SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
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[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12.
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DAVE & BUSTER'S, INC.
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
DOLPHIN LIMITED PARTNERSHIP I, L.P.
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
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1
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Preliminary Copy Subject to Completion
Dated May 13, 2003
2003 ANNUAL MEETING OF
SHAREHOLDERS OF DAVE & BUSTER'S, INC.
PROXY STATEMENT
OF
DOLPHIN LIMITED PARTNERSHIP I, L.P.
This proxy statement and the enclosed BLUE proxy card are being furnished
to you, the holders of shares of common stock, par value $.01 per share, of Dave
& Buster's, Inc., a Missouri corporation, in connection with the solicitation by
Dolphin Limited Partnership I, L.P. for use at the June 10, 2003 annual meeting
of shareholders of the Company, and at any adjournments or postponements of the
meeting. Dolphin is the Company's largest shareholder, owning approximately 9.5%
of the Company's stock. With an investment of approximately $12 million in the
Company, our interests are squarely aligned with those of our fellow
shareholders. Our only goal is to maximize value for all shareholders, in which
we expect to share proportionately.
Dolphin is soliciting proxies to elect its slate of three independent
nominees to the Company's board of directors. These directors will be elected by
you, the shareholders. Our objective is to install directors that are
independent of management and untainted by what we believe was the improper and
conflicted past conduct of the board of directors in the ultimately failed
process of considering and acting upon proposals for the sale of the Company. We
place substantial focus on this process, which we refer to as the "sale
process," and we think other shareholders should as well. Please see the
discussion on pages 5 to 10.
Our nominees will also be committed to addressing what we believe have
been the Company's disappointing operating results and share price performance
over the past few years. We explain in detail in this proxy statement the basis
for our beliefs and why we think you should support our nominees. See "Dolphin's
Reasons For Seeking Board Representation" below.
The Company recently expanded the size of its board from eight to nine
directors despite the admonishment of Dolphin, its largest shareholder. The
Company has also recently added three directors to the board, two to replace
retiring board members and one to fill a recently created director position. One
of these recently appointed directors, Mr. David B. Pittaway, has a prior
business relationship with another member of the board, Mr. Allen J. Bernstein.
Even with the addition of the board's three directors, six of the remaining
directors, who presided over the improper sale process and disappointing
operating results, still constitute a supermajority of the now expanded nine
member board. If elected, our independent nominees will constitute three of the
nine directors on the board, and the shareholders, if they continue to be
dissatisfied with the Company's performance and its board, will be in a position
at next year's annual meeting to replace an additional three directors and
thereby effect a change in board control.
1
Although our nominees would constitute only a minority of the Company's
board of directors, they will be strong advocates for advancing shareholder
interests, implementing operating improvements, promoting board independence and
management accountability and maximizing shareholder value. Specifically,
subject to the exercise of their fiduciary duties, our nominees will promote a
platform in the boardroom that includes--
o focusing closely on financial performance, with a thorough review of
the Company's operations and business model;
o aligning management compensation with operating results and
shareholder return;
o designating board leadership unconnected with the prior flawed,
conflicted and failed sale process;
o eliminating the Company's poison pill rights plan;
o destaggering the board to provide for the annual election of all
directors, thereby enhancing the board's accountability to the
shareholders;
o conducting a thorough review of the Company's prior sale process;
o reconstituting the board's special committee that in our view should
have actively supervised the sale process, but in our view allowed
management directors, who we believe had a conflicted agenda, to take
the lead in evaluating potential transactions; see the discussion on
page 6; and
o exploring avenues for maximizing shareholder value, which may include
a sale of the Company.
Although our nominees will advocate this platform, we cannot assure you that, as
a minority on the board, they will be successful or that as a result of their
election, shareholder value will be maximized.
The terms of three of the Company's directors expire at the 2003 annual
meeting. At the 2003 annual meeting, Dolphin is nominating three directors,
Edward A. Weinstein, Donald T. Netter and Edward E. Hartline, for election to
this class for terms expiring in 2006.
As we set out in this proxy statement, our nominees collectively have
extensive backgrounds in public company financial oversight and accounting, the
promotion of investor value and corporate law and governance. See page 17. Mr.
Weinstein has over 40 years of experience as an independent auditor of public
companies and was formerly a senior partner of the accounting firm of Deloitte &
Touche. Mr. Netter's 20 year career has involved the management of investment
funds whose objective is to bring value to investors. He has also been a
director and senior officer of public companies. Mr. Hartline is a founder and
the managing partner of Brown McCarroll, L.L.P., a Texas based law firm. He is
an attorney specializing in corporate law for over 25 years. We believe our
nominees will bring to the board the judgment, experience, energy, independence
and objectivity that shareholders
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can trust and that will be applied exclusively and disinterestedly in the
interests of all shareholders.
See "Information About Dolphin" and "Certain Other Information Regarding
Dolphin's Nominees" for information about Dolphin and about our nominees.
Dolphin recommends that you vote to elect each of our three nominees.
The Company has announced that the 2003 annual meeting will be held at
9:00 a.m. local time on June 10, 2003 at 10727 Composite Drive, Dallas, Texas
and that the record date for determining shareholders entitled to notice of and
to vote at the 2003 annual meeting is April 18, 2003.
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES OF COMMON
STOCK YOU OWN. DOLPHIN URGES YOU TO MARK, SIGN, DATE AND RETURN THE ENCLOSED
BLUE PROXY CARD PROMPTLY IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH BELOW.
PLEASE DO NOT SIGN ANY PROXY CARD YOU MAY RECEIVE FROM THE COMPANY EVEN THOUGH
IT ALLOWS YOU TO VOTE IN FAVOR OF CERTAIN PROPOSALS THAT DOLPHIN SUPPORTS. YOU
CAN VOTE FOR THOSE PROPOSALS ON THE BLUE DOLPHIN CARD.
You are urged to mark, sign and date the enclosed BLUE proxy card and
return it in the enclosed envelope whether or not you plan to attend the 2003
annual meeting. If you need assistance voting your shares of common stock,
please call Dolphin's information agent, Innisfree M&A Incorporated, toll-free
at 1-888-750-5834 or, if you are a bank or broker, please call collect at
1-212-750-5833.
If you have already sent in the Company's white proxy card and wish to
change your vote, you have every legal right to do so. Please sign, date and
mail the enclosed BLUE card. Only your last dated, signed proxy card will count.
This proxy statement and the accompanying BLUE proxy card are first being
furnished to the Company's shareholders on or about May 15, 2003.
DOLPHIN'S REASONS FOR SEEKING BOARD REPRESENTATION
Dolphin seeks to maximize value for all of the Company's shareholders in
which we, as the Company's largest shareholder, expect to share proportionately.
We do not trust the current board to act disinterestedly to promote shareholder
value because of what we believe is misconduct with which a supermajority of the
current board was associated. In this section we explain to you the basis for
our belief that a supermajority of the current board is tainted by an improper
and flawed process to sell the Company that began in 1999, and ended in failure
in the fall of 2002. We also explain our disappointment with the Company's
recent operating results, and top management compensation that, in our view, is
excessive and not aligned with the operating and share price performance, for
which we believe the board must be held accountable.
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Composition of the Board
- ------------------------
Until April 17, 2003, the Company's board of directors had eight members.
Three of these members--David O. Corriveau and James W. Corley, then the
Company's two Co-Chairmen and Co-CEOs, and Walter S. Henrion, then a consultant
to the Company since 1989 and a member of the board's executive committee--were
participants in a flawed, conflicted and failed attempt to buyout the Company.
Four of the directors-- Mark A. Levy, Allen J. Bernstein, Peter A. Edison and
Christopher C. Maguire--served on the special committee of the board responsible
for evaluating and negotiating acquisition proposals, including the buyout
attempt. The eighth director was Bruce H. Hallett, whose law firm was paid
$158,000 by the Company for legal services in fiscal 2002.
In March and April 2003--beginning almost immediately after Dolphin
publicly criticized the conduct of the board--the Company announced a series of
what it referred to as "planned corporate governance initiatives." See "The
Company's Governance Reforms" below. As part of these initiatives, the Company
reported that Mr. Henrion, who participated in the buyout effort and whose term
of office was to expire in 2003, and Mr. Hallett, whose term of office was to
expire in 2004, were retiring from the board. The board appointed Patricia P.
Priest to fill the vacancy in the 2003 class created by the resignation of Mr.
Henrion. The board was also recently increased to nine by expanding the 2004
class by one director. Walter J. Humann was appointed to fill the vacancy
created in the 2004 class by the resignation of Mr. Hallett. David B. Pittaway
was appointed to fill the vacancy created by the recent expansion of the board.
Prior to these actions, Dolphin had publicly opposed the increase in the size of
the board. We feel that the board was wrong to create an additional directorship
in the midst of a proxy contest, where the incumbent board rather than the
shareholders filled the vacancy.
Even with the board's three recently appointed directors, the current
board is still heavily weighted towards the old regime. Six of the nine
directors, a supermajority, were either members of the senior management buyout
group that we believe placed its interests ahead of the shareholders, or members
of the special committee, that failed to check this self-interest. We say
that management placed its interests ahead of shareholders because it told a
potential industry acquiror that the merger proposal that it would support would
have to include special benefits for senior management. See pages 17-18 of the
Company's October 2002 preliminary proxy statement. We say that the special
committee failed to restrain this self-interest because the committee did not
take the lead in evaluating proposals for the acquisition of the Company.
Rather, according to the Company's own public disclosure, seven of the nine
expressions of interest to acquire the Company were only considered by senior
management who were directors and the two that reached the special committee
both provided for senior management participation. See pages 16 to 21 of the
Company's October 2002 preliminary proxy statement.
We cannot place trust and confidence to manage the affairs of our Company
in a board that has a supermajority of the old directors, who were connected
with the flawed, conflicted and failed sale process. We also believe that, if a
decision is made to sell the Company, a credible financial or strategic buyer
will be less likely to come forward with proposals that maximize shareholder
value unless the special committee is composed of new members unconnected with
the prior sale process.
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In our view, senior management was conflicted in the prior sale process.
Accordingly, a credible buyer may feel that management directors driven by self
interest might not objectively evaluate a buyout proposal on its merits, and
that directors who were involved with the prior process in which senior
management was self-interested cannot be trusted in the future to assure the
objective evaluation of a buyout proposal. Buyers may therefore not be inclined
to advance proposals whose merit lies in the value and certainty that
shareholders would receive, until there has been a change in those responsible
for considering acquisition proposals.
Our nominees have no connection with the incumbent board. By electing our
three nominees at the 2003 annual meeting, all shareholders will get vigorous,
independent advocates. Importantly, shareholders will be positioned to change
control of the board at the 2004 annual meeting by electing three additional
independent directors.
The Flawed Sale Process and its Implications
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Beginning in October 1999, following a significant decline in the
Company's stock price, the Company began to explore various strategic
alternatives. This exploration ultimately led to a proposed buyout transaction
by an affiliate of Investcorp S.A. with the participation of the Company's
senior management. This transaction first took the form of a $12.00 per share
tender offer launched in June 2002, which failed to close because of
insufficient shareholder support, and then took the form of a proposed $13.50
per share merger. This merger was subject to financing, failed to gain financing
and was withdrawn in October 2002 as a result of "continuing adverse conditions
in the debt financing market." We characterize this process as flawed,
conflicted and failed--
o flawed, because, as we describe below, the special committee of the
board that should have taken an active role in conducting the process
instead only reacted to transactions that were pre-screened by members
of senior management, who were directors and had an interest in those
transactions;
o conflicted, because, as we describe below, these members of senior
management, who were also directors, were apparently only prepared to
consider transactions in which they would have an interest, regardless
of what may have been best for shareholders; and
o failed, because, despite the time, energy and substantial
expense--$1.3 million in 2002 alone--that the Company and its
management devoted to this process, it failed to result in an
acquisition transaction or to otherwise bring value to shareholders.
Unless we note otherwise, the information that we present concerning this
process is derived from the Company's definitive proxy statement filed with the
Securities and Exchange Commission on October 2, 2002 under cover of Amendment
Number 2 to the Company's Schedule 14A. This document is publicly available on
the website of the SEC at www.sec.gov. Please see in particular "Background of
the Merger," found at pages 16 through 22 of that document.
5
The Special Committee
---------------------
In December 1999, the board of the Company established a special committee
of allegedly independent directors to evaluate and negotiate proposals "in the
event that any of the existing or future unsolicited inquiries developed into a
credible proposal." The board took this action after being advised by director
Corriveau that "the Company had been approached by several financial buyers
exploring management's interest in a `going private' transaction." According to
the minutes of the December 14, 1999 meeting of the board of directors,
"the board resolved to constitute a Special Committee of directors
to evaluate, and to negotiate on behalf of the Company, any merger
and acquisition proposals which might be received from financial
buyers that included management participation."
(emphasis supplied by us). We infer that the board of directors and the special
committee was focused on transactions involving senior management participation.
In our view, this was wrong. The board and the special committee should have
been equally focused, from the outset, on any transaction that would have
maximized shareholder value.
The board initially appointed to the special committee four directors, Mr.
Levy, who served as chair, and Messrs. Bernstein, Edison -- now the Company's
Chairman of the Board -- and Maguire. The special committee was paid in the
aggregate $175,000 for its services.
Mr. Maguire. Mr. Maguire is Chief Executive Officer and President of
Cypress Equities, Inc. Cypress Equities, Inc. or its affiliates lease space to
the Company, for which Cypress received from the Company $522,000 in 1999,
$167,000 in 2000, $1,242,400 in 2001 and $1,332,000 (including brokerage
commissions on sale-leaseback transactions) in 2002. In addition, in December
2000, the Company and an affiliate of Cypress Equities entered into a
sale-leaseback transaction whereby the Company received $8.0 million in exchange
for committing to lease payments of approximately $23.2 million over 20 years
with options for renewal. Please see the Company's annual proxy statements for
the years 2000, 2001, 2002 and 2003 under "Certain Transactions," which are
available on the SEC's website. In light of these relationships, in our view,
Mr. Maguire had financial ties to the Company that cast serious doubt on Mr.
Maguire's independence from management and therefore Mr. Maguire should not have
served on the special committee.
Mr. Bernstein. Mr. Bernstein resigned from the special committee in April
2002, citing the need to "devote more of his time and attention to the sale of
Morton's Restaurant Group, Inc., of which he was then the Chairman and Chief
Executive Officer." In fact, Morton's concluded a going private transaction in
2002 with the participation of its senior management, which included Mr.
Bernstein. At the time, the Morton's board included John Castle and David
Pittaway, who were, respectively, a founder and senior managing director of
Castle, Harlan Inc., the firm that ultimately acquired Morton's. With the
appointment of Mr. Pittaway to the Company's board, there are now two Company
directors who participated in the Morton's buyout.
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Dolphin owned 6.1% of the Morton's outstanding common stock at the time,
communicated with Morton's management and expressed its own interest in
acquiring Morton's. By reason of Dolphin's involvement, we had a unique vantage
point from which to observe the transaction. Please see Morton's definitive
proxy statement, filed with the SEC under cover of Schedule 14A on June 18, 2002
and available on the SEC's website, for a discussion of the background of this
transaction, including various communications and expressions of interest of
Dolphin in respect of the transaction.
In a lengthy sale process beginning in May 2001, during which Morton's
received expressions of interest from approximately 30 parties. The transaction
with Castle Harlan consummated by Morton's was one in which members of its
senior management, including Mr. Bernstein, had a significant participation. At
the outset of the process, Morton's did not pursue what appeared to us to be a
credible independent acquisition proposal of $28.25 per share made in May 2001
by BFMA Holding Corporation. According to Morton's proxy statement, Morton's
special committee questioned the financing for the acquisition proposal and
BFMA's refusal to execute Morton's customary form of confidentiality agreement.
However, Morton's own financial advisor, in a document publicly filed with the
SEC, stated "although imperfect BFMA has demonstrated reasonable ability to
finance its offer." Indeed, BFMA paid to an affiliate of Carl Icahn a
non-refundable fee of $1.5 million for a commitment to provide $240 million of
financing, in addition to BFMA's committed equity. The principal objection of
the committee to the modification of confidentiality requested by BFMA was the
ability to share information with unnamed potential equity investors.
The BFMA $28.25 proposal was for over twice the price of the initial
$12.60 per share Castle Harlan transaction, with the participation of senior
management including Mr. Bernstein, accepted by the Morton's board in March
2002. The $12.60 Castle Harlan transaction was subsequently increased to $17.00
per share in July 2002, but only as a result of a bidding war initiated by an
affiliate of Mr. Icahn whose financing ability had been questioned by Morton's a
year earlier.
We believe that key elements of the Morton's transaction are disturbingly
similar to the Company's sale process. In both cases, the issuer received
numerous expressions of interest to acquire the company; the board formed a
special committee to evaluate acquisition proposals; the proposal ultimately
approved was one in which senior management participated and certain members of
the board were interested; and the transaction price that the board initially
approved was subsequently increased (see page 5).
These circumstances raise questions for us as to whether Mr. Bernstein--or
anyone in Mr. Bernstein's position-- could have exercised objective judgment
during his tenure on the Company's special committee or the board with respect
to any proposed transactions not involving senior management.
The Integrity of the Sale Process; Landry's Expression of Interest
------------------------------------------------------------------
In our view, given the expressly stated interest of the Company's senior
management, who were also directors, in participating in any buyout, it was
incumbent on the special
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committee of the board to take an active role in managing the Company's sale
process. From publicly available sources, it appears that this was not the case.
Rather, as belatedly described in the Company's October 2002 preliminary proxy
statement, it was this very senior management group, whose members expected to
participate in the buyout, that screened third-party expressions of interest in
acquiring the Company. This group consisted of Messrs. Corriveau, Corley and
Henrion, all directors of the Company. As disclosed in the October 2002
preliminary proxy statement, Messrs. Corriveau, Corley and/or Henrion met with
seven interested buyers without reported involvement of the special committee.
The two transactions reportedly referred to the special committee were ones in
which members of senior management who were also directors had proposed
participation. To us, this suggests that Messrs. Corriveau, Corley and Henrion
were not inclined to present to the special committee a transaction without
senior management involvement and that the special committee passively
acquiesced in this improper clearance procedure. We think this behavior was a
dereliction by the special committee of its duties, which undercut the entire
sale process and made for a flawed and conflicted process. This view is
reinforced by the treatment of Landry's Restaurants, Inc., a significant
restaurant industry competitor headquartered in Houston, Texas with an equity
market capitalization of approximately $560 million in May 2003, which expressed
interest in acquiring the Company in 2001 in circumstances that we describe
below.
With the exception of the Landry's expression of interest in mid-2001, the
public record does not provide extensive particulars on those expressions of
interest to acquire the Company that failed to pass the senior management
screen. Details of Landry's negotiations with the Company's senior management
initially came to light as a result of a class action litigation filed in the
Texas District Court in July 2002, captioned L.J. Parnes v. Corriveau et al.,
cause no. 02-4912 (July 9, 2002 Dallas County). The complaint in that action is
publicly available from the court.
According to the complaint, Messrs. Corriveau, Corley and Henrion met in
late August 2001 with Tillman Fertitta, Landry's Chairman and Chief Executive
Officer. However, at the meeting--
"Mr. Fertitta was informed that they [Corriveau, Corley and Henrion]
intended to take the Company private themselves and they wanted
Landry's to sign a standstill agreement to preclude it from
interfering with the going private plan."
Similar disclosure was finally made in the Company's October 2002
preliminary proxy statement--
"Among other topics discussed at the [August 2001] meeting, Messrs.
Corriveau and Corley disclosed to Mr. Fertitta that D&B's
management, including themselves, preferred a management-led buyout
of D&B to a sale transaction with a strategic buyer such as
Landry's."
The complaint further recites--
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"Two months later, on October 23, 2001, defendant Corriveau sent
Fertitta an `outline of the kind of deal a merger would require for
management to obtain its goals' and questioned whether this would
work for Landry's. That document indicated that the D&B shareholders
would receive only $9 per share and that the D&B `management
earnouts' would be `10% of EBITDA contributed by D&B operations for
the next 5 years. Paid annually and structured as a capital gains
transaction.'"
This demand was finally corroborated in the Company's October 2002 preliminary
proxy statement. The disclosure in the proxy statement adds that management also
sought "assurances that D&B management would participate in stock option, stock
grant and other incentive programs offered by Landry's."
The Company's October 2002 proxy materials state that Landry's did not
respond to Mr. Corriveau's correspondence, but do not say why. According to the
complaint, based on statements made by a deposed representative of Landry's,
"Since it was Landry's view that no one would be entitled to 10% of
EBITDA other than [Dave & Buster's] shareholders, Landry's was
uninterested in such a transaction."
We are deeply troubled by these disclosures and the Company's
establishment of a committee whose sole purpose was to evaluate transactions
involving management participation, and we think that other shareholders should
be as well. First, the disclosures demonstrate to us that the Company's senior
management who were directors had as a primary goal the furthering of their own
financial interests, which they appear to have pursued regardless of whether
shareholders would receive greater benefit from a transaction that did not have
senior management participation. As directors of the Company, Messrs. Corriveau,
Corley and Henrion were bound by fiduciary duties to the Company and its
shareholders. We believe, based on the recited disclosures, that these directors
breached their fiduciary duties to shareholders by placing their personal
interests ahead of the interests of shareholders.
Second, we are very troubled by the delay in the Company's disclosure of
the special benefits that these members of senior management who were directors
sought for themselves in any transaction with Landry's. The demand for special
benefits was made in October 2001. The discussions with Landry's were not
disclosed at all in the Company's Solicitation/ Recommendation Statement on
Schedule 14D-9 filed in June 2002 in response to the management supported tender
offer for the Company launched in that month. On July 29, 2002, the Company
filed its initial preliminary proxy materials in respect of the management
supported buyout transaction, briefly mentioning contacts with "a company
engaged in restaurant ownership and operations," but failing to disclose any
substance of those negotiations, including references to management benefits. A
similar reference is contained in the Company's revised proxy materials filed on
September 11, 2002.
We believe that the failure to disclose management directors' demands of a
potential industry acquirer for personal financial benefits as a condition of an
acquisition
9
transaction is a material omission. This is particularly so, in our view, where
the Company purports to provide the background of a buyout transaction in which
senior management who are directors are participating. To us, this lack of
candor in the Company's public disclosures goes to the issue of shareholder
trust in the Company's senior management and in its board of directors, which
has the ultimate responsibility for the conduct of the Company's affairs. The
current board continues to be comprised of a supermajority of directors who were
members of the old board and are therefore responsible for this failure to
disclose what we believe was material information.
The Company's Governance Reforms
--------------------------------
On March 5 and 17, 2003, the Company announced that it was undertaking
certain governance and business initiatives. This announcement came almost
immediately after Dolphin delivered an open letter to the board discussing the
need for corporate governance reforms, as noted below. The Company's initiatives
included formation of a nominating and corporate governance committee whose
Chairman would be Mr. Edison. Also, the Company announced that Mr. Levy had been
designated lead director, "to head executive sessions of the board and also
serve as the primary liaison between management and the Board." The appointment
of a lead director was one of the governance reforms advocated in Dolphin's
March 3 letter. On April 10, 2003, the Company disclosed that Messrs. Corriveau
and Corley would no longer serve as Co-Chairmen and that instead Mr. Edison
would be Chairman of the Company's board.
In its March announcements, the Company stated to its shareholders,
"[A]s you know, public companies are subject to new laws regarding
corporate governance, including composition of the Board and Board
committees. With this in mind, last year we proactively undertook a
thorough review of our governance practices and procedures with the
goal of not only meeting the requirements of the new laws, but also
enhancing our overall corporate governance policies. We made this
issue a top priority, and set it as an agenda item for our regularly
scheduled Board meeting on March 4, 2003. Our objective is to
institute Board changes in an orderly and constructive way."
(emphasis supplied by us). We have reviewed the minutes of the meetings of the
Company's board of directors obtained by us from the Company following a demand
that we made under Missouri law. Prior to March 4, 2003, only one brief
reference to corporate governance reform appeared in these minutes, from a board
meeting on November 12, 2002. This reference reads in its entirety as follows:
"Mr. Corley then asked Mr. Gary Singer and Mr. Tom Leary of
O'Melveny and Myers LLP to join the meeting to give a presentation
on recent corporate governance developments in light of the
Sarbanes-Oxley legislation and recent NYSE proposed rule changes."
This solitary reference to corporate governance does not seem to us as a mandate
for a "thorough review of governance practices and procedures."
10
We note, moreover, that the actions taken at the March 4, 2003 board
meeting followed by one day our delivery on March 3, 2003 of a letter to the
board. In this letter, we challenged the independence and credibility of the
board and the special committee, primarily for the reasons described above, and
advocated the appointment of an independent, lead director and other reforms
included in our platform. We question, therefore, if the Company is being fully
candid with its shareholders on the impetus for and timing of the Company's
governance reform measures. We think the answer is NO.
Mr. Edison was a member of the special committee formed to evaluate and
negotiate acquisition proposals. For the reasons we describe above, we believe
that this committee did not act properly to protect and promote the interests of
shareholders, where senior management who were also directors may have
reasonably been suspected of placing their own financial benefit ahead of
shareholder interests. We ask shareholders to consider whether Mr. Edison is an
appropriate choice to lead a board where one of the key objectives is to promote
independence from management. We think the answer is NO.
As noted, on March 5, 2003, the Company announced to shareholders that Mr.
Levy had been appointed lead director. This designation is not mentioned in the
Company's 2003 definitive proxy materials. Based upon our review of board
minutes furnished to us pursuant to our request under Missouri law, we
understand that this designation was withdrawn when Mr. Edison was appointed
Chairman of the Board. The Company touted the designation of a lead director as
a governance initiative but withdrew the designation without public disclosure.
We ask shareholders to consider whether the Company has acted here with the
appropriate openness and candor. We think the answer is NO.
David B. Pittaway is the director that the Company appointed to fill the
vacancy in the class of directors whose term expires in 2004, created by the
expansion of the board. The Company discloses in its 2003 definitive proxy
materials that Mr. Pittaway is a senior managing director of Castle Harlan, Inc.
The Company omits from its materials that--
o Castle Harlan was the investment firm that acquired Morton's
Restaurant Group (see "The special committee" above);
o Messrs. Bernstein, Pittaway and John Castle, a founder of Castle
Harlan, comprised the Executive Committee of the Board of Directors of
Morton's Restaurant Group;
o Mr. Castle had originally been on the special committee of the
Morton's board formed to evaluate acquisition proposals;
o approximately three months after Mr. Castle resigned from the special
committee--but not the board--Castle Harlan made its bid for Morton's
Restaurant Group;
o Mr. Pittaway was a director of Morton's at the time;
11
o Mr. Bernstein, as a member of Morton's senior management, participated
in that buyout; and
o With the recent appointment of Mr. Pittaway, we now have two directors
on the Company's board, Messrs. Pittaway and Bernstein, who were on
the Morton's board at the same time that they were participating in
the buyout of Morton's by Castle Harlan.
In light of the Company's recent experience with a proposed buyout
involving senior management, we ask shareholders to consider whether the
omission of this information, which we believe is relevant to the suitability of
Mr. Pittaway for membership on the Company's board, from you and from the
Company's proxy materials was proper. We think the answer is NO.
In Summary
----------
The recently expanded board of directors still contains a supermajority
who are tainted by the sale process. Each of the six continuing directors was
either actively involved in buyout or served on special committee charged with
overseeing the process.
For the reasons set forth in this section:
o we believe the Company's sale process, in which the Company received
various expressions of interest but focused only on those that
promoted senior management participation, was flawed and improper;
o we believe the Landry's exchange demonstrates that the management
directors acted improperly and in contravention of their fiduciary
duties to shareholders by placing their financial interests ahead of
the interests of shareholders;
o we believe the special committee, which reacted only to proposals that
had been screened by senior management and which apparently catered to
senior management's personal financial objectives, did not properly
discharge its duties to shareholders;
o we believe the members of the special committee should be held
accountable for ceding to the clearly interested management directors
significant aspects of the sale process and failing to actively
implement procedures designed to achieve the best and highest value
for shareholders; and
o we believe the directors who served on the special committee and the
board during this process should not be entrusted with the
responsibility of promoting governance reform, board independence and
maximizing shareholder value.
The improprieties that characterized the Company's sale process undermine
the trust that we, as the Company's largest shareholder, and all other
shareholders are entitled to place in the Company's board of directors. We
believe that the only way to restore this trust is to elect new directors who
are truly independent and whose only agenda is to advance shareholder interests
and maximize shareholder value for all.
12
Recent Financial Performance Compared with Management Compensation
- ------------------------------------------------------------------
The Company's operating income, net income, diluted earnings per share,
EBITDA and EBITDA margin have all declined for the second consecutive year,
while compensation of the Company's top management personnel, Messrs. Corriveau
and Corley, remains substantially in excess of the compensation awarded these
executives in fiscal 1999. We think that this is wrong and further undermines
our confidence in the business judgment and oversight of the current board.
The following information for fiscal years 1999 through 2002 (other than
per share prices) is derived from the Company's press release of April 8, 2003,
its annual report on Form 10-K for the year ended February 3, 2002, and its
proxy statements for the Company's 2002 and 2003 annual meetings of
shareholders. We compare the Company's results beginning in fiscal 1999, because
in that year the Company's stock price experienced a precipitous decline--the
effects of which continue to be felt--well in advance of the general downturn in
the securities markets.
13
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended(1) Change--
January 30, 2000 February 4, 2001 February 3, 2002 February 2, 2003 2002 compared to
(F1999) (F2000) (F2001) (F2002) (2) 1999
- ------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Number of 23 27 31 32 9
complexes at
fiscal year end
- ------------------------------- ------------ ------------ ------------ ------------ ------
Comparable Store (2.5%) 3.6% (2.8%) (3.2%) N/A
Revenues(3)
- ------------------------------- ------------ ------------ ------------ ------------ ------
Operating Income $ 18,955,000 $ 27,966,000 $ 19,697,000 $ 15,246,000 (19.6%)
- ------------------------------- ------------ ------------ ------------ ------------ ------
EBITDA(4) $ 38,839,000 $ 53,682,000 $ 48,390,000 $ 45,302,000 16.6%
- ------------------------------- ------------ ------------ ------------ ------------ ------
EBITDA margin(5) 15.7% 16.2% 13.5% 12.1% (22.9%)
- ------------------------------- ------------ ------------ ------------ ------------ ------
Net income $ 5,205,000 $ 12,245,000 $ 7,578,000 $ 5,348,000 2.7%
- ------------------------------- ------------ ------------ ------------ ------------ ------
Diluted earnings $ 0.39 $ 0.94 $ 0.58 $ 0.40 2.6%
per share (EPS)
- ------------------------------- ------------ ------------ ------------ ------------ ------
High/low share $29.00 /$5.50 $11.875 /$6.0625 $10.80 /$5.45 $13.25 /$7.40 N/A
price of the
Company's common
stock during the
fiscal year
- ------------------------------- ------------ ------------ ------------ ------------ ------
Total compensation $ 775,000 $ 1,743,000(6) $ 1,427,000 $ 1,285,000 65.9%
of Messrs.
Corriveau and
Corley
- ------------------------------- ------------ ------------ ------------ ------------ ------
1 The Company's fiscal year ends on the Sunday after the Saturday closest to
January 31.
2 Before the effect of change in accounting principle in fiscal 2002; after
change in accounting principle, the Company reported a net loss of
$1,748,000 and diluted net loss per share of $0.13. Inclusive of merger
related expenses incurred in fiscal 2002 of $1.3 million.
3 Measured with respect to stores open for one full year. Percentage
indicates change in comparable store revenues from prior fiscal year.
4 Defined as earnings before interest expense, income taxes, depreciation and
amortization, as derived from the Company's consolidated statements of
income.
5 Defined as EBITDA as a percentage of sales.
6 Includes restricted stock award valued at $960,000.
The Company's operating income, net income, diluted earnings per share,
EBITDA and EBITDA margin have all declined since fiscal 2000, even after
excluding merger related
14
expenses in fiscal 2002 and despite the opening of four new complexes in fiscal
2001 and one new complex in fiscal 2002. Operating income and EBITDA margins
were both lower in fiscal 2002 than they were in fiscal 1999. The Company's per
share price has declined from fiscal 1999, without meaningful recovery. In
contrast, the S&P Small Cap Restaurant Index, which the Company uses as its peer
group index for the stock price performance graph contained in its proxy
statements, has risen from the 1999 fiscal year end by approximately 55%.
We believe that the publicly traded companies whose business is most
comparable to the Company's are CEC Entertainment Inc. (operator of Chuck E.
Cheese's restaurants) (NYSE: CEC) and Total Entertainment Restaurant Corp.
(operator of Fox and Hound and Bailey's restaurants) (NASDAQ: TENT). Both are
restaurant companies which, like the Company, derive a significant portion of
their revenues from games and similar entertainment operations offered to
patrons. We are unaware of any other public companies with a similar business
model. CEC is geared towards families with children, while Total Entertainment,
like the Company, is intended to appeal to adults. The Company's diluted
earnings per share, before change in accounting principle in fiscal 2002, were
essentially the same in fiscal 2002 compared to fiscal 1999, after change in
accounting principle. In contrast and despite recent adverse economic
conditions, diluted earnings per share of CEC Entertainment and Total
Entertainment were higher in fiscal 2002 by approximately 55% and 386%,
respectively, than they were in fiscal 1999.
Notwithstanding the recent decline in the Company's financial performance,
the combined total annual compensation of Messrs. Corriveau and Corley has risen
by approximately 66% from fiscal 1999 to fiscal 2002. Their compensation as a
percentage of the Company's net income was 14.9% in fiscal 1999 compared to
24.0% in fiscal 2002. Although this compensation modestly declined in absolute
terms from fiscal 2000 to fiscal 2002, compensation as a percentage of the
Company's net income rose in each of fiscal 2001 and 2002.
At a time when the deterioration in the Company's business should have
been readily apparent, the compensation committee of the board recommended, and
the board approved, an increase in the base salary of Messrs. Corriveau and
Corley from $500,000 to $600,000, effective as of April 1, 2002. In our letter
to the board of March 3, 2003, we strongly criticized the increases in senior
management compensation at a time when the Company's financial performance was
trending in the opposite direction. We now read in the Company's 2003 definitive
proxy materials that Messrs. Corriveau and Corley agreed to reduce their base
salary by 20% in fiscal 2003, from $600,000 to $480,000 each. We believe that
this stated reduction is largely illusory. The reduced base salary is only
slightly lower than the base salary of $498,000 earned by each of Messrs.
Corriveau and Corley in fiscal 2001 and substantially above what they earned in
fiscal 1999. Moreover, Messrs. Corriveau and Corley can earn back half of their
pay "cuts" if the Company's diluted earnings per share in fiscal 2003 increases
by 50% over fiscal 2002 diluted earnings per share of $0.40. They can earn back
their entire pay "cuts" if the increase equals 100%. A 50% increase would be
almost the same as the Company's earnings per share in fiscal 2001 and
substantially less than the Company's published guidance of $0.77 to $0.85 in
diluted earnings per share for fiscal 2003; a 100% increase would still be less
than the Company's earnings per share in fiscal 2000.
We also note--
15
o the Company's issuance of retention bonuses of $100,000 to each of Messrs.
Corriveau and Corley in 2001--in addition to regular bonuses in the same
amount--at the time of a downturn in the Company's business and when senior
management was considering a management buyout of the Company; and
o the large issuances of management options following the steep decline of
the Company's stock price in 1999. In the last three fiscal years, the
Company issued options to senior management to purchase over 2,000,000
shares -- representing approximately 13% of fully diluted shares of the
Company -- at exercise prices between $6.82 and $8.62, which were
reflective of the depressed price of the stock. In total, the stock options
outstanding at the end of the Company's 2002 fiscal year represent more
than 16% of the fully diluted shares of the Company.
We believe that the board of directors is ultimately answerable to the
shareholders for the operating performance of the Company. The board and its
compensation committee are certainly accountable for the compensation awarded to
the Company's senior executive officers. In light of the Company's recent
financial performance, and the compensation of top management compared to those
results, we believe that change is needed in the boardroom.
Even with the Company's recent addition of three directors, the continuing
directors, who presided over the Company's prior sale process and its recent
disappointing operating results, remain a supermajority--six of nine directors--
of the board. We do not know if the directors recently appointed by those six
incumbent board members will act vigorously to expose and correct the serious
governance and oversight deficiencies that we have identified. We cannot tell if
they are incentivized to guide the Company towards improved operating results
and to maximize shareholder value. We believe that our independent director
slate will, subject to their fiduciary duties to all shareholders, be resolute
in pursuing these goals. As the Company's largest shareholder, we have the
ultimate financial incentive of maximizing value for all shareholders.
THE DOLPHIN PLATFORM
Dolphin is focused on the goal of maximizing shareholder value in which we
will share proportionately. We think this can be accomplished by repairing the
Company's operating results, and by exploring potential value maximizing
transactions for the shareholders. We also think that it is important to promote
trust in the leadership of the board. We believe that this can be accomplished
through focusing on operating results, installing key drivers for growth,
aligning top management compensation with share performance and exploring
potential value maximizing transactions. We think that this should be done
through the election of directors possessing independence and integrity, who
have the necessary financial and business acumen, who will champion initiatives
to improve corporate democracy and who will oppose any conduct that furthers the
personal benefits of management directors at your expense. Our independent
slate, however, intends to pursue these goals, subject to the exercise of each
director's fiduciary
16
duties, although we cannot assure you that, as a minority on the board, they
will be successful or that as a result of their election, shareholder value will
be maximized.
Our Nominees
- ------------
Our nominees are committed to pursuing these goals and collectively have
the background, experience and incentive to see them through. Our slate consists
of--
o Edward A. Weinstein, a retired senior partner of Deloitte & Touche,
LLP from its New York merger, acquisitions and restructuring unit;
o Donald T. Netter, Dolphin's senior managing director; and
o Edward E. Hartline, the managing partner of the Texas-based law firm
of Brown McCarroll, LLP.
Mr. Weinstein brings to our slate over 40 years' experience in public
company financial and accounting matters, including mergers and acquisitions.
His credentials as a public company accountant clearly qualify him as an "audit
committee financial expert" for purposes of Section 407 of the Sarbanes-Oxley
Act of 2002 and the SEC rules.
Mr. Netter, representing the Company's largest shareholder with an
investment in the Company of approximately $12 million, has 20 years' experience
in managing investments in public and private companies. He has also been a
director and senior officer of public companies. Mr. Hartline is a leading
corporate attorney in the region where the Company is headquartered, has
restaurant company board experience and brings to our slate over 25 years of
legal expertise for implementing needed governance reforms. Collectively, these
nominees are dedicated to promoting Dolphin's platform of maximizing shareholder
value and promoting independence for the board and its committees, subject to
the exercise of each director's fiduciary duties.
For additional information concerning our nominees, see "Certain
Information Regarding Dolphin's Nominees" below.
Our Platform
- ------------
If elected, our nominees will work with other committed, independent
members of the board to expose and correct the flaws of the prior sale process;
explore the possible sale of the Company and other strategic transactions with
the sole objective of maximizing shareholder value; dismantle the Company's
anti-takeover devices; install truly independent directors in leadership
positions on the board; and focus on improving operating results and instituting
a management compensation structure that rewards performance, in each case,
subject to the exercise of the director's fiduciary duties. Specifically, our
nominees will advocate--
o focusing on operating performance. We believe that the board must
conduct a thorough review of the Company's operations and business
model, with a view to
17
improving financial performance and the share price. This review
should include further opportunities for reducing the Company's $24.3
million in corporate overhead for fiscal 2002 (excluding merger
expenses) and ways to optimize use of the Company's facilities. We
also believe that the Company should engage an independent industry
consultant to assist in the review process. We expect that our
nominees may have other specific proposals for improving the Company's
performance, after they are elected and have access to the Company's
non-public operating data.
o aligning management compensation with operating results and
shareholder return. We do not believe that management should be
rewarded with increased compensation unless the increase is justified
by improved operating results, a higher share price and/or other
measures of enhanced shareholder value. Furthermore, no additional
options should be issued to the currently existing top management.
o designating a Chairman of the Board and a lead director unconnected to
the prior sale process. We believe that these positions should be
filled by directors, such as our nominees, who are elected,
independent and unconnected with the prior sale process. In all
events, we believe that the board must conduct regular meetings
without the participation of management directors.
o eliminating the Company's poison pill rights plan. We believe that
Missouri law provides adequate protection against coercive takeover
proposals. These include a two-thirds shareholder vote requirement for
mergers and asset sales; a requirement for shareholder unanimity on
action by written consent; and the authority of a board to consider
non-economic factors and long-term ramifications in reviewing takeover
proposals. A poison pill goes beyond these protections. It tends to
chill discourse among shareholders and inhibit collective action in
the exercise of the shareholder franchise for fear of forming a
"group" that triggers the draconian dilution apparatus of the pill.
The board of directors may redeem or otherwise terminate the rights
plan without shareholder action.
o destaggering the board to provide for the annual election of all
directors. We believe that directors should be held accountable to
shareholders for their performance on an annual basis and that a
staggered board improperly shields directors from scrutiny.
Eliminating the Company's staggered board requires an amendment to the
Company's charter, which under Missouri law must be approved by
shareholders. Under the Company's charter, 85% of the outstanding
shares must vote to approve this amendment.
o conducting a thorough review of the Company's prior sale process. We
believe that to restore trust and credibility to the Company, it is
important to fully investigate and to correct the conflicts that we
believe beset the prior sale process;
o reconstituting the board's special committee. According to statements
of management on the last two earnings calls, the special committee
remains in place but is not active. We think this is wrong. We believe
that this committee should be active and that it
18
should be composed solely of newly elected, independent directors who
have not previously served in this capacity. We also believe that, if
a decision is made to sell the Company, a credible, unaffiliated
financial or strategic buyer will not likely come forward unless the
special committee is composed of new members unconnected with the
prior process. We intend to seek substantial representation for our
nominees on this committee;
o exploring methods to maximize shareholder value, which may include a
sale of the Company. We believe that the special committee, together
with newly retained professional advisors, should examine all possible
methods of maximizing shareholder value, which may include a sale of
the Company. If a decision is made to sell the Company, the newly
constituted special committee, and not senior management, should
actively conduct the process.
THE PROPOSALS
Dolphin is soliciting proxies from the holders of shares of common stock
to elect three nominees to fill the seats of the Company's directorships that
expire at the 2003 annual meeting. The directors whose terms expire at the
annual meeting are James W. Corley, the Company's Chief Executive Officer; Peter
A. Edison, the current Chairman of the Board; and Patricia P. Priest, who was
appointed by the board to fill a vacancy occasioned by the retirement of Mr.
Henrion in April 2003. Dolphin is also seeking proxy authority to vote on two
other proposals that, according to the Company's definitive proxy materials,
will also be brought before the 2003 annual meeting.
The election of directors requires a majority of the votes cast in the
election. The other proposals also require a majority of the votes cast on the
particular matter. See "Voting Procedures" below.
Dolphin recommends that you vote FOR each of Proposal Nos. 1, 2 and 3 by
checking the appropriate boxes and signing, dating and returning the enclosed
BLUE proxy card.
Election of Directors to Terms Expiring in 2006
Proposal No. 1 -- Election of Dolphin's Nominees as Directors to Terms
Expiring in 2006
Proposal No. 1 provides for the election of Edward E. Hartline, Donald
T. Netter and Edward A. Weinstein to serve as directors until the 2006 annual
meeting of shareholders. See "Certain Other Information Regarding Dolphin's
Nominees" for information concerning the background and experience of Messrs.
Weinstein, Netter and Hartline. If elected, Dolphin's nominees would
constitute three of the Company's nine directors.
Each of Dolphin's nominees has consented to being named herein as a
nominee for director of the Company and has agreed to stand for election as a
director.
Although we have no reason to believe that any of our nominees will be
unable to serve as a director, if any Dolphin nominee is not available to serve,
we expect that the remaining Dolphin nominees, upon taking office, would seek to
work with the other non-conflicted
19
members of the Company's board to fill the vacancy with an individual
willing to consider and implement our platform to maximize shareholder
value, subject to the exercise of the director's fiduciary duties.
Ratification of the Appointment of Independent Accountants (Company
Proposal)
Proposal No. 2 -- Ratification of Ernst & Young LLP as the Company's
Independent Accountants
Proposal No. 2 provides for the ratification of the appointment by the
Company's board of directors of Ernst & Young LLP as the Company's independent
auditors to audit the Company's financial statements for fiscal 2003. See
"Auditors" for further information regarding Ernst & Young LLP.
Dolphin recommends a vote in FAVOR of this proposal.
Sale of the Company (Shareholder Proposal)
Proposal No. 3 -- Shareholder Proposal Regarding Sale of the Company
Proposal No. 3 provides for the Company's board of directors to pursue a
sale of the Company, or all or substantially all of its business and assets,
with the assistance of a nationally recognized investment banking firm, with the
intent to consummate such transactions no later than February 28, 2004. Proposal
No. 3 is being presented by Renaissance Capital Group, Inc., one of the
Company's larger shareholders. Based on information that we have received from
the Company, we understand that Renaissance beneficially owns a total of 619,700
shares of the Company's common stock or approximately 4.6% of the outstanding
shares. This percentage, and other shareholder percentages in this proxy
statement, are based upon 13,362,785 shares of common stock that the Company has
informed us were issued and outstanding as of April 18, 2003, the record date
for the shares entitled to vote at the 2003 annual meeting.
The Company's board of directors recommends a vote against Proposal No. 3.
Dolphin recommends a vote in FAVOR of this proposal.
By supporting the Renaissance proposal, we are not necessarily advocating
a sale of the Company by February 28, 2004. We believe, however, that this
proposal sends a strong message to senior management and this board that
shareholders expect immediate action to turn the Company around and to maximize
shareholder value. Given the operating results of the Company in recent years
and the performance of its share price, shareholders are justified in expecting
management to take vigorous action to implement operational improvements and
install key drivers for growth. If senior management and this board are unable
to accomplish this within a year's time, then a properly conducted sale process
may be appropriate to maximize value for all shareholders. We also identify with
the supporting statement of Renaissance set forth in the Company's 2003 proxy
materials, which highlights the disappointing performance of the Company's share
price, the decline in its market capitalization and the decline in its financial
and business performance.
20
We therefore intend to vote our shares, along with all shares represented
by any proxy signed and returned to Dolphin without instructions to the
contrary, in FAVOR of Proposal No. 3.
Shareholders are referred to the Company's proxy statement for the 2003
annual meeting for a detailed description of Proposal No. 3, the reasons that
Renaissance is making this proposal and the Company's reasons for opposing it.
INFORMATION ABOUT DOLPHIN
Dolphin's nominees and certain other persons named below may be deemed to
be "participants" in this proxy solicitation, as the term participant is defined
in Schedule 14A promulgated under the Securities Exchange Act of 1934. Dolphin
is a Delaware limited partnership that is engaged in the business of investing
in corporate securities, including both active investment and investment
arbitrage. The address of the principal business and principal offices of
Dolphin is c/o Dolphin Holdings Corporation, 96 Cummings Point Road, Stamford,
Connecticut 06902.
The general partner of Dolphin is Dolphin Associates, LLC, a Delaware
limited liability company that is engaged in the business of investing in
corporate securities, including both active investment and investment arbitrage.
The address of the principal business and principal offices of Dolphin
Associates, LLC is c/o Dolphin Holdings Corporation, 96 Cummings Point Road,
Stamford, Connecticut 06902.
The managing member of Dolphin Associates LLC is Dolphin Holdings
Corporation, a Delaware corporation engaged in managing partnerships that
directly and indirectly invest in publicly traded corporate securities,
including both active investments and investment arbitrage. The address of the
principal business and principal offices of Dolphin Holdings Corporation is 96
Cummings Point Road, Stamford, Connecticut 06902. Donald T. Netter is Chairman,
Chief Executive Officer, President and Senior Managing Director of Dolphin
Holdings Corporation. The business address of Mr. Netter is c/o Dolphin Holdings
Corporation, 96 Cummings Point Road, Stamford, Connecticut 06902. The other
officers of Dolphin Holdings Corporation and their principal occupations and
business addresses are set forth on Schedule I to this proxy statement. These
persons may also solicit proxies on Dolphin's behalf so that they may be deemed
participants in our solicitation.
As of the date of this proxy statement, Dolphin owns an aggregate of
1,262,800 shares of common stock representing approximately 9.5% of the
outstanding shares.
Additional information about Dolphin and Dolphin's nominees including
information regarding the beneficial ownership of common stock is set forth
under the heading "Certain Other Information Regarding Dolphin's Nominees" and
in Annex A attached to this proxy statement.
Dolphin has retained Innisfree to act as an advisor and to provide
consulting and analytic services and solicitation services in connection with
this proxy solicitation. Innisfree is a proxy service company. It mails
documents to shareholders, responds to shareholder questions and solicits
shareholder votes for many companies. Innisfree does not believe that it or any
of its
21
directors, officers, employees, affiliates or controlling persons, if any, is a
"participant" in this proxy solicitation or that Schedule 14A requires the
disclosure of certain information concerning Innisfree. The business address of
Innisfree is 501 Madison Avenue, New York, New York 10022. Innisfree has
informed Dolphin that, as of the date of this proxy statement, it does not hold
any shares of the Company's common stock for its own account or for the accounts
of others.
BACKGROUND OF AND REASONS FOR THE PROXY SOLICITATION
Background
On various dates from June 14, 2002 through March 26, 2003 Dolphin
purchased a total of 1,327,800 shares of common stock in the open market for a
total purchase price of $12,589,218 and sold in July 2002 a total of 65,000
shares of common stock in the open market for a total sales price of $865,563,
in each case including commissions and related costs. The details of these
purchases and sales are set forth in Annex A attached to this proxy statement.
All of the purchases were funded by working capital.
In September 2002, Mr. Netter sought a meeting with the Company's senior
management, while the Investcorp acquisition proposal with the participation of
senior management was pending, but his request was not honored. On October 4,
2002, Mr. Netter sent a letter to the Company for distribution to the board's
independent directors. In the letter, Mr. Netter voiced concerns about the
Company's sale process based upon the complaint in the Texas class action
litigation referred to above. Mr. Netter believed that the sale process had been
"slanted" in favor of senior management participation, as described above under
"Dolphin's Reasons For Seeking Board Representation." Mr. Levy, in his capacity
as Chairman of the special committee, responded to Mr. Netter by letter dated
October 9, 2002, in which he stated that the members of the special committee
were aware of their fiduciary obligations "and had fulfilled and would continue
to fulfil those obligations." Mr. Netter responded to Mr. Levy by letter dated
October 22, 2002 and in a subsequent telephone conversation. In Mr. Netter's
letter and conversation, he told Mr. Levy that he found Mr. Levy's statements
difficult to justify on the basis of publicly available information. On October
24, 2002, Investcorp requested, and the special committee subsequently agreed,
to terminate the then pending merger agreement between an Investcorp affiliate
and the Company citing "continuous adverse conditions in the debt financing
market," according to a press release issued by the Company on the same day.
On December 5, 2002, the Company held its earnings call for the third
quarter of fiscal 2002. The Company reported a 3.5% decline in comparable store
sales and a 27.3% drop in diluted earnings per share for the quarter, and
management acknowledged a disappointing quarter. The Company provided guidance
on diluted earnings per share for fiscal 2003 of $0.77 to $0.85. In response to
an investor question, management said that the special committee continued to
remain in place but was inactive.
On January 27, 2003, Mr. Netter and Brett Buckley, a Vice President of
Dolphin Holding Corporation, on their own toured the Company's facilities in
Dallas. The following day, Mr. Netter and Mr. Buckley met with William C.
Hammett, Jr., the Company's chief financial officer, at the Company's
headquarters in Dallas. Although the Dolphin representatives had
22
been told that at least one of the Co-Chief Executive Officers would be present,
neither was available to attend the meeting. In the meeting with Mr. Hammett,
the parties discussed the Company's historical results, the Company's previously
announced guidance, the Company's general business model and the actions of
senior management who were directors during the course of the Company's sale
process. On February 11, 2003, Mr. Buckley had a follow-on telephone
conversation with Mr. Hammett to discuss these same subjects.
On March 3, 2003, Dolphin sent a letter to the Company's board of
directors stating that it intended to nominate a slate of three independent
directors at the Company's 2003 annual meeting. The letter, which was filed with
Dolphin's Statement on Schedule 13D on that day, also made many of the same
points set forth above under "Dolphin's Reasons For Seeking Board
Representation." On March 5, 2003, the Company issued a press release describing
"planned corporate governance initiatives" that its board had adopted on the
previous day.
On March 10, 2003, Mr. Edison left a telephone message for Mr. Netter,
which Mr. Netter returned later that day. Mr. Edison informed Mr. Netter that he
was calling in his capacity as Chairman of the Company's recently formed
nominating and corporate governance committee. According to Mr. Edison, the
board had suggested calling Mr. Netter for recommendations on candidates for new
board members. Mr. Netter inquired concerning the board's timing for selecting
the candidates and requested that Mr. Edison call him again when the board's
deadline was approaching. Mr. Edison said that he would do so. Mr. Netter also
inquired whether the Company was considering expanding the size of the board of
directors, to which Mr. Edison replied that such an expansion was a possibility.
On March 11, 2003, Dolphin sent a letter to the Company requesting minutes
of board and shareholder meetings and shareholder information customarily made
available in proxy contests or otherwise required by Missouri Law. Also on this
date, Dolphin issued a press release disclosing its requests and characterizing
the Company's announced corporate governance initiatives as "too little, too
late." In the release, Dolphin admonished the Company not to expand the board
without a shareholder vote.
On March 17, 2003, the Company sent an open letter to shareholders,
reiterating the "governance initiatives" that it had described in its March 5,
2003 press release.
On March 18, 2003, the Company responded to Dolphin's request for
information by offering to provide only a record list of shareholders following
the record date. On March 20, 2003, Dolphin sent a letter to the Company and
issued a press release stating that it was establishing a deadline of the close
of business on March 21, 2003 for the Company to comply with Dolphin's request
for shareholder and other information. On March 21, 2003, the Company sent a
letter to Dolphin's counsel stating that the Company would comply with Dolphin's
information request. The Company subsequently furnished to Dolphin requested
information.
On March 24, 2003, the Company issued a press release announcing that
April 18, 2003 had been selected as the record date for the 2003 annual meeting
of the Company's shareholders and that June 10, 2003 had been selected as the
date of this meeting.
23
On April 8, 2003, the Company conducted its fourth quarter and fiscal year
end earnings call. The Company again reported a drop-off in comparable store
revenues for the quarter, this time of 4.8%, and a drop in diluted earnings per
share of 33.3% for the quarter, compared to the fourth quarter of fiscal 2001.
Management confirmed the previously announced diluted earnings per share
guidance for fiscal 2003, but withdrew any quarterly guidance. In response to an
investor question, management again stated that the special committee continued
to remain in place, but was not active.
Mr. Edison called Mr. Netter on April 8, 2003, to state that the board was
ready to "lock in" new board members and to inquire whether Dolphin had selected
its nominees. Mr. Netter responded that Dolphin would identify its nominees in
advance of the April 12, 2003 deadline imposed under the Company's by-laws. On
April 10, 2003, Dolphin delivered a letter to the Company notifying the Company
of the Dolphin nominees and providing the required information concerning the
nominees.
Also on April 10, 2003, the Company sent a letter to shareholders and
issued a press release describing additional governance and business
initiatives.
On April 11, 2003, Mr. Netter telephoned Mr. Edison, who was now Chairman
of the Company's board as well as Chairman of its nominating and corporate
governance committee, to inform him that Dolphin had submitted its slate of
nominees to the Company. Mr. Netter also inquired of Mr. Edison about the
contemplated size of the board, and Mr. Edison replied that it was likely that
two directors would be added. This would bring the size of the board to nine,
taking into account Mr. Henrion's retirement as a director, which was announced
by the Company in its release on the previous day. Mr. Edison called Mr. Netter
back, and Mr. Netter, who was then travelling, returned the call several hours
later. In their conversation, Mr. Edison stated that he would like to interview
the Dolphin nominees. Mr. Netter responded that he wanted to discuss Mr.
Edison's request with the other nominees over the weekend and would get back to
Mr. Edison on Monday.
On April 14, 2003, Dolphin issued a press release, publicly disclosing its
slate of nominees and their qualifications. In the release, Dolphin reiterated
its demand that the board not be expanded without a shareholder vote. As
promised, Mr. Netter called Mr. Edison, and the two discussed the board's
selection of additional directors, the Dolphin nominees, the continued reactive
role of the special committee and the prior sale process. Later in the day, Mr.
Edison called back Mr. Netter saying that he continued to be interested in
interviewing the other two Dolphin nominees and in working out a mutually
acceptable arrangement. Mr. Edison suggested that the nominating committee might
be prepared to include one of the Dolphin nominees among the board's appointed
directors, but that the nominee could not be Mr. Netter. Mr. Edison later called
back again and explained that a number of directors were opposed to Mr. Netter
because of what he had written in his March 3, 2003 letter to the board and that
it had become a "personal" issue with some of the directors. Mr. Netter stated
that the "facts were the facts," that what occurred with Landry's was a
tremendous breach of trust and that the board should do what is in the best
interests of shareholders.
Also on this date, Mr. Edison sent a letter to Mr. Netter reiterating Mr.
Edison's request to interview the Dolphin nominees. Mr. Netter responded by
letter of April 15, 2003 that
24
Dolphin was not proposing candidates for cherry picking by the board. Mr. Netter
stated that Dolphin did not have confidence that any single candidate selected
by the board, regardless of qualification, would be able to achieve the
necessary reforms. Rather, Mr. Netter said, Dolphin was hoping to elect a slate
of highly qualified directors, with complementary skills, background and
expertise, who were committed to Dolphin's platform of business, transactional
and governance reforms. In the letter, Dolphin also stated that the election of
Dolphin's proposed slate of directors would empower shareholders to effect a
change in control of the board in 2004 if necessary, and that if the Company
were interested in "pursuing true governance reforms with the participation of
our independent director slate, [Dolphin] will be pleased to introduce all of
our nominees to you and provide whatever additional demonstration you may
reasonably require of their quality and integrity." On April 17, 2003, the
Company publicly announced the selection of three additional directors, the
retirement of another director, Bruce Hallett, and the expansion of the board to
nine directors. Mr. Edison wrote to Mr. Netter on April 18, 2003 expressing
regret that his committee had not had the opportunity to interview the Dolphin
candidates and informing Mr. Netter of the appointment of the board directors
and the expansion of the board announced the previous day.
On April 23, 2003, Dolphin sent a "stop, look and listen" letter to
shareholders, informing them of Dolphin's intention to solicit their proxies for
the election of the Dolphin slate and requesting that they not return any proxy
card furnished to them by the Company. In the letter, Dolphin noted particularly
that, notwithstanding the three recently appointed directors, the incumbent
directors constituted a supermajority of the now expanded board of nine,
occupying six of the nine positions.
CERTAIN OTHER INFORMATION REGARDING
DOLPHIN'S NOMINEES
Set forth below are the name, age, business address, present principal
occupation, employment history and directorships of each of Dolphin's nominees
for at least the past five years. This information has been furnished to Dolphin
by the respective Dolphin nominees. Each of Dolphin's nominees has consented to
serve as a director of the Company. Each of Dolphin's nominees is at least 18
years of age. None of the entities referenced below is a parent or subsidiary of
the Company.
Dolphin Nominee Age Business Address
- --------------------------------------------------------------------------
Edward A. Weinstein 67 433 East 56 Street
Apt. 15A
New York, New York 10022
Donald T. Netter 41 c/o Dolphin Holdings Corporation
96 Cummings Point Road
Stamford, Connecticut 06902
Edward E. Hartline 56 c/o Brown McCarroll, L.L.P.
1111 Bagby
47th Floor
Houston, Texas 77030
- --------------------------------------------------------------------------
25
Mr. Weinstein is a retired senior partner of Deloitte & Touche LLP where
he served, among other things, as head of the New York merger and acquisitions
and restructuring unit. Prior to his retirement from Deloitte & Touche in 1998,
he served as an audit partner and auditor for 40 years. Mr. Weinstein has
extensive experience with publicly traded retail specialty, discount,
supermarket and department store chains. His practice also included publicly
traded clients in manufacturing, financial services, telecommunications,
computer services and real estate. Mr. Weinstein has managed, planned and
directed tax, accounting, consulting, actuarial and valuation support for
mergers, acquisitions, business divestitures and the offering of public
securities. He also has consulted on financial and tax restructurings, provided
accounting and financial consulting services in commercial litigation and
arbitration and served as an arbitrator in commercial accounting disputes. Since
1998, Mr. Weinstein has been an independent consultant and advisor to industry,
not-for-profit organizations and government and an arbitrator to the securities
industry. Mr. Weinstein has been an adjunct professor of accounting and auditing
at New York University and has lectured on accounting and auditing at the
Columbia University Graduate School of Business. He has also written extensively
on accounting and auditing and spoken on these matters in the USA, Japan, the
United Kingdom, and Israel. Mr. Weinstein is a member of the American Institute
of Certified Public Accountants and a former President of the New York State
Society of Certified Public Accountants.
Mr. Netter has been Chairman, Chief Executive Officer, President and
Senior Managing Director, for more than five years, of Dolphin Holdings
Corporation, a private company engaged in managing partnerships that directly
and indirectly invest in publicly traded corporate securities, including both
active investments and investment arbitrage. Dolphin Holdings Corporation is the
managing member of the general partner of Dolphin. From 1989 through 1993, Mr.
Netter was co-general partner of RLR Partners L.P., the general partner of
Ballantrae Partners, L.P., a New York based private investment partnership that
was engaged in acquiring significant stakes in public companies, merger
arbitrage and leveraged acquisitions. Following Ballantrae's leveraged
acquisition of Damon Corporation in 1989 and until its sale in 1993, Mr. Netter
was a director and held officerships of Damon, a significant participant in the
clinical laboratory testing business. He currently serves as a director of The
Aristotle Corporation (NASDAQ: ARTLP), a holding company which, through its
subsidiaries, is a leading manufacturer and global distributor of educational,
health and agricultural products. From 1993 to 1999, Mr. Netter was a director
and officer of Independence Holding Company (NASDAQ: INHO), a holding company
engaged through its subsidiaries principally in the life and health insurance
business. He also is an officer of Geneve Corporation, a family-held private
investment concern, and a member of the Executive Council of The Rockefeller
University, New York, New York.
Mr. Hartline was a founder and since 1991 has been a Managing Partner of
Brown McCarroll, L.L.P., a law firm with offices in Houston, Austin, Dallas and
Longview, Texas. He specializes in tax, corporate and mergers and acquisitions
law. Mr. Hartline is a member of the board of directors of two Texas-based
private companies, Cordua Restaurants and 1776, Inc. Cordua operates restaurants
serving Latin American and South American fare and offers catering services with
a variety of themes and price points. 1776, Inc. operates family eating
26
establishments offering breakfast, lunch and dinner and catering services. Mr.
Hartline has served as a board member and as Chairman of the board of the
Houston Law Review since 1973 and 2001 respectively. He also serves as a judge
for the Police Civil Service Commission of the City of Houston.
Each of Messrs. Weinstein, Netter and Hartline has entered into a nominee
agreement with Dolphin, pursuant to which Dolphin has agreed to indemnify the
nominee for certain liabilities, losses, claims, damages and expenses, including
reasonable attorneys' fees and expenses, in connection with any action,
investigation or other proceeding involving the nominee as a result of his
nomination as a director of the Company. Also, in connection with the nomination
of Messrs. Weinstein and Hartline, Mr. Netter has agreed to direct up to $10,000
to a qualifying charity designated by each of Mr. Weinstein and Mr. Hartline.
The number of shares of the Company's common stock beneficially owned and
the percentage of beneficial ownership of each of Dolphin's nominees as of the
date of this proxy statement are as follows:
Number of Shares Percentage
Dolphin Nominee Beneficially Owned (1), (2) Ownership (3)
- ------------------------- ------------------------- --------------
Edward A. Weinstein (4) (4)
Donald T. Netter 1,262,800 (5) 9.5%
Edward E. Hartline (4) (4)
--------------------------------------------
Total 1,262,800 (6) 9.5%
--------------------
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. Shares of common stock subject to stock options and
warrants currently exercisable or exercisable within 60 days are deemed
outstanding for purposes of computing the percentage ownership of any
group of which the holder is a member, but are not deemed outstanding
for computing the percentage ownership of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) Under the rules of the SEC, Dolphin's nominees may be deemed to be
members of a group and, as a result, each Dolphin nominee may be deemed
to beneficially own shares of common stock beneficially owned by each
of the other Dolphin nominees. Each of Dolphin's nominees disclaims
beneficial ownership of the shares of common stock beneficially owned
by any of the other Dolphin nominees.
27
(3) Calculated based on based upon 13,362,785 shares of common stock that
the Company has informed us were issued and outstanding as of April 18,
2003, the record date for the shares entitled to vote at the 2003
annual meeting.
(4) Messrs. Weinstein and Hartline may be deemed to beneficially own the
1,262,800 shares of common stock beneficially owned by Dolphin Limited
Partnership I, L.P. Each of Messrs. Mr. Weinstein and Hartline
disclaims beneficial ownership of the shares of common stock
beneficially owned by Dolphin Limited Partnership I, L.P.
(5) Consists of 1,262,800 shares of common stock owned by Dolphin Limited
Partnership I, L.P. Mr. Netter is the Chairman, Chief Executive
Officer, President and Senior Managing Director of Dolphin Holdings
Corporation, the managing member of Dolphin Associates LLC. Dolphin
Associates LLC is the general partner of Dolphin Limited Partnership I,
L.P. Mr. Netter has sole voting and dispositive power with respect to
the 1,262,800 shares of common stock owned by Dolphin Limited
Partnership I, L.P.
(6) Consists of 1,262,800 shares of common stock owned by Dolphin Limited
Partnership I, L.P.
All of Dolphin's nominees are citizens of the United States.
Except as set forth in this proxy statement or in the Annexes hereto, to
the best knowledge of Dolphin, none of Dolphin, any of the persons participating
in this proxy solicitation on behalf of Dolphin, Dolphin's nominees and, with
respect to items (i), (vii) and (viii) of this paragraph, any associate (within
the meaning of Rule 14a-1 of the Securities Exchange Act of 1934) of the
foregoing persons (i) owns beneficially, directly or indirectly, any securities
of the Company, (ii) owns beneficially, directly or indirectly, any securities
of any parent or subsidiary of the Company, (iii) owns any securities of the
Company of record but not beneficially, (iv) has purchased or sold any
securities of the Company within the past two years, (v) has incurred
indebtedness for the purpose of acquiring or holding securities of the Company,
(vi) is or has within the past year been a party to any contract, arrangement or
understanding with respect to any securities of the Company, (vii) since the
beginning of the Company's last fiscal year has been indebted to the Company or
any of its subsidiaries in excess of $60,000 or (viii) has any arrangement or
understanding with respect to future employment by the Company or with respect
to any future transactions to which the Company or any of its affiliates will or
may be a party. In addition, except as set forth in this proxy statement or in
the Annexes hereto, to the best knowledge of Dolphin, none of Dolphin, any of
the persons participating in this proxy solicitation on behalf of Dolphin,
Dolphin's nominees and any associates of the foregoing persons, has had or is to
have a direct or indirect material interest in any transaction or proposed
transaction with the Company in which the amount involved exceeds $60,000, since
the beginning of the Company's last fiscal year.
Except as set forth in this proxy statement or in the Annexes hereto, to
the best knowledge of Dolphin, none of Dolphin's nominees, since the beginning
of the Company's last fiscal year, has been affiliated with (i) any entity that
made or received, or during the Company's current fiscal year proposes to make
or receive, payments to or from the Company or its
28
subsidiaries for property or services in excess of five percent of either the
Company's or such entity's consolidated gross revenues for its last full fiscal
year, or (ii) any entity to which the Company or its subsidiaries were indebted
at the end of the Company's last full fiscal year in an aggregate amount
exceeding five percent of the Company's total consolidated assets at the end of
such year. None of Dolphin's nominees is, or during the Company's last fiscal
year has been, affiliated with any law or investment banking firm that has
performed or proposes to perform services for the Company.
To the best knowledge of Dolphin, none of the corporations or
organizations in which the Dolphin's nominees have conducted their principal
occupation or employment was a parent, subsidiary or other affiliate of the
Company, and Dolphin's nominees do not hold any employment position or office
with the Company or have any family relationship with any executive officer or
director of the Company or have been involved in any proceedings, legal or
otherwise, of the type required to be disclosed by the rules governing this
solicitation.
AUDITORS
According to information contained in the Company's proxy statement, the
Company's board of directors has appointed Ernst & Young LLP as the independent
accountants to audit the Company's financial statements for fiscal 2003. Ernst &
Young LLP has audited the Company's financial statements since 1995. The Company
has stated in its proxy statement that representatives of Ernst & Young LLP are
expected to be available at the 2003 annual meeting and will have an opportunity
to make a statement if such representatives so desire and are expected to be
available to respond to appropriate questions.
Dolphin recommends that you vote FOR the ratification of the appointment
of Ernst & Young LLP as the Company's independent auditors for fiscal 2003. See
Proposal No. 2 under "The Proposals."
SOLICITATION OF PROXIES
Dolphin has retained Innisfree to act as an advisor in connection with
this proxy solicitation. In connection with its retention by Dolphin, Innisfree
has agreed to provide consulting and analytic services and solicitation services
with respect to banks, brokers, institutional investors and individual
shareholders. Dolphin has agreed to pay Innisfree a fee for its services
estimated to be not more than $25,000 and to reimburse Innisfree for its
reasonable out-of-pocket expenses. Dolphin also has agreed to indemnify
Innisfree against certain liabilities and expenses in connection with this proxy
solicitation, including liabilities under the federal securities laws.
Approximately 25 employees of Innisfree will engage in the solicitation.
Proxies may be solicited by mail, advertisement, telephone, facsimile or in
person. Solicitations may be made by persons employed by or affiliated with
Dolphin. However, no person will receive additional compensation for such
solicitation other than Innisfree.
Banks, brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward the proxy materials to the beneficial owners of
shares of common stock for which they hold of record and Dolphin will reimburse
them for their reasonable out-of-pocket expenses.
29
The expenses related directly to this proxy solicitation are expected to
aggregate approximately $400,000 and will be borne by Dolphin. These
expenses include fees and expenses for attorneys, proxy solicitors, printing,
postage, filing expenses and other costs incidental to the solicitation. Of this
estimated amount, approximately $250,000 has been spent to date. The actual
costs and expenses could be materially different than the estimated amounts and,
in particular, could be substantially higher if for any reason litigation is
instituted in connection with the matters related to this proxy statement.
The purpose of the proposals in this proxy statement is to advance the
interests of all the Company's shareholders. Therefore, Dolphin believes that
its expenses related to this proxy solicitation should be borne by the Company
and it intends to seek reimbursement of such expenses from the Company whether
or not this proxy solicitation is successful. The question of reimbursement of
the expenses of Dolphin by the Company will not be submitted to a shareholder
vote.
If you have any questions about this proxy solicitation or voting your
shares or require assistance, please contact:
Innisfree M&A Incorporated
501 Madison Avenue
New York, New York 10022
Toll Free: (888) 750-5834
Banks and Brokers call collect: (212) 750-5833
OTHER MATTERS
This proxy solicitation is being made by Dolphin and not on behalf of the
board of directors or management of the Company. Dolphin is not aware of any
other matters to be brought before the Company's 2003 annual meeting, except as
set forth herein. Should other matters be brought before the 2003 annual
meeting, by having signed and returned the enclosed BLUE proxy card, you will
have authorized the persons named as proxies in the enclosed BLUE proxy card to
vote on all such matters in their discretion.
The Company's filings with the SEC contains information regarding (1)
financial information of the Company; (2) securities ownership of certain
beneficial owners and management of the Company; (3) the committees of the board
of directors; (4) the meetings of the board of directors and all committees
thereof; (5) the business background and employment biographies of the Company's
nominees for election to the board of directors; (6) the compensation and
remuneration paid and payable to the Company's directors and management; and (7)
the Company's stock price performance in relation to an assumed group of "peers"
or market-based indices. Shareholders are referred to the Company's filings for
this information.
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
The Company's proxy statement with respect to the 2003 annual meeting
indicates that proposals of the Company's shareholders intended to be presented
at the Company's 2004 annual meeting must be received by the Company no later
than January 1, 2004 in order for them to be considered for inclusion in the
Company's proxy statement. The Company's
30
shareholders are hereby referred to the Company's proxy statement in connection
with the 2003 annual meeting for such information.
INFORMATION REGARDING THE COMPANY
The information concerning the Company contained in this proxy statement
has been taken from or is based upon documents and records on file with the SEC
and other publicly available information. Dolphin has no knowledge that would
indicate that statements relating to the Company contained in this proxy
statement in reliance upon publicly available information are inaccurate or
incomplete. Dolphin, however, has not been given access to the books and records
of the Company, was not involved in the preparation of such information and
statements, and is not in a position to verify, or make any representation with
respect to the accuracy or completeness of, any such information or statements.
VOTING PROCEDURES
Who is entitled to vote?
If the Company's stock records show that you are a shareholder as of the
close of business on the record date for the 2003 annual meeting, you are
entitled to vote the shares of common stock that you held on such date. Even if
you sell your shares after the record date for the 2003 annual meeting, you will
retain the right to execute a proxy in connection with the 2003 annual meeting.
Each outstanding share of common stock entitles its holder to cast one vote for
each matter to be voted upon.
Can I attend the meeting?
All shareholders of record of the Company's common stock at the close of
business on April 18, 2003, the record date for the 2003 annual meeting, or
their designated proxies, are authorized to attend the 2003 annual meeting. If
your shares are held of record by a bank, broker or other nominee, you will need
to obtain a "legal proxy" form from your bank or broker if you wish to vote at
the 2003 annual meeting.
What constitutes a quorum? How will abstentions and broker non-votes be
counted?
The holders of a majority of the Company's common stock outstanding and
entitled to vote, present in person or represented by proxy, will constitute a
quorum at the 2003 annual meeting. Votes cast in person or by proxy at the 2003
annual meeting will be tabulated by the inspector of elections appointed for the
2003 annual meeting to determine whether or not a quorum is present. The
inspector of elections will treat abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum, but
abstentions will have the effect of a vote against all matters submitted to a
vote of shareholders.
Shares as to which voting instructions are given as to at least one of the
matters to be voted on or which the nominee has the discretion to vote on at
least one of the matters presented at the 2003 annual meeting will be deemed to
be represented at the meeting and be counted for purposes of determining whether
a quorum is present, even if the nominee may not exercise
31
discretionary voting power with respect to other matters and voting instructions
have not been received from the beneficial owner (a "broker non-vote"). Shares
as to which a proxy is submitted to us without instructions will deemed to be
represented at the meeting and be counted for purposes of determining the
presence of a quorum, and our representatives will vote your shares in favor of
Proposals Nos. 1, 2, and 3. Broker non-votes will not be counted as votes for,
nor the withholding of authority for, the election of our three nominees
(Proposal No. 1), the ratification of accountants (Proposal No. 2), or the
shareholder proposal regarding the sale of the Company (Proposal No. 3).
How do I vote?
Voting by proxy for holders of shares registered in the name of a
brokerage firm or bank. If your shares are held by a broker, bank or other
nominee (i.e., in "street name"), only your bank or broker can give a proxy with
respect to your shares. You should receive a proxy card from your bank or broker
which you must return in the envelope provided in order to have your shares
voted. If you have not received a proxy card from your bank or broker, you may
contact it directly to provide it with instructions on how you wish to vote. If
you need assistance in dealing with your bank or broker, please contact
Innisfree at (888) 750-5834 or collect at (212) 750-5833.
Voting by proxy for holders of shares registered directly in the name of
the shareholder. If you hold your shares in your own name as a holder of record,
you may vote your shares by marking, signing, dating and mailing the BLUE proxy
card in the postage-paid envelope that has been provided to you by Dolphin. To
vote your shares in accordance with your instructions at the 2003 annual
meeting, we must receive your proxy as soon as possible but, in any event, prior
to the 2003 annual meeting.
Vote in person. If you are a registered shareholder and attend the 2003
annual meeting, you may vote in person by completing a ballot provided for this
purpose at the meeting. You may also deliver your completed BLUE proxy card at
the meeting to a representative of Dolphin. "Street name" shareholders who wish
to vote at the 2003 annual meeting will need to obtain a "legal proxy" form from
the broker, bank or other nominee that holds their shares of record and must
bring that document to the meeting in order to vote in person at the 2003 annual
meeting. If you need assistance, please contact Innisfree at (888) 750-5834 or
collect at (212) 750-5833.
What should I do if I receive a proxy card which is not BLUE?
If you submit a proxy to us by signing and returning the enclosed BLUE
proxy card, do NOT sign or return the proxy card or follow any voting
instructions provided by the Company's board of directors unless you intend to
change your vote, because only your latest-dated proxy will be counted.
Can I revoke my proxy instructions?
You may revoke your proxy at any time before it has been exercised by:
32
o submitting a written revocation with the Corporate Secretary of the
Company or Innisfree;
o submitting a duly executed proxy bearing a later date with the
Corporate Secretary of the Company or Innisfree; or
o appearing in person and voting by ballot at the 2003 annual meeting as
described above under "How do I vote? -- Vote in Person."
Any shareholder of record as of the record date of the 2003 annual meeting
attending the 2003 annual meeting may vote in person whether or not a proxy has
been previously given, but the presence (without further action) of a
shareholder at the 2003 annual meeting will NOT constitute revocation of a
previously given proxy.
If you choose to revoke a proxy by giving written notice or a later-dated
proxy to the Corporate Secretary of the Company, we would appreciate if you
would assist us in representing the interests of shareholders on an informed
basis by sending us a copy of your revocation or proxy or by calling Innisfree,
at (888) 750-5834 or collect at (212) 750-5833. Remember, your latest-dated
proxy is the only one that counts.
Will other matters be voted on at the annual meeting?
We are not now aware of any matters to be presented at the 2003 annual
meeting other than the election of directors, the ratification of the
appointment of the Company's independent auditors and the shareholder proposal
regarding the sale of the Company. If any other matters not described in the
proxy statement are properly presented at the 2003 annual meeting, including
matters incidental to the conduct of the 2003 annual meeting, proxies will be
voted in accordance with the best judgment of the proxy holders.
If I plan to attend the annual meeting, should I still submit a proxy?
Whether you plan to attend the 2003 annual meeting or not, we urge you to
submit a proxy. Returning the enclosed BLUE proxy card will not affect your
right to attend the 2003 annual meeting.
How will my shares be voted?
If you give a proxy on the accompanying BLUE proxy card, your shares will
be voted as you direct. If you submit a proxy to us without instructions, our
representatives will vote your shares in favor of Proposal Nos. 1, 2 and 3.
Submitting a BLUE proxy card will entitle our representatives to vote your
shares in accordance with their discretion on matters not described in this
proxy statement that may arise at the 2003 annual meeting, including matters
incident to the conduct of the 2003 annual meeting. Unless a proxy specifies
otherwise, it will be presumed to relate to all shares held of record on the
record date for the 2003 annual meeting by the person who submitted it.
How can I receive more information?
33
If you have any questions about giving your proxy or about our
solicitation, or if you require assistance, please call Innisfree at (888)
750-5834 or collect at (212) 750-5833.
--------------------------------------
Your vote is important. No matter how many or how few shares you own, please
vote to elect Dolphin's nominees by marking, signing, dating and mailing the
enclosed BLUE proxy card promptly.
DOLPHIN LIMITED PARTNERSHIP I, L.P.
May 15, 2003
34
SCHEDULE I
Directors and Officers of Dolphin Holding Corporation
Name and Position Principal Occupation Principal Business Address
Donald T. Netter Chairman, Chief 96 Cummings Point Road
Chairman, Chief Executive Officer, Stamford, Connecticut 06902
Executive Officer, President and Senior
President and Senior Managing Director,
Managing Director Dolphin Holdings
Corporation
Theodore A. De Blanco Managing Director and 96 Cummings Point Road
Managing Director and Senior Vice President, Stamford, Connecticut 06902
Senior Vice President Dolphin Holdings
Corporation
Brett J. Buckley Vice President, 96 Cummings Point Road
Vice President Dolphin Holdings Stamford, Connecticut 06902
Corporation
35
ANNEX A
TRANSACTIONS IN COMMON STOCK
The following table sets forth information with respect to all purchases
and sales of common stock of the Company by Dolphin during the past two years.
Except as set forth below, to the knowledge of Dolphin, no participant in this
solicitation or Dolphin has purchased or sold securities of the Company within
the past two years.
Transaction Number Price Per
Date Type of Shares Share*
------- ----------- --------- ---------
6/14/02 Purchase 5,100 $12.01
6/17/02 Purchase 6,900 $12.01
6/18/02 Purchase 56,700 $12.01
6/19/02 Purchase 31,300 $12.01
6/20/02 Purchase 4,000 $12.00
6/21/02 Purchase 73,000 $12.014
6/24/02 Purchase 23,000 $12.047
7/10/02 Purchase 70,000 $11.008
7/11/02 Purchase 20,000 $11.103
7/12/02 Purchase 31,900 $11.444
7/15/02 Sale 65,000 $13.316
7/19/02 Purchase 62,000 $12.817
7/24/02 Purchase 600 $12.66
7/29/02 Purchase 10,000 $13.01
9/11/02 Purchase 20,500 $13.02
9/26/02 Purchase 50,000 $10.212
10/25/02 Purchase 70,000 $8.123
10/28/02 Purchase 20,000 $8.118
10/29/02 Purchase 10,000 $8.142
10/30/02 Purchase 5,000 $7.86
11/19/02 Purchase 2,500 $7.66
11/20/02 Purchase 2,500 $7.76
11/21/02 Purchase 2,500 $7.756
36
Transaction Number Price Per
Date Type of Shares Share*
-------- ----------- --------- ---------
11/25/02 Purchase 1,000 $7.62
11/27/02 Purchase 5,000 $7.951
11/29/02 Purchase 5,000 $8.023
12/2/02 Purchase 3,300 $7.837
12/3/02 Purchase 5,000 $7.871
12/4/02 Purchase 2,500 $8.008
12/5/02 Purchase 15,800 $8.14
12/6/02 Purchase 20,000 $8.297
12/9/02 Purchase 2,900 $8.449
12/10/02 Purchase 300 $8.66
12/11/02 Purchase 10,300 $8.747
12/12/02 Purchase 10,100 $8.821
12/13/02 Purchase 8,500 $8.656
12/16/02 Purchase 5,000 $8.66
12/17/02 Purchase 4,500 $8.77
12/18/02 Purchase 5,000 $8.71
12/19/02 Purchase 5,000 $8.61
12/20/02 Purchase 5,000 $8.559
1/2/03 Purchase 800 $8.593
1/3/03 Purchase 2,500 $8.613
1/6/03 Purchase 5,000 $8.81
1/7/03 Purchase 2,500 $8.81
1/8/03 Purchase 2,500 $8.71
1/9/03 Purchase 1,000 $8.72
1/10/03 Purchase 1,000 $8.72
1/13/03 Purchase 1,000 $8.72
1/13/03 Purchase 1,000 $8.66
1/14/03 Purchase 2,000 $8.71
1/15/03 Purchase 2,000 $8.69
37
Transaction Number Price Per
Date Type of Shares Share*
-------- ----------- --------- ---------
1/15/03 Purchase 2,000 $8.423
1/16/03 Purchase 2,000 $8.463
1/17/03 Purchase 2,000 $8.55
1/21/03 Purchase 1,000 $8.50
1/22/03 Purchase 1,000 $8.40
1/23/03 Purchase 1,000 $8.36
1/23/03 Purchase 1,000 $8.23
1/24/03 Purchase 1,000 $8.17
1/24/03 Purchase 500 $8.01
1/27/03 Purchase 500 $8.083
2/10/03 Purchase 200 $7.613
2/11/03 Purchase 800 $7.713
2/14/03 Purchase 1,000 $7.683
2/20/03 Purchase 20,000 $7.76
2/20/03 Purchase 6,000 $7.733
2/20/03 Purchase 1,500 $7.723
2/20/03 Purchase 2,400 $7.713
2/20/03 Purchase 3,000 $7.71
2/20/03 Purchase 12,100 $7.668
2/20/03 Purchase 2,900 $7.658
2/20/03 Purchase 4,300 $7.638
2/20/03 Purchase 11,000 $7.618
2/20/03 Purchase 1,000 $7.598
2/20/03 Purchase 1,200 $7.588
2/20/03 Purchase 1,800 $7.578
2/20/03 Purchase 500 $7.568
2/20/03 Purchase 200 $7.558
2/21/03 Purchase 400 $8.223
2/21/03 Purchase 1,300 $8.213
38
Transaction Number Price Per
Date Type of Shares Share*
-------- ----------- --------- ---------
2/21/03 Purchase 1,300 $8.203
2/21/03 Purchase 4,500 $8.193
2/21/03 Purchase 500 $8.183
2/21/03 Purchase 1,600 $8.173
2/21/03 Purchase 1,300 $8.171
2/21/03 Purchase 1,600 $8.163
2/21/03 Purchase 2,000 $8.153
2/21/03 Purchase 9,100 $8.143
2/21/03 Purchase 800 $8.133
2/21/03 Purchase 300 $8.06
2/21/03 Purchase 6,800 $8.04
2/21/03 Purchase 200 $7.94
2/21/03 Purchase 5,500 $7.883
2/21/03 Purchase 7,000 $7.83
2/24/03 Purchase 2,700 $8.263
2/24/03 Purchase 2,000 $8.26
2/24/03 Purchase 2,900 $8.256
2/24/03 Purchase 4,200 $8.253
2/24/03 Purchase 2,800 $8.25
2/24/03 Purchase 13,900 $8.243
2/24/03 Purchase 5,200 $8.24
2/24/03 Purchase 4,900 $8.233
2/24/03 Purchase 300 $8.23
2/24/03 Purchase 3,700 $8.213
2/24/03 Purchase 2,000 $8.211
2/24/03 Purchase 400 $8.183
2/24/03 Purchase 1,900 $8.17
2/24/03 Purchase 2,200 $8.163
2/24/03 Purchase 2,900 $8.153
39
Transaction Number Price Per
Date Type of Shares Share*
-------- ----------- --------- ---------
2/24/03 Purchase 7,700 $8.32
2/25/03 Purchase 2,300 $8.31
2/25/03 Purchase 2,200 $8.293
2/25/03 Purchase 10,000 $8.29
2/25/03 Purchase 7,000 $8.283
2/25/03 Purchase 5,000 $8.273
2/25/03 Purchase 3,400 $8.27
2/25/03 Purchase 11,000 $8.263
2/25/83 Purchase 3,800 $8.26
2/25/03 Purchase 600 $8.259
2/25/03 Purchase 9,000 $8.253
2/25/03 Purchase 4,200 $8.25
2/25/03 Purchase 7,600 $8.243
2/25/03 Purchase 1,400 $8.24
2/25/03 Purchase 2,000 $8.223
2/26/03 Purchase 11,900 $8.31
2/26/03 Purchase 6,600 $8.30
2/26/03 Purchase 5,800 $8.29
2/26/03 Purchase 4,200 $8.28
2/26/03 Purchase 2,000 $8.273
2/26/03 Purchase 2,500 $8.27
2/26/03 Purchase 2,900 $8.263
2/26/03 Purchase 7,800 $8.26
2/26/03 Purchase 500 $8.253
2/26/03 Purchase 6,400 $8.243
2/26/03 Purchase 1,000 $8.242
2/26/03 Purchase 4,400 $8.24
2/26/03 Purchase 500 $8.23
2/26/03 Purchase 2,200 $8.223
40
Transaction Number Price Per
Date Type of Shares Share*
-------- ----------- --------- ---------
2/26/03 Purchase 1,100 $8.22
2/26/03 Purchase 1,000 $8.213
2/27/03 Purchase 1,200 $8.313
2/27/03 Purchase 32,100 $8.27
2/27/03 Purchase 37,600 $8.263
2/27/03 Purchase 100 $8.26
2/27/03 Purchase 500 $8.253
2/27/03 Purchase 1,400 $8.25
2/27/03 Purchase 200 $8.24
2/27/03 Purchase 1,000 $8.233
2/27/03 Purchase 1,000 $8.223
2/27/03 Purchase 4,200 $8.22
2/27/03 Purchase 3,000 $8.213
2/28/03 Purchase 20,000 $8.31
2/28/03 Purchase 5,900 $8.293
2/28/03 Purchase 7,000 $8.292
2/28/03 Purchase 5,000 $8.29
2/28/03 Purchase 7,000 $8.283
2/28/03 Purchase 20,000 $8.27
2/28/03 Purchase 8,900 $8.263
2/28/03 Purchase 3,700 $8.26
2/28/03 Purchase 1,000 $8.253
2/28/03 Purchase 2,000 $8.243
3/3/03 Purchase 14,900 $8.36
3/3/03 Purchase 1,000 $8.33
3/3/03 Purchase 10,400 $8.32
3/3/03 Purchase 4,500 $8.313
3/3/03 Purchase 1,600 $8.31
3/3/03 Purchase 400 $8.303
41
Transaction Number Price Per
Date Type of Shares Share*
-------- ----------- --------- ---------
3/3/03 Purchase 2,100 $8.293
3/3/03 Purchase 200 $8.29
3/3/03 Purchase 500 $8.28
3/3/03 Purchase 7,900 $8.27
3/3/03 Purchase 4,500 $8.253
3/11/03 Purchase 35,000 $8.15
3/17/03 Purchase 26,000 $8.773
3/20/03 Purchase 15,900 $8.935
3/21/03 Purchase 5,400 $9.02
3/25/03 Purchase 1,500 $8.986
3/26/03 Purchase 4,100 $8.99
* Includes commissions and execution related costs.
42
ANNEX B
OWNERSHIP OF COMMON STOCK
Each share of common stock is entitled to one vote on each of the
proposals and the common stock is the only class of securities of the Company
entitled to vote on the proposals. The Company has informed us that there were
13,362,785 shares of common stock that were issued and outstanding as of April
18, 2003, the record date for the shares entitled to vote at the 2003 annual
meeting.
The following table sets forth the share ownership of all persons who, to
the knowledge of Dolphin, beneficially own more than 5% of the outstanding
shares of common stock as of the date of this proxy statement. The information
with respect to each shareholder, other than Dolphin and except as otherwise
indicated, is derived from the definitive proxy materials filed by the Company
with the SEC with respect to the 2003 annual meeting.
Number of Shares Percentage
Shareholder Beneficially Owned (1) Ownership
- --------------------------------- --------------------- -----------
Dolphin Limited Partnership I, L.P. 1,262,800 9.5%
Barclays Global Investors, NA (2) 1,088,497 8.1%
Dimensional Fund Advisors, Inc. (3) 735,780 5.5%
David O. Corriveau (4) 799,384 5.8%
James W. Corley (5) 814,385 5.9%
- ----------------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Shares of common stock subject to stock options and warrants
currently exercisable or exercisable within 60 days are deemed outstanding
for purposes of computing the percentage ownership of the person holding
the options and the percentage ownership of any group of which the holder
is a member, but are not deemed outstanding for computing the percentage
ownership of any other person. Subject to community property laws where
applicable, to the knowledge of Dolphin, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them.
(2) Based upon a Schedule 13G filed with the SEC on February 12, 2003. The
address of Barclays Global Investors, NA is 45 Fremont Street, San
Francisco, California 94105.
43
(3) Based upon a Schedule 13F filed with the SEC for the quarter ending March
31, 2003. The address of Dimensional Fund Advisors is 1299 Ocean Avenue,
11th Floor, Santa Monica, California 90401.
(4) Includes 326,667 shares subject to options exercisable within 60 days and
60,000 shares of restricted stock for which Mr. Corriveau has sole voting
power only. Mr. Corriveau shares voting and dispositive power with respect
to 74,545 shares owned of record by a family limited partnership. Mr.
Corriveau disclaims beneficial ownership with respect to such shares.
Substantially, all of the shares owned directly by Mr. Corriveau have been
pledged as collateral to secure various personal bank loans and margin
trading in personal brokerage accounts.
(5) Includes 326,667 shares subject to options exercisable within 60 days and
60,000 shares of restricted stock for which Mr. Corley has sole voting
power only. Mr. Corley shares voting and dispositive power with respect to
99,559 shares owned of record by a family limited partnership. Mr. Corley
disclaims beneficial ownership with respect to such shares.
44
FORM OF PROXY SOLICITED ON BEHALF OF
DOLPHIN LIMITED PARTNERSHIP I, L.P.
The undersigned shareholder of Dave & Buster's, Inc., a Missouri
corporation (the "Company"), on April 18, 2003 (the "record date"), hereby
appoints Donald T. Netter or Brett Buckley or either of them, each with full
power of substitution, to act as proxies for the undersigned, and to vote all
shares of common stock, par value $.01 per share, of the Company, which the
undersigned would be entitled to vote if personally present at the 2003 Annual
Meeting of Shareholders of the Company to be held on June 10, 2003, and at any
and all postponements and adjournments thereof as indicated on this proxy.
IF YOU SIGN, DATE AND RETURN THIS CARD WITHOUT INDICATING YOUR VOTE ON ONE
OR MORE OF THE FOLLOWING PROPOSALS, YOU WILL BE DEEMED TO HAVE VOTED IN FAVOR OF
PROPOSAL NOS. 1, 2 AND 3. IF YOU VOTE OR ABSTAIN WITH RESPECT TO ONE OR MORE OF
THE FOLLOWING PROPOSALS, THIS PROXY CARD WILL REVOKE ANY PREVIOUSLY EXECUTED
REVOCATION OF PROXY WITH RESPECT TO SUCH PROPOSALS.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
DOLPHIN STRONGLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF PROPOSAL
NOS. 1, 2 AND 3.
Proposal No. 1 -- Election of Edward A. Weinstein, Donald T. Netter and
Edward E. Hartline as Directors with Terms Expiring in 2006
FOR [ ] AGAINST [ ]
(Instruction: If you wish to vote for the election of certain of the
nominees, but not all of them, check the "FOR" box above and write the name of
the person(s) you do not wish elected in the following space:
________________________________________. If no box is marked above with respect
to this Proposal, the undersigned will be deemed to vote for such Proposal,
except that the undersigned will not be deemed to vote for the election of any
candidate whose name is written in the space provided above.)
Proposal No. 2 -- Ratification of Appointment of Ernst & Young LLP as
Independent Accountants
FOR [ ] AGAINST [ ] ABSTAINS [ ]
Proposal No. 3 -- Shareholder Proposal on Sale of the Company
FOR [ ] AGAINST [ ] ABSTAINS [ ]
45
And in the discretion of the proxies appointed hereunder, on such other
business as may properly come before the meeting.
IMPORTANT: THIS PROXY MUST BE SIGNED AND DATED TO BE VALID.
Dated:
---------------------------
---------------------------
Signature:
---------------------------
Signature (if held jointly):
---------------------------
Title or Authority
Please sign exactly as name appears hereon. If shares are registered in more
than one name, the signature of all such persons should be provided. A
corporation should sign in its full corporate name by a duly authorized officer,
stating his or her title. Trustees, guardians, executors and administrators
should sign in their official capacity, giving their full title as such. If a
partnership, please sign in the partnership name by an authorized person. The
proxy card votes all shares in all capacities.
PLEASE MARK, SIGN AND DATE THIS PROXY BEFORE MAILING THE PROXY IN THE ENCLOSED
ENVELOPE.
If you have any questions or need assistance in voting your shares, please
contact Innisfree M&A Incorporated toll-free at 1-888-750-5834 or if you are a
bank or broker please call collect at 1-212-750-5833.
46