Hooters Settles Lawsuit Over Challenge to the Sale of Restaurant Chain

Hooters of America Inc., the restaurant chain best known for its tank top-clad waitresses and spicy chicken wings, settled a lawsuit challenging the company’s sale to a buyout firm, a lawyer said.

Hooters managers, the family of Robert “Bob” Brooks, the chain’s former chief executive officer, and officials of private-equity firms Chanticleer Investors LLC and Wellspring Capital Management LLC agreed to resolve the Delaware Chancery Court case over the chain’s sale to Chanticleer, Lewis R. Clayton, a New York-based lawyer for Wellspring, said in a May 6 interview.

“The settlement is confidential and the parties have agreed to dismiss all claims,” Clayton added.

Brooks’s family sold its interests in the 455-restaurant chain to a group of investors led by Chanticleer earlier this year for an undisclosed amount. The sale resolved a dispute over the executive’s estate, according to court filings. Brooks, known as Hooters’ “Worldwide Wing Commander,” died in 2006.

Wellspring, a private-equity firm whose holdings include the Checkers hamburger-restaurant chain according to its website, had sought to buy Hooters, according to court papers. Chanticleer officials, who claimed they were granted a purchase option as part of a loan deal with one of Hooters’ units, ultimately bought the chain earlier this year.

Michael Pruitt, Chanticleer’s chairman, declined to comment on the settlement today. Alexis Aleshire, a Hooters spokeswoman, and Kurt Heyman, a lawyer for Brooks’s family, didn’t immediately return calls for comment today.

Estate Fight

The Hooters chain has restaurants in 44 states and 28 countries, according to the company’s website. The chain’s waitresses, clad in tight, white tank tops and orange shorts, serve sandwiches, seafood and the chain’s signature chicken wings.

Brooks, of Myrtle Beach, South Carolina, bought Hooters in 1986 and expanded it in the U.S. and internationally. After the 69-year-old executive died in July 2006, his will divided ownership of the chain among family members and Clemson University, according to the Myrtle Beach Sun News newspaper.

Brooks’ second wife, Tami Springs Brooks, challenged her $20 million share under the will and a South Carolina judge ruled she was entitled to one-third of Brooks’s estate, the newspaper reported. The Hooters chain may have been worth as much as $250 million, the New York Post reported in February.

Sale Approved

In December, a South Carolina judge approved the chain’s sale as part of an agreement between Brooks’s family members, according to court filings.

That same month, Hooters officials filed suit in state court in Delaware and asked a judge to decide whether Charlotte, North Carolina-based Chanticleer “validly exercised its contractual right of first refusal” to bar the Wellspring sale, court filings show.

Before a judge could hear the case, Hooters officials reversed course and agreed to sell the chain to the group led by Chanticleer, which includes HIG Capital LLC, a Miami-based private-equity firm that has $8.5 billion under management, according to its website.

Chanticleer’s lawyers contend the private-equity firm, which once focused on microcap companies, got the purchase option in 2006 when it loaned $5 million to Hooters Air, a now- defunct airline linked to the restaurant chain, according to court filings.

Closes April 2006

The Myrtle Beach-based airline, which offered cut-rate fares, shut down in April 2006, citing increases in jet-fuel costs.

The amount of Wellspring’s offer for Hooters hasn’t been made public. Founded in 1995, the private-equity firm focuses mostly on companies in industries such as restaurants, manufacturing and distribution.

Wellspring sold the restaurant and entertainment company Dave & Buster’s Inc. to Oak Hill Capital Partners for $570 million last year.

The Delaware case is Hooters of America Inc. v. Neighborhood Restaurants International Inc., 6054, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.