Item 8.01
Other Events
This Current Report on Form
8-K is being filed by the Company in connection with a Memorandum of
Understanding (the “Memorandum of Understanding”) regarding the settlement of
certain litigation relating to the previously announced definitive Agreement and
Plan of Merger (the “merger agreement”), dated as of May 8, 2016, by and among
the Company, Cotton Parent, Inc., a Delaware corporation (“Parent”), Cotton
Merger Sub Inc., a North Carolina corporation and wholly owned subsidiary of
Parent (“Merger Sub”), and JAB Holdings B.V., a Dutch
Besloten Vennootschap met beperkte
aansprakelijkheid
(private
company with limited liability) (“JAB Holdings”). Pursuant to the merger
agreement and subject to the satisfaction or waiver of the conditions set forth
therein, Merger Sub will be merged with and into the Company, with the Company
continuing as the surviving company and a wholly owned subsidiary of Parent (the
“merger”).
Transaction Litigation
Settlement
As previously disclosed in the company’s definitive merger
proxy statement filed with the Securities and Exchange Commission (the “SEC”) on June 24, 2016 (as amended
or supplemented from time to time, the “proxy statement”), six putative class action complaints challenging
the merger were filed between May 26, 2016 and June 16, 2016, including five in North Carolina Superior Court and one in
the United States District Court for the Middle District of North Carolina. Subsequent to the filing of the proxy
statement, on July 8, 2016 Jonnie Lomax and Harold Lomax, purported shareholders of the Company, filed a putative class
action complaint, challenging the merger, in the United States District Court for the Middle District of North Carolina
(together with the six previously disclosed lawsuits, the “Actions”). The complaint names the Company and its
directors as defendants and alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule
14a-9 promulgated thereunder in connection with the merger. In addition, the five actions in North Carolina Superior Court
were consolidated into a single litigation pending before the Honorable James L. Gale of the North Carolina Business Court
(the “Court”) on July 11, 2016, and plaintiffs in this consolidated litigation filed a motion to preliminarily enjoin the merger on
July 14, 2016.
Plaintiffs and defendants in the Actions have reached an agreement in principle to settle the Actions and release the defendants from all claims relating to the merger, subject to approval of the Court. Defendants continue to believe that the Actions are without merit and that no further disclosure is required to
supplement the proxy statement under applicable laws; however, to eliminate the
burden, expense and uncertainties inherent in litigation, and without
admitting any liability or wrongdoing, the Company has agreed, pursuant to the
terms of a Memorandum of Understanding, to make certain supplemental
disclosures to the proxy statement as set forth below. Nothing in these
supplemental disclosures shall be deemed an admission of the legal necessity or
materiality under applicable laws of any of the disclosures set forth herein. Defendants have vigorously denied, and continue to vigorously deny, that they have committed any violation of law or engaged in any of the wrongful acts that were alleged in these Actions.
Supplements to the Proxy
Statement
The supplemental disclosures
to the proxy statement set forth in this Current Report on Form 8-K below should
be read alongside the proxy statement, and to the extent that information in
this Current Report on Form 8-K differs from or updates information contained in
the proxy statement, this Current Report on Form 8-K is more current. Defined
terms used but not otherwise defined herein have the meanings set forth in the
proxy statement.
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1.
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The section of the
proxy statement titled “Background of the Merger” is hereby supplemented
as follows:
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A.
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The last
paragraph on page 24 (continuing on to page 25) of the proxy statement is
replaced in its entirety as follows:
On November 23, 2015, the
board held a special meeting by telephone to discuss JAB Holdings’
indication of interest. Representatives of management were also in
attendance. Messrs. Morgan and Thompson conveyed the background of their
discussions with JAB Holdings and explained JAB Holdings’ interest in
acquiring the Company at a price of $18.75 per share in cash. The
Company’s Interim General Counsel, Steven Ellcessor, then advised the
board of its fiduciary duties under North Carolina law in considering an
acquisition proposal. The board discussed the indication of interest, the
background and history of JAB Holdings (including that it has a history of
managing its portfolio companies for long-term growth and relying on
company management to run the business), and the possible valuation of the
Company in a potential sale transaction. The board determined that it
needed more updated information regarding the revised strategic plan on
which the management of the Company had been working over the past several
months in order to appropriately assess JAB Holdings’ indication of
interest. In that regard, the board decided to engage a financial advisor
in connection with a possible sale or other strategic transaction
involving the
Company.
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B.
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The second
(2
nd
) full paragraph on page 26 of the proxy
statement is replaced in its entirety as
follows:
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In January 2016, Mr.
Thompson received a telephone call from a representative of a private
equity firm that expressed interest in learning more about the Company.
Mr. Thompson brought this conversation to the attention of Mr. Morgan and
other members of the board. Consistent with previous direction from the
board, on February 9, 2016 Messrs. Thompson and Cooper met with a
representative of the private equity firm, but the firm did not make any
proposals regarding potential transactions or relationships. Mr. Thompson
was invited by a representative of the private equity firm to visit the
firm’s offices to meet with other representatives of the firm for them to
learn more about the Company’s business. That meeting took place on
February 29, 2016. The scope of the meeting was a general business
overview of the Company, and the firm did not follow up with the Company
with a written or oral proposal to engage in a transaction with the
Company.
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2.
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The section of the
proxy statement titled “Opinion of Wells Fargo Securities LLC” is hereby
supplemented as follows:
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A.
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The caption “The
selected companies and mean, median, high and low of such financial data
for the selected companies were:” and the list of companies and table on
page 41 are replaced in their entirety as
follows:
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The selected companies and corresponding multiples
were:
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Enterprise Value / EBITDA
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Share Price / EPS
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CY
2016E
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CY
2017P
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CY
2016E
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CY
2017P
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Dunkin’ Brands Group, Inc.
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14.3x
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13.5x
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20.8x
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18.8x
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Panera Bread Company
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13.1x
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11.7x
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31.5x
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26.9x
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The
Wendy’s Company
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13.1x
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13.3x
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30.4x
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26.6x
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Jack
in the Box Inc.
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9.8x
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9.6x
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18.4x
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16.9x
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Papa
John’s International Inc.
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13.6x
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12.6x
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24.8x
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22.2x
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Sonic Corp.
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11.9x
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11.5x
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24.0x
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21.3x
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Popeyes Louisiana Kitchen, Inc.
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14.3x
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12.9x
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24.7x
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20.9x
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Bojangles’, Inc.
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10.8x
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9.6x
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19.9x
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17.5x
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The mean, median, high and low
of such financial data for the selected companies were:
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Enterprise Value /
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Mean
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Median
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High
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Low
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CY
2016E EBITDA
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12.6x
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13.1x
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14.3x
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9.8x
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CY
2017P EBITDA
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11.8x
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12.2x
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13.5x
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9.6x
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Share Price /
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CY
2016E EPS
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24.3x
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24.4x
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31.5x
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18.4x
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CY
2017P EPS
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21.4x
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21.1x
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26.9x
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16.9x
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B.
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The caption “The
selected transactions and mean, median, high and low of such financial
data for the selected transactions were:” and the table on page 42 are
replaced in their entirety as follows:
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The selected transactions and
corresponding multiples were:
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Closed
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Enterprise Value /
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Date
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Target
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Acquiror
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LTM Adjusted
EBITDA
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6/2015
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Del
Taco Restaurants, Inc.
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Levy
Acquisition Corp
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8.5x
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12/2014
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Tim
Hortons Inc.
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Burger King Worldwide, Inc.
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15.7x
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11/2014
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Einstein Noah Restaurant Group, Inc.
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JAB
Holding Company
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10.1x
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1/2013
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Caribou Coffee Company, Inc.
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JAB
Holding Company
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11.3x
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12/2012
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Teavana Holdings, Inc.
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Starbucks Corporation
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17.4x
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10/2012
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Peet’s Coffee & Tea, Inc.
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JAB
Holding Company
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21.3x
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7/2012
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PF
Chang’s China Bistro, Inc.
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Centerbridge Partners
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8.4x
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7/2011
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California Pizza Kitchen, Inc.
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Golden Gate Capital
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7.6x
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7/2011
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Arby’s Restaurant Group, Inc.
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Roark Capital
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6.6x
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10/2010
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Burger King Worldwide, Inc.
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3G
Capital
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8.9x
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7/2010
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CKE
Restaurants Inc.
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Apollo Global Management
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6.5x
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4
The mean, median, high and low
of such financial data for the selected transactions were:
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Enterprise Value
/
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Mean
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Median
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High
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Low
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LTM
Adjusted EBITDA
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11.1x
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8.9x
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21.3x
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6.5x
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C.
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The paragraph under the caption “Discounted
Cash Flow Analysis” on page 42 of the proxy statement is replaced in its
entirety as follows:
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Wells Fargo Securities performed a discounted cash flow analysis of the Company by calculating the estimated net present value of the projected unlevered, after-tax free cash flows of the Company for the nine months ending January 31, 2017 and the Fiscal Years 2018 through 2023, as derived from the financial projections prepared and provided to Wells Fargo Securities by management of the Company and as presented in the following table:
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Nine
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Months
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Fiscal Year
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Ending
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January 31,
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2017
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2018
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2019
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2020
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2021
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2022
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2023
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Unlevered Free
Cash Flow (1)
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$31.2
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$61.3
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$76.7
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$52.3
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$60.4
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$69.2
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$78.5
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____________________
(1) Unlevered free cash flow represents tax-effected EBIT (including the projected gain from the 51 stores to be sold to franchisees in FY 2019), plus depreciation and amortization, less capital expenditures and change in net working capital.
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For purposes of the discounted cash flow analyses, Wells Fargo Securities applied perpetuity growth rates ranging from 2.0% to 4.0% and discount rates ranging from 9.0% to 10.0%. The range of perpetuity growth rates was selected based on publicly available estimates of projected GDP growth rates and Wells Fargo Securities' professional experience and judgment, and the range of discount rates was determined based on an application of the capital asset pricing model and Wells Fargo Securities' experience and professional judgment. The discounted cash flow analysis indicated an implied valuation reference range per share of $13.75 to $20.39, as compared to the proposed merger consideration in the merger pursuant to the merger agreement of $21.00.
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D.
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The following disclosure is added to the
first (1
st
)
paragraph, after the last sentence of that paragraph, on page 43 of the
proxy statement:
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During the past two years Wells Fargo
Securities and its affiliates have received other fees of less than
$300,000 in the aggregate from the Company for providing investment
banking and related services and fees of less than $1,000,000 in the
aggregate from Coty, Inc., an affiliate of JAB Holdings, in connection with corporate
loans.
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FORWARD-LOOKING
STATEMENTS
The foregoing contains
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. We intend for these forward-looking statements to
be covered by the safe harbor provisions of the federal securities laws relating
to forward-looking statements. Forward-looking statements are based on
management’s beliefs, assumptions and expectations concerning the proposed
transaction involving the Company and JAB Beech Inc. (the “transaction”),
including statements relating to regulatory approvals and the expected timing,
completion and effects of the proposed merger and other future events and the
transaction’s potential effects on the Company, including, but not limited to,
statements relating to anticipated financial and operating results, the
Company’s plans, objectives, expectations and intentions, cost savings, and
other statements. Forward-looking statements involve risks and uncertainties
that may cause our actual results, performance or financial condition to differ
materially from the expectations of future results, performance or financial
condition we express or imply in any forward-looking statements. Forward looking
statements often contain words such as “believe,” “may,” “forecast,” “could,”
“will,” “should,” “would,” “anticipate,” “estimate,” “expect,” “intend,”
“objective,” “seek,” “strive” or similar words, or the negative of these words.
Actual results may differ materially from the results anticipated in these
forward looking statements due to various factors, including, without
limitation: the ability to obtain the approval of the transaction by the
Company’s shareholders; the ability to obtain governmental approvals of the
transaction or to satisfy other conditions to the transaction on the proposed
terms and timeframe; the possibility that the transaction does not close when
expected or at all, or that the companies may be required to modify aspects of
the transaction to achieve regulatory approval; the outcome of pending or future
litigation; the quality of Company and franchise store operations and changes in
sales volume; risks associated with the use and implementation of information
technology; our ability, and our dependence on the ability of our franchisees,
to execute on our and their business plans; our relationships with our
franchisees; actions by franchisees that could harm our business; our ability to
implement our domestic and international growth strategy; our ability to
implement and operate our domestic shop model; political, economic, currency and
other risks associated with our international operations; the price and
availability of raw materials needed to produce doughnut mixes and other
ingredients, and the price of motor fuel; our relationships with wholesale
customers; reliance on third parties in many aspects of our business; our
ability to protect our trademarks and trade secrets; changes in customer
preferences and perceptions; risks associated with competition; risks related to
the food service industry, including food safety and protection of personal
information; compliance with government regulations relating to food products
and franchising; and increased costs or other effects of new government
regulations; and other risks and uncertainties. These and other risks and
uncertainties, which are described in more detail in the Company’s most recent
Annual Report on Form 10-K and other reports and statements filed with the
United States Securities and Exchange Commission (“SEC”), are difficult to
predict, involve uncertainties that may materially affect actual results and may
be beyond the Company’s control. New factors emerge from time to time, and it is
not possible for management to predict all such factors or to assess the impact
of each such factor on the Company. Any forward-looking statement speaks only as
of the date on which such statement is made, and the Company does not undertake
any obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made. Investors,
potential investors and others are urged to carefully consider all such factors
and are cautioned not to place undue reliance on these forward-looking
statements.
ADDITIONAL INFORMATION
AND WHERE TO FIND IT
This communication does not
constitute an offer to buy or sell or the solicitation of an offer to buy or
sell any securities or a solicitation of any vote or approval. This
communication relates to a proposed acquisition of the Company by JAB Beech Inc.
In connection with this proposed acquisition, the Company has filed with the SEC
and began mailing to its stockholders a definitive proxy statement on Schedule
14A on June 24, 2016 and may file other documents in connection with the
proposed merger. This communication is not a substitute for any proxy statement
or other document the Company may file with the SEC in connection with the
proposed transaction. INVESTORS AND SHAREHOLDERS OF THE COMPANY ARE URGED TO
READ THE DEFINITIVE PROXY
STATEMENT
AND OTHER DOCUMENTS THAT HAVE BEEN FILED OR MAY BE FILED WITH THE SEC CAREFULLY
AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. Investors and shareholders are able to obtain free copies
of these documents and other documents filed with the SEC by the Company through
the website maintained by the SEC at http://www.sec.gov. Copies of the documents
filed with the SEC by the Company are available free of charge on the Company’s
internet website at www.krispykreme.com or by contacting the Company’s corporate
secretary’s office at 370 Knollwood Street, Winston-Salem, N.C. 27103 or by
calling (336) 726-8876.
6
Participants in
Solicitation
The Company, its directors and
certain of its executive officers may be considered participants in the
solicitation of proxies in connection with the proposed transaction. Information
regarding the persons who may, under the rules of the SEC, be deemed
participants in such solicitation in connection with the proposed merger which
was set forth in the definitive proxy statement when it was filed with the SEC.
Information about the directors and executive officers of the Company is set
forth in its Annual Report on Form 10-K for the year ended January 31, 2016,
which was filed with the SEC on March 31, 2016, its definitive proxy statement
for its 2016 annual meeting of stockholders, which was filed with the SEC on May
5, 2016, its Quarterly Report on Form 10-Q for the quarter ended May 1, 2016
which was filed with the SEC on June 10, 2016, and its Current Reports on Form
8-K, which were filed with the SEC on March 11, 2016, May 9, 2016, and May 31,
2016.
These documents can be
obtained free of charge from the sources indicated above. Additional information
regarding the participants in the proxy solicitation and a description of their
direct and indirect interests, by security holdings or otherwise, is contained
in the definitive proxy statement that was filed with the SEC on June 24, 2016
and other relevant materials to be filed with the SEC when they become
available.
7
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly authorized.
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KRISPY KREME DOUGHNUTS, INC.
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Date: July
15
,
2016
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By:
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/s/
G. Price Cooper, IV
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G.
Price Cooper, IV
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Chief Financial Officer
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