv) Letter of Information from the Information Agent to Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(l)(v) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(l)(vi) Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(l)(vii) Notice of Offer to Purchase for Cash.
(a)(l)(viii) Text of Press Release issued by ERI Acquisition Corp. on
December 20, 2004.
(a)(l)(ix)* Proposal Letter to Elmer's Restaurants, Inc. dated August 5,
2004.
(a)(1)(x) Letter to the Shareholders of Elmer's Restaurants, Inc. from ERI
Acquisition Corp., dated December 20, 2004.
(b)(i) Financing Proposal from GE Capital Franchise Finance Corporation
dated October 5, 2004.
(b)(ii) Loan Commitment from GE Capital Franchise Finance Corporation
dated December 3, 2004.
(c) Report of Veber Partners, LLC dated September 17, 2004.
(d) Exchange Agreement dated December 20, 2004.
* Previously filed with the SEC as an exhibit to that certain Schedule TO-C
dated August 9, 2004.
8
EXHIBIT (a)(1)(i)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
ELMER'S RESTAURANTS, INC.
NOT OWNED BY THE SHAREHOLDERS OF ERI ACQUISITION CORP.
AT
$7.50 PER SHARE
BY
ERI ACQUISITION CORP.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD
TIME, ON FEBRUARY 2, 2005, UNLESS THE OFFER IS EXTENDED.
ERI Acquisition Corp., a newly formed Oregon corporation ("Purchaser")
currently controlled by Bruce N. Davis, Chairman of the Board, President and
Chief Executive Officer of Elmer's Restaurants, Inc., an Oregon corporation
("Elmer's" or "Company"), hereby offers to purchase (the "Offer"), at a price of
$7.50 per share (the "Offer Price"), in cash, all outstanding shares of the
Company's no par value common stock (the "Shares") not currently owned by the
Continuing Shareholders (as defined below), on the terms and subject to the
conditions specified in this Offer to Purchase and the related Letter of
Transmittal. Upon the closing of the Offer, Purchaser will be owned by Bruce N.
Davis, William W. Service, a director and the former Chief Executive Officer of
the Company, Thomas C. Connor, Corydon H. Jensen, Jr., Dennis M. Waldron,
Richard C. Williams, and Donald W. Woolley, each of whom is a member of the
Company's board of directors, Linda Ellis-Bolton, Karen K. Brooks, Richard P.
Buckley, David D. Connor, Stephanie M. Connor, Debra A. Woolley-Lee, Douglas A.
Lee, David C. Mann, Sheila J. Schwartz, Gerald A. Scott, a Vice President of the
Company, Gary N. Weeks, Gregory W. Wendt, Dolly W. Woolley, and Donna P. Woolley
(each referred to herein as a "Continuing Shareholder" and collectively, the
"Continuing Shareholders"). Together, the Continuing Shareholders currently own
approximately 59% of the outstanding common stock of Elmer's. As of December 8,
2004, 756,601 Shares are being sought in the Offer. In addition, as of December
8, 2004 there were outstanding options to acquire up to 419,162 Shares that had
an exercise price less than the Offer Price, of which outstanding options to
acquire up to 128,098 Shares were held by individuals other than the Continuing
Shareholders. Shares issued upon exercise of such options and prior to the
expiration of the Offer will also be subject to this Offer. See "The
Offer--Section 8. Certain Information Concerning Purchaser and the Continuing
Shareholders."
The Offer is conditioned on, among other things, there being validly
tendered and not withdrawn (i) at least a majority of the outstanding Shares
that are not beneficially owned by the Continuing Shareholders and the executive
officers of the Company (the "Majority of the Minority Condition"), and (ii) a
sufficient number of Shares such that, after the Shares are purchased pursuant
to the Offer, Purchaser would own at least 90% of the Company's Shares (the
"Minimum Tender Condition"). In no event may the Majority of the Minority
Condition be
waived. However, Purchaser reserves the right to waive the Minimum Tender
Condition. This Offer is also subject to certain other conditions described in
"The Offer--Section 11. Certain Conditions of the Offer."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR PASSED UPON THE
MERITS OR FAIRNESS OF SUCH TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
IMPORTANT
A summary of the principal terms of the Offer, and Questions and Answers About
the Tender Offer, appears on pages 1-14 hereof. Any Elmer's shareholder desiring
to tender all or any portion of such shareholder's Shares should, as applicable:
o Complete and sign the Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions in the Letter of Transmittal,
including any required signature guarantees, and mail or deliver the
Letter of Transmittal (or a facsimile thereof) with such shareholder's
certificate(s) for the tendered Shares and any other required documents
to the Depositary (as defined herein); or
o Request such shareholder's broker, dealer, commercial bank, trust
company or other nominee to tender the Shares for such shareholder. A
shareholder whose Shares are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must ask such
broker, dealer, commercial bank, trust company or other nominee, as the
shareholder of record, to tender Shares that he, she or it desires to
tender.
A shareholder who desires to tender Shares and whose certificates for such
Shares are not immediately available may tender such Shares by following the
procedure for guaranteed delivery set forth in "The Offer--Section 3.
Procedures for Tendering Shares."
Questions and requests for assistance may be directed to OTR, Inc., the
Information Agent for this Offer, at its address and telephone number set forth
in this Offer to Purchase. Requests for additional copies of this Offer to
Purchase and the Letter of Transmittal may be directed to the Information Agent
or, if applicable, to the broker, dealer, commercial bank, trust company or
other nominee holding your Shares.
THE DATE OF THIS OFFER TO PURCHASE IS DECEMBER 20, 2004.
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET.............................................................1
INTRODUCTION..................................................................15
SPECIAL FACTORS...............................................................18
1. BACKGROUND OF THE OFFER...........................................18
2. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER;
REASONS FOR THE OFFER AND THE MERGER; ALTERNATIVES
CONSIDERED........................................................27
3. ANALYSIS OF VEBER PARTNERS, LLC...................................30
4. POSITION OF PURCHASER AND THE CONTINUING SHAREHOLDERS
REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER................37
5. PURCHASER'S PLANS FOR THE COMPANY.................................42
6. CONFLICTS OF INTERESTS............................................43
7. CONDUCT OF THE COMPANY'S BUSINESS IF THE OFFER IS NOT
COMPLETED OR IF PURCHASER WAIVES THE MINIMUM TENDER
CONDITION.........................................................45
THE OFFER.....................................................................46
1. TERMS OF THE OFFER; EXPIRATION DATE...............................46
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.....................49
3. PROCEDURES FOR TENDERING SHARES...................................50
4. RIGHTS OF WITHDRAWAL..............................................53
5. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER.............54
6. PRICE RANGE OF SHARES; DIVIDENDS; OWNERSHIP OF AND
TRANSACTIONS IN SHARES............................................55
7. CERTAIN INFORMATION CONCERNING THE COMPANY........................57
8. CERTAIN INFORMATION CONCERNING PURCHASER AND THE
CONTINUING SHAREHOLDERS...........................................62
9. MERGER; DISSENTERS' RIGHTS; RULE 13E-3............................70
10. SOURCE AND AMOUNT OF FUNDS........................................74
11. CERTAIN CONDITIONS OF THE OFFER...................................77
12. DIVIDENDS AND DISTRIBUTIONS.......................................79
13. CERTAIN LEGAL MATTERS.............................................80
14. CERTAIN EFFECTS OF THE OFFER AND THE MERGER.......................83
15. FEES AND EXPENSES.................................................84
16. MISCELLANEOUS.....................................................85
SCHEDULE A - Oregon Dissenters' Rights Statute (ORS 60.551 through ORS 60.594)
SCHEDULE B - Plan of Merger (Short-Form)
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SUMMARY TERM SHEET
This summary highlights important and material information contained in
this Offer, but is intended to be an overview only. To fully understand the
Offer and for a more complete description of the terms of the Offer, you should
read carefully this entire Offer, the schedules to this Offer, the documents
incorporated by reference or otherwise referred to herein and in the Letter of
Transmittal. Section and heading references are included to direct you to a more
complete description of the topics contained in this summary. Purchaser,
together with the Continuing Shareholders, are sometimes referred to in this
Offer to Purchase as "we" or "us."
o Purchaser was formed by Bruce N. Davis on behalf of the Continuing
Shareholders for purposes of making the Offer, taking Elmer's
private and removing the Shares from the public trading markets.
We are proposing to acquire all of the Shares that we do not
already own at a price of $7.50 per Share, subject to the terms
and conditions set forth in this Offer. See "Questions and Answers
About the Tender Offer" and "The Offer--Section 1. Terms of the
Offer; Expiration Date" for a description of the terms of the
Offer.
o We currently own approximately 1,086,344 Shares or approximately
59% of the outstanding Shares (the "Purchaser Shares"), excluding
stock options we hold to acquire up to an additional 254,664
Shares. The Purchaser Shares (together with any Shares issued upon
the exercise of our options prior to the closing of the Offer)
will be contributed to Purchaser upon the satisfaction or waiver
of all conditions to the Offer. Using the calculation method
required under Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), we beneficially own
approximately 63% of the Shares. See "The Offer--Section 8.
Certain Information Concerning Purchaser and the Continuing
Shareholders."
o The Offer is conditioned on, among other things:
o The valid tender in this Offer of at least a majority of the
Shares (that are not withdrawn) outstanding as of December 8,
2004 that are not already owned by us or by executive
officers of the Company (the "Majority of the Minority
Condition"). Based on information Elmer's provided to us, the
tender of approximately 378,301 Shares held by shareholders
other than the Continuing Shareholders will satisfy the
Majority of the Minority Condition; and
o The valid tender in this Offer of a sufficient number of
Shares (that are not withdrawn) such that after the Shares
are purchased pursuant to the Offer, we would own at least
90% of the outstanding Shares (the "Minimum Tender
Condition"). We may, however, elect to waive this condition,
in our sole discretion, if it is not satisfied. According to
information Elmer's provided to us, as of December 8, 2004,
approximately 1,842,945 Shares were outstanding. Based on the
foregoing, if we purchase approximately 572,207 Shares
pursuant to the Offer, the Minimum Tender Condition would be
met.
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In addition, the Continuing Shareholders hold vested options
(which were issued, outstanding and exercisable prior to the
public announcement of our interest in taking Elmer's
private) to acquire up to an additional 254,664 Shares which,
if exercised, would reduce the number of Shares that we need
to purchase in the tender to satisfy the Minimum Tender
Condition to 546,840 Shares. If the Minimum Tender Condition
is satisfied, the Majority of the Minority Condition also
will be satisfied.
See "The Offer--Section 10. Certain Conditions of the Offer" for a
complete description of all of the conditions to the Offer.
o If all of the conditions to the Offer are satisfied (including the
Majority of the Minority Condition and the Minimum Tender
Condition) and we acquire the Shares tendered, but less than all
of the outstanding Shares (including Shares issuable upon exercise
of stock options with an exercise price of $7.50 or less) are
tendered, then we will effect a merger between Purchaser and
Elmer's without a vote of the board of directors or shareholders
of Elmer's under the "short form" merger provision (the "Merger")
of the Oregon Business Corporation Act (the "OR Business Act"). A
copy of the plan of merger, which our board of directors has
adopted but may not implement unless the Minimum Tender Condition
is satisfied, is attached as Schedule B to this Offer to Purchase.
See "The Offer--Section 9. Merger; Dissenters' Rights; Rule 13e-3"
and Schedule B for more information regarding the Merger.
o This is a "going private" transaction. As a result of the Offer
and, if necessary, the Merger:
o Purchaser would own directly all of the equity interests in
Elmer's;
o Elmer's current shareholders would no longer have any
interest in Elmer's future earnings or growth except for the
Continuing Shareholders who would thus maintain an interest
in Elmer's future earnings and growth;
o Elmer's would no longer be a public company, and its
financial statements and periodic reports would no longer be
publicly available;
o The Shares would no longer trade on the Nasdaq SmallCap
Market; and
o Elmer's will be highly leveraged with debt incurred to
finance the Offer and Merger.
See "Special Factors--Section 5. Purchaser's Plan for the Company"
and "The Offer--Section 14. Certain Effects of the Offer and the
Merger" for more information on the effects of the Offer and the
Merger.
o The principal advantages of the Offer and the Merger to Elmer's
shareholders and Elmer's are:
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o Shareholders will have immediate liquidity for their Shares
at a premium to trading prices prior to the public
announcement of our interest in taking Elmer's private;
o Shareholders would not have to bear the risk of any decline
in the value of Elmer's;
o The elimination of the additional costs and expenses, as well
as the burdens on management associated with public reporting
and other tasks, resulting from Elmer's public company
status, including, for example, elimination of independent
accounting firm fees for audit services and legal fees
associated with filing quarterly, annual or other periodic
reports with the Securities and Exchange Commission ("SEC"),
the expense of publishing and distributing annual reports and
proxy statements to shareholders, the increased costs
anticipated as a result of the enactment of the
Sarbanes-Oxley Act of 2002 and the rules promulgated by the
SEC thereunder, and the dedication of time and resources by
Elmer's management and board of directors necessary to
prepare required securities filings, respond to shareholder
and analyst inquiries, and maintain investor relations.
See "Special Factors--Section 2. Purpose and Structure of the
Offer and the Merger; Reasons for the Offer and the Merger;
Alternatives Considered" and "The Offer--Section 14. Certain
Effects of the Offer and the Merger" for more information
regarding the effect of the Offer and the Merger.
o The principal disadvantages of the Offer and the Merger to Elmer's
shareholders and Elmer's are:
o Shareholders will no longer have the opportunity to
participate in any future earnings, profits and growth of
Elmer's and will not have the right to vote on corporate
matters relating to Elmer's;
o Elmer's common stock will cease to be quoted on the Nasdaq
SmallCap Market, which could adversely affect the market for
the Shares;
o Elmer's will cause the Shares to be terminated from
registration under the Exchange Act, which could adversely
affect the market for the Shares, would reduce the amount of
public information available concerning Elmer's, and the
Shares would no longer be eligible for quotation on Nasdaq or
for continued inclusion on the Federal Reserve Board's list
of "margin securities;"
o Elmer's may lose access to future capital; and
o Elmer's may not be able to use its securities as acquisition
consideration.
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See "Special Factors--Section 2. Purpose and Structure of the
Offer and the Merger; Reasons for the Offer and the Merger;
Alternatives Considered" and "The Offer--Section 14. Certain
Effects of the Offer and the Merger" for more information
regarding the effect of the Offer and the Merger.
o Our interests in the Offer and the Merger are:
o If the Offer and the Merger are completed, we will own 100%
of the Shares, a 100% interest in the net book value and net
earnings of Elmer's and will benefit from any increase in the
value of Elmer's as well as bear the burden of any decrease
in the value of Elmer's;
o We will have the complete power to control Elmer's;
o If the Merger occurs, the Continuing Shareholders will have
the choice: (a) to receive for Shares underlying their
options cash in an amount up to $799,515 in the aggregate
representing the difference between the Offer Price and the
respective exercise prices of the options held by the
Continuing Shareholders, (b) to retain the existing options
to acquire up to 291,064 shares of common stock in the
surviving corporation in the Merger, or (c) to receive some
cash and to retain some options, in such combination as may
be determined by each of the Continuing Shareholders with
respect to their options; and
o The current directors and officers of Elmer's will remain the
directors and officers of Elmer's following completion of the
Offer and the Merger.
See "Special Factors--Section 6. Conflicts of Interest" and "The
Offer--Section 14. Certain Effects of the Offer and the Merger."
o We commenced the Offer without obtaining the prior approval of the
Offer from Elmer's board of directors or shareholders, and neither
of such approvals is required for the commencement and
consummation of the Offer. See "Special Factors--Section 2.
Purpose and Structure of the Offer and the Merger; Reasons for the
Offer and the Merger; Alternatives Considered."
o Shareholders who tender their Shares in the Offer will, if the
Offer is completed, receive cash for their Shares sooner than
shareholders who wait for the Merger, if any, but shareholders who
tender will not be entitled to a judicial proceeding to determine
the fair value of their Shares under the OR Business Act as will
be available to those shareholders who elect to dissent to the
Merger. Should the Offer be completed, any shareholders who do not
tender their Shares may exercise their dissenters' rights in
accordance with Section 60.551 through Section 60.591 of the OR
Business Act following notice of the Merger. See "The
Offer--Section 8. Merger; Dissenters' Rights; Rule 13e-3" and
Schedule A (containing the relevant statutory provisions) for more
information on dissenters' rights.
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In this document, references to "dollars" or "$" are to United States
dollars unless noted otherwise.
QUESTIONS AND ANSWERS ABOUT THE TENDER OFFER
Who is offering to buy my Shares?
Our name is ERI Acquisition Corp., an Oregon corporation formed for the
purpose of acquiring all of the Shares that the Continuing Shareholders do not
already own. After the closing of the Offer, this corporation will be wholly
owned by the Continuing Shareholders. As of December 8, 2004, we owned
approximately 59% of the Company's outstanding Shares. All of these Shares will
be contributed to Purchaser upon the satisfaction or waiver of all the
conditions to the Offer. See "Introduction" and "The Offer--Section 8. Certain
Information Concerning Purchaser and the Continuing Shareholders" for additional
information about Purchaser and the Continuing Shareholders.
Why are you making the Offer?
We are making this Offer to acquire all of the outstanding Shares that
we do not already own. We believe that it is in the best long-term interest of
the Company to consummate the Offer because, among other reasons, being a
private company will allow the Company's management to focus on long-term
business goals and eliminate increased disclosure burdens and increased costs
associated with being a public company subject to applicable federal securities
laws and regulations. See "Special Factors--Section 2. Purpose and Structure of
the Offer and the Merger; Reasons for the Offer and the Merger; Alternatives
Considered" and "Special Factors--Section 5. Purchaser's Plans for the Company."
What Shares are being sought in the Offer?
We are seeking to purchase all of the outstanding shares of the
Company's no par value common stock that we do not currently own. As of December
8, 2004, 1,842,945 Shares were outstanding, of which we beneficially owned
1,086,344 Shares. In addition, as of December 8, 2004, options held by
individuals other than the Continuing Shareholders to acquire up to 128,098
Shares were outstanding and had an exercise price less than the Offer Price.
Shares issued upon exercise of such options will also be subject to the Offer.
The Company's common stock is the only class of its capital stock outstanding.
See "Introduction" and "The Offer--Section 1. Terms of the Offer; Expiration
Date."
How much are you offering to pay for my Shares? What is the form of payment?
We are offering to pay $7.50 per Share in cash, without interest and
less any required withholding taxes. See "Introduction" and "The Offer--Section
1. Terms of the Offer; Expiration Date."
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Will I have to pay any fees or commissions?
If you are the record owner of your Shares and you tender your Shares
in the Offer, you will not have to pay brokerage fees or similar expenses. If
you own your Shares through a broker or other nominee and your broker or nominee
tenders your Shares on your behalf, they may charge you a fee for doing so. You
should consult your broker or nominee to determine whether any charges will
apply. See "The Offer--Section 3. Procedures for Tendering Shares."
Do you have the financial resources to make payment?
We will need approximately $6.95 million to purchase all of the Shares
that we do not already own pursuant to the Offer and to provide funding for the
Merger which may be necessary following the successful completion of the Offer,
exclusive of any related transaction fees and expenses. The $6.95 million amount
includes monies that may be necessary to purchase in the Merger vested but
unexercised options to acquire Shares held by individuals (including the
Continuing Shareholders, at their discretion). We expect to obtain nearly all of
these funds from the $6.5 million financing commitment discussed below for this
purpose. Although we do not have financing arrangements for the remaining
$450,000 required to purchase all of the Shares in the Offer, the Offer is not
conditioned upon a financing condition. To the extent any amounts are due or may
be paid by Purchaser or the surviving corporation in the Merger after
consummation of the Merger (for example, funds necessary to consummate the
Merger--including amounts necessary to cash out vested but unexercised options
held by individuals, including the Continuing Shareholders, at their
discretion--and certain transaction fees and expenses), such amounts may be paid
from generally available working capital of the surviving corporation in the
Merger. See "Special Factors--Section 6. Conflicts of Interest" and "The
Offer--Section 10. Source and Amount of Funds."
Subject to certain conditions, Purchaser has obtained a $6.5 million
financing commitment from General Electric Capital Franchise Finance Corporation
("GE Capital") to provide funds for the Offer and the Merger. The loans from GE
Capital will initially be secured by a pledge of the Continuing Shareholders'
Shares and $2 million in cash collateral to be provided by the Continuing
Shareholders. Should the Majority of the Minority Condition and the Minimum
Tender Condition be satisfied, and the Merger occurs, the financing will be
secured by the assets of the Company upon completion of the Offer and the
Merger. Although we do not have alternative financing plans in place should the
loans from GE Capital be unavailable for any reason, we believe we could obtain
replacement financing on commercially reasonable terms. See "The Offer--Section
10. Source and Amount of Funds."
Is your financial condition relevant to my decision to tender shares?
We do not think our financial condition is material to your decision
whether to tender Shares in the Offer because:
o The Offer is being made for all of the Shares solely for cash;
o The Offer is not subject to any financing condition; and
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o If we consummate the Offer and not all Shares are tendered and accepted
for payment, in the Merger we will acquire all Shares not tendered in
the Offer for the same purchase price paid in the Offer.
See "The Offer--Section 10. Source and Amount of Funds."
What are the most significant conditions to the Offer?
The Offer is conditioned, among other things, on (i) satisfaction of
the Majority of the Minority Condition, which requires the tender of at least a
majority of the outstanding Shares that are not beneficially owned by the
Continuing Stockholders and the executive officers of the Company who are not
Continuing Stockholders, and (ii) the satisfaction of the Minimum Tender
Condition, which requires the tender of a sufficient number of Shares such that,
after the Shares are purchased pursuant to the Offer, we would own at least 90%
of the outstanding Shares, which would also mean that the Majority of the
Minority Condition had been satisfied. In no event may the Majority of the
Minority Condition be waived. However, we have reserved the right, in our sole
discretion, to waive the Minimum Tender Condition. See "Introduction" and "The
Offer--Section 11. Certain Conditions of the Offer" for a complete description
of all of the conditions to which the Offer is subject.
How long do I have to decide whether to tender my Shares in the initial offering
period?
You may tender your Shares under the Offer until 12:00 midnight,
Eastern Standard Time, on February 2, 2005, which is the scheduled expiration
date of the offering period, unless we decide to extend the offering period. See
"The Offer--Section 3. Procedures for Tendering Shares" for information about
tendering your Shares.
Can the Offer be extended? How will I be notified if the Offer is extended?
Yes. We may elect to extend the Offer. We can do so by issuing a press
release no later than 9:00 a.m., Eastern Standard Time, on the business day
following the scheduled expiration date of the Offer, stating the extended
expiration date and the approximate number of Shares tendered to date. See "The
Offer--Section 1. Terms of the Offer; Expiration Date" for information about
extension of the expiration date of the Offer.
Will there be a subsequent offering period?
Following the satisfaction or waiver of all the waivable conditions to
the Offer and the acceptance of and payment for all the tendered Shares during
the initial offering period, we may elect to provide a subsequent offering
period of at least three (3) business days, during which time shareholders whose
Shares have not previously been tendered and accepted for payment may tender,
but not withdraw, their Shares and receive the Offer consideration. Under
federal securities laws, we are not allowed to provide a subsequent offering
period of more than twenty (20) business days. See "The Offer--Section 1. Terms
of the Offer; Expiration Date" and "The Offer--Section 4. Rights of Withdrawal"
for more information concerning any subsequent offering period.
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How do I tender my Shares?
If you hold the certificates for your Shares, you should complete the
enclosed Letter of Transmittal and enclose all the documents required by it,
including your stock certificates, and send them to the Depositary at the
address listed in this Offer to Purchase. If your broker holds your Shares for
you in "street name," (i.e. with a brokerage such as Merrill Lynch, Charles
Schwab, or Ameritrade) you must inform your broker of your decision to tender
your Shares and instruct your broker to tender your Shares on your behalf. In
any case, the Depositary must receive all required documents before the
expiration date of the Offer, which is February 2, 2005, unless extended. If you
cannot comply with any of these procedures, you still may be able to tender your
Shares by using the guaranteed delivery procedures described in this document.
See "The Offer--Section 3. Procedures for Tendering Shares" for more information
on the procedures for tendering your Shares.
Until when can I withdraw previously tendered Shares?
You can withdraw previously tendered Shares at any time until the Offer
has expired and, if we have not agreed to accept your shares for payment by
12:00 midnight, Eastern Standard Time, on February 2, 2005, you can withdraw
them at any time after such date until we do accept your Shares for payment.
This right to withdraw will not apply to any subsequent offering period if we
elect to establish one. See "The Offer--Section 1. Terms of the Offer;
Expiration Date" and "The Offer--Section 4. Rights of Withdrawal."
How do I withdraw previously tendered Shares?
You (or your broker, if your Shares are held in "street name") may
withdraw any Shares that you have tendered by sending a written or facsimile
transmission notice of withdrawal to the Depositary at the address or facsimile
number listed in this Offer to Purchase at any time before 12:00 midnight,
Eastern Standard Time, on February 2, 2005 or, if the Offer is extended, the
extended expiration date. The notice must include the name of the shareholder
that tendered the Shares, the number of Shares to be withdrawn and, if
certificates for the Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, the name in which the tendered Shares are
registered if different from that of the person who tendered the Shares. For
complete information about the procedures for withdrawing your previously
tendered Shares, see "The Offer--Section 4. Rights of Withdrawal."
Will the Company's board of directors make a recommendation concerning the
Offer?
Under SEC rules, the Company's board of directors will be required to
(i) make a recommendation, (ii) state that it is neutral, or (iii) state that it
is unable to take a position with respect to the Offer, and file with the SEC a
solicitation/recommendation statement on Schedule 14D-9 describing its position,
if any, and related matters, no later than ten (10) business days from the date
of this Offer to Purchase. The Company is also required to send to you a
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copy of its Schedule 14D-9. In evaluating the Offer and the Merger, you should
be aware that all of the members of the Company's board of directors and its
President and Chief Executive Officer are Continuing Shareholders. They
therefore have conflicts of interest with respect to the Offer and the Merger.
For these reasons, we believe the Company's board of directors will be unable to
take a position with respect to the Offer and the Merger. For additional
information on interests that the Company's board members and executive officers
may have in the Offer and the Merger, see "Special Factors--Section 6. Conflicts
of Interest."
We urge you to make your own decision as to the acceptability of the
Offer, including the adequacy of the Offer Price, in light of your own
investment objectives, your views as to the Company's prospects and outlook and
any other factors that you deem relevant to your investment decision. See
"Special Factors--Background of the Offer" and "Special Factors--Section 4.
Position of Purchaser and the Continuing Shareholders Regarding the Fairness of
the Offer and the Merger" for more detailed information.
Have you negotiated or sought the approval of the terms of the Offer or the
Merger with the Company?
No. We have not negotiated the terms of the Offer or the Merger with
the Company, its board of directors or any special committee of its board of
directors.
Has the Company's board of directors formed a special committee of independent
directors to evaluate the Offer?
No. All of the members of the Company's board of directors are
Continuing Shareholders. Accordingly, there are currently no independent
directors of the Company who could serve as a special committee of independent
directors of its board to evaluate the Offer. See "Special Factors--Section 6.
Conflicts of Interests."
Have you received a financial analysis regarding the fairness of the Offer and
the Merger?
Although we have received a valuation analysis from our financial
advisor, Veber Partners, LLC, neither we nor the Company obtained a fairness
opinion regarding the fairness of the Offer Price, from a financial point of
view, to shareholders of Elmer's unaffiliated with us. Our financial advisor has
delivered to us an analysis concluding that, as of August 5, 2004, $6.57 per
Share constitutes fair value for such Shares from a financial point of view. You
should be aware, however, that Veber Partners' conclusion was based on and
subject to important assumptions, limitations and qualifications. See "Special
Factors--Section 3. Analysis of Veber Partners, LLC" for more information
regarding the analysis and Exhibit (c) to Schedule TO for a full copy of the
analysis.
If I decide not to tender, how will the Offer affect my Shares?
If you do not tender your Shares, the Offer might not be consummated if
the Majority of the Minority Condition and/or the Minimum Tender Condition are
not be satisfied. We will not acquire any Shares through this Offer if (i) the
Majority of the Minority Condition is not
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satisfied, or (ii) the Minimum Tender Condition is not satisfied and we do not
waive this condition. See "The Offer--Section 10. Certain Conditions to the
Offer." If the Offer is not consummated, you will remain a shareholder of the
Company. If you do not tender your Shares and we consummate the Offer and, as a
result we own at least 90% of the outstanding Shares of the Company, we will
effect the Merger without the vote or approval of the Company's board of
directors or shareholders. In the Merger, you will be entitled to receive $7.50
per Share in cash or to seek dissenters' rights in accordance with the OR
Business Act. See "The Offer--Section 9. Merger; Dissenters' Rights; Rule 13e-3"
and Schedule A.
Even if we do not own at least 90% of the outstanding Shares after
consummating the Offer, shareholders who did not tender their Shares will remain
shareholders of the Company. There can be no assurances that we will be able to
consummate an alternative transaction to the Merger to acquire the remaining
Shares and it might take considerably longer for the shareholders of the Company
to receive any consideration for their Shares than if they had tendered their
Shares in the Offer. Any such transaction may result in proceeds per Share to
the remaining shareholders of the Company that are more or less than, or the
same as, the Offer Price. See "Questions and Answers About the Tender Offer--If
Purchaser Consummates the Tender Offer, What are Its Plans with Respect to All
of the Shares that are Not Tendered in the Offer?" and "Special Factors--Section
7. Conduct of the Company's Business if the Offer is Not Completed or if
Purchaser Waives the Minimum Tender Condition."
How will U.S. taxpayers be taxed for U.S. federal income tax purposes?
If you are a U.S. taxpayer, your receipt of cash for Shares in the
Offer or the Merger will be a taxable transaction for U.S. federal income tax
purposes. You will generally recognize gain or loss in an amount equal to the
difference between (i) the cash you receive in the Offer and (ii) your adjusted
tax basis in the Shares you sell in the Offer or the Merger. That gain or loss
will be a capital gain or loss if the Shares are a capital asset in your hands,
and will be long-term capital gain or loss if the Shares have been held by you
for more than one year at the time the Offer or the Merger is completed. You are
urged to consult your own tax advisor as to the particular tax consequences of
the Offer or the Merger to you. See "The Offer--Section 5. Material Federal
Income Tax Consequences of the Offer."
If my tendered Shares are accepted in the Offer, when will I get paid?
If the conditions to the Offer are satisfied and we consummate the
Offer and accept your Shares for payment, you will receive a check for an amount
equal to the product of the number of Shares you have tendered in the Offer
multiplied by $7.50 per Share, without interest and less any required
withholding taxes. The checks will be mailed out promptly following our
acceptance of Shares in the Offer but in any event no earlier than the
Expiration Date. See "The Offer--Section 2. Acceptance for Payment and Payment
for Shares." Generally, taxes will be withheld from any amounts payable to you
as a result of the Offer only if you do not complete and remit to the Depositary
Substitute Form W-9.
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In all cases, payment for tendered Shares will be made only after
timely receipt by us of certificates for such Shares, a properly completed and
duly executed Letter of Transmittal and any other required documents for such
Shares.
What are your plans with respect to the Company's employees?
We believe the Company's employees are important to the success of the
Company's business and operations and do not currently anticipate that the Offer
and the Merger would be disruptive to the Company's current ongoing operations
or would result in the need to terminate any of the Company's employees.
What are your plans with respect to the business of the Company?
We do not contemplate any changes in the day-to-day management and
operation of the business of the Company. However, if the Offer and the Merger
are consummated, the Continuing Shareholders intend to make an election (the "S
Election") to be treated as an electing small business corporation within the
meaning of Section 1361 of the Internal Revenue Code of 1986, as amended. We
retain the right to change the business plan of the Company based on future
developments. Nonetheless, aside from the S Election, we have no current plans
that would involve a material change in the corporate structure, management or
business of the Company. See "Special Factors--Section 5. Purchaser's Plans for
the Company."
Is this the first step in a going-private transaction?
Yes. Assuming that the Minimum Tender Condition is satisfied, we will
acquire the Shares that were not tendered in the Offer pursuant to the Merger
between Purchaser and the Company. Following the Merger, the Company will cease
to be a public company. See "Special Factors--Section 5. Purchaser's Plans for
the Company" and "The Offer--Section 9. Merger; Dissenters' Rights; Rule 13e-3."
Will the Offer be followed by the Merger if not all of the publicly traded
Shares of the Company are tendered in the Offer?
Assuming that the Minimum Tender Condition is satisfied, we will effect
the Merger and acquire all of the Shares that were not tendered in the Offer at
a price equal to that paid in the Offer. Section 60.491 of the OR Business Act
provides that if we own at least 90% of the outstanding shares of the Company,
we may merge with and into the Company without the approval or any other action
on the part of the shareholders of either Purchaser or the Company or the board
of directors of Elmer's. If the Offer and Merger are consummated as intended,
all of the remaining shareholders (other than the Continuing Shareholders) of
the Company who did not tender their Shares in the Offer will receive either the
Offer Price or, if they exercise their dissenters' rights pursuant to Section
60.551 through 60.591 of the OR Business Act, the fair value of their Shares.
See "The Offer--Section 9. Merger; Dissenters' Rights; Rule 13e-3" and Schedule
A.
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If you consummate the Offer, what are your plans with respect to Shares that are
not tendered in the Offer?
If the Majority of the Minority Condition and the Minimum Tender
Condition are satisfied, we will cause Purchaser to merge with and into the
Company and pay to the Company's shareholders who have not tendered their Shares
or exercised dissenters' rights the same consideration we paid for Shares in the
Offer. Shareholders of the Company who do not tender their Shares in the Offer
will have a right to demand payment of the fair value of their Shares under the
OR Business Act. In no event will we complete the Offer unless the Majority of
the Minority Condition is satisfied.
If only the Majority of the Minority Condition is satisfied, we may
still consummate the Offer if we waive the Minimum Tender Condition, subject to
our determination that such purchase is financially prudent. Whether we
determine that such a purchase would be financially prudent will be based on our
consideration of:
o The number and percentage of Shares actually tendered;
o Our perception of the costs and burdens of there being a minority
stock ownership in the Company; and
o The financial resources and liquidity of the Continuing
Shareholders to support the ability to make such a purchase.
In such event, we may, among other things: (a) engage in open market or
privately negotiated purchases of Shares to increase our aggregate ownership of
the Shares to at least 90% of the then outstanding Shares and then effect a
short-form merger; (b) cause the Continuing Shareholders to exercise options
held by the Continuing Shareholders to acquire the Company's common stock, which
are vested and exercisable, to increase Purchaser's aggregate ownership of the
Shares to at least 90% of the then outstanding Shares and then effecting a
short-form merger; or (c) propose that Purchaser and the Company enter into a
merger agreement to effect a long-form merger, which would require the approval
of the Company's board of directors and the vote of the Company's shareholders
in favor of the long-form merger. In addition, if there are fewer than 300
shareholders who own at least 100 Shares, or if the Company is unable to comply
with another requirement for continued listing on the Nasdaq SmallCap Market as
a result of the purchase of such tendered Shares, the Company's common stock may
be delisted from the Nasdaq SmallCap Market. The Company's common stock may also
be deregistered from the reporting requirements of the Exchange Act if there are
less than 300 remaining shareholders. In any event, any Shares not tendered
would remain outstanding. We currently do not know whether a second-step
transaction, such as a long-form merger, or open market or privately negotiated
purchases of Shares would be viable in the event we were to waive the Minimum
Tender Condition. See "The Offer--Section 9. Merger; Dissenters' Rights; Rule
13e-3" and Schedule A for more information concerning the Merger and exercising
dissenters' rights and "The Offer--Section 11. Certain Conditions of the Offer"
for a complete description of all of the conditions to which the Offer is
subject. See "Special Factors--Section 5. Purchaser's Plan for the Company,"
"Special Factors--Section 7. Conduct of the Company's Business if the Offer is
Not Completed or if Purchaser Waives the Minimum Tender Condition," and "The
Offer--Section 11. Certain Conditions of the Offer" for a complete description
of our plans if the Minimum Tender Condition is waived.
12
What affect does the Offer have on outstanding options to purchase Shares?
Option holders (other than the Continuing Shareholders who are option
holders) who exercise their options and tender the Shares issued upon such
exercise will receive the Offer Price for such Shares. With respect to the
Continuing Shareholders who are also option holders, any options exercised prior
to the Merger will be contributed to Purchaser. Pursuant to the terms of the
Company's stock option plan, the vesting schedules of options have been
accelerated to permit their exercise prior to the Offer and the Merger. The
vesting schedules of options held by the Continuing Shareholders have been
accelerated (consisting of currently unvested options to purchase up to an
addition 36,400 Shares), but the Continuing Shareholders are waiving their
rights to exercise such accelerated options in connection with the Offer. Option
holders (other than the Continuing Shareholders) whose options are not exercised
prior to the Merger will receive the amount by which the Offer Price exceeds the
exercise price in cash in the Merger in exchange for the cancellation of their
options. See "The Offer--Section 1. Terms of the Offer; Expiration Date," and
"The Offer--Section 9. Merger; Dissenters' Rights; Rule 13e-3" for more
information on the treatment of options in the Offer and the Merger.
Certain of the Continuing Shareholders hold options to purchase up to
291,064 Shares with exercise prices below $7.50. These individuals will have the
choice: (a) to receive for each Share issuable upon exercise of such option the
amount by which the Offer Price exceeds the exercise price in cash in the
Merger; (b) to retain the option, on the same terms and conditions, to purchase
shares of the surviving corporation's common stock; or (c) to receive some cash
and to retain some options, in such combination as may be determined by each of
the Continuing Shareholders with respect to their options. As a result, in the
event the Merger occurs, the Continuing Shareholders may elect to receive cash
in an amount up to $799,515 in the aggregate for the Shares underlying the
options if all of the Continuing Shareholder opt to cash out all of their
options. See "Special Factors--Section 6. Conflicts of Interest" for more
information on the treatment of the Continuing Shareholders' options in the
Offer and the Merger.
When do you expect to complete the Offer and the Merger?
We hope to complete the Offer on midnight, Eastern Standard Time,
February 2, 2005, the initial scheduled expiration date. However, we may extend
the Offer if the conditions to the Offer have not been satisfied at the
scheduled expiration date or if we are required to extend the Offer by the rules
of the SEC. If the Minimum Tender Condition is satisfied, we expect to complete
the Merger as soon as reasonably practicable following the completion of the
Offer. See "The Offer--Section 1. Terms of the Offer; Expiration Date" and "The
Offer--Section 9. Merger; Dissenters' Rights; Rule 13e-3."
Will I have the ability to assert dissenters' rights for my Shares?
If you do not tender your Shares in the Offer and the Merger is
consummated, you will have a statutory right to demand payment of the fair value
of your Shares plus accrued interest, if any, from the date of the Merger in
accordance with the OR Business Act. If you tender your
13
Shares in the Offer and we purchase them, you will not be entitled to exercise
statutory dissenters' rights and demand payment of the fair value for your
Shares under the OR Business Act. The value received upon exercise of
dissenters' rights may be more than, less than or the same as the cash
consideration paid in the Offer and the Merger. The costs of the appraisal
proceeding may be determined by Oregon courts and assessed against the parties
as the Oregon courts deems equitable in the circumstances. See "The
Offer--Section 9. Merger; Appraisal Rights; Rule 13e-3" and Schedule A.
What is the market value of my Shares as of a recent date?
On August 5, 2004, the last full trading day prior to the public
announcement of the Continuing Shareholders' expression of interest to take
Elmer's private, the reported closing price on the Nasdaq SmallCap Market was
$6.25 per share of Elmer's common stock. On December 17, 2004, the last full
trading day prior to this Offer, the reported closing price on the Nasdaq
SmallCap Market was $7.50 per share of Elmer's common stock. The weighted
average closing price on the Nasdaq SmallCap Market between January 1, 2004 and
August 5, 2004 was $6.58 per share of Elmer's common stock. The weighted average
closing price for the twelve-month period ended August 5, 2004 was $6.46 per
share of Elmer's common stock. You should obtain a recent market quotation for
the common stock of Elmer's in deciding whether to tender your Shares. See "The
Offer--Section 6. Price Range of Shares; Dividends; Ownership of and
Transactions in Shares" for recent high and low sales prices for the Shares.
Who can I talk to if I have questions about the Offer?
If you have questions or you need assistance, you should contact OTR,
Inc., who is acting as the Information Agent for the Offer, at the following
address and telephone number:
OTR, Inc.
Attn: Robert Roach
1000 SW Broadway, Suite 920
Portland, Oregon 97205
Telephone (503) 225-0375
Fax (503) 273-9168
14
TO THE HOLDERS OF COMMON STOCK OF ELMER'S RESTAURANTS, INC.:
INTRODUCTION
ERI Acquisition Corp., a newly formed Oregon corporation ("Purchaser")
currently controlled by Bruce N. Davis, Chairman of the Board, President and
Chief Executive Officer of Elmer's Restaurants, Inc., an Oregon corporation
("Elmer's" or the "Company"), hereby offers to purchase (the "Offer"), at a
price of $7.50 per share (the "Offer Price"), in cash, all outstanding shares of
the Company's no par value common stock (the "Shares") not currently owned by
the Continuing Shareholders (as defined below), on the terms and subject to the
conditions specified in this Offer to Purchase and the related Letter of
Transmittal. Upon the closing of the Offer, Purchaser will be owned by Bruce N.
Davis, William W. Service, a director and the former Chief Executive Officer of
the Company, Thomas C. Connor, Corydon H. Jensen, Jr., Dennis M. Waldron,
Richard C. Williams, and Donald W. Woolley, each of whom is a member of the
Company's board of directors, Linda Ellis-Bolton, Karen K. Brooks, Richard P.
Buckley, David D. Connor, Stephanie M. Connor, Debra A. Woolley-Lee, Douglas A.
Lee, David C. Mann, Sheila J. Schwartz, Gerald A. Scott, a Vice President of the
Company, Gary N. Weeks, Gregory W. Wendt, Dolly W. Woolley, and Donna P. Woolley
(each referred to herein as a "Continuing Shareholder" and collectively, the
"Continuing Shareholders"). Together, the Continuing Shareholders currently own
approximately 59% of the outstanding common stock of Elmer's. As of December 8,
2004, 756,601 Shares are being sought in the Offer. In addition, as of December
8, 2004 there were a total of 419,162 outstanding options to acquire Shares that
had an exercise price less than the Offer Price, of which outstanding options to
acquire 128,098 Shares were held by individuals other than the Continuing
Shareholders. Shares issued upon exercise of such options and prior to the
expiration of the Offer will also be subject to this Offer. See "The
Offer--Section 8. Certain Information Concerning Purchaser and the Continuing
Shareholders."
The Offer represents a 20% premium over the closing price of Elmer's
common stock on August 5, 2004, the last full trading day before the public
announcement of the Continuing Shareholders' interest to take Elmer's private.
The following table reflects the premium relative to the Offer Price measured
over the period(s) indicated (all of which are for periods ending as of the
close of trading on August 5, 2004):
Period(s) Price Premium
--------- ----- -------
Prior Day Closing (August 5, 2004) $6.25 20.0%
5-Day Weighted Average $6.39 17.5%
30-Day Weighted Average $6.38 17.3%
13-Week Weighted Average $6.49 15.5%
52 Week High $7.00 7.1%
52 Week Low $5.94 26.3%
If you are a record owner of Shares, you will not be required to pay
brokerage fees or commissions or, except as described in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the transfer and sale of Shares
in the Offer. Shareholders who hold their Shares through bankers or brokers
should check with such institutions as to whether they charge any service fee.
15
However, if you do not complete and sign the Substitute Form W-9 that is
included in the Letter of Transmittal, you may be subject to a required backup
U.S. federal income tax withholding at applicable rates (currently 28%) of the
gross proceeds payable to you. Purchaser will pay all charges and expenses of
OTR, Inc., who will act as both the Depositary and the Information Agent for the
Offer, incurred in connection with the Offer.
THE OFFER IS CONDITIONED ON, AMONG OTHER THINGS, (1) THE TENDER OF AT
LEAST A MAJORITY OF THE TOTAL OUTSTANDING SHARES OF ELMER'S, EXCLUDING SHARES
BENEFICIALLY OWNED BY THE CONTINUING SHAREHOLDERS AND THE EXECUTIVE OFFICERS OF
ELMER'S WHO ARE NOT CONTINUING SHAREHOLDERS (THE "MAJORITY OF THE MINORITY
CONDITION"); AND (2) THE TENDER OF A SUFFICIENT NUMBER OF SHARES PURSUANT TO
THIS OFFER SUCH THAT, AFTER THE SHARES ARE PURCHASED PURSUANT TO THIS OFFER,
PURCHASER WOULD OWN AT LEAST 90% OF THE THEN OUTSTANDING ELMER'S COMMON STOCK
(THE "MINIMUM TENDER CONDITION"). IN NO EVENT MAY THE MAJORITY OF THE MINORITY
CONDITION BE WAIVED. HOWEVER, PURCHASER RESERVES THE RIGHT TO WAIVE THE MINIMUM
TENDER CONDITION.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION
IS MADE WITH RESPECT TO THE OFFER.
This Offer is also subject to certain other conditions described in
"The Offer--Section 11. Certain Conditions to the Offer."
Together, the Continuing Shareholders currently own approximately 59%
of the Company's outstanding common stock. According to information provided by
Elmer's to Purchaser, as of December 8, 2004, there were 1,842,945 Shares
outstanding, of which 756,601 Shares were held by persons other than the
Continuing Shareholders and executive officers of the Company who are not
Continuing Shareholders. Based on the foregoing, if Purchaser were to purchase
572,307 Shares pursuant to the Offer, both the Minimum Tender Condition and the
Majority of the Minority Condition would be met. Based on information provided
by Elmer's to Purchaser, as of December 8, 2004, the executive officers of
Elmer's (other than the Continuing Shareholders), as a group held options to
purchase up to 9,100 Shares. As of the date hereof, Purchaser is not aware
whether these executive officers will exercise their options to purchase Shares
and, if they do, whether they intend to tender their Shares in the Offer.
The purpose of the Offer is to acquire as many outstanding Shares as
possible as a first step in the acquisition of the entire equity interest in
Elmer's. If the Majority of the Minority Condition and the Minimum Tender
Condition are satisfied, Purchaser will merge with and into the Company in a
short-form merger (the "Merger"), and the Company will be the surviving
corporation in the Merger. In the Merger, each outstanding Share (other than
Shares held by shareholders of the Company who perfect their dissenters' rights
under the OR Business Act) will be converted into the right to receive in cash
an amount equal to the Offer Price, without interest and less any required
withholding tax.
16
Under the OR Business Act, if Purchaser owns at least 90% of the outstanding
Shares, Purchaser can consummate the Merger without any action or vote by the
Company's Board of Directors or shareholders. See "The Offer--Section 9. Merger;
Dissenters' Rights; Rule 13e-3." As a result of the Offer and the Merger, the
Continuing Shareholders will wholly own the Company, the common stock of the
Company will be de-listed from the Nasdaq SmallCap Market, and the Company will
de-register from, and will no longer be subject to, the reporting obligations
under the Exchange Act.
Under SEC rules, Elmer's board of directors will be required to (i)
make a recommendation, (ii) state that it is neutral, or (iii) state that it is
unable to take a position with respect to the Offer, and file with the SEC a
solicitation/recommendation statement on Schedule 14D-9 describing its position,
if any, and related matters, no later than ten (10) business days from the date
of this Offer to Purchase. Elmer's is also required to send to you a copy of its
Schedule 14D-9. In evaluating the Offer and the Merger, you should be aware that
all of the members of the Company's board of directors and its President and
Chief Executive Officer are Continuing Shareholders. They therefore have
conflicts of interest with respect to the Offer and the Merger. For these
reasons, we believe the Company's board of directors will be unable to take a
position with respect to the Offer and the Merger. See "Special Factors--Section
6. Conflicts of Interest."
We urge you to make your own decision as to the acceptability of the
Offer, including the adequacy of the Offer Price, in light of your investment
objectives, your views as to the Company's prospects and outlook and any other
factors that you deem relevant to your investment decision. See "Special
Factors--Section 1. Background of the Offer" and "Special Factors--Section 4.
Position of Purchaser and the Continuing Shareholders Regarding the Fairness of
the Offer and the Merger" for more detailed information. We also encourage you
to review carefully the Schedule 14D-9.
This Offer to Purchase and the documents incorporated by reference in
this Offer to Purchase include certain forward-looking statements. These
statements appear throughout this Offer to Purchase and include statements
regarding the intent, belief or current expectations of Purchaser and the
Continuing Shareholders, including the information under the caption "The
Offer--Section 7. Certain Information Concerning the Company." Such
forward-looking statements are not guarantees of future performance or events
and involve risks and uncertainties. Actual results may differ materially from
those described in such forward-looking statements as a result of various
factors. Factors that might affect such forward-looking statements include,
among other things:
o Competitive factors in the industries in which Elmer's operates;
o The ability to execute fully Purchaser's business strategy after taking
Elmer's private;
o The ability to realize estimated expense savings;
o The ability to repay the debt financing incurred to complete the Offer
and the Merger and to operate the business in compliance with the
operating covenants of the bank loan agreements;
o The ability to attract and retain qualified employees;
o The ability to implement the controls necessary to reduce costs and
improve revenues;
17
o General economic, capital market and business conditions;
o War and acts of terrorism;
o Changes in government regulation;
o Changes in Nasdaq listing requirements;
o Changes in tax law requirements, include tax rate changes, new tax laws
and revised tax law interpretations; and
o The risks and uncertainties described in Elmer's SEC filings.
There may also be other factors that are currently not identifiable or
quantifiable, but may arise or become known in the future. Forward-looking
statements speak only as of the date the statement was made. Purchaser is not
obligated to publicly update or revise any forward-looking statement, whether as
a result of new information, future results, or for any other reason, except as
may be required by federal securities laws.
The information contained in this Offer to Purchase concerning Elmer's
was obtained from publicly available sources or made available by Elmer's to
Purchaser and the Continuing Shareholders. Neither Purchaser nor the Continuing
Shareholder takes any responsibility for the accuracy of such information.
THE OFFER IS CONDITIONED UPON THE SATISFACTION OR WAIVER OF THE
CONDITIONS DESCRIBED IN "THE OFFER--SECTION 11. CERTAIN CONDITIONS OF THE
OFFER." THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD TIME, ON
FEBRUARY 2, 2005, UNLESS PURCHASER EXTENDS IT.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT YOU SHOULD READ CAREFULLY BEFORE YOU MAKE ANY
DECISION WITH RESPECT TO THE OFFER.
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER
At various times in recent years, Bruce N. Davis and William W. Service
have discussed informally between among themselves, and with other directors and
certain members of Company management, the merits of a going private transaction
involving the Company. The factors that prompted these discussions were:
o The small market capitalization of the Company;
o The small size of the "public float" and limited institutional
following of the Company's common stock;
o The low trading volume of the Company's common stock;
o The lack of research attention being given to Elmer's from market
analysts;
18
o The lack of liquidity and the Continuing Shareholders' perception that
the liquidity of the Company's common stock would not improve in the
future;
o The significant and increasing cost of being a public company; and
o The Company's focus on growth through franchising, which does not
require additional capital.
These discussions intensified commencing in late 2002 as certain of the
Continuing Shareholders became aware of the additional expenses that would be
associated with continuing to be a publicly traded company and the additional
burdens that would be placed on management and the board of directors as a
result of the Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley") and
various rules promulgated by the SEC thereunder. The Continuing Shareholders
ultimately concluded that such a transaction would be appropriate at this time.
Following is a more detailed discussion of events leading up to the Offer.
The Company, located in Portland, Oregon, is a franchisor and operator
of full-service, family oriented restaurants under the names "Elmer's" and
"Mitzel's American Kitchen," and operates delicatessen restaurants under the
names "Ashley's Cafe," "Richard's Deli and Pub" and "Cooper's Deli and Pub." The
Company is an Oregon corporation and was incorporated in 1983. Walter Elmer
opened the first Elmer's restaurant in Portland, Oregon in 1960, and the first
franchised restaurant opened in 1966. The Company acquired the Elmer's
franchising operation in January 1984 from the Elmer family. The Company now
owns and operates 10 Elmer's restaurants, five Mitzel's American Kitchen
restaurants, and 13 Delis, and franchises 23 Elmer's restaurants in five western
states. The Company reports on a fiscal year, which ends on the Monday nearest
March 31st.
The Company's initial public offering, completed in 1985, involved the
issuance by the Company of 441,004 shares of its common stock representing
approximately 18% of its capital stock at such time. The Company received net
proceeds of $1,187,684.
On August 25, 1998, CBW Inc. ("CBW") acquired 705,000 shares of the
Company's common stock, representing a controlling interest in the Company
(approximately 53.8% of its then outstanding common stock) in a transaction with
Anita Goldberg and Rudolph Maurosky (Ms. Goldberg's brother). CBW was owned by
Ms. Linda Ellis-Bolton, Ms. Karen K. Brooks, Mr. Thomas C. Connor, Mr. Bruce N.
Davis, Mr. Corydon H. Jensen, Jr., Ms. Sheila J. Schwartz, Mr. William W.
Service, Mr. Gregory W. Wendt and, Mr. Donald W. Woolley, all of whom are
Continuing Shareholders. CBW's purpose in acquiring the shares was to build on
the Company's strong product and reputation and pursue both internal and
external growth opportunities, with an initial focus on improving the growth of
Company-owned restaurants.
On February 18, 1999, CBW merged with and into the Company in exchange
for shares of the Company's common stock (along with contribution and
cancellation of the shares of the Company's common stock then owned by CBW).
Through the merger, the Company became the owner and operator of five Ashley's
delis, all of which were owned by CBW prior to the merger. In addition, the
Company acquired an option (the "GVL Option") held by CBW to
19
purchase four Richard's Deli and Pub's that, at the time, were owned and
operated by Grass Valley Limited, Inc., an Oregon corporation ("GVL") which was
owned by Mr. Richard P. Buckley and Mr. Gary N. Weeks, each of whom are
Continuing Shareholders.
On March 31, 1999, the Company exercised the GVL Option and purchased
all of its issued and outstanding capital stock in exchange for a cash payment
in the amount of $110,000 and the Company's issuance of 209,620 shares of the
Company's common stock to the two shareholders of GVL, Mr. Buckley and Mr.
Weeks.
Over the past several years, a number of circumstances both inside the
Company and external to the Company, discussed further under "Special
Factors--Section 2. Purpose and Structure of the Offer and Merger; Reasons of
Purchaser and the Continuing Shareholders for the Offer and the Merger;
Alternatives Considered," have occurred that have caused Purchaser and the
Continuing Shareholders to undertake the Offer and the Merger at this time.
In 2001, the Company's management and board of directors believed that
the future growth of the Company would result primarily through franchising of
Elmer's restaurants, rather than increasing growth through Company-owned
restaurants (which require significant capital investments on a per restaurant
basis). Conversely, growth through franchising required significantly less
capital while providing additional revenue, which can be accretive to earnings.
Accordingly, the Company decided to focus efforts on new and existing
franchisees, with an emphasis on experienced single and multi-unit operators and
locations in the Western United States where the Company has an established
presence. In 2001, the board of directors approved the re-franchising of the
Company-owned Elmer's restaurants in Southern Oregon to an experienced
restaurant group, which agreed to open two additional Elmer's restaurants. The
transaction was part of a strategy to concentrate Company operated restaurants
along Interstate 5 between Eugene, Oregon and Seattle, Washington. In 2004, the
Company refranchised the Elmer's Restaurant in Palm Springs, California.
With the passage of Sarbanes-Oxley, the Company encountered significant
and continuing increases in the cost of maintaining its status as a public
company, both through increased hard-dollar compliance costs as well as the
soft-dollar costs of management time, energy and resources for compliance. For
many years, the Company's stock has suffered from low trading volume, limited
interest from institutional buyers, and a lack of research coverage. The average
trading volume (i) for the year ending August 5, 2004 is 1,620 Shares per day
(the last full trading day before the original announcement of the going private
proposal); (ii) for the year ending December 8, 2004 is 1,808 Shares per day;
and (iii) for the four years ended December 8, 2004 is 1,504 Shares per day. The
median number of trades per day in the same period is one. Throughout this
period, the Company has had only one significant institutional investor holding
slightly less than 5% of the Company's outstanding stock. The Company is not
aware of any meaningful analyst coverage of the Company since the current
management team arrived in August 1998. From time to time, however, there have
been quantitative reports on the Company available from third parties (e.g.,
Value Line), but these reports have not, to the best of the Continuing
Shareholders' knowledge, provided the earnings estimates, buy/sell
recommendations or significant narrative commonly associated with analyst
coverage.
From time to time, the Company has explored various means of maximizing
the shareholder value both informally and formally. In addition, several of the
Company's
20
shareholders, including Mr. David C. Mann (one of the Continuing Shareholders),
periodically suggested that a going private transaction was a logical response
to the Company's situation.
In June 2003, Mr. Davis and Mr. Service, on behalf of the Company,
began to consider strategic alternatives for the Company, including going
private, because they believed that public ownership made the Company less
efficient and added to its costs without providing corresponding benefits often
available to public companies. In particular, they recognized that the Shares
were thinly traded and that the Company had not had the opportunity usually
available to publicly held corporations to take advantage of the capital
markets. Mr. Davis and Mr. Service concluded that a strategic transaction (such
as a sale or a going private transaction) would eliminate both the need for
management to focus on the requirements imposed on public companies and the
costs attendant to those requirements.
In June 2003, Mr. Davis and Mr. Service, on behalf of the Company,
contacted Mr. Gary Cole, who previously served as the Company's principal
outside counsel from 1998 through the summer of 2001 as a partner at the law
firm of Ball Janik LLP. Although Mr. Cole no longer provided legal counsel to
the Company (and had since left Ball Janik), he had gained knowledge of both the
Company and its strategic planning objectives and had substantial experience in
arranging business combinations. On June 24, 2003, Mr. Davis and Mr. Mike
Chamberlin, Finance Manager of the Company, met with Mr. Cole and informally
discussed the concept of a going private transaction. Subsequently, Mr. Davis
and Mr. Service concluded that the interests of the Company and its shareholders
would be best served through a sale of the Company to a strategic buyer and, if
they could maximize shareholder value through an acquisition transaction in the
near term, such a course of action would be desirable. Alternatively, if an
acquisition on financially attractive terms was not a likely alternative, they
believed a going private transaction would provide an opportunity to maximize
shareholder value before increasing public company costs adversely impacted the
Company's financial performance and, in turn, the value of its stock.
Based on these discussions, on June 26, 2003, the Company engaged Mr.
Cole to assist the Company in exploring available strategic alternatives,
including the sale of the Company. Mr. Davis and Mr. Service, in consultation
with Mr. Peter Sirkin (a restaurant consultant who has consulted with the
Company for the past several years advising on strategic positioning) and based
on their extensive knowledge of the Company's industry, identified potential
candidates to purchase the Company. The criteria used in determining potential
candidates included, among other things, experience in the family restaurant
category, a demonstrated record of successful acquisitions, and the likelihood
of a strong strategic and operational fit with the Company's profile. The
Company identified existing family restaurant chains as well as three private
equity firms with experience in the family restaurant business as potential
acquirers.
From July 2003 through October 1, 2003, Mr. Cole and the Company
engaged in preliminary discussions and meetings with a number of parties to
determine the level of interest in acquiring the Company. Four family restaurant
chains were contacted in conjunction with private equity firms with interests in
these chains. Several potential candidates expressed an interest in learning
more about the Company and the Company, after entering into various
confidentiality agreements, provided information to these parties. However, none
of the potential
21
candidates conducted meaningful due diligence of, or submitted a formal proposal
to, the Company. Several candidates indicated that based on the then-current
market price of the Shares, and allowing for the Company's deferred tax and
stock option liabilities, they would be unable to make an offer in excess of the
then-current market price of the Shares. By October 1, 2003, it became evident
that the options for strategic transactions involving the sale of the Company to
maximize shareholder value were limited. Between June 26, 2003 and October 1,
2003, the closing price of the Shares fluctuated between $5.50 and $6.50 per
Share, with an average closing price of $6.15 per Share. From time to time
during the engagement, Mr. Davis informally updated various board members,
including Mr. Connor, Mr. Service, and Mr. Woolley, on the progress of Mr.
Cole's efforts. By the October 22, 2003 board meeting, Mr. Davis, Mr. Service
and Mr. Cole had concluded that unless there was a significant decline in the
Share price, or a meaningful increase in the appetite of private equity buyers,
a third party acquisition was unlikely.
On January 16, 2004, the Company completed an issuer self-tender for
204,205 Shares at a price of $6.43 per share. The purpose of the self-tender was
the board of directors' conclusion that, in light of the Company's available
cash, anticipated cash needs and possible alternative uses of its cash,
investing in the Company's shares was an efficient and prudent means of
providing value to the Company's shareholders. The issuer self-tender offer was
over-subscribed by approximately 300,000 shares, which suggested to Mr. Service
that some of the Company's shareholders were interested in additional liquidity.
In February 2004, Mr. Chamberlin, Mr. Davis and Mr. Dennis Miller, the
Company's Controller, met with representatives from the Company's independent
auditor, Moss Adams, LLP to discuss recent changes in the audit requirements as
a result of Sarbanes-Oxley (and various SEC rules promulgated in its wake) and
Moss Adams' expectations for substantially increased audit fees going forward.
After that meeting, the Company solicited bids from two other accounting firms
and found no meaningful savings. Mr. Davis directed Mr. Chamberlin and Mr.
Miller to prepare a presentation for the May board meeting on public company
costs.
As a result of these circumstances, between March 2004 and April 2004,
Mr. Davis and Mr. Service began to consider seriously the possibility of a
transaction in which they, with other directors, officers and shareholders with
whom they had relationships, would purchase all of the outstanding equity
securities of the Company.
On April 22, 2004, Mr. Davis, Mr. Service and Mr. Chamberlin met with
representatives of the law firm of Lane Powell Spears Lubersky LLP ("Lane
Powell") to further their understanding of going private alternatives, explored
with Lane Powell the various legal issues associated with a going private
transaction and considered the costs and desirability of such a transaction.
After meeting with Lane Powell, Mr. Davis and Mr. Chamberlin had a
preliminary meeting with representatives of Veber Partners, LLC ("Veber
Partners"), a Portland, Oregon based investment banking firm, to discuss the
financial analysis that may be involved as part of a going private transaction.
22
At the May 27, 2004, meeting of the Company's Board of Directors, the
directors discussed the costs and other challenges of being a public company.
Mr. Chamberlin and Mr. Miller presented information on the Company's current and
prospective public company costs. The Company's external costs for FY2004
totaled $190,803. Mr. Chamberlin and Mr. Miller estimated internal staff costs
of $75,150, for total public company costs of approximately $266,000, which
represents approximately 14% of the Company's FY 2004 pre-tax income. Mr.
Chamberlin and Mr. Miller presented a forecast of FY 2005 public company costs
based on their discussions with Moss Adams and the two other prospective
accounting firms. External public company costs were expected to increase from
$170,000 to $363,050, principally due to increases in the cost of the Company's
financial audit and the Sarbanes-Oxely requirement for an additional audit of
internal controls. Internal costs were estimated to rise $30,000 due to
additional staff time required to support the audit of internal controls. The
total estimated public company costs for FY 2005 were approximately $468,200,
which represents approximately 25% of the Company's FY2004 pre-tax income.
The board of directors then discussed the Company's strategic
situation, including: (i) lack of liquidity for the shareholders due to the
small size of the "public float," lack of significant institutional shareholders
and absence of analyst coverage; (ii) significant legal, accounting and
insurance costs; (iii) significant administrative and reporting burdens; (iv)
the increase in such burdens following enactment of Sarbanes-Oxley; and (v) lack
of any material business benefit to the Company resulting from its public
company status. The board of directors then discussed three broad strategic
options:
o Maintaining the status quo;
o De-registration/de-listing; or
o A sale of the Company, either to an independent third party or in a
going private transaction.
The board of directors concluded that maintaining the status quo would
ultimately be harmful to the Company's shareholders as rising public company
costs would adversely effect operating margins and revenues and, ultimately, its
stock price. They further concluded that de-registration or de-listing was
likely to be harmful to the Company's shareholders. While de-registration would
substantially alleviate the cost concerns resulting from public company status,
it would severely restrict or eliminate altogether the liquidity of its stock
and the ability of its shareholders to liquidate their investments. To become
eligible for de-registration would require a transaction (a reverse stock split
for example) to reduce the number of shareholders by approximately one third.
Simply de-listing the stock from the Nasdaq SmallCap Market would not
significantly reduce public company costs. It would, however, further reduce the
liquidity of the Company's stock. Finally, given the clear lack of interest from
potential buyers on the market as a result of the Company's efforts to explore
interest in selling the Company during the prior 12 month period, the board of
directors reluctantly viewed a going private transaction as the most realistic
alternative available.
23
From May 5, 2004 through July 20, 2004, Mr. Davis, Mr. Service and Mr.
Chamberlin participated in eleven substantive conference calls with Lane Powell
in which they continued discussions regarding various legal issues in connection
with the structuring and implementation of a going private transaction.
On June 24, 2004, Mike Chamberlin met with a representative of GE
Electric Capital Franchise Finance Corporation ("GE Capital") to discuss the
debt capacity available to support financing a going private transaction. Mr.
Chamberlin provided GE Capital with publicly available financial information,
and discussed expected changes to the Company's cash flows. These expected
changes are the basis for the earnings before income taxes, depreciation and
amortization ("EBITDA") "run-rate" analysis provided to GE Capital and Veber
Partners. See "The Offer--Section 3. Analysis of Veber Partners, LLC." GE
Capital indicated several days later that they may be prepared to lend
approximately $6.3 million in additional debt, with the proceeds used to support
the purchase of Company stock.
On July 13, 2004, Mr. Davis met informally with Thomas C. Connor and
Donald W. Woolley, principals in Franklin Holdings, LLC. In response to a
question from Mr. Davis, Messrs. Connor and Woolley indicated that they were
inclined to support an effort to take the Company private, and would be
interested in exploring whether there was sufficient interest. Based this
discussion, Mr. Davis and Mr. Service considered a variety of factors in
determining individuals suitable to participate in any possible transaction
including, but not limited to, past business relationships, financial
wherewithal to provide equity financing (if necessary) on a going-forward basis,
status as an "accredited investor" within the meaning of Regulation D under the
Securities Act of 1933, as amended, business or operational expertise regarding
the Company's business and industry, and the ability to satisfy the regulatory
requirements imposed by the Oregon Lottery Commission on the owners of private
corporations providing Oregon Lottery products.
From July 14, 2004 through August 5, 2004, Mr. Davis obtained informal
expressions of interest from the remaining Continuing Shareholders, all of whom
satisfied at least a majority of the above described criteria. A number of the
Continuing Shareholders, including Mssrs. Service, Connor and Woolley,
conditioned their interest on including shareholders owning enough Shares
(thereby reducing the number of Shares that needed to be purchased in the Offer)
to allow funding of the transaction with third party debt that could be serviced
with the Company's cash flow. The final contact was a phone call Mr. Davis made
to Mr. Mann on August 5, 2004. Mr. Mann owns 89,062 Shares or approximately 4.9%
of the outstanding Shares. With Mr. Mann's expression of interest, Mr. Davis
concluded that the group was substantially complete.
From July 27, 2004 through August 5, 2004, Mr. Davis, Mr. Service and
Mr. Chamberlin participated in four substantive conference calls with
representatives of Lane Powell in which they continued discussions regarding
various legal issues in connection with the structuring and implementation of a
going private transaction.
On August 4, 2004, Mr. Davis, on behalf of the Continuing Shareholders,
engaged Veber Partners to undertake a financial analysis of the Offer. Between
August 2 and September 17, 2004, Gayle Veber and Roger Adams of Veber Partners
had several telephone conversations
24
with Mr. Chamberlin to discuss various aspects of the Company's financial
situation. These included discussion of the EBITDA "run rate" analysis prepared
by Mr. Chamberlin. On September 17, 2004, Mr. Veber and Mr. Adams interviewed
Mr. Davis and Mr. Chamberlin regarding the existence any material non-public
information. Mr. Davis and Mr. Chamberlin responded that they were unaware of
any material undisclosed information.
On August 5, 2004, Mr. Davis, on behalf of the Continuing Shareholders,
sent a non-binding proposal to the Board of Directors indicating an interest in
pursuing a going private transaction through a tender offer and short-form
merger to acquire the outstanding Shares not owned by the Continuing
Shareholders at a price of $7.50 per Share, subject to certain conditions
(including the Majority of the Minority Condition and the Minimum Tender
Condition). The Continuing Shareholders considered a variety of factors in
determining the Offer Price, including the Company's operating performance,
current and past market prices of the Shares, their views on the prospects of
the Company in light of various risk factors, uncertainties and trends
identified in the Company's Exchange Act reports, the ability to finance the
Offer and the Merger based on the Company's anticipated cash flow, and the
maximum consideration they were willing to pay for the Shares in light of the
foregoing factors.
On August 6, 2004, Purchaser and the Continuing Shareholders filed a
Schedule 13D regarding their interest as a group in pursuing a tender
offer/short form merger transaction to acquire the outstanding Shares not owned
by the Continuing Shareholders. Also on August 6, 2004, the Company issued a
press release, which was filed with the SEC on Form 8-K, disclosing receipt of
the proposal. On August 10, 2004, Purchaser and the Continuing Shareholders
filed an amended Schedule 13D that included certain signatures omitted from the
initial filing, but which in all other material respects was identical to the
original filing.
On October 13, 2004, the Company's outside counsel advised the
Company's board of directors regarding the anti-takeover provisions of OR
Business Act, specifically the loss of voting rights with respect to the Shares
owned by the Continuing Shareholders under the Oregon Control Share Act and the
prohibition against consummating the Merger, if necessary, for a period of three
years following the acquisition of Shares in the Offer under Business
Combination Act. See "The Offer--Section 13. Certain Legal Matters" for a more
detailed explanation of the Oregon Control Share Act and the Business
Combination Act.
Under general corporate law, the board of directors has fiduciary
obligations to act in the best interest of the Company and all of its
shareholders. Because of the relationship between the Continuing Shareholders
and the board of directors, however, any action taken (or required to be taken)
by the board of directors relating to the Offer and the Merger presented
inherent conflicts of interest. Given the structure of the Offer and the Merger,
particularly the Majority of the Minority Condition (which, if satisfied, meant
a majority of the Company's shareholders unaffiliated with Purchaser and the
Continuing Shareholder approved of the Offer and that would result in taking the
Company private), any action by the board of directors regarding the
anti-takeover provisions that was predicated on satisfaction of this condition
would merely be in furtherance of the shareholder's approval of the Offer by the
Continuing Shareholders and Purchaser to take the Company private.
25
On October 25, 2004, the Company's board of directors met via
teleconference to discuss the anti-takeover provisions with its outside counsel
and among themselves. After careful consideration and deliberation, the board
adopted resolutions authorizing the formation of Purchaser by the Continuing
Shareholders. This action eliminated application of the Business Combination Act
provision which would permit the Purchaser and Continuing Shareholders to go
forward with the Merger and complete the going private transaction in the event
the Majority of the Minority Condition was satisfied. See "The Offer--Section 9.
Merger; Dissenters' Rights; Rule 13e-3 " for more information regarding the
Merger and "The Offer--Section 13. Certain Legal Matters" for more information
regarding the Oregon Control Share Act and Purchaser's plans with respect
thereto if the Minimum Tender Condition is not satisfied. In adopting the
resolutions described above, the board of directors specifically disclaimed any
approval of, or recommendation to, the Company's shareholders with respect to
the merits of the Offer and the Merger.
Meanwhile, since June 24, 2004, Mr. Chamberlin had been engaged in
discussions with GE Capital, in an effort to secure financing for the proposed
going private transaction. GE Capital is the primary lender for the Company's
existing term debt. Mr. Chamberlin responded to multiple requests from GE credit
review personnel for standard due diligence items. These items included the
EBITDA "run rate" analysis provided to Veber Partners. On October 5, 2004, GE
Capital provided a proposal letter to the Continuing Shareholder outlining basic
loan terms. The group discussed with GE Capital the requirement for a separate
business valuation analysis and a continuing stock pledge after the proposed
merger with Elmer's. In October, Mr. Chamberlin reached an agreement with Wells
Fargo Bank, which holds mortgages on three of the Company's four pieces of real
estate. Upon completion of the proposed Merger, Wells Fargo would relax the
existing debt covenants to conform to the GE Capital agreement, extend the term
of one of the Company's real estate mortgages to ten (10) years and permit the
Company to draw an additional $500,000 on such mortgage. On December 3, 2004, GE
Capital issued a loan commitment for up to $6.5 million dollars. See "The
Offer--Section 10. Source and Amount of Funds" for additional information
regarding the financing arrangements.
On November 19, 2004, Purchaser and the Continuing Shareholders filed
an amended Schedule 13D that disclosed certain changes in ownership of the
Shares, certain changes in the composition of the Continuing Shareholders
(Daniel A. Woolley withdrew from the proposed transaction after considering the
terms and conditions of participation, such as the shareholder agreement all of
the Continuing Shareholders would be expected to sign as part of the
transaction, and the regulatory requirements that would be imposed on each of
the Continuing Shareholders by the Oregon Lottery Commission following the Offer
and the Merger), and revisions to Item 4 regarding source of funds.
Between August 10, 2004 and December 3, 2004, the Continuing
Shareholders finalized negotiations regarding the loans from GE Capital in
contemplation of the Offer and the Merger, and retained OTR, Inc. as the
Information Agent and Depositary. From December 3, 2004 through December 19,
2004, the Continuing Shareholders prepared the appropriate documents required by
the SEC in order for Purchaser and the Continuing Shareholder to make the Offer.
On December 20, 2004, Purchaser commenced the Offer.
26
2. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS FOR THE
OFFER AND THE MERGER; ALTERNATIVES CONSIDERED
PURPOSE AND STRUCTURE. The purpose of the Offer and the Merger is for
Purchaser and the Continuing Shareholders to increase their beneficial ownership
of the outstanding Shares from their current level of 59% to 100%. The
Continuing Shareholders formed Purchaser for the purpose of acquiring the Shares
not already owned by the Continuing Shareholders. No cash consideration will be
paid for Shares beneficially owned by the Continuing Shareholders, but the
Continuing Shareholders receive one share of Purchaser's common stock in
exchange for each of the Shares contributed to Purchaser. Upon successful
completion of the Offer (including satisfaction of the Minimum Tender Condition,
unless waived by Purchaser), each of the Continuing Shareholders will transfer
his or her Shares to Purchaser in order to permit Purchaser to effect the
Merger. Upon consummation of the Merger, Purchaser will merge into Elmer's with
Elmer's being the surviving corporation. The acquisition of Shares not owned by
the Continuing Shareholders has been structured as a cash tender offer followed
by a cash merger in order to effect a prompt and orderly transfer of ownership
of Elmer's from the public shareholders to Purchaser and provide shareholders
with cash for all of their Shares as quickly as possible.
REASONS FOR THE OFFER AND THE MERGER. Purchaser and the Continuing
Shareholders decided to pursue the Offer and the Merger at this time because, as
owners of 59% of the Company's common stock, they believe that the anticipated
costs of remaining a public company far exceed any resulting benefits. The
Company's business is characterized by relatively narrow profit margins in its
core business and its earnings depend significantly on its abilities to minimize
costs and increase revenues through adding new franchises and generating income
from business activities other than profits generated from restaurant sales and
franchising revenues, particularly revenue generated from the sale of Oregon
Lottery products. As a result, any condition that causes an increase in the
costs of operations may materially and adversely affect the Company's financial
performance. The Continuing Shareholders pro rata share of the expected public
company costs for FY 2005 is approximately $276,000, reflecting an estimated
total cost of approximately $468,000. These are ongoing expenses as long as the
Company remains public. In the view of the Continuing Shareholders, this is the
equivalent of paying $0.25 per share per year as a (pretax) fee to remain public
(which is determined by dividing $468,200 in estimated annual public company
costs by 1,842,945 Shares outstanding). $468,200 represents approximately 25% of
the Company's FY2004 pre-tax income. Accordingly, in light of the Company's need
to focus on public company costs, the ultimate impact of such costs on the
Company's market performance and the limited benefits to the Company and its
shareholders of being a public company, Purchaser and the Continuing
Shareholders considered the following factors:
o The elimination of costs associated with being a public company (such
as independent accounting firm fees for audit services and legal fees
associated with filing quarterly, annual or other periodic reports with
the SEC, the expense of publishing and distributing annual reports and
proxy statements to shareholders, and the increased costs anticipated
as a result of the enactment of Sarbanes-Oxley and the rules
promulgated by the SEC thereunder);
27
o The elimination of the additional burdens on management associated with
public reporting and other tasks resulting from Elmer's public company
status, including, for example, the dedication of time and resources by
Elmer's management and board of directors necessary to prepare periodic
reports under the Exchange Act and maintain investor and public
relations;
o The relatively low volume of trading in the Elmer's common stock (the
average daily trading volume for 2004 year-to-date ending August 5,
2004, the last full trading day before the original announcement of the
going-private proposal, was 1,620 shares), and the determination that
the consummation of the Offer and the Merger would result in immediate
liquidity at a premium to recent trading prices for Elmer's
shareholders that are unaffiliated with Purchaser and the Continuing
Shareholders;
o Public capital market trends adversely affecting companies of similar
size to the Company, including Purchaser's belief that the trends
indicate that: (i) small companies with small amounts of publicly owned
shares have been unable to issue additional stock as a means of raising
capital; and (ii) the common stock of many smaller companies has
struggled to gain greater market acceptance and analyst coverage; and
o The ineffectiveness of Elmer's common stock as a form of currency for
acquisitions.
Purchaser and the Continuing Shareholders considered the potential
benefits in the form of costs savings and reduction of management time that
could be immediately realized upon ceasing to be a publicly held company and
that the longer the Company remained a public reporting company, incremental
accounting and related costs would be incurred in order to comply with the
requirements of Sarbanes-Oxley and various rules promulgated by the SEC
thereunder. In light of the Company's operating performance, eliminating or
avoiding such costs would be of immediate value. Purchaser and the Continuing
Shareholders also considered that the limited trading volume was unlikely to
improve significantly in the future because of the lack of "public float" and
analyst coverage and believed the consummation of the Offer and the Merger would
result in immediate liquidity for shareholders that are unaffiliated with the
Continuing Shareholders at a premium to trading prices of the Share prior to the
announcement of Purchaser's and the Continuing Shareholders' interest in
pursuing a "going private" transaction. In light of these factors, Purchaser and
the Continuing Shareholders believe that it is in the best interest of the
Company and its shareholders to effect the Offer and the Merger at this time.
Purchaser and the Continuing Shareholders also considered the following
factors, each of which they considered to be negative, in their deliberations
concerning whether to effect the Offer and the Merger at this time:
o Following the successful completion of the Offer and the Merger,
Elmer's shareholders (other than the Continuing Shareholders) would
cease to have the opportunity to participate in the future earnings or
growth, if any, of Elmer's or to benefit from increases, if any, in the
value of their holdings in Elmer's.
28
o The financial interests of Purchaser and the Continuing Shareholders
with regard to the Offer Price are adverse to the financial interests
of the shareholders being asked to tender their Shares.
ALTERNATIVE STRUCTURE CONSIDERED. Purchaser and the Continuing
Shareholders considered alternatives to the proposed structure of the
transaction as a tender offer followed by a short-form merger, including a
long-form merger that would require the solicitation of proxies pursuant to the
provisions of the Exchange Act and the vote of the majority of the Shares. The
approval of the Continuing Shareholders, who own in excess of a majority of the
then outstanding shares of Elmer's common stock, would constitute sufficient
approval to effect a long-form merger under the OR Business Act (absent a
majority of the minority condition). In determining to structure the transaction
as a tender offer followed by a short-form merger, as opposed to a long-form
merger, the Continuing Shareholders considered the following:
o In the Offer, each unaffiliated shareholder would individually
determine whether to accept cash in exchange for his, her or its
Shares;
o Unless a majority of the outstanding Shares, excluding the Shares
beneficially owned by the Continuing Shareholders and the executive
officers of Elmer's who are not Continuing Shareholders, are validly
tendered and not withdrawn, Purchaser would not purchase any Shares in
the Offer;
o Unless the number of Shares are validly tendered and not withdrawn
necessary to satisfy the Minimum Tender Condition, Purchaser would not
purchase any Shares in the Offer (unless Purchaser waives such
condition);
o Purchaser's promise to effect the Merger, providing to shareholders the
same consideration as in the Offer, promptly if the Minimum Tender
Condition is satisfied;
o The lack of any independent directors (and, thus, the absence of a
special committee) and the lack of any individual to negotiate a
long-form merger on behalf of the shareholders unaffiliated with the
Continuing Shareholders;
o A tender offer followed by a short-form merger would permit Purchaser
to acquire the remaining minority interest in Elmer's on an expeditious
basis and provide the shareholders that are unaffiliated with the
Continuing Shareholders with a prompt opportunity to receive cash in
exchange for their Shares; and
o Unaffiliated shareholders who do not tender their Shares in the Offer
could preserve their dissenters' rights in the Merger under Section
60.551 through Section 60.591 of the OR Business Act.
After reviewing the various structures for acquiring the minority
shareholder interest in the Company, including the alternative method of
acquiring such interest through a long-form merger, Purchaser and the Continuing
Shareholders decided to structure the transaction as a tender offer for all of
the shares of the Company not already owned by the Continuing
29
Shareholders, to be followed by a short-form merger, subject to, amongst other
conditions, the Minimum Tender Condition and the Majority of the Minority
Condition.
3. ANALYSIS OF VEBER PARTNERS, LLC
Bruce Davis retained Veber Partners on behalf of Purchaser and the
Continuing Shareholders to perform a financial analysis of the value of a single
share of common stock held by the public shareholders of Elmer's (the
"Analysis"). Veber Partners is an investment banking firm that, as part of its
investment banking business, regularly is engaged in the evaluation of
businesses and their securities in connection with mergers, acquisitions, and
private placements. Purchaser selected Veber Partners based on its reputation
and experience as well as prior experiences of some of the Continuing
Shareholders with Veber Partners. In 1998, Veber Partners was engaged by CBW to
assist in its purchase of 705,000 Shares from Anita Goldberg. In 1999, Veber
Partners was engaged by a special committee of the Company's board of directors
to provide a fairness opinion as to the fairness, from a financial point of
view, to the Company's shareholders of the consideration to be paid by the
Company in connection with the merger of CBW with and into the Company.
On September 17, 2004, Veber Partners delivered its Analysis setting
forth its financial analysis with supporting assumptions and which concluded
that, as of August 5, 2004 (the day prior to the public announcement of the
Continuing Shareholders' interest in a "going private" transaction), a fair
value for each Share would be $6.57, which is an average of the values set forth
in the Analysis.
The Analysis was prepared solely for the use and benefit of Purchaser
and the Continuing Shareholders and is not intended to be and does not
constitute a recommendation to any Elmer's shareholder as to whether such
shareholder should take any action, such as voting on any matter or tendering
any Shares, in connection with the Offer or any other potential transaction.
Veber Partners was not requested to opine as to, and its Analysis does not
address, Purchaser's underlying business decision to proceed with or effect the
Offer. Veber Partners does not express any opinion as to the future performance
of Elmer's or the price at which the Shares would trade at any time in the
future.
Veber Partners took into account its assessment of general economic,
market and financial conditions as well as its experience in connection with
similar transactions and securities valuations generally. Veber Partners was not
asked to consider, and the Analysis does not address, the relative merits of the
Offer as compared to any alternative business strategy that might exist for the
Company. In arriving at its conclusions, Veber Partners, among other things: (i)
reviewed publicly available financial information and other data with respect to
Elmer's, including a Form 10-K for the year ended March 29, 2004, a 10-Q for the
sixteen weeks ended July 19, 2004, and certain other relevant financial and
operating data relating to Elmer's; (ii) reviewed and analyzed the financial
terms of certain transactions that Veber Partners deemed significant involving
companies comparable to Elmer's; (iii) reviewed and analyzed certain financial
characteristics of companies that Veber Partners deemed comparable to Elmer's;
(iv) interviewed the Company's CEO and Finance Manager; (vi) requested the
Company provide any current financial projections (the Company responded that
there were no current projections
30
other than the "run-rate" analysis discussed below); (vi) reviewed Purchaser's
recasting of results for the year ended March 29, 2004 that reflect Purchaser's
impression of the Company's current financial "run-rate" (which Purchaser has
defined as the fiscal year 2004 EBITDA results, modified based on expected
changes to these results from certain events which have occurred or are expected
to occur in fiscal year 2005); (vii) considered the historical financial results
and present financial condition of Elmer's; (viii) reviewed certain publicly
available information concerning the trading of, and the trading market for, the
common stock of Elmer's; (ix) inquired about and discussed the Offer and other
matters related thereto with Purchaser's legal counsel; and (x) performed such
other analyses and examinations as Veber Partners deemed appropriate. Purchaser
imposed no limitations on the scope of Veber Partners' investigation or the
procedures to be followed by Veber Partners in performing the Analysis.
In arriving at its conclusions, Veber Partners relied upon and assumed
the accuracy and completeness of all of the financial and other information that
was used by it without assuming any responsibility for any independent
verification of any such information and further relied upon the assurances of
the Continuing Shareholders that they were not aware of any facts or
circumstances that would make any such information inaccurate or misleading.
With respect to Purchaser's recasting of 2004 results to reflect a current
"run-rate," Veber Partners assumed that such recasts were reasonably prepared on
a basis reflecting the best currently available estimates and judgments, and
those recasts provide a reasonable basis upon which it could form a conclusion
in its discounted cash flow analysis. In arriving at its conclusion, Veber
Partners did not make a physical inspection of the properties and facilities of
Elmer's, and had not made or obtained any evaluations or appraisals of the
assets and liabilities (contingent or otherwise) of Elmer's. Veber Partners
assumed that a transaction arising from the Offer will be consummated in a
manner that complies in all respects with the applicable provisions of the
Exchange Act and all other applicable federal and state statues, rules and
regulations. The Analysis was necessarily based upon market, economic and other
conditions as they exist on, and could be evaluated as of, August 5, 2004.
Although subsequent developments may affect the Analysis, Veber Partners has not
assumed any obligation to update, review or reaffirm the Analysis.
Veber Partners prepared the Analysis using the following methodologies:
(a) selected comparable company analysis; (b) selected comparable transaction
analysis; and (c) discounted cash flow analysis. These methodologies represent a
market-based and income-based approach to valuation. Veber Partners did not
perform individual analyses of liquidation value or net book value as these are
usually inappropriate methodologies for valuing an ongoing business enterprise
that is dependent upon the future earnings of the enterprise. Each of the
analyses conducted by Veber Partners was carried out independently in order to
provide a different perspective on, and to enhance the quality of, the Analysis.
Veber Partners did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support the Analysis. Veber
Partners did not place any particular reliance or weight on any individual
analysis, but instead concluded that its analyses, taken as a whole, supported
its determination. Accordingly, Veber Partners believes that the Analysis must
be considered as a whole and that selecting portions of its analyses or the
factors it considered, without considering all analyses and factors
collectively, could create an incomplete view of the process underlying the
analyses performed by Veber Partners in connection with the preparation of the
Analysis.
31
SELECTED COMPARABLE COMPANY ANALYSIS. The selected comparable company
analysis involves the review of 34 publicly traded companies deemed comparable
to Elmer's (the "Comparable Companies"). Veber Partners reviewed certain
financial information relating to Elmer's in the context of the corresponding
financial information, ratios and public market multiples for the Comparable
Companies. No company used in Veber Partners' analysis was deemed to be
identical to Elmer's; accordingly, Veber Partners considered the multiples
derived from the Comparable Companies to be more relevant than the multiples of
any single company.
Out of 73 public companies with the SIC code 5812 (Eating Places) that
Veber Partners identified as relevant, certain companies were partially or
completely eliminated based on the following criteria to yield the Comparable
Companies.
o Companies with Revenues over $600 million were excluded;
o Companies with revenue growth in excess of 15% were excluded;
o Companies with EBITDA (as defined below) margins less than 4.0%
were not used for EBITDA comparables;
o Companies with EBIT (as defined below) margins less than 3.0% were
not used for EBIT comparables.
Based on publicly available information, Veber Partners reviewed various
financial information for each of the Comparable Companies including, among
other things, market capitalization, revenue, earnings before interest and taxes
("EBIT"), earnings before interest, taxes, depreciation and amortization
("EBITDA"), and appropriate balance sheet information. Subsequent to such review
and based on the respective market value or enterprise value as of August 5,
2004, Veber Partners calculated and compared the following multiples for each of
the Comparable Companies grouped into two categories: (i) Comparable Companies
with an enterprise value below $100 million were applied directly as a
comparable to Elmer's; (ii) Comparable Companies with enterprise values from
$100 million to $600 million were used after applying a 25% discount to the
multiples to account for a size premium relative to Elmer's. The Comparable
Company Analysis yielded the following results:
All Comparable Companies
------------------------ Mean High Low
---- ---- ---
LTM (Last Twelve Months) Revenues 0.54 X 1.01 X 0.23 X
LTM EBITDA 6.34 X 11.30 X 4.08 X
LTM EBIT 11.05 X 18.17 X 6.78 X
Book Value 2.02 X 4.67 X 0.50 X
For each of the groups set forth above, utilizing Elmer's' historical financial
data, Veber Partners derived Elmer's implied enterprise value, with respect to
the mean values for the selected multiples noted above.
32
Elmer's Implied Enterprise Value as of August 5, 2004 (based on Elmer's
--------------------------------------------------------------------------------
Financial Statement as of March 29, 2004):
-----------------------------------------
(000's)
LTM Revenue: $ 33,490 times a multiple of 0.54 = $18,201
LTM EBITDA: $ 3,150 times a multiple of 6.34 = $19,942
LTM EBIT: $ 2,310 times a multiple of 11.05 = $25,513
Book Value: $ 9,620 times a multiple of 2.02 = $19,457
A weighted average of the above values yielded a Company implied enterprise
value of $20,128,000. For purposes of determining the weighted average, Veber
Partners attributed an equal weight to three measures: (i) LTM Revenue, (ii) the
average of LTM EBITDA and LTM EBIT, and (iii) Book Value.
In order to derive the implied market value of the common stock from
the implied enterprise value, Veber Partners subtracted the Company's outside
bank debt as of March 29, 2004, subtracted the deferred income tax liability as
of March 29, 2004, and deducted the cost of cashing out all outstanding stock
options.
The following table set forth the implied market value share value of
Elmer's.
Elmer's Implied Market Value of the Common Stock as of August 5, 2004 (based on
--------------------------------------------------------------------------------
Elmer's Financial Statement as of March 29, 2004):
-------------------------------------------------
(000's)
Elmer's Implied Enterprise Value $ 20,128
Less: Total Outside Debt (5,332)
Deferred Income Tax Liability (1,396)
Cost of Option Exercise (1,221)
-------
Elmer's Implied Value of Common Stock $ 12,179
The implied market value of Elmer's common stock is $12,179,000. Therefore, with
1,816,335 shares outstanding, the implied market value of Elmer's common stock
using Comparable Companies is $6.69.
Veber Partners made no adjustments to the implied market value to
account for Elmer's real estate assets. Real estate values are assumed to be
subsumed in the going-concern value of the Comparable Companies, in that as a
whole, the Comparable Companies are assumed to be optimizing the value of their
real estate assets. In addition, Comparable Companies are assumed to be
optimizing their working capital assets, including receivables, cash, inventory,
payables and accruals. Specifically with respect to cash, the Comparable
Companies have, on average, 17 turn-days of cash at the latest balance sheet
date prior to the Valuation Date. Elmer's has 21 turn-days of cash on its March
29, 2004 balance sheet, based on normalized revenues of $42.9 million.
Normalized revenues are $9.4 million higher than actual revenues, because the
effective
33
cash turnover from lottery sales is $13.6 million rather than the revenue
recognition of $4.2 million based on lottery revenues net of prizes and the
State of Oregon's share of proceeds. The difference between the cash turn-days
of Elmer's and the cash turn-days of the Comparable Companies is not considered
to be significant, especially in the context of the assumption made with respect
to the entire working capital positions of Elmer's and the Comparable Companies.
It should also be noted that since a portion of Elmer's revenues are lottery
revenues, the resulting risk that comes from regulatory and lottery contract
uncertainties changes Elmer's risk profile relative to the Comparable Companies.
None of the Comparable Companies, or any of the sets of Comparable
Companies noted above, is identical to Elmer's. Accordingly, Veber Partners
considered the multiples for such companies to be more relevant than the
multiples of any single company. Further, an analysis of publicly-traded
comparable companies is not entirely mathematical, rather it involves complex
consideration and judgments concerning differences in financial and operating
characteristics of the Comparable Companies and other factors that could affect
the public trading of the Comparable Companies.
SELECTED COMPARABLE TRANSACTION ANALYSIS. The comparable transaction
analysis involves a review of merger, acquisition and asset purchase
transactions involving companies that are in related industries to Elmer's (the
"Comparable Transactions"). Information is typically not disclosed for
transactions involving a private seller, even when the buyer is a public
company, unless the acquisition is deemed to be "material" for the acquirer. As
a result, the selected comparable transaction analysis is limited to
transactions involving the acquisition of a public company, or substantially all
of its assets, or the acquisition of a large private company, or substantially
all of its assets, by a public company.
Veber Partners located 4 transactions over the past three years
involving companies in a business similar to Elmer's, where financial data of
the acquired company and the terms of the transaction were disclosed. The
Comparable Transactions are as follows:
ACQUIRER TARGET
-------- ------
Castle Harlan Inc Morton's Restaurant
CKE Restaurants Santa Barbara Restaurant Group
Interfoods Acquisition Group Interfoods of America
Investor Group Blimpie International
Based on the information disclosed in the each of the Comparable Transactions,
Veber Partners calculated and compared multiples for each of the Comparable
Transactions based on Revenue, and EBITDA. The multiples were derived by
dividing price paid for equity plus interest bearing debt assumed by Revenue or
EBITDA. The multiples derived from EBIT and Book Value were not sufficiently
meaningful to include as measures.
All Comparable Transactions
---------------------------
Mean High Low
LTM Revenues 0.60 X 0.86 X 0.46 X
LTM EBITDA 6.42 X 7.47 X 4.82 X
34
Following the calculation of such multiples with respect to each of the
Comparable Transactions, and utilizing Elmer's historical financial data, Veber
Partners derived Elmer's implied enterprise value, implied market value, and
implied market value per share with respect to the mean values for the multiples
relating to LTM Revenue and LTM EBITDA. The following tables set forth the
implied per share value of Elmer's based upon such multiples.
Elmer's Implied Enterprise Value as of August 5, 2004 (based on Elmer's
--------------------------------------------------------------------------------
Financial Statement as of March 29, 2004):
------------------------------------------
(000's)
LTM Revenue: $ 33,490 times a multiple of .60 = $20,070
LTM EBITDA: $ 3,150 times a multiple of 6.42 = $20,226
A weighted average of the above values yields a Company implied enterprise value
of $20,148,000.
In order to derive the implied market value of the common stock from
the implied enterprise value, Veber Partners subtracted the Company's outside
bank debt as of March 29, 2004, subtracted the deferred income tax liability as
of March 29, 2004, and deducted the cost of exercising all outstanding stock
options.
The following table sets forth the implied market value share value of
Elmer's.
Elmer's Implied Market Value of the Common Stock as of August 5, 2004 (based on
--------------------------------------------------------------------------------
Elmer's Financial Statement as of March 29, 2004):
--------------------------------------------------
(000's)
Elmer's Implied Enterprise Value $ 20,148
Less: Total Outside Debt (5,332)
Deferred Income Tax Liability (1,396)
Cost of Option Exercise (1,221)
---------
Elmer's Implied Value of Common Stock $ 12,199
The implied market value of Elmer's common stock using this method is
$12,199,000. Therefore, with 1,816,335 shares outstanding, the implied market
value of Elmer's common stock using Comparable Transactions is $6.70.
Veber Partners made the same assumptions with respect to real estate
and working capital assets for Comparable Transactions as it did for Comparable
Companies.
None of the Comparable Transactions are identical to the Offer.
Accordingly, an analysis of comparable business combinations is not
mathematical; rather it involves complex
35
considerations and judgments concerning differences in financial and operating
characteristics of the Comparable Transactions and other factors that could
affect the respective acquisition values.
DISCOUNTED CASH FLOW ANALYSIS. Veber Partners was advised that Elmer's
does not have any current financial projections and accordingly, it cannot
perform a traditional Discounted Cash Flow analysis of the Company. The
Continuing Shareholders have provided to Veber Partners a recast statement of
cash flows that updates the "run rate" as of fiscal year 2004, with expected
changes for fiscal year 2005. The recast EBITDA run-rate is expected to be
$3,048,000 (which does not include $266,000 in reduced public company expenses
as set forth in the recast EBITDA run rate provided by Purchaser to Veber
Partners). Using an EBITDA multiple of 6.38 times (the average mean multiple
from the Comparable Companies and Comparable Transaction methods used above),
would yield an enterprise value of $19,446,000.
Elmer's Implied Market Value of the Common Stock as of August 5, 2004 (based on
--------------------------------------------------------------------------------
Elmer's Financial Statement as of March 29, 2004):
-------------------------------------------------
(000's)
Elmer's Implied Enterprise Value $ 19,446
Less: Total Outside Debt (5,330)
Deferred Income Tax Liability (1,400)
Cost of Option Exercise (1,220)
---------
Elmer's Implied Value of Common Stock $ 11,496
The implied market value of Elmer's common stock using this method is
$11,496,000. Therefore, with 1,816,335 shares outstanding, the implied market
value of Elmer's common stock using Comparable Transactions is $6.33.
HISTORICAL FINANCIAL DATA ANALYSIS. Veber Partners reviewed and
analyzed certain financial information for Elmer's as reported in its annual
filings on Form 10-K and its quarterly filings on Form 10-Q, including audited
and unaudited financial statements. Further, Veber Partners reviewed certain
supportive information as provided by the Continuing Shareholders.
SUMMARY. Based on the foregoing, Veber Partners believes that a fair
value for each Share of common stock would be $6.57, which is an average of the
values set forth in the Analysis.
Veber Partners performed a variety of financial and comparative
analyses for the purpose of rendering its Analysis. While the foregoing
describes all material analyses and factors reviewed by Veber Partners with the
Continuing Shareholders, it does not purport to be a complete description of the
presentations by Veber Partners to Purchaser or the analyses performed by Veber
Partners in arriving at the Analysis. The preparation of an analysis is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Veber Partners believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create a misleading view of the processes underlying the Analysis. In addition,
36
Veber Partners may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuations resulting from any particular
analysis described above should not be taken to be Veber Partners' view of the
actual value of Elmer's. In performing its analyses, Veber Partners made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Elmer's. The analyses performed by Veber Partners are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. In addition, analyses relating
to the value of businesses or assets do not purport to be appraisals or to
necessarily reflect the prices at which businesses or assets may actually be
sold. The Analysis was prepared solely as part of Purchaser's analysis of the
fairness of the consideration, from a financial point of view, to the
shareholders of the Elmer's, and was provided by Veber Partners to Purchaser in
that context.
Veber Partners is receiving a fee in connection with its financial
advisory services to Purchaser and the Continuing Shareholders and its issuance
of the Analysis. See "The Offer--Section 15. Fees and Expenses." In addition,
Purchaser and the Continuing Shareholders have agreed to indemnify Veber
Partners for certain liabilities that may arise out of the rendering of the
Analysis.
THE FULL TEXT OF THE ANALYSIS OF VEBER PARTNERS AS OF AUGUST 5, 2004,
IS SUBSTANTIALLY IN THE FORM ATTACHED TO THE SCHEDULE TO, FILED ON DECEMBER 20,
2004 IN CONNECTION WITH THE OFFER AS EXHIBIT (c) AND IS INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE ANALYSIS MAY BE OBTAINED FROM THE SEC. SEE "THE
OFFER---SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY." HOLDERS OF
SHARES ARE URGED TO, AND SHOULD, READ SUCH ANALYSIS IN ITS ENTIRETY. THE
ANALYSIS DOES NOT CONSTITUTE A RECOMMENDATION AS TO WHETHER ANY HOLDER OF SHARES
SHOULD TENDER THEIR SHARES IN THE OFFER.
Copies of the Analysis are also available for inspection and copying at
the principal executive offices of Purchaser during regular business hours by
any Elmer's shareholder or its representative who has been designated in
writing, and will be provided to any such shareholder or representative upon
written request at the expense of the requesting party. Shareholders interested
in obtaining a copy of the Analysis should contact Purchaser at 363 High Street,
Eugene, Oregon 97401, ATTN: Bruce N. Davis (telephone (541) 465-3966).
4. POSITION OF PURCHASER AND THE CONTINUING SHAREHOLDERS REGARDING THE
FAIRNESS OF THE OFFER AND THE MERGER
Rule 13e-3 and related rules under the Exchange Act require Purchaser
and the Continuing Shareholders, as affiliates of the Company, to express their
reasonable belief as to the fairness of the Offer to the Company's shareholders
who are not affiliated with Purchaser and the Continuing Shareholders.
37
Purchaser and the Continuing Shareholders believe that the Offer and
the Merger are both substantively and procedurally fair to the Company's
shareholders who are not affiliated with Purchaser and the Continuing
Shareholders. Purchaser and the Continuing Shareholders base their belief on
their observations of the following factors, each of which, in their judgment,
supports their views as to the fairness of the Offer and the Merger:
o Each shareholder of the Company can individually determine whether to
tender Shares in the Offer, and Purchaser and the Continuing
Shareholders believe that each shareholder is capable of evaluating the
fairness of the Offer, supporting the procedural fairness of the Offer.
o The Offer represents a 20% premium over the closing price of the
Company's common stock on August 5, 2004, the last full trading day
before the public announcement of the Continuing Shareholders' original
expression of interest in taking the Company private, a 17.5% premium
over the weighted average closing price of the Company's common stock
over the 5 trading days prior to August 5, 2004, a 17.3% premium over
the weighted average closing price of the Company's common stock over
30 trading days prior to August 5, 2004, a 15.5% premium over the
weighted average closing price of the Company's common stock over the
13 weeks prior to August 5, 2004, a 7.1% premium over the 52 week high
prior to August 5, 2004, and a 26.3% premium over the 52 week low prior
to August 5, 2004. The premiums over historical trading prices
represented by the Offer support the substantive fairness of the Offer.
o The Offer is conditioned, subject to waiver by Purchaser, on the tender
of at least a sufficient number of Shares such that, after the Shares
are purchased pursuant to the Offer, Purchaser would own at least 90%
of the Company's then outstanding common stock. In addition, in no
event will Purchaser purchase Shares in the Offer if less than a
majority of the outstanding Shares, excluding the Shares beneficially
owned by the Continuing Shareholders and the executive officers and
directors of the Company, are validly tendered and not withdrawn.
Accordingly, approximately 378,301 Shares not owned by the Continuing
Shareholders would need to be validly tendered and not withdrawn to
satisfy the Majority of the Minority Condition. Acceptance of the Offer
by the Company's unaffiliated shareholders holding such number of
Shares provides meaningful procedural protection for the Company's
shareholders, supporting the procedural fairness of the Offer.
Further, if approximately 572,307 of the Shares not owned by the
Continuing Shareholders are validly tendered and not withdrawn, both
the Majority of the Minority Condition and the Minimum Tender Condition
would be satisfied, further supporting the procedural fairness of the
Offer.
o Shareholders of the Company who elect not to tender their Shares in the
Offer will receive the same consideration in the Merger that Purchaser
pays in the Offer, subject to their right to assert dissenters' rights
and demand payment of the fair value of their Shares pursuant to the
dissenters' right provisions of OR Business Act (Section 60.551 through
Section 60.594 of the OR Business Act). See Schedule A for the text of
the
38
dissenters' rights provisions. Thus, because shareholders would receive
the same consideration in the Merger or have the ability to assert
dissenters' rights and seek payment of the fair value of their Shares,
shareholders would not be coerced to tender their Shares in the Offer,
further supporting the procedural fairness of the Offer.
o The Analysis by Veber Partners providing that a fair value was $6.57
per Share, supporting the substantive fairness of the Offer.
o Purchaser and the Continuing Shareholders believe the Offer Price to be
fair considering the Analysis and the Company's recent financial
performance, profitability and uncertain growth prospects. In addition,
the risk factors and uncertainties identified in the Company's Exchange
Act reports represent factors that could materially limit Elmer's
growth and profitability. As a result, Purchaser and the Continuing
Shareholders believe the fair value of the stock to be $6.57 and
therefore believe that the Offer Price, which represents a 14.2%
premium, is substantively fair.
o The Offer and the Merger would shift the risk of the future financial
performance of the Company from the public shareholders, who do not
have the power to control decisions made as to the Company's business,
entirely to the Continuing Shareholders, who would have the power to
control Company's business and have the resources to manage and bear
the risks inherent in the business over the long term.
o Purchaser and the Continuing Shareholders considered the terms of the
Offer and the Merger, including the amount and form of the
consideration, the tender offer structure, which would provide an
expeditious means for the Company's shareholders not affiliated with
Purchaser or the Continuing Shareholders to receive the Offer Price,
and the Minimum Tender Condition and the Majority of the Minority
Condition, as all supporting the procedural and substantive fairness of
the Offer.
o The Offer, particularly when considered in light of the average daily
trading volume of (i) 1,620 Shares for the year ending August 5, 2004
(the last full trading day before the original announcement of the
going private proposal) (ii) 1,808 Shares for the year ending December
8, 2004, and (iii) 1,504 Shares for the four years ending December 8,
2004, provides the opportunity for the Company's shareholders not
affiliated with Purchaser or the Continuing Shareholders to sell all of
their Shares without the risk of fluctuation in the sale price that may
otherwise be associated with such a sale and without incurring
brokerage and other costs typically associated with market sales (other
than fees that may be charged by a broker or nominee for Shares held in
"street name").
o The small size of Elmer's "public float" and its small shareholder
base, as indicated by the approximately 157 holders of record plus
approximately 450 beneficial owners, decrease the likelihood that there
will be a significant active trading market for the Shares in the
foreseeable future.
o Elmer's has never paid a cash dividend and there is no intention to do
so in the foreseeable future.
39
o The Offer provides Elmer's shareholders an opportunity to sell all of
their Shares at a premium in a market that has consistently evidenced
limited liquidity.
The Offer price represents a 34% premium relative to the Company's net
book value as reported on the Company's most recent Form 10-Q for the
twenty-eight weeks ended October 11, 2004 filed with the SEC, and a 44.6%
premium relative to the Company's net book value as reported on the Company's
Form 10-K for the fiscal year ended March 29, 2004 filed with the SEC. However,
Purchaser and the Continuing Shareholders believe, based in part on the
Analysis, that net book value is not a reliable valuation methodology when the
going concern value exceeds the net book value. Accordingly, Purchaser and the
Continuing Shareholders did not give this factor significant weight in their
determination of the substantive fairness of the Offer to shareholders
unaffiliated with Purchaser and the Continuing Shareholders.
Purchaser and the Continuing Shareholders do not believe that Elmer's
liquidation value is materially relevant to the market value of the Company's
business based upon their understanding of the restaurant and restaurant
franchising industries, their general business knowledge that liquidation sales
generally result in proceeds substantially less than the sale of a going concern
business, and the Analysis. Accordingly, Purchaser and the Continuing
Shareholders did not undertake an analysis of liquidation value.
The Continuing Shareholders also considered the following factors, each
of which they considered negative, in their deliberations concerning the
fairness of the terms of the Offer and the Merger:
o Following the successful completion of the Offer and the Merger,
shareholders of the Company (other than the Continuing Shareholders)
would cease to have the opportunity to participate in the future
earnings or growth, if any, of the Company or benefit from increases,
if any, in the value of their holdings of the Company.
o The structure of the transaction does not provide Company shareholders
with an opportunity to approve or disapprove the Offer or the Merger by
means of a shareholder vote (but does provide each shareholder an
opportunity to decide whether to participate in the Offer).
o The financial interests of the Continuing Shareholders with regard to
the Offer Price are adverse to the financial interests of the
shareholders being asked to tender their Shares. In addition, officers
and directors of the Company have conflicts of interest in connection
with the Offer and the Merger. See "Schedule 14D-9--Item 3. Past
Contacts, Transactions, Negotiations and Agreements" to be filed by
Elmer's within ten (10) days after the date of this Offer to Purchase.
o Although Purchaser and the Continuing Shareholders have received a
valuation analysis from Veber Partners supporting their views as to the
fairness of the Offer to shareholders not affiliated with the
Continuing Shareholders, the Offer Price may be less than what would be
obtained if Elmer's was actually sold to an independent third party.
However, in light of Purchaser's and the Continuing Shareholders'
perception (based on their prior
40
activities in pursuing a sale of the Company, the absence of inquiries
to the Company and their significant collective experience in the
restaurant industry) of a continued lack of interest from independent
third parties in the market in actually acquiring Elmer's, Purchaser
and the Continuing Shareholders did not give this factor much weight in
their determination of the fairness of the Offer.
o The financing for the Offer and the Merger will be secured by the
assets of Elmer's.
o The absence of any independent directors or an independent special
committee to act solely on behalf of shareholders unaffiliated with
Purchaser and the Continuing Shareholders and the fact no
representative unaffiliated with Purchaser and the Continuing
Shareholders was retained to act solely on behalf of shareholders
unaffiliated with Purchaser and the Continuing Shareholders.
o The absence of a fairness opinion.
The Purchaser and the Continuing Shareholders believe that the current
trading prices of the Shares at or near the Offer Price should not impact the
substantive fairness of the Offer Price because they believe that the price of
the Shares immediately increased, and remained fairly constant following such
increase, after the August 6, 2004 announcement of their interest in taking the
Company private. Purchaser and the Continuing Shareholders believe the increased
trading price of the Shares resulted from a relatively small number of buyers of
the Company's common stock attempting to take advantage of arbitrage
opportunities in the time period immediately following the August 6, 2004
announcement. In addition, Purchaser and the Continuing Shareholders believe
that because the Shares are thinly traded, the price of the Shares can increase
substantially in response to a small number of purchases, which is in fact what
occurred shortly after such public announcement. Accordingly, Purchaser and the
Continuing Shareholders believe that the price of the Shares has not accurately
reflected its fair value since the announcement on August 6, 2004, and that the
Offer Price remains substantively fair.
The foregoing discussion of the information and factors considered by
Purchaser and the Continuing Shareholders is not intended to be exhaustive but
includes all material factors considered. In view of the variety of factors
considered in connection with their evaluation of the Offer and the Merger,
Purchaser and the Continuing Shareholders did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching their determination and recommendation. However,
considering these factors as a whole and in the context of the Company's
financial position, and the belief of Purchaser and the Continuing Shareholders
that individual shareholders are best able to determine for themselves whether
to tender their Shares and obtain cash in the Offer, Purchaser and the
Continuing Shareholders believe the Offer and the Merger are in the best
interests of the Company and its shareholders and are substantively and
procedurally fair.
Purchaser and the Continuing Shareholders have not requested or sought
to obtain any report, opinion or appraisal from an outside party relating to the
consideration or fairness of the consideration offered to the shareholders of
Elmer's unaffiliated with Purchaser or the Continuing Shareholders. The decision
not to seek such a report, opinion or appraisal poses
41
certain risks to shareholders in determining whether to tender their shares. In
particular, shareholders would not have the benefit of having an independent
analysis of the Offer Price performed by a party that does not have conflicts of
interest in the transaction, such as those described in "Special
Factors--Section 6. Conflicts of Interest."
THE VIEWS OF PURCHASER AND THE CONTINUING SHAREHOLDERS AS TO THE
FAIRNESS OF THE OFFER AND THE MERGER SHOULD NOT BE CONSTRUED AS A RECOMMENDATION
AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR SHARES.
5. PURCHASER'S PLANS FOR THE COMPANY
If the Minimum Tender Condition is satisfied and Purchaser purchases
the Shares pursuant to the Offer, Purchaser will effect the Merger. As a result
of the consummation of the Offer and the Merger, the Company will be wholly
owned by the Continuing Shareholders. The Continuing Shareholders do not
contemplate any material changes in the day-to-day management and operation of
the business of the Company.
Following the completion of the Offer and the consummation of the
Merger, Purchaser and the Continuing Shareholders expect that the Company will
promptly cause the shares to be de-listed from the Nasdaq SmallCap Market and
de-registered under the Exchange Act and the Company will be a privately held
corporation. Accordingly, shareholders who are not affiliated with Purchaser or
the Continuing Shareholders will no longer have an equity interest in Elmer's
and will not have the opportunity to participate in the future earnings and
growth of Elmer's. In addition, current shareholders who are not affiliated with
Purchaser or the Continuing Shareholders will not be entitled to share in any
premium that might be payable by an unrelated acquirer for all of the issued and
outstanding Shares in a sale transaction, if any, occurring after the
consummation of the Merger. No such transactions are pending or contemplated at
this time and there have been no formal discussions regarding such a transaction
in recent years. Similarly, after completion of the Merger, former shareholders
will not face the risk of losses resulting from Elmer's operations or from any
decline in the value of Elmer's.
The shares are currently registered under the Exchange Act. Such
registration may be terminated by Elmer's upon application to the SEC if the
outstanding shares of Elmer's common stock are not listed on a national
securities exchange and if there are fewer than 300 holders of record of shares
of Elmer's common stock. As a result of termination of registration of the
shares of Elmer's common stock under the Exchange Act, Elmer's would no longer
be obligated to file reports with the SEC under the Exchange Act. Such
termination of registration would reduce the information required to be
furnished by Elmer's to its shareholders. The Continuing Shareholders intend to
seek to cause Elmer's to apply for termination of registration of the shares as
soon as possible after completion of the Offer and the Merger.
Except for the plans of Purchaser and the Continuing Shareholders to
make an election (the "S Election") to be treated as an electing small business
corporation ("S corporation") within the meaning of Section 1361 of the Internal
Revenue Code of 1986, as amended, Purchaser and the Continuing Shareholders have
no current plans or proposals or negotiations which relate to or
42
would result in: (i) an extraordinary corporate transaction, such as a merger
(other than the Merger), reorganization or liquidation involving Elmer's or any
of its subsidiaries; (ii) any purchase, sale or transfer of a material amount of
assets of Elmer's or any of its subsidiaries; (iii) any material change in
Elmer's present dividend policy (other than distributions following the Merger
to the Continuing Shareholders of amounts sufficient to cover tax liabilities
result from its status as an S corporation), indebtedness (other than the debt
to be incurred in connection with the financing of the Offer and the Merger, as
more fully described in "The Offer--Section 10. Source and Amount of Funds") or
capitalization; (iv) any change in the management of Elmer's; or (v) any other
material change in Elmer's corporate structure or business. Purchaser and the
Continuing Shareholders expressly reserve the right to change the business plans
with respect to Elmer's based on future developments.
As a result of the Offer and Merger, the Continuing Shareholders will
be entitled to all the benefits resulting from 100% ownership of Elmer's,
including all income generated by Elmer's operations and any future increase in
Elmer's value. According to the Elmer's Quarterly Report on Form 10-Q for the
quarterly period ended October 11, 2004, the net book value of Elmer's was
$10,239,888, and its net income for the twenty eight weeks of its fiscal year
ending March 28, 2005 was $523,953. As a result of the consummation of the Offer
and Merger (in which the Continuing Shareholders will become the only
shareholders of Elmer's), the Continuing Shareholders' interest in the net book
value of Elmer's (as of October 11, 2004) will increase from 59% or $6,041,534
to 100% or $10,239,888, and its interest in Elmer's net income (as of October
11, 2004) will increase from 59% or $314,442 to 100% or $523,953. However, debt
to be incurred to finance the Offer and the Merger will reduce both the net book
value and the net income of the Company following the Merger. See "The
Offer--Section 7. Certain Information Concerning the Company" for information on
the pro forma effects of the Offer and the Merger.
In sum, following the consummation of the Offer and Merger, the
Continuing Shareholders will be solely entitled to any income generated by
Elmer's operations and any future increase in Elmer's value, and will solely
bear any risk of losses generated by Elmer's operations and any future decrease
in Elmer's value. Upon consummation of the Merger, Elmer's will become a
privately held corporation. Accordingly, former shareholders of Elmer's (other
than the Continuing Shareholders) will not have the opportunity to participate
in the earnings and any growth of Elmer's after the Offer and Merger and will
not have any right to vote on corporate matters. Similarly, former shareholders
of Elmer's (other than the Continuing Shareholders) will not face any risk of a
decline in Elmer's stock value after the Offer and the Merger. Following the
consummation of the Merger, Elmer's Shares will not be publicly traded on the
Nasdaq SmallCap Market. As soon as possible following the Merger, the Continuing
Shareholders will cause the Company to terminate the registration of the Shares
under the Exchange Act, thereby reducing the amount of information about Elmer's
(including its financial statements) that must be disclosed to the public.
6. CONFLICTS OF INTEREST
PURCHASER AND CONTROLLING SHAREHOLDERS. The financial interests of
Purchaser and the Continuing Shareholders, with regard to the Offer Price, are
adverse to the financial interests of
43
the shareholders being asked to tender their Shares. Further, if the Minimum
Tender Condition is satisfied, and Purchaser consummates the Offer and the
Merger, the financing for the Offer and the Merger will be secured by the assets
of the Company.
CONTROL OF ELMER'S. The Continuing Shareholders have substantial voting
control over the Company. Collectively, the Continuing Shareholders own
1,086,344 Shares, which represent approximately 59% of the Company's outstanding
common stock. As a result of their voting interest, the Continuing Shareholders
have the power to control the vote regarding such matters as the election of the
Company's directors, amendments to the Company's articles of incorporation and
other fundamental corporate transactions.
OPTION SHARES. Certain of the Continuing Shareholders hold options to
purchase 291,064 Shares with exercise prices below $7.50. Under the Company's
1999 Stock Option Plan (the "Plan"), the Offer and the Merger will result in the
acceleration of vesting of all outstanding options, including options held by
the Continuing Shareholder. However, the Continuing Shareholders have agreed to
waive their right to exercise options in the Offer that vest as a result of the
Offer and the Merger. With respect to all options held by the Continuing
Shareholders, the Continuing Shareholders will have the choice in connection
with the Merger: (a) to receive for each Share issuable upon exercise of such
options the amount by which the Offer Price exceeds the exercise price in cash
in the Merger; (b) to retain the options on the same terms and conditions in
effect prior to the Offer and the Merger; or (c) to receive some cash and to
retain some options, in such combination as may be determined by each of the
Continuing Shareholders with respect to their options. As a result, in the event
the Merger occurs, the Continuing Shareholders may receive cash in an amount up
to $799,514.91 in the aggregate for the Shares underlying the options if all of
the Continuing Shareholder elected to cash out all their options.
The following table sets forth the total number of options held by the
Continuing Shareholders and the total cash consideration each of the Continuing
Shareholders would receive if they all opted to cash out of their options in the
Merger.
Name of the Continuing Number of Current Total Cash Consideration
---------------------- ----------------- ------------------------
Shareholder Options Payable in the Merger*
----------- ------- ----------------------
Thomas C. Connor 22,638 $66,453.04
Bruce N. Davis 78,829 $207,465.90
Corydon H. Jensen, Jr. 22,638 $66,453.04
Gerald A. Scott 26,854 $86,090.94
William W. Service 82,829 $213,885.90
Dennis M. Waldron 12,000 $26,260.00
Richard C. Williams 22,638 $66,453.04
Donald W. Woolley 22,638 $66,453.04
Total 291,064 $799,514.91
*Total cash consideration is equal to the amount by which the Offer
Price exceeds the exercise price for the Continuing Shareholders' options. The
exercise prices of such options range from $3.92 to $6.77.
44
The above described financial and equity interests present these individuals
with actual or potential conflicts of interest in determining the fairness of
the Offer to the Company's shareholders not affiliated with Purchaser or the
Continuing Shareholders.
DIRECTORS, OFFICERS AND EMPLOYEES OF THE COMPANY. The following
Continuing Shareholders hold the following positions with Elmer's: Bruce N.
Davis serves as President and Chairman of the Board of Elmer's and Gerald A.
Scott is a Vice President. Thomas C. Connor, Corydon H. Jensen, William W.
Service, Dennis M. Waldron, Richard C. Williams and Donald W. Woolley serve as
directors of the Company. Mr. Service is also the former Chief Executive Officer
of the Company. See "The Offer--Section 8. Certain Information Concerning
Purchaser and the Continuing Shareholders" for information about Shares owned by
the Continuing Shareholders. These positions and equity interests present these
individuals with actual or potential conflicts of interest in determining the
fairness of the Offer to the Company's shareholders not affiliated with
Purchaser or the Continuing Shareholders.
Following consummation of the Offer and the Merger, both the Board of
Directors and the executive officers of the Company will remain the same as
prior to the Offer and the Merger. In addition, all other officers of the
Company who are not Continuing Shareholders will continue in their positions as
officers of the surviving corporation following the consummation of the Merger.
USE OF COMPANY EMPLOYEES. Mike Chamberlin, Finance Manager, and Kristi
Dunlap, Administrative Assistant, have assisted Purchaser, Bruce N. Davis and
the other Continuing Shareholders in the preparation of the proposal for the
Offer and Merger, including assisting in the procurement of financing
arrangements with GE Capital, facilitating and reviewing information required
from the Continuing Shareholder in connection with the Offer and Merger and
performing certain other tasks related to the Offer and Merger. The Continuing
Shareholders have agreed to reimburse the Company for the fair value of the
services Mr. Chamberlin and Ms. Dunlap provided.
7. CONDUCT OF THE COMPANY'S BUSINESS IF THE OFFER IS NOT COMPLETED OR IF
PURCHASER WAIVES THE MINIMUM TENDER CONDITION
If the Offer is not completed because either the Minimum Tender
Condition or the Majority of the Minority Condition is not satisfied, or another
condition is not satisfied or waived, the Continuing Shareholders expect that
Elmer's current management will continue to operate the business of Elmer's
substantially as presently operated. However, in that event, or in the event
that the Majority of the Minority Condition is satisfied and Purchaser waives
the Minimum Tender Condition in order to consummate the Offer, Purchaser or the
Continuing Shareholders may consider:
o Engaging in open market or privately negotiated purchases of
Shares to increase Purchaser's aggregate ownership to at
least 90% of the then outstanding Shares and then effecting a
short-form merger; and/or
45
o Exercising options held by the Continuing Shareholders, which
were vested and exercisable prior to the public announcement
of Purchaser's original proposal to take the Company private,
to increase Purchaser's aggregate ownership to at least 90%
of the then outstanding Shares and then effecting a
short-form merger; or
o Proposing that Purchaser and the Company enter into a merger
agreement and effect a long-form merger, which would require
approval of the Company's board of directors and the vote of
the shareholders of the Company in favor of the merger.
Pursuing a long-form merger would require the approval of the Company's
Board of Directors and a majority vote of the outstanding shares of the
Company's common stock in favor of the merger. Whether Purchaser waives the
Minimum Tender Condition is subject to Purchaser's determination that purchasing
Shares in the absence of the Minimum Tender Condition is financially prudent,
which will be based on Purchaser's consideration of: (a) the number and
percentage of Shares actually tendered; (b) Purchaser's perception of the costs
and burdens of there being a minority stock ownership in the Company; and (c)
the financial resources and liquidity of the Continuing Shareholders to support
the ability to make such a purchase.
In addition, if there are less than 300 shareholders owning at least
100 Shares, or if the Company is unable to comply with another requirement for
continued listing on the Nasdaq SmallCap Market, as a result of the purchase of
the tendered Shares in the Offer, the Shares may be delisted from the Nasdaq
SmallCap Market. The Shares may also be deregistered from the reporting
requirements of the Exchange Act if there are less than 300 remaining
shareholders. In any event, any Shares not tendered would remain outstanding.
If Purchaser elects to pursue an alternative transaction, there is no
assurance such a transaction would be consummated or at what price, and it might
take considerably longer for the shareholders of the Company to receive any
consideration for their Shares (other than through sales in the open market)
than if they had tendered their Shares in the Offer. Any such transaction may
result in proceeds per Share to the shareholders of the Company that are more or
less than or the same as the Offer Price. Purchaser currently does not know
whether a second-step transaction, such as a long-form merger, or open market or
privately negotiated purchases of Shares, would be viable in the event Purchaser
were to waive the Minimum Tender Condition. In the event that Purchaser does not
own at least 90% of the outstanding Shares after consummating the Offer and if
such a second-step transaction does not occur, the market for Shares that were
not tendered in the Offer would be adversely affected.
THE OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE
This Offer is for the purchase of all of the outstanding shares of
Elmer's common stock excluding shares owned by the Continuing Shareholders. As
of December 8, 2004, 756,601
46
Shares are being sought in the Offer. In addition, as of December 9, 2004, there
were outstanding options to acquire up to a total of 419,162 Shares that had an
exercise price less than the Offer Price, of which options to acquire up to
128,098 Shares were held by individuals other than the Continuing Shareholders.
Shares issued upon exercise of such options (other than options exercised by any
of the Continuing Shareholders) will also be subject to this Offer.
Upon the terms and subject to the conditions set forth in the Offer
(including the terms and conditions set forth in "The Offer--Section 11. Certain
Conditions of the Offer," and if the Offer is extended or amended, the terms and
conditions of such extension or amendment (the "Offer Conditions")), Purchaser
will accept for payment, and pay for, Shares validly tendered on or prior to the
Expiration Date (as defined herein) and not withdrawn as discussed under "The
Offer--Section 4. Rights of Withdrawal." The term "Expiration Date" means 12:00
midnight, Eastern Standard Time, on February 2, 2005, unless and until Purchaser
shall have extended the period for which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date on which the Offer,
as so extended by Purchaser, shall expire. The period until 12:00 midnight,
Eastern Standard Time, on February 2, 2005, as it may be extended, is referred
to as the "Offering Period."
Subject to the applicable rules and regulations of the SEC, Purchaser
expressly reserves the right, in its sole discretion, at any time or from time
to time, to extend the Offering Period by giving oral or written notice of such
extension to the Depositary and making a public announcement thereof as further
described below. During any such extension of the Offering Period, all Shares
previously tendered and not withdrawn will remain subject to the Offer, subject
to the right of a tendering shareholder to withdraw such shareholder's Shares.
See "The Offer--Section 4. Rights of Withdrawal."
Subject to the applicable regulations of the SEC, Purchaser also
expressly reserves the right, in its sole discretion, at any time or from time
to time prior to the Expiration Date:
o To delay acceptance for payment of or (regardless of whether such
Shares were theretofore accepted for payment) payment for, any tendered
Shares, or to terminate or amend the Offer as to any Shares not then
accepted and paid for, on the occurrence of any of the events specified
in "The Offer--Section 11. Certain Conditions of the Offer;" and
o To waive any condition other than the Majority of the Minority
Condition and to set forth or change any other term and condition of
the Offer except as otherwise specified in "The Offer--Section 11.
Certain Conditions of the Offer," in each case, by giving oral or
written notice of such delay, termination or amendment to the
Depositary and by making a public announcement thereof. If Purchaser
accepts any Shares for payment pursuant to the terms of the Offer, it
will accept for payment all Shares validly tendered during the Offering
Period and not withdrawn, and, on the terms and subject to the
conditions of the Offer, including but not limited to the Offer
Conditions, it will promptly pay for all Shares so accepted for
payment. Purchaser confirms that its reservation of the right to delay
payment for Shares that it has accepted for payment is limited by Rule
l4e-l(c) under the Exchange Act which requires that a tender offeror
pay the consideration offered
47
or return the tendered securities promptly after the termination or
withdrawal of a tender offer.
Any extension, delay, termination or amendment of the Offer will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be issued no later than 9:00 a.m.
Eastern Standard Time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(d), 14d-6(c)
and 14e-1 under the Exchange Act, which require that any material change in the
information published, sent or given to shareholders in connection with the
Offer be promptly disseminated to shareholders in a manner reasonably designed
to inform shareholders of such change), and without limiting the manner in which
Purchaser may choose to make any public announcement, Purchaser shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release or other announcement.
If, during the Offering Period, Purchaser, in its sole discretion,
shall decrease the percentage of Shares being sought or increase or decrease the
consideration offered to holders of Shares, such increase or decrease shall be
applicable to all holders whose Shares are accepted for payment pursuant to the
Offer and, if at the time notice of any increase or decrease is first published,
sent or given to holders of Shares, the Offer is scheduled to expire at any time
earlier than the tenth (10th) business day from and including the date that such
notice is first so published, sent or given, the Offer will be extended until
the expiration of such ten (10) business day period. Purchaser confirms that if
it makes a material change in the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer,
Purchaser will extend the Offer to the extent required by Rules 14d-4(d),
14d-6(c) and 14e-1 under the Exchange Act. The minimum period during which the
Offer must remain open following any material change in the terms of the Offer
or information concerning the Offer, other than a change in price or change in
percentage of securities sought, will depend upon the relevant facts and
circumstances then existing, including the relative materiality of the changed
terms or information. In a public release, the SEC has stated its views that an
offer must remain open for a minimum period of time following a material change
in the terms of the Offer and that waiver of a material condition is a material
change in the terms of the Offer. The release states that an offer should remain
open for a minimum of five (5) business days from the date a material change is
first published or sent or given to security holders and that, if material
changes are made with respect to information that approaches the significance of
price and percentage of Shares sought, a minimum of ten business days may be
required to allow for adequate dissemination to shareholders and investor
response. For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, Eastern Standard Time.
The Continuing Shareholders have exercised their rights as shareholders
of the Company to request the Company's shareholder list and security position
listings for the purpose of disseminating the Offer to shareholders. The Company
has provided the Continuing Shareholders with the Company's shareholder list and
security position listings for such purpose. This Offer to Purchase and the
related Letter of Transmittal will be mailed to record holders of Shares and
will be furnished to brokers, banks and similar persons whose names, or the
names of
48
whose nominees, appear on the shareholder list or, if applicable, who are listed
as participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including
the Offer Conditions and, if the Offer is extended or amended, the terms and
conditions of any such extension or amendment), Purchaser will accept for
payment, and will pay for, Shares validly tendered and not withdrawn as promptly
as practicable after the expiration of the Offering Period. Subject to
applicable rules of the SEC, Purchaser expressly reserves the right to delay
acceptance for payment of or payment for Shares in order to comply, in whole or
in part, with any applicable law. See "The Offer--Section 11. Certain Conditions
of the Offer." In all cases, payment for Shares tendered and accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of:
o Certificates evidencing such Shares;
o A properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees; and
o Any other required documents.
For purposes of the Offer, Purchaser will be deemed to have accepted
for payment Shares validly tendered and not withdrawn, if and when Purchaser
gives oral or written notice to the Depositary of its acceptance for payment of
such Shares pursuant to the Offer. Payment for Shares accepted for payment
pursuant to the Offer will be made by deposit of the purchase price therefor
with the Depositary, which will act as agent for the tendering shareholders for
the purpose of receiving payments from Purchaser and transmitting such payments
to the tendering shareholders. Upon the deposit of funds with the Depositary for
the purpose of making payments to tendering shareholders, Purchaser's obligation
to make such payment shall be satisfied, and tendering shareholders must
thereafter look solely to the Depositary for payment of amounts owed to them by
reason of the acceptance for payment of Shares pursuant to the Offer. UNDER NO
CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR TENDERED SHARES BE PAID,
REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
If any tendered Shares are not accepted for payment pursuant to the
terms and conditions of the Offer for any reason, or if certificates are
submitted for more Shares than are tendered, certificates for such unpurchased
Shares will be returned, without expense to the tendering shareholder, promptly
following expiration or termination of the Offer.
Purchaser reserves the right to transfer or assign, in whole or in part
and from time to time, to one or more of its affiliates the right to purchase
all or any portion of the Shares tendered pursuant to the Offer, but any such
transfer or assignment will not relieve Purchaser of its
49
obligations under the Offer and will in no way prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
3. PROCEDURES FOR TENDERING SHARES
VALID TENDER. To tender Shares pursuant to the Offer:
o A properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal, with any required signature guarantees, certificates for
Shares to be tendered and any other documents required by the Letter of
Transmittal, must be received by the Depositary prior to the Expiration
Date at its address set forth on the back cover of this Offer to
Purchase; or
o The tendering shareholder must comply with the guaranteed delivery
procedures set forth below.
SIGNATURE GUARANTEES. Signatures on a Letter of Transmittal need not be
guaranteed (i) if the Letter of Transmittal is signed by the registered holders
of Shares tendered therewith and such registered holder has not completed the
box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (ii) if such Shares are
tendered for the account of an Eligible Institution (as defined below). See
Instructions 1 and 5 of the Letter of Transmittal. Otherwise, all signatures on
a Letter of Transmittal must be guaranteed by a financial institution (including
most commercial banks, savings and loan associations and brokerage houses) that
is a participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program or by any other "Eligible Guarantor Institution," as such term
is defined in Rule 17d-15 under the Exchange Act (each, an "Eligible
Institution"). If the certificates for Shares are registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made, or certificates for Shares not tendered or not accepted for payment are
to be returned, to a person other than the registered holder of the certificates
surrendered, then the tendered certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holders or owners appear on the certificates, with the signatures
on the certificates or stock powers guaranteed as described above. If the Letter
of Transmittal or stock powers are signed or any certificate is endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by Purchaser, proper
evidence satisfactory to Purchaser of their authority to so act must be
submitted. See Instructions 1 and 5 of the Letter of Transmittal.
GUARANTEED DELIVERY. A shareholder who desires to tender Shares
pursuant to the Offer and whose certificates for Shares are not immediately
available or who cannot deliver all required documents to the Depositary prior
to the Expiration Date, may tender such Shares by following all of the
procedures set forth below:
o Such tender is made by or through an Eligible Institution;
50
o A properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Purchaser, is received by the
Depositary, as provided below, prior to the Expiration Date; and
o The certificates for all tendered Shares, in proper form for transfer,
together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature
guarantees, and any other required documents, are received by the
Depositary within three (3) trading days after the date of execution of
such Notice of Guaranteed Delivery. A "trading day" is any day on which
the Nasdaq SmallCap Market is open for business.
The Notice of Guaranteed Delivery may be delivered by hand or mail to
the Depositary or transmitted by telegram or facsimile transmission to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THE SHARES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING
SHAREHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE SHAREHOLDER USE
PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
OTHER REQUIREMENTS. Upon the terms and subject to the conditions of the
Offer (including the Offer Conditions and, if the Offer is extended or amended,
the terms and conditions of any such extension or amendment), Purchaser will
accept for payment, and will pay for, Shares validly tendered and not withdrawn
as promptly as practicable after the expiration of the Offering Period. Payment
for Shares tendered and accepted for payment pursuant to the Offer will be made
only after timely receipt by the Depositary of: (i) certificates evidencing such
Shares, (ii) a Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and (iii) any other
documents required by the Letter of Transmittal or Depositary. Accordingly,
tendering shareholders may be paid at different times depending upon when
certificates for Shares are actually received by the Depositary. UNDER NO
CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE OF THE TENDERED SHARES BE PAID
BY PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING
SUCH PAYMENT.
BINDING AGREEMENT. The Purchaser's acceptance for payment of Shares
tendered in response to the Offer will constitute a binding agreement by the
tendering shareholder to sell, and by Purchaser to purchase, the tendered Shares
on the terms and subject to the conditions of the Offer.
APPOINTMENT OF PROXIES. By executing a Letter of Transmittal as set
forth above subject to the right of withdrawal discussed below, the tendering
shareholder irrevocably appoints designees of Purchaser as such shareholder's
attorneys-in-fact and proxies, each with full power
51
of substitution, to the full extent of such shareholder's rights with respect to
the Shares tendered by such shareholder and accepted for payment by Purchaser
(and with respect to any and all other Shares or other securities issued or
issuable in respect of such Shares on or after the date of this Offer to
Purchase). All such powers of attorney and proxies will be considered coupled
with an interest in the tendered Shares. Such appointment is effective when, and
only to the extent that, Purchaser deposits the payment for such Shares with the
Depositary. Upon the effectiveness of such appointment, all prior powers of
attorney, proxies and consents given by such shareholder will be revoked, and no
subsequent powers of attorney, proxies and consents may be given (and, if given,
will not be deemed effective). Purchaser's designees will, with respect to the
Shares for which the appointment is effective, be empowered to exercise all
voting and other rights of such shareholders as they, in their sole discretion,
may deem proper at any annual, special or adjourned meeting of the shareholders
of Elmer's, by written consent in lieu of any such meeting or otherwise.
Purchaser reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon Purchaser's payment for such Shares,
Purchaser must be able to exercise full voting rights with respect to such
Shares.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by Purchaser in its sole discretion, which determination will
be final and binding. Purchaser reserves the absolute right to reject any and
all tenders determined by it not to be in proper form or the acceptance for
payment of or payment for which may, in the opinion of Purchaser's counsel, be
unlawful. Purchaser also reserves the absolute right to waive any defect or
irregularity in the tender of any Shares of any particular shareholder whether
or not similar defects or irregularities are waived in the case of other
shareholders. No tender of Shares will be deemed to have been validly made until
all defects and irregularities relating thereto have been cured or waived to the
satisfaction of Purchaser. None of Purchaser, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in tenders or incur any liability for failure to give
any such notification. Purchaser's interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal and Instructions thereto) will be
final and binding.
BACKUP WITHHOLDING. In order to avoid "backup withholding" of Federal
income tax on payments of cash pursuant to the Offer, a shareholder surrendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such shareholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such shareholder is not subject to backup withholding. If a
shareholder does not provide such shareholder's correct TIN or fails to provide
the certifications described above, the Internal Revenue Service (the "IRS") may
impose a penalty on such shareholder and payment of cash to such shareholder
pursuant to the Offer may be subject to backup withholding at applicable rates
(currently 28%). Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained by filing a tax return with the IRS. All shareholders who are United
States persons surrendering Shares pursuant to the Offer should complete and
sign the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to Purchaser and the Depositary). Certain shareholders
52
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Non-corporate foreign
shareholders should complete and sign the main signature form and a statement,
signed under penalties of perjury, attesting to that shareholder's exempt status
in order to avoid backup withholding. Forms of such statement may be obtained
from the Depositary. See Instruction 8 to the Letter of Transmittal.
4. RIGHTS OF WITHDRAWAL
Tenders of Shares made pursuant to the Offer are irrevocable except
that Shares tendered pursuant to the Offer may be withdrawn at any time prior to
midnight, Eastern Standard Time on February 2, 2005, the expiration of the
Offering Period, unless extended pursuant to "The Offer --Section 1. Terms of
the Offer; Expiration Date" and, unless theretofore accepted for payment by
Purchaser pursuant to the Offer, may also be withdrawn at any time until such
Shares are accepted for payment.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at its address or
facsimile number set forth on the back cover of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person having tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the names in
which the certificate(s) evidencing the Shares to be withdrawn are registered,
if different from that of the person who tendered such Shares. The signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of any Eligible
Institution. If certificates for Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, the name of the registered holder and
the serial numbers of the particular certificates evidencing the Shares to be
withdrawn must also be furnished to the Depositary as aforesaid prior to the
physical release of such certificates.
All questions as to the form and validity (including time of receipt)
of any notice of withdrawal will be determined by Purchaser, in its sole
discretion, which determination shall be final and binding. None of Purchaser,
the Continuing Shareholders, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give such notification.
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will be deemed not to have been validly tendered for purposes
of the Offer. However, withdrawn Shares may be re-tendered by following one of
the procedures described in "The Offer--Section 3. Procedures for Tendering
Shares," at any time prior to the Expiration Date.
If Purchaser extends the Offer, is delayed in its acceptance for
payment of Shares, or is unable to accept for payment Shares pursuant to the
Offer for any reason, then, without prejudice to Purchaser's rights under this
Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered
Shares, and such Shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as set forth in this Section 4.
Any such delay will be accompanied by an extension of the Offer to the extent
required by law.
53
5. MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER
The following is a summary of material United States federal income tax
consequences of the Offer and the Merger to holders of Shares ("Holders") whose
Shares are purchased pursuant to the Offer or whose Shares are converted into
the right to receive cash in the Merger. The summary is based on the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), applicable
current and proposed United States Treasury Regulations issued thereunder,
judicial authority and administrative rulings and practice, all of which are
subject to change, possibly with retroactive effect, at any time and, therefore,
the following statements and conclusions could be altered or modified. The
discussion does not address Holders in whose hands Shares are not capital
assets, nor does it address Holders who hold Shares as part of a hedging,
"straddle," conversion or other integrated transaction, or who received Shares
upon conversion of securities or exercise of warrants or other rights to acquire
Shares or pursuant to the exercise of employee stock options or otherwise as
compensation or to Holders who are in special tax situations (such as insurance
companies, tax-exempt organizations, financial institutions, United States
expatriates or non-U.S. persons). Furthermore, the discussion does not address
the tax treatment of Holders who exercise appraisal rights in the Merger or who
are related to any shareholder of Purchaser or any Continuing Shareholder, nor
does it address any aspect of state, local or foreign taxation or estate and
gift taxation. Holders should consult their own tax advisors to assist them in
determining whether they are related to any shareholder of Purchaser.
The following summary does not purport to consider all aspects of
United States federal income taxation that might be relevant to each Holder.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE
RULES DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE PARTICULAR TAX EFFECTS ON THE
HOLDER OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash by a Holder in exchange for Shares pursuant to the
Offer or the Merger will be a taxable transaction for United States federal
income tax purposes (and also may be a taxable transaction under applicable
state, local, and foreign tax laws). In general, for United States federal
income tax purposes, a Holder will recognize gain or loss equal to the
difference between the Holder's adjusted tax basis in the Shares sold pursuant
to the Offer or converted to cash in the Merger and the amount of cash received
therefor. Gain or loss must be determined separately for each block of Shares
(i.e., Shares acquired at the same cost in a single transaction) sold pursuant
to the Offer or converted to cash in the Merger. If the Shares exchanged
constitute capital assets in the hands of the shareholder, gain or loss will be
capital gain or loss. In general, capital gains recognized by an individual will
be subject to a maximum United States federal income tax rate of 15% if the
Shares were held for more than one year on the date of sale (or, if applicable,
the date of the Merger), and if held for one year or less they will be subject
to tax at ordinary income tax rates. Certain limitations may apply to the use of
capital losses.
54
The receipt of cash pursuant to the exercise by a Holder of dissenters'
rights under the OR Business Act will be a taxable transaction. Any Holder
considering the exercise of appraisal rights should consult a tax advisor to
determine the tax consequence of exercising such appraisal rights.
Payments in connection with the Offer or the Merger may be subject to
"backup withholding" at applicable rates (currently 28%). Backup withholding
generally applies if a Holder (a) fails to furnish its social security number or
other taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN,
(c) fails properly to include a reportable interest or dividend payment on its
United States federal income tax return, or (d) under certain circumstances,
fails to provide a certified statement, signed under penalties of perjury, that
the TIN provided is its correct number and that such Holder is not subject to
backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons generally are entitled to exemption from
backup withholding, including corporations, financial institutions and certain
foreign shareholders if such foreign shareholders submit a statement, signed
under penalties of perjury, attesting to their exempt status. Certain penalties
apply for failure to furnish correct information and for failure to include
reportable payments in income. Each Holder should consult such Holder's own tax
advisor as to its qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
All Holders who are United States persons surrendering Shares pursuant
to the Offer should complete and sign the main signature form and the Substitute
Form W-9 included as part of the Letter of Transmittal to provide the
information and certification necessary to avoid backup withholding (unless an
applicable exemption exists and is proved in a manner satisfactory to Purchaser
and the Depositary). Non-corporate foreign shareholders should complete and sign
the main signature form and a statement, signed under penalties of perjury,
attesting to that shareholder's exempt status (such forms can be obtained from
the Depositary), in order to avoid backup withholding.
THE INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE APPLICABLE TO
HOLDERS IN SPECIAL SITUATIONS SUCH AS HOLDERS WHO RECEIVED THEIR SHARES UPON THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND HOLDERS WHO
ARE NOT UNITED STATES PERSONS. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, AND
FOREIGN TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS; OWNERSHIP OF AND TRANSACTIONS IN
SHARES
PRICE RANGE OF SHARES. The Company's common stock is currently listed
and traded on the Nasdaq SmallCap Market under the symbol "ELMS." The following
table sets forth, for the fiscal quarters indicated, the high and low sales
prices for the Company's common stock based upon public sources:
55
FISCAL QUARTER HIGH AND LOW SALES PRICES
QUARTER HIGH LOW
----------------------------------------------------- ---------- ---------
Fiscal Year Ended March 31, 2003
First Quarter $7.51 $4.74
Second Quarter $6.04 $4.90
Third Quarter $5.42 $4.97
Fourth Quarter $6.50 $5.00
Fiscal Year Ended March 29, 2004
First Quarter $8.00 $4.83
Second Quarter $6.49 $5.91
Third Quarter $6.75 $6.00
Fourth Quarter $7.50 $6.40
Fiscal Year Ending March 28, 2005
First Quarter $7.35 $6.16
Second Quarter* $7.75 $6.07
Third Quarter through December 16, 2004** $7.55 $7.40
*On August 5, 2004, the last full trading day before the
public announcement of Purchaser's proposal to acquire the Shares, the
reported closing price was $6.25 per share on the Nasdaq SmallCap
Market.
**On December 17, 2004, the last full trading day prior to
this Offer, the reported closing price was $7.50 per share on the
Nasdaq SmallCap Market.
DIVIDENDS. To date, Elmer's has never declared or paid cash dividends
on the Shares. In March 2002 the Elmer's declared a five-percent stock dividend.
Elmer's is subject to certain debt covenants that limit its ability to pay
dividends.
TRANSACTIONS IN SHARES. In the past two years, neither Purchaser nor
any of the Continuing Shareholders has acquired any Shares except:
Name of Reporting Amount of Securities
Person Purchased Range of Prices Paid Average Purchase Price Per Quarter
--------------------- ------------------------ ------------------------ --------------------------------------
Thomas C. Connor 20,000* $5.38 First Quarter 2003 - $5.38
David C. Mann 12,000 $5.308-$6.428 Third Quarter 2004 - $6.297
First Quarter 2003 - $5.417
Gregory W. Wendt 5,000 $5.25 First Quarter 2004 - $5.25
Donald W. Woolley 20,000* $5.38 First Quarter 2003 - $5.38
*Franklin Holdings, LLC purchased 80,000 shares of common stock on
March 4, 2003 at a per share purchase price of $5.38. Thomas C. Connor and
Donald W. Woolley each owned 25% of Franklin Holdings, LLC and, on November 4,
2004, Franklin Holdings, LLC distributed all of its Shares on a pro rata basis
to the members of Franklin Holdings, LLC.
56
7. CERTAIN INFORMATION CONCERNING THE COMPANY
The information concerning the Company contained in this Offer to
Purchase has been taken from or based upon publicly available documents and
records on file with the SEC and other public sources and is qualified in its
entirety by reference thereto. Purchaser and the Continuing Shareholders have no
knowledge that would indicate that any statements contained herein based on such
documents and records are untrue, or of any failure by the Company to disclose
events that may have occurred or may affect the significance or accuracy of any
such information but are unknown to Purchaser or the Continuing Shareholders.
Shareholders are urged to review publicly available information
concerning the Company before acting on the Offer.
GENERAL. Elmer's is an Oregon corporation with its principal corporate
offices located at 11802 S.E. Stark Street, Portland, Oregon 97216 (telephone
number (503) 252-1485). Elmer's has described its business as follows:
Elmer's is a franchisor and operator of full-service, family oriented
restaurants under the names "Elmer's Breakfast o Lunch o Dinner(R)" and
"Mitzel's American Kitchen", and operates delicatessen restaurants under the
names "Ashley's Cafe", "Richard's Deli and Pub" and "Cooper's Deli and Pub." The
Company is an Oregon corporation and was incorporated in 1983. Walter Elmer
opened the first Elmer's restaurant in Portland, Oregon in 1960, and the first
franchised restaurant opened in 1966. The Company acquired the Elmer's
franchising operation in January 1984 from the Elmer family. The Company now
owns and operates 10 Elmer's restaurants, 5 Mitzel's American Kitchen
restaurants, and 13 Delis, and franchises 23 Elmer's restaurants in five western
states. The Company reports on a fiscal year, which ends on the Monday nearest
March 31st.
INTENT TO TENDER. As of the date hereof, Purchaser and the Continuing
Shareholders are not aware whether the executive officers of the Company (other
than the Continuing Shareholders) believe the Offer is fair, will exercise their
options to purchase Shares and, if they do, whether they intend to tender such
Shares in the Offer.
AVAILABLE INFORMATION. Elmer's is subject to the information and
reporting requirements of the Exchange Act and in accordance therewith is
obligated to file reports and other information with the SEC relating to its
business, financial condition and other matters. Information, as of particular
dates, concerning Elmer's directors and officers, their remuneration, stock
options granted to them, the principal holders of Elmer's securities, any
material interests of such persons in transactions with Elmer's and other
matters is required to be disclosed in proxy statements distributed to Elmer's
shareholders and filed with the SEC. Such reports, proxy statements and other
information should be available for inspection at the public reference room at
the SEC's offices at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies may
be obtained, by mail, upon payment of the SEC's customary charges, by writing to
its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and can be obtained electronically on the SEC's website at
http://www.sec.gov.
57
SELECTED CONSOLIDATED FINANCIAL INFORMATION. The following table sets
forth summary historical consolidated financial data for Elmer's as of and for
each of the fiscal years ended March 31, 2003 and March 29, 2004, respectively,
and for the twenty-eight week periods ended October 11, 2004 and October 13,
2003, respectively.
This data and the comparative per share data set forth below are
extracted from, and should be read in conjunction with, the audited consolidated
financial statements and other financial information contained in or filed as an
exhibit to Elmer's Annual Reports on Form 10-K for the fiscal years ended March
29, 2004 and March 31, 2003 and Quarterly Reports on Form 10-Q for the periods
ended October 11, 2004 and October 13, 2003, including the notes thereto. These
documents, including the exhibits filed therewith, are incorporated by reference
in this Offer to Purchase. More comprehensive financial information is included
in such reports (including management's discussion and analysis of financial
condition and results of operation) and other documents filed by Elmer's with
the SEC, and the following summary is qualified in its entirety by reference to
such reports and other documents and all of the financial information and notes
contained therein. Copies of such reports and other documents may be examined at
or obtained from the SEC in the manner set forth above.
------------------------------- -------------------------------
TWENTY-EIGHT WEEKS
ENDED YEAR ENDED
(unaudited)
-------------- ---------------- --------------- ---------------
OCTOBER 11, OCTOBER 13, MARCH 29, MARCH 31,
2004 2003 2004 2003
-------------- ---------------- --------------- ---------------
(AMOUNTS IN 000s, EXCEPT PER SHARE DATA)
------------------------------------------------------ ---------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Revenues 17,638 17,895 33,492 31,984
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Income (loss) before income taxes 784 1,046 1,902 2,318
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Net income (loss) 533 694 1,277 1,558
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Basic (loss) earnings per share 0.29 0.34 0.64 0.76
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Diluted (loss) earnings per share 0.27 0.32 0.62 0.74
------------------------------------------------------ -------------- ---------------- --------------- ---------------
BALANCE SHEET DATA (At End of Period):
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Total current assets 4,110 4,608 3,843 4,083
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Property and equipment, net 8,873 6,998 9,325 7,076
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Total assets 18,917 18,967 19,045 17,389
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Total current liabilities 2,532 2,628 3,076 2,252
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Total liabilities 8,695 8,468 9,421 7,639
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Shareholders' equity 10,240 10,500 9,624 9,750
------------------------------------------------------ -------------- ---------------- --------------- ---------------
Book value per share $5.59 $5.14 $5.30 $4.78
------------------------------------------------------ -------------- ---------------- --------------- ---------------
The Company historically has not reported a ratio of earnings to fixed
charges. Nonetheless, the Company's ratio of earnings to fixed charges, computed
in a manner consistent with Item 503(d) of Regulation S-K, for the two most
recent fiscal years and the interim periods reported above, are as follows:
58
TWENTY-EIGHT WEEKS ENDED YEAR ENDED
(unaudited)
--------------------------------------- ------------------------------------
OCTOBER 11, 2004 OCTOBER 13, 2003 MARCH 29, 2004 MARCH 31, 2003
Ratio of Earnings to Fixed
Charges 1.79 2.07 1.92 2.04
COMPANY PRO FORMAS; PURCHASER'S FINANCIAL PROJECTIONS. The Company does
not as a matter of course make public forecasts as to future revenues, earnings
or other financial information nor has the Company historically prepared
internal budget forecasts beyond the upcoming fiscal year. Set forth below is
certain pro forma information as if the Offer and the Merger had occurred at the
beginning of the periods presented.
------------------------- ----------------------
Twenty-Eight
Weeks Ended Year Ended
(Pro Forma) (Pro Forma)
------------------------- ----------------------
OCTOBER 11, 2004 MARCH 29, 2004
------------------------------------------------
(AMOUNTS IN 000S, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
-------------------------------------------------- ------------------------- ----------------------
Revenues 17,638 33,492
-------------------------------------------------- ------------------------- ----------------------
Income (loss) before income taxes 520 1,432
-------------------------------------------------- ------------------------- ----------------------
Net income (loss) 353 950
-------------------------------------------------- ------------------------- ----------------------
Basic (loss) earnings per share 0.33 0.87
-------------------------------------------------- ------------------------- ----------------------
Diluted (loss) earnings per share 0.33 0.87
-------------------------------------------------- ------------------------- ----------------------
BALANCE SHEET DATA (At End of Period):
-------------------------------------------------- ------------------------- ----------------------
Total current assets 3,777 3,510
-------------------------------------------------- ------------------------- ----------------------
Property and equipment, net 8,873 9,325
-------------------------------------------------- ------------------------- ----------------------
Total assets 18,602 18,712
-------------------------------------------------- ------------------------- ----------------------
Total current liabilities 2,852 3,396
-------------------------------------------------- ------------------------- ----------------------
Total liabilities 14,302 16,421
-------------------------------------------------- ------------------------- ----------------------
Shareholders' equity 2,907 2,291
-------------------------------------------------- ------------------------- ----------------------
Book value per share $2.68 $2.11
-------------------------------------------------- ------------------------- ----------------------
Purchaser did, however, prepare an informal analysis that it provided
to GE Capital and Veber Partners, in connection with the proposed transaction.
The analysis set forth below is included in this document solely because such
information was requested by and, therefore, provided to GE Capital and Veber
Partners.
The analysis set forth below was intended to be a snap shot of the
Company's financial performance at the time it was prepared and to assess the
impact of certain known or expected events on such performance. Purchaser did
not attempt to forecast overall revenues or operating costs of the Company's
business. The analysis was not prepared by the Company with a view to public
disclosure or compliance with published guidelines of the SEC or the American
Institute of Certified Public Accountants regarding prospective financial
information. In addition, the analysis was not prepared with the assistance of
or reviewed, compiled or examined by independent accountants. While prepared
with numerical specificity, the analysis was not
59
prepared in the ordinary course and is, therefore, inherently subject to
significant business, economic and competitive uncertainties and contingencies,
all of which are difficult to predict and many of which are beyond the Company's
control. Accordingly, there can be no assurance that the assumptions made in
preparing the analysis set forth below will prove to be accurate, and actual
results may be materially different from those contained in the analysis set
forth below.
In light of the uncertainties inherent in forward-looking information
of any kind, and the simplistic nature of the analysis, Purchaser cautions
against undue reliance on this information. The inclusion of this information
should not be regarded as an indication that anyone who received this
information considered it a reliable predictor of future events, and this
information should not be relied on as such. While Purchaser has prepared this
analysis with numerical specificity and has provided it to GE Capital and Veber
Partners in connection with the Offer and the Merger, neither Purchaser nor the
Continuing Shareholders has made, and does not make, any representation to any
person that the analysis will reflect the future results of the Company. Neither
Purchaser nor the Continuing Shareholders intends to update or revise the
analysis to reflect circumstances existing after the date they were prepared or
to reflect the occurrence of future events, unless required by law.
Set forth below is a summary of this analysis. This analysis should be
read together with the historical financial statements of the Company and the
cautionary statements set forth below. In preparing the cash flow run-rate
analysis, the purchaser used the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the year ended March 29, 2004. FY
2004 EBITDA was then adjusted to reflect the expected effects of certain recent
or anticipated events. These events were:
o The impact of the new Oregon Lottery contract. On March 31, 2004, the
Oregon Lottery adopted a new six-year retailer contract that went into
effect June 27, 2004. The new contract reduced the commission rates paid to
retailers on the sale of video lottery products. If the new contract had
been in place for the year ended March 29, 2004, commissions paid to the
Company would have been $430,000 less than those actually received by the
Company.
o The Company assumed that the $430,000 decrease would be mitigated by an 8%
increase in lottery sales. An 8% sales increase is significantly higher
than the state's recent growth rate and reflects the expected effect of
additional terminals and updated games offered by the lottery. An 8% sales
increase, if achieved, would restore $213,000 of the $430,000 decrease
noted above.
o At the time the analysis was prepared, the Company had three new franchised
and re-franchised restaurants open or expected to open within six months.
The restaurant in Corvallis, Oregon opened March 15, 2004, and as such did
not have a full year of franchise revenues reflected in the March 29, 2004
results. The restaurant in Pocatello, Idaho was to be re-franchised at a 4%
royalty rate. The restaurant in Eugene, Oregon was under construction and
expected to open in September 2004. The expected annual increase in
franchise fees as a result of these events is $140,000.
60
o If (and only if) the Company completes a going private transaction
(including the Merger), the Company expects to be able to eliminate public
company costs of approximately $266,000 for the fiscal year ending March
29, 2004. Absent a going private transaction, the Company expects to incur
approximately $170,000 in additional expenses.
o The Company has leased operating equipment for its restaurant in
Springfield, Oregon. The lease expires in February 2005 and the Company
expects to exercise its purchase option. The Company expects to save
$60,000 in annual equipment lease payments as a result of the purchase of
such equipment.
o The Company opened a restaurant in Cornell Oaks, Oregon in December 2004.
The Company will not incur start up costs of $127,000 on a going forward
basis.
o In April 2004, the Company re-franchised the Palm Springs, California
restaurant. Purchaser estimates the impact of this on the Company's EBITDA,
net of franchise fees paid by the franchisee, to be a loss of approximately
$81,000 on an annual basis.
CASH FLOW RUN-RATE
------------------
FY 2004 EBITDA (as reported on Form 10-K for
the fiscal year ended March 29, 2004) $3,019,311
Expected changes for FY 2005:
---------------------------------------------------------------------------------------------------------------
Impact of lottery contract based on FY 2004 sales (430,000)
8% year over year increase in lottery sales 213,000
Franchise revenue (Corvallis 3/15/04, Eugene 9/7/04 & Pocatello 7/1/04) 140,000
Reduced public company expense (excluding expected increases) 266,000
Springfield capital lease expense 60,000
No restaurant start up expenses 127,000
Palm Springs EBITDA net of franchise fees (81,000)
---------------------------------------------------------------------------------------------------------------
CASH FLOW (EBITDA) RUN-RATE $3,314,311
The analysis assumes cash flows (as measured by EBITDA) from the
Company's existing assets will remain unchanged except for the adjustments
described above. This is a radical simplification of the Company's operations,
and while it provides a convenient starting point, actual results will certainly
vary and may be materially different. Due to the Company's relatively low
operating margins, cash flow and profitability are highly sensitive to changes
in expense levels. EBITDA for the year ended March 29, 2004 was 9.4% of
revenues. In December 2004, the Oregon's governor announced his intention to
seek the addition of lottery line games
61
and the further reduction of lottery retailer commission rates. As of the date
of this Offer to Purchase, Purchaser is not aware of any specific proposal, and
has no information regarding the governor's proposals or intentions other than
as reported by the media. The analysis was prepared in June 2004 prior to the
governor's announcement and no adjustment has been made to the analysis, in
part, because there is currently insufficient information on which to make a
reliable adjustment).
8. CERTAIN INFORMATION CONCERNING PURCHASER AND THE CONTINUING
SHAREHOLDERS
GENERAL. Purchaser is a newly formed Oregon corporation that currently
does not own any Shares or conduct any business. Upon the satisfaction or waiver
of all conditions to the Offer, pursuant to the terms of the Exchange Agreement,
each of the Continuing Shareholders will exchange his or her Shares for shares
of Purchaser's common stock, after which Purchaser will be owned by the
Continuing Shareholders in the same proportion as their current ownership in the
Company. The Continuing Shareholders have agreed to enter into, as a condition
of the Exchange Agreement, a shareholder agreement pursuant to which they desire
to promote their respective interests in Purchaser by imposing certain
restrictions on the transfer of shares in the surviving corporation following
the Merger, by creating certain obligations and options with respect to such
shares upon the occurrence of certain events, and by entering into certain other
arrangements governing their affairs as shareholders in the surviving
corporation in the Merger. The principal executive offices of Purchaser are
located at 363 High St., Eugene, Oregon 97401. Purchaser's telephone number is
(541) 465-3966.
Currently, Thomas C. Connor, Bruce N. Davis, Corydon H. Jensen, Jr.,
William W. Service, Dennis M. Waldron, Richard C. Williams and Donald W. Woolley
serve as directors of Purchaser (as well as directors of the Company). Following
the Offer and the Merger, the directors of the surviving corporation will be the
same. Mr. Davis is the President and Secretary of Purchaser.
INFORMATION REGARDING THE CONTINUING SHAREHOLDERS. Set forth below is
information concerning each of the Continuing Shareholders, including the
present principal occupation, and address of each of the Continuing
Shareholders:
o Linda Ellis-Bolton, a United States citizen, is an independent
investor. The business address for Ms. Ellis-Bolton is 125 Tom Morris
Lane, Enterprise, Alabama 36330. The business telephone for Ms.
Ellis-Bolton is (334) 393-0032.
o Karen K. Brooks, a United States citizen, is an independent investor.
The business address for Ms. Brooks is 700 Delany Woods, Nicholasville,
Kentucky 40356. The business telephone for Ms. Brooks is (859)
296-2668.
o Richard P. Buckley, a United States citizen, is an independent real
estate investor. From 1999 to 2002, Mr. Buckley served as the President
of Cooper's Inc., an Oregon corporation. The business address for Mr.
Buckley is 14450 Quaker Hill Cross Road, Nevada City, California 95959.
The business telephone for Mr. Buckley is (530) 265-3966.
62
o David D. Connor, a United States citizen, is a real estate executive
and independent investor. Since 1976, Mr. Connor has served as Vice
President of 5 C's Properties, Inc. Mr. Connor is the brother of Thomas
C. Connor. The business address for Mr. Connor is c/o Franklin
Holdings, LLC, 1399 Franklin Boulevard, Eugene, Oregon 97403. The
business telephone for Mr. Connor is (541) 683-0771.
o Stephanie M. Connor, a United States citizen, is an independent
investor. Mrs. Connor is the spouse of Thomas C. Connor. The business
address for Ms. Connor is c/o Franklin Holdings, LLC, 1399 Franklin
Boulevard, Eugene, Oregon 97403. The business telephone for Ms. Connor
is (541) 683-0771.
o Thomas C. Connor, a United States citizen, has been a real estate
investor since 1974, with investments in several companies engaged in
the hospitality or real estate development businesses. Since 1996, Mr.
Connor has served as President of Connor Enterprises, Inc., an Oregon
corporation. He has served as a director of Elmer's since 1998. He is
also a director of Purchaser. Mr. Connor is the spouse of Stephanie M.
Connor and the brother of David D. Connor. The business address for Mr.
Connor is c/o Elmer's Restaurant, Inc., 11802 S.E. Stark Street,
Portland, Oregon 97216. The business telephone for Mr. Connor is (503)
252-1485.
o Bruce N. Davis, a United States citizen, has served as the President
and Chairman of Board of Directors of Elmer's since August 1998 and as
Chief Executive Officer of Elmer's since November 2002. For more than
five years prior to joining Elmer's, Mr. Davis has served and continues
to serve as the president of two companies engaged in the restaurant
business: Jaspers Food Management, Inc. (1993-present), and Oregon Food
Management, Inc. (1996-present). From 1995 until its merger into the
Company in 1999, he was also President of another company engaged in
the restaurant business, CBW, Inc. (1995-1999). He is also a director
of Purchaser. The business address for Mr. Davis is c/o Elmer's
Restaurant, Inc., 11802 S.E. Stark Street, Portland, Oregon 97216. The
business telephone for Mr. Davis is (503) 252-1485.
o Corydon H. Jensen, Jr., a United States citizen, is the president and
owner of several multi-unit restaurant and lounge operations, including
Station Masters, Inc. and McKenzie Brewing Co. Mr. Jensen served as a
director of Centennial Bancorp for over twenty years prior to its
merger with Umpqua Holding, Inc. He has served as a director of Elmer's
since 1998. He is also a director of Purchaser. The business address
for Mr. Jensen is c/o Elmer's Restaurant, Inc., 11802 S.E. Stark
Street, Portland, Oregon 97216. The business telephone for Mr. Jensen
is (503) 252-1485.
o Douglas A. Lee, a United States citizen, is a real estate executive and
independent investor. Since 1986, Mr. Lee has served as the president
and director of Lee Construction Company, an Oregon corporation. Mr.
Lee is the spouse of Debra Woolley-Lee. The business address for Mr.
Lee is c/o Franklin Holdings, LLC, 1399 Franklin
63
Boulevard, Eugene, Oregon 97405. The business telephone for Mr. Lee is
(541) 683-0771.
o David C. Mann, a United States citizen, is an independent investor. The
business address for Mr. Mann is 1980 Indian Trail, Lake Oswego, Oregon
97034. The business telephone for Mr. Mann is (503) 636-1899.
o Sheila J. Schwartz, a United States citizen, is an independent
investor. The business address for Mrs. Schwartz is 2390 Lariat Dr.,
Eugene, Oregon 97405. The business telephone for Ms. Schwartz is (541)
726-6221.
o Gerald A. Scott, a United States citizen, has served as Vice President
of Elmer's since August 1998. Prior to that, and since November 1995,
Mr. Scott served as Vice President of Operations for Jaspers Food
Management, Inc. The business address for Mr. Scott is c/o Elmer's
Restaurant, Inc., 11802 S.E. Stark Street, Portland, Oregon 97216. The
business telephone for Mr. Scott is (503) 252-1485.
o William W. Service, a United States citizen, has been the Chief
Executive Officer of Jasper's Food Management, Inc. since 1993 and
served as the Chief Executive Officer of Elmer's from 1998 until he
resigned in November 2002. Mr. Service is the Chief Executive Officer
of two companies engaged in the restaurant business: Jaspers Food
Management, Inc, (1993-present), and Oregon Food Management, Inc.
(1996-present). From 1995 until its merger into the Company in 1999, he
was also Chief Executive Officer of another company engaged in the
restaurant business, CBW, Inc. (1995-1999). Mr. Service has served as a
director of Elmer's since 1998. He is also a director of Purchaser. The
business address for Mr. Service is c/o Elmer's Restaurants, Inc.,
11802 S.E. Stark Street, Portland, Oregon 97216. The business telephone
for Mr. Service is (503) 252-1485.
o Dennis M. Waldron, a United States citizen, has served as president of
Ruby's Northwest LLC, the Seattle-based multi-unit franchisee for
Ruby's Diner in Washington state since 1999. From 1987 to 1997, Mr.
Waldron served as President of Cinnabon International, Inc. He has
served as a director of Elmer's since 2003. He is also a director of
Purchaser. The business address for Mr. Waldron is c/o Elmer's
Restaurants, Inc., 11802 S.E. Stark Street, Portland, Oregon 97216. The
business telephone for Mr. Waldron is (503) 252-1485.
o Gary N. Weeks, a United States citizen, is an entrepreneur from Grass
Valley, California. The business address for Mr. Weeks is 12966
Pinewoods Road, Nevada City, California 95959. The business telephone
for Mr. Weeks is (530) 477-0343.
o Gregory W. Wendt, a United States citizen, is an independent investor.
The business address for Mr. Wendt is 1 Muir Loop, San Francisco,
California 94129. The business telephone for Mr. Wendt is (415)
793-7161.
64
o Richard C. Williams, a United States citizen, is a retired banker. From
June 2000 to November 2002, Mr. Williams was chairman of Centennial
Bancorp. He has served as a director of Elmer's since 1998. He is also
a director of Purchaser. The business address for Mr. Williams is c/o
Elmer's Restaurants, Inc., 11802 S.E. Stark Street, Portland, Oregon
97216. The business telephone for Mr. Williams is (503) 252-1485.
o Debra Woolley-Lee, a United States citizen, is a real estate executive
and independent investor. Since 1977, Ms. Woolley-Lee has served as
assistant secretary and, since 1986, has served as a director of
Eagle's View Management Company, Inc. Ms. Woolley-Lee is the spouse of
Douglas A. Lee and the daughter of Donna P. Woolley. The business
address for Ms. Woolley-Lee is c/o Franklin Holdings, LLC, 1399
Franklin Boulevard, Eugene, Oregon 97403. The business telephone for
Ms. Woolley-Lee is (541) 683-0771.
o Dolly W. Woolley, a United States citizen, is an independent investor.
Ms. Woolley is the spouse of Donald W. Woolley. The business address
for Ms. Woolley is c/o Franklin Holdings, LLC, 1399 Franklin Boulevard,
Eugene, Oregon 97403. The business telephone for Ms. Woolley is (541)
683-0771.
o Donald W. Woolley, a United States citizen, is a real estate executive
and independent investor. Since 1984, Mr. Woolley has served as the
Executive Vice President and director of Eagle's View Management
Company, Inc. Mr. Woolley has also served as a director of numerous
privately held companies engaged in the hospitality, timber and real
estate development industries. He has served as a director of Elmer's
since 1998. He is also a director of Purchaser. Mr. Woolley is the
spouse of Dolly W. Woolley and is the son of Donna P. Woolley. The
business address for Mr. Woolley is c/o Elmer's Restaurants, Inc.,
11802 S.E. Stark Street, Portland, Oregon 97216. The business telephone
for Mr. Woolley is (503) 252-1485.
o Donna P. Woolley, a United States citizen, is a real estate executive
and independent investor. Since 1980, Ms. Woolley has served as
President of Eagle's View Management Company, Inc. Ms. Woolley is the
mother of Debra A. Woolley-Lee and Donald W. Woolley. The business
address for Ms. Woolley is c/o Franklin Holdings, LLC, 1399 Franklin
Boulevard, Eugene, Oregon 97403. The business telephone for Ms. Woolley
is (541) 683-0771.
65
The following table sets forth each of the Continuing Shareholders' beneficial
ownership of Shares.
Amount Shared Voting Sole Shared
Name of Continuing Shareholder Beneficially Percentage of Sole Voting Power Dispositive Dispositive
Owned(1) Class(2) Power Power Power
Linda Ellis-Bolton 84,847 4.60% 84,847 -0- 84,847 -0-
Karen K. Brooks 91,062 4.94% 91,062 -0- 91,062 -0-
Richard P. Buckley 84,278 4.57% 84,278 -0- 84,278 -0-
David D. Connor 78,423 4.26% 78,423 -0- 78,423 -0-
Stephanie M. Connor 39,212 2.13% 39,212 -0- 39,212 -0-
Thomas C. Connor 56,150 3.02% 56,150 -0- 56,150 -0-
Bruce N. Davis 145,603 7.58% 145,603 -0- 145,603 -0-
Corydon H. Jensen 101,785 5.47% 101,785 -0- 101,785 -0-
Douglas A. Lee 16,595 0.90% 16,595 -0- 16,595 -0-
Debra A. Woolley-Lee 16,594 0.90% 16,594 -0- 16,594 -0-
David C. Mann 89,062 4.83% 89,062 -0- 89,062 -0-
Sheila J. Schwartz 84,847 4.60% 84,847 -0- 84,847 -0-
Gerald A. Scott 41,374 2.21% 41,374 -0- 41,374 -0-
William W. Service 148,992 7.75% 148,992 -0- 148,992 -0-
Dennis M. Waldron 2,000 0.11% 2,000 -0- 2,000 -0-
Gary N. Weeks 108,421 5.88% 108,421 -0- 108,421 -0-
Gregory W. Wendt 5,000 0.27% 5,000 -0- 5,000 -0-
Richard C. Williams 34,554 1.86% 34,554 -0- 34,554 -0-
Dolly W. Woolley 39,212 2.13% 39,212 -0- 39,212 -0-
Donald W. Woolley 56,149 3.02% 56,149 -0- 56,149 -0-
Donna P. Woolley 15,685 0.85% 15,685 -0- 15,685 -0-
(1) The Shares beneficially owned by each of the
Continuing Shareholders are held by the Continuing Shareholders as
members of a group. Under Rule 13d-5(a) of the Exchange Act, when two
or more persons agreed to act together for the purpose of acquiring
equity securities of an issuer, the group formed thereby shall be
deemed to have acquired beneficial ownership, for purposes of Section
(13(d) and 13(g) of the Exchange Act, of all equity securities of that
issuer beneficially owned by any such person.
(2) Includes Shares issuable upon exercise of options
held by certain of the Continuing Shareholders within 60 days from
December 20, 2004. The number of Shares that each of the Continuing
Shareholders has a right to acquire within 60 days from December 20,
2004 is as follows: Mr. Thomas C. Connor, 16,938; Mr. Davis, 78,829;
Mr. Jensen, 16,938; Mr. Scott, 25,691; Mr. Service, 79,229; Mr.
Waldron, 2,000; Mr. Williams, 16,938; and Mr. Donald W. Woolley,
16,938.
(3) Based on 1,842,945 shares of Common Stock deemed
outstanding as of December 8, 2004 (as reported by the Company to
Purchaser and the Continuing Shareholders) as adjusted for each
Continuing Shareholder to include outstanding options exercisable by
such Continuing Shareholder (and not any other Continuing Shareholder)
within sixty days of December 20, 2004.
66
The following table sets forth each of the Continuing Shareholders' beneficial
ownership of Shares based on vested options.
Amount
Beneficially Shares
Owned Beneficial Shares Outstanding
(excluding Percentage of Ownership Percentage of Outstanding (including
vested Class (excluding (including Class (including (excluding vested
Name of Continuing Shareholder options)(1) vested options) vested options) vested options) vested options) options)
------------------------------ ------------ ---------------- --------------- ---------------- --------------- -----------
Linda Ellis-Bolton 84,847 4.60% 84,847 4.60% 1,842,945 1,842,945
Karen K. Brooks 91,062 4.94% 91,062 4.94% 1,842,945 1,842,945
Richard P. Buckley 84,278 4.57% 84,278 4.57% 1,842,945 1,842,945
David D. Connor 78,423 4.26% 78,423 4.26% 1,842,945 1,842,945
Stephanie M. Connor 39,212 2.13% 39,212 2.13% 1,842,945 1,842,945
Thomas C. Connor 39,212 2.13% 56,150 3.02% 1,842,945 1,859,883
Bruce N. Davis 66,774 3.62% 145,603 7.58% 1,842,945 1,921,774
Corydon H. Jensen 84,847 4.60% 101,785 5.47% 1,842,945 1,859,883
Douglas A. Lee 16,595 0.90% 16,595 0.90% 1,842,945 1,842,945
Debra A. Woolley-Lee 16,594 0.90% 16,594 0.90% 1,842,945 1,842,945
David C. Mann 89,062 4.83% 89,062 4.83% 1,842,945 1,842,945
Sheila J. Schwartz 84,847 4.60% 84,847 4.60% 1,842,945 1,842,945
Gerald A. Scott 15,683 0.85% 41,374 2.21% 1,842,945 1,868,636
William W. Service 69,763 3.79% 148,992 7.75% 1,842,945 1,922,174
Dennis M. Waldron 0 0.00% 2,000 0.11% 1,842,945 1,844,945
Gary N. Weeks 108,421 5.88% 108,421 5.88% 1,842,945 1,842,945
Gregory W. Wendt 5,000 0.27% 5,000 0.27% 1,842,945 1,842,945
Richard C. Williams 17,616 0.96% 34,554 1.86% 1,842,945 1,859,883
Dolly W. Woolley 39,212 2.13% 39,212 2.13% 1,842,945 1,842,945
Donald W. Woolley 39,211 2.13% 56,149 3.02% 1,842,945 1,859,883
Donna P. Woolley 15,685 0.85% 15,685 0.85% 1,842,945 1,842,945
Except as indicated otherwise in the table below or as otherwise specified in
this Offer to Purchase, neither Purchaser nor any of the Continuing Shareholders
has effected any transaction in the Shares during the past 60 days.
Name of Continuing Date of Amount of Securities Price Per Where/How the Transaction was Effected
Shareholder Transaction Involved Share
Thomas C. Connor November 4, 2004 39,212 N/A Pro-rata distribution by Franklin Holdings, LLC
Stephanie M. Connor November 4, 2004 39,212 N/A Pro-rata distribution by Franklin Holdings, LLC
David D. Connor November 4, 2004 78,423 N/A Pro-rata distribution by Franklin Holdings, LLC
Debra A. Woolley-Lee November 4, 2004 15,684 N/A Pro-rata distribution by Franklin Holdings, LLC
Douglas A. Lee November 4, 2004 15,685 N/A Pro-rata distribution by Franklin Holdings, LLC
Donald W. Woolley November 4, 2004 39,212 N/A Pro-rata distribution by Franklin Holdings, LLC
Donna P. Woolley November 4, 2004 15,685 N/A Pro-rata distribution by Franklin Holdings, LLC
Dolly W. Woolley November 4, 2004 39,212 N/A Pro-rata distribution by Franklin Holdings, LLC
CRIMINAL PROCEEDINGS. During the last five years, neither Purchaser nor
any of the Continuing Shareholders has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors), nor has any of them been
a party to any judicial or administrative proceeding that resulted in a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation with respect to such laws.
PAST TRANSACTIONS. Except as set forth in this Offer to Purchase, there
have been no transactions during the past two years between Purchaser or any of
the Continuing Shareholders and Elmer's or any of Elmer's affiliates that are
not natural persons where the aggregate value of the transactions was more than
1% of Elmer's consolidated revenues for the fiscal year ended
67
2002 for transactions that occurred in fiscal 2002, and for the fiscal year
ended 2003 for transactions that occurred in fiscal 2003.
Except as set forth below, there have been no transactions during the
past two years between: Purchaser (or any of the Continuing Shareholders) and
Elmer's (or any executive officer, director or affiliate of Elmer's who is a
natural person) where the aggregate value of the transaction or series of
similar transactions with that person exceeded $60,000.
Donald W. Woolley, Thomas C. Connor, Bruce N. Davis, Corydon H. Jensen,
Jr., William W. Service, Richard C. Williams, each a director of Elmer's and
Purchaser, along with certain other of the Continuing Shareholders, are
investors in several real estate companies and restaurant businesses, including
Eagle's View Management Company, Inc., Nova Industries, Inc., Jenova Land
Company, Spring Properties, Inc., Spring Holdings, Inc., Evergreen Portland,
LLC, Evergreen Associates, Evergreen EP, LLC, Evergreen Hospitality, LLC and
Steelhead Brewery & Cafe. The Continuing Shareholders have engaged in the
following transactions with an executive officer, director or affiliate of
Elmer's during the past two years where the aggregate value of such transaction
exceeded $60,000:
o William W. Service, a director and former Chief Executive Officer of
Elmer's, sold 40,000 shares of Elmer's in a private transaction on
March 4, 2003 to Franklin Holdings, LLC for $215,2000. Mr. Service also
participated in Elmer's issuer tender offer on January 14, 2004 where
he sold 39,665 shares of Elmer's at $6.43 per share.
o Bruce N. Davis, Chairman of the Board, President and Chief Executive
Officer of Elmer's, sold 40,000 shares of Elmer's in a private
transaction on March 4, 2003 to Franklin Holdings, LLC for $215,2000.
Mr. Davis also participated in Elmer's issuer tender offer on January
14, 2004 where he sold 37,254 shares of Elmer's at $6.43 per share.
o Jaspers Food Management, Inc., owned by Bruce N. Davis, William W.
Service, Corydon H. Jensen, Gerald A. Scott and certain other
Continuing Shareholders provided administrative and accounting services
to Elmer's during the past two years for which it received
approximately $433,000 in fees during that period.
o In a private transaction, on November 7, 2003, pursuant to Elmer's
Stock Repurchase Plan, Elmer's repurchased 12,500 shares from Richard
P. Buckley at $6.07 per share.
o In a private transaction, on November 7, 2003, pursuant to Elmer's
Stock Repurchase Plan, Elmer's repurchased 12,500 shares from Gary N.
Weeks at $6.07 per share.
o Corydon H. Jensen, Jr., a director of Elmer's, received annual
management fees of $60,000 from Steelhead Breweries and affiliates for
his service as President and Chief Financial Officer of Steelhead
Breweries and affiliates.
68
o Station Masters, Inc., owned principally by Corydon H. Jensen, Jr., a
director of Elmer's, leases restaurant, catering and office space from
Jenova Land Company with a combined annual rent of approximately
$270,000.
o Certain of the Continuing Shareholders, including Donald W. Woolley,
Thomas C. Connor, Bruce N. Davis, Corydon H. Jensen, Jr., William W.
Service and Richard C. Williams, are members of an investor group that
have invested in leases of real estate and related investments
aggregating approximately $4,000,000.
o Lee Construction Company, owned by Debra A. Woolley-Lee and Douglas A.
Lee, has provided general construction services in excess of $500,000
to certain real estate investment companies owned in part by Thomas C.
Connor and Donald W. Woolley, directors of Elmer's.
o Evergreen Hospitality, LLC, owned in part by Thomas C. Connor and
Donald W. Woolley, directors of Elmer's, provides hotel management
services in excess of $200,000 to real estate investment companies
owned by certain other of the Continuing Shareholders.
o Eagle's View Management Company, Inc., owned by Donald W. Woolley,
Debra A. Woolley-Lee and Donna P. Woolley, leases office space from a
partnership owned in party by Donald W. Woolley in the annual amount of
approximately $144,000.
o A trust of Donna P. Woolley redeemed a membership interest in Lincoln
Properties, LLC for $1,815,000. Lincoln Properties, LLC is owned in
part by Thomas C. Connor and Donald W. Woolley.
o The following Continuing Shareholders have provided loans up to the
following amounts to Northfork Financial, LLC, a company owned in part
by Thomas C. Connor, Donald W. Woolley during the past two years:
o Trust of Donna P. Woolley - $4,030,000
o Donald W. & Dolly W. Woolley - $4,054,000
o Debra A. Woolley-Lee & Douglas A. Lee - $3,775,000
o David D. Connor - $1,200,000
o Eagle's View Management, Co. - $8,150,000
o Richard C. Williams - $3,150,000
o Corydon H. Jensen, Jr. - $450,000
o Northfork Financial, LLC has provided loans to the following entities
in the indicated amounts during the past two years:
o Jenova/Nova affiliates - $6,800,000
o Evergreen affiliates - $9,100,000
o Steelhead Breweries & Affiliates - $4,200,000
o Spring Affiliates - $5,200,000
69
PAST CONTACTS, NEGOTIATIONS AND AGREEMENTS REGARDING SIGNIFICANT
CORPORATE EVENTS. Except as set forth in this Offer to Purchase, there have been
no negotiations, agreements or material contacts during the past two years
between Purchaser and any of the Continuing Shareholders, on the one hand, and
the Company or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, a tender offer or other acquisition of any class
of the Company's securities, an election of the Company's directors, or a sale
or other transfer of a material amount of assets of the Company, nor, to the
best knowledge of Purchaser and the Continuing Shareholders, have there been any
negotiations or material contacts between (i) any affiliates of the Company or
(ii) the Company or any of its affiliates and any person not affiliated with the
Company who would have a direct interest in such matters. Except as set forth in
this Offer to Purchase, neither Purchaser nor any of the Continuing Shareholders
has had any transaction with the Company or any of its executive officers,
directors or affiliates that would require disclosure under the rules and
regulations of the SEC applicable to the Offer.
AGREEMENTS INVOLVING THE COMPANY'S SECURITIES. Each of the Continuing
Shareholders has executed an Exchange Agreement in which he or she agreed to
exchange their Shares (and any Shares issued upon the exercise of options held
by the Continuing Shareholders prior to the closing of the Offer) in the Company
for shares of common stock in Purchaser upon satisfaction or waiver of the
conditions to the Offer. Except as set forth in this Offer to Purchase, neither
Purchaser nor any of the Continuing Shareholders has any agreement, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, without limitation, any agreement,
arrangement, understanding or relationship concerning the transfer or the voting
of any securities of the Company, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies, consents or authorizations.
Except as set forth in this Offer to Purchase, neither Purchaser nor
any of the Continuing Shareholders has any security of the Company that is
pledged or otherwise subject to a contingency that would give another person the
power to direct the voting or disposition of such security.
INTENT TO TENDER. Purchaser has been advised that all executive
officers of the Company (other than the Continuing Shareholders) intend to
tender their Shares in the Offer.
9. MERGER; DISSENTERS' RIGHTS; RULE 13E-3
MERGER. If, pursuant to the Offer, Purchaser acquires Shares that,
together with the Shares owned by the Continuing Shareholders, constitute at
least 90% of the outstanding Shares, Purchaser will consummate a short-form
merger pursuant to Section 60.491 of the OR Business Act. Pursuant to the
Merger, each of the outstanding Shares (other than Shares owned by the
Continuing Shareholders or Shares, if any, that are held by shareholders who are
entitled to and who properly exercise dissenters' rights under the OR Business
Act) would be converted pursuant to the terms of the Merger to the right to
receive the same amount of cash consideration paid for each Share in the Offer.
In addition, each outstanding option to acquire Shares (other than options held
by Continuing Shareholders) would be converted, in exchange for cancellation
70
of the option, to the right to receive the amount by which the Offer Price
exceeds the exercise price of the option. With respect to any options held by
the Continuing Shareholders, they will have the option to (a) to receive for
each Share issuable upon exercise of such option the amount by which the Offer
Price exceeds the exercise price in cash in the Merger; (b) to retain the option
on the same terms and conditions; or (c) to receive some cash and to retain some
options, in such combination as may be determined by each of the Continuing
Shareholders with respect to their options. See "Special Factors--Section 6.
Conflicts of Interest" for more information on the treatment of the Continuing
Shareholders' options in the Offer and the Merger. A copy of the plan of merger
for the Merger is attached as Schedule B.
Section 60.491 of the OR Business Act provides that if Purchaser owns
at least 90% of the outstanding Shares, Purchaser may merge with and into
Elmer's without the approval or any other action on the part of the board of
directors or the shareholders of Elmer's. In order to accomplish the Merger, (i)
the board of directors of Purchaser must adopt a plan of merger (which it has,
conditioned upon satisfaction of the Minimum Tender Condition; see Schedule B);
(ii) Purchaser must mail a copy or summary of the plan of merger to each
shareholder of Elmer's; and (iii) Purchaser must deliver articles of merger to
the Secretary of State of the State of Oregon no earlier than 30 days after the
date on which Purchaser mailed a copy or summary of the plan of merger to each
shareholder of Elmer's. Purchaser's delivery of the Plan of Merger on Schedule B
hereto is intended as the delivery required by the OR Business Act.
THIS OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES OR CONSENTS.
DISSENTERS' RIGHTS. Under applicable Oregon law, Elmer's shareholders
are entitled to dissenters' rights with respect to the Merger. The following is
a brief summary of the statutory procedures to be followed by a remaining
shareholder in order to dissent from the Merger and perfect dissenters' rights
under Section 60.551 through Section 60.594. This summary is not intended to be
complete and is qualified in its entirety by reference to Section 60.551 through
Section 60.594, the text of which is set forth in Schedule A hereto. Any Elmer's
shareholder considering the exercise of dissenters' rights is advised to consult
legal counsel. Dissenters' rights will not be available unless and until the
Merger is consummated.
Generally, Oregon law entitles shareholders of an Oregon corporation
that consummates a merger with its parent under Section 60.491 to dissent from
the merger and obtain the payment of the "fair value" of such shareholders'
shares if such shareholders comply with the statutory requirements.
A holder of Shares who properly follows the procedure for exercising
dissenters' rights for such holder's shares pursuant to Section 60.564 may be
entitled to receive in cash the "fair value" of such shares. The "fair value" of
a dissenting shareholder's shares will be the value of those shares the day
before the closing date of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger, unless exclusion would be
inequitable. The "fair value" could be more than, equal to or less than the
market value of common stock on the date immediately before the closing date of
the Merger. In the event the dissenting shareholder and
71
Elmer's cannot agree on the "fair value" of the dissenter's Shares, "fair value"
may ultimately be determined by a court in an appraisal proceeding.
Within 10 days after the effective date of the Merger, Elmer's (as the
surviving corporation in the Merger) will send a written dissenters' notice (the
"Notice of Merger") to each of the remaining holders of Shares that:
o States the Merger is effective pursuant to Section 60.491;
o States that dissenters' rights are available as a result of the Merger;
o Indicates where the payment demand must be sent;
o Indicates where and when share certificates must be deposited;
o Informs holders of uncertificated shares to what extent transfer of the
Shares will be restricted after the payment demand is received; and
o Includes, among other things, a form of payment demand that includes
the date of the first announcement to the news media or to shareholders
of the terms of the Merger and requires the person asserting
dissenters' rights to certify whether or not the person acquired
beneficial ownership of the Shares before that date and will set the
date by which Elmer's must receive the payment demand, which date may
not be less than 30 or more than 60 days after the Notice of Merger is
delivered.
A beneficial shareholder may assert dissenters' rights as to Shares
held on behalf of the beneficial shareholder only if:
o The beneficial shareholder submits to Elmer's the record shareholder's
written notice to dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
o The beneficial shareholder does so with respect to all Shares of which
the shareholder is the beneficial shareholder or over which the
shareholder has power to direct the vote.
After the closing of the Merger, or upon receipt of a payment demand,
Elmer's will pay each dissenter who complied with the statute the amount that
Elmer's estimates to be the fair value of the shareholder's Shares, plus accrued
interest. The payment must be accompanied by, among other things:
o Elmer's balance sheet as of the end of a fiscal year ended not more
than 16 months before the date of payment, an income statement for that
year, and the latest available interim financial statements, if any;
o A statement of Elmer's estimate of the fair value of the Shares;
o A statement of how the interest was calculated;
72
o A statement of the dissenter's right to demand payment under Section
60.587; and
o A copy of the dissenters' rights statutes.
If Elmer's does not take the proposed action within 60 days after the
date set for demanding payment and depositing share certificates, Elmer's will
return the deposited certificates and release the transfer restrictions on the
uncertificated Shares.
Regardless, with respect to Shares acquired after the date of the first
announcement to the news media or to shareholders of the terms of the Merger,
Elmer's may elect to withhold payment of the fair value of dissenters' Shares
plus accrued interest and, in that event, Elmer's will estimate after the
effective date of the Merger the fair value of the Shares, plus accrued
interest, and, will offer to pay this amount to each dissenter who agrees to
accept it in full satisfaction of the dissenter's demand, and will include with
the offer an explanation of how interest was calculated and a statement of the
dissenter's right to demand payment under Section 60.587.
Thereafter, a dissenter may notify Elmer's in writing of the
dissenter's own estimate of the fair value of the dissenter's Shares and the
amount of interest due and demand payment of the dissenter's estimate, less any
payment made, or, with respect to after-acquired Shares for which Elmer's
elected to withhold payment, reject Elmer's offer of the fair value determined
for the Shares and demand payment of the dissenter's estimate of the fair value
of the dissenter's shares and interest due, if:
o The dissenter believes that the amount paid or offered is less than the
fair value of the dissenter's Shares or that the interest due is
incorrectly calculated;
o Elmer's fails to make payment within 60 days after the date set for
demanding payment; or
o The Merger is not effected, and Elmer's does not return the deposited
certificates or release the transfer restrictions imposed on
uncertificated shares within 60 days after the date set for demanding
payment.
A dissenter will be deemed to have waived the right to demand payment
unless the dissenter notifies Elmer's of the dissenter's demand in writing
within 30 days after Elmer's makes or offers payment for the dissenter's Shares.
If a demand for payment remains unsettled, Elmer's will commence a
court proceeding within 60 days after receiving the payment demand and petition
the court to determine the fair value of the Shares and accrued interest. If
Elmer's does not commence the proceeding within the 60-day period, it will pay
each dissenter whose demand remains unsettled the amount demanded. Elmer's will
make all dissenters whose demands remain unsettled, whether or not residents of
the State of Oregon, parties to the proceeding as in an action against their
Shares, and all parties must be served with a copy of the petition.
73
Each dissenter made a party to the proceeding will be entitled to
judgment for:
o The amount, if any, by which the court finds the fair value of the
Shares, plus interest, exceeds the amount paid by Elmer's; or
o The fair value, plus accrued interest, of the dissenter's
after-acquired Shares for which Elmer's elected to withhold
payment.
Shareholders should read the complete text of Section 60.551 through
Section 60.594 of the OR Business Act, which are attached as Schedule A. The
procedures set forth in the dissenters' rights statutes must be followed exactly
or dissenters' rights may be lost.
DISSENTERS' RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET FORTH
ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES AVAILABLE
TO SHAREHOLDERS IF THE MERGER IS CONSUMMATED. SHAREHOLDERS WHO WILL BE ENTITLED
TO DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER WILL RECEIVE ADDITIONAL
INFORMATION CONCERNING DISSENTERS' RIGHTS AND THE PROCEDURES TO BE FOLLOWED IN
CONNECTION THEREWITH BEFORE SUCH SHAREHOLDERS HAVE TO TAKE ANY ACTION RELATING
THERETO. SHAREHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO
EXERCISE DISSENTERS' RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE
OFFER PRICE.
Shareholders who are interested in exercising and perfecting
dissenters' rights in connection with the Merger should consult with their
counsel for advice as to the procedures required to be followed.
RULE 13E-3. Because Purchaser and Continuing Shareholders are
affiliates of Elmer's, the transactions contemplated herein constitute a "going
private" transaction under Rule 13e-3 under the Exchange Act. Rule 13e-3
requires, among other things, that certain financial information concerning
Elmer's and certain information relating to the fairness of the Offer and the
Merger and the consideration offered to minority shareholders unaffiliated with
Purchaser and the Continuing Shareholders be filed with the SEC and disclosed to
minority shareholders prior to consummation of the Merger. Purchaser and
Continuing Shareholders have provided such information in this Offer to
Purchase.
10. SOURCE AND AMOUNT OF FUNDS
The Offer is not conditioned upon any financing arrangement. The total
amount of funds required by Purchaser to consummate the Offer, and expected to
be incurred by Purchaser, is estimated to be approximately $6.95 million
exclusive of any related transaction fees and expenses. These funds are expected
to be obtained through (a) two loans from GE Capital to Purchaser for this
purpose, and (b) to the extent any amounts are due or may be paid by Purchaser
or the surviving corporation after the consummation of the Merger (for example,
funds necessary to consummate the Merger, funds necessary to cash out
outstanding options, including
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options held by the Continuing Shareholders and certain transaction fees and
expenses), from generally available working capital of the surviving corporation
in the Merger.
The Purchaser has obtained a financing commitment from GE Capital to
provide the Loans in an aggregate amount not to exceed $6.5 million, pursuant to
the proposal letter from GE Capital dated October 5, 2004 (the "Proposal
Letter") and the commitment letter dated December 3, 2004 (the "Commitment
Letter"), consisting of two loans, the first in the amount of $3.5 million
("Loan 1"), and the second in the amount of $3.0 million ("Loan 2" and, together
with Loan 1, the "Loans").
Prior to the Merger, the Loans will be secured by (a) the Shares owned
by the Continuing Shareholders which will be contributed to Purchaser upon
satisfaction or waiver of all of the conditions to the Offer, and (b) any Shares
acquired in the Offer. Purchaser and, as necessary, the Continuing Shareholders,
will enter into one or more Pledge Agreements to such effect. In addition, prior
to the Merger and continuing until the 91st day after the closing of the Merger,
the Loans will be secured by $2,000,000 in cash or cash equivalents to be
provided Continuing Shareholders. Following the consummation of the Merger, the
Loans will also be secured by a blanket security interest in all of the
surviving corporation's assets and will be subject to cross-default and
cross-collateral provisions with respect to any other loans between GE Capital
and Purchaser or the surviving corporation.
Loan 1 is a ten year term loan bearing interest per annum at a fixed
rate equal to the Ten Year Treasuries Swap Rate at the time the loan is closed
plus 2.99%. If the Loan 1 were made as of date of this December 3, the interest
rate per annum would be 7.68%. Loan 1 may be prepaid at any time with a 1%
penalty; provided, however, prepayment may require an additional payment of a
premium to offset any breakage costs incurred by GE Capital as a result of the
prepayment.
Loan 2 is a ten year term loan bearing interest per annum at a variable
rate equal to the 90 day London Intra Bank Overnight Rate ("LIBOR") plus 3.55%.
However, Purchaser has the option to convert Loan 2 to a fixed interest rate
loan with the interest rate equal to the Five Year Swap Rate plus 3.24% at any
time after the 7 months following the closing of the loan and between the end of
the 24th month following the closing of the loan. Loan 2 may be prepaid in its
entirety at any time without premium or penalty. In addition, Purchaser or the
surviving corporation may prepare up to 20% of the original loan balance (for
either or both such loans) for every 12-month period on the anniversary of the
loan closing date with no prepayment fees and such prepayments may be made up to
three times during the term of the loan. GE Capital requires the payment of a
$250 processing fee for each prepayment. Any prepayment will not reduce the
original loan principal payment, but the term of the loan will be reduced.
Following the Merger, the surviving corporation will be subject to
certain financial covenants, the most significant of which are described below.
o Corporate Fixed Charge Coverage Ratio. The surviving corporation in the
Merger must maintain a "Corporate Fixed Charge Coverage Ratio" (as
defined below) equal to or greater than 1.25:1 as measured for each
fiscal year. "Corporate Fixed Charge Coverage Ratio" means the ratio
of: (a) the sum of net income, depreciation and amortization,
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interest expense, income taxes and operating lease expense, plus or
minus other non-cash adjustments or non-recurring items (as allowed by
GE Capital), minus increases in officer or shareholders loan
receivables, minus dividends or distributions in excess of
shareholder's estimated pass-through tax liabilities (in the event
borrower is treated as an S corporation for federal tax purposes) not
otherwise expensed on the applicable income statement(s) to, (b) the
sum of operating lease expense, principal payments on long term debt,
maturities of all capital leases and interest expense (excluding
non-cash interest expense and amortization of non-cash financing
expenses). If the surviving corporation is an S corporation, income
taxes will by paid by the Continuing Shareholders with proceeds
resulting from the surviving corporation's dividend distributions to
the Continuing Shareholders. For purposes of calculating income taxes
in a given year during the loan term, GE Capital will include amounts
equal to the pass-through tax liability of each of the Continuing
Shareholders.
o Funded Debt to EBITDA. As measured for Purchaser and/or the surviving
corporation on the last day of each fiscal year, the ratio of Funded
Debt to EBITDA shall be equal to or less than 4.75:1. For purposes of
this financial covenant, (a) "Funded Debt" means all term debt, and (b)
"EBITDA" means net income, plus interest expense, plus income taxes,
plus depreciation and amortization expense plus or minus other non-cash
adjustments or non-recurring items (as allowed by GE Capital), less
increases in officer or shareholder loans receivable, less dividends or
distributions in excess of the estimated pass-through tax liability of
each of the Continuing Shareholders (in the event borrower is treated
as an S corporation for federal tax purposes) not otherwise expensed on
the applicable income statement(s).
Purchaser will pay a fee of $30,000 to GE Capital for the Loans.
Purchaser intends to repay any amounts borrowed from GE Capital through
the generally available corporate funds of the surviving corporation after the
consummation of the Merger.
There are various conditions precedent to the obligation of GE Capital
to make the Loans, including the preparation, execution and delivery of mutually
acceptable loan documentation, receipt of a business valuation opinion of the
going concern enterprise value of the surviving corporation following the
consummation of the Offer and the Merger, receipt of the Analysis (and a bring
down comfort letter dated within three weeks prior to the consummation of the
Offer and the Merger), satisfaction of various financial due diligence items,
indemnity agreements from the Continuing Shareholders, absence of material
adverse change in the financial condition, operating status and general business
affairs of Purchaser or the Company, absence of litigation or other proceeding
pending or threatened that may adversely affect the financial condition,
operations or affairs of Purchaser or the Company and absence of any event that
would be a default under the Loans. Accordingly, there is a possibility that
Purchaser will not be able to borrow funds under the Loans if any of the various
conditions set forth in the Proposal Letter and the Commitment Letter are not
met. Although Purchaser and the Continuing Shareholders currently have no
alternative financing plans in place should the Loans from GE Capital be
unavailable, Purchaser and the Continuing Shareholders believe they could obtain
replacement financing on commercially reasonable terms.
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The foregoing summary of the Loans does not purport to be complete and
is qualified in its entirety by reference to the Proposal Letter and the
Commitment Letter, which are filed as exhibits to Schedule TO and which are
incorporated herein by reference, and any further documents or instruments that
Purchaser may enter into in connection with the Loans.
Because (i) the only consideration in the Offer and the Merger is cash,
(ii) the Offer is to purchase all outstanding Shares, and (iii) there is an
absence of a financing condition, Purchaser and the Continuing Shareholders
believe the financial condition of Purchaser is not material to a decision by a
holder of Shares whether to sell, tender or hold Shares pursuant to the Offer.
11. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser will not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, pay for,
and may delay the acceptance for payment of or the payment for any validly
tendered Shares (whether or not any Shares theretofore have been accepted for
payment or paid for pursuant to the Offer), and may, in its sole discretion,
terminate or amend the Offer as to any Shares not then paid for if (i) at the
expiration of the Offering Period, the Minimum Tender Condition and the Majority
of the Minority Condition have not been satisfied; or (ii) at or prior to the
time of the expiration of the Offer, any of the following events shall have
occurred (other than as a direct or indirect result of any action or inaction by
Purchaser or the Continuing Shareholders):
o Any preliminary or permanent judgment, order, decree, ruling,
injunction, action, proceeding, investigation or application shall be
pending or threatened before any court, government or governmental
authority or other regulatory or administrative agency or commission,
domestic or foreign, that would or might restrain, prohibit or delay
consummation of, or materially alter or otherwise materially affect,
the Offer or the Merger, or that would reasonably be expected to,
directly or indirectly:
o Make illegal or otherwise prohibit consummation of the Offer;
o Prohibit or materially limit the ownership or operation by
Purchaser of all or any material portion of the business or assets
of Elmer's;
o Impose material limitations on the ability of Purchaser to effect
the Merger or to effectively acquire, hold or exercise full rights
of ownership of the Shares, including the right to vote any Shares
acquired by Purchaser pursuant to the Offer on all matters
properly presented to Elmer's shareholders; or
o Require divestiture by Purchaser or the Continuing Shareholders of
any Shares;
o Any statute, including without limitation any state anti-takeover
statute, rule, regulation or order or injunction shall be sought,
proposed, enacted, promulgated, entered, enforced or deemed or become
applicable or asserted to be applicable to the Offer or the Merger,
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which would restrain, prohibit or delay consummation of, or materially
alter or otherwise materially affect, the Offer or the Merger; or that
would reasonably be expected to result in any of the consequences
referred to above;
o Any change (or any condition, event or development involving a
prospective change) shall have occurred or be threatened that has a
materially adverse effect on the business, properties, assets,
liabilities, capitalization, shareholders' equity, financial condition,
operations, results of operations or prospects of Elmer's;
o There shall have occurred (i) any general suspension of, or limitation
on times or prices for, trading in securities on any national
securities exchange or in the over-the-counter market, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) the outbreak or escalation
of a war (whether or not declared), acts of terrorism, armed
hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) any limitation (whether or
not mandatory) by any governmental authority on, or any other event
which might affect the extension of credit by banks or other lending
institutions, (v) a change in general financial, bank or capital market
conditions which materially and adversely affects the ability of
financial institutions in the United States to extend credit or
syndicate loans; (vi) a suspension of or limitation (whether or not
mandatory) on the currency exchange markets or the imposition of, or
material changes in, any currency or exchange control laws in the
United States, or (vii) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material acceleration or
worsening thereof;
o Any tender or exchange offer with respect to some or all of the
outstanding Shares of Elmer's (other than the Offer), or a merger,
acquisition or other business combination proposal for Elmer's (other
than the Offer and the Merger), shall have been proposed, announced or
made by any person, entity or group;
o There shall have occurred or be in existence any other event,
circumstance or condition, that, in the reasonable judgment of
Purchaser, would prevent Purchaser from effecting the Merger following
the completion of the Offer; or
o Any event that, in the reasonable judgment of Purchaser with respect to
each and every matter referred to above, shall make it inadvisable to
proceed with the Offer or with the Merger.
The foregoing conditions are for the sole benefit of Purchaser and the
Continuing Shareholders and may be asserted by Purchaser regardless of the
circumstances giving rise to any such conditions or may be waived by Purchaser
in its reasonable discretion, in whole or in part at any time and from time to
time prior to the expiration of the Offer. Any reasonable determination by
Purchaser with respect to any of the foregoing conditions (including without
limitation, the satisfaction of such conditions) shall be final and binding on
all parties. The failure by Purchaser at any time prior to the expiration of the
Offer Period to exercise any of the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time prior to the expiration
of the Offer
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Period. NOTWITHSTANDING THE FOREGOING, PURCHASER SHALL NOT PURCHASE SHARES IN
THE OFFER UNLESS THE MAJORITY OF THE MINORITY CONDITION AND THE MINIMUM TENDER
CONDITION ARE SATISFIED; PROVIDED, HOWEVER, THAT PURCHASER MAY, IN ITS SOLE
DISCRETION, WAIVE THE MINIMUM TENDER CONDITION. IN NO EVENT SHALL PURCHASER
WAIVE THE MAJORITY OF THE MINORITY CONDITION.
Notwithstanding the fact that Purchaser and the Continuing Shareholders
reserve the right to assert the occurrence of a condition following acceptance
of properly tendered Shares for payment but prior to payment for such Shares,
Purchaser will either promptly pay for such Shares or promptly return such
Shares. A public announcement will be made of a material change in, or waiver
of, such conditions, and the Offer may, in certain circumstances, be extended in
connection with any such change or waiver. All conditions must be satisfied or
waived prior to the commencement of any Subsequent Offering Period.
12. DIVIDENDS AND DISTRIBUTIONS
If, on or after the date hereof, the Company should (i) split, combine
or otherwise change the shares of Elmer's or its capitalization, (ii) acquire
currently outstanding shares or otherwise cause a reduction in the number of
outstanding shares or (iii) issue or sell additional shares of the Company,
shares of any other class of capital stock, other voting securities or any
securities convertible into, or rights, warrants or options, to acquire any of
the foregoing, other than shares of the Company issued pursuant to the exercise
of stock options outstanding as of the date hereof, then, subject to the
provisions of "The Offer--Section 11. Certain Conditions of the Offer,"
Purchaser, in its sole discretion, may make such adjustments as it deems
appropriate in the Offer Price and other terms of the Offer, including, without
limitation, the number or type of securities offered to be purchased.
Historically, the Company has not paid any cash dividends on the Shares
and there is no present intention to do so. In the unlikely event that, on or
after the date hereof, the Company should declare or pay any cash dividend on
the shares or other distribution on the Shares, or issue with respect to the
Shares any additional shares, shares of any other class of capital stock, other
voting securities or any securities convertible into, or rights, warrants or
options, conditional or otherwise, to acquire, any of the foregoing, payable or
distributable to shareholders of record on a date prior to the transfer of the
Shares purchased pursuant to the Offer to Purchaser or its nominee or transferee
on the Company's stock transfer records, then, subject to the provisions
discussed under "The Offer--Section 11. Certain Conditions of the Offer," (i)
the Offer Price and other terms of the Offer may, in the sole discretion of
Purchaser, be reduced by the amount of any such cash dividend or cash
distribution, and (ii) the whole of any such non-cash dividend, distribution or
issuance to be received by the tendering shareholders will (a) be received and
held by the tendering shareholders for the account of Purchaser and will be
required to be promptly remitted and transferred by each tendering shareholder
to the Depositary for the account of Purchaser, accompanied by appropriate
documentation of transfer, or (b) at the direction of Purchaser, be exercised
for the benefit of Purchaser, in which case the proceeds of such exercise will
promptly be remitted to Purchaser. Pending such remittance and subject to
applicable law, Purchaser will be entitled to all rights and privileges as owner
of any such non-cash dividend,
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distribution, issuance or proceeds and may withhold the entire Offer Price or
deduct from the Offer Price the amount or value thereof, as determined by
Purchaser in its sole discretion.
13. CERTAIN LEGAL MATTERS
GENERAL. Except as otherwise disclosed herein, based upon an
examination of publicly available filings with respect to the Company, Purchaser
and the Continuing Shareholders are not aware of any license or other regulatory
permit that appears to be material to the business of the Company and that might
be adversely affected by the acquisition of Shares by Purchaser as contemplated
herein or of any filing, approval or other action by any governmental,
administrative or regulatory agency or authority that would be required for the
acquisition or ownership of Shares by Purchaser as contemplated herein. Should
any such approval or other action be required, it is currently contemplated that
such approval or action would be sought or taken. While Purchaser does not
intend to delay the purchase of Shares tendered pursuant to the Offer pending
the outcome of any action or the receipt of any such approval, there can be no
assurance that any such approval or action, if needed, would be obtained or, if
obtained, that it will be obtained without substantial conditions or that
adverse consequences might not result to the Company's business or that certain
parts of the Company's business might not have to be disposed of in the event
that such approvals were not obtained or such other actions were not taken, any
of which could cause Purchaser to elect to terminate the Offer without the
purchase of the Shares thereunder. Purchaser's obligation under the Offer to
accept for payment and pay for Shares is subject to certain conditions,
including conditions relating to the legal matters discussed herein. See "The
Offer--Section 11. Certain Conditions of the Offer."
ANTITRUST COMPLIANCE. Under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice and the Federal
Trade Commission and certain waiting period requirements have been satisfied.
However, the Offer is not a reportable transaction under the HSR Act because, as
a result of the transaction, no individual acquiring person will hold voting
securities and/or assets of the person acquired with a value in excess of $50
million. In addition, Purchaser currently owns directly or beneficially more
than 50% of the outstanding voting securities of the Company. Under the HSR Act
reporting regulations, this level of ownership means that Purchaser is in
"control" of the Company for purposes of the regulations and believes no HSR Act
filing is required in connection with the Offer and the Merger.
STATE TAKEOVER LAWS--OREGON. The Oregon Control Share Act, Section
60.801 through Section 60.816 of the OR Business Act (the "Control Share Act"),
regulates the process by which a person may acquire control of certain
Oregon-based corporations without the consent and cooperation of the board of
directors. The Control Share Act restricts a shareholder's ability to vote
shares of stock acquired in certain transactions not approved by the board that
cause the acquiring person to gain control of a voting position exceeding
one-fifth, one-third, or one-half of the votes entitled to be cast in an
election of directors. Shares acquired in a control share acquisition have no
voting rights except as authorized by a vote of the shareholders. A corporation
may opt out of the Control Share Act by provision in the corporation's articles
of incorporation or bylaws. The Offer and the Merger (including the formation of
Purchaser and
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the group of the Continuing Shareholders) constitute a control share acquisition
under the Control Share Act, which means the Shares held by Purchaser and the
Continuing Shareholders would be non-voting Shares in the absence of actions by
the shareholders or the board of directors to restore voting rights. However, if
the Minimum Tender Condition is satisfied, the Offer and the Merger can be
consummated notwithstanding the applicability of the Control Share Act because
the Merger does not require a vote of the shareholders. In the event the
Majority of Minority Condition is satisfied, but the Minimum Tender Condition is
not (and Purchaser elects to waive the Minimum Tender Condition and proceed with
the Offer), the Continuing Shareholders may ask the Company to opt-out of the
Control Share Act for purposes of proceeding with the Offer, which would allow
the Continuing Shareholders to pursue a long-form merger.
Except under certain circumstances, the OR Business Act also prohibits
a "business combination" between a corporation and an "interested shareholder"
(as defined in OR Business Act) within three years of the shareholder becoming
an "interested shareholder." Generally, an "interested shareholder" is a person
or group that directly or indirectly controls, or has the right to acquire or
control, the voting or disposition of 15% or more of the outstanding voting
stock or is an affiliate or associate of the corporation and was the owner of
15% or more of such voting stock at any time within the previous three years. A
"business combination" is defined broadly to include, among others (i) mergers
and sales or other dispositions of 10% or more of the assets of a corporation
with or to an interested shareholder, (ii) certain transactions resulting in the
issuance or transfer to the interested shareholder of any stock of the
corporation or its subsidiaries, (iii) certain transactions which would result
in increasing the proportionate share of the stock of a corporation or its
subsidiaries owned by the interested shareholder, and (iv) receipt by the
interested shareholder of the benefit (except proportionately as a shareholder)
of any loans, advances, guarantees, pledges, or other financial benefits.
A business combination between a corporation and an interested
shareholder is prohibited unless (i) prior to the date the person became an
interested shareholder, the board of directors approved either the business
combination or the transaction which resulted in the person becoming an
interested shareholder, (ii) upon consummation of the transaction that resulted
in the person becoming an interested shareholder, that person owns at least 85%
of the corporation's voting stock outstanding at the time the transaction is
commenced (excluding shares owned by persons who are both directors and officers
and shares owned by employee stock plans in which participants do not have the
right to determine confidentially whether shares will be tendered in a tender or
exchange offer), or (iii) the business combination is approved by the board of
directors and authorized by the affirmative vote (at an annual or special
meeting and not by written consent) of at least 66 2/3% of the outstanding
voting stock not owned by the interested shareholder.
These restrictions placed on interested shareholders by the OR Business
Act do not apply under certain circumstances, including, but not limited to, the
following: (i) if the corporation's original articles of incorporation or
certificate of incorporation contains a provision expressly electing not to be
governed by the applicable section of the OR Business Act; or (ii) if the
corporation, by action of its shareholders, adopts an amendment to its bylaws,
articles of incorporation or certificate of incorporation expressly electing not
to be governed by the
81
applicable section of the OR Business Act, provided that such an amendment is
approved by the affirmative vote of not less than a majority of the outstanding
shares entitled to vote. Such an amendment, however, generally will not be
effective until 12 months after its adoption and will not apply to any business
combination with a person who became an interested shareholder at or prior to
such adoption. In addition, the restrictions are not applicable to certain
business combinations proposed between the announcement and the consummation or
abandonment of certain transactions, including mergers and tender offers. The
Company has not elected to take itself outside of the coverage of the applicable
sections of the OR Business Act. However, on October 25, 2004, the Company's
board of directors approved the Continuing Shareholder's formation of Purchaser
for purposes of making the Offer, the transaction in which Purchaser became an
interested shareholder. As a result of such approval, the business combination
restrictions under the OR Business Act do not apply to the Offer and the Merger.
OTHER STATE TAKEOVER LAWS. In addition to Oregon's takeover laws, a
number of other states have adopted laws and regulations applicable to offers to
acquire securities of corporations which are incorporated in such states and/or
which have substantial assets, shareholders, principal executive offices or
principal places of business therein. In Edgar v. Mite Corporation, the Supreme
Court of the United States held in 1982 that the Illinois Business Takeover
Statute, which made the takeover of certain corporations more difficult, imposed
a substantial burden on interstate commerce and was therefore unconstitutional.
In 1987, however, in CTS Corporation v. Dynamics Corporation of America, the
Supreme Court held that as a matter of corporate law, and in particular, those
laws concerning corporate governance, a state may constitutionally disqualify an
acquirer of "Control Shares" (ones representing ownership in excess of certain
voting power thresholds, e.g., 20%, 33% or 50%) of a corporation incorporated in
its state and meeting certain other jurisdictional requirements from exercising
voting power with respect to those shares without the approval of a majority of
the disinterested shareholders. Subsequently, in TLX Acquisition Corp. v. Telex
Corp., a federal district court in Oklahoma ruled that the Oklahoma statutes
were unconstitutional insofar as they apply to corporations incorporated outside
Oklahoma, because they would subject those corporations to inconsistent
regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a federal district
court in Delaware ruled that four Delaware takeover statutes were
unconstitutional as applied to corporations incorporated outside Delaware. This
decision was affirmed by the United State Court of Appeals for the Sixth
Circuit. In December 1988, a federal district court in Florida held, in Grand
Metropolitan Plc v. Butterworth, that the provisions of the Florida Affiliated
Transactions Act and Florida Control Share Acquisition Act were unconstitutional
as applied to corporations incorporated outside of Florida.
Purchaser does not believe that any other state takeover statute
applies to the Offer. However, Purchaser reserves the right to challenge the
applicability or validity of any state law purportedly applicable to the Offer
or the Merger and nothing in this Offer to Purchase or any action taken in
connection with the Offer or the Merger is intended as a waiver of such right.
If it is asserted that any state takeover statute is applicable to the Offer or
the Merger and if an appropriate court does not determine that it is
inapplicable or invalid as applied to the Offer or the Merger, Purchaser might
be required to file certain information with, or to receive approvals from, the
relevant state authorities, and Purchaser might be unable to accept for payment
or pay for Shares tendered pursuant to the Offer, or be delayed in consummating
the Offer or the
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Merger. In such case, Purchaser may not be obliged to accept for payment or pay
for any Shares tendered pursuant to the Offer. See "The Offer--Section 11.
Certain Conditions of the Offer."
MARGIN REGULATIONS. Regulations G, T, U and X (the "Margin
Regulations") promulgated by the Board of Governors of the Federal Reserve Board
(the "Federal Reserve Board") place restrictions on the amount of credit that
may be extended for the purpose of purchasing margin stock (including the
Shares) if such credit is secured directly or indirectly by margin stock.
Purchaser is funding the acquisition of the Shares in the Offer and the Merger
from funds loaned to it by GE Capital on those terms described in "The
Offer--Section 10. Source and Amount of Funds." The loans from GE Capital will
be secured by, among other things, a pledge of Shares contributed to Purchaser
by the Continuing Shareholders. Purchaser believes the loans from GE Capital
will be made in compliance with the Margin Regulations, in particular with
Regulation U, which provides that no lender shall extend any credit for
purchasing any margin securities, secured directly or indirectly by margin
stock, that exceeds the maximum loan value of the collateral securing the loan.
The maximum loan value of margin stock is 50% of its current market value.
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS. In connection with the
Offer and the Merger, none of the Company, Purchaser or the Continuing
Shareholders has granted to unaffiliated security holders access to their
corporate files or arranged for counsel or appraisal services at the expense of
the Company, Purchaser or the Continuing Shareholders.
14. CERTAIN EFFECTS OF THE OFFER AND THE MERGER
PARTICIPATION IN FUTURE GROWTH. If the Offer and the Merger are
consummated, you will not have the opportunity to participate in the future
earnings, profits and growth of the Company and will not have the right to vote
on corporate matters relating to the Company. If the Offer and the Merger are
completed, the Continuing Shareholders, who will own 100% of the Company's
common stock, will own a 100% interest in the net book value and net earnings of
the Company and will benefit from any future increase in the value of the
Company. Similarly, the Continuing Shareholders will bear the risk of any
decrease in the value of the Company and you will not face the risk of a decline
in the value of the Company.
LISTING. The Company's common stock is currently quoted on the Nasdaq
SmallCap Market. If the Offer and Merger are consummated, the Company's common
stock will be de-listed from the Nasdaq SmallCap Market. If the Minimum Tender
Condition is not satisfied and Purchaser elects to waive such condition and
purchases Shares pursuant to the Offer, the Company may be delisted from the
Nasdaq SmallCap Market if it fails to satisfy various listing requirements.
MARGIN REGULATIONS. The Company's common stock presently constitutes
"margin securities" under the regulations of the Federal Reserve Board, which
has the effect, among other things, of allowing brokers to extend credit on the
collateral of the Shares. However, upon delisting on the Nasdaq SmallCap Market,
the Company's common stock will no longer constitute "margin securities" for the
purposes of the Federal Reserve Board's margin regulations and the Shares would
be ineligible as collateral for margin loans made by brokers.
83
EXCHANGE ACT REGISTRATION. The Company's common stock is currently
registered under the Exchange Act. The Company, upon application to the SEC, may
terminate such registration if the outstanding shares of the Company's common
stock are not listed on a national securities exchange and if there are fewer
than 300 holders of record of shares of the Company common stock. As a result of
termination of registration of the shares of the Company's common stock under
the Exchange Act, the Company would no longer be obligated to file reports with
the SEC under the Exchange Act. Such termination of registration would reduce
the information required to be furnished by the Company to its shareholders. The
Continuing Shareholders intend to seek to cause the Company to apply for
termination of registration of the Elmer's common stock as soon as possible
after completion of the Offer and the Merger. If the Minimum Tender Condition is
not satisfied and Purchaser elects to waive such condition and purchases Shares
pursuant to the Offer, the Company may elect to apply for termination of
registration of the Elmer's common stock if there are fewer than 300 holders of
record of shares of the Company common stock.
OREGON LOTTERY REQUIREMENTS. The Company is currently party to a
license agreement with the Oregon Lottery Commission and subject to various
Oregon laws and regulations pertaining to the Oregon Lottery that allows the
Company to offer Oregon Lottery games (such a video poker) to its customers.
These laws and regulations require, among other things, that key participants
(including shareholders) in an entity providing Oregon Lottery games (such as
video poker) satisfy certain criminal background and financial criteria (the
"Licensure Requirements"). However, shareholders owning less than 5% of public
companies are exempt from the Licensure Requirements. If the Company is
de-listed from the Nasdaq SmallCap Market or de-registered from the reporting
requirements of the Exchange Act, the Company and all of its shareholders will
be subject the Licensure Requirements. Failure to satisfy the Licensure
Requirements will result in termination of the Company's license with the Oregon
Lottery Commission and the Company will not be eligible to offer Oregon Lottery
games (such as video poker) to its customers.
15. FEES AND EXPENSES
Except as set forth below, Purchaser will not pay any fees or
commissions to any broker, dealer or other person for soliciting tenders of
Shares pursuant to the Offer.
In connection with the Offer, Purchaser and the Company (on behalf of
the Surviving Company) have retained OTR, Inc. ("OTR") as the Depositary and the
Information Agent. Purchaser or the surviving company after the Merger will pay
OTR reasonable and customary compensation for its services in connection with
the Offer, plus reimbursement for reasonable out-of-pocket expenses, and
Purchaser will indemnify OTR certain liabilities and expenses in connection with
the Offer, including liabilities under the federal securities laws. OTR, as
Information Agent, may contact holders of Shares by mail, telephone, telegraph
and personal interviews and may request brokers, dealers and other nominee
shareholders to forward materials relating to the Offer to beneficial owners of
Shares. Brokers, dealers, commercial banks and trust companies will be
reimbursed by Purchaser for customary mailing and handling expenses incurred by
them in forwarding material to their customers.
84
Pursuant to the Engagement Letter, Purchaser agreed Veber Partners
would be paid a fee for its services to Purchaser in the amount of $70,000
payable as follows: (a) $25,000 upon engagement, (b) $20,000 upon Veber Partners
delivery to Purchaser of an oral opinion, and (c) $25,000 upon the purchase of
any Shares in the Offer. In addition, Purchaser has agreed to reimburse Veber
Partners for reasonable out-of-pocket expenses incurred in connection its
performance of services pursuant to the Engagement Letter. Purchaser has also
agreed to indemnify Veber Partners and its affiliates, managers, members,
officers, agents and each person, if any, controlling Veber Partners or any of
its affiliates against certain liabilities under the federal securities laws,
arising out of Veber Partners' engagement.
The following is an estimate of fees and expenses to be incurred by the
Company in connection with the Offer and Merger:
Legal Fees, Printing and Miscellaneous $21,000
Total $21,000
The following is an estimate of the fees and expenses to be incurred by
Purchaser (or the surviving corporation in the Merger) and the Continuing
Shareholders in connection with the Offer and Merger:
TYPE OF FEE AMOUNT
------------------------------------------------------- ---------------
Filing Fees $1,500
Advisor's Fees and Expenses $75,000
Depositary and Information Agent Fees $5,000
Legal, Printing and Miscellaneous Fees and Expenses $250,000
---------------
Total $331,500
16. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. Purchaser may, however, in its sole discretion, take such action
as it may deem necessary to make the Offer in any such jurisdiction and extend
the Offer to holders of Shares in such jurisdiction. Neither Purchaser nor the
Continuing Shareholders are aware of any jurisdiction in which the making of the
Offer or the acceptance of Shares in connection therewith would not be in
compliance with the laws of such jurisdiction.
Purchaser has filed with the SEC a Tender Offer Statement on Schedule
TO pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, furnishing certain additional information with respect to the
Offer, and may file amendments thereto. Such Tender Offer Statement includes
within it the information required by the SEC's Statement on Schedule 13e-3
relating to "going private" transactions. Such Tender Offer Statement and any
amendments thereto, including exhibits, may be examined and copies may be
obtained from the
85
principal office of the SEC in Washington, D.C. in the manner set forth in "The
Offer--Section 7. Certain Information Concerning the Company."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR THE CONTINUING SHAREHOLDERS NOT
CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED.
Dated: December 20, 2004
ERI Acquisition Corp.
By: /s/ BRUCE N. DAVIS
-------------------------------------
Bruce N. Davis, President
86
SCHEDULE A
EXCERPTS FROM THE OREGON BUSINESS CORPORATION ACT RELATING TO THE DISSENTERS'
RIGHTS OF SHAREHOLDERS PURSUANT TO SECTIONS 60.541 TO 60.594, AS AMENDED:
DISSENTERS' RIGHTS
(RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES)
60.551 DEFINITIONS FOR 60.551 TO 60.594. As used in Section 60.551 to 60.594:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 60.554 and who exercises that right when and in
the manner required by Section 60.561 to 60.587.
(4) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder. [1987 c.52 s.124; 1989 c.1040 s.30]
60.554 RIGHT TO DISSENT. (1) Subject to subsection (2) of this section, a
shareholder is entitled to dissent from, and obtain payment of the fair value of
the shareholder's shares in the event of, any of the following corporate acts:
(a) Completion of a plan of merger to which the corporation is
a party if shareholder approval is required for the merger by Section
60.487 or the articles of
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incorporation and the shareholder is entitled to vote on the merger or
if the corporation is a subsidiary that is merged with its parent under
Section 60.491;
(b) Completion of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(c) Completion of a sale or exchange of all or substantially
all of the property of the corporation other than in the usual and
regular course of business, if the shareholder is entitled to vote on
the sale or exchange, including a sale in dissolution, but not
including a sale pursuant to court order or a sale for cash pursuant to
a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one year after the
date of sale;
(d) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it:
(A) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities; or
(B) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under Section 60.141;
(e) Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws or a resolution of
the Board of Directors provides that voting or nonvoting shareholders
are entitled to dissent and obtain payment for their shares; or
(f) Conversion to a noncorporate business entity pursuant to
Section 60.472.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under Section 60.551 to 60.594 may not challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
(3) Dissenters' rights shall not apply to the holders of shares of any
class or series if the shares of the class or series were registered on a
national securities exchange or quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System as a National Market System issue on
the record date for the meeting of shareholders at which the corporate action
described in subsection (1) of this section is to be approved or on the date a
copy or summary of the plan of merger is mailed to shareholders under Section
60.491, unless the articles of incorporation otherwise provide. [1987 c.52
s.125; 1989 c.1040 s.31; 1993 c.403 s.9; 1999 c.362 s.15]
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60.557 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record shareholder may
assert dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares regarding which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the
record shareholder's written consent to the dissent not later than the
time the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all
shares of which the shareholder is the beneficial shareholder or over
which the shareholder has power to direct the vote.
[1987 c.52 s.126]
(PROCEDURE FOR EXERCISE OF RIGHTS)
60.561 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action creating
dissenters' rights under Section 60.554 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under Section 60.551 to 60.594 and
be accompanied by a copy of Section 60.551 to 60.594.
(2) If corporate action creating dissenters' rights under Section
60.554 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send the shareholders entitled to assert dissenters' rights the
dissenters notice described in Section 60.567. [1987 c.52 s.127]
60.564 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate action
creating dissenters' rights under Section 60.554 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert dissenters' rights
shall deliver to the corporation before the vote is taken written notice of the
shareholder's intent to demand payment for the shareholder's shares if the
proposed action is effectuated and shall not vote the shares in favor of the
proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) of this section is not entitled to payment for the shareholder's shares
under this chapter. [1987 c.52 s.128]
60.567 DISSENTERS' NOTICE. (1) If proposed corporate action creating dissenters'
rights under Section 60.554 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of Section 60.564.
A-3
(2) The dissenters' notice shall be sent no later than 10 days after
the corporate action was taken, and shall:
(a) State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(c) Supply a form for demanding payment that includes the date
of the first announcement of the terms of the proposed corporate action
to news media or to shareholders and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date;
(d) Set a date by which the corporation must receive the
payment demand. This date may not be fewer than 30 nor more than 60
days after the date the subsection (1) of this section notice is
delivered; and
(e) Be accompanied by a copy of Section 60.551 to 60.594.
[1987 c.52 s.129]
60.571 DUTY TO DEMAND PAYMENT. (1) A shareholder sent a dissenters' notice
described in Section 60.567 must demand payment, certify whether the shareholder
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to Section 60.567 (2)(c), and deposit
the shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
shares under subsection (1) of this section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(3) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this chapter. [1987 c.52 s.130]
60.574 SHARE RESTRICTIONS. (1) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
Section 60.581.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
[1987 c.52 s.131]
60.577 PAYMENT. (1) Except as provided in Section 60.584, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with Section 60.571, the
amount the corporation estimates to be the fair value of the shareholder's
shares, plus accrued interest.
A-4
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for that year and the latest available interim
financial statements, if any;
(b) A statement of the corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment
under Section 60.587; and
(e) A copy of Section 60.551 to 60.594. [1987 c.52 s.132;
1987 c.579 s.4]
60.581 FAILURE TO TAKE ACTION. (1) If the corporation does not take the proposed
action within 60 days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 60.567 and repeat the payment demand procedure.
[1987 c.52 s.133]
60.584 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold payment
required by Section 60.577 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
the demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
Section 60.587. [1987 c.52 s.134]
60.587 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. (1) A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate, less any payment under Section
60.577 or reject the corporation's offer under Section 60.584 and demand payment
of the dissenter's estimate of the fair value of the dissenter's shares and
interest due, if:
A-5
(a) The dissenter believes that the amount paid under Section
60.577 or offered under Section 60.584 is less than the fair value of
the dissenter's shares or that the interest due is incorrectly
calculated;
(b) The corporation fails to make payment under Section 60.577
within 60 days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within 60 days
after the date set for demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within 30 days after the
corporation made or offered payment for the dissenter's shares. [1987 c.52
s.135]
(JUDICIAL APPRAISAL OF SHARES)
60.591 COURT ACTION. (1) If a demand for payment under Section 60.587 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand under Section 60.587 and petition the court under
subsection (2) of this section to determine the fair value of the shares and
accrued interest. If the corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
(2) The corporation shall commence the proceeding in the circuit court
of the county where a corporation's principal office is located, or if the
principal office is not in this state, where the corporation's registered office
is located. If the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in this
state where the registered office of the domestic corporation merged with or
whose shares were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the circuit court in which the proceeding is
commenced under subsection (2) of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the powers
described in the court order appointing them, or in any amendment to the order.
The dissenters are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to
judgment for:
A-6
(a) The amount, if any, by which the court finds the fair
value of the dissenter's shares, plus interest, exceeds the amount paid
by the corporation; or
(b) The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under Section 60.584. [1987 c.52 s.136]
60.594 COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal proceeding
commenced under Section 60.591 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
Section 60.587.
(2) The court may also assess the fees and expenses of counsel and
experts of the respective parties in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Section 60.561 to 60.587; or
(b) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in
good faith with respect to the rights provided by this chapter.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to counsel reasonable fees to be paid out of the amount awarded
the dissenters who were benefited. [1987 c.52 s.137]
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SCHEDULE B
PLAN OF MERGER
(Short-Form Merger--Conditioned on Satisfaction of the Minimum Tender Condition)
PLAN OF MERGER
THIS PLAN OF MERGER (this "Plan") has been adopted at the direction of
ERI ACQUISITION CORP., an Oregon corporation ("Parent"), to be effective as of
__________ __, 2005, to authorize the merger between Parent and ELMER'S
RESTAURANTS, INC., an Oregon corporation (the "Company"). The Company and Parent
are sometimes collectively referred to in this Plan as the "Constituent
Corporations."
RECITALS:
----------
A. The Company is a corporation organized and existing under the laws
of the State of Oregon and its only class of issued and outstanding securities
is common stock.
B. Parent is a corporation organized and existing under the laws of the
State of Oregon.
C. Bruce N. Davis, William W. Service, Thomas C. Connor, Corydon H.
Jensen, Jr., Dennis M. Waldron, Richard C. Williams, Donald W. Woolley, Linda
Ellis-Bolton, Karen K. Brooks, Richard P. Buckley, David D. Connor, Stephanie M.
Connor, Debra A. Woolley-Lee, Douglas A. Lee, David C. Mann, Sheila J. Schwartz,
Gerald A. Scott, Gary N. Weeks, Gregory W. Wendt, Dolly W. Woolley, and Donna P.
Woolley (each, a "Continuing Shareholder" and collectively, the "Continuing
Shareholders") formed Parent for the purpose of acquiring in a tender offer all
of the shares of the Company's common stock that they did not already own (the
"Tender Offer") and contributed such Continuing Shareholder's shares of Company
common stock to Parent in exchange for Parent's common stock, no par value,
pursuant to that certain Exchange Agreement by and amongst the Parent and the
Continuing Shareholders dated December 20, 2004 (the "Exchange Agreement").
D. As a result of the Tender Offer and Exchange Agreement, Parent owns
ninety percent (90%) or more of Company's issued and outstanding common stock.
E. The board of directors of Parent deems it advisable and in the best
interest of the Company and its shareholders to merge Parent with and into the
Company (the "Merger") as authorized by the laws of the State of Oregon,
pursuant to the terms and conditions of this Plan.
F. Parent desires to effect the Merger in accordance with ORS 60.491,
pursuant to which the Parent is entitled to merge with Company in a "short-form"
merger without the approval of the board of directors or shareholders of the
Company, upon the terms and subject to the conditions set forth in this Plan.
B-1
TERMS AND CONDITIONS:
---------------------
In consideration of the premises and the mutual covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I
CONSTITUENT CORPORATIONS; MERGER; EFFECTIVENESS
-----------------------------------------------
1.1 MERGER. Upon the terms and subject to the conditions of this Plan,
at the Effective Time (as defined below) in accordance with ORS 60.491 and other
applicable provisions of the Oregon Business Corporation Act (the "Act"), Parent
shall be merged with and into the Company. The separate corporate existence of
Parent shall cease, and the Company shall be the surviving corporation in the
Merger (the "Surviving Corporation").
1.2 EFFECTIVE TIME. The effective time of the Merger shall be 12:01
a.m. on the date upon which Articles of Merger are duly filed with, and accepted
for filing by, the Secretary of State of the State of Oregon (the "Effective
Time").
ARTICLE II
TERMS AND CONDITIONS OF THE MERGER
----------------------------------
2.1 NAME OF SURVIVING CORPORATION. The name of the Surviving
Corporation shall be Elmer's Restaurants, Inc.
2.2 ARTICLES AND BYLAWS. The Articles of Incorporation and the Bylaws
of Parent in effect immediately prior to the Effective Time shall be the
Articles of Incorporation and the Bylaws of the Surviving Corporation from and
after the Effective Time until amended thereafter as provided therein or by law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of Parent
immediately prior to the Effective Time shall be the directors and the officers
of the Surviving Corporation from and after the Effective Time until expiration
of their current terms as such, or prior resignation, removal or death, subject
to the Articles of Incorporation and the Bylaws of the Surviving Corporation.
2.4 EFFECT OF THE MERGER. From and after the Effective Time, all in the
manner and with the effect set forth in ORS 60.497: (i) the Company shall
possess all the properties and assets, and all the rights, privileges, powers,
immunities and franchises, of whatever nature and description, and shall be
subject to all restrictions, obligations, duties and liabilities of each of the
Constituent Corporations; (ii) all such things shall be taken and deemed to be
transferred to and vested in the Surviving Corporation without further act or
deed; (iii) the title to all real estate and other property, or any interest
therein, vested by deed or otherwise in either of the Constituent Corporations,
shall be vested in the Surviving Corporation without reversion or impairment;
and (iv) any claim existing or action or proceeding, whether civil, criminal or
administrative, pending
B-2
by or against either Constituent Corporation, may be prosecuted to judgment or
decree as if the Merger has not taken place, and the Surviving Corporation may
be substituted in any such action or proceeding.
ARTICLE III
MANNER AND BASIS OF CONVERTING THE COMPANY'S CAPITAL STOCK
----------------------------------------------------------
AND OTHER OWNERSHIP INTERESTS
-----------------------------
3.1 CONVERSION. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof:
(a) Company's Capital Stock.
(1) Each share of the Company's common stock
issued and outstanding immediately prior to the Effective Time (other
than shares ("Dissenting Shares") as to which a dissenting shareholder
has taken the actions required by ORS 60.551-60.594 relating to
dissenters' rights) shall be (i) canceled and extinguished without
consideration, if such Shares are held by Parent, or (ii) canceled and
extinguished and shall be converted automatically into the right to
receive $7.50 per share in cash (the "Merger Consideration") if such
shares are held by any shareholder other than Parent. No interest shall
accrue on the Merger Consideration;
(2) If held by a person other than a
Continuing Shareholder, each option to purchase shares of the Company's
common stock outstanding immediately prior to the Effective Time shall
be canceled and extinguished and shall be converted automatically into
the right to receive in cash an amount equal to the difference between
$7.50 and the exercise price for each share issuable upon exercise of
such option; and
(3) If held by a Continuing Shareholder,
each option to purchase shares of the Company's common stock
outstanding immediately prior to the Effective Time shall, in
accordance with the written election of such Continuing Shareholder
that is delivered to Parent at least three (3) days prior to the
Effective Time, either (i) be canceled and extinguished and shall be
converted automatically into the right to receive in cash an amount
equal to the difference between $7.50 and the exercise price for each
share issuable upon exercise of such option, or (ii) remain outstanding
and constitute an option to purchase, on the same terms and subject to
the same conditions, shares of the Surviving Corporation's common stock
(all such options, collectively, the "Continuing Options"). Each
Continuing Shareholder may elect to receive cash for an option or to
retain such options in any proportion so long as no fractional shares
would result from such election. The Surviving Corporation shall
reserve a sufficient number of shares of common stock to permit the
valid exercise of the Continuing Options, and shall issue such common
stock upon the exercise therefor on the terms thereof.
(b) Parent's Capital Stock.
B-3
(1) All shares of the authorized but
unissued shares of Parent's common stock immediately prior to the
Effective Time shall be canceled and extinguished; and
(2) Each share of Parent's common stock
issued and outstanding immediately prior to the Effective Time shall be
canceled and extinguished and each holder of such share shall be
automatically convert into one share of the Surviving Corporation's
common stock in exchange.
3.2 DISSENTERS' RIGHTS. Each of the Dissenting Shares will be
treated in accordance with the provisions of ORS 60.551-60.594 relating
to dissenters' rights.
3.3 CERTIFICATES. Except with respect to the certificates of
holders of Company common stock who are not Continuing Shareholders
("Non-Continuing Shareholders") and Dissenting Shares, each certificate
that, before the Effective Date, represented Company common stock, from
and after the Effective Date shall represent shares of common stock of
Surviving Corporation (the "New Shares"). Except with respect to
Dissenting Shares, the certificate(s) of each Non-Continuing
Shareholder from and after the Effective Date shall solely represent a
right to receive the Merger Consideration by the holder of record for
such certificate as of the Effective Date. Each Continuing Shareholder
shall be entitled to receive, after surrender to Surviving Corporation
of one or more certificates representing Company common stock for
cancellation (plus any other documentation required by Surviving
Corporation), certificates representing the number of New Shares that
such shareholder is entitled to receive pursuant to Section 3.1(b)(2)
hereof. The certificates representing the New Shares shall be delivered
to the Continuing Shareholders at the address indicated at time of
surrender. The New Shares that each such shareholder shall be entitled
to receive pursuant to the Merger shall be deemed to have been issued
at the Effective Date. Notwithstanding the foregoing, neither Surviving
Corporation nor any other party hereto shall be liable to a holder of
shares of Company common stock for any Merger Consideration delivered
to a public official pursuant to applicable abandoned property, escheat
and similar laws. In the event that any certificates representing
shares of Company common stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the
shareholder claiming such certificate to be lost, stolen or destroyed,
Surviving Corporation shall cause to be issued in exchange for such
lost, stolen or destroyed certificate the New Shares that such
shareholder is entitled to receive pursuant to Section 3.1(b)(2);
provided, however, that Surviving Corporation may in its discretion and
as a condition precedent to the issuance thereof, require such
shareholder to provide Surviving Corporation with an indemnity
agreement without bond against any claim that may be made against
Surviving Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
3.4 NO FRACTIONAL SHARES. No certificates or scrip
representing fractional shares of New Shares shall be issued in the
Merger, and no dividend, stock split or other distribution with respect
to New Shares shall relate to any such fractional interest, and any
such fractional interests shall not entitle the owner thereof to vote
or to any rights of a security holder. In lieu thereof, Surviving
Corporation shall pay to the Continuing
B-4
Shareholder who would otherwise be entitled to a fraction of a share of
New Shares, as soon as practicable after the Effective Date, an amount
in cash equal to such fraction multiplied by the Merger Consideration.
ARTICLE IV
IMPLEMENTATION; TERMINATION; AMENDMENT
--------------------------------------
4.1 IMPLEMENTATION. Each of the Constituent Corporations shall take, or
cause to be taken, all action or do, or cause to be done, all things necessary,
proper or advisable under the laws of the State of Oregon to consummate and make
effective the Merger.
4.2 TERMINATION. This Plan may be terminated for any reason at any time
before the filing of the Articles of Merger with the Secretary of State of the
State of Oregon by resolution of the board of directors of the Parent. If the
Plan is terminated, there shall be no liability on the part of either of the
Constituent Corporations, their respective boards of directors, officers, or
shareholders.
4.3 AMENDMENT. This Plan may, to the extent permitted by law, be
amended, supplemented or interpreted at any time by action taken by the board of
directors of Parent.
B-5
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for the
Shares and any other required documents should be sent by each shareholder of
Elmer's or his, her or its broker, dealer, commercial bank, trust company or
other nominee to the Depositary as follows:
THE DEPOSITARY FOR THE OFFER IS:
OTR, Inc.
BY MAIL: BY OVERNIGHT DELIVERY: OR BY HAND:
OTR, Inc.
Attn.: Robert Roach
1000 SW Broadway, Suite 920
Portland, OR 97205
Telephone: (503) 225-0375
FOR NOTICE OF GUARANTEED DELIVERY
BY FACSIMILE TRANSMISSION:
(503) 273-9168
TO CONFIRM FACSIMILE TRANSMISSION ONLY:
(503) 273-9168
FOR TELEPHONE ASSISTANCE:
(503) 225-0375
Any questions or requests for assistance or additional copies of the
Offer to Purchase and the Letter of Transmittal may be directed to the
Information Agent at its telephone number and location listed below. You may
also contact your broker, dealer, commercial bank or trust company or other
nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
OTR, Inc.
Attn: Robert Roach
1000 SW Broadway, Suite 920
Portland, OR 97205
Telephone: (503) 225-0375
EXHIBIT (a)(1)(ii)
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
No Par Value Per Share
of
ELMER'S RESTAURANTS, INC.
by
ERI ACQUISITION CORP.
Pursuant to the Offer to Purchase
Dated December 20, 2004
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD
TIME, ON FEBRUARY 2, 2005, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
OTR, INC.
By Mail, By Overnight Courier, or By Hand:
OTR, Inc.
1000 SW Broadway, Suite 920
Portland, Oregon 97205
Attn.: Robert Roach
Telephone (503) 225-0375
FOR NOTICE OF GUARANTEED DELIVERY
BY FACSIMILE TRANSMISSION: (503) 273-9168
TO CONFIRM FACSIMILE TRANSIMISSION ONLY: (503) 273-9168
FOR TELEPHONE ASSISTANCE:
(503) 225-0375
Delivery of this Letter of Transmittal to an address other than as set
forth above will not constitute a valid delivery to the Depositary. You must
sign this Letter of Transmittal in the appropriate space provided below and
complete the substitute Form W-9 set forth below.
The instructions contained within the Letter of Transmittal should be
read carefully before this Letter of Transmittal is completed. Questions and
requests for assistance may be directed to the Information Agent as set forth on
the back cover.
DESCRIPTION OF SHARES TENDERED
--------------------------------------------------------------------------------
Name(s) and Address(es) of Registered SHARES TENDERED
Holder(s) (Please fill in, if blank, (Attach additional signed list, if
exactly as name(s) appear(s) on necessary)
Certificate(s)) ---------------------------
CERTIFICATES TOTAL SHARES
NUMBER(s): TENDERED (1):
Name:_________________________________ ______________________________________
Address:______________________________ ______________________________________
______________________________________ ______________________________________
Total Shares
(1) Unless otherwise indicated, all shares represented by share certificates
delivered to the Depositary will be deemed to have been tendered. See
Instruction 4.
2
This Letter of Transmittal is to be used by shareholders of Elmer's
Restaurants, Inc. ("Elmer's") if certificates for the Shares (as defined below)
are to be forwarded herewith. Holders who deliver Shares are referred to herein
as "Certificate Shareholders."
Shareholders whose certificates for the Shares are not immediately
available with respect to, their Shares and all other documents required hereby
to the Depositary prior to the Expiration Date (as defined in the Offer to
Purchase in the section titled "The Offer--Section 1. Terms of the Offer;
Expiration Date") must tender their Shares pursuant to the guaranteed delivery
procedures set forth in the Offer to Purchase in the section titled "The
Offer--Section 3. Procedures For Tendering Shares." See Instruction 2.
[ ] Check here if the tendered shares are being delivered pursuant to a
notice of guaranteed delivery previously sent to the Depositary and
complete the following:
Name(s) of Registered Owners(s):_____________________________________________
Window Ticket Number (if any):______________________________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Name of Institution which Guaranteed Delivery:__________________________________
3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS
SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to ERI ACQUISITION CORP. a newly formed
Oregon corporation ("Purchaser") controlled by Bruce N. Davis ("Mr. Davis"),
Chairman of the Board and President of Elmer's Restaurants, Inc. ("Elmer's" or
the "Company"), William W. Service, a director and the former Chief Executive
Officer of the Company, Thomas C. Connor, Corydon H. Jensen, Jr., Dennis M.
Waldron, Richard C. Williams and Donald W. Woolley, each of whom is a member of
the Company's board of directors, Linda Ellis-Bolton, Karen K. Brooks, Richard
P. Buckley, David D. Connor, Stephanie M. Connor, Debra A. Woolley-Lee, Douglas
A. Lee, David C. Mann, Sheila J. Schwartz, Gerald A. Scott, a Vice President of
the Company, Gary N. Weeks, Gregory W. Wendt, Dolly W. Woolley, and Donna P.
Woolley (each referred to herein as a "Continuing Shareholder" and collectively,
the "Continuing Shareholders") the above-described shares of Elmer's common
stock, no par value per share (the "Shares") not currently owned by the
Continuing Shareholders, at $7.50 per Share, in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated December 20, 2004 and
in this related Letter of Transmittal (which, together with any amendments or
supplements hereto or thereto, collectively constitute the "Offer"). The
undersigned understands that Purchaser reserves the right to transfer or assign
in whole or in part from time to time to one or more of its affiliates the right
to purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve Purchaser of its obligations
under the Offer and will in no way prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer. Receipt of the Offer is hereby acknowledged.
Upon the terms and subject to the conditions of the Offer (and if the
Offer is extended or amended, the terms of any such extension or amendment), and
subject to, and effective upon, acceptance for payment of the Shares tendered
herewith in accordance with the terms of the Offer, the undersigned hereby,
sells, assigns and transfers to Purchaser, all right, title and interest in and
to all the Shares that are being tendered hereby (and any and all non-cash
dividends, distributions, rights, other Shares or other securities issued or
issuable in respect thereof on or after December 20, 2004 (collectively,
"Distributions")) and irrevocably constitutes and appoints the Depositary to be
the true and lawful agent and attorney-in-fact of the undersigned with respect
to such Shares (and all Distributions), with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver certificates for such Shares (and any and all
Distributions), with all accompanying evidences of transfer and authenticity, to
or upon the order of Purchaser, and (ii) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares (and any and all
Distributions), all in accordance with the terms of the Offer.
By executing this Letter of Transmittal, the undersigned hereby
irrevocably appoints Purchaser, its officers and designees, and each of them,
the attorneys-in-fact and proxies of the undersigned, each with full power of
substitution, (i) to vote at any annual or special meeting of
4
the Elmer's shareholders or any adjournment or postponement thereof or otherwise
in such manner as each such attorney-in-fact and proxy or his substitute shall
in his sole discretion deem proper with respect to, (ii) to execute any written
consent concerning any matter as each such attorney-in-fact and proxy or his
substitute shall in his sole discretion deem proper with respect to, and (iii)
to otherwise act as each such attorney-in-fact and proxy or his substitute shall
in his sole discretion deem proper with respect to, all of the Shares (and any
and all Distributions) tendered hereby and accepted for payment by Purchaser.
This appointment will be effective if and when, and only to the extent that
Purchaser accepts such Shares for payment pursuant to the Offer. This power of
attorney and proxy are irrevocable and are granted in consideration of the
acceptance for payment of such Shares in accordance with the terms of the Offer.
Such acceptance for payment shall, without further action, revoke any prior
powers of attorney and proxies granted by the undersigned at any time with
respect to such Shares (and any and all Distributions), and no subsequent powers
of attorney, proxies, consents or revocations may be given by the undersigned
with respect thereto (and, if given, will not be deemed effective). Purchaser
reserves the right to require that, in order for the Shares to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares,
Purchaser must be able to exercise full voting, consent and other rights with
respect to such Shares (and any and all Distributions), including voting at any
meeting of Elmer's shareholders.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions and that, when the same are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title thereto and to all Distributions, free and clear of all liens,
restrictions, charges and encumbrances and the same will not be subject to any
adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Depositary or Purchaser to be necessary or
desirable to complete the sale, assignment and transfer, of the Shares tendered
hereby and all Distributions. In addition, the undersigned shall remit and
transfer promptly to the Depositary for the account of Purchaser all
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and, pending such remittance and transfer
or appropriate assurance thereof, Purchaser shall be entitled to all rights and
privileges as owner of each such Distribution and may withhold the entire
purchase price of the Shares tendered hereby or deduct from such purchase price
the amount or value of such Distribution as determined by Purchaser in its sole
discretion.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned, and any obligation of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, successors and
assigns of the undersigned. This tender is irrevocable; provided that the Shares
tendered pursuant to the Offer may be withdrawn at any time on or prior to the
Expiration Date and unless theretofore accepted for payment as provided in the
Offer to Purchase, may also be withdrawn at any time after the Expiration Date
subject to the withdrawal rights set forth in the Offer to Purchase in the
section titled "The Offer--Section 4. Rights of Withdrawal."
The undersigned understands that the valid tender of the Shares
pursuant to any one of the procedures described in the Offer to Purchase in the
section titled "The Offer--Section 3. Procedures For Tendering Shares" and in
the Instructions hereto will constitute a binding
5
agreement between the undersigned and Purchaser upon the terms and subject to
the conditions of the Offer (and if the Offer is extended or amended, the terms
or conditions of any such extension or amendment). Without limiting the
foregoing, if the price to be paid in the Offer is amended in accordance with
the terms of the Offer to Purchase, the price to be paid to the undersigned will
be the amended price notwithstanding the fact that a different price is stated
in this Letter of Transmittal. The undersigned recognizes that under certain
circumstances set forth in the Offer to Purchase, Purchaser may not be required
to accept for payment any of the Shares tendered hereby.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of all Shares purchased and/or return any
certificates for any Shares not tendered or accepted for payment in the name(s)
of the registered holder(s) appearing above under "Description of the Shares
Tendered." Similarly, please mail the check for the purchase price of all Shares
purchased and/or return any certificates for any Shares not tendered or not
accepted for payment (and any accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing above under "Description of
the Shares Tendered." The undersigned recognizes that Purchaser has no
obligation pursuant to the "Special Payment Instructions" to transfer any Shares
from the name of the registered holder thereof if Purchaser does not accept for
payment any of the Shares so tendered.
6
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 5, 6, and 7)
To be completed ONLY if certificates for
any Shares not tendered or not accepted
for payment and/or the check for the
purchase price of any Shares accepted
for payment is to be sent to someone
other than the undersigned or to the
undersigned at an address other than
that shown under "Description of the
Shares Tendered." Mail check and/or
stock certificates to:
Name(s):________________________________
(Please Print)
Address:________________________________
________________________________________
(Include Zip Code)
________________________________________
(Taxpayer Identification or Social
Security Number)
(See Substitute Form W-9 included herein)
7
IMPORTANT
Shareholders: Sign Here
(and Complete Substitute Form W-9 Included Herein)
SIGN HERE ____________________________________________________________ SIGN HERE
________________________________________________________________________________
(Signature(s) of Owner(s))
Name(s):________________________________________________________________________
(Please Print)
Name of Firm:___________________________________________________________________
(Please Print)
Capacity (full title):__________________________________________________________
(See Instruction 5)
Address:________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:_________________________________________________
Taxpayer Identification or
Social Security Number:_________________________________________________________
(See Substitute Form W-9)
Dated:______________________________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other person acting in a
fiduciary or representative capacity, please set forth full title and see
Instruction 5.)
8
GUARANTEE OF SIGNATURES
(See Instructions 1 and 5)
For Use by Financial Institutions Only
Financial Institutions: Place Medallion
Guarantee in Space Below
Authorized Signature(s):________________________________________________________
Name(s):________________________________________________________________________
Name of Firm:___________________________________________________________________
(Please Print)
Address:________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:_________________________________________________
Dated:______________________________
9
CERTIFY IF CERTIFICATE(S) ARE LOST
[ ] Check here if certificate(s) representing the following shares of Elmer's
Restaurants, Inc. common stock has/have been lost, destroyed, or mutilated (See
Instruction 11):
Certificate Number(s):____________________ Shares:_______________________
(1) I hereby certify that: (a) I have made or caused to be made a diligent
search for such stock certificate(s) and have been unable to find or recover
it/them; (b) I have not sold, assigned, pledged, transferred, deposited under
any agreement, or hypothecated the shares of Elmer's Restaurants, Inc. common
stock represented by such stock certificate(s), or any interest therein, or
assigned any power of attorney or other authorization respecting the same that
is now outstanding and in force, or otherwise disposed of such stock
certificate(s); and (c) no person, firm, corporation, agency, or government,
other than me, has or has asserted any right, title, claim, equity, or interest
in, to, or respecting such common shares of Elmer's Restaurants, Inc.
(2) Please issue a replacement stock certificate(s). In consideration of the
issuance of a replacement certificate(s), I hereby agree to indemnify and hold
harmless Elmer's Restaurants, Inc. and OTR, Inc. and any person, firm, or
corporation now or hereafter acting as Elmer's Restaurants, Inc.'s transfer
agent, exchange agent, registrar, trustee, depository, redemption agent, fiscal
agent, or paying agent, or in any other capacity, and also any successors in any
such capacities, and their respective subsidiaries, affiliates, heirs,
successors, and assigns, from and against any and all liability, loss, damage,
and expense in connection with, or arising out of, their compliance with my
request herein.
(3) I also agree, in consideration of compliance with the foregoing request, to
surrender immediately to Elmer's Restaurants, Inc. and/or its agents/successor
the lost stock certificate(s) should it/ they hereafter come into my possession
or control.
______________________________________ _____________________________________
Signature Date
______________________________________ _____________________________________
Signature Date
STATE )
) :ss.
COUNTY OF )
I, _____________________, a Notary Public, do hereby certify that on the __ day
of __________, personally appeared before me ______________________, known to me
to be the persons whose name(s) is/are subscribed to the foregoing instrument,
who, being by me first duly sworn, declared that the statements contained
therein are true and that he/she/they signed said instrument for the purposes,
in the capacity, and for consideration therein expressed. (Notary: Please modify
if necessary to conform to your state law or attach an alternative form.)
10
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal if (a) this Letter of Transmittal is signed by the
registered holder(s) of Shares tendered herewith, and such registered holder(s)
has not completed either the box entitled "Special Payment Instructions" or the
box entitled "Special Delivery Instructions" on the Letter of Transmittal, or
(b) such Shares are tendered for the account of a financial institution
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program or by any other "Eligible Guarantor Institution," as
such term is defined in Rule l7Ad-15 under the Exchange Act (each, an "Eligible
Institution"). In all other cases, all signatures on this Letter of Transmittal
must be guaranteed by an Eligible Institution. See Instruction 5.
2. REQUIREMENTS FOR TENDER. This Letter of Transmittal is to be
completed by shareholders of Elmer's Restaurants, Inc. if certificates are to be
forwarded herewith pursuant to the procedures set forth herein and in the Offer
to Purchase in the section titled "The Offer--Section 3. Procedures For
Tendering Shares." For a shareholder validly to tender Shares pursuant to the
Offer, either (a) a properly completed and duly executed Letter of Transmittal
(or a manually signed facsimile thereof), together with any required signature
guarantees and any other required documents, must be received by the Depositary
at its address set forth herein prior to the Expiration Date (as defined in the
Offer to Purchase) and certificates for tendered Shares must be received by the
Depositary at its address prior to the Expiration Date, or (b) the tendering
shareholder must comply with the guaranteed delivery procedures set forth herein
and in the Offer to Purchase in the section titled "The Offer--Section 3.
Procedures For Tendering Shares."
Shareholders whose certificates for Shares are not immediately
available or who cannot deliver their certificates and all other required
documents to the Depositary prior to the Expiration Date may tender their Shares
by properly completing and duly executing the Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth herein and in the Offer
to Purchase in the section titled "The Offer--Section 3. Procedures For
Tendering Shares."
Pursuant to such guaranteed delivery procedures, (i) such tender must
be made by or through an Eligible Institution, (ii) a properly completed and
duly executed Notice of Guaranteed Delivery, substantially in the form provided
by Purchaser, must be received by the Depositary prior to the Expiration Date,
and (iii) the certificates for all tendered Shares, in proper form for transfer,
together with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), with any required signature guarantees, and any other
required documents must be received by the Depositary within three (3) trading
days after the date of execution of such Notice of Guaranteed Delivery. A
"trading day" is any day on which the NASDAQ is open for business. The
signatures on this Letter of Transmittal cover the Shares tendered hereby.
THE METHOD OF DELIVERY OF THE SHARES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION
11
AND RISK OF THE TENDERING SHAREHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT THE SHAREHOLDER USE PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and
no fractional Shares will be purchased. All tendering shareholders, by executing
this Letter of Transmittal (or a manually signed facsimile thereof), waive any
right to receive any notice of acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the number of Shares tendered and the
certificate numbers with respect to such Shares should be listed on a separate
signed schedule attached hereto.
4. PARTIAL TENDERS. If fewer than all the Shares evidenced by any
certificate delivered to the Depositary herewith are to be tendered hereby, fill
in the number of Shares that are to be tendered in the box entitled "Number of
Shares Tendered." In any such case, new certificate(s) for the remainder of the
Shares that were evidenced by the old certificates will be sent to the
registered holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the Expiration Date or the
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, the signature(s) must correspond with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are held of record by two (2) or
more joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any stock certificate or stock power
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of the authority of such person to so act must be
submitted. If this Letter of Transmittal is signed by the registered holder(s)
of the Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment or certificates for any Shares
not tendered or not accepted for payment are to be issued in the name of a
person other than the registered holder(s). Signatures on any such certificates
or stock powers must be guaranteed by an Eligible Institution.
12
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by certificates listed and
transmitted hereby, the certificates must be endorsed or accompanied by
appropriate stock powers, signed exactly as the name(s) of the registered
holder(s) appear(s) on the certificates. Signature(s) on any such certificates
or stock powers must be guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this
Instruction 6, Purchaser will pay all stock transfer taxes with respect to the
transfer and sale of any Shares to it or its order pursuant to the Offer. If
however, payment of the purchase price of any Shares purchased is to be made to,
or if certificates for any Shares not tendered or not accepted for payment are
to be registered in the name of, any person other than the registered holder(s),
or if tendered certificates are registered in the name of any person other than
the person(s) signing this Letter of Transmittal, the amount of any stock
transfer taxes (whether imposed on the registered holder(s) or such other
person) payable on account of the transfer to such other person will be deducted
from the purchase price of such Shares purchased unless evidence satisfactory to
Purchaser of the payment of such taxes, or exemption therefrom, is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates evidencing the Shares
tendered hereby.
7. SPECIAL PAYMENT INSTRUCTIONS. If a check for the purchase price of
any Shares accepted for payment is to be issued in the name of, and/or
certificates for any Shares not accepted for payment or not tendered are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, the appropriate boxes on this Letter of Transmittal should be
completed.
8. BACKUP WITHHOLDING. Under Federal income tax law, a shareholder
whose tendered shares are accepted for payment is required, unless an exemption
applies, to provide the Depositary (as payor) with such shareholder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 below in order to
avoid "backup withholding" of Federal income tax on payments of cash pursuant to
the Offer. In addition, the shareholder must certify under penalties of perjury
that such TIN is correct and that such shareholder is not subject to backup
withholding. See the section titled "The Offer--Section 5. Certain Federal
Income Tax Consequences of the Offer" in the Offer to Purchase. If a tendering
shareholder is subject to backup withholding, such shareholder must cross out
item (2) of the Certification box on the Substitute Form W-9. If such
shareholder is an individual, the taxpayer identification number is his or her
social security number.
The tendering shareholder should indicate in Part 3 of the Substitute
Form W-9 if the tendering shareholder has not been issued a TIN and has applied
for or intends to apply for a TIN in the near future, in which case the
tendering shareholder should complete the Certificate of Awaiting Taxpayer
Identification Number below. If the shareholder has indicated in Part 3 that a
TIN has been applied for and the Depositary is not provided a TIN within 60
days, the Depositary will withhold 28% of all cash payments, if any, made
thereafter pursuant to the Offer until a TIN is provided to the Depositary.
13
If the Depositary is not provided with the correct taxpayer
identification number or the certifications described above, the shareholder may
be subject to a monetary penalty imposed by the Internal Revenue Service. In
addition, payments of cash to such shareholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding at applicable rates
(currently 28%).
Backup withholding is not an additional income tax. Rather, the amount
of the backup withholding can be credited against the Federal income tax
liability of the person subject to the backup withholding, provided that the
required information is provided to the IRS. If backup withholding results in an
overpayment of tax, a refund can be obtained by the shareholder upon proper
filing of an income tax return.
The shareholder is required to give the Depositary the TIN (i.e.,
social security number or employer identification number) of the record owner of
the Shares. If the Shares are held in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report.
Certain shareholders (including, among others, all corporations and
certain foreign individuals and entities) are not subject to backup withholding.
Non-corporate foreign shareholders should complete and sign the main signature
form and a Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for
United States Tax Withholding, signed under penalties of perjury, attesting to
that individual's exempt status, in order to avoid backup withholdings. A copy
of Form W-8BEN may be obtained from the Depositary. Exempt shareholders, other
than foreign individuals, should furnish their TIN, write "Exempt" in Part H of
the Substitute Form W-9 below, and sign, date and return the Substitute Form W-9
to the Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for more instructions. Holders are
urged to consult their own tax advisors to determine whether they are exempt
from these backup withholding and reporting requirements.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Offer to Purchase, this
Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent at its address and phone numbers set forth
below. You may also contact your broker, dealer, commercial bank or trust
companies or other nominee for assistance concerning the Offer materials.
10. WAIVER OF CONDITIONS. Subject to the Offer to Purchase, except for
the Majority of the Minority Condition (as defined in the Offer to Purchase),
Purchaser reserves the absolute right in its sole discretion to waive, at any
time or from time to time, any of the specified conditions of the Offer, in
whole or in part, in the case of any Shares tendered.
11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the shareholder should
promptly notify the
14
Depositary by checking the box immediately following the special payment
instructions and indicating the number of Shares lost. THE SHAREHOLDER WILL THEN
BE INSTRUCTED AS TO THE STEPS THAT MUST BE TAKEN IN ORDER TO REPLACE THE
CERTIFICATE(S). THIS LETTER OF TRANSMITTAL AND RELATED DOCUMENTS CANNOT BE
PROCESSED UNTIL THE PROCEDURES FOR REPLACING LOST, DESTROYED OR STOLEN
CERTIFICATES HAVE BEEN FOLLOWED.
IMPORTANT:
TO TENDER SHARES PURSUANT TO THE OFFER, THIS LETTER OF TRANSMITTAL (OR
A MANUALLY SIGNED FACSIMILE THEREOF) TOGETHER WITH ANY REQUIRED SIGNATURE
GUARANTEES AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY
PRIOR TO THE EXPIRATION DATE AND CERTIFICATES FOR TENDERED SHARES MUST BE
RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE, OR THE TENDERING
SHAREHOLDERS MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY.
IMPORTANT TAX INFORMATION
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a
shareholder with respect to Shares purchased pursuant to the Offer, the
shareholder is required to notify the Depositary of such shareholder's correct
taxpayer identification number by completing the form contained herein
certifying that the taxpayer identification number provided on Substitute Form
W-9 is correct (or that such shareholder is awaiting a taxpayer identification
number).
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
15
---------------------------------------- -------------------------------------- --------------------------------------
SUBSTITUTE PART I - Taxpayer Identification
Number - For all accounts, enter __________________________
FORM W-9 your taxpayer identification number Social Security Number
on the appropriate line to the
DEPARTMENT OF THE TREASURY right. (For most individuals, this Or
INTERNAL REVENUE SERVICE is your social security number, see
Obtaining a Number in the enclosed __________________________
PAYER'S REQUEST FOR TAXPAYER Guidelines and complete as Employer Identification Number
IDENTIFICATION NUMBER ("TIN") instructed.) Certify by signing and
dating below. Note: If the account (If awaiting TIN write "Applied For")
is in more than one name, see the
chart in the enclosed guidelines to
determine which number to give the
payor.
----------------------------------------------------------------------------------------------------------------------
PART II - For Payees exempt from backup withholding, see the enclosed Guidelines and complete as instructed therein.
----------------------------------------------------------------------------------------------------------------------
PART III - CERTIFICATION - Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to
be issued to me); and
(2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to withholding as a result of failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have been notified by the IRS that you are
currently subject to backup withholding because of under reporting interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup withholding you received another notification from
the IRS that you are no longer subject to backup withholding, do not cross out such item (2). (Also see instructions
in the enclosed guidelines).
----------------------------------------------------------------------------------------------------------------------
Signature ________________________________________________ Date________________________
----------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU
PURSUANT TO THIS TRANSACTION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU ARE AWAITING (OR WILL SOON APPLY FOR) A TAXPAYER
IDENTIFICATION NUMBER.
----------------------------------------------------------------------------------------------------------------------
CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me and
either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an
application in the near future. I understand that, notwithstanding the information I provided in Part I of the
Substitute Form W-9 (and the fact that I have completed this Certificate of Awaiting Taxpayer Identification Number),
if I do not provide a correct taxpayer identification number to the Payor within sixty (60) days, 28% of any
reportable payments made to me thereafter may be withheld.
Signature ________________________________________________ Date________________________
----------------------------------------------------------------------------------------------------------------------
16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two
hyphens: i.e. 000-00-0000. Employer identification numbers have nine
digits separated by only one hyphen: i.e. 00-0000000. The table below
will help determine the number to give the payer.
--------------------------------- ---------------------------- ------------------------------- ----------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
NUMBER OF -- IDENTIFICATION NUMBER
OF --
----------------------------------------------------------------- ---------------------------------------------------------------
1. An individual's account The individual 9. A valid trust, estate, The legal entity (Do
or pension trust not furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined
funds, any one of the
individuals(l)
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, or The organization
account) account or, if joint funds, educational organization
either person(l) account
4. Custodian account of a The minor(2) 12. Partnership account The partnership
minor (Uniform Gift to held in the name of the
Minors Act) business
5. Adult and minor (joint The adult or, if the minor is 13. Association, club, or other The organization
account) the only contributor, the tax-exempt organization
minor(l)
6. Account in the name of The ward, minor, or 14. A broker or registered The broker or nominee
guardian or committee incompetent person(3) nominee
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(l) 15. Account with the The public entity
savings trust account Department of Agriculture
(grantor is also in the name of a public
trustee) entity (such as a State or
local government, school,
b. So-called trust The actual owner(l) district or prison) that
account that is not a receives agricultural
legal or valid trust program payments
under State law
8. Sole proprietorship The owner(4)
account
------------------------------------------------------------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circled the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
17
OBTAINING A NUMBER.
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING.
Payees specifically exempted from backup withholding on ALL payments include the
following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(6)(7).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency, or instrumentality
thereof.
o A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust under section 664, or a non-exempt
trust described in section 4947.
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
o A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid
in money.
o Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-in-interest dividends
under section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Mortgage interest paid to the payer.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details see section 6041, 6041A, 6042, 6044, 6045, 6049, 6050A,
and 6050N and their regulations.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. The IRS uses the numbers for identification purposes
and to help verify the accuracy of your return. Payers must be given the numbers
whether or not recipients are required to file tax returns. Payers must
generally withhold 28% of taxable interest, dividend, and certain other payments
to a payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES.
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
18
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL WILL BE
ACCEPTED. THE LETTER OF TRANSMITTAL, CERTIFICATES FOR SHARES AND ANY OTHER
REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH SHAREHOLDER OF ELMER'S
RESTAURANTS, INC. OR SUCH SHAREHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ITS ADDRESS SET FORTH ON THE FIRST
PAGE.
Questions and requests for assistance may be directed to the
Information Agent and requests for additional copies of the Offer to Purchase,
the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender
offer materials may be directed to the Information Agent at its telephone number
and location listed below, and will be furnished promptly at Purchaser's
expense. You may also contact your broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the Offer.
INFORMATION AGENT FOR THE OFFER IS:
OTR, Inc.
Attn: Robert Roach
1000 SW Broadway, Suite 920
Portland, Oregon 97205
Telephone (503) 225-0375
Fax (503)273-9168
19
EXHIBIT (a)(1)(iii)
NOTICE OF GUARANTEED DELIVERY
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
IF YOU ARE IN ANY DOUBT AS TO THE ACTION TO BE TAKEN, YOU SHOULD SEEK
YOUR OWN FINANCIAL ADVICE IMMEDIATELY FROM YOUR OWN APPROPRIATELY AUTHORIZED
INDEPENDENT FINANCIAL ADVISOR. IF YOU HAVE SOLD OR TRANSFERRED ALL OF YOUR
REGISTERED HOLDINGS OF SHARES (AS DEFINED BELOW), PLEASE FORWARD THIS DOCUMENT
AND ALL ACCOMPANYING DOCUMENTS TO THE STOCKBROKER, BANK OR OTHER AGENT THROUGH
WHOM THE SALE OR TRANSFER WAS EFFECTED FOR TRANSMISSION TO ERI ACQUISITION CORP.
OR ITS TRANSFEREE.
NOTICE OF GUARANTEED DELIVERY
TO TENDER SHARES OF COMMON STOCK
NO PAR VALUE PER SHARE
OF
ELMER'S RESTAURANTS, INC.
by
ERI ACQUISITION CORP.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, EASTERN STANDARD TIME, ON FEBRUARY 2, 2005,
UNLESS THE OFFER IS EXTENDED.
As set forth in the Offer to Purchase (as defined below) in the section
titled "The Offer--Section 3. Procedures For Tendering Shares," this form (or a
facsimile thereof) must be used to accept the Offer (as defined in the Offer to
Purchase) if (i) certificates representing shares of common stock no par value
per share of Elmer's Restaurants, Inc., an Oregon corporation ("Elmer's") that
are not currently owned by the Continuing Shareholders (as defined in the Offer
to Purchase) (the "Shares") are not immediately available, or (ii) time will not
permit certificates representing Shares and any other required documents to
reach the Depositary (as defined in the Offer to Purchase) prior to the
Expiration Date (as defined in the Offer to Purchase). This Notice of Guaranteed
Delivery may be delivered by hand or by mail to the Depositary, or transmitted
by telegram or facsimile transmission to the Depositary and must include a
signature guarantee by an Eligible Institution (as defined in the Offer to
Purchase) in the form set forth herein. See the guaranteed delivery procedures
described in the section titled "The Offer--Section 3. Procedures For Tendering
Shares" in the Offer to Purchase.
THE DEPOSITARY FOR THE OFFER IS:
OTR, Inc.
BY MAIL: BY OVERNIGHT DELIVERY: OR BY HAND:
OTR, Inc.
Attn.: Robert Roach
1000 SW Broadway, Suite 920
Portland, OR 97205
Telephone: (503) 225-0375
FOR NOTICE OF GUARANTEED DELIVERY
BY FACSIMILE TRANSMISSION:
(503) 273-9168
TO CONFIRM FACSIMILE TRANSMISSION ONLY:
(503) 273-9168
FOR TELEPHONE ASSISTANCE:
(503) 225-0375
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON
A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE
INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST
APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF
TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to ERI ACQUISITION CORP., an Oregon corporation
("Purchaser") controlled by Bruce N. Davis ("Mr. Davis"), Chairman of the Board
and President of Elmer's Restaurants, Inc. ("Elmer's" or the "Company"), William
W. Service, a director and the former Chief Executive Officer of the Company,
Thomas C. Connor, Corydon H. Jensen, Jr., Dennis M. Waldron, Richard C. Williams
and Donald W. Woolley, each of whom is a member of the Company's board of
directors, Linda Ellis-Bolton, Karen K. Brooks, Richard P. Buckley, David D.
Connor, Stephanie M. Connor, Debra A. Woolley-Lee, Douglas A. Lee, David C.
Mann, Sheila J. Schwartz, Gerald A. Scott, a Vice President of the Company, Gary
N. Weeks, Gregory W. Wendt, Dolly W. Woolley, and Donna P. Woolley, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
December 20, 2004 (the "Offer to Purchase") and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the number of Shares set
forth below pursuant to the guaranteed delivery procedures set forth in the
Offer to Purchase in the section titled "The Offer--Section 3. Procedures For
Tendering Shares."
Signature(s):___________________________________________________________________
Name(s) of Record Holder(s):____________________________________________________
________________________________________________________________________________
Number of Shares:_______________________________________________________________
Certificate Number(s) (If Available):___________________________________________
Dated:________________________________________________________200_______________
Address(es):____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number(s):______________________________________________
Taxpayer Identification or Social Security Number:______________________________
Check box if Shares will be tendered by book-entry transfer: [ ]
THE GUARANTEE ON THE FOLLOWING PAGE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, a participant in the Security Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Guarantee
Program, the Stock Exchange Medallion Program or an "Eligible Guarantor
Institution" as such term is defined in Rule 17Ad-l5 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a) represents
that the above named person(s) "own(s)" the Shares tendered hereby within the
meaning of Rule 14e-4 under the Exchange Act ("Rule 14e-4"), (b) represents that
such tender of Shares complies with Rule 14e-4, and (c) guarantees to deliver to
the Depositary either certificates representing the Shares tendered hereby, in
proper form for transfer with delivery of a properly completed and duly executed
Letter of Transmittal (or a manually signed facsimile thereof), with any
required signature guarantees and any other required documents, within three (3)
NASDAQ market trading days after the date hereof.
Name of Firm:___________________________________________________________________
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.:____________________________________________________
Authorized Signature:___________________________________________________________
Name:___________________________________________________________________________
(PLEASE PRINT OR TYPE)
Title:__________________________________________________________________________
Date:___________________________________________________________________________
NOTE: DO NOT SEND CERTIFICATES FOR THE SHARES WITH THIS NOTICE. CERTIFICATES
SHOULD BE SENT ONLY WITH YOUR LETTER OF TRANSMITTAL.
EXHIBIT (a)(1)(iv)
LETTER OF INFORMATION
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
ELMER'S RESTAURANTS, INC.
NOT OWNED BY THE STOCKHOLDERS OF ERI ACQUISITION CORP.
AT
$7.50 PER SHARE
BY
ERI ACQUISITION CORP.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN STANDARD TIME, ON FEBRUARY 2, 2005,
UNLESS THE OFFER IS EXTENDED
----------
TO BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES:
We have been engaged by ERI ACQUISITION CORP. a newly formed Oregon
corporation ("Purchaser") controlled by Bruce N. Davis ("Mr. Davis"), Chairman
of the Board and President of Elmer's Restaurants, Inc. ("Elmer's" or the
"Company"), William W. Service, a director and the former Chief Executive
Officer of the Company, Thomas C. Connor, Corydon H. Jensen, Jr., Dennis M.
Waldron, Richard C. Williams and Donald W. Woolley, each of whom is a member of
the Company's board of directors, Linda Ellis-Bolton, Karen K. Brooks, Richard
P. Buckley, David D. Connor, Stephanie M. Connor, Debra A. Woolley-Lee, Douglas
A. Lee, David C. Mann, Sheila J. Schwartz, Gerald A. Scott, a Vice President of
the Company, Gary N. Weeks, Gregory W. Wendt, Dolly W. Woolley, and Donna P.
Woolley, (individually, a "Continuing Shareholder" and collectively referred to
herein as the "Continuing Shareholders"), to act as Information Agent in
connection with Purchaser's offer to purchase all outstanding shares of common
stock, no par value per share of Elmer's (the "Shares") not currently owned by
the Continuing Shareholders, at $7.50 per Share, in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated December 20,
2004, and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer"). Please
furnish copies of the enclosed materials to those of
your clients for whose accounts you hold Shares registered in your name or in
the name of your nominee.
For your information and for forwarding to your clients for whom you
hold Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. The Offer to Purchase, dated December 20, 2004.
2. The Letter of Transmittal for your use in accepting the Offer
and tendering Shares and for the information of your clients.
Manually signed facsimile copies of the Letter of Transmittal
may be used to tender Shares.
3. The Notice of Guaranteed Delivery to be used to accept the
Offer if the procedures for tendering Shares set forth in the
Offer to Purchase cannot be completed prior to the Expiration
Date (as defined in the Offer to Purchase).
4. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name or in
the name of your nominee, with space provided for obtaining
such clients' instructions with regard to the Offer.
5. Guidelines of the Internal Revenue Service for Certification
of Taxpayer Identification Number on substitute form W-9.
6. A return envelope addressed to the Depositary (as defined
below).
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE
NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME, ON FEBRUARY 2, 2005, WHICH DATE MAY BE EXTENDED.
Please note the following:
1. The tender price is $7.50 per share, in cash without interest.
2. The Offer is being made for all outstanding Shares not owned
by the Continuing Shareholders.
3. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN STANDARD TIME ON FEBRUARY 2, 2005, WHICH DATE MAY BE
EXTENDED.
2
4. The Offer is conditioned on, among other things, the tender in
this Offer of a sufficient number of Shares such that, after
the Shares are purchased pursuant to the Offer, Purchaser
would own at least 90% of the outstanding Elmer's common stock
(the "Minimum Tender Condition"), which would also mean that
at least a majority of the total outstanding shares that are
not owned by the Continuing Shareholders or the other
executive officers and directors of Elmer's had been tendered
(the "Majority of the Minority Condition"). In no event may
the Majority of the Minority Condition be waived. However,
Purchaser reserves the right, in its sole discretion, to waive
the Minimum Tender Condition. The Offer is also subject to the
other conditions set forth in the Offer to Purchase. See the
sections titled "The Offer--Section 1. Terms of the Offer;
Expiration Date" and "The Offer--Section 11. Certain
Conditions of the Offer" in the Offer to Purchase. Neither the
Company's Board of Directors nor a special committee of the
Company's Board of Directors has recommended that shareholders
unaffiliated with Purchaser or the Continuing Shareholders
tender their Shares in the Offer.
5. Tendering holders of Shares ("Holders") whose Shares are
registered in their own name and who tender directly to OTR,
Inc. as depositary (the "Depositary"), will not be obligated
to pay brokerage fees or commissions or, except as set forth
in Instruction 6 of the Letter of Transmittal, transfer taxes
on the purchase of Shares by Purchaser pursuant to the Offer.
However, federal income tax backup withholding at a rate of
28% may be required, unless an exemption is available or
unless the required tax identification information is
provided. See Instruction 8 of the Letter of Transmittal.
6. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all
cases be made only after timely receipt by the Depositary of
(a) certificates evidencing such Shares, (b) a Letter of
Transmittal (or facsimile thereof) properly completed and duly
executed, with any required signature guarantees, and (c) any
other documents required by the Letter of Transmittal.
Accordingly, tendering holders may be paid at different times
depending upon when certificates for shares are actually
received by the Depositary. UNDER NO CIRCUMSTANCES WILL
INTEREST ON THE
3
PURCHASE PRICE OF THE TENDERED SHARES BE PAID BY PURCHASER,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN
MAKING SUCH PAYMENT.
In order to take advantage of the Offer, certificates for all tendered
Shares in proper form for transfer, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees, and any required documents must be received by the
Depositary, all in accordance with the instructions set forth in the Letter of
Transmittal and the Offer to Purchase.
Any Holder who desires to tender Shares and whose certificates for
Shares are not immediately available, or who cannot deliver all required
documents to the Depositary prior to the expiration date, may tender such shares
by following the procedures for guaranteed delivery set forth in the Offer to
Purchase in the section titled "The Offer--Section 3. Procedures For Tendering
Shares."
Purchaser will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of shares pursuant to the Offer (other than
the Depositary and Information Agent fees as described in the Offer to
Purchase). Purchaser will, however, upon request, reimburse you for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients. Purchaser will pay or cause to be paid any transfer
taxes with respect to the transfer and sale of purchased Shares to it or its
order pursuant to the Offer, except as otherwise provided in Instruction 6 of
the Letter of Transmittal.
Questions and requests for additional copies, at Purchaser's expense,
of the enclosed material may be directed to the Information Agent for the Offer,
at OTR, Inc., Attn: Robert Roach, 1000 SW Broadway, Suite 920, Portland, Oregon
97205, or call (503) 225-0375.
Very truly yours,
OTR, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU
THE AGENT OF PURCHASER, ANY MEMBER OF THE CONTINUING SHAREHOLDERS, ELMER'S, THE
INFORMATION AGENT, THE DEPOSITARY, OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS
ENCLOSED HEREWITH AND THE STATEMENT CONTAINED THEREIN.
4
EXHIBIT (a)(1)(v)
LETTER TO CLIENTS
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
ELMER'S RESTAURANTS, INC.
NOT OWNED BY THE STOCKHOLDERS OF ERI ACQUISITION CORP.
AT
$7.50 PER SHARE
BY
ERI ACQUISITION CORP.
----------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, EASTERN STANDARD TIME, ON FEBRUARY 2, 2005
UNLESS THE OFFER IS EXTENDED
----------
December 20, 2004
TO OUR CLIENTS:
Enclosed for your consideration is the Offer to Purchase, dated
December 20, 2004 (the "Offer to Purchase") and the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer") in connection with the offer by ERI
Acquisition Corp., a newly formed Oregon corporation ("Purchaser") controlled by
Bruce N. Davis ("Mr. Davis"), Chairman of the Board and President of Elmer's
Restaurants, Inc. ("Elmer's" or the "Company"), William W. Service, a director
and the former Chief Executive Officer of the Company, Thomas C. Connor, Corydon
H. Jensen, Jr., Dennis M. Waldron, Richard C. Williams and Donald W. Woolley,
each of whom is a member of the Company's board of directors, Linda
Ellis-Bolton, Karen K. Brooks, Richard P. Buckley, David D. Connor, Stephanie M.
Connor, Debra A. Woolley-Lee, Douglas A. Lee, David C. Mann, Sheila J. Schwartz,
Gerald A. Scott, a Vice President of the Company, Gary N. Weeks, Gregory W.
Wendt, Dolly W. Woolley, and Donna P. Woolley (each referred to herein as a
"Continuing Shareholder" and collectively as the "Continuing Shareholders"), to
purchase all outstanding shares of common stock, no par value
per share of Elmer's (the "Shares") not currently owned by the Continuing
Shareholders at $7.50 per Share, in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase.
WE ARE (OR OUR NOMINEE IS) THE HOLDER OF RECORD OF THE SHARES HELD FOR
YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE ENCLOSED LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to
tender on your behalf any or all of the Shares held by us for your account, upon
the terms and subject to the conditions set forth in the Offer to Purchase. Your
attention is directed to the following:
1. The tender price is $7.50 per Share, in cash without interest,
upon the terms and subject to the conditions set forth in the
Offer to Purchase.
2. The Offer is being made for all outstanding shares not owned
by the Continuing Shareholders.
3. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN STANDARD TIME. ON FEBRUARY 2, 2005, WHICH DATE MAY BE
EXTENDED.
4. The Offer is conditioned on, among other things, the tender in
this Offer of a sufficient number of Shares such that, after
the Shares are purchased pursuant to the Offer, Purchaser
would own at least 90% of the outstanding Elmer's common stock
(the "Minimum Tender Condition"), which would also mean that
at least a majority of the total outstanding Shares that are
not owned by the Continuing Shareholders or the other
executive officers and directors of Elmer's had been tendered
(the "Majority of the Minority Condition"). In no event may
the Majority of the Minority Condition be waived. However,
Purchaser reserves the right to waive the Minimum Tender
Condition. The Offer is also subject to the other conditions
set forth in the offer to Purchase. See the sections titled
"The Offer--Section 1. Terms of the Offer; Expiration Date"
and "The Offer--Section 11. Certain Conditions of the Offer"
in the Offer to Purchase. Tendering holders of Shares
("Holders") whose Shares are registered in their own name and
who tender directly to OTR, Inc. as depositary (the
"Depositary"), will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, transfer taxes on the purchase of
Shares by Purchaser pursuant to the Offer. However, Federal
income tax backup withholding at a rate of 28% may be required
unless an exemption is available or unless the required tax
identification information is provided. See Instruction 8 of
the Letter of Transmittal.
2
5. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all
cases be made only after timely receipt by the Depositary of
(a) certificates evidencing such Shares, (b) a Letter of
Transmittal (or facsimile thereof) properly completed and duly
executed with any required signature guarantees, and (c) any
other documents required by the Letter of Transmittal.
Accordingly, tendering Holders may be paid at different times
depending upon when certificates for Shares are actually
received by the Depositary. UNDER NO CIRCUMSTANCES WILL
INTEREST ON THE PURCHASE PRICE OF THE TENDERED SHARES BE PAID
BY PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY
DELAY IN MAKING SUCH PAYMENT.
The Offer is being made only by the Offer to Purchase and the related
Letter of Transmittal and any amendments or supplements thereto, and is being
made to all holders of the Shares. The Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Shares in any jurisdiction
where the making of the Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
If you wish to have us tender any or all of the Shares held by us for
your account, please so instruct us by completing, executing, detaching and
returning to us the instruction form set forth herein. If you authorize the
tender of your Shares, all such Shares will be tendered unless otherwise
specified below. An envelope to return your instructions to us is enclosed.
YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US
TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION DATE.
3
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
ELMER'S RESTAURANTS, INC.
NOT OWNED BY THE STOCKHOLDERS OF ERI ACQUISITION CORP.
The undersigned acknowledge(s) receipt of your letter, the enclosed
Offer to Purchase, dated December 20, 2004, the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Offer"), in connection with the offer by ERI Acquisition Corp. a
newly formed Oregon corporation ("Purchaser") controlled by Bruce N. Davis ("Mr.
Davis"), Chairman of the Board and President of Elmer's Restaurants, Inc.
("Elmer's" or the "Company"), William W. Service, a director and the former
Chief Executive Officer of the Company, Thomas C. Connor, Corydon H. Jensen,
Jr., Dennis M. Waldron, Richard C. Williams and Donald W. Woolley, each of whom
is a member of the Company's board of directors, Linda Ellis-Bolton, Karen K.
Brooks, Richard P. Buckley, David D. Connor, Stephanie M. Connor, Debra A.
Woolley-Lee, Douglas A. Lee, David C. Mann, Sheila J. Schwartz, Gerald A. Scott,
a Vice President of the Company, Gary N. Weeks, Gregory W. Wendt, Dolly W.
Woolley, and Donna P. Woolley (collectively referred to herein as the
"Continuing Shareholders"), to purchase all outstanding shares of common stock
no par value per share of Elmer's (the "Shares") not currently owned by the
Continuing Shareholders, at $7.50 per Share, in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated December 20, 2004.
This will instruct you to tender to Purchaser the number of Shares
indicated below (or, if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
Number of Shares to Sign Here
be Tendered____________________________ x_____________________________________
Account No:____________________________ Print Name:___________________________
Dated:_________________________________ Address:______________________________
Area Code and Telephone:______________
Tax Identification or Social
Security No.:_________________________
4
EXHIBIT (a)(1)(vi)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two
hyphens: i.e. 000-00-0000. Employer identification numbers have nine
digits separated by only one hyphen: i.e. 00-0000000. The table below
will help determine the number to give the payer.
--------------------------------- ---------------------------- ------------------------------- ----------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
NUMBER OF -- IDENTIFICATION NUMBER
OF --
----------------------------------------------------------------- ---------------------------------------------------------------
1. An individual's account The individual 9. A valid trust, estate, The legal entity (Do
or pension trust not furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined
funds, any one of the
individuals(l)
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, or The organization
account) account or, if joint funds, educational organization
either person(l) account
4. Custodian account of a The minor(2) 12. Partnership account The partnership
minor (Uniform Gift to held in the name of the
Minors Act) business
5. Adult and minor (joint The adult or, if the minor is 13. Association, club, or other The organization
account) the only contributor, the tax-exempt organization
minor(l)
6. Account in the name of The ward, minor, or 14. A broker or registered The broker or nominee
guardian or committee incompetent person(3) nominee
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(l) 15. Account with the The public entity
savings trust account Department of Agriculture
(grantor is also in the name of a public
trustee) entity (such as a State or
local government, school,
b. So-called trust The actual owner(l) district or prison) that
account that is not a receives agricultural
legal or valid trust program payments
under State law
8. Sole proprietorship The owner(4)
account
------------------------------------------------------------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circled the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER.
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING.
Payees specifically exempted from backup withholding on ALL payments include the
following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(6)(7).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency, or instrumentality
thereof.
o A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust under section 664, or a non-exempt
trust described in section 4947.
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
o A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid
in money.
o Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-in-interest dividends
under section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Mortgage interest paid to the payer.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details see section 6041, 6041A, 6042, 6044, 6045, 6049, 6050A,
and 6050N and their regulations.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. The IRS uses the numbers for identification purposes
and to help verify the accuracy of your return. Payers must be given the numbers
whether or not recipients are required to file tax returns. Payers must
generally withhold 28% of taxable interest, dividend, and certain other payments
to a payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES.
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
2
EXHIBIT (a)(1)(vii)
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell the Shares. The Offer is being made solely pursuant to the Offer to
Purchase, dated December 20, 2004, and the related Letter of Transmittal and any
amendments or supplements thereto to all holders of the Shares. The Offer will
not be made to (and tenders will not be accepted from or on behalf of) holders
of Shares in any jurisdiction in which the making of the Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
of
ELMER'S RESTAURANTS, INC.
NOT OWNED BY THE STOCKHOLDERS OF ERI ACQUISITION CORP.
at
$7.50 PER SHARE
by
ERI ACQUISITION CORP.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD
TIME, ON FEBRUARY 2, 2005, UNLESS THE OFFER IS EXTENDED.
ERI ACQUISITION CORP., a newly formed Oregon corporation ("Purchaser")
controlled by Bruce N. Davis ("Mr. Davis"), Chairman of the Board and President
of Elmer's Restaurants, Inc. ("Elmer's" or the "Company"), William W. Service, a
director and the former Chief Executive Officer of the Company, Thomas C.
Connor, Corydon H. Jensen, Jr., Dennis M. Waldron, Richard C. Williams and
Donald W. Woolley, each of whom is a member of the Company's board of directors,
Linda Ellis-Bolton, Karen K. Brooks, Richard P. Buckley, David D. Connor,
Stephanie M. Connor, Debra A. Woolley-Lee, Douglas A. Lee, David C. Mann, Sheila
J. Schwartz, Gerald A. Scott, a Vice President of the Company, Gary N. Weeks,
Gregory W. Wendt, Dolly W. Woolley, and Donna P. Woolley (collectively, the
"Continuing Shareholders"), hereby offers to purchase (the "Offer") at a price
of $7.50 per share (the "Offer Price"), in cash, all outstanding shares of
common stock, no par value per share, of Elmer's (the "Shares") not currently
owned by the Continuing Shareholders, on the terms and subject to the conditions
specified in the Offer to Purchase, dated December 20, 2004 (the "Offer to
Purchase") and in the related letter of transmittal (the "Letter of
Transmittal"). Tendering stockholders who tender directly to OTR, Inc. (the
"Depositary") will not be obligated to pay brokerage fees or commissions or,
subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the
purchase of Shares by Purchaser pursuant to the Offer. Tendering stockholders
who hold their Shares through a broker or bank should consult such institution
as to whether it charges any service fees or commissions.
The period until 12:00 midnight, Eastern Standard Time, on February 2,
2005, as such period may be extended, is referred to as the "Offering Period."
Subject to the applicable rules and regulations of the Securities and Exchange
Commission ("SEC"), Purchaser expressly reserves the right, in its sole
discretion, at any time or from time to time, to extend the Offering Period by
giving oral or written notice of such extension to the Depositary and making a
public announcement thereof as described in the Offer to Purchase. Purchaser
does not currently plan to provide a subsequent offering period, as described by
Rule 14d-11 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
The Offer is conditioned on, among other things, the tender in the
Offer of a sufficient number of Shares such that, after the Shares are purchased
pursuant to the Offer, Purchaser would own at least 90% of the outstanding
Elmer's common stock (the "Minimum Tender Condition"), which would also mean
that at least a majority of the
outstanding Shares that are not owned by the Continuing Shareholders and the
other executive officers and directors of Elmer's had been tendered (the
"Majority of the Minority Condition"). In no event may the Majority of the
Minority Condition be waived. However, Purchaser reserves the right, in its sole
discretion, to waive the Minimum Tender Condition.
The purpose of the Offer is for Purchaser to acquire for cash as many
outstanding Shares as possible as a first step in acquiring the entire equity
interest in Elmer's. If the Offer is successful, Purchaser will be merged with
and into Elmer's pursuant to the "short form" merger provisions of the Oregon
Business Corporation Act without prior notice to, or any action by, any other
stockholder of Elmer's (the "Merger"). The Merger will result in each then
outstanding Share (other than Shares, if any, held by stockholders who are
entitled to and who properly exercise appraisal rights under Oregon law) being
converted into the right to receive the same amount of cash consideration paid
in the Offer.
For purposes of the Offer, Purchaser will be deemed to have accepted
for payment Shares validly tendered and not withdrawn if and when Purchaser
gives oral or written notice to the Depositary of its acceptance for payment of
such Shares pursuant to the Offer. Payment for Shares accepted for payment
pursuant to the Offer will be made by deposit of the purchase price therefor
with the Depositary, which will act as agent for the tendering stockholders for
the purpose of receiving payments from Purchaser and transmitting such payments
to the tendering stockholders. In all cases, payment for Shares tendered and
accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates for such Shares, a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), and any other
required documents. Upon the deposit of funds with the Depositary for the
purpose of making payments to tendering stockholders, Purchaser's obligation to
make such payment shall be satisfied, and tendering stockholders must thereafter
look solely to the Depositary for payment of amounts owed to them by reason of
the acceptance for payment of Shares pursuant to the Offer. UNDER NO
CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR TENDERED SHARES BE PAID,
REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
Tenders of Shares made pursuant to the Offer are irrevocable except
that Shares tendered pursuant to the Offer may be withdrawn at any time prior to
the termination of the Offering Period and, unless theretofore accepted for
payment by Purchaser pursuant to the Offer. For a withdrawal to be effective, a
written or facsimile transmission notice of withdrawal must be timely received
by the Depositary at its address set forth on the back cover of the Offer to
Purchase. Any such notice of withdrawal must specify the name of the person
having tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the names in which the certificate(s) evidencing the Shares to be withdrawn
are registered, if different from that of the person who tendered such Shares.
The signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution (as defined in the Offer to Purchase), unless such Shares have been
tendered for the account of any Eligible Institution. If certificates for Shares
to be withdrawn have been delivered or otherwise identified to the Depositary,
the name of the registered holder and the serial numbers of the particular
certificates evidencing the Shares to be withdrawn must also be furnished to the
Depositary as aforesaid prior to the physical release of such certificates.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by following one of the
procedures described in the Offer to Purchase at any time prior to 12:00
midnight Eastern Standard Time, on February 2, 2005, or such other date and time
to which the Offer may be extended.
The receipt of cash for Shares pursuant to the Offer or the Merger will
be a taxable transaction for United States federal income tax purposes (and also
may be a taxable transaction under applicable state, local, foreign and other
income tax laws). In general, for United States federal income tax purposes, a
holder of Shares will recognize
2
gain or loss equal to the difference between the holder's adjusted tax basis in
the Shares sold pursuant to the Offer or converted to cash in the Merger and the
amount of cash received therefor. Gain or loss must be determined separately for
each block of Shares (i.e., Shares acquired at the same cost in a single
transaction) sold pursuant to the Offer or converted to cash in the Merger. If
the Shares exchanged constitute capital assets in the hands of the stockholder,
gain or loss will be capital gain or loss. In general, capital gains recognized
by an individual will be subject to a maximum United States federal income tax
rate of 15% if the Shares were held for more than one year on the date of sale
(or, if applicable, the date of the Merger), and if held for one year or less
they will be subject to tax at ordinary income tax rates. Certain limitations
may apply on the use of capital losses. The income tax discussion set forth
above is included for general information only and may not be applicable to
stockholders in special situations such as stockholders who received their
Shares upon the exercise of employee stock options or otherwise as compensation
and stockholders who are not United States persons. Stockholders should consult
their own tax advisors with respect to the specific tax consequences to them of
the Offer and the Merger, including the application and effect of federal,
state, local, foreign or other tax laws.
The terms of the Offer are more fully set forth in the Offer to
Purchase, the Letter of Transmittal and accompanying documents (collectively,
the "Tender Offer Documents"). Purchaser has filed a Schedule TO with the
Securities and Exchange Commission in connection with the Offer, which includes
the Offer to Purchase as an exhibit thereto. All of the information contained in
Purchaser's filing on Schedule TO and the exhibits thereto, including the
information required to be disclosed by Rule 14d-6(d)(1) and Rule 13e-3(e)(1)
under the Exchange Act, is incorporated herein by reference.
A request has been made to Elmer's for the use of Elmer's stockholder
list and security position listings for the purpose of disseminating the Offer
to Purchase to stockholders. Upon compliance by Elmer's with such request and
Rule 14d-5 under the Exchange Act pertaining to such request, the Offer to
Purchase and the related Letter of Transmittal will be mailed to record holders
of Shares and will be furnished to brokers, banks and similar persons whose
names, or the names of whose nominees, appear on the stockholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing for subsequent transmittal to beneficial owners of Shares.
Questions and requests for assistance or additional copies of the
Tender Offer Documents may be directed to OTR, Inc., Purchaser's Information
Agent, at its address and telephone numbers listed below, and copies will be
furnished promptly at Purchaser's expense.
INFORMATION AGENT FOR THE OFFER IS:
OTR, Inc.
1000 SW Broadway, Suite 920
Portland, Oregon 97205
Telephone (503) 225-0375
Fax (503) 273-9168
December 20, 2004
3
EXHIBIT (a)(1)(viii)
NEWS RELEASE
ERI ACQUISITION CORP. COMMENCES CASH TENDER OFFER FOR OUTSTANDING
SHARES OF ELMER'S RESTAURANTS, INC. AT $7.50 PER SHARE.
Portland, Oregon (December 20, 2004) - ERI Acquisition Corp. ("Purchaser"), a
corporation led by Bruce N. Davis, Chairman of the Board and President of
Elmer's Restaurants, Inc (NASDAQ-SmallCap: ELMS) (the "Company"), and whose
shareholders include the other members of the Company's board of directors, and
certain other individuals (collectively, the "Continuing Shareholders"), today
announced that it has commenced a cash tender offer for all of the outstanding
common stock of the Company not owned by the Continuing Shareholders at an offer
price of $7.50 per share in cash (the "Offer"). The offer and withdrawal rights
will expire at 12:00 Midnight, Eastern Standard Time, on February 2, 2005,
unless extended by Purchaser.
The Offer is conditioned on, among other things, the tender in this Offer of a
sufficient number of shares of outstanding Elmer's common stock not owned by the
Continuing Shareholders such that, after such shares are purchased pursuant to
the Offer, Purchaser would own at least 90% of the outstanding Elmer's common
stock (the "Minimum Tender Condition"), which would also mean that at least a
majority of the outstanding shares that are not owned by the Continuing
Shareholders and the other executive officers and directors of Elmer's had been
tendered (the "Majority of the Minority Condition"). In no event may the
Majority of the Minority Condition be waived. The Offer is also subject to
certain other conditions described in the tender offer documents to be filed by
Purchaser with the SEC.
The Continuing Shareholders decided to pursue the offer because, as owners of
59% of Elmer's common stock, they believe that the anticipated costs of
remaining a public company exceed any resulting benefits. The expected public
company costs for FY 2005 are approximately $468,000, an increase of
approximately $200,000 over the prior year. These are ongoing expenses as long
as Elmer's remains public. The $468,200 in expected public company costs
represents approximately 25% of the Company's FY 2004 pre-tax income.
The purpose of the Offer is to acquire for cash as many outstanding shares as
possible of Elmer's common stock not owned by the Continuing Shareholders as a
first step of a going private transaction resulting in Purchaser acquiring the
entire equity interest in Elmer's. If both the Minimum Tender Condition and the
Majority of the Minority Condition is satisfied, and the Offer is successful,
Purchaser will be merged with and into Elmer's, and each then outstanding share
of Elmer's common stock (other than shares, if any, held by stockholders who are
entitled to and who properly exercise appraisal rights under Oregon law) will be
converted into the right to receive the same amount of cash consideration paid
in the Offer. There can be no assurance that the proposed going private
transaction will be consummated.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
The complete terms and conditions of the Offer are set forth in an offer to
purchase, letter of transmittal and other related materials that are being filed
with the Securities and Exchange Commission and distributed to Elmer's
stockholders. This press release is not a substitute for such filings.
Investors are urged to read such documents, together with the
Solicitation/Recommendation Statement on Schedule 14D-9 to be filed by Elmer's
within 10 days of the Offer, when they become available because they will
contain important information. Any such documents, once filed, will be
available, free of charge, at the SEC's website (www.sec.gov) or by contacting
OTR, Inc. as the information agent for the transaction at (503) 225-0375.
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER
TO SELL SHARES OF ELMER'S. ERI ACQUISITION CORP. WILL FILE A TENDER OFFER
STATEMENT WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT (a)(1)(x)
ERI Acquisition Corp.
363 High Street
Eugene, Oregon 97401
Telephone: (542) 465-3966
December 20, 2004
To the Shareholders of Elmer's Restaurants, Inc.:
Enclosed are materials in connection with a tender offer by ERI
Acquisition Corp., a corporation led by Bruce N. Davis, Chairman of the Board
and President of Elmer's, and whose shareholders include the other members of
Elmer's board of directors, and certain other individuals (collectively, the
"Continuing Shareholders"). Pursuant to this tender offer, ERI Acquisition Corp.
is offering to purchase your shares of Elmer's stock for a price of $7.50 per
share in cash. In order to sell your shares to ERI Acquisition Corp., you must
"tender" your shares in accordance with the procedures set forth in the enclosed
materials.
The Continuing Shareholders decided to pursue the offer because, as
owners of 59% of Elmer's common stock, they believe that the anticipated costs
of remaining a public company exceed any resulting benefits. The Continuing
Shareholders' pro rata share of the expected public company costs for FY 2005 is
approximately $276,000, reflecting an estimated total cost of approximately
$468,000. These are ongoing expenses as long as Elmer's remains public. In the
view of the Continuing Shareholders, this is the equivalent of paying $0.25 per
share per year as a pretax fee to remain public (which amount is determined by
dividing $468,200 in estimated annual public company costs by 1,842,945, the
number of shares of the Company's outstanding common stock). The $468,200 of
expected public company costs represents approximately 25% of the Company's
reported fiscal year 2004 pre-tax income.
This is a "going private" transaction. The purpose of the tender offer
is for ERI Acquisition Corp. to purchase as many outstanding shares as possible
as a first step in acquiring the entire equity interest in Elmer's. If certain
conditions are satisfied, immediately following ERI Acquisition Corp.'s purchase
of shares in the tender offer, ERI Acquisition Corp. will merge with Elmer's. In
the merger, each outstanding share of Elmer's common stock that was not tendered
(other than shares held by the Continuing Shareholders and by shareholders who
exercise and perfect their dissenters' rights under Oregon law as described in
the offer materials) will be converted into the right to receive $7.50 per
share.
The enclosed tender offer materials include the Offer to Purchase and a
Letter of Transmittal for use in tendering your shares. Those documents set
forth more fully the terms and conditions of the tender offer and the merger.
We urge you to read the enclosed tender offer materials (along with the
solicitation/ recommendation statement on Schedule 14D-9, which Elmer's is
required to file with the U.S. Securities and Exchange Commission and send to
you within 10 days of the date of the tender offer) in their entirety and
consider them carefully before deciding whether to tender your shares
because they contain important information. You must make your own decision as
to the acceptability of the offer and you should consult your own financial and
legal advisors and make such other investigations concerning the offer and the
merger as you deem necessary.
Questions and requests for assistance may be directed to OTR, Inc., as
Information Agent for this offer, at OTR, Inc., Attn: Robert Roach, 1000 SW
Broadway, Suite 920, Portland, Oregon 97205 or call (503) (503) 225-0375.
Sincerely,
/s/ BRUCE N. DAVIS
Bruce N. Davis
President
EXHIBIT (b)(1)
October 5, 2004
Mike Chamberlin
Elmer's Acquisition Group
11802 SE Stark St
Portland, Oregon 97216
Dear Mike:
We are pleased to submit the following financing proposal ("Proposal"). If you
accept this Proposal, it will be submitted for review by GE CAPITAL FRANCHISE
FINANCE CORPORATION ("GEFF").
I. FINANCING TERMS:
LENDER: GEFF, or its assigns
LOAN #1
-------
BORROWER: Elmer's Acquisition Group ("BORROWER")
SECURITY: A first lien security interest in the business assets including
equipment, seating, receivables, decor, etc. located at All available corporate
owned restaurants (each, a "Property" and collectively, the "Properties"). As
additional collateral, GEFF may require Borrower to provide a stock pledge
and/or assignment of franchise royalties.
The proposed loan will be cross-defaulted and cross-collateralized with all
loans to the BORROWER from GEFF or its affiliates.
Upon sale of the Property to a GEFF qualified purchaser, such purchaser may
assume BORROWER'S obligations under the loan agreements for a fee of 1% of the
then outstanding principal. Any such assumption remains subject to GEFF'S prior
review and written approval.
FUNDING CUT-OFF DATE: December 31, 2004
The "Loan Closing Date" (the date on which a loan is fully funded and the Loan
Term commences) must occur by the above date.
BORROWER will have one (1) option to extend the Funding Cut-Off-Date for an
additional sixty (60) days upon written request to GEFF.
LOAN TABLE: LOAN ONE
--------------------------------------------------------------------------------------------------------------------------------
ADVANCE INTEREST RATE RATE INTEREST
CALCULATION LOAN AMOUNT TERM AMORTIZATION PAYMENT RATE CALCULATION CONVERSION RATE TYPE
--- --------------- --------------- ---------- -------------- ------------ ---------- ------------- ------------ ---------------
Fixed at
Up to 100% of Ten (10) Closing Rate
A the refinanced $3,500,000.00 10 years 10 years $41,728.52 7.60% Yr Swaps + N/A (determined
amount 2.99% as of Loan
Closing Date)
--------------------------------------------------------------------------------------------------------------------------------
The Loan Amount(s) shown in the Loan Table are approximate based on preliminary
information provided by the BORROWER. The Payment amount(s) shown above are
based on the stated Loan Amount and Interest Rate, and are subject to change in
conjunction with any change in the Loan Amount.
All scheduled payments of principal and interest will be paid to GEFF via
automated clearinghouse debit from a U.S. bank account in the name of BORROWER.
DEPOSIT: $2,000.00 (combined for Loan One and Two)
Upon acceptance of this proposal, BORROWER will pay GEFF a non-interest bearing
Deposit in the amount shown above. This Deposit will be returned to the
BORROWER: (i) in the event GEFF does not approve this transaction; (ii) upon
Closing and receipt of all documentation (net of any fees and any out-of-pocket
expenses); and (iii) upon GEFF's termination of this transaction because of a
material adverse change in the BORROWER'S financial condition. If this
transaction is not fully closed by the Funding Cut-Off Date for any other
reason, GEFF will retain the entire Deposit as liquidated damages. In the event
such Deposit is not sufficient to pay GEFF'S reimbursable costs, BORROWER will
promptly pay any shortfall to GEFF.
2
LOAN #2
-------
BORROWER: Elmer's Restaurants, Inc. ("BORROWER"), or stock acquisition company
during interim shareholder stock purchase period.
SECURITY: A first lien security interest in the business assets including
equipment, seating, receivables, decor, etc. located at All available corporate
owned restaurants (each, a "Property" and collectively, the "Properties"). As
additional collateral, GEFF may require Borrower to provide a stock pledge
and/or assignment of franchise royalties.
The proposed loan will be cross-defaulted and cross-collateralized with all
loans to the BORROWER from GEFF or its affiliates.
Upon sale of the Property to a GEFF qualified purchaser, such purchaser may
assume BORROWER'S obligations under the loan agreements for a fee of 1% of the
then outstanding principal. Any such assumption remains subject to GEFF'S prior
review and written approval.
FUNDING CUT-OFF DATE: December 31, 2004.
BORROWER will have one (1) option to extend the Funding Cut-Off-Date for an
additional sixty (60) days upon written request to GEFF.
LOAN TABLE: LOAN TWO
------------------------------------------------------------------------------------------------------------------------------------
ADVANCE INTEREST RATE RATE INTEREST
CALCULATION LOAN AMOUNT TERM AMORTIZATION PAYMENT RATE CALCULATION CONVERSION RATE TYPE
--- --------------- --------------- ---------- -------------- ------------ ---------- ------------- ----------------- --------------
Between
seven months
and twenty-
Up to 100% of 90 day four months, Variable Rate
A the refinanced $1,500,000.00 10 years 10 years $16,562.83 5.88% LIBOR + BORROWER (w/option to
amount 3.55% can fix rate at fix)
Five (5) Yr
Swaps +
3.24%
------------------------------------------------------------------------------------------------------------------------------------
The Loan Amount(s) shown in the Loan Table are approximate based on preliminary
information provided by the BORROWER. The Payment amount(s) shown above are
based on the stated Loan Amount and Interest Rate, and are subject to change in
conjunction with any change in the Loan Amount.
All scheduled payments of principal and interest will be paid to GEFF via
automated clearinghouse debit from a U.S. bank account in the name of BORROWER.
DEPOSIT: $2,000.00 (combined for Loan One and Two).
3
Please see the Deposit section in Loan One for additional details concerning the
circumstances under which a Deposit will be returned.
LOAN TABLE: LOAN THREE
------------------------------------------------------------------------------------------------------------------------------------
ADVANCE INTEREST RATE RATE INTEREST
CALCULATION LOAN AMOUNT TERM AMORTIZATION PAYMENT RATE CALCULATION CONVERSION RATE TYPE
--- --------------- --------------- ---------- -------------- ------------ ---------- ------------- ----------------- --------------
Between
seven months
and twenty-
Up to 100% of 90 day four months, Variable Rate
A the refinanced $1,500,000.00 10 years 10 years $16,562.83 5.88% LIBOR + BORROWER (w/option to
amount 3.55% can fix rate at fix)
Five (5) Yr
Swaps +
3.24%
------------------------------------------------------------------------------------------------------------------------------------
The Loan Amount(s) shown in the Loan Table are approximate based on preliminary
information provided by the BORROWER. The Payment amount(s) shown above are
based on the stated Loan Amount and Interest Rate, and are subject to change in
conjunction with any change in the Loan Amount.
All scheduled payments of principal and interest will be paid to GEFF via
automated clearinghouse debit from a U.S. bank account in the name of BORROWER.
DEPOSIT: $2,000.00 (combined for Loan One and Two)
Please see the Deposit section in Loan One for additional details concerning the
circumstances under which a Deposit will be returned.
INTEREST RATE DESCRIPTIONS: The interest rate alternatives offered on the above
table(s) are described below:
Fixed at Closing Rate (determined as of Loan Closing Date): The rate quoted in
the Loan Table is for illustrative purposes and shows the Interest Rate that
would be effective if the Loan Closing Date is the same as the date of this
letter. The actual Fixed at Closing Rate will be determined using the Rate
Calculation formula in the Loan Table and will not change during the loan Term.
The Interest Rate will be set two (2) business days prior to the Loan Closing
Date.
The Loan Amount will be repayable in level installments, including principal and
interest, accrued at the per annum rate described in the Loan Table. Payments
will be due monthly in arrears, and pro-rated interest for the number of days
remaining in the month in which the loan closing occurs will be collected on the
Loan Closing Date.
Variable Rate (with option to fix): The rate quoted in the Loan Table is for
illustrative purposes and shows the Interest Rate that would be effective as of
the
4
date of this letter. The actual Interest Rate will be determined using the
applicable Rate Calculation formula in the Loan Table.
The Loan Amount will be repayable in level installments, including principal and
interest, accrued at the per annum rate described in the Loan Table. Payments
will be due monthly in arrears, and pro-rated interest for the number of days
remaining in the month in which the loan closing occurs will be collected on the
Loan Closing Date. The Interest Rate will be adjusted on the first of each
month.
On the Loan Closing Date and each anniversary of the first payment date
following the Loan Closing Date, the amount of each monthly payment for the
ensuing twelve (12) months will be calculated based on the then outstanding
principal balance, the then outstanding Variable Rate, and the number of months
remaining in the loan Term.
During the time period after the Loan Closing Date described in the applicable
box of the Conversion Rate column in the Loan Table, the BORROWER will have the
option, to be exercised only once, upon written notice to GEFF, to request that
GEFF fix the Interest Rate for the remaining loan Term. Ten (10) business days
after GEFF'S receipt of such notice, the Interest Rate will be fixed at the rate
calculated as described in the "Conversion Rate" column in the Loan Table. The
BORROWER will be provided with the adjusted payment amount reflecting such fixed
Interest Rate subsequent to the election of the fixed rate.
EARLY TERMINATION: On any regularly scheduled payment date, BORROWER will have
the right to prepay all, but not less than all, of the outstanding balance of
the loan.
At anytime a variable rate is in effect, the outstanding balance of the loan may
be prepaid without premium or penalty.
At anytime a fixed rate is in effect during years one through four of the Loan
Term, the outstanding balance of the loan may be prepaid with the payment of a
prepayment fee equal to 1% of the principal prepaid (0% after year four of the
Loan Term). In addition, the BORROWER may be subject to the payment of a
Prepayment Premium to offset GEFF's breakage costs. The Prepayment Premium is
equal to the positive difference (if any) between: (i) the present value of the
remaining stream of payments during the period when a fixed rate is in effect
calculated using the interpolated yield, at the time of prepayment, of the two
U.S. Dollar Interest Rate Swaps (as published in Federal Reserve Statistical
Release H.15 [519] at http://www.federalreserve.gov/releases/H.15/) whose terms
most closely match the remaining period a fixed rate is in effect, and (ii) the
present value of the remaining stream of payments calculated using the
interpolated yield, as of the date the fixed rate is set, of the two U.S. Dollar
Interest Rate Swaps whose terms most closely match the entire period the fixed
rate is in effect.
5
If the present value of the calculation described in (ii) above is equal to or
greater than the present value of the calculation described in (i) above, the
Prepayment Premium will equal zero. The prepayment fee of 1% of the principal
amount prepaid will be payable in any event.
PRINCIPAL PREPAYMENT OPTIONS FOR LOAN 2: The BORROWER may prepay up to 20% of
the original loan balance for Loan 2 every 12-month period on the anniversary of
the Loan Closing Date with no prepayment fees, regardless of interest rates when
prepaid. This can be done up to 3 times during the Loan Term and is not
cumulative (i.e. maximum is 20% per year). A $250 processing fee will be
required with each additional principal prepayment.
CORPORATE FIXED CHARGE COVERAGE RATIO (POST-COMPENSATION): BORROWER; and/or
Elmer's Restaurants, Inc. must maintain a Corporate Fixed Charge Coverage Ratio
(Post-Compensation) equal to or greater than 1.25:1 as measured for each fiscal
year. Corporate Fixed Charge Coverage Ratio equals the ratio of: (a) the sum of
net income, depreciation and amortization, interest expense, income taxes and
operating lease expense, plus or minus other non-cash adjustments or
non-recurring items (as allowed by GEFF), minus increases in officer or
shareholders loan receivables, and dividends or distributions not otherwise
expensed on the applicable income statement(s) to, (b) the sum of operating
lease expense, principal payments on long term debt, maturities of all capital
leases and interest expense (excluding non-cash interest expense and
amortization of non-cash financing expenses).
EFFECTIVE FUNDED DEBT TO EBITDAR: As measured for BORROWER; and/or Elmer's
Restaurants, Inc. on the last day of each fiscal year, Effective Funded Debt to
EBITDAR shall be equal to or less than 7.0. "Effective Funded Debt" is defined
as all term debt, plus third party lease payments multiplied by 10. EBITDAR is
defined as net income, plus interest expense, plus income taxes, plus
depreciation and amortization expense, plus third party rent, plus or minus
other non-cash adjustments or non-recurring items (as allowed by GEFF), less
increases in officer or shareholder loans receivable, less dividends or
distributions not otherwise expensed on the applicable income statement(s).
II. CLOSING CONDITIONS:
DOCUMENTATION: The loan will be documented using GEFF'S standard form loan
documentation for this type of transaction with such changes as may be necessary
to address the specific terms and conditions of the loan.
EXPENSES: GEFF contemplates using standardized documentation to document the
transaction. If this transaction is approved by GEFF, BORROWER will pay all of
GEFF'S "out-of-pocket" expenses and a non-refundable documentation fee of $1,000
per loan. Out-of-pocket expenses are likely to include UCC search
6
fees and filing fees. However, in the event the transaction contemplated herein
necessitates that GEFF use outside counsel (e.g., loans greater than
$5,000,000), obtain appraisals, or incur other unanticipated out-of-pocket
expenses, such costs shall be borne by the BORROWER.
INSURANCE: BORROWER, at its own expense, will provide property, liability and
other insurance in such amounts as GEFF may from time to time require. All
insurance policies will be subject to GEFF'S approval and will include any
endorsements that GEFF may reasonably require.
III. OTHER MATERIAL PROPOSAL TERMS
PROPOSAL EXPIRATION DATE: October 15, 2004
This proposal will expire if it is not signed by the BORROWER and returned to
GEFF by the above date.
NON-DISCLOSURE: The terms of this proposal are confidential. Such terms may not
be disclosed in whole or in part to any other person or entity except the
Securities and Exchange Commission (SEC) without GEFF'S written consent, except
for disclosure on a confidential basis to BORROWER'S accountants, attorneys and
other professional advisors retained in connection with the proposed financing
described herein, or as may be required by law. The provisions of this paragraph
will remain in full force and effect regardless of whether any definitive
documentation for the proposed financing described herein will be executed and
notwithstanding the termination of this letter or any undertaking hereunder.
TERMINATION: GEFF will have the right and option, without incurring any
liability to the BORROWER, to terminate this proposed transaction and any
subsequent commitment that may be issued if one or more of the following events
occur: (i) a material adverse change in BORROWER'S or any Guarantor's financial
condition prior to funding; (ii) any facts emerge which would, in GEFF'S sole
judgment, have the effect of impairing the Property; (iii) any facts emerge
which were not previously disclosed to GEFF with respect to any BORROWER or
Guarantor which, in GEFF'S sole judgment, would have caused GEFF to refuse to
issue a commitment; (iv) BORROWER or any Guarantor have made any
misrepresentations to GEFF or withheld any other information with regard to the
proposed transaction; (v) the financial information or financial statements
submitted to GEFF in connection with this proposed transaction were not true,
correct and complete when submitted; (vi) BORROWER or any Guarantor default on
any of their contractual obligations to GEFF or its affiliates; or (vii) the
expiration, revocation, addition, substitution, transfer or termination of any
applicable franchise agreement or concept without GEFF'S prior written consent.
GEFF will retain the Deposit described above if a commitment has been issued and
is terminated due to facts described in (iii), (iv), (v), (vi) and (vii) above.
If the
7
proposed transaction is otherwise terminated after a commitment has been issued,
the Deposit will be returned to BORROWER less any documentation fee and GEFF'S
actual out-of-pocket expenses.
BORROWER acknowledges that this proposal supersedes all previous discussions,
representations and agreements, either written or oral, and that there are no
promises, agreements, or understandings outside of this proposal.
PRE-APPROVAL EXPENSE AUTHORIZATION: BORROWER hereby requests an expedited
schedule for the documentation and closing of the subject loan(s). The BORROWER
is aware that the requested loan(s) have not been approved by GEFF as of the
date of this letter and GEFF has not committed to fund the subject loan(s). The
BORROWER will reimburse GEFF for all reasonable and necessary costs
("Reimbursable Costs") incurred by GEFF in documenting and processing the
request for the loan(s) even if the request for the loan(s) are ultimately not
approved by GEFF and GEFF does not extend the requested loan(s). The
Reimbursable Costs may include, without limitation, the following: (a)
structural engineering fees; (b) environmental inspection fees; (c) GEFF'S
attorney's fees; (d) GEFF'S documentation fee; (e) tax service fees; (f) title
charges; (g) survey costs; and (h) other costs and expenses required by GEFF to
process and document the loan(s). It is further agreed that GEFF may apply the
Deposit(s) which have been tendered by BORROWER to GEFF to pay the Reimbursable
Costs. In the event that such Deposits are not sufficient to pay the
Reimbursable Costs, BORROWER will promptly pay any additional sums necessary to
fully reimburse GEFF.
THIS PROPOSAL IS NOT A COMMITMENT TO PROVIDE FINANCING AND IS NOT MEANT TO
CONTAIN ALL OF THE TERMS AND CONDITIONS THAT MAY BE APPLICABLE TO THE FINANCING
DESCRIBED IN THIS PROPOSAL IF ULTIMATELY APPROVED BY GEFF. IN THE EVENT OF SUCH
APPROVAL, A WRITTEN COMMITMENT WILL BE ISSUED BY GEFF THAT WILL ESTABLISH FINAL
TERMS AND CONDITIONS UPON WHICH GEFF WOULD BE WILLING TO PROCEED WITH THE
TRANSACTIONS DESCRIBED HEREIN.
TO PROCEED WITH YOUR LOAN APPLICATION:
--------------------------------------
1) Sign this proposal and return it to GEFF prior to the Proposal
Expiration Date.
2) Choose one Term and Interest Rate alternative for each loan by checking
the appropriate items below:
8
LOAN #1
( ) Alternative A: $5,000,000.00; 10 years Term/10 years Amort.; Fixed at
Closing Rate
LOAN #2
( ) Alternative A: $1,500,000.00; 10 years Term/10 years Amort.; Variable Rate
(with option to fix)
3) Please remit one check written to "GE Capital Franchise Finance
Corporation" for the aggregate amount of the "Deposit(s)" associated
with the loan(s) which you would like to finance with GEFF. The Deposit
amount(s) are re-stated below.
Loan 1 and 2 Deposit: $2,000.00
4) Send GEFF all of the outstanding requested information to the extent
this information is currently available.
We appreciate the opportunity to submit this proposal. If you have any questions
or require further information, please feel free to contact me at: (800)
451-5505 x3530 or andy.tubb@ge.com.
Sincerely,
Andrew Tubb
Vice President, Account Executive
GE Capital Franchise Finance Corporation
The above terms and conditions are hereby agreed to and accepted this _____ day
of _________, 2004.
Elmer's Acquisition Group
By:_______________________________________________________
Name:_____________________________________________________
Title:____________________________________________________
9
EXHIBIT (b)(ii)
December 3, 2004
Bruce N. Davis
ERI Acquisition Corp.
11802 SE Stark St.
Portland, OR 97216
Dear Bruce:
We are pleased to advise you that our loan proposal dated October 5, 2004 (the
"Proposal") has been approved and we are pleased to submit to you this
commitment (this "Commitment"). All defined terms used but not defined in this
Commitment shall have the meanings set forth in the Proposal.
All terms and conditions of the Proposal remain as stated, with the following
exceptions:
ADDITIONAL CONDITIONS TO CLOSING:
BUSINESS VALUATION OPINION: GEFF will have received and approved an independent
Business Valuation Opinion completed by FTI Consulting. Report to determine the
fair market value of the company's assets including general intangibles and
other assets (the "going concern" enterprise value of the company) post
transaction and post merger.
VALUATION ANALYSIS (FAIRNESS OPINION): GEFF has received and accepted the form
of the Elmer's Restaurants Inc. Valuation Analysis dated August 5, 2004 ("VA
Report") and prepared by Veber Partners. As a condition to closing GEFF shall
receive and approve a bring down comfort letter ("Comfort Letter") to the VA
Report that is dated within three (3) weeks of the closing date of the
transaction and that indicates no material adverse change has taken place to the
VA Report.
APPROVAL OF TAX LIEN: GEFF will have received and approved evidence of payment
of a $211 county tax lien against Grass Valley Ltd. Reported Jan. 1996.
FINANCIAL STATEMENTS: Approval subject to receiving separate financial
statements (balance sheet & income statements) for the last FYE, interim, and
prior year comparable for Elmer's Pancake & Steakhouse, Grass Valley Ltd., and
CBW Food Company, LLC.
INDEMNITY: GEFF will have received and approved indemnity agreements from all 22
shareholders that will indemnify GEFF against securities laws violations.
OTHER: ERI Acquisition Corp. must acquire a majority of the minority of the
outstanding Elmer's Restaurants, Inc. stock.
Page 2
DEPOSIT: $30,000.00 (combined deposit for Loan #1, Loan #2, and Business
Valuation Opinion). Upon acceptance of this proposal, BORROWER will pay GEFF a
non-interest bearing Deposit in the amount shown above. BORROWER has previously
paid a deposit of $5,000.00 and an additional $25,000.00 will be due upon
acceptance of this commitment for a total deposit of $30,000.00. This Deposit
will be returned to the BORROWER: (i) upon Closing and receipt of all
documentation (net of any fees and any out-of-pocket expenses); and (ii) upon
GEFF'S termination of this transaction because of a material adverse change in
the BORROWER'S financial condition. If this transaction is not fully closed by
the Funding Cut-Off Date for any other reason, GEFF will retain the entire
Deposit as liquidated damages. In the event such Deposit is not sufficient to
pay GEFF'S reimbursable costs, BORROWER will promptly pay any shortfall to GEFF.
ADDITIONAL LOAN TERMS:
LOAN TABLE: LOAN ONE
--------------------------------------------------------------------------------------------------------------------------------
ADVANCE INTEREST RATE RATE INTEREST
CALCULATION LOAN AMOUNT TERM AMORTIZATION PAYMENT RATE CALCULATION CONVERSION RATE TYPE
--- --------------- --------------- ---------- -------------- ------------ ---------- ------------- ------------ ---------------
Fixed at
Up to 100% of Ten (10) Yr Closing Rate
A the refinanced $3,500,000.00 10 years 10 years $41,875.17 7.68% Swaps + N/A (determined
amount 2.99% as of Loan
Closing Date)
--------------------------------------------------------------------------------------------------------------------------------
The Loan Amount(s) shown in the Loan Table are approximate based on preliminary
information provided by the BORROWER. The Payment amount(s) shown above are
based on the stated Loan Amount and Interest Rate, and are subject to change in
conjunction with any change in the Loan Amount.
All scheduled payments of principal and interest will be paid to GEFF via
automated clearinghouse debit from a U.S. bank account in the name of BORROWER.
LOAN TABLE: LOAN TWO
------------------------------------------------------------------------------------------------------------------------------------
ADVANCE INTEREST RATE RATE INTEREST
CALCULATION LOAN AMOUNT TERM AMORTIZATION PAYMENT RATE CALCULATION CONVERSION RATE TYPE
--- --------------- --------------- ---------- -------------- ------------ ---------- ------------- ----------------- --------------
Between
seven months
and twenty-
Up to 100% of 90 day four months, Variable Rate
A the refinanced $3,000,000.00 10 years 10 years $33,230.87 5.95% LIBOR + BORROWER (w/option to
amount 3.55% can fix rate at fix)
Five (5) Yr
Swaps +
3.24%
------------------------------------------------------------------------------------------------------------------------------------
2
Page 3
The Loan Amount(s) shown in the Loan Table are approximate based on preliminary
information provided by the BORROWER. The Payment amount(s) shown above are
based on the stated Loan Amount and Interest Rate, and are subject to change in
conjunction with any change in the Loan Amount.
All scheduled payments of principal and interest will be paid to GEFF via
automated clearinghouse debit from a U.S. bank account in the name of BORROWER.
BORROWER: ERI Acquisition Corp.
CORPORATE GUARANTOR(S): Following the completion of the tender offer and the
merger, Elmer's Pancake & Steakhouse, Grass Valley Ltd., CBW Food Company, LLC.
Each will guarantee for the term of the loan. Guarantee for each entity will be
limited to a predetermined amount based on valuation and FCCR analysis on such
entity.
STOCK PLEDGE (MONETARY DEFAULT): Limited-recourse guarantees from 22 individuals
who will own 100% of the Elmer's Restaurant, Inc. stock post transaction and
post merger. Guarantee will be secured by a pledge of stock in ERI Acquisition
Corp., and after the merger, in Elmer's Restaurant, Inc. GEFF will agree to
release its lien on up to 15% of the pledged stock if the proposed acquirer of
such stock agrees, in writing, to certain restrictions, including an agreement
by the holder of such stock that it will vote its stock with the majority
interest holder (including GEFF in the event GEFF becomes owner of the stock by
foreclosure or otherwise) (i) in connection with any decision to commence
bankruptcy or other similar proceeding, (ii) in any plan proposed by any party
in any bankruptcy proceeding or (iii) in connection with the sale of the assets
of Elmer's Restaurant, Inc. These requirements will be effectuated, if required
by GEFF, through certain restrictive legends placed on the applicable stock
certificates.
COLLATERAL (LOAN #1): Prior to the merger, collateral for Loan #1 will be 100%
stock pledge from ERI Acquisition Corp. in Elmer's Restaurants, Inc. (ERI
Acquisition Corp. must have a minimum of 81% of Elmer's Restaurant, Inc. stock
at 1st funding) and the cash collateral referred to below. Following the merger,
the collateral will include: an assignment of franchise royalty stream from
Elmer's Pancake & Steakhouse pursuant to documentation agreeable to both the
borrower and GEFF, a 1st lien on all business assets at three existing Cooper's
restaurants including equipment, seating, receivables, decor, liquor license,
intellectual property, etc; a 1st lien on (all concepts other than Cooper's)
intellectual property and liquor licenses; and a 2nd lien on all business assets
(all concepts other than Cooper's) including equipment, seating, receivables,
decor, liquor license, intellectual property, etc.
ADDITIONAL COLLATERAL (LOAN #1): Pledge $2MM in cash or cash equivalents under
complete GEFF control between the 1st disbursement and final funding and
corresponding merger of the ERI Acquisition Corp and Elmer's Restaurant, Inc.
This lien will be released on the 91st day following the pledge of all listed in
the immediately preceding paragraph. Elmer's Restaurant, Inc. to be pledged to
support the loan (absent a breach under the applicable loan agreement or
3
Page 4
any intervening bankruptcy filing). BORROWER must provide evidence of the source
of cash collateral.
COLLATERAL (LOAN #2): Following the merger, an assignment of franchise royalty
stream from Elmer's Pancake & Steakhouse pursuant to documentation agreeable to
both the borrower and GEFF. A 1st lien on all business assets at three existing
Cooper's restaurants including equipment, seating, receivables, decor, liquor
license, intellectual property, etc. A 1st lien on (all concepts other than
Cooper's) intellectual property and liquor licenses. A 2nd lien on all business
assets (all concepts other than Cooper's) including equipment, seating,
receivables, decor, liquor license, intellectual property, etc.
CORPORATE FIXED CHARGE COVERAGE RATIO: Borrower must maintain a Corporate Fixed
Charge Coverage Ratio equal to or greater than 1.25:1 as measured for each
fiscal year. Corporate Fixed Charge Coverage Ratio equals the ratio of: (a) the
sum of net income, depreciation and amortization, interest expense, income
taxes1 and operating lease expense, plus or minus other non-cash adjustments or
non-recurring items (as allowed by GEFF), minus increases in officer or
shareholders loan receivables, minus dividends or distributions in excess of
shareholder's estimated pass-through tax liabilities (in the event borrower is
treated as an S-Corp for federal tax purposes) not otherwise expensed on the
applicable income statement(s) to, (b) the sum of operating lease expense,
principal payments on long term debt, maturities of all capital leases and
interest expense (excluding non-cash interest expense and amortization of
non-cash financing expenses).
(1)Due to the structure of the borrowing entity, income taxes will by paid by
the shareholders through dividend distributions. GEFF will allow a distribution
add back equal to the pass-through tax liability of the borrower for the
respective year. Documentation of the tax liability is to be provided by a CPA.
FUNDED DEBT TO EBITDA: As measured for BORROWER; and/or Elmer's Restaurants,
Inc. on the last day of each fiscal year, Funded Debt to EBITDA shall be equal
to or less than 4.75. "Funded debt" is defined as all term debt. EBITDA is
defined as net income, plus interest expense, plus income taxes, plus
depreciation and amortization expense plus or minus other non-cash adjustments
or non-recurring items (as allowed by GEFF), less increases in officer or
shareholder loans receivable, less dividends or distributions in excess of
shareholder's estimated pass-through tax liability (in the event borrower is
treated as an S-Corp for federal tax purposes) not otherwise expensed on the
applicable income statement(s).
EARLY TERMINATION: On any regularly scheduled payment date, BORROWER will have
the right to prepay all, but not less than all, of the outstanding balance of
the loan.
At anytime a variable rate is in effect, the outstanding balance of the loan may
be prepaid without premium or penalty.
4
Page 5
At anytime a fixed rate is in effect during years one through four of the Loan
Term, the outstanding balance of the loan may be prepaid with the payment of a
prepayment fee equal to 1% of the principal prepaid (0% after year four of the
Loan Term). In addition, the BORROWER may be subject to the payment of a
Prepayment Premium to offset GEFF's breakage costs. The Prepayment Premium is
equal to the positive difference (if any) between: (i) the present value of the
remaining stream of payments during the period when a fixed rate is in effect
calculated using the interpolated yield, at the time of prepayment, of the two
U.S. Dollar Interest Rate Swaps (as published in Federal Reserve Statistical
Release H.15 [519] at http://www.federalreserve.gov/releases/H.15/) whose terms
most closely match the remaining period a fixed rate is in effect, and (ii) the
present value of the remaining stream of payments calculated using the
interpolated yield, as of the date the fixed rate is set, of the two U.S. Dollar
Interest Rate Swaps whose terms most closely match the entire period the fixed
rate is in effect.
If the present value of the calculation described in (ii) above is equal to or
greater than the present value of the calculation described in (i) above, the
Prepayment Premium will equal zero. The prepayment fee of 1% of the principal
amount prepaid will be payable in any event.
PRINCIPAL PREPAYMENT OPTIONS FOR LOAN 2 (VARIABLE RATE LOAN): The BORROWER may
prepay up to 20% of the original loan balance for Loan 2 every 12-month period
on the anniversary of the Loan Closing Date with no prepayment fees, regardless
of interest rates when prepaid. This can be done up to 3 times during the Loan
Term and is not cumulative (i.e. maximum is 20% per year). A $250 processing fee
will be required with each additional principal prepayment and the original loan
principal payment schedule will remain unchanged (i.e. the loan term will be
reduced).
In addition, at anytime the variable rate loan is in effect, the outstanding
balance of the variable rate loan may be partially prepaid up to $1,500,000 of
principal without premium, penalty or prohibition.
CROSS-DEFAULT/CROSS-COLLATERALIZATION: After the second funding, the loan
documents will be cross-defaulted and cross-collateralized with each other and
all other loan agreements, notes, mortgages, deeds of trust and other agreements
now or hereafter entered into between (or, in the case of notes and guaranties,
in favor of) (i) GEFF or any of its predecessors, other subsidiaries or
affiliates, on the one hand, and (ii) Borrower, guarantors or any of their
respective subsidiaries or affiliates, on the other hand.
FUNDING CUTOFF DATE: In the event that no portion of the loan is drawn by
February 28, 2005, this date may be extended 75 days to allow for the completion
of a long-form merger. The loan will be due and payable if not fully funded by
the funding cutoff date.
5
Page 6
COMMITMENT ACCEPTANCE:
Subject to the terms and conditions herein stated, this Commitment is an offer
that may be accepted by you only until December 10, 2004. Effective acceptance
requires actual receipt by GEFF of a fully executed counterpart of this
Commitment, without any changes thereto, on or before such date.
All other terms and conditions of the Proposal remain unchanged, including that
GEFF shall have the right and option, without incurring any liability to the
BORROWER, to terminate this proposed transaction and this Commitment (if
accepted by you), if one or more of the following events occur: (i) a material
adverse change in BORROWER'S financial condition prior to funding; (ii) any
facts which would, in GEFF'S sole judgment, have the effect of impairing the
collateral for the Loan; (iii) any facts not previously disclosed to GEFF with
respect to BORROWER which, in GEFF'S sole judgment, would have caused GEFF to
refuse to issue a Commitment; (iv) the financial information or financial
statements submitted to GEFF in connection with this proposed transaction were
not true, correct and complete in all material respects when submitted; (v)
BORROWER have made any material misrepresentations to GEFF or withheld any other
material information with regard to the proposed transaction; or (vi) BORROWER
defaults on any of their contractual obligations to GEFF or its affiliates.
THE PROPOSAL, AS MODIFIED BY THIS COMMITMENT, IS NOT MEANT TO DEFINE ALL OF THE
TERMS AND CONDITIONS OF THE LOAN - IT IS INTENDED ONLY TO OUTLINE CERTAIN BASIC
POINTS OF THE BUSINESS UNDERSTANDING FROM WHICH FINAL LEGAL DOCUMENTATION WILL
BE PREPARED. THE OUTLINED TERMS AND CONDITIONS ARE SUBJECT TO FINAL
DOCUMENTATION SATISFACTORY TO ALL PARTIES AND COMPLETE LEGAL REVIEW AND APPROVAL
OF ALL PERTINENT MATTERS.
This Commitment may not be assigned by the BORROWER or relied upon by any third
party without the prior written consent of GEFF, and will be governed by the
internal laws of the State of Arizona, without giving effect to conflict of law
principles. GEFF may assign this Commitment without the consent of the BORROWER.
The Proposal as modified by this Commitment (i) supersedes any previous
discussions, agreements and/or proposal/commitment letters relating to the Loan,
and (ii) may only be amended by a written agreement executed by GEFF and the
BORROWER.
ANY ACTION ARISING OUT OF THIS COMMITMENT OR THE LOAN DOCUMENTS SHALL BE
PROSECUTED ONLY IN THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF ARIZONA.
GEFF, BORROWER AND THE GUARANTORS WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT TO ANY ACTION ARISING OUT OF THIS COMMITMENT. BORROWER AND THE
GUARANTORS WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO SEEK OR RECOVER FROM GE
CAPITAL OR ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS AND EMPLOYEES
6
Page 7
ANY AWARD OF SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION
WITH ANY DEFAULT BY GE CAPITAL UNDER THIS COMMITMENT. IN THE EVENT OF
LITIGATION, THIS COMMITMENT LETTER MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT AND THE OTHER TERMS OF THIS PARAGRAPH.
Please indicate your acceptance of this Commitment by executing it in the space
provided below and returning it to my attention by December 10, 2004. If you
have any questions regarding this matter, please feel free to contact me.
Sincerely,
GE CAPITAL FRANCHISE FINANCE CORPORATION
/s/ LISA A. MORRIS
Lisa A. Morris
Senior Risk Analyst
(800) 528-1179
The above terms and conditions are hereby agreed to and accepted this ______ day
of __________________, 2004.
ERI ACQUISITION CORP., AN ENTITY TO BE FORMED
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
7
EXHIBIT (c)
ELMER'S RESTAURANTS INC.
VALUATION ANALYSIS
As of
August 5, 2004
Prepared by:
VEBER PARTNERS, LLC
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 1
ELMER'S RESTAURANTS INC.
VALUATION ANALYSIS
TABLE OF CONTENTS
INTRODUCTION...................................................................3
SELECTED COMPARABLE COMPANY ANALYSIS...........................................6
SELECTED COMPARABLE TRANSACTION ANALYSIS.......................................9
DISCOUNTED CASH FLOW ANALYSIS.................................................12
SUMMARY.......................................................................13
EXHIBITS......................................................................14
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 2
ELMER'S RESTAURANTS INC.
VALUATION ANALYSIS
INTRODUCTION
Veber Partners was retained by a group of shareholders of Elmer's Restaurants,
Inc. ("Elmer's" or the "Company"), including the Company's Board of Directors
(the "Purchaser Group") in support of its offer (the "Offer") for a going
private transaction in which the public shareholders of the Company would
receive $7.50 in cash for each share of the Company's common stock. Veber
Partners is an investment banking firm that, as part of its investment banking
business, regularly is engaged in the evaluation of businesses and their
securities in connection with mergers, acquisitions, and private placements. The
Purchaser Group selected Veber Partners based on its reputation and experience.
In 1998, Veber Partners was engaged by CBW, Inc. to assist in its purchase of
705,000 shares of Elmer's common stock from Anita Goldberg. In 1999, Veber
Partners was engaged by a special committee of the board of directors of Elmer's
to provide a opinion as to the fairness from a financial point of view to the
stockholders of Elmer's of the consideration to be paid by the Company in
connection with the merger of Elmer's with and into CBW, Inc.
In connection with advisory services related to the merger and the issuance of
Veber Partners' conclusions, Veber Partners will receive a fee from the
Purchaser Group. Elmer's also agreed to reimburse Veber Partners for all
reasonable fees and disbursements of its counsel and all of its reasonable
travel and other out-of-pocket expenses arising in connection with its
engagement. In addition, the Purchaser Group agreed to indemnify Veber Partners
and its affiliates to the full extent permitted by law against liabilities
relating to or arising out of its engagement, except for liabilities found to
have resulted from the bad faith or gross negligence of Veber Partners.
In connection with the Offer, the Purchaser Group engaged Veber Partners to
perform a financial analysis of the value of a single share of common stock held
by the public
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 3
shareholders of Elmer's (the "Analysis"). No limitations were imposed by the
Purchaser Group on the scope of Veber Partners' investigation or the procedures
to be followed by Veber Partners in performing its Analysis. The Veber Partners
Analysis is for the use and benefit of the Purchaser Group in connection with
its Offer and is not intended to be and does not constitute a recommendation to
any Elmer's shareholder as to whether such shareholder should take any action,
such as voting on any matter or tendering any shares in connection with the
Offer. Veber Partners was not requested to opine as to, and its Analysis does
not address, the Purchaser Group's underlying business decision to proceed with
or effect the Offer.
Veber Partners took into account its assessment of general economic, market and
financial conditions as well as its experience in connection with similar
transactions and securities valuations generally. Veber Partners was not asked
to consider, and its Analysis does not address, the relative merits of the Offer
as compared to any alternative business strategy that might exist for Elmer's.
In arriving at its conclusions, Veber Partners, among other things: (i) reviewed
an unexecuted draft of the tender offer; (ii) reviewed publicly available
financial information and other data with respect to Elmer's, including a Form
10-K for the year ended March 29, 2004, a 10-Q for the sixteen weeks ended July
19, 2004, and certain other relevant financial and operating data relating to
Elmer's; (iii) reviewed and analyzed the financial terms of certain transactions
that Veber Partners deemed significant involving companies comparable to
Elmer's; (iv) reviewed and analyzed certain financial characteristics of
companies that Veber Partners deemed comparable to Elmer's; (v) interviewed the
Company's CEO and CFO; (vi) requested the Company provide any current financial
projections (The Company responded that there were no current projections);
(vii) reviewed Purchaser Group's recasting of results for the year ended March
29, 2004 that reflect the Purchaser Group's impression of the Company's current
financial "run-rate". Run-rate has been defined by the Purchaser Group as the
fiscal year 2004 EBITDA results, plus expected changes to these results from
certain events which have occurred or will occur in fiscal year 2005; (viii)
considered the historical financial results and present financial condition of
Elmer's; (ix) reviewed certain publicly available information concerning the
trading of, and the trading
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 4
market for, the common stock of Elmer's; (x) inquired about and discussed the
Offer and other matters related thereto with Purchaser Group's legal counsel;
and (xi) performed such other analyses and examinations as Veber Partners deemed
appropriate.
In arriving at its conclusions, Veber Partners relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
used by it without assuming any responsibility for any independent verification
of any such information and further relied upon the assurances of the Purchaser
Group that they were not aware of any facts or circumstances that would make any
such information inaccurate or misleading. With respect to the Purchaser Group's
recasting of 2004 results to reflect a current "run-rate", Veber Partners
assumed that such recasts were reasonably prepared on a basis reflecting the
best currently available estimates and judgments, and those recasts provide a
reasonable basis upon which it could form a conclusion in the discounted cash
flow analysis. In arriving at its conclusions, Veber Partners did not make a
physical inspection of the properties and facilities of Elmer's, and had not
made or obtained any evaluations or appraisals of the assets and liabilities
(contingent or otherwise) of Elmer's. Veber Partners assumed that a transaction
arising from the Offer will be consummated in a manner that complies in all
respects with the applicable provisions of the Exchange Act, and all other
applicable federal and state statues, rules and regulations. The Veber Partners
Analysis was necessarily based upon market, economic and other conditions as
they exist on, and could be evaluated as of August 5, 2004. In addition, Veber
Partners is not currently aware of any subsequent events that would materially
change is analysis. Accordingly, although subsequent developments may affect its
assessment, Veber Partners has not assumed any obligation to update, review or
reaffirm its Analysis.
Veber Partners determined its Analysis using the following methodologies:
Selected Comparable Company Analysis
Selected Comparable Transaction Analysis
Discounted Cash Flow Analysis
These analyses represent a market and income approach to valuation; Veber
Partners did not include an analysis of liquidation value or net book value as
these are usually not appropriate for valuing a going concern that is based upon
the future earnings of the
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 5
enterprise. Each of the analyses conducted by Veber Partners was carried out
independently in order to provide a different perspective on the Analysis, and
to enhance the quality of the Analysis. Veber Partners did not form a conclusion
as to whether any individual analysis, considered in isolation, supported or
failed to support the Analysis. Veber Partners did not place any particular
reliance or weight on any individual analysis, but instead concluded that its
analyses, taken as a whole, supported its determination. Accordingly, Veber
Partners believes that its analyses must be considered as a whole and that
selecting portions of its analyses or the factors it considered, without
considering all analyses and factors collectively, could create an incomplete
view of the process underlying the analyses performed by Veber Partners in
connection with the preparation of the Analysis.
SELECTED COMPARABLE COMPANY ANALYSIS
The selected comparable company analysis involves the review of 34 publicly
traded companies deemed comparable to Elmer's (the "Comparable Companies").
Veber Partners reviewed certain financial information relating to Elmer's in the
context of the corresponding financial information, ratios and public market
multiples for the Comparable Companies. No company used in Veber Partners'
analysis was deemed to be identical to Elmer's; accordingly, Veber Partners
considered the multiples derived from the Comparable Companies to be more
relevant than the multiples of any single company.
The Comparable Companies utilized are shown in Exhibit A. The Exhibit shows 73
relevant public companies with the SIC code 5812; Eating Places. Certain
companies within this category were partially or completely eliminated based on
the following criteria, as specified in Exhibit A to yield the Comparable
Companies.
1) Companies with Revenues over $600 million were excluded;
2) Companies with revenue growth in excess of 15% were excluded;
3) Companies with EBITDA margins less than 4.0% were not used for
EBITDA comparables;
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 6
4) Companies with EBIT margins less than 3.0% were not used for
EBIT comparables.
Based on publicly available information, Veber Partners reviewed various
financial information for each of the Comparable Companies including, among
other things, market capitalization, revenue, earnings before interest and taxes
(EBIT), earnings before interest, taxes, depreciation and amortization (EBITDA),
and appropriate balance sheet information. Subsequent to such review and based
on the respective market value or enterprise value as of August 5, 2004, Veber
Partners calculated and compared the following multiples for each of the
Comparable Companies grouped into two categories: (i) Comparable Companies with
an enterprise value below $100 million were applied directly as a comparable to
Elmer's; (ii) Comparable Companies with enterprise values from $100 million to
$600 million were used after applying a 25% discount to the multiples to account
for a size premium relative to Elmer's . Exhibit B shows the Comparable Company
Analysis which yield the following results:
All Comparable Companies
------------------------
Mean High Low
---- ---- ---
LTM (Last Twelve Months) Revenues 0.54 X 1.01 X 0.23 X
LTM EBITDA 6.34 X 11.30 X 4.08 X
LTM EBIT 11.05 X 18.17 X 6.78 X
Book Value 2.02 X 4.67 X 0.50 X
For each of the groups set forth above, utilizing Elmer's' historical financial
data, Veber Partners derived Elmer's implied enterprise value, with respect to
the mean values for the selected multiples noted above.
Elmer's Implied Enterprise Value as of August 5, 2004 (based on Elmer's
--------------------------------------------------------------------------------
Financial Statement as of March 29, 2004):
-----------------------------------------
(000's)
LTM Revenue: $ 33,490 times a multiple of 0.54 = $18,201
LTM EBITDA: $ 3,150 times a multiple of 6.34 = $19,942
LTM EBIT: $ 2,310 times a multiple of 11.05 = $25,513
Book Value: $ 9,620 times a multiple of 2.02 = $19,457
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 7
A weighted average of the above values (as specified in Exhibit B) yields a
Company implied enterprise value of $20,128,000. For purposes of determining the
weighted average, Veber Partners attributed an equal weight to three measures:
(i) LTM Revenue, (ii) the average of LTM EBITDA and LTM EBIT, and (iii) Book
Value.
In order to derive the implied market value of the common stock from the implied
enterprise value, Veber Partners subtracted the Company's outside bank debt as
of March 29, 2004, subtracted the deferred income tax liability as of March 29,
2004, (see Exhibit B), and deducted the cost of cashing out all outstanding
stock options.
The following table set forth the implied market value share value of Elmer's.
Elmer's Implied Market Value of the Common Stock as of August 5, 2004 (based on
--------------------------------------------------------------------------------
Elmer's Financial Statement as of March 29, 2004):
-------------------------------------------------
(000's)
Elmer's Implied Enterprise Value $20,128
Less: Total Outside Debt (5,332)
Deferred Income Tax Liability (1,396)
Cost of Option Exercise (1,221)
-------
Elmer's Implied Value of Common Stock $ 12,179
The implied market value of Elmer's common stock is $12,179,000. Therefore, with
1,816,335 shares outstanding, the implied market value of Elmer's common stock
using Comparable Companies is $6.69.
Veber Partners made no adjustments to the implied market value to account for
Elmer's real estate assets. Real estate values are assumed to be subsumed in the
going-concern value of the Comparable Companies, in that as a whole, the
Comparable Companies are assumed to be optimizing the value of their real estate
assets.
In addition, Comparable Companies are assumed to be optimizing their working
capital assets, including receivables, prepaid expenses, cash, inventory,
payables, and accruals. Specifically with respect to cash, the Comparable
Companies have, on average, 17 turn-
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 8
days of cash at the latest balance sheet date prior to the Valuation Date.
Elmer's has 21 turn-days of cash on its March 29 balance sheet, based on
normalized revenues of 42.9 million. Normalized revenues are 9.4 million higher
than actual revenues, because the effective cash turnover from lottery sales is
13.6 million rather than the revenue recognition of 4.2 million based on lottery
revenues net of prizes and the State of Oregon's share of proceeds. The
difference between the cash turn-days of Elmer's and the cash turn-days of the
Comparable Companies is not considered to be significant, especially in the
context of the assumption made with respect to the entire working capital
positions of Elmer's and the Comparable Companies.
It should also be noted that since a portion of Elmer's revenues are lottery
revenues, the resulting risk that comes from regulatory and lottery contract
uncertainties changes Elmer's risk profile relative to the Comparable Companies.
None of the Comparable Companies, or any of the sets of Comparable Companies
noted above, is identical to Elmer's. Accordingly, Veber Partners considered the
multiples for such companies to be more relevant than the multiples of any
single company. Further, an analysis of publicly-traded comparable companies is
not entirely mathematical, rather it involves complex consideration and
judgments concerning differences in financial and operating characteristics of
the Comparable Companies and other factors that could affect the public trading
of the Comparable Companies.
SELECTED COMPARABLE TRANSACTION ANALYSIS
The comparable transaction analysis involves a review of merger, acquisition and
asset purchase transactions involving companies that are in related industries
to Elmer's (the "Comparable Transactions"). Information is typically not
disclosed for transactions involving a private seller, even when the buyer is a
public company, unless the acquisition is deemed to be "material" for the
acquiror. As a result, the selected comparable transaction analysis is limited
to transactions involving the acquisition of a
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 9
public company, or substantially all of its assets, or the acquisition of a
large private company, or substantially all of its assets, by a public company.
Veber Partners located 4 transactions over the past three years involving
companies in a business similar to Elmer's, where financial data of the acquired
company and the terms of the transaction were disclosed. The Comparable
Transactions are as follows:
ACQUIROR TARGET
-------- ------
Castle Harlan Inc Morton's Restaurant
CKE Restaurants Santa Barbara Restaurant Group
Interfoods Acquisition Group Interfoods of America
Investor Group Blimpie International
Based on the information disclosed in the each of the Comparable Transactions,
Veber Partners calculated and compared multiples for each of the Comparable
Transactions based on Revenue, and EBITDA, as seen in Exhibit C. The multiples
were derived by dividing price paid for equity plus interest bearing debt and
deferred long term tax liabilities assumed, by Revenue or EBITDA. Multiples
derived from EBIT and Book Value were not sufficiently meaningful to be included
as measures.
All Comparable Transactions
Mean High Low
LTM Revenues 0.60 X 0.86 X 0.46 X
LTM EBITDA 6.42 X 7.47 X 4.82 X
Following the calculation of such multiples with respect to each of the
Comparable Transactions, and utilizing Elmer's historical financial data, Veber
Partners derived Elmer's implied enterprise value, implied market value, and
implied market value per share with respect to the mean values for the multiples
relating to LTM Revenue, and LTM EBITDA. The following tables set forth the
implied per share value of Elmer's based upon such multiples.
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 10
Elmer's Implied Enterprise Value as of August 5, 2004 (based on Elmer's
--------------------------------------------------------------------------------
Financial Statement as of March 29, 2004):
-----------------------------------------
(000's)
LTM Revenue: $ 33,490 times a multiple of 0.60 = $20,070
LTM EBITDA: $ 3,150 times a multiple of 6.42 = $20,226
A weighted average of the above values (as specified in Exhibit C) yields a
Company implied enterprise value of $20,148,000.
In order to derive the implied market value of the common stock from the implied
enterprise value, Veber Partners subtracted the Company's outside bank debt as
of March 29, 2004, subtracted the deferred income tax liability as of March 29,
2004, and deducted the cost of exercising all outstanding stock options.
The following table set forth the implied market value share value of Elmer's.
Elmer's Implied Market Value of the Common Stock as of August 5, 2004 (based on
--------------------------------------------------------------------------------
Elmer's Financial Statement as of March 29, 2004):
-------------------------------------------------
(000's)
Elmer's Implied Enterprise Value $20,148
Less: Total Outside Debt (5,332)
Deferred Income Tax Liability (1,396)
Cost of Option Exercise (1,221)
-------
Elmer's Implied Value of Common Stock $12,199
The implied market value of Elmer's common stock using this method is
$12,199,000. Therefore, with 1,816,335 shares outstanding, the implied market
value of Elmer's common stock using Comparable Transactions is $6.70
Veber Partners made the same assumptions with respect to real estate and working
capital assets for Comparable Transactions as it did for Comparable Companies.
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 11
None of the Comparable Transactions are identical to the Offer. Accordingly, an
analysis of comparable business combinations is not mathematical; rather it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the Comparable Transactions and other
factors that could affect the respective acquisition values.
DISCOUNTED CASH FLOW ANALYSIS
Veber Partners was advised that Elmer's does not have any current financial
projections and accordingly, it cannot perform a traditional Discounted Cash
Flow analysis of the Company. The Purchaser Group has provided to Veber Partners
a recast statement of cash flows which updates the "run-rate" of the Company.
Run-rate has been defined by the Purchaser Group as the fiscal year 2004 EBITDA
results, plus expected changes to these results from certain events which have
occurred or will occur in fiscal year 2005. The re-cast EBITDA run-rate is
expected to be $3,048,000. (see Exhibit D) Using an EBITDA multiple of 6.38
times (the average mean multiple from the Comparable Companies and Comparable
Transaction methods used above), would yield an enterprise value of $19,446,000.
Elmer's Implied Market Value of the Common Stock as of August 5, 2004 (based on
--------------------------------------------------------------------------------
Elmer's Financial Statement as of March 29, 2004):
-------------------------------------------------
(000's)
Elmer's Implied Enterprise Value $ 19,446
Less: Total Outside Debt (5,330)
Deferred Income Tax Liability (1,400)
Cost of Option Exercise (1,220)
-------
Elmer's Implied Value of Common Stock $ 11,496
The implied market value of Elmer's common stock using this method is
$11,496,000. Therefore, with 1,816,335 shares outstanding, the implied market
value of Elmer's common stock using Comparable Transactions is $6.33
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 12
HISTORICAL FINANCIAL DATA ANALYSIS
Veber Partners reviewed and analyzed certain financial information for Elmer's
as reported in its annual filings on Form 10-K and its quarterly filings on Form
10-Q, including audited and unaudited financial statements. Further, Veber
Partners reviewed certain supportive information as provided by Purchaser Group.
SUMMARY
Based on the foregoing, Veber Partners believes that a fair value for each share
of common stock of Elmer's Restaurants Inc. would be $6.57, which is an average
of the three methodologies used above.
Veber Partners performed a variety of financial and comparative analyses for the
purpose of rendering the Analysis. While the foregoing describes all material
analyses and factors reviewed by Veber Partners with the Purchaser Group, it
does not purport to be a complete description of the presentations by Veber
Partners to the Purchaser Group or the analyses performed by Veber Partners in
arriving at its conclusions. The preparation of a valuation is a complex process
and is not necessarily susceptible to partial analysis or summary description.
Veber Partners believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create a misleading view of the
processes underlying the Veber Partners Valuation Analysis. In addition, Veber
Partners may have given various analyses more or less weight that other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuations resulting from any particular
analysis described above should not be taken to be Veber Partners' view of the
actual value of Elmer's. In performing its analyses, Veber Partners made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Elmer's. The analyses performed by Veber Partners are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. In addition,
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 13
analyses relating to the value of businesses or assets do not purport to be
appraisals or to necessarily reflect the prices at which businesses or assets
may actually be sold. The Analysis was prepared solely as part of Purchaser
Group's analysis of the fairness of the consideration, from a financial point of
view, to the shareholders of the Elmer's, and was provided by Veber Partners to
the Purchaser Group in that context.
EXHIBITS
Exhibits are shown on the following pages.
Elmer's Restaurants Inc. Valuation Analysis As of August 5, 2004
Page 14
EXHIBIT A
PUBLIC COMPANIES -- SIC CODE 5812 -- EATING PLACES
(COMPANIES WITH STRIKEOUT (STRIKEOUT HAS BEEN REPLACED WITH * FOR EDGAR
VERSION) HAVE BEEN ELIMINATED PER DISCUSSION BELOW)
(TABLE CONTINUED AT COLUMN 7 ON PAGE A-2)
OPERATING REVENUE EARNINGS
Company Revenue EBITDA Margin Grwth Rate Grwth Rate
------- -------- --------- --------- ---------- ----------
Angelo & Maxie's Inc.* 22.73 (5.05) 24.41% -3.30% N/A
Applebee's Inter'l, Inc* 1,060.00 163.76 15.40% 19.80% 12.70%
Ark Restaurants Corp. 115.26 9.60 4.74% 1.00% -21.50%
Avado Brands Inc.* 596.21 (43.92) -15.30% -29.20% N/A
Backyard Burgers 40.21 4.40 6.28% 11.90% -11.40%
Bob Evans Farms* 1,200.00 163.41 9.46% 9.80% -4.10%
Boston Restaurant Associates 22.63 1.10 -0.25% -5.50% 11.50%
Brinker International Inc* 3,570.00 391.62 6.14% 13.80% 10.40%
BUCA Inc. 261.46 (0.42) -6.59% 7.00% -253.80%
Buffalo Wild Wings Inc* 147.56 16.14 6.37% 31.60% 16.40%
California Pizza Kitchen* 390.33 27.31 2.48% 17.50% -48.10%
CBRL Group* 2,350.00 256.94 8.23% 6.40% 16.10%
CEC Entertainment* 689.96 173.71 17.98% 8.70% 1.80%
Champps Entertainment Inc 204.39 17.79 4.25% 14.00% 232.90%
Checkers Drive-In Restaurants 189.87 25.58 9.71% 6.30% N/A
Cheesecake Factory Inc* 867.81 124.96 10.81% 18.70% 17.90%
Chefs International Inc 22.46 1.23 0.59% -2.90% N/A
Chicago Pizza & Brewery Inc* 112.04 11.86 7.11% 36.00% 115.50%
CKE Restaurants Inc* 1,450.00 76.81 0.64% 3.70% N/A
Cosi* 106.52 (14.03) -20.12% 27.00% N/A
Darden Restaurants* 5,000.00 593.66 6.80% 6.60% -2.30%
Dave & Buster's Inc 366.20 53.75 6.52% -2.90% N/A
Denny's Corp* 959.18 108.80 5.14% -0.80% -146.20%
Diedrich Coffee 53.47 0.91 -2.33% -11.90% -196.40%
Domino's Pizza* 1,370.00 160.17 11.70% N/A N/A
EACO Corp 37.12 1.06 -2.45% -11.00% N/A
Elephant & Castle Group* N/A 1.74 -1.54% 3.30% N/A
Elxsi Corp 98.11 4.75 0.74% -0.20% N/A
Famous Dave's of America Inc 96.84 5.03 0.32% 7.60% N/A
Flanigan's Enterprises Inc 43.04 2.48 2.82% -1.00% -35.80%
Fresh Choice Inc* 77.65 (9.53) -16.83% N/A N/A
Friendly Ice Cream Corp 573.70 49.41 4.72% 1.60% 64.60%
Frisch's Restaurants Inc 260.92 18.26 6.05% 10.90% 22.70%
Good Times Restaurants 15.32 0.80 -3.30% -11.70% -193.50%
Granite City Food & Brewery* 22.56 0.17 -4.30% 19.00% N/A
Grill Concepts 47.91 1.70 0.59% 10.10% 88.00%
Health Express USA Inc* 0.72 (1.69) N/A 59.40% N/A
IHOP Corp 385.56 65.81 14.57% 10.60% -10.00%
J Alexander's Corp* N/A 9.17 4.26% 8.40% 15.70%
Jack in the Box Inc* 2,220.00 215.90 5.11% 4.70% -11.40%
Krispey Kreme Doughnuts Inc* 701.29 118.77 13.84% 35.40% 70.50%
Landry's Restaurants* 1,150.00 145.08 7.08% 23.60% 10.50%
Lone Star Steakhouse Saloon* 630.21 60.59 6.39% -3.90% -52.40%
Luby's Inc 282.46 19.65 1.39% -20.20% N/A
Main Street Restaurant Group 222.49 7.55 -0.60% 2.00% N/A
Max & Ermas Restaurants 174.38 10.59 1.85% 9.90% -54.60%
McCormick & Schmick's* 206.18 14.58 2.24% N/A N/A
Meritage Hospitality Group* 51.57 5.03 3.94% 5.60% 4.40%
Mexican Restaurants Inc 68.91 1.05 -2.19% -2.00% -160.70%
Morgan's Foods Inc 81.74 6.75 3.95% -0.70% N/A
Nathan's Famous 30.68 4.30 9.76% -9.60% N/A
O'Charley's Inc* 833.61 81.12 5.32% 51.80% 2.90%
Outback Steakhouse Inc* 2,910.00 366.87 9.54% 16.20% 13.40%
PF Chang's China Bistro* 636.17 59.60 5.92% 32.50% 21.50%
Panera Bread Co.* 411.76 74.77 13.79% 28.10% 39.70%
Pizza Inn Inc. 58.85 5.06 5.59% -11.80% 172.00%
Quality Dining Inc. 224.85 21.10 5.02% -12.40% -82.80%
Rare Hospitality International*753.24 100.95 9.63% 16.50% 26.40%
Red Robin Gourmet Burgers* 352.44 46.47 8.26% 19.80% 90.40%
Rubio's Restaurants Inc 131.60 3.42 -1.80% 4.50% -163.00%
Ruby Tuesday, Inc.* 1,040.00 229.25 16.40% 9.70% 52.00%
Ryan's Restaurant Group* 831.52 120.12 8.90% 3.80% -1.10%
(TABLE CONTINUED AT COLUMN 7 ON PAGE A-2)
A-1
(COMPANIES WITH STRIKEOUT (STRIKEOUT HAS BEEN REPLACED WITH * FOR EDGAR
VERSION) HAVE BEEN ELIMINATED PER DISCUSSION BELOW)
REASON(S) REVENUE EBITDA REVENUE EBITDA
Company For Exclusion (1) Multiple Multiple Multiple Multiple
------- ----------------- -------- -------- -------------------
Angelo & Maxie's Inc.* Negative EBITDA -0.04 N/A
Applebee's Inter'l, Inc* Above $600MM Revenue 1.97 12.78
Ark Restaurants Corp. $100 to $600 in Rev, use w/ discount 0.75 8.96 0.56 6.72
Avado Brands Inc.* Above $500MM Revenue 0.45 N/A
Backyard Burgers 0.71 6.51 0.71 6.51
Bob Evans Farms* Above $600MM Revenue 0.81 5.93
Boston Restaurant Associates Operating Margin under 1.0%, use Rev Mult only 0.35 7.17 0.35
Brinker International Inc* Above $600MM sales 1.00 9.13
BUCA Inc. Operating Margin under 1.0%, use Rev Mult only 0.46 N/A 0.35
Buffalo Wild Wings Inc* Rev growth rate above 15% 1.25 11.38
California Pizza Kitchen* Rev growth rate above 15% 0.83 11.87
CBRL Group* Above $600MM Revenue 0.72 6.59
CEC Entertainment* Above $600MM Revenue 1.91 7.59
Champps Entertainment Inc $100 to $600 in Rev, use w/ discount 0.57 6.53 0.43 4.90
Checkers Drive-In Restaurants $100 to $600 in Rev, use w/ discount 0.69 5.12 0.52 3.84
Cheesecake Factory Inc* Above $600MM Revenue 2.27 15.78
Chefs International Inc Operating Margin under 1.0%, use Rev Mult only 0.45 8.22 0.45
Chicago Pizza & Brewery Inc* Rev growth rate above 15% 2.35 22.18
CKE Restaurants Inc* Above $600MM Revenue 0.75 14.12
Cosi* Operating Margin under 1.0%, Revenue GR above 15% 1.39 N/A
Darden Restaurants* Above $600MM sales 0.77 6.52
Dave & Buster's Inc $100 to $600 in Rev, use w/ discount 0.73 4.98 0.55 3.74
Denny's Corp* Above $600MM Revenue 0.74 6.54
Diedrich Coffee Operating Margin under 1.0%, use Rev Mult only 0.50 29.23 0.50
Domino's Pizza* Above $600MM Revenue 1.33 11.40
EACO Corp Operating Margin under 1.0%, use Rev Mult only 0.62 21.92 0.62
Elephant & Castle Group* Operating Margin under 1.0%, no Rev #s N/A 3.44
Elxsi Corp 0.25 5.17 0.25 5.17
Famous Dave's of America Inc Operating Margin under 1.0%, use Rev Mult only 0.95 18.35 0.95
Flanigan's Enterprises Inc 0.25 4.35 0.25 4.35
Fresh Choice Inc* No info 0.11 N/A
Friendly Ice Cream Corp $100 to $600 in Rev, use w/ discount 0.52 6.04 0.39 4.53
Frisch's Restaurants Inc $100 to $600 in Rev, use w/ discount 0.60 8.62 0.45 6.47
Good Times Restaurants Operating Margin under 1.0%, use Rev Mult only 0.51 9.74 0.51
Granite City Food & Brewery* Operating Margin under 1.0%, Rev GR over 15% 1.50 195.07
Grill Concepts 0.17 4.86 0.17 4.86
Health Express USA Inc* Operating Margin under 1.0% Rev N/A 2.17 N/A
IHOP Corp 2.33 13.62 1.75 10.22
J Alexander's Corp* N/A N/A 7.41
Jack in the Box Inc* Above $600MM Revenue 0.59 6.06
Krispey Kreme Doughnuts Inc* Above $600MM Revenue 1.42 8.38
Landry's Restaurants* Above $600MM Revenue 0.88 6.95
Lone Star Steakhouse Saloon* Above $600MM Revenue 0.62 6.50
Luby's Inc Operating Margin under 1.0%, use Rev Mult only 0.76 10.87 0.57
Main Street Restaurant Group Operating Margin under 1.0%, use Rev Mult only 0.33 9.64 0.25
Max & Ermas Restaurants $100 to $600 in Rev, use w/ discount 0.44 7.23 0.33 5.42
McCormick & Schmick's* New Issue 1.14 16.17
Meritage Hospitality Group* New franchise agr. to open O'Charley's not reflected in FS 1.11 11.38
Mexican Restaurants Inc Operating Margin under 1.0%, use Rev Mult only 0.46 29.86 0.46
Morgan's Foods Inc 0.55 6.64 0.55 6.64
Nathan's Famous 0.67 4.78 0.67 4.78
O'Charley's Inc* Above $600MM Revenue 0.64 6.59
Outback Steakhouse Inc* Above $600MM Revenue 0.99 7.82
PF Chang's China Bistro* Above $600MM Revenue 1.60 17.12
Panera Bread Co.* Rev growth rate above 15% 2.51 13.83
Pizza Inn Inc. 0.64 7.41 0.64 7.41
Quality Dining Inc. $100 to $600 in Rev, use w/ discount 0.50 5.31 0.38 3.98
Rare Hospitality International* Above $600MM Revenue 1.20 8.96
Red Robin Gourmet Burgers* Rev growth rate above 15% 1.56 11.83
Rubio's Restaurants Inc Operating Margin under 1.0%, use Rev Mult only 0.51 19.47 0.38
Ruby Tuesday, Inc.* Above $600MM Revenue 1.87 8.51
Ryan's Restaurant Group* Above $600MM Revenue 0.90 6.20
A-2
(COMPANIES WITH STRIKEOUT (STRIKEOUT HAS BEEN REPLACED WITH * FOR EDGAR
VERSION) HAVE BEEN ELIMINATED PER DISCUSSION BELOW)
(TABLE CONTINUED AT COLUMN 7 ON PAGE A-4)
EXHIBIT A (CONT.)
OPERATING REVENUE EARNINGS
Company Revenue EBITDA Margin Grwth Rate Grwth Rate
------- -------- --------- --------- ---------- ----------
Schlotzsky's Inc* 55.40 (0.67) -10.84% N/A N/A
Shells Seafood 42.72 0.74 -0.86% -6.70% -252.70%
Sixx Holdings Inc 7.54 0.46 3.12% 30.00% 67.20%
Sonic Corp* 511.34 132.95 19.70% 11.60% 9.60%
Star Buffet Inc 67.20 4.82 2.57% -9.00% N/A
Smith & Wollensky Rest. Grp.* 107.32 4.26 0.32% 20.90% N/A
Steak N Shake 534.59 73.22 6.84% 8.30% -9.30%
Total Entertainment Rest.Corp 128.51 16.69 8.17% 18.80% -9.20%
Wendy's International* 3,410.00 619.68 13.06% 15.30% 7.90%
Western Sizzlin Corp 21.37 2.06 4.01% -26.10% N/A
Worldwide Rest. Concepts Inc 347.15 23.18 3.38% 18.30% -46.00%
Yum! Brands Inc* 8,690.00 1,560.00 13.12% 8.00% 5.80%
(TABLE CONTINUED AT COLUMN 7 ON PAGE A-4)
A-3
(COMPANIES WITH STRIKEOUT (STRIKEOUT HAS BEEN REPLACED WITH * FOR EDGAR
VERSION) HAVE BEEN ELIMINATED PER DISCUSSION BELOW)
REASON(S) REVENUE EBITDA REVENUE EBITDA
Company For Exclusion (1) Multiple Multiple Multiple Multiple
------- ----------------- -------- -------- -------------------
Schlotzsky's Inc* Operating Margin under 1.0%, N/A Revs. 0.94 N/A
Shells Seafood Operating Margin under 1.0%, use Rev Mult only 0.13 7.31 0.13
Sixx Holdings Inc 0.59 9.72 0.59 9.72
Sonic Corp* Rev growth rate above 15% 2.79 10.74
Star Buffet Inc 0.39 5.43 0.39 5.43
Smith & Wollensky Rest. Grp.* Rev growth rate above 15% 0.74 18.59
Steak N Shake $100 to $600 in Rev, use w/ discount 1.11 8.11 0.83 6.08
Total Entertainment Rest.Corp $100 to $600 in Rev, use w/ discount 0.80 6.13 0.60 4.60
Wendy's International* Above $600MM Revenue 1.29 7.12
Western Sizzlin Corp 0.50 5.20 0.50 5.20
Worldwide Rest. Concepts Inc $100 to $600 in Rev, use w/ discount 0.29 4.32 0.22 3.24
Yum! Brands Inc* Above $600MM Revenue 1.44 8.05 ---- ----
0.51 5.63
n = 38 24
(1) REASONS FOR EXCLUSION
---------------------
1. Elmer's annual revenues in FY 2004 were $33 million. Companies are
excluded if annual revenues were in excess of $600 million. Larger companies are
not comparable because of an overall lower risk profile due to many of the
following factors: a) better access to capital markets, b) lower portfolio risk
due to a higher number of locations, c) a lower reliance on one region of the
country, and d) deeper professional management
2. Companies with revenues from $100 million to $600 million are used, but
are subject to a size premium for the same reasons discussed in 1), above. Based
on its experience, Veber Partners has applied a 25% discount to the multiple
results in order to account for the size difference in comparison to Elmer's.
3. Companies with revenue growth rates in excess of 15% were excluded.
Elmer's revenue growth rate for FY 2004 over FY 2003 was 4.7%
4. Companies with EBITDA margins less than 4.0% or EBIT margins less than
3.0% were not used in the EBITDA or EBIT multiple calculations. These compnies
were used for revenue multiples and book value multiples only. As margin
percentages approach zero, multiple calculations are skewed by the small
denominator. Elmer's EBITDA margin was 9.4% and EBIT margin was 6.2% in FY 2004.
A-4
EXHIBIT B
ELMER'S RESTAURANTS INC
TOTAL ENTERPRISE VALUE (TEV)
COMPARABLE COMPANY ANALYSIS
(DATA IN MILLIONS, EXCEPT PER SHARE DATA)
(TABLE CONTINUED AT COLUMN 10 ON PAGE B-2)
MARKET
TICKET PRICE @ SHARES MKT VALUE TOTAL MKT DEFERRED LONGTERM
COMPANY SYMBOL 8/9/2004 OUTSTANDING OF EQUITY CAP LT LIAB. DEBT TEV
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
ARK RESTAURANTS ARKR $ 22.23 $ 3.38 $ 75.14 $ 75.14 $ 0.85 $ 3.36 $ 79.35
BACKYARD BURGERS INC BYBI $ 5.48 $ 4.76 $ 26.08 $ 26.08 $ 1.93 $ 5.13 $ 33.14
BOSTON RESTAURANTS ASSOCIATES BRAI.OB $ 0.65 $ 7.04 $ 4.58 $ 4.58 $ 0.50 $ 5.18 $ 10.26
BUCA INC BUCA $ 5.05 $ 20.12 $101.61 $101.61 $ - $ 25.09 $ 126.69
CHAMPPS ENTERTAINMENT INC CMPP $ 7.81 $ 12.81 $100.05 $100.05 $ - $ 29.66 $ 129.71
CHECKERS DRIVE-IN RESTARUANTS CHKR $ 9.94 $ 11.76 $116.89 $116.89 $ 3.40 $ 25.14 $ 145.44
CHEFS INTERNATIONAL INC CHEF.OB $ 3.06 $ 3.93 $ 12.03 $ 12.03 $ - $ 1.92 $ 13.95
DAVE & BUSTERS CHEF.OB $ 16.13 $ 13.75 $221.79 $221.79 $13.62 $ 52.30 $ 287.71
DIEDRICH COFFEE DDRX $ 5.00 $ 5.16 $ 25.80 $ 25.80 $ 0.49 $ 2.60 $ 28.89
EACO CORP EACO.OB $ 1.00 $ 3.74 $ 3.74 $ 3.74 $ 1.28 $ 20.62 $ 25.64
ELXI CORP ELXS $ 3.40 $ 4.01 $ 13.63 $ 13.63 $ - $ 11.19 $ 24.83
FAMOUS DAVE'S OF AMERICA INC DAVE $ 7.03 $ 12.06 $ 84.78 $ 84.78 $ - $ 17.48 $ 102.26
FLANIGAN'S ENTERPRISES INC BDL $ 6.60 $ 1.93 $ 12.74 $ 12.74 $ - $ 1.36 $ 14.09
FRIENDLY ICE CREAM CORP FRN $ 10.01 $ 7.69 $ 76.98 $ 76.98 $ - $235.95 $ 312.92
FRISCH'S RESTAURANTS INC FRS $ 24.10 $ 5.03 $121.22 $121.22 $ 4.46 $ 46.30 $ 171.98
GOOD TIMES RESTAURANTS GTIM $ 3.18 $ 2.34 $ 7.44 $ 7.44 $ 0.49 $ 1.40 $ 9.34
GRILL CONCEPTS INC GRIL $ 1.83 $ 5.59 $ 10.23 $ 10.23 $ - $ 0.98 $ 11.21
IHOP CORP IHP $ 35.03 $ 21.41 $749.99 $749.99 $68.87 $323.72 $1,142.58
LUBY'S INC LUB $ 6.45 $ 22.47 $144.93 $144.93 $11.12 $ 87.17 $ 243.22
MAIN STREET RESTAURANT GROUP MAIN $ 1.79 $ 14.64 $ 26.21 $ 26.21 $ - $ 50.73 $ 76.94
MAX & ERMAS RESTAURANTS INC MAXE $ 15.00 $ 2.46 $ 36.90 $ 36.90 $ - $ 41.44 $ 78.34
MEXICAN RESTAURANTS INC CASA $ 7.09 $ 3.38 $ 23.96 $ 23.96 $ 1.87 $ 7.50 $ 33.34
MORGAN'S FOODS INC MR $ 1.00 $ 2.72 $ 2.72 $ 2.72 $ - $ 45.83 $ 48.55
NATHAN'S FAMOUS INC NATH $ 5.86 $ 5.21 $ 30.53 $ 30.53 $ - $ 1.00 $ 31.53
PIZZA INN PZZI $ 2.51 $ 10.08 $ 25.30 $ 25.30 $ - $ 8.75 $ 34.05
QUALITY DINING INC QDIN $ 2.71 $ 11.60 $ 31.44 $ 31.44 $ - $ 81.79 $ 113.23
RUBIO'S RESTAURANTS INC RUBO $ 8.55 $ 9.11 $ 77.89 $ 77.89 $ 2.87 $ - $ 80.76
SHELLS SEAFOOD SHLL.OB $ 0.60 $ 4.67 $ 2.80 $ 2.80 $ 0.90 $ 4.10 $ 7.79
SIXX HOLDINGS INC SIXX.OB $ 4.00 $ 1.32 $ 5.28 $ 5.28 $ - $ - $ 5.28
STAR BUFFET INC STRZ $ 6.18 $ 2.95 $ 18.23 $ 18.23 $ 0.83 $ 7.93 $ 27.00
STEAK N SHAKE SNS $ 16.59 $ 27.46 $455.56 $455.56 $ 2.72 $168.75 $ 627.03
TOTAL ENTERTAINMENT REST. CORP TENT $ 9.89 $ 9.88 $ 97.71 $ 97.71 $ 1.62 $ 4.96 $ 104.29
WESTERN SIZZLIN CORP WSZZ.OB $ 0.70 $ 11.91 $ 8.34 $ 8.34 $ - $ 3.95 $ 12.29
WORLDWIDE RESTAURANT CONCEPTS SZ $ 3.17 $ 27.49 $ 87.14 $ 87.14 $ 8.74 $ 36.34 $ 132.22
B-1
TEV MULTIPLES:
----------------------------------
LTM LTM LTM BOOK TEV/ TEV/ TEV/ TEV/
COMPANY REVENUES EBITDA EBIT VALUE REVENUES EBITDA EBIT BOOK
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
ARK RESTAURANTS $ 115.26 $ 10.72 $ 6.59 $ 27.45 0.52 5.55 9.03 2.17 size discount 25%
BACKYARD BURGERS INC $ 39.74 $ 4.41 $ 2.51 $ 14.04 0.83 7.51 13.23 2.36
BOSTON RESTAURANTS ASSOCIATES $ 23.29 $ (0.61) $ (0.61) $ (0.67) 0.44 N/A N/A N/A
BUCA INC $ 261.46 $ (0.42) $ (3.99) $ 157.20 0.36 N/A N/A 0.81 size discount 25%
CHAMPPS ENTERTAINMENT INC $ 204.39 $ 17.68 $ 8.02 $ 77.74 0.48 5.50 12.12 1.25 size discount 25%
CHECKERS DRIVE-IN RESTARUANTS $ 189.90 $ 24.32 $ 16.96 $ 75.66 0.57 4.49 Low 1.44 size discount 25%
CHEFS INTERNATIONAL INC $ 22.46 $ 1.85 $ 0.76 $ 14.74 0.62 7.54 High 0.95
DAVE & BUSTERS $ 366.20 $ 53.75 $ 23.86 $ 187.48 0.59 Low 9.04 1.15 size discount 25%
DIEDRICH COFFEE $ 53.48 $ 2.56 $ 0.32 $ (1.53) 0.54 11.30 N/A N/A
EACO CORP $ 37.13 $ 1.77 $ (0.17) $ 3.44 0.69 High N/A High
ELXI CORP $ 98.11 $ 4.23 $ (0.05) $ 49.63 0.25 5.87 N/A 0.50
FAMOUS DAVE'S OF AMERICA INC $ 97.38 $ 8.94 $ 4.22 $ 47.86 0.79 8.58 18.17 1.60 size discount 25%
FLANIGAN'S ENTERPRISES INC $ 43.70 $ 2.14 $ 0.84 $ 10.15 0.32 6.59 N/A 1.39
FRIENDLY ICE CREAM CORP $ 573.70 $ 41.47 $ 19.13 $(103.34) 0.41 5.66 12.27 Low size discount 25%
FRISCH'S RESTAURANTS INC $ 139.36 $ 29.93 $ 19.02 $ 77.45 0.93 4.31 6.78 1.67 size discount 25%
GOOD TIMES RESTAURANTS $ 15.32 $ 0.37 $ (0.52) $ 3.39 0.61 N/A N/A 2.75
GRILL CONCEPTS INC $ 47.91 $ 1.64 $ 0.23 $ 6.54 0.23 N/A N/A 1.71
IHOP CORP $ 385.56 $102.94 $ 67.82 $ 344.54 High 8.32 12.64 2.49 size discount 25%
LUBY'S INC $ 297.85 $ 31.74 $ 11.80 $ 123.46 0.61 5.75 15.46 1.48 size discount 25%
MAIN STREET RESTAURANT GROUP $ 225.99 $ 14.16 $ 5.30 $ 29.97 0.26 4.08 N/A 1.93 size discount 25%
MAX & ERMAS RESTAURANTS INC $ 174.38 $ 12.07 $ 4.83 $ 14.05 0.34 4.87 N/A 4.18 size discount 25%
MEXICAN RESTAURANTS INC $ 68.93 $ 4.63 $ 2.47 $ 17.13 0.48 7.21 13.49 1.95
MORGAN'S FOODS INC $ 77.22 $ 6.57 $ 4.04 $ (3.56) 0.63 7.39 12.02 N/A
NATHAN'S FAMOUS INC $ 31.15 $ 5.06 $ 3.60 $ 18.22 1.01 6.23 8.76 1.73
PIZZA INN $ 58.85 $ 6.13 $ 3.93 $ 7.29 0.58 5.55 8.67 4.67
QUALITY DINING INC $ 222.18 $ 20.82 $ 10.30 $ 24.50 0.38 4.08 8.24 3.47 size discount 25%
RUBIO'S RESTAURANTS INC $ 128.06 $ 6.35 $ 0.62 $ 39.30 0.47 9.54 N/A 1.54 size discount 25%
SHELLS SEAFOOD $ 42.72 $ 1.17 $ 0.04 $ 2.10 Low N/A N/A 3.71
SIXX HOLDINGS INC $ 7.54 $ 0.67 $ 0.45 $ 1.37 0.70 7.89 11.84 3.85
STAR BUFFET INC $ 67.20 $ 5.43 $ 2.38 $ 20.26 0.40 4.97 11.36 1.33
STEAK N SHAKE $ 524.66 $ 74.07 $ 56.54 $ 203.64 0.90 6.35 8.32 2.31 size discount 25%
TOTAL ENTERTAINMENT REST. CORP $ 134.41 $ 14.47 $ 8.04 $ 52.07 0.58 5.40 9.73 1.50 size discount 25%
WESTERN SIZZLIN CORP $ 21.37 $ 2.38 $ 1.18 $ 10.69 0.57 5.15 10.39 1.15
WORLDWIDE RESTAURANT CONCEPTS $ 347.15 $ 24.36 $ 14.16 $ 61.83 0.29 5.43 9.34 1.60 size discount 25%
TEV/ TEV/ TEV/ TEV/
ALL COMPARABLE COMPANIES REVENUES EBITDA EBIT BOOK
--------------------------------------------------------------------
MEAN 0.54 6.34 11.05 2.02
HIGH 1.01 11.30 18.17 4.67
LOW 0.23 4.08 6.78 0.50
STANDARD DEVIATION (STD) 0.20 1.74 2.77 1.05
COEFFICIENT OF VARIATION (STD/MEAN) 37.0% 27.5% 25.0% 51.8%
ELMER'S REST. TTM RESULTS: $33.49 $ 3.15 $ 2.31 $ 9.62
ELMER'S RESTAURANTS TEV: $18.201 $19.942 $25.513 $19.457
WEIGHTING 33.3% 16.7% 16.7% 33.3% 100.0%
ELMER'S RESTAURANTS TEV: $20.128
LESS TOTAL DEBT AS OF MARCH 29, 2004 $(5.332)
LESS DEFERRED LONG TERM LIABILITY $(1.396)
ELMER'S RESTAURANTS EQUITY VALUE $13.400
LESS: COST OF OPTION EXERCISE: $(1.221)
ELMER'S RESTAURANTS EQUITY VALUE (POST-EXERCISE): $12.179
ELMER'S RESTAURANTS EQUITY VALUE PER SHARE $ 6.69
--------------------------------------------------------------------
ADDITIONAL INFORMATION
1. EBIT and EBITDA numbers exclude non-recurring charges
2. Certain calculated results were adjusted per Exhibit A
3. The high and low multiple in each category was eliminated to remove
outliers.
4. Deferred Income Tax Liability is treated like long term debt for Elmer's and
each Comparable Company
5. It was determined that the appropriate weightings for determing Elmer's TEV
would be 1/3 Revenue Multiple, 1/3 Book Value Multiple, and 1/3 for the
average earnings (i.e. EBIT and EBITDA) multiples.
B-2
EXHIBIT C
ELMER'S RESTAURANTS INC
TOTAL ENTERPRISE VALUE (TEV)
PUBLIC COMPANY TRANSACTION COMPARABLES
(DATA IN MILLIONS, EXCEPT PER SHARE DATA)
(TABLE CONTINUED AT COLUMN 7 ON PAGE C-2)
TRANSACTION TRANSACTION LONG-TERM DEFERRED
TARGET ACQUIROR DATE VAUE DEBT LT LIAB.
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
MORTON'S RESTAURANT CASTLE HARLAN INC 7/25/2002 $ 71.05 $ 100.90 $ -
SANTA BARBARA REST. GRP. CKE RESTARUANTS 3/1/2002 $ 72.39 $ 6.33 $ -
INTERFOODS OF AMERICA INTERFOODS ACQ. CORP 5/24/2002 $ 7.27 $ 96.12 $ 1.77
BLIMPIE INTERNATIONAL INVESTOR GROUP 1/24/2002 $ 25.81 $ - $ -
-----------------------------------------------------------------------------------------------
(TABLE CONTINUED AT COLUMN 7 ON PAGE C-2)
C-1
(TABLE CONTINUED FROM PAGE C-1)
TEV MULTIPLES:
----------------
LTM LTM LTM BOOK TEV/ TEV/
TEV REVENUES EBITDA EBIT VALUE REVENUES EBITDA
------------------------------------------------------------
------------------------------------------------------------
$ 171.95 $231.90 $18.50 $ 9.40 $ 4.23 0.56 6.97
$ 78.71 $127.00 $ 7.90 $ 1.80 $49.17 0.46 7.47
$ 105.16 $152.10 $16.37 $11.49 $ 4.65 0.52 4.82
$ 25.81 $ 30.10 $ 1.00 $ 0.10 $18.40 0.86 N/A
------------------------------------------------------------
----------------------------------------------------
TEV/ TEV/
ALL COMPARABLE COMPANIES: REVENUES EBITDA
MEAN 0.60 6.42
HIGH 0.86 7.47
LOW 0.46 4.82
STANDARD DEVIATION (STD) 0.18 1.41
COEFFICIENT OF VARIATION (STD/MEAN) 29.4% 22.0%
----------------------------------------------------
-------------------
ELMER'S REST. TTM RESULTS: $ 33.49 $ 3.15
-------------------
ELMER'S RESTAURANTS TEV: $20.070 $20.226
WEIGHTING 50.0% 50.0% 100.0%
----------------------------------------------------------------
ELMER'S RESTAURANTS TEV: $ 20.148
LESS TOTAL DEBT AS OF MARCH 29, 2004: $ (5.332)
LESS DEFERRED INCOME TAX LIABILITY $ (1.396)
ELMER'S RESTAURANTS EQUITY VALUE $ 13.420
LESS: COST OF OPTION EXERCISE: $ (1.221)
ELMER'S RESTAURANTS EQUITY VALUE (POST-EXERCISE): $ 12.199
ELMER'S RESTAURANTS EQUITY VALUE PER SHARE $ 6.70
----------------------------------------------------------------
ADDITIONAL INFORMATION
1. EBIT and EBITDA results exclude non-recurring charges
2. Certain calculated results were adjusted per Exhibit A
3. Deferred Income Tax Liability is treated like long term debt for Elmer's and
each Comparable Company
4. It was determined that the appropriate weightings for determing Elmer's TEV
would be 1/2 Revenue Multiple, and 1/2 for the EBITDA multiple.
C-2
EXHIBIT D
--------------------------------------------------------------------------------
ELMER'S RESTAURANTS INC
EBITDA RUN RATE (1)
(DATA IN MILLIONS)
--------------------------------------------------------------------------------
FY 2004 EBITDA AS REPORTED (2) 3.146
Expected Changes for FY 2005
Impact of lottery contract based on FY 2004 sales (0.430)
8% year over year increase in lottery sales 0.213
Franchise revenue 0.140
Springfield equipment operating lease expense 0.060
No Palm Springs EBITDA (net of franchise fees) (0.081)
-------
EBITDA RUN RATE 3.048
(1) Source: Purchaser Group
(2) Excludes Non-Recurring charges
(3) Does not include $0.266 million of reduced public company expenses
EXHIBIT (d)
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of December 20, 2004 (this
"Agreement"), is by and among ERI Acquisition Corp., an Oregon corporation (the
"Purchaser"), and each of the parties listed on Exhibit A hereto (each in his,
her or its individual capacity, a "Shareholder," and, collectively, the
"Shareholders").
WITNESSETH:
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Purchaser is commencing a cash tender offer (the "Offer") to
purchase all of the outstanding shares of common stock (the "Company Shares") of
Elmer's Restaurants, Inc., an Oregon corporation (the "Company"), not owned by
the Shareholders, at a price of $7.50 per share, and contemplating the prompt
subsequent merger of the Purchaser with and into the Company (the "Merger")
pursuant to a "short form" merger permitted under Oregon Business Corporation
Act Section 60.491;
WHEREAS, as of the date hereof, each Shareholder owns, beneficially and
of record the number of shares of capital stock of the Company set forth beside
such Shareholder's name on Exhibit A (all such Company Shares, together with any
additional Company Shares which may hereafter be acquired by such Shareholder
prior to the termination of this Agreement, whether upon the exercise of options
or by means of purchase, dividend, distribution or otherwise, being referred to
herein as the "Owned Shares");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Purchaser and each Shareholder hereby agree as follows:
ARTICLE I
COVENANTS OF THE SHAREHOLDERS
Section 1.1 No Inconsistent Arrangements. Except as
contemplated by this Agreement, the Offer and the Merger, no Shareholder shall
during the term (i) transfer (which term shall include, without limitation, any
sale, assignment, gift, pledge, hypothecation or other disposition), or consent
to any transfer of, any or all of the Owned Shares or any interest therein, or
create or permit to exist any Encumbrance (as defined in Section 3.3 hereof) of
such Owned Shares, (ii) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of the Owned Shares or
any interest therein, (iii) grant any proxy, power-of-attorney or other
authorization in or with respect to the Owned Shares, (iv) deposit the Owned
Shares into a voting trust or enter into a voting agreement or arrangement with
respect to the Owned Shares, or (v) take any other action that would in any way
restrict, limit or interfere with the performance of its obligations hereunder
or the transactions contemplated hereby.
Section 1.2 Waiver of Dissenters' Rights. Each
Shareholder hereby waives any rights to dissent from the Merger.
Section 1.3 Stop Transfer. No Shareholder shall request
that the Company register the transfer of any certificate or uncertificated
interest representing any of the Owned Shares, unless such transfer is made in
compliance with this Agreement.
Section 1.4 No Tender. No Shareholder shall tender any
of his, her or its Owned Shares in the Offer.
Section 1.5 Indemnity. The representations, warranties
and agreements made by each Shareholder herein shall survive the closing of this
Exchange (as defined in Section 2.1) as anticipated hereby. Each Shareholder
hereby agrees to indemnify and hold harmless the Purchaser from and against any
and all loss, liability, claim, damage and expense (including, without
limitation, attorney's fees and disbursements) suffered or incurred as a result
of a misrepresentation or breach of any warranty or agreement made by such
Shareholder in this Agreement.
Section 1.6 Shareholder Agreement; Other Agreements.
Each Shareholder shall execute and deliver to the Purchaser a Shareholder
Agreement, substantially in the form attached hereto as Exhibit C (the
"Shareholder Agreement"). In addition, each Shareholder agrees to execute and
deliver to the Purchaser all such other agreements, documents, consents and
instruments, in such form or forms satisfactory to Purchaser and its legal
counsel, as the Purchaser deems reasonably necessary or appropriate to effect
the Offer and the Merger.
ARTICLE II
EXCHANGE OF OWNED SHARES
Section 2.1 Exchange. The equity capitalization of the
Purchaser immediately following the Exchange (as defined below) shall be as set
forth on Exhibit B hereto (the "Purchaser Equity Schedule"). Each Shareholder
shall, effective as of the satisfaction or waiver of all conditions to the
exchange such Shareholder's Owned Shares for newly-issued shares of capital
stock of the Purchaser (the "Purchaser Shares") consistent with the Purchaser
Equity Schedule (the "Exchange").
Section 2.2 Certain Warranties. The transfer by the
Shareholders of the Owned Shares to the Purchaser pursuant to this Agreement
shall pass to and unconditionally vest in the Purchaser good and valid title to
the Owned Shares, free and clear of all Encumbrances whatsoever.
Section 2.3 Disclosure. Each Shareholder hereby
authorizes the Purchaser to publish and disclose in the Offer documents
(including all documents and schedules filed with the SEC), such Shareholder's
identity and ownership of the Owned Shares and the nature of its commitments,
arrangements and understandings under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
By executing this Agreement, each Shareholder makes the following
representations, declarations and warranties to the Purchaser, with the intent
and understanding that the Purchaser will rely thereon:
Section 3.1 Due Authorization; Enforceability. Such
Shareholder has all requisite power and authority to execute, deliver and
perform this Agreement, to appoint the Purchaser as its proxy and to consummate
the transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of such Shareholder.
This Agreement has been duly executed and delivered by or on behalf of such
Shareholder and constitutes a legal, valid and binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with its terms.
Section 3.2 No Conflicts; Required Filings and Consents.
(a) Except as would not impair or delay the
ability of such Shareholder to consummate the transactions contemplated hereby,
the execution and delivery of this Agreement by such Shareholder does not, and
the performance of this Agreement by such Shareholder will not, (i) subject to
the filings referred to in Section 3.2(c), conflict with or violate any law
applicable to such Shareholder or by which such Shareholder or any of such
Shareholder's assets is bound or affected or (ii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
acceleration or cancellation of, or result in the creation of an Encumbrance on
any assets of such Shareholder, including, without limitation, the Owned Shares,
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which such
Shareholder is a party or by which such Shareholder or any of such Shareholder's
assets is bound or affected.
(b) Except as would not impair or delay the
ability of such Shareholder to consummate the transactions contemplated hereby,
the execution and delivery of this Agreement by such
2
Shareholder does not, and the performance of this Agreement by such Shareholder
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority (other than
any necessary filing under the Securities Exchange Act of 1934, as amended).
Section 3.3 Title to Owned Shares. Except as disclosed
to the Purchaser in writing by such Shareholder, such Shareholder is the sole
record and beneficial owner of the Owned Shares, free and clear of any pledge,
lien, security interest, mortgage, charge, claim, equity, option, proxy, voting
restriction, voting trust or agreement, understanding, arrangement, right of
first refusal, limitation on disposition, adverse claim of ownership or use or
encumbrance of any kind (collectively, "Encumbrances"), except for Encumbrances
or proxies arising pursuant to this Agreement. As of the date hereof, the Owned
Shares listed on Exhibit A beside such Shareholder's name under the caption
"Shares Beneficially Owned" are the only Company Shares, together with any
additional Company Shares which may hereafter be acquired by such Shareholder
prior to the termination of this Agreement, whether upon the exercise of options
or by means of purchase, dividend, distribution or otherwise, owned of record or
beneficially by such Shareholder.
Section 3.4 No Finder's Fees. No broker, investment
banker, financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
such Shareholder. Such Shareholder, on behalf of itself and its affiliates,
hereby acknowledges that it is not entitled to receive any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated hereby. Such Shareholder agrees and acknowledges that
the Exchange is being made without an underwriter or placement agent who would
have responsibilities to any of the Shareholders, and accordingly, such
Shareholder agrees and acknowledges such Shareholder's sole responsibility for a
"due diligence" investigation of the Purchaser.
Section 3.5 Investment Intent.
(a) SUCH SHAREHOLDER IS AN "ACCREDITED INVESTOR"
AS THAT TERM IS DEFINED IN REGULATION D OF THE ACT. SUCH SHAREHOLDER UNDERSTANDS
THAT SUCH SHAREHOLDER MUST BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE
PURCHASER SHARES FOR AN INDEFINITE PERIOD. SUCH SHAREHOLDER IS INVESTING IN THE
PURCHASER SHARES FOR SUCH SHAREHOLDER'S OWN ACCOUNT AS PRINCIPAL FOR INVESTMENT
AND NOT WITH A VIEW TOWARD RESALE OR DISTRIBUTION.
(b) The Shareholder has been advised and is
aware that: (i) there is no public market for the Purchaser Shares and it is not
likely that any public market will develop; and (ii) the Purchaser Shares have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state or other jurisdiction
and, therefore, cannot be sold except in compliance with such laws. Such
Shareholder agrees not to sell or otherwise dispose of the Purchaser Shares
acquired by such Shareholder unless the Purchaser Shares are subsequently
registered under the Securities Act and such state securities laws as are
applicable or unless there are available exemptions from such registration that
are supported by an opinion of counsel for such Shareholder, which opinion is
satisfactory in form and substance to the Company. Such Shareholder has no
present arrangement, understanding or agreement for transferring or disposing of
any or all shares of the Purchaser. Such Shareholder agrees that a legend to the
foregoing effect may be placed upon any and all certificates representing shares
of the Purchaser.
(c) Shareholder hereby agrees to cooperate with
the Purchaser in all of its efforts to comply with any applicable federal, state
or local statutes and regulations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to each Shareholder as
follows:
Section 4.1 Due Organization; Authorization;
Enforceability. The Purchaser is duly organized, validly existing and in good
standing under the laws of the State of Oregon. The Purchaser has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions
3
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by the Purchaser have been
duly authorized by all necessary corporate action on the part of the Purchaser.
This Agreement has been duly executed and delivered by the Purchaser and
constitutes a legal, valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms.
Section 4.2 Investment Intent. The Purchaser will be
acquiring the Owned Shares pursuant to the Exchange for its own account and not
with a view to distribution or resale in any manner which would be in violation
of the Securities Act.
ARTICLE V
MISCELLANEOUS
Section 5.1 Termination. This Agreement shall terminate
and be of no further force and effect: (i) upon the written mutual consent of
the parties hereto; (ii) automatically and without any required action of the
parties hereto upon the withdrawal of the Offer; (iii) if at least a majority of
the outstanding Company Shares, excluding the Owned Shares of Shareholders and
Company Shares owned by any executive officers of the Company not listed on
Exhibit A, fail to be tendered in the Offer; and (iv) if the Purchaser fails to
acquire a sufficient number of Company Shares, such that, after Company Shares
are purchased pursuant to the Offer, the Purchaser would own at least 90% of the
outstanding Company Shares. No such termination of this Agreement shall relieve
any party hereto from any liability for any breach of this Agreement prior to
termination.
Section 5.2 Further Assurance. From time to time, at
another party's request and without additional consideration, each party hereto
shall execute and deliver such additional documents and take all such further
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
Section 5.3 Specific Performance. Each Shareholder
acknowledges that if such Shareholder fails to perform any of its obligations
under this Agreement, immediate and irreparable harm or injury would be caused
to the Purchaser for which money damages would not be an adequate remedy. In
such event, each Shareholder agrees that the Purchaser shall have the right, in
addition to any other rights that it may have, to specific performance of this
Agreement. Accordingly, if the Purchaser should institute an action or
proceeding seeking specific enforcement of the provisions hereof, each
Shareholder hereby waives the claim or defense that the Purchaser has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. Each
Shareholder further agrees to waive any requirements for the securing or posting
of any bond in connection with obtaining any such equitable relief.
Section 5.4 Notice. All notices, requests, claims
demands and other communications under this Agreement shall be in writing and
shall be deemed given if delivered personally or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) If to the Purchaser:
ERI Acquisition Corp.
c/o Lane Powell Spears Lubersky LLP
601 SW Second Avenue, Suite 2100
Portland, OR 97204-3158
Attn: Jeffrey C. Wolfstone Esq.
(b) If to a Shareholder:
To the appropriate address shown on Exhibit A.
Section 5.5 Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
4
Section 5.6 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any rule
of law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the maximum
extent possible.
Section 5.7 Entire Agreement; No Third-Party
Beneficiaries. This Agreement constitutes the entire agreement among the parties
hereto and supersedes all other prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement, and this Agreement is not intended to confer upon any person, other
than the parties hereto, any rights or remedies.
Section 5.8 Assignment. Neither this Agreement nor any
of the rights, interests or obligations under this Agreement may be assigned or
delegated, in whole or in part by any of the parties, other than by operation of
law; provided, however, that the Purchaser may assign, in its sole discretion,
its rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of the Purchaser, but no such assignment shall relieve the Purchaser
of its obligations hereunder if such assignee does not perform such obligations.
Each Shareholder agrees that this Agreement and such Shareholder's obligations
hereunder shall attach to the Owned Shares and shall be binding upon any person
or entity to which legal or beneficial ownership of the Owned Shares shall pass
by operation of law.
Section 5.9 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Oregon,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Each of the parties hereto (a) hereby irrevocably
and unconditionally consents to submit to the personal jurisdiction of the
courts of the State of Oregon and of the United States of America located in the
State of Oregon in the event any dispute arises out of this Agreement or any of
the transactions contemplated by this Agreement, (b) shall not object to or
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, and (c) shall not bring any action relating to
this Agreement or any of the transactions contemplated by this Agreement in any
other court.
Section 5.10 WAIVER OF JURY TRIAL. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 5.11 Amendment. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 5.12 Waiver. Any party hereto may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and warranties
of the other parties hereto contained herein or in any document delivered
pursuant hereto and (c) waive compliance by the other parties hereto with any of
their agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only as against such
party and only if set forth in an instrument in writing signed by such party.
The failure of any party hereto to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of those rights.
Section 5.13 Counterparts. This Agreement may be executed
in one or more counterparts, all of which shall be considered one and the same
instrument and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
[SIGNATURE PAGE FOLLOWS]
5
IN WITNESS WHEREOF, the parties have executed this Exchange Agreement
as of the date first above written.
PURCHASER
ERI ACQUISITION CORP.
By: /s/ BRUCE N. DAVIS
----------------------------------------
Name: Bruce N. Davis
Title: President
[Additional Signatures Follow]
6
SHAREHOLDERS
/s/ BRUCE N. DAVIS
------------------------------------------
Bruce N. Davis
/s/ LINDA ELLIS-BOLTON
------------------------------------------
Linda Ellis-Bolton
/s/ KAREN K. BROOKS
------------------------------------------
Karen K. Brooks
/s/ RICHARD P. BUCKLEY
------------------------------------------
Richard P. Buckley
/s/ THOMAS C. CONNOR
------------------------------------------
Thomas C. Connor
/s/ DAVID D. CONNOR
------------------------------------------
David D. Connor
/s/ STEPHANIE M. CONNOR
------------------------------------------
Stephanie M. Connor
/s/ CORYDON H. JENSEN, JR.
------------------------------------------
Corydon H. Jensen, Jr.
/s/ DEBORAH A. WOOLLEY-LEE
------------------------------------------
Deborah A. Woolley-Lee
/s/ DOUGLAS A. LEE
------------------------------------------
Douglas A. Lee
/s/ DAVID C. MANN
------------------------------------------
David C. Mann
/s/ SHEILA J. SCHWARTZ
------------------------------------------
Sheila J. Schwartz
/s/ GERALD A. SCOTT
------------------------------------------
Gerald A. Scott
/s/ WILLIAM W. SERVICE
------------------------------------------
William W. Service
/s/ DENNIS M. WALDRON
------------------------------------------
Dennis M. Waldron
/s/ GARY N. WEEKS
------------------------------------------
Gary N. Weeks
7
/s/ GREGORY W. WENDT
------------------------------------------
Greg W. Wendt
/s/ RICHARD C. WILLIAMS
------------------------------------------
Richard C. Williams
/s/ DOLLY W. WOOLLEY
------------------------------------------
Dolly W. Woolley
/s/ DONALD W. WOOLLEY
------------------------------------------
Donald W. Woolley
/s/ DONNA P. WOOLLEY
------------------------------------------
Donna P. Woolley
8
EXHIBIT A
LIST OF OWNED SHARES
Name and Address of
Continuing Shareholder Shares Beneficially Owned
----------------------------------------- -------------------------
Linda Ellis-Bolton 84,847
125 Tom Morris Lane,
Enterprise, Alabama 36330
Karen K. Brooks 91,062
700 Delany Woods,
Nicholasville, Kentucky 40356
Richard P. Buckley 84,278
14450 Quaker Hill Cross Road,
Nevada City, California 95959
David D. Connor 78,423
c/o Franklin Holdings, LLC,
1399 Franklin Boulevard,
Eugene, Oregon 97403
Stephanie M. Connor 39,212
c/o Franklin Holdings, LLC,
1399 Franklin Boulevard,
Eugene, Oregon 97403
Thomas C. Connor 55,688
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
Bruce N. Davis 145,603
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
Corydon H. Jensen 101,323
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
Douglas A. Lee 16,595
c/o Franklin Holdings, LLC,
1399 Franklin Boulevard,
Eugene, Oregon 97403
Debra A. Woolley-Lee 16,594
c/o Franklin Holdings, LLC,
1399 Franklin Boulevard,
Eugene, Oregon 97403
David C. Mann 89,062
1980 Indian Trail,
Lake Oswego, Oregon 97034
Sheila J. Schwartz 84,847
2390 Lariat Dr.,
Eugene, Oregon 97405
Gerald A. Scott 40,804
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
William W. Service 148,992
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
Dennis M. Waldron 2,000
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
Gary N. Weeks 108,421
12966 Pinewoods Road,
Nevada City, California 95959
Gregory W. Wendt 5,000
1 Muir Loop,
San Francisco, California 94129
Richard C. Williams 34,092
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
Dolly W. Woolley 39,212
c/o Franklin Holdings, LLC,
1399 Franklin Boulevard,
Eugene, Oregon 97403
Donald W. Woolley 55,687
c/o Elmer's Restaurant, Inc.,
11802 S.E. Stark Street,
Portland, Oregon 97216
Donna P. Woolley 15,685
c/o Franklin Holdings, LLC,
1399 Franklin Boulevard,
Eugene, Oregon 97403
EXHIBIT B
PURCHASER EQUITY SCHEDULE
NAME OF SHAREHOLDER NUMBER OF SHARES NUMBER OF VESTED OPTIONS
--------------------- ------------------ --------------------------
Linda Ellis-Bolton 84,847 --
Karen K. Brooks 91,062 --
Richard P. Buckley 84,278 --
David D. Connor 78,423 --
Stephanie M. Connor 39,212 --
Thomas C. Connor 39,212 16,476
Bruce N. Davis 66,774 78,829
Corydon H. Jensen 84,847 16,476
Douglas A. Lee 16,595 --
Debra A. Woolley-Lee 16,595 --
David C. Mann 89,062 --
Sheila J. Schwartz 84,847 --
Gerald A. Scott 15,683 25,121
William W. Service 69,763 79,229
Dennis M. Waldron -- 2,000
Gary N. Weeks 108,421 --
Gregory W. Wendt 5,000 --
Richard C. Williams 17,616 16,476
Dolly W. Woolley 39,212 --
Donald W. Woolley 39,212 16,476
Donna P. Woolley 15,685 --