UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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Securities Exchange Act of 1934
(Amendment No. )
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Cracker Barrel Old Country Store, Inc. | ||||
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Cracker Barrel Old Country Store, Inc. (the “Company”) used the following investor presentation in meetings with investors beginning on November 1, 2011. This investor presentation was also posted to the “Biglari Proxy Contest” section of the Company’s Investor Relations website, investor.crackerbarrel.com. A screenshot of the “Biglari Proxy Contest” section of the website follows the investor presentation below.
Old Country Store
Investor Presentation
Fall 2011
Additional Information
Cracker Barrel Old Country Store, Inc. (“the Company”) urges caution in considering current trends and earnings guidance disclosed in this presentation. Except for specific historical information, matters discussed in this presentation are forward-looking statements that involve risks, uncertainties and other factors that may cause actual results and performance of the Company to differ materially from those expressed or implied in this discussion. All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995.
More detailed information on risks, uncertainties, and other factors is provided in the Company’s filings with the Securities and Exchange Commission, press releases and other communications.
Important Additional Information
Cracker Barrel, its directors and certain of its executive officers may be deemed to be participants in the solicitation of proxies from Cracker Barrel shareholders in connection with the matters to be considered at Cracker Barrel’s 2011 Annual Meeting. Cracker Barrel has filed a preliminary proxy statement with the U.S. Securities and Exchange Commission (the SEC) in connection with such solicitation of proxies from Cracker Barrel shareholders. When completed, a definitive proxy statement and a form of proxy will be mailed to Cracker Barrel shareholders. INVESTORS AND SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ THE PRELIMINARY PROXY STATEMENT, THE DEFINITIVE PROXY STATEMENT AND ACCOMPANYING WHITE PROXY CARD AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION. Detailed information regarding the identity of potential participants, and their direct or indirect interests, by security holdings or otherwise, is set forth in the Proxy Statement and other materials to be filed with the SEC in connection with Cracker Barrel’s 2011 Annual Meeting. Shareholders will be able to obtain the Proxy Statement, any amendments or supplements to the proxy statement and other documents filed by Cracker Barrel with the SEC for no charge at the SEC’s website at v :.qov. Copies will also be available at no charge at the Investor
Relations section of our corporate website at crackerbarrel.com.
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Agenda
I. Overview
Cracker Barrel’s History of Success
Ongoing Transformation of the Company
Other Proxy Matters
Why Biglari is Wrong for Cracker Barrel
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I. Overview
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History, Heritage & Success 30 Years Delivering Superior Returns
Management and the Board of Directors have led the
growth and evolution of Cracker Barrel Old Country Store
into one of the top restaurant companies in America
Pleasing People® Creating Value
CBRL
6,740 %
Nov 1981
Cracker Barrel IPO. Money Magazine lists as one of America’s top growth chains
1981
1990
Ranked #1
Family Dining
chain by
Restaurant &
Institutions
Magazine, held
title every
successive year
the award was
given (19 years)
Aug 2000
Mike Woodhouse named President
June 2007
Recapitalization to
achieve appropriate
Dec 1998
Announces
acquisition of
Logan’s Road house
capital structure
In March 2006
Announces
divestiture of
Logan ‘s Roadhouse
A 30 Year Record of Success
Today
608 locations in 42 states
201
S&P5I
816 %
Note: Indexed Performance 5-Nov-1981 to 30-Sep-2011, excludes dividends
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Cracker Barrel Proceeds With Planned Succession While Biglari Nominates Himself
23-Jun-2011 Biglari demands Board seats for himself and P. Cooley
26-Aug-2011
Biglari verbally rejects board seat offer
13-Jun-2011
BH Discloses
9.7%
21-Jul-2011
Nominating Committee
interviews Biglari and
1-Aug-2011 Company offers Biglari name two unaffilia board mem be
1-Sep-2011 Biglari nominates himself to Board
March
June
July
August
September
23-March-2011
CBRL Nominating
Committee
Meets to
Consider New
Board Members
17-June-2011 Coleman H.
Peterson Joins Board
27-July-2011
James W.
Bradford
Joins Board
1-Aug-2011
Sandra B. Cochran
Named CEO Effective
12-Sep-2011
Two long-term Board
members announce
they will not stand
for re-election
9-Aug-2011 William W. McCarten
Joins Board
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Experienced Board of Directors is
The Right Team
Board of Directors
Elected Selective Biography
Michael A. Woodhouse, Executive Chairman
1999 Executive Chairman of the Company since September 12, 2011. Served as Chairman of the Board from 2004 until 2011, as
President and CEO of the Company from 2001 until 2010 and as CEO of the Company from 2010 until 2011
Sandra B. Cochran, President & CEO
Robert V. Dale, Lead Director
2011 Became President and CEO on September 12, 2011 following her service as Cracker Barrel’s President and COO, a post she
assumed in November 2010 after serving as CFO. Previously served from 2004 until 2009 as CEO of Books-A-Million, Inc. (NASDAQ: BAMM), a leading book retailer in the southeastern United States
1986 President of Windy Hill Pet Food Company from March 1995 until its sale in July 1998; director of Genesco, Inc. (NYSE:
GCO) 2000 to Present
James W. Bradford
2011 Dean and Ralph Owen Professor for the Practice of Management at Vanderbilt University’s Owen Graduate School of
Management. Previously served as President and CEO of United Glass Corporation, a consolidation of glass fabricators in the United States and Canada, from 1999 to 2001. Previously served from 1992 to 1999 as President and CEO of AFG Industries Inc.
Richard J. Dobkin
2005
Managing Partner of the Tampa, Florida office of Ernst & Young, LLP from 1987 until June 2005
Charles E. Jones
1981 Founded Corporate Communications, Inc., an investor/shareholder communications and public relations firm where he
presently serves as Chairman and CEO
B.F. (Jack) Lowery
1971
Chairman and CEO of LoJac Companies Inc. He is also a practicing attorney
William W. McCarten 2011
Chairman of DiamondRock Hospitality Company (NYSE: DRH), a lodging-focused Real Estate Investment Trust that he founded in 2004 and took public in 2005. From 2001 through 2003, was the President of the Marriott Services Group of Marriott International, Inc. Prior to that position, served as President and CEO of HMSHost Corporation which operates restaurants and retail stores in travel venues around the world
Martha M. Mitchell
1993 Senior Partner and Senior Vice President at Fleishman-Hillard, Inc., an international communications consulting and public
relations firm from 1987 until July 2005
Coleman H. Peterson 2011
I new
President/CEO of Hollis Enterprises, LLC, the human resources consulting firm he founded in 2004 following his service for Wal-Mart Stores, Inc. as Chief People Officer from 1994-2004
Andrea M. Weiss
2003 President and CEO of Retail Consulting, Inc. Served as President of dELiA*s Corp., a multichannel retailer to teenage girls
and young women, from May 2001 to October 2002
Note: Two board members who are not standing for re-election are not listed
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Cracker Barrel Made a Good Faith Settlement Offer that Biglari Refused
Letter to Sardar Biglari, 22-Aug-2011:
“. .in an effort to be constructive, the Board authorized me to make the settlement offer that we discussed on August 1 and August 10.”
“Under that offer, we would immediately add to our Board two mutually agreed independent directors unaffiliated with Biglari Holdings or any other restaurant company, to be recommended by Biglari Holdings and approved by the Cracker Barrel Board.”
“When we spoke on August 10, 2011, you indicated that you would be willing to provide us with your proposed director nominees in connection with this offer.”
- Michael Woodhouse
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Key Facts to Consider
Cracker Barrel
Sardar Biglari
Has outperformed the market and peers over the long term
Has a strategy in place for next phase of growth under new CEO
Has significantly renewed the board and management with experienced, engaged, energetic leaders
Continues to strive for operational excellence and create value for shareholders
Has repeatedly refused to disclose his specific plans for the business
Has previously used proxy fight to gain control without paying a premium to shareholders
Has a history of “extraordinary” turnover in boards after he joins them
As a CEO of a competing restaurant company, would present material business and legal conflicts of interest
Has engaged in what we view as poor corporate governance and self-interested transactions
9
II. Cracker Barrel’s History of Success
10
The Cracker Barrel Concept
Owns and operates 608 Old Country Stores across 42 states
Pleasing People®—genuine hospitality
Honest value Good country cookin’ Old-fashioned country store Welcome break for travelers
11
Menu Has Evolved to Maintain Relevance and Reach
Traditional Menu Offers ‘Home-Style” Country Cookin’
New Menu Offerings Appeal to Lighter Users
Sunrise Sampler
Wholesome Mornin’ Sampler
Fancy Fixin’s Meatloaf Dinner
Six Grain n’
Granola
Pancake
Breakfast
Chicken n’ Dumplins Country Dinner Plate
Chicken n’
Vegetable
Salad
12
Retail is Integral to the Cracker Barrel Experience
Guest waiting area
Rockers on the front porch
Gifts for under $20 Regional products
Cracker Barrel branded foods
Exclusive music
13
Winning Concept Results in Top Industry Rankings
#1 Family Dining Restaurant and Top Honors in Food Quality, Cleanliness, Service, Menu Variety, Atmosphere, Reputation, and Likely to Recommend
-Nation’s Restaurant News
NATION’S
CONSUMER (Consumer Picks 2011 National Survey)
‘Best Breakfast” among Family Dining Chains
- Zagat’s 2010 & 2011 Consumer Surveys
Top of the Full-Service Restaurants in Casual and Family Dining
- Consumer Brand Metrics Program—Technomic, Inc.
Ranked as the Top “Family Dining” Chain for 19 Consecutive Years in
Restaurants & Institutions “Choice in Chains” Annual Consumer Survey
- Restaurants & Institutions Magazine
Most RV-Friendly Sit-Down Restaurant in America for 10 Consecutive Years
- The Good Sam Club
14
Powerful Concept Has Outperformed Peers and Market Over Long Term.
Last 5 Years
Last 10 Years
160% -i
280%
140% -
250%
120% A
220%
9)
100% -
(U X
| 80% -\
190%
“g 160%
x
<u
M 130%
60%
100%
40%
70%
20% A
40%
Daily from 29-Sep-2006 to 30-Sep-2011
Daily from 28-Sep-2001 to 30-Sep-2011
ai Cracker Barrel a Restaurant Peers S&P 500 Index
Source: Bloomberg as of 30-Sep-2011
Note: Peer group includes Biglari Holdings, Brinker, Cheesecake Factory, Darden, PF Chang’s, Ruby Tuesday, and Texas Roadhouse
15
.And Five-Year Total Shareholder Return Exceeds Peers
2.6 %
2.0 %
1.8%
(1.9)%
(2.6)%
(2.4)%
Peer Median: (2.4)%
(4.1)%
(23.7)%
Cracker Barrel Biglari Holdings Brinker Cheesecake Darden P.F.Chang’s Ruby Tuesday Texas
Factory Restaurants Roadhouse
Source: S&P Research Insight, 30-Sep-2011. Total Return is defined as: “The Total Return concepts are annualized rates of return reflecting monthly price appreciation plus reinvestment of monthly dividends and the compounding effect of dividends paid on reinvested dividends.”
16
We Also Outperform Knapp-Track™ Casual Dining
Cumulative Comparable Same Store Sales Index, FY2006 = 100
Base Year
100.0
100.7
101.2
99.5
100.3
100.5
FY06 FY07 FY08 FY09 FY10 FY11
Cracker Barrel ^^”Knapp-Track™ Casual Dining Index*
Note: Knapp-Track™ Casual Dining Index same store sales figure is an approximation based on the weekly averages. Biglari Holdings does not participate in Knapp-Track™
17
We Have Achieved a More Attractive Return on Invested Capital
Estimated Latest Twelve Months ROIC
15.2%
14.8 %
12.5 %
11.8%
8.6 %
5.8 %
Cracker Barrel Biglari Holdings Darden Brinker Cheesecake P.F.Chang’s Texas Road house RubyTuesday
Restaurants International Factory
Source: Capital IQ and latest available publicly-filed Company Financial Statements as of 30-Sep-2011
Note: ROIC calculated as NOPAT over 1-year average invested capital. CBRL NOPAT adjusted for $2.8mm in one-time charges. Invested Capital calculated as Book Value of Total Debt plus Book Value of Total Equity. Debt figures exclude interest rate swap liability as not considered invested capital
18
III. Ongoing Transformation of the Company
19
CEO Sandy Cochran Brings Experience,
Energy and a Plan to Grow Traffic, Sales, Profits and Shareholder Value
11
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New marketing messaging |
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Refined menu and pricing |
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Enhanced restaurant operating platform |
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Innovative tactics driving retail sales growth |
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Focused cost reduction |
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Balanced approach to capital allocation |
20
CBRL Strategic Initiatives
New Marketing Messaging
Reinforce Authentic Value
Marketing spend to increase media coverage
Advertising to build traffic
Newly-redesigned website & social media initiative
Refined Menu and Pricing
Increase Variety & Everyday Affordability
• Increase guest visits
• Promotional strategy of limited-time offers
• New offerings at more accessible price points
Enhanced
Restaurant
Operating
Platform
Sustainably Improve the Guest Experience
Refinement of restaurant operating platform
Increased focus on guest experience has driven sequential improvement in guest satisfaction
21
CBRL Strategic Initiatives
Innovative
Tactics Driving
Retail Sales
Growth
Deliver Value & Connection With the Brand
Emphasize unique and proprietary items such as Cracker Barrel branded food, regional offerings, and new exclusive doll line
Highlight affordability with strong price points and prominent locations for giftable offerings
• New system expected to reduce labor cost
Focused Cost 10 20bps Reduction • Controlling food waste, supplies,
maintenance and transportation expenses
Offset Commodity
Pressure * $1Omm annual savings from staff reductions
• Investments in new store growth that are
Balanced accretive to shareholder value
Approach to cn,
P to I • Steady return of capital including 13.6%
Capital increase in quarterly dividend & $65mm
Allocation share repurchase authorization
Enhance 0 New $750mm credit facility Shareholder Value
22
What Analysts Are Saying
Analyst Commentary
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ets; J
“Management up-to-the-challenge”
“We believe management, led by new President, CEO Sandy Cochran and Chairman Mike Woodhouse, remain intently focused to recapture the strong operating trends which catapulted CBRL shares to almost triple over the past decade.”
-Robert Derrington, Morgan Keegan; 14-Sep-2011
“We believe that the Company’s 2H of FY12 should^ benefit from both a stabilizing consumer environment and a very thorough playbook of traffic driving, margin building and returns enhancing initiatives outlined by Sandra Cochran.”
- Brad Ludington, KeyBanc Capital Markets;
13-Sep-2011
“New CEO Sandra Cochran has addressed the Company’s critics effectively by developing a credible plan to build traffic and grow margin.”
- Stephen Anderson, Miller Tabak; 13-Sep-2011
“We do not expect many shareholders to support [Biglari’s] bid.”
- Bryan Elliot, Raymond James; 15-Sep-2011
“In times past [Biglari has] taken on much smaller companies that were very poorly managed. In those instances, he found relatively low-hanging fruit to make some positive changes. I don’t think Biglari has the ability to make dramatic positive changes in the company’s business model as he has in prior companies.”
-Robert Derrington, Morgan Keegan; Nashville Tennessean, 14-Sep-2011
Source: Publically available equity research reports and the Nashville Tennessean, permission to use quotations neither sought nor obtained
23
IV. Other Proxy Matters
24
Shareholder-Friendly Rights Plan Keeps Biglari From Creeping Control
Adopted in response to Biglari Holdings’ clearance under the Hart-Scott-Rodino Act to acquire up to 49.99% of the Company’s common stock
Shareholder friendly provisions:
Rights plan would not be triggered by acquisitions pursuant to all-cash, fully financed tender offers that remain open for a minimum of 60 business days (“qualifying offers”)
Rights plan is focused on creeping acquisitions above 10% and would not deter a non-coercive cash offer for all shares
Rights expire if shareholders do not approve rights plan at December 2011 annual meeting
If shareholders approve, rights would expire in September 2014
Biglari’s Argument that the Rights Plan Was Not Necessary Is
Belied by His Own Words in Biglari Holdings’ 2010 Letter From The Chairman:
fulfilling that objective, we will require favorable investment opportunities, preferably controlling interests in businesses with diverse operating and financial traits.”
“We are control investors.
25
Management Paid Based on Long Term Value Creation
• Cracker Barrel’s central compensation objectives:
Reward performance
Align executives’ interests with interests of shareholders
Attract and retain talented executives
Base salaries generally targeted at 60th percentile, and bonuses generally targeted at 50th percentile of peer group
Strong pay-for-performance philosophy. In 2011, 79% of CEO’s compensation and 72% of other named officers’ compensation was “at risk” based upon Company performance
As described in our Proxy, CBRL’s annual and long-term incentive compensation plans are designed to be deductible under Section 162(m) of the I.R.C., and provide discretion to the Board’s Compensation Committee in awarding incentive compensation, subject to a threshold of performance
The Compensation Committee has exercised its discretion by establishing plans that reward achievement of the following objectives:
Year-over-year improvement in Income from Operations (annual incentive plan)
Improvement in ROIC (long-term incentive plan)
Improvement in Total Shareholder Return (long-term incentive plan)
• In fiscal 2011, the Company paid annual bonuses to named executive officers equal to 91% of target, which was 45% of the maximum potential bonus
Management Incentives Aligned with Shareholder Interests
26
Plan to Collapse Holding Company Will Save Money
• Cracker Barrel Old Country Store (i.e. Holding Company) will be merged with the wholly owned operating company subsidiary, CBOCS, Inc.
Holding Company was originally formed in 1998 to oversee CBOCS and potentially for other businesses acquired
Although the Holding Company has owned and operated other businesses, it now only owns and operates CBOCS
Why now? The previous credit facility did not allow this merger, however, the new credit facility does, making these cost savings possible
Holding company format no longer necessary, its elimination will allow us to:
Realize tax and other savings of approximately $2mm per year
Simplify the corporate structure
Facilitate more efficient cash management
• Merging the two companies is in the best interest of shareholders
27
V. Why Biglari is Wrong for Cracker Barrel
28
Why We Believe Biglari Is Wrong for Cracker Barrel
Has repeatedly refused to disclose his specific plans for the business
Gained initial board representation at Steak ‘n Shake and then took control over time without paying a premium, with most Board members exiting the Board after he joined it
Slashed operational investment at Steak ‘n Shake — focused only on short-term
Proposed excessive compensation plan for himself
Proposed dual class of stock at Biglari Holdings for acquisitions — has delayed special meeting twice, and now “on hold”
Returns little cash to shareholders
Presence on our Board would create a serious conflict of interest — he is the CEO of a family restaurant competitor and CEO of a restaurant acquisition vehicle
29
Biglari’s Rhetoric Changes Over Time and Cannot be Relied On
Target
Original Announced Intentions
Actual Actions Taken / Result
13-Jun-2011 13D: “The Reporting Persons intend to evaluate their investment in the Shares on a continuous basis.”
23-Sep-2011: “.we told Chairman Michael Woodhouse that we have purchased stock for investment purposes only.”
7-Aug-2006 13D: “The Reporting Persons have acquired their Shares of the Issuer for investment. The Reporting Persons evaluate their investment in the Shares on a continual basis.”
23-Jun-2011: Demanded Board seats for himself and P. Cooley
26-Aug-2011: Filed HSR to acquire up to 49.99% of CBRL shares
1-Sep-2011: Launched Proxy Fight
8-Sept-2011: Borrowed $83.2 million through subsidiary to up-stream a cash dividend to Biglari Holdings
11-Dec-2006: Launched Proxy Fight
17-Jun-2007: Friendly’s announces acquisition by Sun Capital (BH was not involved)
lO-Nov-2005 13D: “The Reporting Persons intend to evaluate the business prospects of the Issuer, as well as its present and future intentions.”
1-Dec-2005: Biglari appointed to the Board of Directors
22-Oct-2009: Western Sizzlin announces Merger Agreement with Steak ‘n Shake
17-Aug-2007 13D: “The Reporting Persons acquired the Securities for investment purposes.”
12-Aug-2007: Biglari first requests board seats for himself and Cooley
7-Mar-2008: Biglari elected to the Board of Directors
8-Aug-2008: Biglari appointed CEO 8-Apr-2010: Company renamed Biglari Holdings
Source: Public filings
30
How Did Biglari Take Control of
Steak *n Shake?
BlGLAR]
Holdings Inc.
Biglari Holdings Inc.
8-Aug-2008
Biglari appointed CEO
Today:
Ownership of .1%3 and CEO
^r Share Price (30-Sep-2011) $296.39
19-Jun-2008
Biglari appointed Chairman of the Board
Jul-2008
Two executive team members resign
uuai u
Source: Public filings
Stock price adjusted for reverse split to be comparable to current market price.
As per Biglari’s Schedule 13D/A filing on 3-Feb-2010.
As per Biglari’s proxy filing on 1-Jul-2011.
Purchased through:
Lion Fund
Western Sizzlin
P. Coo ley
Cooley’s wife
Call Options:
20,000 shares through Lion Fund
561,000 shares through Western Sizzlin i
7-Mar-2008
Biglari wins Proxy Contest
5.8% nOwnership
17-Aug-2007
Share Price: $309.001
Biglari discloses 5.8%
ownership in Steak ‘n Shake
Nominates himself and Cooley to the Board
8-Apr-2010
Renamed Biglari Holdings
Biglari only controlled
6.8%2
22-Oct-2009
Announces Merger with Western Sizzlin
Biglari originally claimed that
he had acquired shares “for investment purposes”
Instead he:
X Took control X Became Chairman and CEO X Merged with Western Sizzlin X Renamed Biglari Holdings
31
Biglari Enters. .Existing Board Members Leave
After Biglari Joined the Western Sizzhn’ Board (02-Dec-05)
Name Resigned ? Name Resigned ?
Paul C. Schorr Roger D. Sack •
Jones Yorke Stanley L. Bozeman, Jr. •
Alan Cowart Jesse M. Harrington •
Thomas M. Hontzas Pat Vezertzis •
Titus W. Greene1 NA
After Biglari Joined the Steak ‘n Shake Board (07-Mar-08)
Name Resigned ? Name Resigned ?
Fred Risk • Edward W. Wilhelm
Name
Director Since
2008
Sardar Biglari
2008
Phillip Coo ley
2010
Kenneth Cooper
Ruth Person 2002
Biglari Holdings Board Today2
Role
Age
Background
Chairman of the Board, CEO
34
Director of Western Sizzlin’ since 2005
Director of Western Sizzlin’ since 2005
Vice Chairman of
the Board &
Independent
Director
67
Advisory Director of Biglari Capital since 2000
Biglari’s professor at Trinity University, Prassel Distinguished Professor of Business Administration
Independent Director
• Served as a Director of Western Sizzlin’ Corp. from
66 2007 to 2010
• His law practice concentrates on real estate transactions
Chancellor and Professor of
Management, University of
Independent Director
65
Michigan-Flint
Served as President of Board
of Directors of Workforce
Development Strategies, Inc.
Geoffrey Ballotti Steven M. Schmidt
John W. Ryan2 NA Wayne L. Kelley
Ruth J. Person Current
Source: Public Filings
| 1 |
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Titus Greene served on the WSC Board until the Company merged with SNS. |
| 2 |
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John Ryan served on the Board of BH until his death earlier this year. |
32
We Are Not the Only Ones Who Think Biglari’s Governance Record is Poor
“.there does not appear to be any desire to appreciate or be receptive to other points of view on the board of directors than the current Steak ‘n Shake chairman’s position.
.although our current chairman and CEO [Biglari] espoused openness and transparency, the opposite has been the case. The
board has not been actively involved in developing the vision and strategy of the business, but rather has been informed about it belatedly/’
-Wayne L. Kelley, Former Steak *n Shake CEO; 22-Mar-2009
“The unanimous vote [to transform Steak’n Shake into Biglari Holdings] came after Biglari, the board chairman, managed to push out every board member unwilling to give him dictatorial authority over Steak’n Shake despite his relatively modest ownership stake/’
-Indianapolis Business Journal; 6-Feb-2010
Note: Permission to use quotes was neither sought nor obtained
33
Biglari Stopped Investing in Growth at
Steak An Shake.
($ in Millions)
FY 2008
Q1 Q2 i Q3 Q4
FY 2009
Q1 Q2 Q3 Q4
FY 2010 Q1 Q2 Q3 Q4
FY2011
Q1 Q2 Q3
9.1 %
1.7%
1.0% 0.9%
Steak ‘n Shake
Latest Twelve
Months Capex /
Sales Over Time
8.1 %
I
6.6 %
5.1 %
3.3 %
1.1%
1.4% 1.3%
1.1%
1.7% 1.8%
7.5 %
Median = 3.0 %
5.3 %
Latest Twelve Months Capex / Sales
1.8%
3.2 %
3.2 %
2.8 %
2.2 %
Biglari CrackerBarrel Darden Texas Cheesecake P.F.Chang’s Brinker Ruby Tuesday
Holdings Restaurants Roadhouse Factory
Source: Capital IQ as of 30-Sep-2011
Note: Red Line denotes when Biglari obtained a Board seat (Apr-2008). Fiscal Year end is September 30
34
.And Focused on His Own Compensation
Compensation Package Overview
Public Reaction
i
• Biglari’s proposed compensation at Biglari Holdings provided him with 25% of the gain in book value over the annual hurdle rate of 5% with no cap
If the $300mm book value increased 10%, Biglari would receive ~$4mm
This is in addition to his $900k annual base salary
• Hand-picked Governance, Compensation, and Nominating committee, unanimously approved the agreement
Following adverse shareholder and ISS response, Biglari revised his proposal increasing the hurdle rate to 6% and installing an annual cap at $10mm
Biglari received $1.2 million prorated incentive payment under this plan for the first quarter it was in place (4Q of FY 11)
“One of the sweetest compensation arrangements I’ve ever seen at a public company - one that would deeply cut into shareholder returns”
- Richard Gibbons, The Motley Fool; May 2010
k
“The pay is too rich for such little growth”
- Ken Skarbeck, Managing Partner, Aldebaran Capital; Aug-2010
“The current system, as proposed, is ridiculous by itself and, additionally, runs contrary to the ethos Mr. Biglari claimed to have when nominating himself for election to the Board of Steak ‘n Shake.
“The decision by the Board of Biglari Holdings (BH) to accept such a generous and easily manipulated compensation system, demonstrates they either fail to understand the nuances of the proposal or they are simply unwilling to take a stand against Mr. Biglari”
- NFI Shareholder Letter to Biglari; May 2010
Source: BH Annual Meeting Proxy Statement
Note: Permission to use quotes was neither sought nor obtained
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.And Maintaining Control Despite His
Minority Ownership
Biglari’s Dual Class Stock Proposal
Biglari is attempting to create a dual class of stock, which would enable him to consolidate voting rights in BH to himself
X Under the proposal Class B shares = 1/5 Economic and 1/100 Voting Rights / 4
X Could enhance his voting control and reduce voting power of future shareholders of Biglari Holdings
X Class B stock would be his currency for future acquisitions
But given shareholder challenges to these proposals, these actions are “on hold”
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Biglari Oddly Views His Shareholders’ Money as His Own
IJjjive invested about $100 million in the stock of Cracker Barrel whereas the entire Board since 2003 has spent a total of $251,600 in purchasing stock in the open market.”
-Biglari’s letter to CBRL shareholders, 12 September 2011
Biglari does not personally own any stock directly in Cracker Barrel—Biglari Holdings and the Lion Fund do.
If Biglari really views a public company’s ownership as his own, what other governance issues do we not know about at Biglari Holdings?
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Sardar Biglari Has a Business Conflict
Should Biglari become a Director of Cracker Barrel, he would have fiduciary duties to serve the best interest of both BH AND Cracker Barrel shareholders:
tyof Care • Duty of Loyalty -> How can he be loyal to both?
• How can Biglari fulfill his duties of loyalty on two boards with inherently competing interests?
We compete with many restaurant concepts
We seek to attract restaurant traffic away from these other restaurant concepts
Cracker Barrel’s board regularly considers pricing, product and menu development, promotions, advertising, store locations, growth and expansion, and strategic plans
What Biglari learns from our board could be applied at Steak ‘n Shake
• Biglari’s proposed board service also raises antitrust concerns under the Clayton Act
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Cracker Barrel and Steak *n Shake are Competitors
Full Service, Family Dining Format Breakfast
Lunch
Dinner
Similar Menu Items
Geographical Overlap Americana Brand Alcoholic Beverages Average Check
Mid — High Single Digits
Mid — High Single Digits
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Illustrative Menu Item Similarities
Old Country Store
NEW COUNTRY
Skillet Breakfast1
CAKES *N EGGS
Momma’s Pancakes
GRILLED CHICKEN
Chicken *n Vegetable Salad
Source: Cracker Barrel archive and Steak ‘n Shake website 1 Not currently offered.
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Extensive Geographical Overlap: We Compete for the Same Guests
Source: Company websites
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Biglari Slashed Capital Expenditures, But Paid to Put His Picture in Every Restaurant
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Key Message From Your Current Board
Sardar Biglari is wrong for our shareholders
We are a strong company and a leader in the industry
We have delivered strong results over time, and have the strategy to continue to drive performance
Our current board is actively involved at Cracker Barrel and continuously seeks to create value
We believe Biglari is dedicated to Biglari — not the best interests of all Cracker Barrel shareholders
We believe Biglari’s playbook of creeping control and poor corporate governance will harm Cracker Barrel and its shareholders
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