To: All
Former Managing Partners and Chef Partners
From: Joe
Kadow
Subject: Treatment
of Buy-out Stock Options in the Acquisition
Date: January
24, 2007
As
you may know, OSI Restaurant
Partners, Inc. (the “Company”) has entered into a definitive merger agreement to
be acquired by an investor group comprised of investment funds sponsored
by Bain
Capital Partners, LLC (“Bain Capital”), investment funds managed by Catterton
Management Company LLC (“Catterton Partners“), Company founders Chris Sullivan,
Bob Basham and Tim Gannon and certain other persons, for $40.00 per share
in
cash. We will be contacting you with additional information regarding the
transaction over the next several months. As an initial matter, however,
we wanted to let you know how the proposed transaction would impact your
outstanding “buy-out options,” meaning stock options granted to you upon
completion of your employment contract. The following is, of course,
subject to the closing of the proposed transaction.
The
following is only a general summary of the treatment of buy-out options
in the
acquisition. The following is qualified by and subject to all terms,
provisions
and conditions of the definitive merger agreement. Definitive materials
will be
sent to you as the acquisition progresses.
To
understand the treatment of buy-out stock options in the acquisition,
you need a
brief overview of our Partner Equity Plan (“PEP”). The PEP was introduced in
2006 and replaced the use of stock options for Managing Partner and Chef
Partner
buy-outs.
Instead
of stock options, upon completion of a term of employment Managing Partners
and
Chef Partners now receive a credit under a deferred compensation account
(the
PEP). The basis for calculating the PEP credit is generally the same
as it was
for calculating buy-out options - the Managing Partner/Chef Partner’s cash
distributions for the last 24 months divided by 2. To determine the amount
of
the PEP credit, this amount is then multiplied by 3. For example, in
the case of
a Managing Partner whose cash distributions for the last 24 months were
$100,000, the Managing Partner would receive a credit under the PEP of
$150,000
($100,000 divided by 2 equals $50,000; $50,000 x 3 = $150,000), subject
to
offset for applicable FICA taxes as described below.
The
credit under the PEP is not subject to federal income tax and the earnings
on
the PEP credit grow tax free until distributed to the Managing Partner/Chef
Partner. Distributions are subject to federal income tax. Amounts credited
under
the PEP are, however, subject to FICA tax at the time of the credit.
The Company
pays such FICA tax and reduces the amount of any PEP credit by the amount
of
such FICA tax.
The
credit under the PEP can be invested in a variety of diversified stock
or bond
funds. Amounts credited to the account of a Managing Partner/Chef Partner
under
a PEP account is
distributed
to the Managing Partner/Chef Partner as follows: 25% after 5 years from
completion of the contract, 1/3 of the remaining balance after 7 years
and the
balance after 10 years.
This
is a
brief overview of the PEP (or any separate but substantially identical
plan
established for the benefit of former Managing Partners and Chef Partners
in
connection with the acquisition) and a more detailed description will
be
provided as the transaction progresses.
TREATMENT
OF BUY-OUT STOCK OPTIONS IN THE ACQUISITION.
The
following will apply to all “buy-out” stock options. If you received more than
one grant of buy-out options, the calculations below will be applied
separately
to each grant of buy-out options:
| 1. |
Pursuant
to the terms of our stock option plans, each outstanding buy-out
option
will, at the effective time of the acquisition, be converted
into the
right to receive an amount of cash equal to the number of shares
represented by that buy-out option times the excess (if any)
of $40 over
the exercise price per share (less required tax withholding).
You will
receive this cash amount as soon as practicable after closing
of the
acquisition (anticipated to be in March or April of
2007).
|
Example:
If you
have 14,000 buy-out options with an exercise price of $35.00 per share,
you will
receive a cash payment of $70,000 (14,000 x {$40-$35}). Of course, the
amount of
cash you receive will be reduced by all required tax withholding.
If
the
amount you will receive under 1 above plus the amount you have received
in the
past on any prior exercise of part of that buy-out option (prior to any
reduction for applicable tax withholding) is less than the amounts you
would
have received as a credit under the PEP (calculated as if the PEP was
in place
when you earned the buy-out options), you will receive a Supplemental
PEP
Contribution equal to the difference. Of course, if the amount you receive
under
1 above plus the amount you have received on any prior exercises of that
buy-out
option (ignoring any tax withholding) exceeds the amounts that would
have been
credited to your account under the PEP, you will not receive a Supplemental
PEP
Contribution.
| 2. |
The
Supplemental PEP Contribution will be put into the PEP (or a
separate but
substantially identical plan established for the benefit of former
Managing Partners and Chef Partners in connection with the acquisition)
and will be subject to the applicable terms of the PEP (or such
substantially identical plan), including the distribution schedule
under
the PEP. Receipt of the Supplemental PEP Contribution is contingent
upon
execution of an award agreement that will be provided to you
separately
and will set forth the details of your Supplemental PEP Contribution
(if
any) and provide for you to release all claims regarding your
buy-out
options.
|
Example:
Assume
a Managing Partner completed a contract and had distributions over the
prior 24
months totaling $100,000. The PEP
Merger
- Memo to Former MP Final
contribution
would have been $150,000 ($100,000 divided by 2 = $50,000. $50,000 x
3 =
$150,000). Assume the same example as in 1 above (14,000 options at $35.00
per
share exercise price) and no prior exercises. That Managing Partner will
receive
a cash payment of $70,000 as soon as practicable following closing of
the
acquisition under 1 above. That Managing Partner will also receive a
Supplemental PEP Contribution of $80,000 ($150,000 - $70,000).
Please
note that this memo is not intended to communicate with you about any
other
matter concerning the transaction. We expect to be communicating with
you over
the next several months concerning other aspects of the
transaction.
Forward-Looking
Statements
This
document includes statements that do not directly or exclusively relate
to
historical facts. Such statements are "forward-looking statements" within
the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the
Securities Exchange Act of 1934. These forward-looking statements include
statements regarding benefits of the proposed transaction, future performance,
financing for the transaction and the completion of the transaction.
These
statements are based on the current expectations of management of OSI
Restaurant
Partners. There are a number of risks and uncertainties that could cause
actual
results to differ materially from the forward-looking statements included
in
this document. For example, among other things, (1) OSI Restaurant Partners
may
be unable to obtain the shareholder approval required for the transaction;
(2)
OSI Restaurant Partners may be unable to obtain the regulatory approvals
required for the transaction, or required regulatory approvals may delay
the
transaction or result in the imposition of conditions that could have
a material
adverse effect on OSI Restaurant Partners or cause the parties to abandon
the
transaction; (3) conditions to the closing of the transaction may not
be
satisfied; (4) the transaction may involve unexpected costs, unexpected
liabilities or unexpected delays; (5) the businesses of OSI Restaurant
Partners
may suffer as a result of uncertainty surrounding the transaction; (6)
the
financing required for Bain Capital and Catterton Partners to complete
the
transaction may be delayed or may not be available and (7) OSI Restaurant
Partners may be adversely affected by other economic, business, and/or
competitive factors. Additional factors that may affect the future results
of
OSI Restaurant Partners are set forth in its filings with the Securities
and
Exchange Commission ("SEC"), which are available at http://www.sec.gov.
Unless
required by law, OSI Restaurant Partners undertakes no obligation to
publicly
update or revise any forward-looking statements, whether as a result
of new
information, future events or otherwise.
Additional
Information and Where to Find It
In
connection with the proposed transaction, a proxy statement of OSI Restaurant
Partners and other materials will be filed with the SEC. WE
URGE INVESTORS TO READ THE PROXY STATEMENT AND THESE OTHER MATERIALS
CAREFULLY
WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT
OSI RESTAURANT PARTNERS AND THE PROPOSED TRANSACTION.
Investors
will be able to obtain free copies of the proxy statement (when available)
as
well as other filed documents containing information about OSI Restaurant
Partners
Merger
- Memo to Former MP Final
at
http://www.sec.gov, the SEC’s free internet site. Free copies of OSI Restaurant
Partners’ SEC filings are also available on OSI Restaurant Partners’ internet
site at http://www.osirestaurantpartners.com.
Participants
in the Solicitation
OSI
Restaurant Partners and its executive officers and directors may be deemed,
under SEC rules, to be participants in the solicitation of proxies from
OSI
Restaurant Partners’ stockholders with respect to the proposed transaction.
Information regarding the officers and directors of OSI Restaurant Partners
is
included in its definitive proxy statement for its 2006 annual meeting
filed
with the SEC on March 30, 2006. More detailed information regarding the
identity
of potential participants, and their direct or indirect interests, by
securities, holdings or otherwise, will be set forth in the proxy statement
and
other materials to be filed with SEC in connection with the proposed
transaction.
IRS
Circular 230 Notice
To
ensure
compliance with requirements imposed by the IRS, we inform you that any
U.S. tax
advice contained in this communication is not intended or written to
be used,
and cannot be used by any taxpayer, for the purpose of avoiding U.S.
tax
penalties.
101560409.1,
JVPMPCP memo--final
23120,
00002, 101603899.1
Merger
-
Memo to Former MP Final
4