-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VAKVMhecYTJlN3osDSd/NAYJGB7qCEMzP/RH2CugrUBJdGJCaqGc3k51q9OdB22w E8xBdrzpKCZ33S/KIZJQkg== 0000898430-96-002550.txt : 19960613 0000898430-96-002550.hdr.sgml : 19960613 ACCESSION NUMBER: 0000898430-96-002550 CONFORMED SUBMISSION TYPE: PRRN14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960611 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT FAMILY RESTAURANTS INC CENTRAL INDEX KEY: 0000053281 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 870264039 STATE OF INCORPORATION: DE FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: PRRN14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-06054 FILM NUMBER: 96579610 BUSINESS ADDRESS: STREET 1: 440 LAWNDALE DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84115 BUSINESS PHONE: 8015327840 MAIL ADDRESS: STREET 1: 440 LAWNDALE DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84115 FORMER COMPANY: FORMER CONFORMED NAME: JBS RESTAURANTS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: JBS BIG BOY FAMILY RESTAURANTS INC DATE OF NAME CHANGE: 19810830 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FIRST GLOBAL SECURITIES INC /CA/ CENTRAL INDEX KEY: 0001015354 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954307359 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRRN14A BUSINESS ADDRESS: STREET 1: 790 E COLORADO NO. 500 CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 8185688800 MAIL ADDRESS: STREET 1: 790 E COLORADO NO. 500 CITY: PASADENA STATE: CA ZIP: 91101 PRRN14A 1 REVISED CONTESTED PRELIMINARY PROXY MATERIALS PRELIMINARY PROXY MATERIAL AMENDMENT SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 10549 SCHEDULE 14A (RULE 14a-6(i)(3)) Pursuant to Section 14(a) of the Securities Exchange Act of 1934 OPPOSITION GROUP'S PROXY STATEMENT FILED BY A PARTY OTHER THAN THE REGISTRANT PROXY STATEMENT 1 - OPPOSITION TO MERGER THE OPPOSITION GROUP ASKS YOU TO VOTE ON THREE MATTERS: AGAINST THE MERGER, RESIGNATION OR REMOVAL OF THE PRESENT BOARD, AND FOR A NEW BOARD OF DIRECTORS SUMMIT FAMILY RESTAURANTS, INC. ------------------------------ (Name of Registrant as Specified in Its Charter) First Global Securities, Inc., on behalf of the Opposition Proxy Group, including, itself, Kennedy Capital Management, Inc., William H. Burgess, J. D. Campa and Associates, Inc., Michael E.Portnoy, Howard Foster Company, Mark R. Tonucci, T.H. Fitzgerald, Peter Sorokin, Mark A. Fries, and Gary B. Davidson - -------------------------------------------------------------------------------- (Names of Persons or Entities Filing Proxy Statement, if other than the Registrant) Contact: Susan W. Trenham Co-Chair and CEO First Global Securities, Inc. 790 East Colorado Blvd., #500 Pasadena, Ca. 91101 (818) 568-8800 Payment of Filing Fee: $500 pursuant to Exchange Act Rule 14a-6(i)(3). Fee previously paid: $500 pursuant to Exchange Act Rule 14a-6(i)(3). PRELIMINARY JUNE , OPPOSITION TO THE MERGER BETWEEN SUMMIT FAMILY RESTAURANTS, INC. AND CKE RESTAURANTS, INC. Fellow Shareholders: We are a group of Summit shareholders who own 14% of the outstanding shares of common stock of Summit Family Restaurants, Inc. ("Summit"). We oppose the proposed merger between Summit and CKE Restaurants, Inc. ("CKE") to be voted on at a special meeting of Summit shareholders to be held on July 12, 1996, at 10:00 a.m. at the Howard Johnson Hotel, 122 West South Temple, Salt Lake City, Utah ("Special Meeting"). We believe the transaction is not fair and equitable to the shareholders of Summit. The shareholders opposed to the proposed merger are First Global Securities, Inc., Kennedy Capital Management, Inc., William H. Burgess, J. D. Campa and Associates, Michael E. Portnoy, Howard Foster and Company, Mark Tonucci, T.H. Fitzgerald, Gary B. Davidson, Peter Sorokin, and Mark A. Fries. Susan W. Trenham is the Chief Executive Officer of First Global Securities, Inc., and all of the foregoing ("Opposition Group") are participating in this solicitation. We believe that the Board of Summit did not act in the best interests of shareholders by signing two amendments to the Merger Agreement agreeing to reductions in the purchase price to be paid to the shareholders; that members of the Summit Board have acted in a manner designed to give you no viable alternative except to vote for the proposed merger by terminating much of the senior management; that the fairness opinion rendered by Piper Jaffray Inc. may not be objective since Piper Jaffray will be paid $758,000 upon the successful completion of the merger; that on its face, the fairness opinion is incomplete since much of the analyses by Piper Jaffray were completed and based on prices which were more favorable to Summit shareholders at the time; and that certain issues which shareholders ought to consider in reaching a decision to vote for or against the merger have been obscured such as the fair market value of Summit versus the offer to shareholders. You are an owner of Summit Family Restaurants, Inc. and THIS MERGER IS A DECISION OVER WHICH YOU ARE SUPPOSED TO HAVE AUTHORITY TO ACT. We urge you to take the time to understand the proxy statement which you receive from Summit, to be sure that you understand the proposed merger as it stands as of the time --------------------------- that you vote, and that you take the time to understand why we object to the - -------------- proposed merger. The merger price to be paid to Summit shareholders is based on a formula which takes into consideration the fluctuation of the market price of CKE stock. The recent upward price movement of CKE stock in the past ninety days will result in a substantial reduction (beyond the two announced reductions to which we also object) in the number of CKE shares Summit shareholders will receive at the time of the merger. In the pages that follow we suggest an alternative to the present proposal. The Opposition Proxy - -------------------- The OPPOSITION GROUP urges you to vote AGAINST the proposed merger between Summit and CKE. Further, we recommend that you assert your Dissenting Shareholders Rights to require an 2 independent valuation of your shares/1/. It should be noted that the obligations of CKE to effect the Merger are subject to the condition that the holders of not more than 10% of the shares of Summit Common Stock have asserted dissenters' rights. CKE may terminate the merger agreement with Summit if more than 10% of the Shareholders assert their dissenters rights. You may use the OPPOSITION GROUP'S PROXY to Vote For or Against the proposed merger. Failure to vote or to return either proxy card will have the same effect as a vote against the Merger. We urge you to complete, sign and date the enclosed OPPOSITION PROXY and to return it in the enclosed prepaid envelope as soon as possible. This will not prevent you from attending the Special Meeting and voting your shares in person even if you have previously returned your proxy card since the proxy is revocable up to the time it is voted. If you have voted for the merger on a Summit Proxy, you may still vote AGAINST the proposed merger on the OPPOSITION PROXY. RISKS ASSOCIATED IN ACCEPTING THE OPPOSITION GROUP'S PROXY There is No Assurance that the Opposition Proxy Group Will Succeed In - --------------------------------------------------------------------- Implementing It's Proposed Plan - ------------------------------- The Opposition Group urges shareholders to vote against the proposed merger and to support a proposed alternative plan for Summit. In order to implement that plan, shareholders must disapprove the merger, and the present Summit Board must agree to resign and allow shareholders to vote on a new proposed Board or the Opposition Group must succeed in taking control of the Company through proxies, a shareholders's suit, or other remedies. There is no assurance that the Opposition Group will succeed. There Is No Assurance of Success In Selling The Assets of Summit At A Higher - ---------------------------------------------------------------------------- Value - ------ The Opposition Group believes that under new Summit management and a new Board the assets of Summit may be sold at a higher price than the consideration being offered by CKE to Summit shareholders. However, the present Summit Board has outlined in detail the efforts they made to sell the assets. There is no assurance that the proposed Board and management will be more successful in selling the assets at a higher price than the present Board. There Is No Assurance that Shareholders Will Receive Fair Market or Book Value - ------------------------------------------------------------------------------ The proposed merger offer to Summit shareholders is below the book value of Summit. We believe that the fair market value is considerably higher. However, there is no assurance that shareholders will receive book or fair market value if they vote against the merger and an alternative plan is implemented. The Opposition Group's Proposed Two Dollar Dividend Is Not Assured - ------------------------------------------------------------------- Under the proposed CKE/Summit merger, Summit shareholders will receive $2.63 in cash and an equivalent amount in CKE shares. The Opposition Proxy Group believes that the assets of Summit may be sold for more than $2.63 per share without diluting Summit shares. The Opposition Proxy Group proposes a $2 dividend to shareholders and an alternative business approach for Summit. There is no assurance that the alternative plan will succeed. Shareholders will have to determine whether they would rather receive a - ---------------------- /1/ See Proxy Statement of Summit: "Rights of Dissenting Stockholders--Failure to follow the steps required by Section 262 of the Delaware General Law (the "DGCL"), may result in your loss of such rights (but not in your loss of the merger consideration). 3 guaranteed $2.63 cash now from CKE and minimum upside value to the remainder of their consideration in stock or to risk a failure on the part of a new Summit management team to take the necessary action to pay a $2 dividend and to provide profits in the future of Summit Family Restaurants, Inc. A Successful New Direction for Summit is Speculative - ---------------------------------------------------- The Opposition Group believes that Summit can become a dynamic and profitable organization through the sale of assets and the successful pursuit of a newly focused direction for Summit. However, the implementation of a new business plan, whether by new management of Summit or by the management of CKE is speculative. Perfection of Dissenter's Rights May Not Result in a Higher Consideration - ------------------------------------------------------------------------- The Opposition Group believes that the value of Summit assets exceeds the consideration offered by CKE and recommends that Summit shareholders assert their Dissenting Shareholders rights and call for appraisal of the value of their stock. Under Delaware law, where Summit is incorporated, CKE must pay shareholders the higher value in cash, if such value is determined by the Court to exist. There is no assurance that the Court will determine that a higher value does exist. If the Court determines that the value of Summit's stock is less than the consideration offered by CKE, the shareholder will receive the lower consideration. At any time within 60 days after the effective date of the merger, if approved, any stockholder has the right to withdraw his demand for appraisal and to accept the terms offered upon the merger. Shareholders should refer to the Summit proxy statement, for details as to how to assert Dissenting Shareholders rights, and obtain legal counsel for further answers to questions. In addition to voting Against the merger on either proxy, shareholders must deliver a letter asking for appraisal of their shares before the vote on the merger if they wish to assert their Dissenting Rights. The letter merely needs to state the identity of the shareholder and that the shareholder intends to demand appraisal of his shares. OPPOSITION TO THE MERGER KEY ISSUES The Opposition Group's objections to the proposed merger center around seven key issues: . The actions of the Summit Board of Directors . The pre-merger approval actions on the part of CKE . The reductions in the price to be paid by CKE to Summit shareholders. . Much of the documentation and analyses in the Summit proxy statement and exhibits fail to reflect the current stock market prices of CKE and the effect on Summit shareholders . The lack of effort to determine the fair market value of the assets of Summit Family Restaurants, Inc. . The questionable position of Piper Jaffray, Inc., we believe the lack of an unaffiliated fairness opinion for the 4 Summit shareholders, and the lack of an independent assessment on the part of Piper Jaffray, Inc. . A viable alternative for Shareholders if they disapprove the merger. The Actions of the Summit Board of Directors - -------------------------------------------- According to the Merger Agreement the present management of Summit was to remain in place until ninety days after the approval of the merger by shareholders. All operations were to be maintained so that there would be no diminishment in Summit's operations if shareholders disapproved the merger. Summit states in its proxy statement that "Mr. McComas [then President] has entered into an amendment to the change of control provision of the Employment Agreement as requested by CKE...which requires Mr. McComas to continue his employment for the first 90 days following the Merger..." In fact, as of April 10th, at the request of CKE, the Summit Board terminated the employment of the President, Mr. McComas, the Senior Vice President of Marketing and New Development, the Senior Vice President of Food Services, the Senior Vice President of Human Resources and Franchising, and the Senior Vice President of Family Restaurants, leaving the company with what we believe is a massive void in management. Further, it was required that Summit pay out more than $1.2 million in payments to these former employees by virtue of the change in control clauses in their employment contracts. We believe that such action was taken in order to leave shareholders with little alternative than to vote for the merger and so that change of control payments would reduce the assets on Summit's balance sheet rather than CKE's. While claiming concern about cash flow, the Board paid out over $1.2 million and reserved several hundred thousand dollars in 'change of control' payments--in effect prepaying between one and three years the annual salaries of the six individuals who were terminated rather than continuing to pay only their monthly salaries. Summit states that Clark D. Jones, who had served as Chairman and/or President for more than ten years, stepped in to fill the void left by the president and five senior vice-presidents. Mr. Jones, in addition to apparently serving in the capacities of the six Summit officers who were fired, also is employed full time by the State of Utah as a utilities commissioner. Additionally, Summit's operational performance deteriorated sharply during the most recent five years that Mr. Jones served as Chairman. Contrary to statements by Summit that it was their decision to terminate the above individuals because of a lack of cash flow, minutes of the Summit Board state that CKE requested the termination and agreed to indemnify Summit for $300,000 of the 'change of control' payments should the merger fail. The Board of Summit states that they set up a committee of independent Board members and an unaffiliated financial advisor to determine whether the merger is in the best interests of shareholders. Mr. Norman Habermann, a board member, was named to chair the Special Committee to evaluate the CKE offer and other offers to the company, including a management led buy-out. Mr. Habermann is paid a fee as a Board member and received an additional fee as the head of the Special Committee. Subsequently, he negotiated with Piper Jaffray, Inc. to receive a portion of their success fee, approximately $114,000, for the completion of the merger. 5 Pre Shareholder Approval Actions by CKE - --------------------------------------- On April 5, 1996, CKE purchased the Preferred Stock of Summit Family Restaurants, Inc. The preferred stock is convertible into approximately 16.5% of Summit's stock. On April 9, CKE requested that the Summit Board terminate all of the top officers of Summit Family Restaurants, Inc. and agreed to indemnify Summit for $300,000 if the merger is not approved. CKE had previously announced that it was not the intention of CKE to effect a change of control without approval of the merger by the shareholders. If converted, the stock owned by CKE is the single largest block of stock. We believe, that by virtue of its reductions in the offer to Summit shareholders which were summarily approved by the Summit Board, the acquisition of the single largest block of Summit stock, and the termination of virtually all of the top management of Summit, that CKE took control of Summit Family Restaurants, Inc. without Summit shareholder approval. The Reductions in the Price by CKE - ---------------------------------- On December 1, 1995, Summit announced the signing of an agreement and plan of merger and reorganization with CKE. According to Summit's press release, "CKE will acquire all of the outstanding common and preferred stock of Summit Family Restaurants for a purchase price equal to $3.00 per share in cash and .20513 shares of CKE common stock..." Actually, according to the merger agreement which was later disclosed, the price was $3.00 in cash and a number of shares equal to $3.00 divided by the average adjusted CKE price. Thus, at that time, CKE was acquiring $45.7 million in assets for approximately $34.8 million dollars (approximately $6.00 x 5.8 million shares) on the date of the announcement, which gave CKE incentive to pay the purchase price to shareholders. Subsequently, it seemed CKE decided that it did not like that offer and made two more reductions which were accepted by the Summit Board without explanation. The announcements indicated that CKE was disappointed in the performance of Summit. Estimates have now been given in the Summit proxy of potential liabilities identified by CKE which resulted in the first amendment to the merger agreement. The total liabilities of Summit were known to CKE before the Merger Agreement was signed. The Summit proxy statement says that CKE determined that there would be a potential $3 million lease liability as a result of the bankruptcy of two franchisees. We believe that half of that potential liability may actually accrue to the benefit of Summit, as it is a Summit owned property in Spanish Fork, Utah. We believe the location is prime, in a new attractive building on Interstate 15, and just as there was a potential liability--there is a potential gain from having the lease returned to Summit. By the third reduction in the offer to Summit shareholders, there was no longer any substantial premium for Summit shareholders over the NASDAQ price. CKE's stock was valued at a multiple of more than 30x price to earnings. Thus Summit was getting very little more than they would get in the open market and the value of their shares was being highly diluted. Actually, the press announcement failed to give the actual offer as amended in the merger agreement because it is actually based on a formula to be calculated at the actual time of the merger. Further, as the price of CKE stock advances, the Merger Agreement and subsequent amendments called for a reduction in the number of CKE shares that Summit shareholders will receive. 6 As of May 22, 1996, based on the closing NYSE price of $25.50 per share of CKE stock, Summit shareholders will receive $2.63 in cash and less than 1/9th (.108) of a share of CKE stock for each share of Summit stock. After the merger, in order for Summit shareholders to receive a $1 increase in the $5.27 consideration now offered by CKE (still less than the original offer), the price of CKE will have to advance $11.11 to $36.61 which is 62x 1995 earnings (as of January 31, 1996), and 46x 1996 projected earnings. We are not aware of any restaurant chain in the industry class which sells at anywhere close to that multiple. Following are some comparisons:
Company 52-Week 1995 1995 Earnings P/E Ratio - ------- ------------ ------------- --------- CKE 18-6 .59 30x CKE (5/22/96) 25.50 .59 43x .79 E 32x Company 52-Week 1995 1995 Earnings P/E Ratio - ------- ------------ ------------- --------- Brinker International 21-12 .98 17x Cracker Barrel Stores 25-16 1.09 16x Darden Restaurants 13-9 .80 16.1x McDonald's 54-32 1.97 23.5x Morrison 28-13 1.35 20.x Ryan's Stk Hses 9-6 0.62 10x Shoney's 13-8 1.10 11.8x
Under the Merger Agreement shareholders will receive $2.63 in cash. They will hand in their Summit certificates and receive CKE certificates following the merger, if it is approved. The risk in a substantial drop in the value of CKE stock, to Summit shareholders, dramatically increases as the price of CKE increases, because of the price/earnings ratio of CKE and the concurrent reduction in the number of shares a Summit shareholder will receive. Post merger, at $25.50, a point move upward of CKE stock will only be a 1/9th point upside for Summit shareholders as a result of the exchange rate. There is little upside value to Summit shareholders if CKE prices continue to escalate after the merger. Further, although the merger was announced as a tax free reorganization, Summit has now determined that it is a taxable transaction to Summit shareholders. We also believe that there is a limit to which Carl's Restaurants, serving basically the same fast food, with a much lower market share than many other chains, can increase Summit shareholder value when they have received 1/9th of a CKE share for one share of Summit stock. While CKE has been successful in the short term in restructuring and putting on a cleaned up face, and an "in your face TV advertising campaign" for their shareholders and customers, they still remain a fast food entity with a limit to the number of ways one can serve hamburgers, grilled chicken, and high fat content food. CKE has announced that in addition to paying $2.63 cash to Summit shareholders, they plan to expand the Galaxy concept in Summit, to open 17 new restaurants, to take over 28 Rally's restaurants, and to refurbish as many as 160 restaurants at a cost ranging from $100,000 to $130,000 per location for total capital needs in excess of $60 million. While CKE has a much larger existing capital base their proposed plan is capital intensive and CKE has a debt to equity ratio of 47% (or $144 million in debts). The Opposition Group believes that CKE is capable of providing or raising the capital needed to implement 7 their business plan based on their current performance. However, the plan itself is ambitious. We believe a lag in their plan would reduce the results for CKE, as it did for Summit, and presumably impair their ability to raise significant amounts of capital. The Value of Summit - ------------------- Neither Summit, nor Piper Jaffray, Inc., in its fairness opinion, discuss the market value, in terms of the physical assets of Summit, and what that may mean to Summit shareholders. Rather they have focused on the market value of Summit's stock. We believe that the fair market value of Summit's assets is important to Summit shareholders in making their decision as to where they may realize the greatest value for their shares. According to Summit's audited financial statements for the fiscal year as of September 25, 1995, the value of Summit's property, buildings, equipment, and land is $83.1 million less $37.4 million in depreciation and amortization or $45.7 million net book value. Summit has owned some of its properties for thirty years. There is no indication that anyone has attempted to determine the fair market value of the assets or the highest and best use for the properties. The depreciation of the assets of Summit on the balance sheet reflects standard accounting principles. Presumably some of Summit's properties have actually appreciated in thirty years. Piper Jaffray, in its opinion, states that it neither valued the assets nor visited any of Summit's restaurant sites. Instead, the Summit Board and Piper Jaffray focus Summit shareholders on Summit's failure to attract a better offer than the CKE offer. We do not understand how Piper Jaffray can state that they made a serious attempt to sell the assets without having visited sites, without having made geographical and demographical determinations as to markets which would find portions of the assets attractive, and without appraisals of the properties. While Piper Jaffray sent out letters to various companies, we have been told by several corporate CEO's that although they expressed an interest in all or a portion of the assets, no one followed up with them. In the Opposition Group's opinion, based on visits to individual sites, preliminary conversations with potential buyers, and preliminary discussions with real estate appraisers, greater value may be realized by Summit shareholders for their company. Collectively, the Opposition Group have more than five hundred years experience in evaluating projects or companies to determine their value. Where Summit is concerned, we have identified potential buyers, who have expressed an interest in substantially all of the assets of Summit. We have not even really begun to engage in further analysis and discussions that we feel would result in a more successful outcome for Summit shareholders. As stated in the risk factors, however, there can be no assurance that the assets would be sold at a higher price than the offer by CKE. In proxy material, it is stated that Summit and Piper Jaffray negotiated with CKE for Summit shareholders to receive one half of the concideration, if CKE had sold the assets of Summit for more than $40 million AS OF THE DATE OF THE MERGER. SUMMIT SHAREHOLDERS NEED TO BE AWARE THAT FURTHER CONSIDERATION IS UNLIKELY because the proxy statement goes on to say that CKE has not sold the assets and is unlikely to sell the assets prior to the merger. We were told in late April, by the CEOs of both Flagstar and Hometown Buffets, with whom CKE had publicly announced they had had discussions that discussions had been terminated with regard to the sale of assets. Both entities indicated that they were still interested in the assets. Thus, we believe it is not possible to reach a conclusion that it will be difficult or easy to sell the assets. 8 Summit's Proxy Materials - ------------------------ The negotiations for the prosposed merger were completed by the management of Summit and Piper Jaffray when CKE was selling below $20 per share. At a CKE stock price of $25.50, there is a forty-seven percent reduction in the number of shares Summit shareholders will receive since the original merger offer. The following table calculates the exchange ratio under the amended offer at CKE current prices of $20 and beyond.
Exchange Ratio (CKE Shares Average Price Adjusted Price to Summit Shares) - -------------- -------------- --------------------------- 20 19 0.139 21 20 0.132 22 21 0.126 23 22 0.120 24 23 0.115 25 24 0.110 26 25 0.106 27 26 0.102 28 27 0.098 29 28 0.094 30 29 0.091
Analysis of the Position of Piper Jaffray - ----------------------------------------- In the Summit Proxy materials, the Summit Board states that Piper Jaffray has rendered an opinion as to the fairness of the proposed transaction. We have a number of questions regarding the opinion. Piper Jaffray was originally engaged by Summit to advise management on direction for the company. They received an undisclosed fee for that engagement. Piper Jaffray negotiated a fee of approximately $758,000 for the successful completion of the present merger. They will receive a $125,000 fee to render a fairness opinion. We believe that Piper Jaffray has a financial interest in the Summit shareholders' relying on Piper Jaffray's fairness opinion to approve the merger in order to obtain its success fee. Piper Jaffray, in its opinion letter of June 5, 1996, states that it relied on the representations of management with regard to financial statements and projections and have not attempted independently to verify such information. As is disclosed, management, including the Chairman of the Board and the President, may have had a vested interest at the time of the discussions with Piper Jaffray, because they themselves wished to do a management buy-out. Further, as stated above, we do not see how Piper Jaffray can claim to have done sufficient analysis to express an opinion when they state that they did not visit sites and had no independent appraisal of the assets. Finally, we believe the assessments in their opinion were based on market prices well below the present price of CKE stock. We do not feel that they have made sufficient effort to explain how they reached a conclusion that the transaction is fair based on a CKE price above $19 and the related reduction in the number of CKE shares for Summit shareholders. 9 Three Votes by the Shareholders ------------------------------- The Opposition Group will provide two proxy cards to the shareholders of Summit Family Restaurants, Inc. to be mailed simultaneously and voted upon simultaneously. SEC regulations require that we provide separate proxy statements and cards for the matters to be acted on by shareholders. The first proxy discussed herein calls for a vote against the merger. The second proxy calls for the resignation or removal of the present Board of Directors of Summit Family Restaurants, Inc. if the merger fails. Summit By-laws provide that shareholders may remove all or part of the Board with an 80% vote. We believe such a restrictive covenant is contrary to the 'majority rules' standard most of us live by. However, we believe that the Board has failed the shareholders of Summit Family Restaurants, Inc. and that eighty percent of the shareholders may agree with us. If the merger fails, the third vote calls for a new board of directors proposed by the Opposition Group to fill the three seats to be vacated in 1996 by the present board, and to fill the other seats vacated as a result of the resignation or removal of the other directors. Under the proposed plan the first priority will be to complete the analysis of Summit Family Restaurants, Inc. assets, to sell most to the existing assets, to pay shareholders a proposed $2 dividend. New business, in the form of themed restaurants and an entertainment entity will also be pursued. It is believed that the proposed management, particularly Harold Fox and Susan Trenham, have the background and the industry knowledge to complete detailed financial packages tailored appropriately to specific potential buyers to complete the sale of assets. Specific expertise would be contracted as it relates to real estate appraisals and equipment valuations. There is no intention to sell any assets to any affiliate of the Opposition Group. The only success that Summit has had in the last five years came as a result of an investment in a new venture entity, Hometown Buffets. The highly competitive restaurant business is one in which success can only be achieved by maintaining current and repetitive appeal to the customer base. We do not believe that the existing Summit can create sufficient appeal to maintain or increase value for Summit shareholders. While a proposed new direction for Summit involves a decision on the part of Summit shareholders that they are willing to step into new arenas, we believe it is only through the success of a new direction that Summit shareholders can achieve both a cash return and a fully realized upside for their Summit shares. 10 There Is A Viable Alternative to the CKE Merger - ----------------------------------------------- By their own account the Summit Board has recommended the merger because of four successive years of losses, shrinking sales and customer counts, and the unsuccessful turnaround plan that had been implemented by a new Summit management team put in place over two years ago. We believe the present Board and management of Summit are incapable of providing vision, leadership, and profits to its shareholders. We believe that if the merger fails all of the Board members of Summit should resign and allow the new Board and management proposed by the Opposition Group to be voted upon by shareholders. If the merger fails the Board should step aside to allow new management, endorsed by the shareholders, to take control of the corporation. The alternative plan of the Opposition Group calls for the seating of a new board and management at Summit; the appraisal and sale of under performing assets based on their fair market value; payment of a $2 per share cash dividend to shareholders from the sale of assets; the retention of certain employees to maintain existing operations until they are determined to be profitable and retained or to be sold; and the use of the remaining cash to create a new direction for Summit focused on themed restaurants and entertainment. 11 INCORPORATION OF CERTAIN DOCUMENTS AND CROSS REFERENCE TO THE SUMMIT PROXY STATEMENT/PROSPECTUS--THE OPPOSITION PROXY STATEMENT HEREBY INCORPORATES ALL DOCUMENTS CONTAINED IN THE SUMMIT PROXY/PROSPECTUS BY REFERENCE. SOLICITATION OTHERWISE THAN THROUGH MAIL; COSTS OF SOLICITATION--Solicitation for the Opposition Proxy will be through the mail and by telephone. If shareholders have questions they may contact Susan W. Trenham at (818) 568-8800. Costs of the solicitation will be borne by the Opposition Group. Legal, filing, printing, and distribution costs are estimated at $30,000 to date. If the proposed merger is successfully defeated and a new management and board is approved by Shareholders as outlined herein, the Company will be asked to reimburse the group for its expenses. SHARES REPRESENTED BY THIS OPPOSITION PROXY STATEMENT The aggregate number of shares represented in this Opposition Proxy Statement is as follows:
Class Name and Address Amount of Shares - ----- ---------------- ---------------- Common First Global Securities, Inc. 5 790 East Colorado Blvd., #500 Pasadena, Ca. 91101 Common Kennedy Capital Management, Inc. 567,600 10829 Olive Boulevard St. Louis, Missouri 63141 Common William H. Burgess 4,000 550 Palisades Drive Palm Springs, Ca. 92262 Common Joe Campa & Associates 14,000 301 East Colorado, Suite 800 Pasadena, Ca. 91101 Common Michael E. Portnoy 42,250 14 Winding Brook Road Newtown, CT. 06471
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Class Name and Address Amount of Shares - ----- ---------------- ---------------- Common Howard Foster Company 26,000 80 East Sir Francis Drake Boulevard Number C Larkspur, Ca. 94939 Common Mark R. Tonucci 5,000 142 Bennett Road East Haven, CT. 06513 Common T. H. Fitzgerald 2,000 180 Church Street Naugatuck, CT. 06770 Common Peter Sorokin 5,000 615 Fern Street West Hartford, CT. 06107 Common Mark A. Fries 9,600 31 Zoar Road Sandy Hook, Ct. 06482 Common Gary B. Davidson 4,100 3567 E. Sunrise, Suite 219 Tucson, Az. 85718 674,955 The Opposition Group
13 OPPOSITION PROXY CARD Summit Family Restaurants, Inc. Special Meeting of Stockholders -- To Be Held July 12, 1996 THIS PROXY IS SOLICITED BY THE PROXY OPPOSITION GROUP. The undersigned hereby appoints Susan W. Trenham individually, as the agent and proxy of the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned to vote, as designated below, to act with respect to all of the shares of Common Stock, of Summit standing in the name of the undersigned, or with respect to which the undersigned is entitled to vote and act, at the above Special Meeting and at any adjournment or postponement thereof, TO VOTE ON THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, BY AND BETWEEN SUMMIT AND CKE RESTAURANTS, INC. DATED AS OF NOVEMBER 30,1995, AND AMENDED AS OF JANUARY 24, 1996 AND APRIL 2, 1996. FOR [ ] AGAINST [ ] ABSTAIN [ ] THE OPPOSITION GROUP RECOMMENDS A VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. And At The Discretion Of The Proxy Holder To Vote On Any Other Business Which Properly Comes Before The Special Meeting. IMPORTANT PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER ON THE REVERSE SIDE OF THIS PROXY. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. Date _______________________, 1996 __________________________________ (Signature of shareholder) Please sign your name exactly as it appears hereon and mail this proxy in the enclosed envelope. Where there is more than one owner, each should sign. When signing as an executor, administrator, guardian or trustee, please add your title as such. If executed by a corporation, the proxy should be signed by a duly authorized officer. -----END PRIVACY-ENHANCED MESSAGE-----