HABT Habit Restaurants Inc

Item 1.01 Entry into a Material Definitive Agreement.

Agreement and Plan of Merger

On January 5, 2020, The Habit Restaurants, Inc., a Delaware corporation (“Habit” or the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with YUM! Brands, Inc., a North Carolina corporation (“Parent”), and Parent’s wholly-owned subsidiary, YEB Newco Inc., a Delaware corporation (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent.

At the effective time of the Merger (the “Effective Time”), each:

Consideration payable to holders of Company Stock Options and Company RSUs will be made no later than three business days after the Effective Time, net of any required withholding of taxes.

Concurrently with the Effective Time, each LLC Unit not held by the Company or one of its subsidiaries, whether vested or unvested, together with one share of or Class B common stock, par value $0.01 per share, of the Company (“Class B Common Stock,” and collectively with Class A Common Stock, “Company Common Stock”), will be exchanged for one share of Class A Common Stock (the “Exchange”), as is more particularly described in the Merger Agreement, and each share of Class B Common Stock will automatically be cancelled immediately upon consummation of the Exchange.

The Merger Agreement includes customary representations, warranties and covenants of the Company, Parent and Merger Sub. The Company has agreed to operate its business in the ordinary course until the Effective Time. The Company has also agreed not to, and to cause its subsidiaries and instruct its representatives not to, solicit or initiate discussions with third parties regarding other proposals for a strategic transaction involving the Company. Parent and the Company have agreed to use their reasonable best efforts to take all actions necessary to consummate the Merger, subject to certain limitations, and as is more particularly described in the Merger Agreement.

The obligation of the parties to consummate the Merger is subject to the expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary conditions. The Merger Agreement includes no financing contingency of any kind, and the Company has the ability to seek specific performance of enforce Parent’s obligation to close the Merger, as is more particularly described in the Merger Agreement.

The Merger Agreement also includes customary termination provisions for both the Company and Parent, subject, in certain circumstances, to the payment by the Company of a termination fee of $13,125,000 (the “Termination Fee”). The Company must pay Parent the Termination Fee in the event that the Merger Agreement is terminated by Parent (i) following a change of recommendation by the board of directors of the Company (the “Company Board”) or any committee thereof (including the special committee of the Company Board (the “Special Committee”)), (ii) in the event that the Merger Agreement is terminated by the Company upon the determination of the Company Board or the Special Committee in order to enter into a definitive agreement with respect to a Superior Proposal or (iii) upon the Company’s material breach of its covenant not to solicit or initiate discussions with third parties regarding alternate acquisition proposals, in each case, as is more particularly described in the Merger Agreement.

The Company must also pay Parent the Termination Fee if (i) (A) the Effective Time has not occurred on or prior to June 5, 2020 (the “Outside Date”) (subject to an extension to August 5, 2020, as described in the Merger Agreement) and the Merger Agreement is terminated by either Parent or the Company, (B) the Company’s stockholders fail to adopt the Merger Agreement and the Merger Agreement is terminated by either Parent or the Company or (C) Parent terminates the Merger Agreement due to the Company’s breach of any of its covenants, agreements, representations or warranties contained in the Merger Agreement that would give rise to the failure of the Company to satisfy certain closing conditions, subject to a cure period, (ii) a third party has publicly disclosed an acquisition proposal to the Company after the date of the Merger Agreement and prior to its termination (or, in the case of a termination described in the foregoing clause (i)(B), prior to the applicable stockholders meeting) and (iii) within twelve (12) months following such date of termination, the Company enters into an agreement for a business combination transaction or consummates a business combination transaction, in each case, as is more particularly described in the Merger Agreement. The parties to the Merger Agreement are also entitled to seek an injunction or injunctions to prevent breaches of the Merger Agreement, and to seek to specifically enforce the terms and provisions of the Merger Agreement.

The Company Board, acting on the unanimous recommendation of the Special Committee, unanimously (except for the abstention of directors affiliated with KarpReilly GP, LLC with respect to approval of the TRA Amendment (as defined below)) (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of the Company’s stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, (iii) directed that the adoption of the Merger Agreement be submitted to a vote at a meeting of the Company’s stockholders and (iv) resolved to recommend that the Company’s stockholders vote to adopt the Merger Agreement.

The foregoing summary of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full copy of the Merger Agreement filed as Exhibit 2.1 hereto and incorporated herein by reference. The summary and the copy of the Merger Agreement are intended to provide information regarding the terms of the Merger Agreement and are not intended to modify or supplement any factual disclosures about the Company in its public reports filed with the U.S. Securities and Exchange Commission (“SEC”). The assertions embodied in the representations and warranties included in the Merger Agreement were made solely for purposes of the contract among the Company, Merger Sub and Parent and are subject to important qualifications and limitations agreed to by the Company, Merger Sub and Parent in connection with the negotiated terms, including being qualified by confidential disclosures made by each contracting party to the other for the purposes of allocating contractual risk between them that differ from those applicable to investors. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to the Company’s SEC filings or may have been used for purposes of allocating risk among the Company, Merger Sub and Parent rather than establishing matters as facts. Investors should not rely on the representations and warranties or any description of them as characterizations of the actual state of facts of the Company, Parent, Merger Sub or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, and this subsequent information may or may not be fully reflected in public disclosures by the Company or Parent.

Tax Receivable Agreement Amendment

In connection with the initial public offering of shares of Class A Common Stock, the Company entered into a tax receivable agreement (the “TRA”) with certain owners of equity interests of Habit Restaurants, LLC as of immediately prior to such initial public offering. The TRA provided for certain payments to such equityholders and their assignees by the Company with respect to certain tax attributes of the Company, including in connection with a change of control of the Company. On January 5, 2020, in connection with the execution of the Merger Agreement, the Company entered into an agreement (the “TRA Amendment”) with Habit Restaurants, LLC and certain other persons entitled to payments pursuant to the TRA (such persons, the “TRA Holders”) to amend the TRA. The TRA Amendment (i) establishes the amount to be paid to TRA Holders is $50.0 million resulting from the Merger, which amount is in addition to amounts otherwise due under the TRA for the 2019 tax year of approximately $3.1 million, all of which will be fixed and paid in full if the Merger is consummated in satisfaction of the Company’s payment obligation under the TRA and (ii) confirms the termination of the TRA upon the making of such payments.

The foregoing description of the TRA Amendment does not purport to be complete and is qualified in its entirety by reference to the full copy of the TRA Amendment filed as Exhibit 10.1 hereto and incorporated herein by reference.

Voting Agreement

On January 5, 2020, in connection with the execution of the Merger Agreement, the Bendel Family Trust, Ira Fils, KarpReilly GP, LLC and KarpReilly Investments, LLC, (the “Voting Agreement Counterparties”), who collectively beneficially own, in the aggregate, as of January 5, 2020, approximately 1.36% of the issued and outstanding shares of Class A Common Stock, 66.28% of the issued and outstanding shares of Class B Common Stock, 66.28% of the issued and outstanding LLC Units and 14.62% of the voting power of the Common Stock, entered into a voting agreement (the “Voting Agreement”) with Parent, pursuant to which the Voting Agreement Counterparties have, among other things, agreed to vote the shares of Company Common Stock beneficially owned by them, or that may become beneficially owned by them during the term of the Voting Agreement, in favor of adopting of the Merger Agreement and any other matters necessary for consummation of the Merger and the other transactions contemplated by the Merger Agreement. Under the Voting Agreement, the Voting Agreement Counterparties have agreed to restrictions on their ability to transfer the shares of Company Common Stock and LLC Units owned by them, subject to certain exceptions. The obligations and rights under the Voting Agreement terminate upon the earliest of (i) the Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms, (iii) a withdrawal, change, modification, withholding or qualification of the Company Board’s recommendation of the Merger and (iv) with respect to a particular Voting Agreement Counterparty, the mutual written agreement of Parent and such Voting Agreement Counterparty.

The foregoing summary of the Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the full copy of the Voting Agreement is filed as Exhibit 99.1 hereto and incorporated herein by reference.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this communication are forward-looking statements, including, without limitation, the statements made concerning the pending acquisition of the Company by Parent. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “aim,” “potential,” “continue,” “ongoing,” “goal,” “can,” “seek,” “target” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. You should read any such forward-looking statements carefully, as they involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly from those projected or contemplated in any such forward-looking statement. Those risks, uncertainties and assumptions include: (i) the risk that the proposed transaction may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of the Company’s common stock; (ii) the failure to satisfy any of the conditions to the consummation of the proposed transaction, including the adoption of the Merger Agreement by the Company’s stockholders and the receipt of certain regulatory approvals; (iii) the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement; (iv) the effect of the announcement or pendency of the proposed transaction on the Company’s business relationships, operating results and business generally; (v) risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the proposed transaction; (vi) risks related to diverting management’s attention from the Company’s ongoing business operations; (vii) the outcome of any legal proceedings that may be instituted against the Company related to the Merger Agreement or the proposed transaction, (viii) unexpected costs, charges or expenses resulting from the proposed transaction; and (ix) other risks described in the Company’s filings with the SEC, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Forward-looking statements speak only as of the date of this Form 8-K or the date of any document incorporated by reference in this document. Except as required by applicable law or regulation, the Company does not assume any obligation to update any such forward-looking statements whether as the result of new developments or otherwise.