Industry News | April 2, 2001

Pancho's Mexican Buffet To Merge With Pancho's Restaurants

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Pancho's Mexican Buffet, Inc. (Nasdaq: PAMX) has signed a definitive agreement to merge with Pancho's Restaurants, Inc., an affiliate of Stephen Oyster of Austin Texas.

Pursuant to the merger agreement, each share of Pancho's common stock will be converted into the right to receive $4.60 cash per share. Pancho's currently has approximately 1.5 million shares outstanding, and outstanding options to purchase approximately 175,000 shares.

Pancho's Board of Directors has unanimously approved the merger. Wells Fargo Van Kasper is serving as financial advisor to the Company.

Consummation of the merger is subject to certain closing conditions, including the acquiring company's obtaining a commitment letter from its lender, pursuant to which its lender commits, subject to the terms and conditions contained in the commitment letter, to provide an aggregate of up to $6 million in cash as a senior secured credit facility. The terms of the senior secured credit facility must be reasonably satisfactory to the Company. In addition, the acquiring company must have entered into a commitment letter with Mr. Oyster, pursuant to which Mr. Oyster commits to provide an amount equal to the aggregate amount of the merger consideration and all other fees and expenses required to be paid by the acquiring company in connection with the transactions contemplated by Merger Agreement, less the amount committed by the lender. The aggregate cash amount to be provided under these commitment letters must be sufficient to pay the aggregate merger consideration and to make all other necessary payments of fees and expenses of the acquiring company in connection with the merger.

Because the acquiring company has not received the commitment letters from its lender or from Mr. Oyster, the transaction remains subject to review by the acquiring company's lenders and Mr. Oyster. Consequently, there can be no assurance that the merger will occur or, if it occurs, that the price per share will be $4.60.

In addition, the Company may terminate the Merger Agreement if the Company has not received the written opinion of Wells Fargo Van Kasper on or before May 18, 2001, or such other date as the parties may agree upon, to the effect that the merger consideration is fair to the Company's stockholders from a financial point of view.

The acquiring company may terminate the Merger Agreement if, (i) the working capital of the Company as of the end of the calendar month immediately prior to the filing of the Company's definitive proxy statement with the Securities and Exchange Commission in connection with the meeting of stockholders to be held to consider the approval of the Merger Agreement, including all expenses of the Company in connection with the transactions contemplated by the Merger Agreement, is less than -- (negative) $3,880,000; or (ii) aggregate same-store sales for the period from the beginning of fiscal year 2001 of the Company through the end of the calendar month immediately prior to Filing Date compared with the aggregate same store sales for the corresponding period of the preceding fiscal year has decreased by more than 10%; or (iii) prior to the filing of the definitive proxy statement, the acquiring company is not able to obtain and deliver the commitment letter from its lender or lenders.

The merger is expected to be completed by the end of the second quarter of 2001, and is subject to approval by the Company's stockholders and certain other customary conditions. A special meeting of the Company's stockholders will be scheduled in connection with seeking the approval of the Company's stockholders.

"The Merger Agreement is the culmination of the efforts of our in investment bankers, Wells Fargo Van Kasper, working closely with our Board of Directors to find strategic financial alternatives for the Company to maximize stockholder value,'' said Hollis Taylor, President and Chief Executive Officer of the Company. "The Company's Board of Directors concluded that the cash transaction with Mr. Oyster's affiliated companies offered the best financial alternative for the Company's stockholders.''

Stephen ``Duffy'' Oyster, President of Pancho's Restaurant's Inc. in commenting upon the approximately $7 million agreement to acquire the Company, said ``The $4.60 per share offer is an exceptional deal for the stockholders in that it represents an 84% premium over Friday's (March 30) closing price of $2.50 per share.'' He further stated: "The employees of Pancho's are dedicated and committed individuals working in outdated facilities. The new company plans to remodel most of the existing stores along with a strategic focus on superior food and service.''

Stephen Oyster is a former partner of Foodmaker, Inc., where he served as Executive Vice President, and President of Foodmaker Realty Corp. He has been an investor in real estate and restaurants in Austin, Texas since 1988. Mr. Oyster expects American Commercial Capital LLC to provide approximately $6 million in connection with the financing of the transaction and that his investment company will provide the balance of the purchase price, plus working capital and remodeling funds.

Based in Fort Worth, Pancho's Mexican Buffet, Inc. is the only publicly- held company offering all-you-can-eat Mexican food in a buffet-style format. The Company operates 48 restaurants in Texas, Arizona, Louisiana, New Mexico and Oklahoma.