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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Fiscal Year Ended October 2, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission File Number: 1-6192
GROUND ROUND RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
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New York 13-5637682
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
35 Braintree Hill Office Park, Braintree, Massachusetts 02184
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 380-3100
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each Exchange on which registered
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Common Stock, $ .1667 par value NASDAQ National Market System
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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
On November 30, 1994, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $47.2 million, based upon
the last reported sale price for a share of the Registrant's Common Stock on
the NASDAQ National Market System.
Number of shares of Common Stock outstanding as of November 30, 1994:
11,114,269.
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FORM 10-K INDEX
PART I
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Page
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Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 4 Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II
Item 5 Market for the Registrant's Common Stock
and Related Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 19
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 19
PART III
Item 10 Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 12 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 13 Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
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PART I
ITEM 1. BUSINESS
RECENT EVENT
On August 23, 1994, the Company announced that it had entered into a definitive
merger agreement (the "Merger Agreement) to be acquired at a cash purchase
price of $9.00 per share (the "Merger Consideration") by a new company formed
by institutional investors led by 399 Ventures, Inc. Stockholders in the
acquiror will include members of senior management of the Company. Completion
of the transaction, which will be effected by a statutory merger, is subject to
receipt of financing as well as customary closing conditions. At the time the
Merger Agreement was signed, the acquiror delivered to the Company a letter
that it had obtained from Bear, Stearns & Co., Inc. ("Bear Stearns") indicating
that, based on then-current market conditions and subject to a number of
material financial conditions, Bear Stearns was highly confident of its ability
to place debt securities constituting a substantial portion of the proposed
financing. Approval of the merger requires a two-thirds vote of the Company's
stockholders.
On November 16, 1994, the Company announced that it had agreed to extend until
January 31, 1995 the termination date of the Merger Agreement in order to allow
the acquiror more time to arrange financing for the transaction. The Company
announced that it had been advised by the acquiror that the acquiror had
received advice from Bear Stearns regarding the deterioration of conditions in
the high-yield financing market and that, as a result, the acquiror did not
believe that the financing necessary to consummate the proposed merger will be
available on the terms contemplated at the time of the original Merger
Agreement. As a result, the acquiror has advised the Company that it is
pursuing alternative financing structures to complete the transaction. Under
the Merger Agreement, the acquiror is obligated to use its best efforts to
obtain financing on terms contemplated at the time of the original Merger
Agreement that would permit it to consummate the merger for the Merger
Consideration. There can be no assurance that the financing can be obtained on
such terms and, therefore, that the merger can be completed.
The amended Merger Agreement entitles either party to terminate the agreement
if the merger does not occur on or before January 31, 1995, provided that the
party electing to terminate is not in material breach of the Merger Agreement.
If the Merger Agreement is terminated, the Company will not be obligated to pay
any fees of the acquiror under the Merger Agreement other than to reimburse the
acquiror's expenses up to a maximum of $1.5 million under certain
circumstances, including termination of the agreement to accept an offer from a
third party. The Company may furnish information to and negotiate with parties
making unsolicited inquiries, accept an offer received from a third party, and
terminate the amended Merger Agreement.
OVERVIEW
The Company operates and franchises family-oriented, full-service, casual
dining restaurants in 23 states in the Northeast, Mid- Atlantic and Midwest
regions of the United States and franchises one restaurant in Canada. Ground
Round restaurants offer a broad selection of high quality, moderately-priced
menu items, including a choice of appetizers, entree salads, specialty
sandwiches, the one-half pound THE GROUND ROUNDER(R) hamburger and entrees
featuring seafood, baby back ribs, steak, chicken and pasta, as well as full
liquor service. A specialty section of the menu, "Just for Kids," offers
pizza, hot
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dogs and grilled cheese sandwiches at reduced prices. On Tuesdays or
Thursdays, KIDS PAY WHAT THEY WEIGH(R) at JUST A PENNY A POUND(R) for any item
selected from the children's section of the menu. As of October 2, 1994, the
end of the Company's most recent fiscal year, there were 205 restaurants
system-wide, 164 of which were Company-operated and 41 of which were operated
by franchisees.
STRATEGY
The Company's objective is to become the premier family-oriented, full service,
casual dining restaurant in the industry. The key elements of the Company's
strategy include the following:
- - -- emphasizing a "no compromise" dining experience by creating an atmosphere
WHERE KIDS CAN RELAX...AND GROWN-UPS CAN HAVE FUN(R);
- - -- offering customers an excellent price-to-value alternative to other casual
dining restaurants;
- - -- revitalizing the menu to offer items that are more appealing to the
Company's target customers;
- - -- implementing a new compensation plan designed to motivate each restaurant
general manager by tying financial rewards to the operating profits of the
manager's restaurant;
- - -- remodeling older restaurants to improve their exterior and interior
appearance to provide continuity throughout the Ground Round system;
- - -- selling or closing certain restaurants for which renovation is not
economically justifiable; and
- - -- accelerating the rate at which the company opens new restaurants.
No Compromise Dining. The Company seeks to create an atmosphere WHERE KIDS CAN
RELAX...AND GROWN-UPS CAN HAVE FUN(R). Each restaurant typically has two
distinct dining areas, a main dining room for families with children and a
smaller dining and bar area for adults. In the main dining room, children can
enjoy a special selection of kids' meals while watching cartoons, coloring in
books, playing games or being entertained by periodic visits from BINGO THE
CLOWN(R). Adults dining without children or families seeking a more mature
ambiance can enjoy light snacks and complete meals in the second dining area.
By offering two distinct dining atmospheres, the Ground Round restaurants cater
to a large customer base, which the Company believes has contributed to the
resiliency of the Ground Round concept over the past 25 years.
Excellent Price-to-Value Relationship. The Company believes it offers its
customers an excellent price-to-value alternative to other casual dining
restaurants. By offering sandwiches and entrees that range in price from $3.79
to $12.95 and a children's menu with lower prices, the Company targets both
families and adults dining without children seeking a value oriented
full-service, casual dining experience. In fiscal 1994, the average guest
check in Company-operated restaurants was approximately $8.29 (including
alcoholic beverages). Alcoholic beverages have accounted for approximately 22%
of restaurant sales during the last three fiscal years.
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Revitalized Menu. The Company continues to refine its menu by developing new
products, which are perceived to be of higher quality and which reflect changes
in guest preferences. Examples include chicken quesadillas, sauteed dishes,
such as tomato and basil pasta and chicken alfredo, sizzling fajitas, a
12-ounce, center-cut sirloin steak and cajun swordfish. Several unique
desserts, such as CINNAMON DIPPERS(R), CHAOS(R) pie and peanut butter pie, have
also been added. Additionally, the Company is reducing the number of menu
items to enhance restaurant performance by simplifying execution.
Motivated General Managers. The Company believes that by sharing the
restaurant's operating profits with its managers, the Company will foster a
feeling of ownership in its managers and encourage entrepreneurship. The
Company recently began implementing its Managing General Partner program, which
allows each selected general manager to share in the success of the manager's
restaurant. A participating general manager will receive 2.5% of the monthly
operating profit and 15% of the increase in the quarterly operating profits of
the manager's restaurant. Additionally, each participating general manager
will receive a bonus of 10% of the total profit of the restaurant in the
managers's fifth year in the program. The Company expects that within the next
several years, all restaurant general managers will participate in the Managing
General Partner program. Currently, each restaurant manager not participating
in the Managing General Partner program receives incentive compensation based
upon the operating profits of the manager's restaurant. By providing its
general managers with a significant participation in the operating profits of
their restaurants, the Company believes that it will attract and retain highly
motivated managers.
Remodeling Program. The Company currently is in the process of remodeling
older restaurants to provide continuity throughout the entire Ground Round
system and preserve the integrity of the Ground Round concept. In 1992 and
1993 the Company remodeled 29 restaurants at an average cost of approximately
$275,000 per restaurant. In fiscal 1994, the Company remodeled 49 restaurants
at an average cost of approximately $147,000 per restaurant. The Company has
an additional nine restaurants undergoing remodeling. By the end of fiscal
1995, the Company plans to remodel substantially all remaining restaurants
which are economically justifiable to remodel, through which the Company can
achieve an adequate return through increased sales.
Divestiture Program. During fiscal 1994, the Company determined that it would
sell or close locations for which remodeling was not economically justifiable.
During fiscal 1994, the Company closed four locations and sold seven
Company-operated restaurants generating cash proceeds of approximately $4.4
million and has agreed to sell, subject to the fulfillment of certain closing
conditions, six Company-operated restaurants, which in the aggregate will
generate additional cash proceeds of approximately $3.6 million. The Company
intends to sell or close an additional 27 restaurants by the end of the second
quarter of fiscal year 1996. The disposal of some or all of these resturants
is not expected to have a material effect on the Company's operating profit.
In addition to the cash proceeds expected by the Company from the sales of the
remaining targeted restaurants, the Company should also realize significant
economic benefits through improved utilization of assets and decreased
management-supervision time.
Expansion Program. Management recently accelerated its expansion program by
opening five newly-constructed, Company-operated restaurants during fiscal 1992
and eight newly-constructed, Company-operated restaurants during fiscal 1993.
The Company-operated restaurants that were opened in fiscal 1992 recorded
average sales of approximately $1.9 million in fiscal 1993 (a 53-week year),
compared to $1.4 million average sales recorded by comparable Company-operated
restaurants in fiscal 1993. The eight Company- operated restaurants opened
during the fourth quarter of fiscal 1993 recorded average annualized sales of
approximately $1.8 million for fiscal 1994. The Company opened nine
Company-
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operated restaurants in fiscal 1994 and anticipates opening 10 to 20
Company- operated restaurants in fiscal 1995.
THE RESTAURANTS
The Company's restaurants are divided into 20 geographic regions, managed by an
Executive Vice President, a Senior Vice President and a Director of Operations.
Each region has a Regional Director who typically oversees between five and 16
Company-operated restaurants and one to five franchise restaurants. The
day-to-day operation of each restaurant, including personnel management, food
procurement, inventory control, guest relations and local marketing, is the
responsibility of a general manager who reports to the appropriate Regional
Director.
Ground Round restaurants are located primarily in the Northeast, Mid-Atlantic
and Midwest regions of the United States. Most restaurants are in
free-standing buildings along commercial roadways with high traffic counts.
Many of the restaurants are located near a retail shopping area or in major
shopping malls.
Ground Round restaurants average approximately 5,600 square feet and 210 seats.
The family dining room averages approximately 2,800 square feet in size and has
approximately 140 seats. The adult dining room, which includes a bar and
lounge, generally averages 1,400 square feet with 70 seats. The Company has
developed a restaurant facility prototype for its new restaurants and is
remodeling its existing restaurants to make their physical appearance
consistent with this prototype. The exterior of the new and remodeled
restaurants features a green and yellow striped backlit awning, new illuminated
signage and attractive landscaping. The design of Ground Round restaurants is
flexible and can be adapted to local architectural styles and varying floor
plans. The Company is, therefore, able to convert existing buildings to the
Ground Round concept.
The Company estimates that the investment required to open a typical
Company-operated restaurant (excluding occupancy costs, such as rent and taxes)
currently ranges from approximately $900,000 to $1.3 million, assuming the
Company does not purchase the land. The Company currently anticipates that it
will lease the land and buildings for substantially all new Company-operated
restaurants. Costs for construction of leasehold improvements vary based upon
such factors as size, location, condition and type of property. The cost of
furniture, fixtures and equipment, initial inventory and supplies and other
pre-opening expenses, including liquor licenses, are included in the range set
forth above and are incurred whether a restaurant is leased or owned. The
Company does not have any exclusive arrangements with contractors or designers.
The Company believes that location is a key factor in a restaurant's ability to
operate profitably. The Company studies area demographics, such as household
size, density of population and average household income, and site
characteristics, such as traffic volume, visibility, accessibility, parking
availability, proximity to a major shopping center and proximity to other
restaurants. Based on analysis of its most profitable restaurants, the Company
seeks sites in areas that have populations in excess of 50,000 persons within a
three-mile radius and an average household incomes of approximately $35,000.
The Company intends to locate its new restaurants primarily within or near
markets in which existing Ground Round restaurants are concentrated to benefit
from marketing and operating efficiencies. Of the new restaurants opened in
fiscal 1994, three are in Maryland, two are in Massachusetts, two are in Ohio,
and there is one in each of Minnesota and Pennsylvania. The two new franchised
restaurants opened in fiscal 1994 are in North Dakota and Pennsylvania.
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The Company periodically evaluates the prospects of existing Company-operated
restaurants and will, from time to time, sell or close individual restaurants.
See " --Strategy--Divestiture Program" above. Similarly, franchised
restaurants have closed in the past and may close in the future. During fiscal
1994, eleven Company-operated and five franchised restaurants were closed.
Four franchised restaurants were terminated for cause. Four of the five
franchised restaurants that ceased operating during fiscal 1994 were in the
bottom 30% in annualized sales among all franchised restaurants.
RESTAURANT OPERATIONS
Hours of Operation. All Ground Round restaurants are open seven days a week,
for lunch and dinner, with typical operating hours of 11:30 a.m. to midnight.
In most locations, dinner accounts for approximately 60% of sales, with lunch
and late night dining accounting for the remaining 40% of sales. Ground Round
restaurants are operated in accordance with the Company's uniform operating
standards and specifications, which are applied on a system-wide basis. These
standards and specifications relate, among other things, to the quality,
preparation and selection of menu items, furnishing and equipment, maintenance
and cleanliness of restaurant premises and employee service and attire. The
Company stresses efficient, courteous and responsive service.
Purchasing. The Company's purchasing department coordinates purchases of most
food products and most non-alcoholic beverages used in both Company-operated
and franchised restaurants. The nature of the Company's standing purchase
order arrangements with its suppliers enables it to anticipate and better
control its food costs. The Company purchases beef (other than ground beef),
chicken and fish under forward purchase contracts generally having a term of
one year, which are designed to assure the availability of specific products at
a constant price throughout the year. The Company has a coordinated purchasing
system, which offers the same prices to both Company-operated and franchised
restaurants. All franchisees are required to purchase food, equipment and
smallwares from suppliers approved by the Company. This enables the Company to
assure that the items sold in all Ground Round restaurants meet the Company's
standards and specifications for uniform quality. Although not required to do
so, virtually all franchisees purchase through the Company's purchasing
department to capitalize on the strength of the Company's purchasing power.
Beer, alcoholic beverages, produce and certain dairy products are purchased by
restaurant general managers on a local basis.
Training. The Company emphasizes the training of both new and existing
employees. Training is an integral part of both Company- operated and
franchised new restaurant openings. A specialized training team works on-site
to implement an extensive training program for each hourly employee in a new
restaurant prior to and for several weeks after its opening. In addition, the
Company has implemented a system-wide training program to achieve
standardization of food preparation and operational procedures and efficient,
courteous and responsive service.
All managers also are required to complete successfully an eight-to-ten week
course in basic skills and management training. A written test and skill
demonstration to a supervisor are required to complete the course. In
addition, the Company requires that its hourly restaurant employees undergo
training relevant to their positions and be certified by a supervisor, based
upon a demonstration of the skills necessary for the position and a written
test.
As part of its Managing General Partner program, the Company has developed a
comprehensive training course which all participating restaurant managers are
required to complete successfully. The course includes a workshop on
leadership training and covers virtually all aspects of restaurant operations,
such as techniques to increase sales, local restaurant marketing, management
information systems,
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understanding the law as a means of risk management, facilities management,
food and beverage purchasing and managing employees.
Restaurant Reporting. During fiscal 1993, the Company completed installation
of a point of sale system in its restaurants. Through this system, the Company
collects sales information and cash balances on a daily basis from each
restaurant. The Company also receives payroll and other operating information
on a weekly basis from its restaurants. The point of sale system also provides
real-time information to restaurant managers which allows them to track sales
by menu item, prepare daily cost and sales reports and prepare weekly and
monthly profit and loss statements. The Company's goal is to use the
information generated by the point of sale system to facilitate planning
activities at both the corporate and restaurant levels. In addition, the time
required to assemble and report restaurant information should be decreased,
allowing the restaurant manager to focus on other aspects of operations.
Marketing. Historically, the Company's marketing strategy was to use
media-based advertising focused on discounts. In 1993, the Company shifted its
strategy to focus on building long-term consumer loyalty, which the Company
believes can best be accomplished by providing customers with superior service
and value. Accordingly, the Company is focusing on enhancing its image through
the remodeling of existing restaurants, increasing training at the restaurant
level and improving menus. The Company now principally employs in-store, point
of purchase materials such as banners, posters and buttons, as marketing tools.
The Company also is using radio advertising that is image- and
product-oriented.
Restaurant managers are encouraged to create and implement marketing strategies
on a local level to build sales and generate guest traffic and to become
involved in community programs in order to strengthen a restaurant's ties to
its community. These community programs include activities with area schools
and youth organizations and participation in local events.
FRANCHISING
As of October 2, 1994, the Company had 41 franchised restaurants, the majority
of which were located in the same geographic regions as, or in close proximity
to, Company-operated restaurants. During fiscal 1994, the average annual
comparable sales by the Company's franchised restaurants were $1.8 million.
The Company's franchise program enables the Company to enhance its brand-name
recognition and derive additional revenue without substantial investment.
In fiscal 1994, two new franchised restaurants were opened, and five
restaurants were closed. Four of the five franchised restaurants were
terminated for cause. Four of the five franchised restaurants that ceased
operating during fiscal 1994 were in the bottom 30% in annualized sales among
all franchised restaurants. The Company expects four additional franchise
restaurants to open in fiscal 1995.
Franchisees undergo a selection process supervised by the Director of
Development and requiring final approval by senior management. The Company
seeks franchisees with significant experience in the restaurant business who
have demonstrated financial and management capabilities to develop and operate
a franchised restaurant.
The Company assists franchisees with both the development and ongoing operation
of their restaurants. The Company provides assistance with site selection,
approves all franchise sites and provides franchisees with prototype plans and
specifications for construction of their restaurants. The Company's training
and new restaurant opening teams provide on-site instruction to franchised
restaurant employees. The Company's support continues with periodic training
programs, the provision of manuals and updates
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relating to product specifications and quality control procedures, advertising
and marketing materials and assistance with particular advertising and
marketing needs.
Supervision of franchisees is the primary responsibility of the Director of
Franchise Operations and the respective Regional Directors. The Company
provides the franchisees with ongoing support and assistance in the operations
of their restaurants and makes periodic visits to consult with franchisees and
assure that franchisees are complying with the terms of the franchise
agreement. In addition, from time to time, the Company performs audits to
verify the proper calculation of royalty payments from franchisees.
All franchised restaurants are required, pursuant to their respective franchise
agreements, to serve Ground Round menu items. In addition, all franchisees are
required to purchase food, equipment and smallwares from suppliers approved by
the Company. This enables the Company to assure that the items sold in all
Ground Round restaurants meet the Company's standards and specifications for
uniform quality. Although not required to do so, virtually all franchisees
purchase through the Company's purchasing department to capitalize on the
strength of the Company's purchasing power.
The current Ground Round franchise agreement has an initial term of 20 years.
Among other obligations, the agreements require franchisees to pay an initial
franchise fee of $40,000 for the first restaurant and $35,000 for subsequent
restaurants and a continuing royalty of 3% of monthly gross sales. The
current franchise agreement also requires franchisees to spend 2% of monthly
gross sales on advertising, 1 1/2% of which must be spent locally and 1/2% of
which is paid to the Company for creative and promotional development. The
franchise agreements related to ten of the 41 franchised restaurants will
expire in the next five years but give the franchisees the right to renew their
agreements for a 20-year term, subject to certain conditions. There currently
are no territorial exclusivity provisions that limit the Company's ability to
expand in any market. The Company, however, currently is engaged in
discussions with an existing franchisee regarding the granting of exclusive
territorial development rights in a market in which there are no Ground Round
restaurants.
EMPLOYEES
As of October 2, 1994, the Company had approximately 9,400 employees,
approximately 5,600 of whom were part-time employees. Approximately 8,700 of
these employees were employed in non-management restaurant positions, 600 were
involved in restaurant management or training programs and 75 were corporate
employees. The typical restaurant has approximately 60 employees. Company
employees are not unionized, and the Company considers its employee relations
to be good.
COMPETITION
The restaurant business generally, and the full-service, casual dining segment
in particular, is highly competitive. While management believes that Ground
Round's "no compromise" dining concept distinguishes its restaurants from other
casual dining restaurants, there can be no assurance that other chains will not
adopt a concept similar to that of Ground Round or that the concept will not
lose its appeal. Competitors of Ground Round include restaurants operated by
large national and regional chains having substantially greater financial and
marketing resources and name recognition than Ground Round, as well as numerous
local independent restaurants. The Company and its franchisees also encounter
substantial competition in their efforts to obtain suitable locations for new
restaurants.
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HEALTH CARE AND MINIMUM WAGE LAWS
The Clinton Administration and various members of Congress have proposed
legislation to overhaul the nation's health care system. Because the outcome
of any health care reform legislation is uncertain, the Company is unable to
determine the likely impact of health care reform initiatives on its
operations.
A significant number of the Company's food service personnel are paid at rates
based on applicable federal and state minimum wages. During the 1992
presidential election campaign, then-candidate Clinton pledged to seek an
increase in the minimum wage, coupled with a proposal to index future
increases. It is not possible at this time to predict the likelihood that an
increase in the minimum wage will be enacted or, if enacted, its impact on the
Company's profitability.
GOVERNMENTAL REGULATION
The Company is subject to various federal, state and local laws affecting its
employees and guests, its owned and leased properties and the operations of its
restaurants. The Company restaurants are subject to licensing and/or
regulations by various fire, health, sanitation and safety agencies in the
applicable state and/or municipality. In particular, the Company has adopted
extensive procedures designed to meet the requirements of applicable food
handling and sanitation laws and regulations. The Company has not experienced
any material problems resulting from its sanitation and food handling
procedures.
Ground Round restaurants are subject to state and local licensing and
regulations with respect to the sale and service of alcoholic beverages.
Typically, licenses must be renewed annually and may be revoked or suspended
for cause. Alcoholic beverage control regulations relate to numerous aspects
of the daily operations of the Company's restaurants, including minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control and the handling, storage and dispensing of alcoholic
beverages. The Company has not encountered material problems relating to
alcoholic beverage licenses to date, but the failure of a restaurant to obtain
or retain a liquor license would adversely affect the restaurant's operations.
In certain states, the Company is subject to "dram shop" statutes, which
generally give a person injured by an intoxicated person the right to recover
damages from the establishment that wrongfully served alcoholic beverages to
the intoxicated person. The Company carries liquor liability coverage as part
of its existing comprehensive general liability insurance. The Company
currently is a defendant in several "dram shop" suits. Management does not
believe that an adverse result in any of these cases will have a materially
adverse effect on the Company's financial condition or results of operations.
The Company is subject to federal and state fair labor standards, statutes and
regulations that govern such matters as minimum wages, overtime, tip credits,
child labor and other working conditions. A significant number of Ground Round
food service personnel are paid at rates based on applicable federal and state
minimum wages.
The Company's restaurants are subject to the provisions of the Americans with
Disabilities Act ("ADA"), which requires that private entities operating places
of public accommodation, including restaurants, take steps to ensure that
disabled employees and customers are not denied access and are not segregated.
Under ADA, however, the Company is not required to make any accommodation that
would result in an "undue burden" on the Company.
Management is not aware of any federal or state environmental regulations that
have had a material effect
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on the Company's operations to date. However, more stringent requirements of
local governmental bodies with respect to waste disposal, zoning, construction
and land use may increase both the cost and the time required for construction
of new restaurants and the cost of operating restaurants.
The Company is subject to federal and state laws, rules and regulations
governing the offer and sale of franchises. Most states have enacted laws that
require detailed disclosure in the offer and sale of franchises and/or the
registration of the franchisor with state administrative agencies. The Company
also is subject to Federal Trade Commission regulations relating to disclosure
requirements in the sale of franchises. Certain states have enacted, and
others may enact, legislation governing certain aspects of the franchise
relationship and limiting the ability of the franchisor to terminate or refuse
to renew a franchise. The law applicable to franchise sales and relationships
is rapidly evolving, and the Company is unable to predict the effect on its
franchising program of additional requirements or restrictions that may be
enacted or promulgated or of court decisions that may be adverse to
franchisors. Such decisions and regulations often have limited the ability of
franchisors to enforce certain provisions of franchise agreements and alter or
terminate franchise agreements. The scope of the Company's business, and the
complexity of franchise regulation, may create regulatory compliance problems
from time to time. The Company does not believe that such problems would be
material to the operation of its business.
TRADEMARKS
The Company has registered the name THE GROUND ROUND and its logo with the
United States Patent and Trademark Office. In addition, the Company has other
registered trademarks, including WHERE KIDS CAN RELAX AND GROWN-UPS CAN HAVE
FUN; THE GROUND ROUNDER; BINGO THE CLOWN; KIDS PAY WHAT THEY WEIGH; JUST A
PENNY A POUND; KIDS PAY BY DEGREE!; IT'S A GREAT DEAL OF FUN!; FAMILY COUNTS;
CINNAMON DIPPERS' and SLIDER sundae. The Company believes that these
trademarks are valuable to the operation of its restaurants and marketing
strategy.
ITEM 2. PROPERTIES
As of October 2, 1994, the Company operated 164 of the 205 Ground Round
restaurants. At 29 locations, both the real estate and structure are owned by
the Company in fee. At 117 locations, both the real estate and structure are
leased. At the remaining 18 locations, the land is leased and the structure is
owned. Lease terms run from 10 to 30 years, with most of the leases providing
for an option to renew for at lease one additional term of five years. Within
the next five years, 83 of the Company's leases will be up for renewal. Under
most leases, rent is calculated as a percentage of gross revenues, subject to a
minimum annual rent. Generally, the leases are net leases which require the
Company to pay the cost of insurance, taxes and maintenance on the leased
property. The Company owned properties and certain leased properties are
subject to security interests.
The Company's headquarters are located in a modern office park in Braintree,
Massachusetts, where the Company leases approximately 22,000 square feet. The
lease expires in 1996 and has a five-year renewal option. The Company believes
this space is adequate for its present and projected needs for at least the
next five years.
-9-
<PAGE> 12
<TABLE>
COMPANY-OPERATED RESTAURANT LOCATIONS
The following table sets forth the 164 company-operated restaurants as of
October 2, 1994. An * denotes a new restaurant added in 1994:
<S> <C> <C> <C>
CONNECTICUT Stoughton Fairport Warminster
Enfield W. Springfield Fayetteville West Chester
Groton Taunton Garden City Wexford
Manchester Walpole Kenmore Whitehall
Plainville Worcester Kingston
Rocky Hill Latham RHODE ISLAND
Waterbury MICHIGAN Liverpool (2) Johnston
Farmington Hills Mamaroneck Warwick
DELAWARE Grand Rapids Middletown
Newark Jackson Nanuet VIRGINIA
Wilmington Kalamazoo New Hartford Winchester
Livonia Newburgh
ILLINOIS Royal Oak Niagara Falls WISCONSIN
Bloomington Northport Glendale
Decatur MINNESOTA Port Jefferson Greenfield
Rockford Brooklyn Center Poughkeepsie Janesville
Springfield Burnsville Rochester (4) Racine
Coon Rapids Roslyn Wauwatosa
INDIANA Crystal Scarsdale West Allis
Castleton Duluth Schenectady (2)
Greenwood Fridley Utica
Indianapolis (2) Mankato* Vestal
North St. Paul Yonkers
IOWA Richfield
Davenport Roseville OHIO
Des Moines St. Cloud Akron (2)
Dubuque St. Paul Cincinnati (3)
Iowa City West St. Paul Columbus (3)
Waterloo Elyria*
MISSOURI Kent
KENTUCKY Bridgeton Kettering
Florence St. Joseph Lima
St. Louis Madeira
MARYLAND St. Peters Mentor
Baltimore Miamisburg
BelAir* NEW HAMPSHIRE North Olmsted
Frederick* Manchester Parma
Hagerstown* Parma Heights
NEW JERSEY Solon*
MASSACHUSETTS Cedar Knolls Strongsville
Allston Deptford Toledo
Andover Ewing Township Willowick
Boston* Gloucester
Braintree Greenbrook PENNSYLVANIA
Brighton Hackensack Camp Hill
Cambridge Hasbrouck Heights Corapolis
Danvers Keyport Erie
Framingham Maple Shade Greensburg
Natick Sayreville Johnstown
North Dartmouth Voorhees Monroeville
Norwell No. Wales
Norwood NEW YORK Philadelphia
Salem Albany (2) Pittsburgh (3)
Saugus Amherst Reading
Springfield* Bayshore Scranton*
Stoneham Clay Springfield
</TABLE>
-10-
<PAGE> 13
<TABLE>
FRANCHISED RESTAURANT LOCATIONS
The following table sets forth the 41 franchise restaurants as of October 2,
1994. An * denotes a new restaurant added in 1994:
<S> <C> <C> <C>
CONNECTICUT NEW HAMPSHIRE OHIO CANADA
Branford Nashua Boardman Niagara Falls
Danbury
Glastonbury NEW JERSEY PENNSYLVANIA
Bordentown Langhorne
MAINE Egg Harbor York *
Auburn Flemington
Augusta Lawrenceville RHODE ISLAND
Bangor Toms River Pawtucket
So. Portland
NEW YORK SOUTH DAKOTA
MARYLAND Commack Sioux Falls
Annapolis Farmingdale
Hicksville VERMONT
MASSACHUSETTS Plattsburgh So. Burlington
Chelmsford Rensselaer
Hadley Sayville VIRGINIA
Lanesboro Danville
Needham NORTH DAKOTA Lynchburg
Shrewsbury Bismarck Roanoke
Waltham Fargo
Grand Forks
MICHIGAN Minot *
Dearborn Hts.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions that arise in the
ordinary course of business, including claims and actions brought pursuant to
"dram shop" statutes and under federal and state employment laws prohibiting
employment discrimination.
The Company has been named in a number of separate claims brought by former
employees alleging that the Company engaged in discriminatory practices based
on age, race, sex or disability. Plaintiffs maintaining claims of employment
discrimination, such as those being brought against the Company, generally are
entitled to have their claims tried by a jury and such claims may result in
punitive damage awards. Most of the proceedings against the Company are still
in the discovery phase. Management believes that the discrimination claims
against the Company are without merit and the Company is actively defending the
claims.
On August 24, 1994, a suit was filed in the Massachusetts Superior Court,
Suffolk County in which the Company and each member of its Board of Directors
were named as defendants. That suit is styled Perry v. O'Donnell, et al.,
Civil Action No. 94-4648 G. The suit, which has been brought by a purported
-11-
<PAGE> 14
shareholder seeking to be certified as a representative of a class of
shareholders, alleges in substance that the members of the Board of Directors
acted in breach of their fiduciary duty to the Company's shareholders by (i)
failing to take appropriate steps to maximize the value to be received by the
Company shareholders upon the sale of the Company, (ii) authorizing the Company
to enter into the Merger Agreement with an entity in which certain members of
the Company's senior management, including Mr. O'Donnell, will have ownership
interest and (iii) agreeing to recommend a transaction in which the Merger
Consideration is unfair and grossly inadequate. The relief requested by the
plaintiff includes that the proposed Merger be enjoined or, if completed,
rescinded, or that damages be awarded. On September 13, 1994, a similar suit,
Weinstein v. Ground Round Restaurants, Inc., Civil Action No. 94- 4714 G, was
brought by another purported shareholder. That suit, also brought in the
Massachusetts Superior Court, Suffolk County, made the same allegations and
demanded the same relief as were made and demanded in Perry. The Company and
its directors currently are preparing their responses to both complaints. The
Company and the Board of Directors believe that such allegations completely are
without merit, and they intend vigorously to defend against them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
-12-
<PAGE> 15
PART II
<TABLE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of the Company is listed on the NASDAQ National Market System
under the symbol "GRXR." Prior to June 24, 1993, shares of the Company's
common stock were traded on the American Stock Exchange. The following table
sets forth for the fiscal quarters indicated, the reported high and low closing
sales prices of the Company's Common Stock during the fiscal year ended October
2, 1994 and October 3, 1993, respectively.
<CAPTION>
1994 1993
---- ----
HIGH LOW HIGH LOW
----- --- ---- ---
<S> <C> <C> <C> <C>
1st Fiscal Quarter $8.13 $ 6.50 $7.75 $4.75
2nd Fiscal Quarter 8.00 5.50 9.63 7.50
3rd Fiscal Quarter 7.13 5.50 8.50 6.13
4th Fiscal Quarter 8.63 5.63 8.13 5.50
</TABLE>
The Company has not paid a cash dividend on the Common Stock since its public
offering in September 1991. The Company intends to retain future earnings for
use in the operation and expansion of its restaurants and, accordingly, does
not intend to pay cash dividends in the foreseeable future. In addition, the
terms of the Company's current credit agreement effectively prohibit the
Company from declaring or paying cash dividends while borrowings are
outstanding pursuant to this agreement.
As of November 30, 1994, the number of holders of record of shares of the
Company's Common Stock was 866.
-13-
<PAGE> 16
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain selected consolidated financial data for
each of the past five fiscal years. In 1991, the Company changed its fiscal
year-end to the Sunday closest to September 30. The following selected
financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes thereto included elsewhere
in this Report.
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS 9 MONTHS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
OCTOBER 2, OCTOBER 3, SEPTEMBER 27 SEPTEMBER 29, DECEMBER 31,
1994 1993 1992 1991 1990
----- ------ ------ ------ ------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue . . . . . . . . . . . . . . . . . . $243,971 $232,556 $226,466 $162,055 $215,597
Operating income from
continuing operations . . . . . . . . . . 13,277 11,866 12,090 7,714 10,504
Interest expense from
continuing operations, net . . . . . . . . 4,091 4,031 4,598 5,032 6,770
Income from continuing
operations before income taxes . . . . . . 9,186 7,835 7,492 2,682 3,734
Income taxes . . . . . . . . . . . . . . . . 2,940 2,507 2,846 1,152 2,484
------ ------ ------ ------- --------
Income from continuing operations:
Total . . . . . . . . . . . . . . . . . . 6,246 5,328 4,646 1,530 1,250
Per share . . . . . . . . . . . . . . . .56 .48 .42 .24 .19
Weighted average common shares outstanding . 11,109 11,086 11,064 6,509 6,462
OPERATING DATA:
Systemwide sales:
Company-operated . . . . . . . . . . . . $241,777 $230,017 $224,048 $160,700 $213,252
Franchised . . . . . . . . . . . . . . . 72,726 71,876 72,692 52,027 69,357
------ -------- ------- ------- ------
Total systemwide sales . . . . . . . . . 314,503 301,893 296,740 212,727 282,609
Average annual systemwide sales per
restaurant . . . . . . . . . . . . . . . 1,534 1,438 1,455 1,(a) 1,420
Number of restaurants (at period end):
Company-operated . . . . . . . . . . . . 164 166 160 154 154
Franchised . . . . . . . . . . . . . . . 41 44 44 44 45
-- ---- ------ ------- -------
Total restaurants . . . . . . . . . . . . 205 210 204 198 199
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . $156,772 $151,813 $137,780 $134,968 $170,756
Long-term debt, including current maturities 58,770 60,305 51,965 56,391 86,060
Stockholders' equity . . . . . . . . . . . . 65,036 58,637 53,219 48,573 51,843
<FN>
(a) Annualized to a 52 week year
</TABLE>
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis examines the Company's operations which
comprise the Ground Round restaurant chain. As of October 2, 1994, the Company
operated 164 and franchised 41 family-oriented, full service, casual dining
restaurants.
For purposes of this discussion and analysis, the 52 week year ended October 2,
1994, the 53 week year ended October 3, 1993 and the 52 week year ended
September 27, 1992, are referred to as 1994, 1993, and 1992, respectively.
<TABLE>
RESULTS OF OPERATIONS
The following table sets forth the percentages which the items in the Company's
consolidated Statements of Operations bear to total revenue or Company-operated
restaurant revenue, as indicated:
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
OCTOBER 2, OCTOBER 3, SEPTEMBER 27,
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
Revenue:
Restaurant revenue 99.1% 98.9% 98.9%
Franchise revenue .9 1.1 1.1
----- ------ -----
Total Revenue 100.0 100.0 100.0
Costs and Expenses:
Cost of products sold (1) 83.9 84.2 83.9
Selling, general and administrative 6.3 6.8 7.2
Depreciation and amortization 5.5 4.8 4.4
Interest expense 1.7 1.7 2.0
Other (income) expense (.4) (.1)
Net income before income taxes 3.8 3.4 3.3
Income taxes 1.2 1.1 1.2
--- ---- ----
Net income 2.6% 2.3% 2.1%
<FN>
(1) As a percentage of Company-operated restaurant revenue.
</TABLE>
-15-
<PAGE> 18
RESTAURANT REVENUE. Restaurant revenue totalled $242.0, $230.0 and $224.0
million for 1994, 1993 and 1992, respectively. Restaurant revenue is comprised
of comparable restaurant revenue (revenue from restaurants open during all of
both fiscal years) and non-comparable restaurant revenue.
Comparable restaurant revenue, comprised of revenue from restaurants open
during all of 1994 and 1993, increased in 1994 by .7% to $213.6 million for the
comparable 52 week period. Management believes the increase is principally
attributable to improvement in operations, the continued impact of the
Company's renovation program and image- and product-based advertising.
Comparable restaurant revenue in 1993 decreased 2.1% for the comparable 52-week
period. In 1993, management de-emphasized advertised discounting, which
contributed to lower guest count levels and lower revenue but resulted in
significant savings in discounting and advertising.
The average guest check was approximately $8.29, $7.95 and $7.35 in 1994, 1993
and 1992, respectively. These increases primarily reflected an evolving menu
mix with higher priced menu items, as well as the de-emphasized discounting in
1994 and 1993. For example, 1992 included 66 additional days of JUST A PENNY A
POUND(R) and KIDS PAY BY DEGREE!(R) promotions which were not duplicated in
1993 or 1994. An insignificant portion of the increase in the average guest
check is attributed to price increases on existing menu items. Sales of
alcoholic beverages (excluding soda) were approximately 22% of revenue in each
of these three years.
Non-comparable restaurant revenue, consisting of those restaurants not in
operation during all of both comparable years, increased to $28.2 million in
1994 from $13.8 million in 1993 and $9.7 million in 1992. The increase in 1994
was attributable to the full year operation of nine new restaurants added in
1993, as well as nine new restaurants added in 1994. These increases were
partially offset by the sale or closing of eleven locations in 1994. In 1993,
the increase in non-comparable restaurant revenue was attributable to the full
year operation of seven new restaurants added in 1992, as well as nine new
restaurants added in 1993. These increases were partially offset by the
closing of three locations in 1993.
FRANCHISE REVENUE. The Company's franchise base consisted of 41 franchised
restaurants in 1994 and 44 franchised restaurants in 1993 and 1992. In 1994
two new franchised restaurants were added, while five franchised restaurants
were closed. Five new franchised restaurants were added during 1993, four of
which were opened by new franchisees, while one franchise agreement was not
renewed, three franchised restaurants were closed and another was acquired by
the Company. Revenue from franchised restaurants (consisting of royalties and
franchise fees) were $2.2 million, $2.5 million and $2.4 million in 1994, 1993
and 1992, respectively. In 1993 and 1992, $.2 million and $.5 million,
respectively, which had been reserved in prior periods, was received and
recognized as royalty revenue.
COST OF PRODUCTS SOLD. Cost of products sold consists of both food and
beverage costs and restaurant operating expenses. Food and beverage costs
totalled 31.8%, 31.9% and 31.3% of Company-operated restaurant revenue in 1994,
1993 and 1992, respectively. Restaurant operating expenses were 52.1%, 52.3%
and 52.5% of Company-operated restaurant revenue, respectively, in 1994, 1993
and 1992.
-16-
<PAGE> 19
Food and beverage costs as a percentage of Company-operated restaurant revenue
decreased .1% from 1993 to 1994 as compared to the increase of .6% from 1992 to
1993. The decrease in food and beverage costs in 1994 was attributable to
lower product costs and management's increased efforts to control food costs
and reduce waste. These activities resulted in a decrease of .5% of food
costs, offset by an increase of 1.1% of beverage costs largely due to the
increased cost of beer. Food and beverage costs in 1993 were adversely
affected by higher produce costs due to winter flooding in Arizona, late
planting in California and higher beef prices.
Restaurant operating expenses in 1994 decreased by .2% of Company-operated
restaurant revenue from 1993, principally due to decreases in labor costs as a
result of a change in the Company's policy on accrued vacation for hourly
employees, partially offset by increases in bonuses earned by restaurant
management based on increased profits. Other costs have remained at relatively
constant levels as compared with the prior year. In 1993, restaurant operating
expenses decreased by .2% of Company-operated restaurant revenue from 1992,
principally due to decreases in labor costs and reductions in discounts,
partially offset by increases in rental expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 6.3%, 6.8% and 7.2% of total revenue in 1994, 1993
and 1992, respectively. Selling expenses, comprised of advertising and point
of purchase materials, development and production costs, were .5%, .7% and 1.5%
of total revenue for 1994, 1993 and 1992, respectively. Selling expenses
decreased in 1994 by .2% of total revenue from 1993, primarily due to an
additional credit of $.4 million from Coca-Cola(TM) based on product usage.
Management's strategic decision to de-emphasize media advertising used in
connection with discounting programs was primarily responsible for reducing
selling costs by .8% of revenue in 1993.
General and administrative costs, comprised of restaurant manager training,
regional overhead, and corporate administrative costs, were 5.8%, 6.1% and 5.7%
of total revenue in 1994, 1993 and 1992, respectively. General and
administrative costs decreased in 1994 from 1993 largely due to the termination
of the executive retirement plan which resulted in a credit of $.3 million.
All other general and administrative costs in 1994 remained constant as a
percentage of total revenue as compared to 1993. In 1993, general and
administrative cost increases reflect the impact of increased training and
recruitment expenses associated primarily with the hiring of new restaurant and
regional management personnel.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
5.5%, 4.8% and 4.4% of total revenue in 1994, 1993 and 1992, respectively. The
increase in depreciation and amortization from 4.8% of total revenue in 1993 to
5.5% of total revenue in 1994 resulted from nine new restaurants added in 1994,
nine new restaurants added in 1993 and the remodeling of seventy-eight
restaurants since 1992. In 1993, depreciation and amortization increased to
4.8% from 4.4% in 1992 due to new restaurant development and the remodeling of
twenty-nine restaurants.
OTHER (INCOME) AND EXPENSE. During 1994, the Company completed a sale of one
location for approximately $2.0 million and realized a pretax gain of
approximately $1.5 million. This gain was partially offset by the write-off of
$.6 million in expenses associated with a proposed public offering of
convertible subordinated debentures which the Company withdrew due to market
conditions.
In August 1994, the Company entered into the Merger Agreement pursuant to which
it agreed to be acquired for cash. Completion of the proposed acquisition is
subject to, among other things, the approval
-17-
<PAGE> 20
of the holders of two-thirds of the Company's stock and the acquiror's receipt
of financing. In November 1994, the acquiror advised the Company that the
acquiror did not believe the financing necessary to consummate the proposed
acquisition will be available on the terms contemplated at the time the parties
entered into the Merger Agreement. Although the acquiror is obligated to use
its best efforts to obtain financing on terms contemplated at the time of the
Merger Agreement that would permit it to consummate the Merger for the Merger
Consideration, there can be no assurance that the financing can be obtained on
such terms and, therefore, that the acquisition can be completed. To date, the
Company has incurred $.4 million of expense in connection with the proposed
acquisition. If the transaction is not completed, those expenses will be
recognized in fiscal 1995.
INTEREST EXPENSE. Interest expenses were 1.7%, 1.7% and 2.0% of total revenue
in 1994, 1993 and 1992, respectively. Interest expense in 1994 remained
constant as a percentage of total revenue as compared to 1993. The decrease in
interest expense from 1992 to 1993 was primarily a result of lower average
interest rates, which more than offset interest expense incurred under interest
rate swap agreements (see "Liquidity and Capital Resources" below) of
approximately $.8 million and $.9 million in 1993 and 1992, respectively. At
November 30, 1994, the average interest rate under the Company's credit
facilities (described below) was 7.3% as compared to an average interest rate
of 6.5% for 1994. The increase in the applicable interest rate reflects the
rising interest rate environment in the United States during the second half of
calendar 1994.
INCOME TAXES. The Company's effective income tax rates were 32%, 32% and 38%
in 1994, 1993 and 1992, respectively. The reduction in the 1993 effective tax
rate was primarily the result of lower state taxes and the generation of
targeted jobs tax credits. The full utilization of a net operating loss
carryforward also affected the 1992 income tax rate.
NET INCOME. As a result of the above, the Company reported income from
continuing operations of $6.2 million in 1994, $5.3 million in 1993 and $4.6
million in 1992, representing 2.6%, 2.3% and 2.1% of total revenue,
respectively. Net income from continuing operations was $.56, $.48 and $.42
per share for 1994, 1993 and 1992, respectively.
LIQUIDITY AND CAPITAL RESOURCES.
A significant amount of the Company's restaurant sales are for cash, with the
remainder made with credit cards that are generally realized in cash within a
few days. Because the Company does not have significant accounts receivable or
inventories and pays its expenses within normal terms, the Company operates
with working capital deficits as is typical in the restaurant industry. The
Company had working capital deficits of $15.3 million and $12.6 million as of
October 2, 1994 and October 3, 1993, respectively.
Net cash provided by operating activities totalled $22.4 million in 1994, and
$15.5 million in 1993. The company incurred capital expenditures totalling
$24.1 million and $25.1 million in 1994 and 1993, respectively, primarily for
restaurant capital maintenance, remodeling and new restaurant construction.
Cash flow from operations plus proceeds from sales of locations funded 1994
capital expenditures and provided for the repayment of approximately $1.0
million in long-term borrowings. On October 2, 1994 and October 3, 1993, the
Company's borrowings under its credit facilities were approximately $53.0
million and $53.0 million, respectively. On October 8, 1993 the credit
facilities were amended to a $70 million commitment, with the aggregate balance
of $53.7 million of the combined facility balances on that date converted to
term debt. The balance of $16.3 million is a revolving facility to fund
operations
-18-
<PAGE> 21
and new store development and converts to term debt on October 8, 1995.
Principal payments under the credit facilities begin in October 1995 and are
scheduled through July 2000.
The credit facility obligates the Company to hedge its interest rate risk on
approximately 50% of its total term borrowings. In fiscal 1992 and 1993, the
Company effected such a hedge by entering into interest rate swap agreements
under which it agreed to exchange LIBOR-based interest payments for fixed-rate
payments (see "Results of Operations-Interest Expense" above). In fiscal 1994,
the Company hedged its interest rate risk by entering interest cap agreements
under which the maximum base interest rate of its LIBOR-based payments would be
7.0%. The interest rate cap agreements had no effect on the Company's interest
expense in fiscal 1994.
The credit facilities contain certain restrictions on the conduct of the
Company's business including a prohibition on the payment of dividends. In
addition, the Company is required to comply with certain financial covenants
relating to maintenance of net worth, interest coverage, fixed charges
coverage, the ratio of funded debt to free operating cash flow and capital
expenditures (other than the separate limitations for capital expenditures for
new restaurants). The revolving line of credit requires the satisfaction of
certain criteria prior to entering into a commitment to open a new restaurant.
These criteria relate to projected capital investment and first year sales,
margins and profits as well as to location. The credit facilities also
currently restrict the Company from entering into commitments to open more than
18 new restaurants in any fiscal year, entering into a new commitment if ten or
more restaurants for which commitments are outstanding remain unopened or
entering into a new restaurant commitment if total new restaurant commitments
exceed $15 million at any one time. In addition, new restaurants must meet
certain operating tests.
The Company expects to incur approximately $25 million in capital expenditures
during the 1995 fiscal year. Management believes that existing cash, cash flow
from operations, and available borrowings under the credit facilities will be
sufficient to meet operating needs, fund anticipated capital expenditures and
service debt requirements during fiscal 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this item is set forth on pages F-1 through F-18
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-19-
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF REGISTRANT
The information called for by this Item with respect to directors will be
contained in either (i) the Company's Proxy Statement, if the Company files the
proxy statement within 120 days after the end of the Company's fiscal year
ended October 2, 1994 or (ii) an amendment to this Annual Report filed on Form
10.
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information is set forth below concerning the executive officers of the
Company who have been elected to hold office for such terms as may be
prescribed by the Board, and unless sooner removed under the Bylaws of the
Company, or until their successors are duly elected and qualified. There is no
family relationship among any of the officers and directors of the Company.
The executive officers of the Company are as follows:
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Michael P. O'Donnell 38 Chairman of the Board, President and
Chief Executive Officer
Peter J. Beaudrault 39 Executive Vice President
Michael R. Jorgensen 42 Sr. Vice President, Chief Financial
Officer & Treasurer
William C. Schoener 43 Sr. Vice President - Division Operations
Warren C. Hutchins 50 Vice President - Purchasing & Distribution
Holly J. Young 41 Vice President - Marketing
Robin L. Moroz 38 Vice President - General Counsel
Elizabeth Brennan Baker 40 Vice President - Organizational
Development
</TABLE>
Michael P. O'Donnell has served as the Chairman of the Board, President and
Chief Executive Officer of the Company since September 1991 and President and
Chief Executive Officer of the Ground Round since January 1990. He was Senior
Vice President (Southern Division) of TGI Friday's Inc., a restaurant chain,
from December 1986 through December 1989.
Peter J. Beaudrault has served as Executive Vice President of the Company since
June 1994 and was Senior Vice President of Division Operations of the Company
from September 1993 to May 1994. He
-20-
<PAGE> 23
was Divisional Vice President of the Company and Ground Round since September
1992. He was Regional Manager of TGI Friday's Inc. from July 1989 through
September 1992. He was Director of Operations for Hard Rock Cafes, Inc. from
November 1987 through July 1989.
Michael R. Jorgensen has served as Vice President, Chief Financial Officer and
Treasurer of the Company since June 1993 and was appointed Senior Vice
President in September 1993. He was Vice President, Finance - Middle East of
Alghanim Industries, the largest consumer products distributor in Kuwait, from
March 1992 to April 1993. Prior to that, Mr. Jorgensen was Vice President and
Chief Financial Officer of the Company (then known as International Proteins)
from May 1988 to September 1991.
William C. Schoener has served as Senior Vice President of Division Operations
since September 1993. He was Divisional Vice President of the Company since
September 1991 and January 1989, respectively. He was a Director of Operations
of Ground Round from June 1986 through December 1988.
Warren C. Hutchins has served as Vice President, Purchasing and Distribution of
the Company since September 1991 and August 1986, respectively. He was
Secretary of Ground Round from March 1990 through February 1991.
Holly J. Young has served as Vice President of Marketing since May of 1994, and
served as Director of Marketing when she joined the Company in March of 1994 to
April 1994. She was Senior Vice President of Marketing of Chi-Chi's
Restaurants, Inc. from January 1993 through January 1994, and Vice President of
Marketing for Grisanti's Inc. from April 1992 to December 1992. From June 1989
to March 1991, she was Senior Vice President of Marketing for Metromedia
Steakhouses, Inc. She was Vice President of Marketing for TGI Friday's Inc.
from 1987 to 1989.
Robin L. Moroz was appointed General Counsel and Secretary in December 1994.
She was hired by the Company in August 1989 and since October 1991 has served
as Assistant General Counsel.
Elizabeth Brennan Baker has served as Vice President of Organizational
Development since July of 1994. She was Vice-President of Human Resources from
January 1993 through June of 1994. She was Vice President - Personnel and
Training of the Company since September 1991 and March 1990, respectively. She
was Vice President - Training and Development of Ground Round from November
1988 through February 1990, Director of Training and Development of Ground
Round from August 1985 through October 1988.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item with respect to directors will be
contained in either (i) the Company's Proxy Statement, if the Company files the
proxy statement within 120 days after the end of the Company's fiscal year
ended October 2, 1994 or (ii) an amendment to this Annual Report filed on Form
10.
-21-
<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item with respect to directors will be
contained in either (i) the Company's Proxy Statement, if the Company files the
proxy statement within 120 days after the end of the Company's fiscal year
ended October 2, 1994 or (ii) an amendment to this Annual Report filed on Form
10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item with respect to directors will be
contained in either (i) the Company's Proxy Statement, if the Company files the
proxy statement within 120 days after the end of the Company's fiscal year
ended October 2, 1994 or (ii) an amendment to this Annual Report filed on Form
10.
-22-
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors.
Consolidated Balance Sheets - October 2, 1994 and October 3, 1993.
Consolidated Statements of Income - Years Ended October 2, 1994 and
October 3, 1993 and September 27, 1992.
Consolidated Statements of Stockholders' Equity - Years Ended
October 2, 1994 and October 3, 1993, and September 27, 1992.
Consolidated Statements of Cash Flows -Years Ended October 2, 1994 and
October 3, 1993, and September 27, 1992.
Notes to Consolidated Financial Statements - Years Ended October 2,
1994 and October 3, 1993, and September 27, 1992.
FINANCIAL STATEMENT SCHEDULES
Schedule II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees other than Related Parties
Schedule V - Property and Equipment
Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule X - Supplementary Income Statement Information
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
(B) EXHIBITS
Exhibits filed as part of this Report are listed in the EXHIBIT INDEX
appearing on Pages 26 and 27 of this Report.
-23-
<PAGE> 26
<TABLE>
(C) REPORTS ON FORM 8-K
The only reports on form 8-K filed by the Company during the fiscal
quarter ended October 2, 1994 are the following are the following:
<CAPTION>
Date of Report Items Reported
-------------- --------------
<S> <C>
August 23, 1994 Pursuant to Item 1 of form 8-K, the Company disclosed that it had agreed
to be aquired pursuant to the terms of the Agreement and Plan of Merger
dated August 23, 1994 (the "Merger Agreement") among the Company, GRR,
Inc. and GRR Aquisition Corporation.
November 16, 1994 Pursuant to Item 1 of Form 8-K, the Company disclosed that it had entered
into the First Amendment to the Merger Agreement.
</TABLE>
-24-
<PAGE> 27
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 14th
day of December, 1994.
GROUND ROUND RESTAURANTS, INC.
(Registrant)
By: /s/ Michael R. Jorgensen
------------------------
Michael R. Jorgensen
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting
Officer)
<TABLE>
Pursuant to the requirement of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<CAPTION>
SIGNATURE TITLE DATE
- - --------- ----- ----
<S> <C> <C>
/s/ Michael P. O'Donnell Chairman of the Board, President, December 15, 1994
- - ------------------------ and Chief Executive Officer
Michael P. O'Donnell
/s/ Michael R. Jorgensen Senior Vice President, Chief Financial December 14, 1994
- - ------------------------ Officer and Treasurer
Michael R. Jorgensen (Principal Financial and
Accounting Officer)
/s/ J. Eric Hanson Director December 11, 1994
- - ------------------
J. Eric Hanson
/s/ Robert E. Lee Director December 12, 1994
- - -----------------
Robert E. Lee
/s/ David J. P. Meachin Director December 13, 1994
- - -----------------------
David J. P. Meachin
/s/ Stanley J. Moss Director December 11, 1994
- - -------------------
Stanley J. Moss
/s/ Thomas J. Russo Director December 13, 1994
- - -------------------
Thomas J. Russo
/s/ Daniel R. Scoggin Director December 11, 1994
- - ---------------------
Daniel R. Scoggin
</TABLE>
-25-
<PAGE> 28
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated August 23, 1994
(the "Merger Agreement") among the Company, GRR, Inc.
and GRR Acquisition Corporation.
2.2 First Amendment dated November 16, 1994 to Merger
Agreement.
3.1 Restated Certificate of Incorporation of the Company filed
pursuant to Rule 102(c) of Regulation S-T, which integrates
the Company's 1991 Restated Certificate of Incorporation
and the 1994 amendment thereto.
3.2 Amended and Restated By-laws of the Company
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 29, 1992).
*10.31 Agreement between Michael P. O'Donnell and the
Company dated April 21, 1992 (incorporated by
reference to the Company's Annual Report on
Form 10-K for the year ended September 27, 1992).
10.32 Amended and Restated Credit Agreement, dated
as of October 8, 1993, among The Ground Round,
Inc. and GR of Minn., Inc., as Borrowers, and
The Bank of New York, as agent, and the banks
parties thereto (including certain exhibits)
(incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended
October 3, 1993).
*10.33 1992 Equity Incentive Plan (incorporated by reference
to the Company's definitive Proxy Statement for its
Annual Meeting of Shareholders held on March 10, 1992).
*10.34 1994 Corporate Office Incentive Plan (incorporated by
reference to the Company's Annual Report on Form
10-K for the year ended October 3, 1993).
*10.35 Agreement between Michael P. O'Donnell and the
Company dated July 26, 1994.
*10.36 Agreement between Peter J. Beaudrault and the
Company dated July 26, 1994.
</TABLE>
-26-
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
*10.37 Agreement between Michael R. Jorgensen and
the Company dated July 26, 1994.
*10.38 Agreement between William C. Schoener and
the Company dated July 26, 1994.
21 List of Subsidiaries.
23 Consent of Ernst & Young.
24 Power of Attorney.
<FN>
Asterisk (*) denotes management contract or compensatory plan or arrangement.
</TABLE>
-27-
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Ground Round Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of Ground Round
Restaurants, Inc. as of October 2, 1994 and October 3, 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended October 2, 1994. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ground
Round Restaurants, Inc. at October 2, 1994 and October 3, 1993, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended October 2, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
November 1, 1994
except for Note L, as to which
the date is November 16, 1994
-28-
<PAGE> 31
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 2, 1994 AND OCTOBER 3, 1993
(Dollars in thousands, except per share amounts)
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,457 $ 1,262
Receivables, net of allowances for doubtful
accounts of $276 in 1994 and $95 in 1993 1,511 1,359
Inventories 2,577 2,511
Prepaid expenses and other current assets 2,249 6,413
-------- --------
Total current assets 7,794 11,545
Property and equipment:
Land 11,203 11,434
Buildings and leasehold improvements 120,034 106,869
Machinery and equipment 39,867 35,439
--------- --------
171,104 153,742
Accumulated depreciation and amortization 43,531 33,211
--------- --------
Property and equipment, net 127,573 120,531
Other assets 21,405 19,737
--------- --------
$156,772 $151,813
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 7,107 $ 7,871
Accrued expenses 14,900 15,105
Income taxes 201 69
Current portion of long-term debt and capital lease obligations 902 1,055
-------- -------
Total current liabilities 23,110 24,100
Long-term debt and capital lease obligations 57,868 59,250
Deferred income taxes 3,080 2,744
Other long-term liabilities 7,678 7,082
STOCKHOLDERS' EQUITY:
Preferred Stock, undesignated, par value $100 per share;
authorized 30,000 shares; none issued
Common Stock, par value $.16 2/3 per share: authorized 35,000,000 shares
in 1994 and 15,000,000 shares in 1993; issued 11,114,000 in 1994 and
11,099,000 shares in 1993 1,852 1,850
Additional paid-in capital 57,631 57,572
Accumulated earnings (deficit) 5,649 (597)
-------- --------
65,132 58,825
Deferred Officer Compensation (96) (188)
-------- --------
Total stockholders' equity 65,036 58,637
-------- --------
$156,772 $151,813
========= ========
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE> 32
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
OCTOBER 2, OCTOBER 3, SEPTEMBER 27,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUE $243,971 $232,556 $226,466
-------- -------- --------
COSTS AND EXPENSES:
Cost of products sold 202,819 193,707 187,892
Selling, general and administrative 15,370 15,923 16,369
Depreciation and amortization 13,507 11,205 10,018
Interest expense 4,091 4,031 4,598
Other (income) expense (1,002) (145) 97
-------- -------- --------
234,785 224,721 218,974
-------- -------- --------
Net income before income taxes 9,186 7,835 7,492
Income taxes 2,940 2,507 2,846
-------- -------- --------
NET INCOME $ 6,246 $ 5,328 $ 4,646
======== ======== ========
Weighted average common shares outstanding 11,109 11,086 11,064
======== ======== ========
PER SHARE DATA:
Net income per common share $ .56 $ .48 $ .42
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 33
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<CAPTION>
SHARES
-------------- ADDITIONAL ACCUMULATED DEFERRED TOTAL
COMMON TREASURY COMMON PAID-IN EARNINGS TREASURY OFFICER STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) STOCK COMPENSATION EQUITY
----- ----- ----- ------- --------- ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 29, 1991 11,082 (18) $1,847 $57,427 $(10,571) $(130) $48,573
Net income 4,646 4,646
-------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 27, 1992 11,082 (18) 1,847 57,427 (5,925) (130) 53,219
Issuance of restricted shares
from treasury stock 18 130 130
Issuance of restricted shares 12 2 142 $(274) (130)
Amortization of deferred
officer compensation 86 86
Converted stock options 5 1 3 4
Net income 5,328 5,328
-------------------------------------------------------------------------------
BALANCE AT OCTOBER 3, 1993 11,099 0 1,850 57,572 (597) 0 (188) 58,637
Amortization of deferred
officer compensation 92 92
Converted stock options 15 2 59 61
Net income 6,246 6,246
-------------------------------------------------------------------------------
BALANCE AT OCTOBER 2, 1994 11,114 0 $1,852 $57,631 $ 5,649 $ 0 $ (96) $65,036
====== = ====== ======= ======== ===== ===== =======
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 34
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
OCTOBER 2, 1994 OCTOBER 3, 1993 SEPTEMBER 27, 1992
--------------- --------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,246 $ 5,328 $ 4,646
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,851 11,583 10,372
Deferred income taxes 336 705 (75)
Write-off of deferred debt costs 572
Loss (gain) on disposition of assets (1,574) (186) 94
Other, net 92 (4)
Return of insurance deposits 4,690
Change in operating assets and liabilities:
Accounts receivable (152) 310 393
Inventories and prepaid expenses (1,468) (2,504) (2,117)
Accounts payable and accrued expenses (218) 276 3,094
------- ------- -------
Net cash provided by operating activities 22,375 15,512 16,403
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (22,437) (23,857) (12,754)
Proceeds from sale of property and equipment 4,378 7
Purchase of liquor licenses (681) (387)
Proceeds from sale of liquor license 200
Deposits received (paid) (217) 17 (6)
Notes receivable and working capital loan collections 130 (76) 2,111
Pre-opening costs and related items (988) (900) (613)
------- ------- -------
Net cash used in investing activities (19,815) (25,003) (11,255)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 28,800 14,100 5,681
Payments of long-term borrowings (29,813) (5,506) (10,107)
Payments of deferred debt costs (1,413) (61) (432)
Proceeds from issuance of common stock 61
------- ------- -------
Net cash provided by (used in) financing activities (2,365) 8,533 (4,858)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 195 (958) 290
Cash at beginning of period 1,262 2,220 1,930
------- ------- -------
Cash at end of period $ 1,457 $ 1,262 $ 2,220
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,458 $ 4,255 $ 4,335
Taxes paid 2,339 1,444 793
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 35
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 2, 1994 and October 3, 1993 and September 27, 1992
A. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Ground Round Restaurants, Inc. (the Company), and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company operates and franchises
family-oriented, full-service restaurants primarily in the Northeast,
Mid-Atlantic and Midwest United States.
The fiscal year of the Company is the 52 or 53 week period ending on the Sunday
closest to September 30th. For purposes of these notes to the consolidated
financial statements, the 52 week fiscal year ended October 2, 1994, the 53
week fiscal year ended October 3, 1993, and the 52 week fiscal year ended
September 27, 1992, are referred to as 1994, 1993, and 1992, respectively.
Certain items in prior years in specific captions of the accompanying
consolidated financial statements and notes to the consolidated financial
statements have been reclassified for comparative purposes.
CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with
maturities of three months or less when purchased, and are carried at cost
which approximates fair value.
INVENTORIES: Inventories are stated at the lower of cost or market, as
determined by the first-in, first-out (FIFO) cost method.
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation and amortization, including amortization of assets recorded under
capital leases, are computed principally by the straight-line method, based on
estimated useful lives. Useful lives range from 33 years for buildings, 10
years for machinery and equipment and the shorter of the lease term or
estimated useful life for leasehold improvements.
DEFERRED DEBT COSTS: Deferred debt costs, included in other assets, are costs
associated with the issuance of long-term debt and are amortized over the terms
of the related instruments.
DEFERRED PRE-OPENING COSTS: Pre-opening costs consist of incremental amounts
directly associated with opening a new restaurant. These costs, which
principally include initial purchases of expendables and expenses of the
restaurant staff, hired to operate the restaurant upon opening, for the
training period before the restaurant opens, are capitalized and amortized over
the twelve month period following the restaurant opening. Prior to 1994, the
Company amortized the costs over the 24 month period following the restaurant
opening. The change did not have a material effect on the Company's results of
operations.
INTANGIBLE ASSETS: Intangible assets included in other assets consist of the
excess of the cost of acquired companies over the values assigned to net
tangible assets and primarily represent fair values assigned to trade names,
goodwill, liquor licenses and franchises. These intangibles are being
amortized by the straight-line method over lives ranging between 15 and 40
years.
ACCRUED INSURANCE CLAIMS: The Company maintains insurance coverage for
workers' compensation risks under contractual arrangements which retroactively
adjust premiums for claims paid subject to specified limitations. In addition,
the Company is self insured up to certain limits for risks associated with the
health care plan provided for its employees. Expenses associated with such
risks are accrued based upon the estimated amounts required to cover incurred
incidents. The Company does not provide health or other benefits to retirees.
F-5
<PAGE> 36
INCOME TAXES: On September 28, 1992 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. In fiscal
1992, the Company provided for income taxes following the provisions of SFAS
No. 96. The cumulative effect of this accounting change on the provision for
income taxes in 1993 was not significant.
OTHER LONG-TERM LIABILITIES: Other long-term liabilities comprise various
reserves including reserves for casualty insurance coverage and restaurant
closings.
FRANCHISE REVENUE: Initial franchise fees of $40,000 new franchises are
recognized as revenue when substantially all commitments and obligations have
been fulfilled, which is generally when the restaurant opens. The terms of
franchise agreements are generally twenty years and provide for a continuing
franchise royalty fees equal to 3% of monthly gross sales. The franchise
agreements also provide that franchisees are required to pay up to 2% of
monthly gross sales for advertising. Franchise and royalty fees included in
revenues aggregated $2,192,000, $2,539,000 and $2,418,000 for 1994, 1993 and
1992, respectively.
<TABLE>
B. OTHER ASSETS
Other assets consist of the following:
<CAPTION>
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Deferred debt acquisition costs $ 3,172 $ 2,331
Deferred pre-opening costs 2,735 1,747
Franchises 4,696 4,796
Goodwill 4,166 4,166
Liquor licenses 4,662 3,981
Tradename 3,073 3,073
Prepaid insurance 3,871 2,999
Other 409 318
------- -------
26,784 23,411
Less accumulated amortization 5,379 3,674
------- -------
$21,405 $19,737
======= =======
</TABLE>
Other assets were net of allowances for doubtful accounts of $307,000 and
$352,000 at October 2, 1994 and October 3, 1993, respectively.
<TABLE>
C. PREPAID AND ACCRUED EXPENSES
Accrued expenses consist of the following:
<CAPTION>
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Casualty insurance $ 2,336 $ 2,620
Occupancy costs 2,747 3,292
Payroll and payroll related expenses 5,273 6,025
Sales taxes 1,319 1,303
Other 3,225 1,865
------- -------
$14,900 $15,105
======= =======
</TABLE>
Prepaid expenses and other current assets of $2,249,000 at October 2, 1994 and
$6,413,000 at October 3, 1993 included prepaid casualty insurance costs of
$1,510,000 and $5,656,000, respectively.
F-6
<PAGE> 37
<TABLE>
D. LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt and capitalized lease obligations consist of the following:
<CAPTION>
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Amended Credit Agreement dated
October 8, 1993:
Tranche A Term $36,641 $ 37,953
Tranche A Revolving 2,100
Tranche B Term 14,220 15,000
Other 10
Capitalized lease obligations @ 5% to 15% 5,809 7,342
------- ----------
58,770 60,305
Less current portion 902 1,055
------- ----------
$57,868 $ 59,250
======= ==========
</TABLE>
The Company had an amended credit agreement dated April 26, 1992 with a
syndicate of banks consisting of (a) a term facility in the original amount of
$44,000,000 expiring on October 15, 1997, (b) a growth facility in an amount up
to $25,000,000 and (c) a working capital facility in an amount of up to
$10,000,000. Interest on each of these facilities was, at the option of the
Company, payable at a spread over the prime rate or Eurodollar rate. The
spread, in each case, was subject to adjustment based on the Company's ratio of
free operating cash flow to debt.
On October 8, 1993 the Company and a majority of its lenders along with certain
new banks, amended the agreement dated April 26, 1992. The Amended and
Restated Credit Agreement ("Amended Agreement") provides the Company with
$70,000,000 that is comprised of the following: Tranche A Term borrowings of
$37,953,000, at prime plus .5% to .875% or LIBOR plus 1.125% to 1.625%,
depending on the funded debt to free operating cash flow ratio, with payments
commencing on October 8, 1995 (the "Conversion Date") and payable through
January 1999; Tranche A Revolving facility of up to $16,348,000 ($2,100,000
outstanding at October 2, 1994, none outstanding at October 3, 1993), at prime
plus .5% to .875% or LIBOR plus 1.125% to 1.625%, depending on the funded debt
to free operating cash flow ratio, which converts to term on the Conversion
Date and is then payable through January 1999; and Tranche B Term borrowings
of $15,000,000 at prime plus .875% or LIBOR plus 2.25% with payments commencing
in April 1999 and a final maturity of July 2000. The interest rates under the
Amended Agreement at October 2, 1994 on Tranche A Term, Tranche A Revolving,
and Tranche B Term were 6.06%, 7.75% and 6.94%, respectively.
The Amended Agreement also contains certain financial covenants, including
maintenance of minimum interest and fixed charge coverage ratios, cash flow
ratios, minimum levels of net worth and maximum leverage ratios. Provisions of
the Amended Agreement restricting the payment of dividends would prevent the
Company from paying dividends during the term of the Amended Agreement.
<TABLE>
Maturities of long-term debt for the years succeeding October 2, 1994 are as
follows:
<CAPTION>
(In thousands)
<S> <C>
1995 $ 0
1996 7,361
1997 9,879
1998 13,443
1999 13,746
Thereafter 8,532
</TABLE>
F-7
Interest expense for 1994, 1993 and 1992 as presented has been reduced by
interest income of $171,000, $248,000 and $379,000, respectively.
<PAGE> 38
Principal payments may be accelerated due to additional payments based upon
excess cash flow from operations, the sale of certain assets and the offering
proceeds from the sale of stock of the Company. Pursuant to the Amended
Agreement, certain commitment and facility fees are payable based upon the
borrowing levels.
During 1994, the Company entered into two interest rate cap agreements in the
aggregate of $15,000,000 expiring during fiscal 1995. The fixed interest rates
on these contracts at October 2, 1994 ranged from 5.5% to 7%. During 1993, the
Company had outstanding a $10,000,000 interest rate swap agreement which
expired in fiscal 1994, and a $15,000,000 interest cap agreement expiring in
fiscal year 1995 to exchange LIBOR based interest payments for fixed rate
payments. The fixed rate interest rates on these contracts at October 3, 1993
were 8.725% and 7% on the swap and cap agreements, respectively. The interest
rate differential is recognized over the lives of the agreements as an
adjustment to interest expense. The amount included in the financial
statements for outstanding debt and the related swap agreements approximates
fair value.
The Company occupies certain of its real estate under long-term leases,
substantially all of which contain renewal options. Most of these leases
provide for a percentage rental based on sales and, in most cases, require a
minimum annual rental.
<TABLE>
A summary of property leased under capital leases is as follows:
<CAPTION>
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Real Estate $9,353 $10,204
Equipment 456 456
------ -------
9,809 10,660
Less accumulated amortization 5,107 4,446
------ -------
$4,702 $ 6,214
====== =======
</TABLE>
The above amounts represent the present value of future minimum lease payments
at the inception of the leases, excluding that portion of the lease payments
representing estimated insurance and tax cost. Leases capitalized also exclude
that portion of the minimum lease payments attributable to land. Lease
amortization is included in depreciation expense.
<TABLE>
Future minimum lease payments under noncancelable leases as of October 2, 1994
for each of the following years are as follows:
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ------
(In thousands)
<S> <C> <C>
1995 $1,462 $ 5,825
1996 1,420 5,283
1997 1,248 4,729
1998 1,104 5,106
1999 981 3,417
Thereafter 1,640 24,241
------ -------
Total minimum payments 7,855 $48,601
Amount representing interest 2,046 =======
------
Present value of net minimum payments 5,809
Current portion of capital lease obligations 902
------
Long-term capital lease obligations $4,907
======
</TABLE>
Minimum obligations for noncancelable operating leases have been reduced by
minimum noncancellable operating sublease rentals of $397,000.
F-8
<PAGE> 39
Rent expense under operating leases for continuing operations was $8,280,000,
$7,623,000 and $7,087,000 for 1994, 1993 and 1992, respectively. Rent expense
includes contingent rental expense for capital and operating leases of
$2,373,000, $2,424,000 and $2,532,000 for 1994, 1993 and 1992, respectively.
E. STOCKHOLDERS' EQUITY
The 1992 Equity Incentive Plan, approved by the shareholders of the Company,
authorizes the granting of various options and rights to purchase 350,000
shares of common stock of the Company. Incentive stock options cannot be
issued at less than fair market value whereas the exercise price of
nonqualified stock options is specified by the Compensation Committee.
Furthermore, the number of shares available for grant is reduced by shares that
are issued or are issuable under the 1987 and 1982 stock option plans.
<TABLE>
The following is a summary of stock option transactions during 1994, 1993 and 1992:
<CAPTION>
SHARES OPTION PRICES
------ -------------
<S> <C> <C>
Options outstanding September 29, 1991 146,000 $3.29 to $12.76
Granted 391,000 $4.63 to $ 6.75
Cancelled (60,000) $3.29 to $12.76
--------
Options outstanding at September 27, 1992 477,000 $3.29 to $10.06
Granted 304,000 $7.00 to $ 9.13
Cancelled (77,000) $3.29 to $ 7.88
--------
Options outstanding at October 3, 1993 704,000 $3.29 to $10.06
Granted 19,000 $6.25 to $ 7.50
Cancelled (95,000) $4.63 to $ 9.13
--------
Options outstanding at October 2, 1994 628,000 $3.29 to $10.06
======= ===== ======
</TABLE>
As of October 2, 1994, options to purchase 628,000 shares of Common Stock were
exercisable, options to purchase 195,000 shares of Common Stock were available
for future grants and 823,000 shares of Common Stock were reserved for
issuance. In December of 1991 the exercise price of previously issued options
to purchase 113,000 shares of Common Stock were adjusted downward to reflect
the distribution of the Company's non-restaurant operations in September 1991.
On February 2, 1993 the Compensation Committee of the Board of Directors
authorized 30,000 shares of restricted stock to be offered to Michael P.
O'Donnell, Chairman of the Board, President, and Chief Executive Officer.
These shares, valued at $274,000 at issuance, are subject to forfeiture and
transfer restrictions over the three years following issuance. At the
completion of each year of service subsequent to the issuance date, forfeiture
restrictions are released on 10,000 shares. An aggregate amount of $178,000
has been recorded as compensation expense through fiscal 1994.
F-9
<PAGE> 40
<TABLE>
F. INCOME TAXES
The provision for income taxes for continuing operations computed under SFAS
No. 96 in 1992 and SFAS No. 109 in 1993 and 1994, consists of the following:
<CAPTION>
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $2,344 $1,574 $1,457
State 260 226 305
------ ------ ------
2,604 1,800 1,762
Deferred:
Federal 298 654 932
State 38 53 152
------ ------ ------
$2,940 $2,507 $2,846
====== ====== ======
</TABLE>
<TABLE>
The reasons for the difference between total tax expense and the amount
computed by applying the statutory federal income tax rate to income from
continuing operations are as follows:
<CAPTION>
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Taxes at statutory rate applied to pretax $3,123 $2,664 $2,547
income from continuing operations
Increases (reductions) in tax resulting from:
State income taxes 197 184 302
Targeted jobs tax credits (499) (232) (158)
FICA tax credits (422)
Other 541 (109) 155
------ ------ ------
$2,940 $2,507 $2,846
====== ====== ======
</TABLE>
<TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets at October 2, 1994 and
October 3, 1993 are as follows:
<CAPTION>
October 2, 1994
(In thousands)
ASSETS LIABILITIES TOTAL
------ ----------- -----
<S> <C> <C> <C>
Current:
Vacation pay $ 200 $ 200
Accounts receivable 151 151
Other deductible (income) amounts 42 $(72) (30)
Less valuation allowance (321) (321)
------ ----- -----
$ 72 $(72) $ 0
------ ----- -----
</TABLE>
F-10
<PAGE> 41
<TABLE>
<CAPTION>
October 2, 1994
(In thousands)
ASSETS LIABILITIES TOTAL
------ ----------- -----
<S> <C> <C> <C>
Noncurrent:
Credits $ 2,285 $ 2,285
Depreciation 1,101 $(3,918) (2,817)
Lease obligations 2,358 (1,964) 394
Accrued insurance 2,640 2,640
Closed location reserve 704 704
Amortization (976) (976)
Land (318) (318)
Other deductible (income amounts) (274) (274)
Less valuation allowances (4,718) (4,718)
------- -------- --------
$ 4,370 $(7,450) $(3,080)
------- -------- --------
$ 4,442 $(7,522) $(3,080)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
October 3, 1993
(In thousands)
ASSETS LIABILITIES TOTAL
------ ----------- -----
<S> <C> <C> <C>
Current:
Credits $300 $ 300
Vacation pay 224 224
Accounts receivable 65 65
Other deductible (income) amounts 25 $(204) (179)
Less valuation allowance (410) (410)
---- ----- -----
Total current $204 $(204) $ 0
---- ----- -----
</TABLE>
<TABLE>
<CAPTION>
ASSETS LIABILITIES TOTAL
------ ----------- -----
<S> <C> <C> <C>
Noncurrent:
Credits $ 1,376 $ 1,376
Depreciation 535 $(2,859) (2,324)
Lease obligations 1,431 (1,207) 224
Accrued insurance 1,561 1,561
Closed location reserve 493 493
Other deductible (income amounts) 614 (59) 555
Less valuation allowances (4,629) (4,629)
-------- ---------- ---------
Total noncurrent $ 1,381 $(4,125) $(2,744)
-------- ---------- ---------
Total current and noncurrent $ 1,585 $(4,329) $(2,744)
========== ========== ===========
</TABLE>
<TABLE>
Deferred income tax provision (benefit) from continuing operations under SFAS
No. 96 consisted of the following:
<CAPTION>
1992
----
(In thousands)
<S> <C>
Accrued insurance $ (588)
Lease obligations 390
Depreciation 725
Notes and accounts receivable 597
Closed location reserve 345
Other (385)
-------
$1,084
=======
</TABLE>
F-11
<PAGE> 42
A valuation allowance has been provided for those deferred tax assets for which
management believes it is more likely than not that the tax benefit will not be
realized. As of October 2, 1994 the Company had approximately $1,231,000 of
alternative minimum tax credit carryforwards for federal tax purposes,
approximately $298,000 of targeted jobs tax credits, approximately $640,000 of
FICA tax credits, and $17,000 of foreign tax credits which expire on various
dates through 2009. The Company also had a 1991 net operating loss
carryforward of $1,710,000 at the end of 1991 that was utilized in 1992.
G. RETIREMENT BENEFITS
The Company sponsors a qualified defined contribution pension plan which covers
substantially all full-time eligible employees. Employees may contribute up to
10% of earnings on an after tax basis which are matched by the Company based
upon years of participation in the plan up to a maximum of 3%. Defined
contribution expense for the Company was $221,000, $240,000 and $260,000 for
1994, 1993 and 1992, respectively.
The Company also sponsors a non-qualified deferred compensation plan for key
management employees. An employee can defer up to 10% of eligible compensation
which will be matched by the Company up to 3%. The Company may also make
discretionary matching contributions between 25% and 100% of each employee's
deferred compensation between 3% and 10%. In addition, a rate of return,
determined in advance by the Company, will be credited each year to the
employee's account. The funds are invested at the discretion of the company.
Deferred compensation expense for the Company was $112,000, $97,000 and $95,000
for 1994, 1993 and 1992, respectively. Except as set forth above, the Company
has no liability for health or other benefits to retirees.
H. COST OF PRODUCTS SOLD
<TABLE>
Cost of products sold comprises the following:
<CAPTION>
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Food and beverage costs $ 76,949 $ 73,309 $ 70,215
Labor costs 76,845 73,537 71,984
Other costs 49,025 46,861 45,693
-------- -------- --------
$202,819 $193,707 $187,892
========= ======== ========
</TABLE>
I. OTHER INCOME
During 1994, the Company completed a sale of one location for approximately
$2.0 million and realized a pretax gain of approximately $1.5 million. This
gain was partially offset by the write-off of $.6 million in expenses
associated with a proposed public offering of convertible subordinated
debentures which the Company withdrew due to market conditions.
<TABLE>
J. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly consolidated results of
operations for 1994, 1993 and 1992:
<CAPTION>
1994: JANUARY 2 APRIL 3 JULY 3 OCTOBER 2
--------- ------- ------ ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenue $62,199 $59,885 $60,670 $61,217
Gross Profit 10,731 9,400 10,263 10,758
Net Income 1,534 1,554 1,595 1,563
Per share data:
Net income .14 .14 .14 .14
</TABLE>
F-12
<PAGE> 43
<TABLE>
<CAPTION>
1993: JANUARY 3 APRIL 4 JULY 4 OCTOBER 3
--------- ------- -------- ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenue $62,231 $56,389 $55,760 $58,176
Gross Profit 10,729 9,423 9,268 9,434
Net Income 1,427 1,227 1,361 1,313
Per share data:
Net Income .13 .11 .12 .12
</TABLE>
<TABLE>
<CAPTION>
1992: DECEMBER 29 MARCH 29 JUNE 28 SEPTEMBER 27
----------- -------- ------- ------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenue $54,395 $57,237 $57,644 $57,190
Gross Profit 9,688 9,776 9,890 9,220
Net Income 1,128 1,156 1,177 1,185
Per share data:
Net Income .10 .10 .11 .11
</TABLE>
K. LITIGATION
The Company has been named in a number of separate claims brought by former
employees alleging that the Company engaged in discriminatory practices based
on age, race, sex or disability. Plaintiffs maintaining claims of employment
discrimination, such as those being brought against the Company, generally are
entitled to have their claims tried by a jury and such claims may result in
punitive damage awards. Most of the proceedings against the Company are still
in the discovery phase. Management believes that the discrimination claims
against the Company are without merit and the Company is actively defending the
claims.
L. SUBSEQUENT EVENT
On August 23, 1994 the Company announced that it had entered into a definitive
merger agreement with a private investor group to include 399 Ventures, Inc.,
certain key members of management and various financial institutions. The
merger agreement is subject to receipt of financing and shareholder approval,
and provides that the Company's shareholders will receive $9 in cash for each
share of common stock. In connection with the merger, the Company plans to
repay all amounts outstanding under its Amended Agreement as described in Note
D. On November 16, 1994, the Company announced that it had agreed to extend
until January 31, 1995 the termination date of the Merger Agreement in order to
allow the acquiror more time to arrange financing for the transaction. The
Company anticipates holding a special meeting of shareholders to consider and
act on a proposal to approve and adopt the merger in the second quarter of
fiscal 1995. Management does not expect that the resolution of these matters
will have a material adverse effect on the consolidated financial position of
the Company.
F-13
<PAGE> 44
<TABLE>
SCHEDULE II
GROUND ROUND RESTAURANTS, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
(Dollars in thousands)
<CAPTION>
BALANCE DEDUCTIONS BALANCE
--------------------------
BEGINNING AMOUNTS AMOUNTS END OF PERIOD
-------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NON-CURRENT
- - -------------- --------- --------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1994
Rodrigues-Perrett Corporation, 10%
interest bearing note $ 135 $ --- $ --- $ --- $ --- $ 135
YEAR ENDED OCTOBER 3, 1993:
Rodrigues-Perrett Corporation, 10%
interest bearing note $ --- $ 135 $ --- $ --- $ --- $ 135
YEAR ENDED SEPTEMBER 27, 1992:
HSA Properties, Inc., non-interest
bearing accounts receivable $ 141 $ --- $ 141 $ --- $ --- $ ---
</TABLE>
F-14
<PAGE> 45
<TABLE>
SCHEDULE V
GROUND ROUND RESTAURANTS, INC.
PROPERTY AND EQUIPMENT
(Dollars in thousands)
<CAPTION>
BALANCE BALANCE
BEGINNING ADDITIONS OTHER END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS CHANGES PERIOD
- - -------------- --------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1994:
Land $ 11,434 $ --- $ 231 $ --- $ 11,203
Buildings 106,869 15,920 2,755 --- 120,034
Machinery & equipment 35,439 6,185 1,757 39,867
-------- -------- ------- ----- --------
$153,742 $22,105 $4,743 $ $171,104
======== ======= ======= ===== ========
YEAR ENDED OCTOBER 3, 1993:
Land $ 11,434 $ --- $ --- $ --- $ 11,434
Buildings 92,406 14,727 244 (20) (a) 106,869
Machinery & equipment 27,434 9,128 1,114 (9) (a) 35,439
-------- -------- -------- ----- --------
$131,274 $23,855 $1,358 $ (29) $153,742
======== ======= ======= ===== ========
YEAR ENDED SEPTEMBER 27, 1992:
Land $ 11,281 $ 153 $ --- $ --- $ 11,434
Buildings 85,582 7,143 314 (5) (a) 92,406
Machinery & equipment 23,768 5,458 1,771 (21)(a,b) 27,434
-------- -------- -------- ----- --------
$120,631 $12,754 $2,085 $ (26) $131,274
======== ======= ======= ===== ========
<FN>
(a) Reclassification of assets.
(b) Sale of assets.
</TABLE>
F-15
<PAGE> 46
<TABLE>
SCHEDULE VI
GROUND ROUND RESTAURANTS, INC.
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
(Dollars in thousands)
<CAPTION>
BALANCE BALANCE
BEGINNING ADDITIONS OTHER END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS CHANGES PERIOD
- - -------------- ---------- --------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1994:
Buildings $20,823 $ 7,189 $ 910 $ --- $27,102
Machinery & equipment 12,388 4,935 894 --- 16,429
------- ------- ------- ----- -------
$33,211 $12,124 $1,804 $ $43,531
======= ======= ====== ===== =======
YEAR ENDED OCTOBER 3, 1993:
Buildings $15,125 $ 6,116 $ 419 $ 1 (a) $20,823
Machinery & equipment 8,636 4,150 398 --- 12,388
-------- ------- ------- ----- -------
$23,761 $10,266 $ 817 $ 1 $33,211
======= ======= ======= ===== =======
YEAR ENDED SEPTEMBER 27, 1992:
Buildings $ 9,677 $ 5,645 $ 206 $ 9 (a) $15,125
Machinery & equipment 6,593 3,663 1,625 5 (a,b) 8,636
-------- -------- ------ ----- -------
$16,270 $ 9,308 $1,831 $ 14 $23,761
======= ======== ====== ===== =======
<FN>
(a) Reclassification of assets.
(b) Sale of assets.
</TABLE>
F-16
<PAGE> 47
<TABLE>
SCHEDULE VIII
GROUND ROUND RESTAURANTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<CAPTION>
BALANCE BALANCE
BEGINNING ADDITIONS CHARGED TO AT END OF
DESCRIPTION OF PERIOD COST OTHER DEDUCTIONS PERIOD
- - ----------- --------- ---- ----- ---------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1994:
Allowances deducted from assets
to which they apply:
For doubtful accounts $ 447 $140 $--- $ 4(c) $ 583
YEAR ENDED OCTOBER 3, 1993:
Allowances deducted from assets
to which they apply:
For doubtful accounts $1,270 $ 51 $--- $ 874 (b)(c) 447
YEAR ENDED SEPTEMBER 27, 1992:
Allowances deducted from assets
to which they apply:
For doubtful accounts $2,006 $276 $100 (a) $1,112 (b)(c) 1,270
<FN>
(a) Reclassification of reserve.
(b) Write-off in connection with uncollectible account.
(c) Recoveries.
</TABLE>
F-17
<PAGE> 48
<TABLE>
SCHEDULE X
GROUND ROUND RESTAURANTS, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in thousands)
<CAPTION>
ITEM CHARGED TO COSTS AND EXPENSES
- - ---- -----------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $ 7,566 $7,416 $7,342
Advertising 1,013 204 2,025
Taxes other than payroll and income taxes 2,699 2,860 2,740
</TABLE>
Depreciation and amortization of intangible assets, restaurant development
costs and similar deferrals and royalties are not scheduled above since each of
these items does not exceed one percent of total revenues.
F-18
<PAGE> 1
EXHIBIT 2.1
APPENDIX A
----------
Agreement and Plan of Merger
by and among
Ground Round Restaurants, Inc.,
GRR, Inc.
and
GRR Acquisition Corp.
dated as of
August 23, 1994
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 23, 1994 ("Agreement"
or "Merger Agreement"), by and among GRR, Inc., a Delaware corporation
("Parent"), GRR Acquisition Corp., a New York corporation and a wholly owned
subsidiary of Parent ("Purchaser"), and Ground Round Restaurants, Inc., a New
York corporation (the "Company").
ARTICLE I
THE MERGER
1.1 Merger.
------
1.1.1 MERGER. Subject to the terms and conditions hereof and
in accordance with the applicable provisions of the New York Business
Corporation Law (the "NYBCL"), (a) Purchaser will be merged with and into the
Company at the Effective Time (as defined in Section 1.1.2) and the separate
corporate existence of Purchaser will thereupon cease (the "Merger") and (b)
each of the Company and Parent will use its best efforts to cause the Merger to
be consummated as soon as practicable after satisfaction, or waiver if
permitted, of the conditions hereof.
1.1.2 EFFECTIVE TIME. As soon as practicable following
fulfillment or waiver of the conditions specified in Article V, and provided
that this Agreement has not been terminated pursuant to Section 6.1, the
Company and Purchaser (the "Constituent Corporations") will cause a Certificate
of Merger (the "Certificate of Merger") to be filed with the Secretary of State
of the State of New York as provided in Section 904 of the NYBCL. The Merger
will become effective at the time that the Certificate of Merger has been filed
with the Secretary of State of the State of New York in accordance with Section
104 of the NYBCL (the "Effective Time").
1.1.3 EFFECT OF MERGER. The Company will be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), and the separate corporate existence of Purchaser will cease.
The Certificate of Incorporation (the "Certificate") and the By-laws (the
"By-laws") of the Company in effect at the Effective Time will be amended at
the Effective Time by incorporating the language from Purchaser's certificate
of incorporation and by-laws, which by-laws shall contain the provisions
required by Section 4.6.1. The directors of Purchaser immediately prior to the
Effective Time will be the directors of the Surviving Corporation, and unless
the Company and Parent otherwise agree, the officers of Purchaser immediately
prior to the Effective Time will be the officers of the Surviving Corporation,
from and after the Effective Time, to serve in accordance with the NYBCL and
the terms of the Surviving Corporation's certificate of incorporation and
by-laws. The consummation of the Merger will have the effects provided in the
NYBCL with respect to mergers of two domestic corporations.
1.1.4 CONVERSION OF SHARES. At the Effective Time, (a) each
then-outstanding share of Company common stock, par value $.16-2/3 per share (a
"Share"), not owned by
<PAGE> 3
Parent, Purchaser or any other direct or indirect subsidiary of Parent and
other than any Shares held in the treasury of the Company and Dissenting
Shares, as defined in Section 1.6, will be cancelled and retired and will be
converted into a right only to receive in cash an amount per Share in U.S.
dollars equal to nine dollars ($9.00) (the "Merger Price"), (b) each
then-outstanding Share owned by Parent, Purchaser or any other direct or
indirect subsidiary of Parent will be cancelled and retired, and no payment
will be made with respect thereto, (c) each Share issued and held in the
Company's treasury will be cancelled and retired, and no payment will be made
with respect thereto, and (d) each then-outstanding share of common stock of
Purchaser will be converted into and become a share of common stock of the
Surviving Corporation, which thereafter will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation.
1.2 CONSUMMATION OF THE MERGER. The closing of the Merger (the
"Closing") will take place (a) at the Boston offices of Nutter, McClennen &
Fish as promptly as practicable after the later of (i) the day of (and
immediately following) adoption and approval of this Agreement by the Company's
shareholders and (ii) the day on which the last of the conditions set forth in
Article V hereof is satisfied or, if permitted, duly waived, or (b) at such
other time and place and on such other date as Purchaser and the Company may
agree.
1.3 PAYMENT FOR SHARES. Purchaser will authorize the depositary
for the Offer (or one or more commercial banks organized under the laws of the
United States or any state thereof with capital, surplus and undivided profits
of at least $100,000,000) to act as Paying Agent hereunder with respect to the
Merger (the "Paying Agent"). Each holder (other than Parent, Purchaser or any
other direct or indirect subsidiary of Parent) of a certificate or certificates
which prior to the Effective Time represented outstanding Shares will be
entitled to receive, upon surrender to the Paying Agent of such certificate or
certificates for cancellation and subject to any required withholding of taxes,
the aggregate amount of cash into which the Shares previously represented by
such certificate or certificates will have been converted in the Merger.
Immediately prior to the Closing, Parent and Purchaser will make available to
the Paying Agent sufficient funds to make all payments pursuant to the
immediately preceding sentence, and the Paying Agent shall certify to the
Company receipt of such funds. Pending payment of such funds to the holders of
Shares, such funds shall be held and invested by the Paying Agent as Parent
directs. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs. Parent will promptly replace any monies lost through any
investment made pursuant to this Section 1.4. Following the Effective Time,
each certificate which immediately prior to the Effective Time represented
outstanding Shares (other than Dissenting Shares and Shares owned by Parent,
Purchaser or any other direct or indirect subsidiary of Parent) will be deemed
for all corporate purposes to evidence only the right to receive upon such
surrender the aggregate amount of cash into which the Shares represented
thereby will have been converted in the Merger as set forth in Section 1.1.4,
subject to any required withholding of taxes. No interest will be paid on the
cash payable upon the surrender of the certificates. Any cash delivered or
made available to the Paying Agent pursuant to this Section 1.4 and not
exchanged for certificates representing Shares
-2-
<PAGE> 4
within one hundred eighty (180) days after the Effective Time will be returned
by the Paying Agent to the Surviving Corporation which thereafter will act as
Paying Agent, subject to the rights of holders of unsurrendered certificates
representing Shares under this Article I, and any former shareholders of the
Company who have not theretofore complied with the instructions for exchanging
their certificates representing Shares will thereafter look only to the
Surviving Corporation for payment of their claim for the consideration set
forth in Section 1.1, without any interest thereon, but will have no greater
rights against the Surviving Corporation (or either Constituent Corporation)
than may be accorded to general creditors thereof under applicable law.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
will be liable to a holder of Shares for any cash or interest thereon delivered
to a public official pursuant to applicable abandoned property laws. Promptly
after the Effective Time (but in any event no later than the next business day
after the Effective Time), the Paying Agent will mail to each record holder of
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") a form of letter of transmittal (the "Transmittal Letter")
and instructions for use thereof in surrendering such Certificates which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Paying Agent in accordance with the terms of delivery specified in the
Transmittal Letter and instructions for use thereof in surrendering such
Certificates and receiving the Merger Price for each Share previously
represented thereby.
1.4 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective
Time, the stock transfer books of the Company will be closed and no transfer of
Shares will thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they will be cancelled, retired and
exchanged for cash as provided in Section 1.3, subject to applicable law in the
case of Dissenting Shares.
1.5 STOCK OPTIONS AND RELATED MATTERS. Immediately prior to the
Effective Time, each outstanding stock option (a "Company Option") granted
under the Company's 1989 Stock Option Plan or 1992 Equity Incentive Plan
(collectively referred to as the "Option Plans"), whether or not then
exercisable, shall be cancelled by the Company and each holder of a cancelled
Company Option shall be entitled to receive from the Company, in cancellation
and settlement of the Company Option, an amount equal to the product of (i) the
number of Shares previously subject to the Company Option and (ii) the excess,
if any, of the Merger Price over the exercise price per Share previously
subject to the Company Option (the "Option Consideration"). Unless on at least
five (5) business days' advance notice Purchaser requests and the holder of a
Company Option agrees for no consideration to either amend or terminate such
Company Option effective as of the Effective Time, as of the Effective Time,
each holder of a Company Option will be entitled to receive only an amount
equal to the applicable Option Consideration.
1.6 DISSENTERS' RIGHTS. Notwithstanding anything in this
Agreement seemingly to the contrary, any Shares which are issued and
outstanding immediately prior to the Effective Time and which are held by
shareholders of the Company who have not voted such Shares in
-3-
<PAGE> 5
favor of the adoption of this Agreement and who have delivered a written demand
for the payment of the fair cash value of such Shares in the manner provided in
Section 623 of the NYBCL ("Dissenting Shares") will not be converted as
described in Section 1.1.4 but will thereafter constitute only the right to
receive payment of the fair cash value of such Shares in accordance with the
provisions of Section 623 of the NYBCL; PROVIDED, HOWEVER, that (i) if any
holder of Dissenting Shares subsequently withdraws such holder's demand for
payment of the fair cash value of such Shares, (ii) if any holder fails to
comply with such Section 623, or (iii) if the Surviving Corporation and any
holder of Dissenting Shares have not come to an agreement as to the fair cash
value of such holder's Dissenting Shares, and neither such holder of Dissenting
Shares nor the Surviving Corporation has filed or joined in a petition
demanding a determination of the value of all Dissenting Shares within the
period provided in Section 623 of the NYBCL, the right of each such holder to
receive such fair cash value will terminate, and upon the expiration of the
rights of such holder pursuant to Section 623 of the NYBCL, such Shares will
thereupon be deemed to have been extinguished and to have been converted, as of
the Effective Time, into the right to receive the Merger Price, without
interest. Persons who have perfected statutory rights with respect to
Dissenting Shares as aforesaid will not be paid by the Surviving Corporation as
provided in this Agreement and will have only such rights as are provided by
Section 623 of the NYBCL with respect to such Shares. Notwithstanding anything
in this Agreement to the contrary, if Parent or Purchaser abandons or is
finally enjoined or prevented from carrying out this Agreement, the right of
each holder of Dissenting Shares to receive the fair cash value of such
Dissenting Shares in accordance with Section 623 of the NYBCL will terminate,
effective as of the time of such abandonment, injunction, prevention or
rescission.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby jointly and severally represent and
warrant to the Company that:
2.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and has all requisite power and authority to own, lease and
operate its properties and assets and to carry on its business as it is now
being conducted. Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
has all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as it is now being
conducted. Parent is the sole legal and beneficial owner of all of the
outstanding capital stock of Purchaser.
2.2 AUTHORITY. Each of Parent and Purchaser has the requisite
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
approved by each of the Boards of Directors of Parent and Purchaser and by
Parent as the sole shareholder of Purchaser and no
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other proceedings on the part of Parent or Purchaser are necessary to
consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by each of Parent and Purchaser and constitutes a valid
and binding obligation of each of Parent and Purchaser, enforceable against
Parent and Purchaser in accordance with its terms.
2.3 MERGER PROXY STATEMENT. None of the information supplied in
writing by Parent, Purchaser or any other affiliate of Purchaser expressly for
inclusion in any proxy or information statement of the Company required to be
mailed to the Company's shareholders in connection with the Merger (the "Merger
Proxy Statement"), or in any amendments or supplements thereto, will, at the
time of (a) the first mailing thereof and (b) the meeting of shareholders to be
held in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.4 FEES. Neither Parent nor Purchaser nor any other direct or
indirect subsidiary of Parent has paid or become obligated to pay any fee or
commission to any broker or finder in connection with the transactions
contemplated hereby.
2.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by Parent and Purchaser nor the consummation by
Parent and Purchaser of the transactions contemplated hereby will (a) conflict
with, or result in any breach or violation of, any provision of their
respective certificates of incorporation or by-laws (or comparable governing
instruments), or (b) violate, conflict with, breach, constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any lien or other encumbrance upon
any of the properties or assets of Parent or any of its subsidiaries under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Parent or any such subsidiary is a party or to which they or any of their
respective properties or assets are subject, except for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens or other encumbrances, that, individually or in the aggregate, will not
have a material adverse effect on the business or financial condition of Parent
and its subsidiaries, taken as a whole, or (c) require any consent, approval,
authorization or permit of or from, or filing with or notification to, any
court, governmental authority or other regulatory or administrative agency or
commission, domestic or foreign ("Governmental Entity"), except (i) pursuant to
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), (ii) filing the Certificate of Merger, (iii)
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), or (iv) consents, approvals, authorizations, permits,
filings or notifications which, if not obtained or made, will not have a
material adverse effect, individually or in the aggregate, on the business or
financial condition of Parent and its subsidiaries, taken as a whole.
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2.6 FINANCING. The letter from Bear Stearns & Co. Inc. ("Bear
Stearns") dated August 22, 1994 and set forth as SCHEDULE 2.6(A) (the "Bear
Stearns Letter") regarding (i) up to one hundred million dollars ($100,000,000)
of senior unsecured notes (the "Senior Note Financing") and (ii) up to forty
million dollars ($40,000,000) of subordinated discount notes (the "Discount
Note Letter" and "Discount Note Financing") has not been withdrawn, amended,
modified or qualified as of the date hereof. The letter from 399 Ventures,
Inc. dated August 22, 1994 and set forth as SCHEDULE 2.6(B) (the "399 Ventures
Letter") regarding certain equity and subordinated debt financing (the "Parent
Financing") has not been withdrawn, amended, modified or qualified as of the
date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Purchaser that, except as otherwise disclosed to Parent and Purchaser prior to
the execution hereof:
3.1 CORPORATE ORGANIZATION. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and is in good standing
as a foreign corporation in each jurisdiction where failure to so qualify or be
in good standing is reasonably likely to have a material adverse effect on the
business or financial condition of the Company and its subsidiaries, taken as a
whole. The Company and each of its subsidiaries has the requisite corporate
power to own, lease and operate their respective properties and assets and to
carry on their respective businesses as they are now being conducted. The
subsidiaries listed on SCHEDULE 3.1 are all of the subsidiaries of the Company,
and each subsidiary listed on SCHEDULE 3.1 is a direct or indirect wholly owned
subsidiary of the Company. The Company has filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Exchange Act true and
correct copies of its Certificate and By-laws, as amended to the date hereof.
The Company's Certificate and By-laws as so filed are in full force and effect.
3.2 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 35,000,000 Shares and (ii) 30,000 shares
of Cumulative Preferred Stock, par value $100 per share ("Preferred Shares").
As of the close of business on the date hereof, (a) 11,113,269 Shares were
issued and outstanding, (b) no Preferred Shares were issued and outstanding and
(c) Company Options to purchase an aggregate of 628,461 Shares were outstanding
pursuant to the Option Plans. All issued and outstanding Shares are validly
issued, fully paid and nonassessable and are not subject to preemptive rights.
Since the close of business on the date hereof, the Company has not issued any
additional Shares or any Preferred Shares other than pursuant to the exercise
of Company Options, has not granted any additional Company Options, and has not
modified outstanding Company Options, except as expressly contemplated in this
Agreement. As of the date hereof, except for Shares and Preferred Shares,
there are no shares of capital stock of the Company authorized, issued or
outstanding, and except for the Company Options, there are no outstanding
subscriptions, options, warrants, puts, calls, rights, convertible securities,
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exchangeable securities or any other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of the Company or
obligating the Company to grant, extend or enter into any subscription, option,
warrant, right, convertible security or other similar agreement or commitment,
except as disclosed on SCHEDULE 3.2. There are no voting trusts or other
agreements or understandings to which the Company or, to best of the Company's
knowledge, any other person is a party with respect to the voting of the
capital stock of the Company, except as disclosed on SCHEDULE 3.2. There are
no stock appreciation rights, phantom stock or other similar arrangements or
understandings to which the Company is a party.
3.3 AUTHORITY. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, except for any required
vote of the Company's shareholders, to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly approved by
the Board of Directors of the Company and no other corporate proceedings on the
part of the Company are necessary to authorize the execution and delivery of
this Agreement or to consummate the transactions so contemplated, subject to
the extent required with respect to the consummation of the Merger, to the
adoption and approval of this Agreement by the shareholders of the Company.
This Agreement has been duly executed and delivered by, and constitutes a
legal, valid and binding obligation of, the Company, enforceable against the
Company in accordance with its terms.
3.4 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution,
delivery nor performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby will (a) conflict with,
violate, result in any breach, termination, acceleration or violation of any
obligation under, or constitute a default under, any provision of the
Certificate or By-laws, or (b) violate, conflict with, breach, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien or other
encumbrance upon any of the properties or assets of the Company under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which the Company or any of its subsidiaries is a party or to which they or any
of their respective properties or assets are subject, except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances that, individually or in the
aggregate, will not have a material adverse effect on the business or financial
condition of the Company and its subsidiaries, taken as a whole, or that are
described on SCHEDULE 3.4, or (c) require any consent, waiver, approval,
authorization or permit of or from, or filing with or notification to, any
Governmental Entity, except (i) pursuant to the Exchange Act, (ii) filing the
Certificate of Merger, (iii) filings under the HSR Act, (iv) consents,
approvals, waivers, authorizations, permits, filings or notifications which, if
not obtained or made will not have a material adverse effect, individually or
in the aggregate, on the business or
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financial condition of the Company and its subsidiaries, taken as a whole, or
(v) as disclosed on SCHEDULE 3.4 hereto.
3.5 COMMISSION FILINGS AND FINANCIAL STATEMENTS. The Company has
heretofore filed all reports, registration statements and other documents
including, without limitation, any financial statements and schedules included
therein, with the Commission required to be filed with the Commission under the
rules and regulations of the Commission since September 29, 1991 (the "SEC
Documents"). The SEC Documents (a) did not (as of their respective filing
dates) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading and (b) complied as to form in all material respects with
the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act, as applicable. The audited and unaudited
consolidated financial statements, together with the notes thereto, of the
Company included (or incorporated by reference) in the SEC Documents complied
in all material respects with Commission requirements as of the respective
dates thereof and fairly presented the financial position of the Company and
its consolidated subsidiaries, in each case as of the dates thereof, and the
results of their operations and changes in financial position for the periods
then ended in accordance with, and have been prepared in accordance with,
generally accepted accounting principles applied on a consistent basis (except
as stated in such financial statements), subject, in the case of the unaudited
financial statements, to year-end adjustments and to the disclaimers contained
in footnote 1 to the financial statements contained in the Company's Quarterly
Reports on Form 10-Q previously filed with the Commission.
3.6 GOVERNMENTAL AUTHORIZATIONS. The Company and each of its
subsidiaries has all licenses, permits, approvals, and other authorizations
(collectively, "Governmental Authorizations") from all Governmental Entities as
are necessary for the conduct of its business and operations, except for
Governmental Authorizations where the failure to obtain such would not have a
material adverse effect, either individually or in the aggregate, on the
Company's consolidated financial condition or business, and all Governmental
Authorizations which the Company or any of its subsidiaries has are in full
force and effect and are not subject to any material condition, qualification
or limitation. Neither the Company nor any of its subsidiaries has received
any notification from any agency, department or instrumentality (or the staff
thereof) of any Governmental Entity asserting noncompliance in any material
respect with any of the laws, rules, regulations or orders that such
governmental authority enforces or threatening to revoke any Governmental
Authorization.
3.7 OWNED REAL ESTATE. Except as disclosed in the SEC Documents
filed prior to the date of this Agreement, the Company or one of its
subsidiaries has good, clear and marketable title to all the properties and
assets either reflected in the latest audited balance sheet included in such
SEC Documents as being owned by the Company or one of its subsidiaries or
acquired after the date thereof, which are material to the Company's business
on a consolidated basis (except properties sold or otherwise disposed of since
the date thereof
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in the ordinary course of business), free and clear of all claims, liens,
charges, security interests or encumbrances of any nature whatsoever, except
(i) as set forth on SCHEDULE 3.7, (ii) statutory liens securing payments not
yet due and (iii) such imperfections or irregularities in title or such claims,
liens, charges, security interests or encumbrances as do not materially affect
the use of the properties or assets subject thereto or affected thereby or
otherwise materially affect the Company's business operations at such
properties.
3.8 REAL ESTATE LEASES. SCHEDULE 3.8 hereof sets forth a list of
(a) all leases and subleases under which the Company or its subsidiaries is
lessor or lessee of any real property together with all amendments,
supplements, nondisturbance agreements and other agreements that are in effect
as of the date of this Agreement; (b) all material options held by the Company
or its subsidiaries or contractual obligations on the part of the Company or
its subsidiaries to purchase or acquire any interest in real property; and (c)
all options granted by the Company or its subsidiaries or contractual
obligations on the part of the Company or its subsidiaries to sell or dispose
of any material interest in real property. There exists no default or event of
default, violation, occurrence, condition or act on the part of the Company or
any subsidiary, or, to the best knowledge of the Company, on the part of any
other party thereto, which, with or without the giving of notice or lapse of
time or both, would have a material adverse effect upon the condition
(financial or otherwise), properties, assets, business, results of operations
or prospects of the Company and its subsidiaries, taken as a whole. The
Company has not granted any liens on any of the leasehold interests set forth
on SCHEDULE 3.8 except for (i) liens reflected in the balance sheet included in
the July 3, 1994 Form 10-Q, (ii) liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on the
use of real property which do not materially detract from the value of, or
materially impair the use of, such property by the Company or its subsidiaries
in the operation of their respective businesses, (iii) liens for current taxes,
assessments or governmental charges or levies on property not yet delinquent,
(iv) statutory liens securing payments not yet due and (v) liens which do not
materially affect the operation of the business of the Company and any
subsidiaries, taken as a whole, or as may be set forth on SCHEDULE 3.8.
3.9 COMPLIANCE WITH LAWS. The Company and its subsidiaries have
complied with and are not in violation of applicable federal, state or local
statutes, laws and regulations, including, without limitation, any applicable
building, zoning, health, sanitation, safety, labor relations or other law,
ordinance or regulation, other than violations, if any, which would not have a
material adverse effect on the condition (financial or otherwise), properties,
assets, business, results of operations or prospects of the Company and its
subsidiaries, taken as a whole. Neither the Company nor any subsidiary has
failed to obtain any license, permit, franchise or other governmental
authorization which is applicable to its respective operations, except for
licenses, permits, franchises or other governmental authorizations the failure
of which to obtain would not have a material adverse effect on the condition
(financial or otherwise), properties, assets, business, results of operation or
prospects of the Company and its subsidiaries, taken as a whole.
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3.10 ENVIRONMENTAL PROTECTION. There are no pending or, to the
best knowledge of the Company, threatened, actions or claims against the
Company or any of its current or, to the best knowledge of the Company, former
subsidiaries arising out of the presence or release into the environment of any
chemicals, pollutants or contaminants related to the operations of the Company
or its current or former subsidiaries or arising in connection with any of the
properties owned by them or as to which the Company or any subsidiary or former
subsidiary of the Company is or could be a potentially responsible party under
applicable law, except for such matters which would not have a material adverse
effect on the condition (financial or otherwise), properties, assets, business,
results of operation or prospects of the Company and its subsidiaries, taken as
a whole.
3.11 NO UNDISCLOSED LIABILITIES. There is no liability or
obligation of the Company or any subsidiary of any nature, whether absolute,
accrued, contingent or otherwise, which, individually or in the aggregate, is
material to the Company and its subsidiaries, taken as a whole, other than (i)
the liabilities and obligations reflected on the balance sheet contained in the
July 3, 1994 Form 10-Q and (ii) all liabilities and obligations of the Company
incurred since July 3, 1994 in the ordinary course of business. There is no
prepayment premium with respect to any of the Company's outstanding
indebtedness for borrowed money.
3.12 FEES. Except as described on SCHEDULE 3.12 hereto, neither
the Company nor any of its subsidiaries has paid or become obligated to pay any
fee or commission to any broker or finder in connection with the transactions
contemplated hereby.
3.13 ABSENCE OF MATERIAL ADVERSE CHANGES. Since July 3, 1994,
neither the Company nor any of its subsidiaries has undergone or suffered any
changes in its condition (financial or otherwise), properties, assets,
business, results of operations or prospects which have been, or may reasonably
be anticipated to be, individually or in the aggregate, adverse to the Company,
except for such changes which, individually or in the aggregate, would not have
a material adverse effect on the condition (financial or otherwise),
properties, assets, business or results of operation of the Company and its
subsidiaries, taken as a whole.
3.14 FAIRNESS OPINION. The Board of Directors of the Company has
received an opinion from Smith Barney Inc. ("Smith Barney") to the effect that,
as of the date hereof, the Merger Price is fair, from a financial point of
view, to the holders of the Shares (the "Fairness Opinion").
3.15 SHAREHOLDER AGREEMENT. A majority of the members of the
Company's Board of Directors that have not been designated by HM Holdings, Inc.
("HMH") have taken all action necessary to approve, including in accordance
with Section 3.2(b) of that certain Stockholder Agreement between HMH and the
Company dated as of August 1, 1991, (i) HMH's grant of an option and
irrevocable proxy to Parent and Purchaser pursuant to that Shareholder
Agreement by and among Parent, Purchaser and HMH dated as of the date hereof
and as set forth as SCHEDULE 3.15 (the "Shareholder Agreement") and (ii) the
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performance by HMH of its obligations under the terms and conditions of the
Shareholder Agreement in effect as of the date hereof.
ARTICLE IV
COVENANTS
4.1 CONDUCT OF THE BUSINESS OF THE COMPANY PRIOR TO THE EFFECTIVE
TIME. The Company agrees that, prior to the Effective Time and except as
described on SCHEDULE 4.1, otherwise consented to or approved in writing by
Purchaser or expressly permitted by this Agreement:
(a) the businesses of the Company and its
subsidiaries shall be conducted in all material respects only in, the
Company and its subsidiaries shall not take any action except in, and
the Company and its subsidiaries shall maintain their facilities in,
the ordinary course of business and consistent with immediate past
practice;
(b) the Company shall not (i) amend its Certificate
or By-Laws, (ii) issue or sell any securities (including any options,
warrants, convertible or exchangeable securities, stock appreciation
rights, phantom stock or similar rights) or otherwise change the
number of authorized, issued or outstanding shares of its capital
stock other than the issuance of Shares upon exercise of any Company
Options, (iii) declare, set aside or pay any dividend or other
distribution or payment (whether in cash, stock or property) with
respect to, or make any direct or indirect redemption, retirement,
purchase or other acquisition of any shares of capital stock or
options issued by, the Company (except as contemplated by Section
1.5); or (iv) enter into any arrangement or contract with respect to
the purchase or voting of shares of its capital stock, or adjust,
split, combine or reclassify any of its capital stock or other
securities;
(c) the Company shall, and shall cause each of its
subsidiaries to, (i) use its best efforts to preserve intact its
business organization and operations, keep available the services of
its operating personnel, and preserve the goodwill of those having
business relationships with each of them, (ii) make whatever repairs
and maintenance that may be necessary to maintain their properties in
substantially their present condition and (iii) conduct relations with
its employees, including, without limitation, termination and hiring
practices, only in the ordinary course of business and consistent in
all material respects with immediate past practice; PROVIDED, however,
that any inability of the Company or any of its subsidiaries to keep
available the services of such operating personnel or to maintain any
such business relationship despite its aforesaid best efforts to do so
shall not constitute a breach of this Section 4.1(c);
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(d) the Company or any of its subsidiaries will not,
directly or indirectly, (i) increase the compensation payable or to
become payable by it to any of its officers, directors or employees
(except increases for non-officer employees in the ordinary course of
business consistent in all material respects with immediate past
practice or as required by collective bargaining agreements), (ii)
make any payment or provision (except as required by existing plans or
agreements, disclosed on SCHEDULE 4.1(d) or contemplated by Section
1.5) with respect to, or adopt or amend, any bonus, profit sharing,
pension, retirement, severance (including "golden parachutes"),
deferred compensation, employment or other payment plan, agreement or
arrangement for the benefit of employees of the Company or any of its
subsidiaries, (iii) grant any stock options or stock appreciation
rights, (iv) enter into or amend any employment or consulting
agreement, except that nothing contained in this clause (iv) shall
prohibit the Company from terminating a consulting agreement with any
person who is not a senior management employee of the Company, (v)
make any loan or advance to, or enter into any written contract, lease
or commitment with, any officer or director of the Company or its
subsidiaries, other than routine advances to employees in the ordinary
course of business and consistent in all material respects with
immediate past practice, (vi) encumber or pledge any of the respective
assets of the Company or any of the subsidiaries, or make any
acquisition of assets or securities, except in the ordinary course of
business and consistent in all material respects with immediate past
practice, (vii) incur any long-term or short-term debt for borrowed
money from any bank or lending institution, except pursuant to
existing credit agreements in the ordinary course of business and
consistent in all material respects with immediate past practice,
(viii) assume, guarantee, endorse or otherwise become responsible for
the obligations of any other individual, firm or corporation or make
any loans or advances to any individual, firm or corporation, except
in the ordinary course of business and consistent in all material
respects with immediate past practice, (ix) enter into any contract or
agreement or effect any transaction or commitment relating to the
assets or business (including the acquisition or disposition of any
substantial assets) of the Company or relinquish any contract or other
right which, in each case, is material to the Company, other than the
transactions, commitments and relinquishments disclosed on SCHEDULE
4.1 or contemplated by this Agreement, (x) enter into any material new
leases for real property or terminate any of the lease agreements
identified on SCHEDULE 3.8 except in the ordinary course of business
and consistent in all material respects with immediate past practice
or (xi) make any loan, or make any distribution or other transfer of
assets to or from the Company or any of its subsidiaries from or to
any shareholder or Affiliate (which term for purposes of this
Agreement shall have the meaning set forth in Rule 405 of the
Commission promulgated under the Securities Act) of the Company or of
any subsidiary, except for any distribution or transfer to or from the
Company or any of its wholly owned subsidiaries from or to any wholly
owned subsidiary;
(e) the Company shall use its best efforts to cause
its current insurance (or reinsurance) policies not to be cancelled or
terminated or any of the coverage
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thereunder to lapse, unless simultaneously with such termination,
cancellation or lapse replacement policies providing coverage
substantially similar to the coverage under the cancelled, terminated
or lapsed policies for substantially similar premiums are in full
force and effect; or
(f) authorize or enter into an agreement to do any of
the things not permitted under this Section 4.1.
Notwithstanding the foregoing, the Company may incur costs, expenses,
obligations or liabilities in connection with any Qualifying
Acquisition Proposal (as defined in Section 4.9) including, without
limitation, costs, expenses, obligations or liabilities incurred in
the prosecution of, or defense against, any cause of action related
thereto or any costs, expenses, obligations or liabilities incurred
from activities permitted by Section 4.9.
4.2 ACCESS AND INFORMATION. The Company will afford to Parent and
its agents, accountants, representatives and representatives of its potential
financing sources such access during normal business hours throughout the
period prior to the Effective Time to the Company's properties, contracts,
commitments, books, records, personnel and to such other information concerning
its business as Parent reasonably requests. Parent shall, and shall cause
each of its agents, accountants and representatives of its potential financing
sources to, hold in confidence all such non-public information in accordance
with the provisions of the Letter Agreement between Smith Barney Inc., as agent
for the Company, and Parent, dated June 21, 1994 (the "Letter Agreement"), and
if this Agreement is terminated, Parent and its agents, accountants and
representatives of its potential financing sources shall redeliver or otherwise
provide for all such information and other materials as required pursuant to
the Letter Agreement.
4.3 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Parent, Purchaser
and the Company will (a) promptly, but in any event within fifteen (15) days,
make their respective filings, and will thereafter use their best efforts
promptly to make any required submissions, under the HSR Act with respect to
the Merger and the other transactions contemplated by this Agreement and (b)
cooperate with one another (i) in promptly determining whether any filings are
required to be made or consents, approvals, permits or authorizations are
required to be obtained under any other federal, state or foreign law or
regulation and (ii) in promptly making any such filings, furnishing information
required in connection therewith and seeking timely to obtain any such
consents, approvals, permits or authorizations.
4.4 ACTIONS OF DIRECTORS AND SHAREHOLDERS. The Company shall take
all action necessary in accordance with the NYBCL and its Certificate and
By-Laws to convene promptly a special meeting of its shareholders (the "Special
Meeting") to consider and vote upon this Agreement and the Merger, subject to
the exercise by the Board of Directors of the Company of its fiduciary duties
consistent with the provisions of Section 4.9. The Merger Proxy Statement
shall contain the recommendation of the Board of Directors of the Company
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in favor of the Merger and the adoption and approval of this Agreement, subject
to the Board of Directors' exercise of its fiduciary duties consistent with the
provisions of Section 4.9. The Company shall, if and to the extent requested
by Purchaser, use all reasonable efforts to solicit from shareholders of the
Company proxies in favor of such adoption and approval and shall take any other
reasonable action. The Company shall use its best efforts to take all action
necessary for the Merger not to be subject to any state anti-takeover statute.
At the Special Meeting, all of the Shares then owned by Parent, Purchaser or
any other direct or indirect subsidiary of Parent, if any, will be voted in
favor of adoption of this Agreement.
4.5 MERGER PROXY STATEMENT. The Company shall use all reasonable
efforts to prepare and file with the Commission as promptly as practicable, and
in any event within fifteen (15) business days after the date of this
Agreement, and have cleared by the Commission and promptly thereafter mail to
its shareholders the Merger Proxy Statement, which shall include, subject to
the exercise by the Board of Directors of the Company of its fiduciary duties
consistent with the provisions of Section 4.9, a recommendation by the Board of
Directors that the Company's shareholders adopt and approve this Agreement and
which shall include all information required under applicable laws to be
furnished to the stockholders of the Company in connection with the
transactions contemplated hereby, shall comply as to form in all material
respects with all applicable requirements of federal securities laws and shall
be in form reasonably satisfactory to Purchaser and its counsel. The Company
shall request Smith Barney to prepare and, subject to Smith Barney's consent,
shall include in the Merger Proxy Statement a letter from Smith Barney, dated
the date of the Merger Proxy Statement, confirming its Fairness Opinion. The
Merger Proxy Statement shall include all information and statements which the
Company or the Purchaser reasonably believes to be necessary for inclusion
therein but shall not, in the reasonable opinion of the Company or the
Purchaser, include any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company shall notify Purchaser promptly of the
receipt by it of any comments of the Commission and of any requests for
supplements to the Merger Proxy Statement and will supply Purchaser with copies
of all correspondence between it and its representatives, on the one hand, and
the Commission or the members of its staff, on the other hand, with respect to
the Merger Proxy Statement. The Company shall use its best efforts to obtain
and furnish the information required to be included in the Merger Proxy
Statement, and the Company, after consultation with Purchaser, shall use its
best efforts to respond promptly to any comments made by the Commission with
respect to the Merger Proxy Statement and any preliminary version thereof.
Parent, Purchaser and the Company will cooperate with each other in the
preparation of the Merger Proxy Statement; without limiting the generality of
the foregoing, Parent and Purchaser will furnish to the Company in writing the
information relating to Parent and Purchaser required by the Exchange Act to be
set forth in the Merger Proxy Statement.
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4.6 Indemnification and Insurance.
-----------------------------
4.6.1 BY-LAWS. The by-laws of the Surviving Corporation will
contain the provisions with respect to indemnification set forth in Article
Ninth of the Certificate and Article XI of the By-laws, as in effect on the
date hereof, which provisions will not be amended for a period of six years
from the Effective Time in any manner that would adversely affect the rights
thereunder of any person who, immediately prior to the Effective Time, is a
current or former director, officer, employee or agent of the Company, except
if such amendment is required by law.
4.6.2 PARENT INDEMNITY. From and after the Effective Time,
Parent shall indemnify, defend and hold harmless each person who, immediately
prior to the Effective Time, is a current or former officer or director of the
Company or any of its subsidiaries or who prior to the Effective Time acted as
a fiduciary under any employee benefit plan (each an "Indemnified Party")
against all losses, claims, damages or liabilities arising out of acts or
omissions occurring at or prior to the Effective Time to the fullest extent
permitted under the NYBCL and the Certificate or By-laws (to the extent
consistent with applicable law), including, without limitation, provisions
relating to advances of expenses incurred in the defense of any action or suit;
PROVIDED, HOWEVER, that such Indemnified Parties as a group may retain only one
law firm to represent them in any jurisdiction with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issues between the positions of any two or more Indemnified
Parties. Without limiting the foregoing, Parent shall periodically advance
expenses as incurred with respect to the foregoing to the fullest extent
permitted under applicable law provided that the Indemnified Party to whom the
expenses are advanced provides an undertaking to repay such advance if it is
ultimately determined that such person is not entitled to indemnification.
4.6.3 INSURANCE. Prior to the Effective Time, Parent or
Purchaser shall have purchased a noncancellable run-off policy for officers'
and directors' liability insurance (the "D&O Policy") providing such coverage
for persons who, immediately prior to the Effective Time, were current or
former directors or officers of the Company, which insurance shall commence as
of, and continue for a period of six years after, the Effective Time and shall
be no less favorable in scope and amount of coverage than the Company's
existing officers' and directors' liability insurance and provided by an
insurer of no lesser financial standing than the Company's existing insurer;
PROVIDED, HOWEVER, that Parent and Purchaser shall have no obligation under
this Section to pay more than two hundred twenty-five thousand dollars
($225,000) (the "D&O Limit"), and PROVIDED FURTHER that if the cost of the D&O
Policy exceeds the D&O Limit, the Company will be entitled to modify, in its
sole discretion, the terms and conditions of the D&O Policy such that the cost
of the D&O Policy does not exceed the D&O Limit.
4.6.4 DETERMINATION. Any determination which is required to
be made with respect to whether an Indemnified Party's conduct complies with
the standards set forth under New York law, the Certificate or the By-laws and
any decision which is made as to
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the necessity for such determination shall be made by independent counsel
approved by the Indemnified Party; PROVIDED, HOWEVER, that the Indemnified
Parties as a group shall designate one independent counsel with respect to each
such matter. The fees and expenses of such counsel will be paid by Parent or
the Surviving Corporation promptly after the submission of invoices by such
counsel in accordance with its standard practices.
4.7 EMPLOYEE BENEFIT MATTERS. (a) Parent will provide, or cause
the Surviving Corporation to provide, employees of the Company with pension,
health, medical, disability, life insurance, severance and other similar
employee benefits under employee benefit plans (as such term is defined under
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended), immediately following the Effective Time, which are competitive with
industry practice. Notwithstanding the foregoing, except as otherwise
expressly contemplated by this Agreement, nothing herein shall require the
Surviving Corporation to maintain any particular plan or arrangement following
the Effective Time or shall be construed to obligate Parent or the Surviving
Corporation to issue to employees of the Company, or adopt any plans or
arrangements to provide for the issuance of, any shares of its capital stock or
any options, warrants, stock appreciation rights or other rights in respect of
any shares of its capital stock or any securities convertible into or
exchangeable for such shares.
(b) From and after the Effective Time, Parent agrees
to cause the Surviving Corporation to honor in accordance with the terms
thereof the employment, severance, consulting, retirement and deferred
compensation agreements or arrangements existing on the date hereof to which
the Company or any subsidiary is a party, including, without limitation, the
Company's non-qualified deferred compensation plan and its non-qualified
retirement plan. Prior to the Effective Time, Parent agrees not to take or to
permit Purchaser or any other affiliate of Parent to take any action
inconsistent with the immediately preceding sentence.
(c) The Company will terminate or amend, in a manner
satisfactory to Parent and certain holders of Company Option, the Company
Options held by such persons; PROVIDED, HOWEVER, that such termination or
amendment will take effect immediately prior to Effective Time. The Company
agrees to take all action necessary to fully vest the restricted stock held by
the Company's Chief Executive Officer and all Company Options issued and
outstanding as of the date hereof, in each case effective no later than
immediately prior to the Effective Time.
4.8 ADDITIONAL AGREEMENTS. Upon the terms and subject to the
conditions herein provided, each of the parties hereto agrees to use its best
efforts to take or cause to be taken all action, to do or cause to be done, and
to assist and cooperate with the other party hereto in doing, all things
necessary, proper or advisable under applicable laws and regulations, to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated hereby, including, but not limited to, (i) the
obtaining of all necessary actions or inactions, waivers, consents and
approvals from the applicable Governmental Entities and the making of all
necessary registrations and filings, (ii) the obtaining of all necessary
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<PAGE> 18
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby and (iv) the execution and delivery of such instruments, and the taking
of such other actions as the other party hereto may reasonably require in order
to carry out the intent of this Agreement and any agreements entered into
between the parties pursuant to this Agreement. If, at any time after the
Effective Time, the Surviving Corporation considers or is advised that any
deeds, bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or otherwise
in the Surviving Corporation its right, title or interest in, to or under any
of the rights, properties or assets of either of the Constituent Corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out the purposes of this
Agreement, the officers and directors of the Surviving Corporation will be
authorized to execute and deliver, in the name and on behalf of each of the
Constituent Corporations or otherwise, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
each of the Constituent Corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
4.9 NO SOLICITATION. The Company shall immediately cease, and
cause each of its, and its subsidiaries', representatives, agents and advisors
to terminate, any existing activities, discussions or negotiations previously
conducted with any parties other than Parent and Purchaser with respect to any
Alternative Transaction (as defined in Section 6.10); and the Company shall
not, and shall cause each of its, and its subsidiaries', officers, directors,
representatives, agents and advisors not to, solicit or encourage inquiries or
proposals with respect to, or furnish any non-public information relating to or
participate in any negotiations or discussions concerning, any proposal
regarding an acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, the Company or any of its
subsidiaries or any merger or other business combination with the Company or
any of its subsidiaries or any recapitalization involving the Company or any of
its subsidiaries resulting in an extraordinary dividend or distribution to the
Company's shareholders or a self-tender for or the redemption of some or all of
the Shares (hereinafter collectively referred to as an "Acquisition Proposal")
other than as contemplated by this Section 4.9. Notwithstanding the
immediately preceding sentence, neither the Company nor its Board of Directors
shall be prohibited from (i) engaging in discussions or negotiations with a
third party which has made in writing a bona fide Acquisition Proposal which
satisfies the conditions set forth in the proviso of this sentence (a
"Qualifying Acquisition Proposal") and thereafter providing to such third party
information previously provided or made available to Parent, provided the third
party shall have entered into a confidentiality agreement substantially similar
to the Letter Agreement, (ii) following receipt of a Qualifying Acquisition
Proposal, taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) under the Exchange Act or otherwise making disclosure of the
Qualifying Acquisition Proposal to its shareholders or (iii) following receipt
of a Qualifying Acquisition Proposal, withdrawing its
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<PAGE> 19
recommendation referred to in Section 4.4 or adjourning or otherwise postponing
the Special Meeting; PROVIDED, HOWEVER, that the Company shall engage, and
shall permit its, and its subsidiaries', officers, directors, representatives,
agents and advisors to engage, in any of the activities referred to in clauses
(i) through (iii) of this sentence only to the extent that the Board of
Directors of the Company (or an authorized committee thereof) shall have
determined in good faith that such action is required under the fiduciary
duties owed by the Board of Directors of the Company to the shareholders of the
Company on the basis of a written opinion from the Company's counsel and a
written analysis of the Acquisition Proposal by its financial advisor Smith
Barney which analysis shall include a comparison of the financial terms of such
Acquisition Proposal and the transactions contemplated in this Agreement. The
Company shall notify Parent promptly if any Acquisition Proposal is received
by, or any such negotiations or discussions are sought to be initiated with,
the Company or any of its subsidiaries regarding an Acquisition Proposal and
shall disclose to Parent the identity of the third party making such
Acquisition Proposal and the terms and conditions thereof.
4.10 FINANCING. Parent and Purchaser shall each use its best
efforts to obtain within ten (10) business days after the date of this
Agreement a commitment letter from Chemical Bank, N.A. or other lender
reasonably satisfactory to Parent (the "Revolving Credit Facility Letter")
regarding between twenty million dollars ($20,000,000) to twenty-five million
dollars ($25,000,000) under a revolving credit facility (the "Revolving Credit
Facility" and together with the Senior Note Financing, the Discount Note
Financing and the Parent Financing, the "Financing"). Parent and Purchaser
shall each use its best efforts to complete the negotiation of definitive
agreements (collectively, the "Definitive Financing Agreements") relating to
the Financing and containing customary terms and conditions; and Parent or
Purchaser shall deliver to the Company copies of such agreements promptly after
they have been executed. In the event that Parent or Purchaser learns that any
portion of the financing to be made available by any party which has committed
to provide financing to Parent or Purchaser becomes unavailable or is likely to
become unavailable, regardless of the reason therefor, Parent and Purchaser
will each as promptly as practicable so notify the Company in writing and will
use its best efforts to obtain alternative financing from other sources. Each
of Parent and Purchaser shall use its best efforts to satisfy, as promptly as
practicable, all requirements of its agreements relating to the Financing that
are conditions to consummating the Financing and to drawing down the cash
proceeds thereunder. The Company covenants and agrees to cooperate with Parent
and Purchaser in negotiating (to the extent requested by Parent and Purchaser)
the Definitive Financing Agreements and in furnishing all information
reasonably required in connection with the negotiation and implementation
thereof.
4.11 NOTICE OF ADVERSE CHANGES. The Company will promptly advise
Parent and Purchaser in writing, and keep Parent and Purchaser fully informed,
of (i) any inability or perceived inability by the Company to perform or comply
with the terms or conditions of this Agreement or (ii) any event which may
reasonably be expected to result in any of its representations and warranties
set forth in this Agreement being or becoming untrue, or in
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any of the conditions to the Merger set forth in Article V not being satisfied,
or in a violation of any provision of this Agreement.
4.12 PUBLICITY. The initial press release announcing this
Agreement will be a joint press release substantially in the form set forth on
SCHEDULE 4.12, and thereafter the Company and Parent will consult with each
other prior to issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and in making any filings
with any Governmental Entity or with any national securities exchange with
respect thereto.
ARTICLE V
CONDITIONS
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of
Parent, Purchaser and the Company to consummate the Merger are subject to the
satisfaction of the following conditions, none of which may be waived:
5.1.1 SHAREHOLDER APPROVAL. Holders of at least two-thirds
of the Shares shall have voted in favor of the adoption of this Agreement in
accordance with the applicable provisions of the NYBCL.
5.1.2 INJUNCTIONS; ILLEGALITY. The consummation of the
Merger shall not be prohibited by any order, injunction, decree or ruling of a
court of competent jurisdiction or any domestic Governmental Entity (each party
agreeing to use its respective best efforts to obtain the stay or removal of
any of the foregoing), and there shall not have been any statute, rule or
regulation enacted, promulgated or deemed applicable to the Merger by any
Governmental Entity which would prevent the consummation of the Merger.
5.1.3 GOVERNMENTAL APPROVALS AND CONSENTS. All approvals of
or filings with any Governmental Entity required to permit the consummation of
the Merger shall have been obtained.
5.1.4 NOTICE FROM PAYING AGENT. Notice shall have been
received by the Company from the Paying Agent stating that the necessary funds
for payment of Shares shall have been made available to the Paying Agent, as
required by Section 1.4.
5.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND PURCHASER. The
obligations of Parent and Purchaser to consummate the Merger are further
subject to the satisfaction, at or prior to the Closing, of the following
conditions, any one or more of which may be waived by Parent and Purchaser:
5.2.1 FINANCING. Parent and Purchaser shall have obtained
the proceeds of the financing necessary to consummate the transactions
contemplated by this Agreement on terms and conditions reasonably satisfactory
to Parent. With respect to the Senior Note Financing,
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the Discount Note Financing, the Revolving Credit Facility and the Parent
Financing, the condition set forth in this Section 5.2.1 shall be satisfied if
Parent and Purchaser shall be able to obtain such financing on terms and
conditions substantially similar to those set forth in the Bear Stearns Letter,
the Revolving Credit Facility Letter and the 399 Ventures Letter, respectively.
5.2.2 ACCURACY OF THE COMPANY'S REPRESENTATIONS. The
representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date hereof and as of the
Closing with the same effect as though all such representations and warranties
had been made as of the Closing, except (x) for any such representations and
warranties made as of a specified date, which shall be true and correct as of
such date, or (y) as expressly contemplated by this Agreement.
5.2.3 ABSENCE OF CERTAIN CHANGES. Since July 3, 1994, there
shall not have been any material adverse change in the business, assets,
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole.
5.2.4 SATISFACTION OF THE COMPANY'S COVENANTS. Each and all
of the agreements and covenants of the Company to be performed and complied
with pursuant to this Agreement prior to the Closing shall have been duly
performed and complied with in all material respects.
5.2.5 CERTAIN THIRD PARTY AND GOVERNMENTAL APPROVALS AND
CONSENTS. All approvals or consents of, waivers by or filings with third
parties, including without limitation Governmental Entities, required to permit
the Company to operate its business in the ordinary course immediately after
the Effective Time substantially as it shall have been operated prior to the
Effective Time, shall have been obtained, except for those approvals or filings
which, if not obtained or made prior to the Effective Time, would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
For purposes of this provision, the inability to transfer or otherwise retain
liquor licenses for restaurants which, during the fiscal year ending October 2,
1994, provided in the aggregate six percent (6%) or more of the consolidated
revenue of the Company and its subsidiaries, taken as a whole, constitutes a
material adverse effect.
5.2.6 DISSENTING SHARES. There shall not be more than
587,000 Dissenting Shares as of the Closing.
5.2.7 CERTIFICATES. The Company will furnish Parent and
Purchaser with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Section
5.2 as Parent and Purchaser may reasonably request.
5.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger are further subject to the
satisfaction, at or prior to the
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Closing, of the following conditions, any one or more of which may be waived by
the Company:
5.3.1 FAIRNESS OPINION. The Company shall have received
written confirmation from Smith Barney, dated as of the date the Merger Proxy
Statement, which satisfies the criteria set forth in Section 4.5, is first to
be mailed to the Company's shareholders, that Smith Barney has not withdrawn
or, in any material respect, amended or modified the Fairness Opinion;
PROVIDED, HOWEVER, that the Company shall be deemed to waive the condition set
forth in this Section by mailing the Merger Proxy Statement without such
confirmation from Smith Barney.
5.3.2 ACCURACY OF PARENT AND PURCHASER'S REPRESENTATIONS.
The representations and warranties of Parent and Purchaser contained herein
shall be true and correct in all material respects as of the date hereof and as
of the Closing with the same effect as though all such representations and
warranties had been made as of the Closing, except (x) for any such
representations and warranties made as of a specified date, which shall be true
and correct as of such date, or (y) as expressly contemplated by this
Agreement.
5.3.3 SATISFACTION OF PARENT AND PURCHASER'S COVENANTS. Each
and all of the agreements and covenants of Parent and Purchaser to be performed
and complied with pursuant to this Agreement prior to the Closing shall have
been duly performed and complied with in all material respects.
5.3.4 CERTIFICATES. Parent and Purchaser will furnish the
Company with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Section
5.3 as the Company may reasonably request.
ARTICLE VI
MISCELLANEOUS
6.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned (a) by the mutual consent of the boards of
directors of Parent, Purchaser and the Company; (b) by the Company, if Parent
or Purchaser is in material breach of any of the representations and
warranties, covenants or obligations contained in this Agreement or the Letter
Agreement and, in the case of a material breach of any covenant or obligation,
such breach has not been cured within ten (10) business days after the Company
has notified Parent of such breach; (c) by the Parent or Purchaser, if the
Company is in material breach of any representations and warranties, covenants
or obligations contained in this Agreement and, in the case of a material
breach of any covenant or obligation, such breach has not been cured within ten
(10) business days after Parent has notified the Company of such breach; (d) by
either Parent and Purchaser, on the one hand, or the Company, on the other
hand, if the Merger is not consummated prior to December 31, 1994 (the
"Expiration Date"); PROVIDED, HOWEVER, that the right to terminate this
Agreement under this Section 6.1(d) shall not be available to any party whose
failure to fulfill any
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obligation under this Agreement has been the primary cause of, or primarily
results in, the failure of the Merger to have been consummated within such
period; (e) by either Parent and Purchaser, on the one hand, or the Company, on
the other hand, if the holders of at least two-thirds of the Shares fail to
adopt this Agreement at the Special Meeting as required by applicable law; (f)
by either Parent and Purchaser, on the one hand, or the Company, on the other
hand, if either one is prohibited by an order or injunction (other than an
order or injunction issued on a temporary or preliminary basis) of a court of
competent jurisdiction from consummating the Merger and all means of appeal and
all appeals from such order or injunction have been finally exhausted; (g) by
the Company, if the Company receives a Qualifying Acquisition Proposal prior to
shareholder adoption of this Agreement; PROVIDED, HOWEVER, that a condition to
the effectiveness of the termination of this Agreement and the abandonment of
the Merger pursuant to clause (g) of this sentence is the payment of the Fee
and Expenses (each as defined in Section 6.10); (h) by the Parent or Purchaser
upon at least five (5) business days' notice, if within ten (10) business days
after the Board of Directors of the Company (x) withdraws or modifies its
recommendation referred to in Section 4.4 or (y) adjourns or otherwise
postpones the Special Meeting, the Board of Directors of the Company has not
renewed its recommendation in favor of the Merger and the adoption and approval
of this Agreement; or (i) by the Company, if the condition set forth in Section
5.3.1 shall not have been satisfied. In the event of any termination and
abandonment pursuant to this Section 6.1, no party hereto (or any of its
directors or officers) will have any liability or further obligation to any
other party to this Agreement, except for obligations in this Section 6.1, 6.10
and under the last sentence of Section 4.2 and except that nothing herein will
relieve any party from liability for any breach of this Agreement.
Notwithstanding clause (d) of the second preceding sentence, if the conditions
set forth in Sections 5.1.2, 5.2.2, 5.2.3 and 5.2.4 have been satisfied, either
the Company or Parent may extend the Expiration Date by up to thirty (30) days
if the condition set forth in Section 5.2.5 has not been satisfied due to the
inability to transfer or otherwise retain liquor licenses.
6.2 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations and warranties or agreements in this Agreement will
terminate at the Effective Time or upon the earlier termination of this
Agreement pursuant to Section 6.1, as the case may be; PROVIDED, HOWEVER, that
if the Merger is consummated, Sections 1.5, 2.4, 4.6, 4.7 and 4.8 will survive
the Effective Time to the extent contemplated by such Sections, and PROVIDED
FURTHER that Section 6.10, the Letter Agreement, the first sentence of Section
6.9 and the last sentences of Sections 4.2 and 6.12 will in all events survive
any termination of this Agreement.
6.3 WAIVER AND AMENDMENT. Subject to the applicable provisions of
the NYBCL, any provision of this Agreement may be waived at any time by the
party which is, or whose shareholders are, entitled to the benefits thereof,
and this Agreement may be amended or supplemented at any time, provided that no
amendment will be made after any shareholder adoption of this Agreement which
(i) alters or changes the Merger Price, (ii) alters or changes any term of the
certificate of the Surviving Corporation, or (iii) alters or changes any of the
terms or conditions of this Agreement, if such alteration or change would
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adversely affect the holders of any class or series of securities of either
Constituent Corporation, without further shareholder adoption. No such waiver,
amendment or supplement will be effective unless in a writing which makes
express reference to this Section 6.3 and is signed by the party or parties
sought to be bound thereby.
6.4 ENTIRE AGREEMENT. This Agreement contains the entire
agreement by and among Parent, Purchaser and the Company with respect to the
Merger and the other transactions contemplated hereby, and supersedes any prior
agreements among the parties with respect to such matters, other than the
Letter Agreement which remains in full force and effect.
6.5 APPLICABLE LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the principles of conflict of laws thereof.
6.6 INTERPRETATION. For purposes of this Agreement, (a) a
"subsidiary" of a corporation means any corporation more than 50% of the
outstanding voting securities of which are directly or indirectly owned by such
other corporation, (b) the descriptive headings contained herein are for
convenience and reference only and will not affect in any way the meaning or
interpretation of this Agreement, (c) words in the singular include the plural
and vice versa, (d) masculine pronouns include feminine and neuter versions
thereof, and (e) references to Sections (other than Sections of the Exchange
Act and the NYBCL) and Schedules are references to Sections in and Schedules to
this Agreement.
6.7 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) or by facsimile (with a copy
provided by overnight courier) to the parties as follows (or to such other
addresses and facsimile numbers as shall be specified by the parties by like
notice):
If to the Company to:
Ground Round Restaurants, Inc.
35 Braintree Office Hill Park
Braintree, MA 02184-9078
Fax: (617) 380-3207
Attention: Chairman, President and Chief Executive Officer
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With copies to:
Ground Round Restaurants, Inc.
35 Braintree Office Hill Park
Braintree, MA 02184-9078
Fax: (617) 380-3207
Attention: Frank M. Puthoff, Senior Vice President,
General Counsel and Secretary
and
Nutter, McClennen & Fish
One International Place
Boston, Massachusetts 02110-2699
Fax: (617) 973-9748
Attention: Constantine Alexander, Esq.
If to Parent or Purchaser to:
NEWCO
c/o 399 Ventures, Inc.
399 Park Avenue
New York, New York 10022
Fax: (212) 888-2940
Attention: Harold Rosser
With a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Fax: (212) 446-4900
Attention: Kirk A. Radke, Esq.
6.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement, and shall become effective when one
or more counterparts have been signed by each party and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
6.9 PARTIES IN INTEREST; ASSIGNMENT. Except for Sections 1.5,
4.1(d), 4.6 and 4.7 (which are intended to be for the benefit of the persons
referred to therein and their beneficiaries, and may be enforced by such
persons as intended third-party beneficiaries),
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this Agreement is not intended to nor will it confer upon any other person
(other than the parties hereto) any rights or remedies, and this Agreement is
binding upon and is solely for the benefit of the parties hereto and their
respective successors, legal representatives and assigns. Purchaser will have
the right (a) to assign to Parent or any direct or indirect wholly owned
subsidiary of Parent any and all rights and obligations of Purchaser under this
Agreement, including without limitation the right to substitute in its place
Parent or such a subsidiary as one of the Constituent Corporations in the
Merger (such subsidiary assuming all of the obligations of Purchaser in
connection with the Merger), provided that any such assignment will not relieve
Parent or Purchaser from any of its obligations hereunder, and (b) to transfer
to Parent or to any direct or indirect wholly owned subsidiary of Parent the
right to purchase Shares tendered pursuant to the Offer, provided that any such
transfer will not relieve Purchaser from any of its obligations hereunder.
6.10 EXPENSES. (a) The Company shall pay Parent a fee of three
million dollars ($3,000,000) (the "Fee") (i) if the Merger does not occur and
the Company consummates an Alternative Transaction (as hereinafter defined)
pursuant to a definitive agreement entered into within one year from the date
of this Agreement or (ii) prior to the Company's termination of this Agreement
pursuant to Section 6.1(g) or the Parent's or Purchaser's termination of the
Agreement pursuant to Section 6.1(h). As used herein, the term Alternative
Transaction means either (i) a transaction pursuant to which a person other
than Parent or its affiliates (a "Third Party") acquires more than 50% of the
Shares then outstanding, whether from the Company or pursuant to a tender offer
or exchange offer or otherwise, (ii) a merger or other business combination
involving the Company pursuant to which any Third Party acquires more than 50%
of the outstanding equity securities of the Company or the entity surviving
such merger or business combination, (iii) any other transaction pursuant to
which any Third Party acquires control of all or substantially all of the
Company's assets, (iv) a recapitalization of the Company resulting in
extraordinary dividends or distributions to the Company's shareholders or (v) a
self-tender for, or redemption of, in the aggregate during such one-year period
of more than ten percent of the Shares outstanding immediately prior to the
commencement of such initial tender or redemption; PROVIDED, HOWEVER, that the
term "Alternative Transaction" shall not include any acquisition of securities
by a broker-dealer in connection with a bona fide public offering of such
securities. The Fee shall be paid (x) within five (5) business days after the
consummation of an Alternative Transaction which satisfies the criteria set
forth in clause (i) of the first sentence of this Section 6.10(a) or (y)
immediately prior to the termination of this Agreement pursuant to Section
6.1(g) or Section 6.1(h). Notwithstanding any other provision of this Section
6.10(a), the Company shall have no obligation to pay Parent the Fee which would
otherwise be due pursuant to clause (i) of the first sentence of Section
6.10(a)(i) in the event that (x) this Agreement is terminated pursuant to
Section 6.1(a), (b) or (d) (but only if terminated by the Company under
circumstances in which (I) Parent's or Purchaser's failure to fulfill any
obligation under this Agreement, or the failure of the condition in Section
5.2.1 to be satisfied, has been the primary cause of, or primarily resulted in,
the failure of the Effective Time to occur on or before the date specified
therein, (II) as of the date of such termination, the conditions set forth in
Sections 5.2.2, 5.2.3 and 5.2.4 were
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<PAGE> 27
satisfied, and (III) as of such date, Smith Barney has not withdrawn or, in any
material respect, amended or modified the Fairness Opinion) or (y) Parent and
Purchaser have elected not to consummate the Merger because of the failure of
the condition in Section 5.2.1 to be satisfied, PROVIDED that at such time
there was no reasonable basis to conclude that the other conditions set forth
in Sections 5.1 and 5.2 would not have been satisfied on or before the
Expiration Date.
(b) In the event that this Agreement is terminated,
the Company shall be responsible for its own expenses incurred in connection
with the transactions contemplated hereby. Except as otherwise provided in
Section 6.10(c), the Company will reimburse Purchaser for its expenses incurred
in connection with the transactions contemplated hereby ("Expenses") up to a
maximum of one million five hundred thousand dollars ($1,500,000) unless this
Agreement has been terminated under the circumstances delineated in the last
sentence of Section 6.10(a).
(c) Under the circumstances set forth in the next
following sentence, the Company and Parent shall bear responsibility for
Expenses as follows: (i) Parent shall be responsible for the first five
hundred thousand dollars ($500,000) of Expenses, (ii) the Company shall be
responsible to reimburse Parent for the next five hundred thousand dollars
($500,000) of Expenses, and (iii) the Company shall be responsible to reimburse
Parent for fifty percent (50%) of the next two million dollars ($2,000,000) of
Expenses; PROVIDED, HOWEVER, that under no circumstances shall the Company be
responsible to reimburse Parent for more than one million five hundred thousand
dollars ($1,500,000) of Expenses. The allocation of responsibility for
Expenses set forth in the immediately preceding sentence shall be applicable if
this Agreement is terminated pursuant to (x) Section 6.1(f) or (y) Section
6.1(d), PROVIDED, with respect to this clause (y), that the failure of the
Merger to be consummated prior to the Expiration Date has primarily resulted
from (I) the failure of the conditions set forth in either Section 5.1.1 or
Section 5.2.6 to be satisfied or waived, and in each case Smith Barney has not
withdrawn or, in any material respect, amended or modified the Fairness
Opinion, or (II) the failure of the condition set forth in Section 5.2.5 to be
satisfied is due to the inability to transfer or otherwise retain liquor
licenses as contemplated by Section 5.2.5 unless waived.
6.11 OBLIGATION OF PARENT. Whenever this Agreement requires
Purchaser to take any action, such requirement will be deemed to include an
undertaking on the part of Parent to cause Purchaser to take such action.
6.12 ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto (and
intended third-party beneficiaries as provided for herein) will be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
-26-
<PAGE> 28
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
6.13 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
6.14 TAXES. If the Merger is consummated, any liability for any
tax imposed by any domestic or foreign taxing authority with respect to the
property of the Company due with respect to or as a result of the Merger shall
be borne by Parent and expressly shall not be a liability of the shareholders
of the Company.
-27-
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers all as of the day
and year first written above.
<TABLE>
<CAPTION>
ATTEST: GRR, INC.
<S> <C>
By /s/ Kirk A. Radke By /s/ Joseph Silvestri
--------------------------------- ---------------------------------------
Kirk A. Radke Joseph Silvestri
Assistant Secretary Vice President
GRR ACQUISITION CORP.
By /s/ Kirk A. Radke By /s/ Joseph Silvestri
--------------------------------- ---------------------------------------
Kirk A. Radke Joseph Silvestri
Assistant Secretary Vice President
GROUND ROUND RESTAURANTS, INC.
By /s/ Frank M. Puthoff By /s/ Michael P. O'Donnell
-------------------------------- -----------------------------------
Frank M. Puthoff Michael P. O'Donnell
Secretary Chairman, President and
Chief Executive Office
</TABLE>
-28-
<PAGE> 30
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.3 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.4 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Payment for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Closing of the Company's Transfer Books . . . . . . . . . . . . . . . . . . . . . 3
1.5 Stock Options and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER . . . . . . . . . . . 4
2.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Merger Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Commission Filings and Financial Statements . . . . . . . . . . . . . . . . . . . 8
3.6 Governmental Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Owned Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 Real Estate Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.12 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Absence of Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . 10
3.14 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.15 Shareholder Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
(i)
<PAGE> 31
<TABLE>
<S> <C> <C>
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Conduct of the Business of the Company Prior to the Effective Time . . . . . . . . . . . . 11
4.2 Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Certain Filings, Consents and Arrangements . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Actions of Directors and Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Merger Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6.1 By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6.2 Parent Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6.4 Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.7 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.9 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.11 Notice of Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 Conditions to Each Party's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.1 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.2 Injunctions; Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.3 Governmental Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.4 Notice from Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Conditions to the Obligations of Parent and Purchaser . . . . . . . . . . . . . . . . . . 19
5.2.1 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2.2 Accuracy of the Company's Representations . . . . . . . . . . . . . . . . . . . . . 20
5.2.3 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2.4 Satisfaction of the Company's Covenants . . . . . . . . . . . . . . . . . . . . . . 20
5.2.5 Certain Third Party and Governmental Approvals and Consents . . . . . . . . . . . . 20
5.2.6 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2.7 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.3 Conditions to the Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . 20
5.3.1 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.3.2 Accuracy of Parent and Purchaser's Representations . . . . . . . . . . . . . . . . 21
5.3.3 Satisfaction of Parent and Purchaser's Covenants . . . . . . . . . . . . . . . . . 21
5.3.4 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Non-Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . 22
6.3 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
(ii)
<PAGE> 32
<TABLE>
<S> <C> <C>
6.6 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.9 Parties in Interest; Assignment. . . . . . . . . . . . . . . . . . . . . . . 24
6.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.11 Obligation of Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 Enforcement of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
(iii)
<PAGE> 1
EXECUTION VERSION
-----------------
EXHIBIT 2.2
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT made as of November 16, 1994 to Agreement and Plan of
Merger dated as of August 23, 1994 (the "Agreement"), by and among GRR, Inc., a
Delaware corporation ("Parent"), GRR Acquisition Corp., a New York corporation
and a wholly-owned subsidiary of Parent ("Purchaser"), and Ground Round
Restaurants, Inc., a New York corporation (the "Company"). Any capitalized
term used in this First Amendment and not defined herein will have the meaning
given to it in the Agreement.
1. Section 4.9 of the Agreement is hereby deleted in its entirety and the
following is substituted in its place:
4.9 NO SOLICITATION. (a) The Company shall immediately cease,
and cause each of its, and its subsidiaries', representatives, agents
and advisors to terminate, any existing activities, discussions or
negotiations previously conducted with any parties other than Parent
and Purchaser with respect to any Alternative Transaction (as defined
in this Section 4.9); and after such date, the Company shall not, and
shall cause each of its, and its subsidiaries', officers, directors,
representatives, agents and advisors not to, solicit or encourage
inquiries or proposals with respect to, or furnish any non-public
information relating to or participate in any negotiations or
discussions concerning, any proposal regarding an acquisition or
purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, the Company or any of its subsidiaries
or any merger or other business combination with the Company or any of
its subsidiaries or any recapitalization involving the Company or any
of its subsidiaries resulting in an extraordinary dividend or
distribution to the Company's shareholders or a self-tender for or the
redemption of some or all of the Shares (hereinafter collectively
referred to as an "Acquisition Proposal") other than as contemplated
by this Section 4.9. Notwithstanding the immediately preceding
sentence, neither the Company nor its Board of Directors shall be
prohibited from (i) engaging in discussions or negotiations with a
third party which orally or in writing has made, or expressed an
interest in making, an inquiry with regard to a possible Acquisition
Proposal and thereafter providing to such third party information
previously provided or made available to Parent, provided the third
party shall have entered into a confidentiality agreement
substantially similar to the Letter Agreement, (ii) following receipt
of an Acquisition Proposal which satisfies the conditions set forth in
the proviso of this sentence (a "Qualifying Acquisition Proposal"),
taking and disclosing to its shareholders a position contemplated by
Rule 14e-2(a) under the Exchange Act or otherwise making disclosure of
the Qualifying Acquisition Proposal to its shareholders or (iii)
following receipt of a Qualifying Acquisition Proposal, withdrawing
its recommendation referred to in Section 4.4 or adjourning or
otherwise postponing the Special Meeting; PROVIDED, HOWEVER, that the
Company shall engage, and
<PAGE> 2
EXECUTION VERSION
-----------------
shall permit its, and its subsidiaries', officers, directors,
representatives, agents and advisors to engage, in any of the
activities referred to in clauses (ii) and (iii) of this sentence only
to the extent that the Board of Directors of the Company (or an
authorized committee thereof) shall have determined in good faith that
such action is required under the fiduciary duties owed by the Board
of Directors of the Company to the shareholders of the Company on the
basis of a written opinion from the Company's counsel and a written
analysis of the Acquisition Proposal by its financial advisor Smith
Barney which analysis shall include a comparison of the financial
terms of such Acquisition Proposal and the transactions contemplated
in this Agreement. As used herein, the term Alternative Transaction
means either (i) a transaction pursuant to which a person other than
Parent or its affiliates (a "Third Party") acquires more than 50% of
the Shares then outstanding, whether from the Company or pursuant to a
tender offer or exchange offer or otherwise, (ii) a merger or other
business combination involving the Company pursuant to which any Third
Party acquires more than 50% of the outstanding equity securities of
the Company or the entity surviving such merger or business
combination, (iii) any other transaction pursuant to which any Third
Party acquires control of all or substantially all of the Company's
assets, (iv) a recapitalization of the Company resulting in
extraordinary dividends or distributions to the Company's shareholders
or (v) a self-tender for, or redemption of, in the aggregate during
such one-year period of more than ten percent of the Shares
outstanding immediately prior to the commencement of such initial
tender or redemption; provided, however, that the term "Alternative
Transaction" shall not include any acquisition of securities by a
broker-dealer in connection with a bona fide public offering of such
securities.
2. Section 6.1 of the Agreement is hereby deleted in its entirety and the
following is substituted in its place:
6.1 TERMINATION. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned (a) by the mutual consent
of the boards of directors of Parent, Purchaser and the Company; (b)
by the Company, if Parent or Purchaser is in material breach of any of
the representations and warranties, covenants or obligations contained
in this Agreement or the Letter Agreement and, in the case of a
material breach of any covenant or obligation, such breach has not
been cured within ten (10) business days after the Company has
notified Parent of such breach; (c) by the Parent or Purchaser, if the
Company is in material breach of any representations and warranties,
covenants or obligations contained in this Agreement and, in the case
of a material breach of any covenant or obligation, such breach has
not been cured within ten (10) business days after Parent has notified
the Company of such breach; (d) by either Parent and Purchaser, on the
one hand, or the Company, on the other hand, if the Merger is not
consummated on or before January 31, 1995 (the "Expiration Date");
-2-
<PAGE> 3
EXECUTION VERSION
-----------------
PROVIDED, HOWEVER, that the right to terminate this Agreement under
this Section 6.1(d) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the primary
cause of, or primarily results in, the failure of the Merger to have
been consummated within such period; (e) by either Parent and
Purchaser, on the one hand, or the Company, on the other hand, if the
holders of at least two-thirds of the Shares fail to adopt this
Agreement at the Special Meeting as required by applicable law; (f) by
either Parent and Purchaser, on the one hand, or the Company, on the
other hand, if either one is prohibited by an order or injunction
(other than an order or injunction issued on a temporary or
preliminary basis) of a court of competent jurisdiction from
consummating the Merger and all means of appeal and all appeals from
such order or injunction have been finally exhausted; (g) by the
Company, if the Company receives a Qualifying Acquisition Proposal
prior to shareholder adoption of this Agreement; provided, however,
that a condition to the effectiveness of the termination of this
Agreement and the abandonment of the merger pursuant to clause (g) of
this sentence is the payment of the Expenses (as defined in Section
6.10); (h) by the Parent or Purchaser upon at least five (5) business
days' notice, if within ten (10) business days after the Board of
Directors of the Company (x) withdraws or modifies its recommendation
referred to in Section 4.4 or (y) adjourns or otherwise postpones the
Special Meeting, the Board of Directors of the Company has not renewed
its recommendation in favor of the Merger and the adoption and
approval of this Agreement; or (i) by the Company, if the condition
set forth in Section 5.3.1 shall not have been satisfied. In the
event of any termination and abandonment pursuant to this Section 6.1,
no party hereto (or any of its directors or officers) will have any
liability or further obligation to any other party to this Agreement,
except for obligations in this Section 6.1, 6.10 and under the last
sentence of Section 4.2 and except that nothing herein will relieve
any party from liability for any breach of this Agreement.
Notwithstanding clause (d) of the second preceding sentence, if the
conditions set forth in Sections 5.1.2, 5.2.2, 5.2.3 and 5.2.4 have
been satisfied, either the Company or Parent may extend the Expiration
Date by up to thirty (30) days if the condition set forth in Section
5.2.5 has not been satisfied due to the inability to transfer or
otherwise retain liquor licenses.
3. Section 6.10 of the Agreement is hereby deleted in its entirety and
the following is substituted in its place:
6.10 EXPENSES. (a) In the event that this Agreement is
terminated, the Company shall be responsible for its own expenses
incurred in connection with the transactions contemplated hereby.
Except as otherwise provided in Section 6.10(b), the Company will
reimburse Purchaser for its expenses incurred in connection with the
transactions contemplated hereby ("Expenses") up to a maximum of one
million five hundred thousand dollars ($1,500,000) unless this
Agreement has been terminated under
-3-
<PAGE> 4
EXECUTION VERSION
-----------------
the circumstances delineated in the next following sentence.
Notwithstanding any other provision of this Section 6.10(a), the
Company shall have no obligation to reimburse Parent for any Expenses
in the event that (x) this Agreement is terminated pursuant to Section
6.1(a), (b) or (d) (but only if terminated by the Company under
circumstances in which (I) Parent's or Purchaser's failure to fulfill
any obligation under this Agreement, or the failure of the condition
in Section 5.2.1 to be satisfied, has been the primary cause of, or
primarily resulted in, the failure of the Effective Time to occur on
or before the date specified therein, (II) as of the date of such
termination, the conditions set forth in Sections 5.2.2, 5.2.3 and
5.2.4 were satisfied, and (III) as of such date, Smith Barney has not
withdrawn or, in any material respect, amended or modified the
Fairness Opinion) or (y) Parent and Purchaser have elected not to
consummate the Merger because of the failure of the condition in
Section 5.2.1 to be satisfied, PROVIDED that at such time there was no
reasonable basis to conclude that the other conditions set forth in
Sections 5.1 and 5.2 would not have been satisfied on or before the
Expiration Date.
(b) Under the circumstances set forth in the next
following sentence, the Company and Parent shall bear responsibility
for Expenses as follows: (i) Parent shall be responsible for the
first five hundred thousand dollars ($500,000) of Expenses, (ii) the
Company shall be responsible to reimburse Parent for the next five
hundred thousand dollars ($500,000) of Expenses, and (iii) the Company
shall be responsible to reimburse Parent for fifty percent (50%) of
the next two million dollars ($2,000,000) of Expenses; PROVIDED,
HOWEVER that under no circumstances shall the Company be responsible
to reimburse Parent for more than one million five hundred thousand
dollars ($1,500,000) of Expenses. The allocation of responsibility
for Expenses set forth in the immediately preceding sentence shall be
applicable if this Agreement is terminated pursuant to (x) Section
6.1(f) or (y) Section 6.1(d), PROVIDED, with respect to this clause
(y), that the failure of the Merger to be consummated prior to the
Expiration Date has primarily resulted from (I) the failure of the
conditions set forth in either Section 5.1.1 or Section 5.2.6 to be
satisfied or waived, and in each case Smith Barney has not withdrawn
or, in any material respect, amended or modified the Fairness Opinion,
or (II) the failure of the condition set forth in Section 5.2.5 to be
satisfied is due to the inability to transfer or otherwise retain
liquor licenses as contemplated by Section 5.2.5 unless waived.
4. The Agreement, as supplemented and modified by this First Amendment,
and any other writing referred to in the Agreement or delivered pursuant
thereto which forms a part thereof contain the entire agreement among the
parties with respect to the subject matter thereof, and amend, restate and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
-4-
<PAGE> 5
EXECUTION VERSION
-----------------
5. Upon execution of this First Amendment, on and after the date hereof,
each reference in the Agreement to "Agreement," "Merger Agreement," "hereof,"
"herein" or words of like import, and each reference in the other documents
entered into in connection with the Agreement shall mean and be a reference to
the Agreement, as amended hereby. Except as specifically amended above, the
Agreement will remain in full force and effect and is hereby ratified and
confirmed as of the date of this Amendment.
6. This First Amendment will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the principles
of conflict of laws thereof.
7. This First Amendment may be executed in any number of counterparts,
each of which will be deemed to be an original but all of which together will
constitute but one agreement, and shall become effective when one or more
counterparts have been signed by each party and delivered to the other parties,
it being understood that all parties need not sign the same counterpart.
* * * * *
-5-
<PAGE> 6
EXECUTION VERSION
-----------------
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed in counterparts by their duly authorized officers all
as of the day and year first written above.
GRR, INC.
By /s/ Joseph Silvestri
--------------------
Joseph Silvestri
Vice President
GRR ACQUISITION CORP.
By /s/ Joseph Silvestri
--------------------
Joseph Silvestri
Vice President
GROUND ROUND RESTAURANTS, INC.
By /s/ Michael P. O'Donnell
------------------------
Michael P. O'Donnell
Chairman, President and
Chief Executive Office
-6-
<PAGE> 1
EXHIBIT 3.1
[The following instrument is a restatement of the Registrant's Certificate of
Incorporation as amended through December 20, 1994; the instrument has been
filed as a restatement in accordance with Rule 102(c) of Regulation S-T.]
CERTIFICATE OF INCORPORATION
OF
GROUND ROUND RESTAURANTS, INC.
Under Section 807 of the Business Corporation Law
FIRST: The name of the corporation is Ground Round Restaurants,
Inc. The name under which the corporation was originally formed is Marine &
Animal By-Products Corp.
SECOND: The purpose of the corporation is to engage in any lawful
act or activity for which the corporation may be organized under the Business
Corporation Law of New York, provided that the corporation is not to engage in
any act or activity requiring the consent or approval of any state official,
department, board, agency, or other body without such consent or approval first
being obtained.
THIRD: The total number of shares of stock which the corporation
shall have the authority to issue is 35,030,000 shares, consisting of
35,000,000 shares of the par value of $.16 2/3 per share, which shall be
designated Common Stock, and 30,000 shares of the par value of $100.00 per
share, which shall be designated Cumulative Preferred Shares. The relative
rights, preferences and limitations of the shares of each class are:
The Preferred Shares may be issued in series, and each
series shall be so designated as to distinguish the shares thereof from the
shares of all other series. All Preferred Shares shall be identical except as
to the relative rights, preferences, and limitations below enumerated.
Authority is hereby expressly granted to the Board of
Directors to fix, subject to the provisions herein set forth, before the
issuance of any shares of a particular series, the number of shares to be
included in such series, the dividend rate per annum, the redemption price or
prices, if any, and the terms and conditions of the redemption, any sinking
fund provisions for the redemption or purchase of the shares of the series, the
terms and conditions on which the shares are convertible, if they are
convertible, and any other right, preferences and limitations pertaining to
such series.
<PAGE> 2
FOURTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served. The
address to which the Secretary of State shall mail a copy of any process
against the corporation which may be served upon him pursuant to law is:
The Ground Round Restaurants, Inc.
35 Braintree Office Hill Park
Braintree, MA 02184-9078
Attention: General Counsel
FIFTH: The office of the corporation is to be located in New York
County of New York, State of New York.
SIXTH: The duration of the corporation is to be perpetual.
SEVENTH: The number of directors that shall constitute the entire
Board of Directors shall be determined by the Board of Directors from time to
time, but in no event shall the number of directors that shall constitute the
entire Board of Directors be less than three.
EIGHTH: No person, by virtue of being a holder of this corporation's
equity or voting shares, shall have any pre-emptive rights to have first
offered to him, when the corporation proposes to issue, or to grant rights or
options to purchase, equity or voting shares of securities convertible into or
carrying rights or options to purchase equity or voting shares, any part of any
such shares or other securities.
NINTH: To the fullest extent permitted by the New York Business
Corporation Law as exists on the date hereof, or as it may hereafter be
amended, no director of the corporation shall be liable to the corporation or
its shareholders for damages for any breach of duty as a director. Any repeal
or modification of the foregoing sentence by the shareholders of the
corporation shall not adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or modification. This
corporation shall indemnify each present and future director and officer of the
corporation against any costs and expenses which may be imposed on, or
reasonably incurred by him in connection with any claim, action, suit or
proceeding hereafter made or instituted in which he may be involved by reason
of his being or having been a director or officer of the corporation, or of any
other corporation in which he served or serves as a director or officer at the
request of the corporation, whether or not he continues to be a director or
officer at the time of imposition of such costs, or incurring of such expenses;
such costs and expenses to include the cost to such director or officer of
reasonable court approved settlements, other than amounts paid to the
corporation itself, or to such other corporation served at the request of the
corporation. The foregoing right of indemnification shall not be exclusive of
other rights to which any director or officer may be entitled as a matter of
law, and shall inure to the benefit of the heirs, executors and administrators
of any such director or officer."
<PAGE> 1
Exhibit 10.35
July 26, 1994
Mr. Michael P. O'Donnell
109 Nichols Road
Cohasset, MA 02025
Dear Mr. O'Donnell:
The Board of Directors of Ground Round Restaurants, Inc. (the
"Corporation") and the Compensation Committee (the "Committee") of the Board
have determined that it is in the best interests of the Corporation and its
shareholders for the Corporation to agree, as provided herein, to pay you
compensation under the circumstances described below.
The Board and the Committee recognize that the continuing possibility
of a sale or change of control of the Corporation is unsettling to you and
other senior executives of the Corporation. Therefore, these arrangements are
being made to help assure a continuing dedication by you to your duties to the
Corporation by diminishing the inevitable distraction to you from the personal
uncertainties and risks created by a pending sale or change of control of the
Corporation. In particular, the Board and the Committee believe it important,
should the Corporation receive proposals from third parties with respect to its
future, to enable you, without being influenced by the uncertainties of your
own situation, to assess and advise the Board whether such proposals would be
in the best interests of the Corporation and its shareholders and to take such
other action regarding such proposals as the Board might determine to be
appropriate, including being available to assist in any transition should
there be a sale or change of control of the Corporation. The Board and the
Committee also wish to demonstrate to executives of the Corporation that the
Corporation is concerned with the welfare of its executives and intends to see
that loyal executives are treated fairly.
1. In view of the foregoing and in further consideration of your
continued employment with the Corporation, the Corporation will pay to you as a
bonus a lump sum amount, determined as provided below, in the event that (a)
you do not terminate your employment with the Corporation for a period of one
hundred twenty (120) days after a Change of Control of the Corporation has
occurred (your death or disability which prohibits you from performing your
duties to the Corporation for more than 60 consecutive days shall be deemed to
be a
<PAGE> 2
termination of your employment with the Corporation by you) or (b) within such
one hundred twenty (120) day period your employment with the Corporation is
terminated by the Corporation for any reason other than Cause. The lump sum
compensation so payable (hereinafter referred to as the "Lump Sum Amount")
shall be an amount equal to the product of two (2) times the sum of (a) the
higher of (i) your current annual base salary and (ii), if your base salary is
hereafter increased, your highest annual base salary from time to time
hereafter in effect plus (b) the higher of (i) your current targeted bonus
under the Corporation's incentive bonus plan and (ii), if your targeted bonus
is hereafter increased, your highest targeted bonus from time to time hereafter
in effect. The Lump Sum Amount shall be paid to you within one hundred
twenty-five (125) days after the date a Change of Control of the Corporation
has occurred (hereinafter referred to as the "Payment Date").
2. In addition:
(a) Any compensation and other amounts previously deferred by
you, together with accrued interest thereon, if any, to which you are
entitled, and any accrued vacation pay not yet paid by the Corporation,
shall be paid to you on the Payment Date.
(b) All other amounts accrued or earned by you through the
Payment Date and amounts otherwise then owing under the Corporation's
plans and policies shall be paid to you on the Payment Date, other than
benefits due to you under any qualified plan(s) of the Corporation,
which benefits shall be paid in accordance with the terms of such
plan(s).
(c) The Corporation shall pay all legal fees and expenses
incurred by you in seeking to obtain or enforce any right or benefit
provided by this Agreement, regardless of the outcome thereof.
(d) The Corporation shall maintain in full force and effect,
for the continued benefit of you and/or your family for the period
beginning on the date of the Change of Control and ending two years
after the Payment Date, all employee welfare benefit plans and any
other employee benefit programs or arrangements (including, without
limitation, medical and dental insurance plans, disability and life
insurance plans and car allowance programs) in which you were entitled
to participate immediately prior to the Change of Control, provided
that your continued participation is possible under the general terms
and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Corporation
shall arrange to provide you with benefits substantially similar to
those which you are entitled to receive under such plans and programs.
At the
<PAGE> 3
end of the period of coverage, you shall have the option to have
assigned to you at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Corporation and
relating specifically to you.
(e) All outstanding stock options and all restricted stock
which you hold shall vest immediately upon a Change of Control.
3. For purposes of this Agreement:
(a) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(b) A "Change of Control" shall be deemed to have taken place
if (i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) other than HM Holdings, Inc. ("HMH") is
or becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding securities, (ii) HMH
or any of its "affiliates" or "associates" (as such terms are used in
Rule 12b-2 promulgated under the Exchange Act), either singly or
collectively, is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation representing 50% or more
of the combined voting power of the Corporation's then outstanding
securities, (iii) the stockholders of the Corporation shall have
approved (A) a reorganization, merger or consolidation, in each case,
with respect to which persons who were stockholders of the Corporation
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50% of the combined voting
power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities, (B) a liquidation or dissolution of the Corporation, or (C)
a sale of all or substantially all of the assets of the Corporation, or
(iv) as the result of a tender offer, exchange offer, merger,
consolidation, sale of assets or contested election or any combination
of the foregoing transactions (a "Transaction"), the persons who were
directors of the Corporation immediately before the Transaction shall
cease to constitute a majority of the Board of Directors of the
Corporation or of any parent of or successor to the Corporation
immediately after the Transaction occurs.
-3-
<PAGE> 4
(c) "Cause" means (i) an act or acts of personal dishonesty on
your part intended to result in substantial personal enrichment at the
expense of the Corporation, or (ii) your conviction for a felony.
4.(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Corporation to you or for your benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible by the Corporation for Federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the aggregate present value of amounts payable or
distributable to you or for your benefit pursuant to this Agreement (such
payments or distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value which maximizes
the aggregate present value of Agreement Payments without causing any Payment
to be nondeductible by the Corporation because of Section 280G of the Code.
For purposes of this Section 4, present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall
be made by Ernst & Young (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Corporation and you within 15 business days
of the date your employment with the Corporation terminates, or such earlier
time as is requested by the Corporation, and an opinion to you that you have
substantial authority not to report any Excise Tax on your federal income tax
return with respect to the Agreement Payments. Any such determination by the
Accounting Firm shall be binding upon the Corporation and you. You shall
determine which and how much of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
you do not make such determination within ten business days of the receipt of
the calculations made by the Accounting Firm, the Corporation shall elect which
and how much of the Agreement Payments shall be eliminated or reduced
consistent with the requirements of this Section 4 and shall notify you
promptly of such election. Within five business days thereafter, the
Corporation shall pay to or distribute to you or for your benefit such amounts
as are then due to you under this Agreement. For purposes of this Section 4,
"Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code or
any interest or penalties with respect to such excise tax.
(c) As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by the Accounting Firm
hereunder,
-4-
<PAGE> 5
it is possible that Agreement Payments will have been made by the Corporation
which should not have been made ("Overpayment") or that additional Agreement
Payments which will not have been made by the Corporation could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against you which the
Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Corporation to you or for your benefit shall be treated for all purposes as a
loan ab initio to you which you shall repay to the Corporation together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed to have been
made and no amount shall be payable by you to the Corporation if and to the
extent such deemed loan and payment would not either reduce the amount on
which you are subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Corporation to you or for your benefit together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
5. You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by you as the result of employment by another employer
after the Payment Date, or otherwise. The Corporation's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which it may have against
you or others.
6. Anything in this Agreement to the contrary notwithstanding, if your
employment with the Corporation is terminated prior to the date on which a
Change of Control occurs, and it is reasonably demonstrated by you that such
termination (a) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (b) otherwise arose in
connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement, a Change of Control shall be deemed to have
occurred the date immediately prior to the date of such termination.
7. This Agreement shall be binding upon and inure to the benefit of
you, your estate and the Corporation and any successor or assign of the
Corporation, but
5
<PAGE> 6
neither this Agreement nor any rights arising hereunder may be assigned or
pledged by you.
8. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (all notices
to the Corporation to be directed to the attention of the Chief Financial
Officer of the Corporation with a copy to the Secretary of the Corporation) or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by you and such officer as may be specifically designed by
the Board of Directors of the Corporation (which shall in any event include the
Corporation's Chief Financial Officer). No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the time or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws.
10. The Corporation will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
11. Nothing in this Agreement shall prevent or limit your continuing
or future participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation and for which you may qualify. Amounts
which are vested benefits or which you are otherwise entitled to receive under
any plan or program of the Corporation at or subsequent to any Change of
Control shall be payable in
-6-
<PAGE> 7
accordance with such plan or program. Any payments or other benefits to which
you may be entitled under this Agreement shall be in addition to any payments
or other benefits to which you may be entitled under any employment contract
you may have with the Corporation.
12. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If you are in agreement with the foregoing, please so indicate by
signing and returning to the Corporation the enclosed copy of this letter,
whereupon this letter shall constitute a binding agreement under seal between
you and the Corporation.
Very truly yours,
GROUND ROUND RESTAURANTS, INC.
By /s/ Michael R. Jorgensen
---------------------------
Michael R. Jorgensen
Agreed:
/s/ Michael P. O'Donnell
- - ------------------------
Michael P. O'Donnell
-7-
<PAGE> 1
Exhibit 10.36
July 26, 1994
Peter J. Beaudrault
10 Marian Circle
Chalfont, PA 18914
Dear Mr. Beaudrault:
The Board of Directors of Ground Round Restaurants, Inc. (the
"Corporation") and the Compensation Committee (the "Committee") of the Board
have determined that it is in the best interests of the Corporation and its
shareholders for the Corporation to agree, as provided herein, to pay you
compensation, including termination compensation in the event you should leave
the employ of the Corporation under the circumstances described below.
The Board and the Committee recognize that the continuing possibility
of a sale or change of control of the Corporation is unsettling to you and
other senior executives of the Corporation. Therefore, these arrangements are
being made to help assure a continuing dedication by you to your duties to the
Corporation by diminishing the inevitable distraction to you from the personal
uncertainties and risks created by a pending sale or change of control of the
Corporation. In particular, the Board and the Committee believe it important,
should the Corporation receive proposals from third parties with respect to its
future, to enable you, without being influenced by the uncertainties of your
own situation, to assess and advise the Board whether such proposals would be
in the best interests of the Corporation and its shareholders and to take such
other action regarding such proposals as the Board might determine to be
appropriate, including being available to assist in any transition should there
be a sale or change of control of the Corporation. The Board and the Committee
also wish to demonstrate to executives of the Corporation that the Corporation
is concerned with the welfare of its executives and intends to see that loyal
executives are treated fairly.
1 . In view of the foregoing and in further consideration of your
continued employment with the Corporation, the Corporation will pay to you as a
bonus (hereinafter referred to as the "Bonus") a lump sum amount, determined as
provided below, in the event that (a) within one hundred twenty (120) days
after a Change of Control of the Corporation has occurred (hereinafter referred
to as the "Stay Period") you terminate your employment with the Company and
such termination constitutes Good Reason within the meaning of Section 3(d)(ii)
or
<PAGE> 2
Section 3(d)(iii) of this Agreement, (b) during the Stay Period your employment
with the Corporation is terminated by the Corporation for any reason other than
Cause, or (c) upon expiration of the Stay Period you have not terminated your
employment with the Corporation (other than for on a basis which constitutes
Good Reason within the meaning of Section 3(d)(ii) or Section 3(d)(iii) of
this Agreement). The Bonus shall be equal to one-half of your current annual
base salary or, if your base salary is hereafter increased, one-half of your
highest annual base salary from time to time in effect, and shall be paid to
you within five days after the expiration of the Stay Period (hereinafter
referred to as the "Payment Date")
In further view of the foregoing and in further consideration of your
continued employment with the Corporation, the Corporation will pay to you as
termination compensation (in addition to any Bonus to which you may be
entitled), a lump sum amount, determined as provided below, in the event that
(a) within twenty-four months after a Change of Control of the Corporation has
occurred, you terminate your employment with the Corporation for Good Reason
within ninety (90) days after the event which constitutes Good Reason or (b)
within such twenty-four month period your employment with the Corporation is
terminated by the Corporation for any reason other than Cause. The lump sum
compensation so payable (hereinafter referred to as the "Severance Payment")
shall be an amount equal to the product of two (2) times the sum of (a) the
higher of (i) your current annual base salary and (ii), if your base salary is
hereafter increased, your highest annual base salary from time to time
hereafter in effect plus (b) the higher of (i) your current targeted bonus
under the Corporation's incentive bonus plan and (ii), if your targeted bonus
is hereafter increased, your highest targeted bonus from time to time hereafter
in effect. The Severance Payment shall be paid to you within five days after
the date of termination of your employment (hereinafter referred to as the
"Termination Date").
For the purposes of this Section 1, your death or disability which
prohibits you from performing your duties to the Corporation for more than 60
consecutive days shall be deemed a termination of your employment with the
Corporation.
2 . In addition:
(a) Any compensation and other amounts previously deferred by
you, together with accrued interest thereon, if any, to which you are
entitled, and any accrued vacation pay not yet paid by the Corporation,
shall be paid to you on the Payment Date.
(b) All other amounts accrued or earned by you through the
Payment Date and amounts otherwise then owing under the Corporation's
plans and policies shall be paid to you on the Payment Date, other than
benefits due to you under any qualified plan(s) of the Corporation,
which benefits shall be paid in accordance with the terms of such
plan(s).
<PAGE> 3
(c) The Corporation shall pay all legal fees and expenses
incurred by you in seeking to obtain or enforce any right or benefit
provided by this Agreement, regardless of the outcome thereof.
(d) The Corporation shall maintain in full force and effect,
for the continued benefit of you and/or your family for two years after
the Termination Date, all employee welfare benefit plans and any other
employee benefit programs or arrangements (including, without
limitation, medical and dental insurance plans, disability and life
insurance plans and car allowance programs) in which you were entitled
to participate immediately prior to the Change of Control, provided
that your continued participation is possible under the general terms
and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Corporation
shall arrange to provide you with benefits substantially similar to
those which you are entitled to receive under such plans and programs.
At the end of the period of coverage, you shall have the option to have
assigned to you at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Corporation and
relating specifically to you.
(e) All outstanding stock options which you hold shall vest
immediately upon a Change of Control.
3 . For purposes of this Agreement:
(a) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(b) A "Change of Control" shall be deemed to have taken place
if (i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) other than HM Holdings, Inc. ("HMH") is
or becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding securities, (ii) HMH
or any of its "affiliates" or "associates" (as such terms are used in
Rule 12b-2 promulgated under the Exchange Act), either singly or
collectively, is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation representing 50% or more
of the combined voting power of the Corporation's then outstanding
securities, (iii) the stockholders of the Corporation shall have
approved (A) a reorganization, merger or consolidation, in each case,
with respect to which persons who were stockholders of the Corporation
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50% of the combined voting
power
-3-
<PAGE> 4
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities, (B) a liquidation or dissolution of the Corporation, or (C)
a sale of all or substantially all of the assets of the Corporation,
or (iv) as the result of a tender offer, exchange offer, merger,
consolidation, sale of assets or contested election or any combination
of the foregoing transactions (a "Transaction"), the persons who were
directors of the Corporation immediately before the Transaction shall
cease to constitute a majority of the Board of Directors of the
Corporation or of any parent of or successor to the Corporation
immediately after the Transaction occurs.
(c) "Cause" means (i) an act or acts of personal dishonesty on
your part intended to result in substantial personal enrichment at the
expense of the Corporation, or (ii) your conviction for a felony.
(d) "Good Reason" means:
(i) The assignment to you of any duties inconsistent in any
respect with your position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as in
effect on the date of the Change of Control, or any other action by
the Corporation which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Corporation promptly after
receipt of notice from you;
(ii) Any reduction of your base salary or the failure by the
Corporation to provide you with an incentive compensation program,
welfare benefits, retirement benefits and other benefits which in
the aggregate are no less favorable than the benefits to which you
were entitled prior to the Change of Control;
(iii) The Corporation's requiring you to be based at any office
or location more than fifty miles from the location at which you are
employed on the date of the Change of Control, except for travel
reasonably required in the performance of your responsibilities, or
the Corporation's requiring you to move your principal residence
more than fifty miles from the location of your principal residence
on the date of the Change of Control; or
-4-
<PAGE> 5
(iv) Any action taken or suffered by the Corporation as of or
following the Change of Control (such as, without limitation,
transfer or encumbrance of assets or incurring of indebtedness)
which materially impairs the ability of the Corporation to make any
payments due or which may become due to you under this Agreement.
For purposes of this Agreement, any good faith determination of "Good
Reason" made by you shall be conclusive.
4.(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Corporation to you or for your benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible by the Corporation for Federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the aggregate present value of amounts payable or
distributable to you or for your benefit pursuant to this Agreement (such
payments or distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value which maximizes
the aggregate present value of Agreement Payments without causing any Payment
to be nondeductible by the Corporation because of Section 280G of the Code. For
purposes of this Section 4, present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 4 shall
be made by Ernst & Young (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Corporation and you within 15 business days
of the date your employment with the Corporation terminates, or such earlier
time as is requested by the Corporation, and an opinion to you that you have
substantial authority not to report any Excise Tax on your federal income tax
return with respect to the Agreement Payments. Any such determination by the
Accounting Firm shall be binding upon the Corporation and you. You shall
determine which and how much of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4, provided that, if
you do not make such determination within ten business days of the receipt of
the calculations made by the Accounting Firm, the Corporation shall elect which
and how much of the Agreement Payments shall be eliminated or reduced
consistent with the requirements of this Section 4 and shall notify you
promptly of such election. Within five business days thereafter, the
Corporation shall pay to or distribute to you or for your benefit such amounts
as are then due to you under this Agreement. For purposes of this Section 4,
"Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code or
any interest or penalties with respect to such excise tax.
-5-
<PAGE> 6
(c) As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Corporation which should not have been made ("Overpayment") or that additional
Agreement Payments which will not have been made by the Corporation could have
been made ("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Accounting Firm, based
upon the assertion of a deficiency by the Internal Revenue Service against you
which the Accounting Firm believes has a high probability of success determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Corporation to you or for your benefit shall be treated for all purposes as
a loan ab initio to you which you shall repay to the Corporation together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed to have been
made and no amount shall be payable by you to the Corporation if and to the
extent such deemed loan and payment would not either reduce the amount on which
you are subject to tax under Section 1 and Section 4999 of the Code or generate
a refund of such taxes. In the event that the Accounting Firm, based upon
controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Corporation to you or for your benefit together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
5. You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by you as the result of employment by another employer
after the Termination Date, or otherwise. The Corporation's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which it may have against
you or others.
6. Anything in this Agreement to the contrary notwithstanding, if your
employment with the Corporation is terminated prior to the date on which a
Change of Control occurs, and it is reasonably demonstrated by you that such
termination (a) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (b) otherwise arose in
connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement, a Change of Control shall be deemed to have
occurred the date immediately prior to the date of such termination.
7. This Agreement shall be binding upon and inure to the benefit of
you, your estate and the Corporation and any successor or assign of the
Corporation, but
-6-
<PAGE> 7
neither this Agreement nor any rights arising hereunder may be assigned or
pledged by you.
8. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (all notices
to the Corporation to be directed to the attention of the President of the
Corporation with a copy to the Secretary of the Corporation) or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be
effective only upon receipt. The failure by you to set forth in any notice of
termination of employment any fact or circumstances which contributes to a
showing of Good Reason shall not waive any of your rights hereunder or preclude
you from asserting such fact or circumstance in enforcing your rights
hereunder.
9. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by you and such officer as may be specifically designed by the
Board of Directors of the Corporation (which shall in any event include the
Corporation's President). No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the time or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts without
regard to principles of conflicts of laws.
10. The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
11. Nothing in this Agreement shall prevent or limit your continuing
or future participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation and for which you may qualify. Amounts
which are vested benefits or which you are otherwise entitled to receive under
any plan or program
-7-
<PAGE> 8
of the Corporation at or subsequent to any Change of Control shall be payable
in accordance with such plan or program.
12. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If you are in agreement with the foregoing, please so indicate by
signing and returning to the Corporation the enclosed copy of this letter,
whereupon this letter shall constitute a binding agreement under seal between
you and the Corporation.
Very truly yours,
GROUND ROUND RESTAURANTS, INC.
By /s/ Michael P. O'Donnell
---------------------------
Michael P. O'Donnell
Agreed:
/s/ Peter J. Beaudrault
- - -----------------------
Peter J. Beaudrault
-8-
<PAGE> 1
Exhibit 10.37
July 26, 1994
Michael R. Jorgensen
1906 Hockley Drive
Hingham, MA 02043
Dear Mr. Jorgensen:
The Board of Directors of Ground Round Restaurants, Inc. (the
"Corporation") and the Compensation Committee (the "Committee") of the Board
have determined that it is in the best interests of the Corporation and its
shareholders for the Corporation to agree, as provided herein, to pay you
compensation, including termination compensation in the event you should leave
the employ of the Corporation under the circumstances described below.
The Board and the Committee recognize that the continuing possibility
of a sale or change of control of the Corporation is unsettling to you and
other senior executives of the Corporation. Therefore, these arrangements are
being made to help assure a continuing dedication by you to your duties to the
Corporation by diminishing the inevitable distraction to you from the personal
uncertainties and risks created by a pending sale or change of control of the
Corporation. In particular, the Board and the Committee believe it important,
should the Corporation receive proposals from third parties with respect to its
future, to enable you, without being influenced by the uncertainties of your
own situation, to assess and advise the Board whether such proposals would be
in the best interests of the Corporation and its shareholders and to take such
other action regarding such proposals as the Board might determine to be
appropriate, including being available to assist in any transition should there
be a sale or change of control of the Corporation. The Board and the Committee
also wish to demonstrate to executives of the Corporation that the Corporation
is concerned with the welfare of its executives and intends to see that loyal
executives are treated fairly.
1. In view of the foregoing and in further consideration of your
continued employment with the Corporation, the Corporation will pay to you as a
bonus (hereinafter referred to as the "Bonus") a lump sum amount, determined as
provided below, in the event that (a) within one hundred twenty (120) days
after a Change of Control of the Corporation has occurred (hereinafter referred
to as the "Stay Period") you terminate your employment with the Company and
such termination constitutes Good Reason within the meaning of Section 3(d)(ii)
or
<PAGE> 2
Section 3(d)(iii) of this Agreement, (b) during the Stay Period your employment
with the Corporation is terminated by the Corporation for any reason other than
Cause, or (c) upon expiration of the Stay Period you have not terminated your
employment with the Corporation (other than for on a basis which constitutes
Good Reason within the meaning of Section 3(d)(ii) or Section 3(d)(iii) of this
Agreement). The Bonus shall be equal to one-half of your current annual base
salary or, if your base salary is hereafter increased, one-half of your highest
annual base salary from time to time in effect, and shall be paid to you within
five days after the expiration of the Stay Period (hereinafter referred to as
the "Payment Date")
In further view of the foregoing and in further consideration of your
continued employment with the Corporation, the Corporation will pay to you as
termination compensation (in addition to any Bonus to which you may be
entitled), a lump sum amount, determined as provided below, in the event that
(a) within twenty-four months after a Change of Control of the Corporation has
occurred, you terminate your employment with the Corporation for Good Reason
within ninety (90) days after the event which constitutes Good Reason or (b)
within such twenty-four month period your employment with the Corporation is
terminated by the Corporation for any reason other than Cause. The lump sum
compensation so payable (hereinafter referred to as the "Severance Payment")
shall be an amount equal to the product of two (2) times the sum of (a) the
higher of (i) your current annual base salary and (ii), if your base salary is
hereafter increased, your highest annual base salary from time to time
hereafter in effect plus (b) the higher of (i) your current targeted bonus
under the Corporation's incentive bonus plan and (ii), if your targeted bonus
is hereafter increased, your highest targeted bonus from time to time hereafter
in effect. The Severance Payment shall be paid to you within five days after
the date of termination of your employment (hereinafter referred to as the
"Termination Date").
For the purposes of this Section 1, your death or disability which
prohibits you from performing your duties to the Corporation for more than 60
consecutive days shall be deemed a termination of your employment with the
Corporation.
2. In addition:
(a) Any compensation and other amounts previously deferred by
you, together with accrued interest thereon, if any, to which you are
entitled, and any accrued vacation pay not yet paid by the Corporation,
shall be paid to you on the Payment Date.
(b) All other amounts accrued or earned by you through the
Payment Date and amounts otherwise then owing under the Corporation's
plans and policies shall be paid to you on the Payment Date, other than
benefits due to you under any qualified plan(s) of the Corporation,
which benefits shall be paid in accordance with the terms of such
plan(s).
<PAGE> 3
(c) The Corporation shall pay all legal fees and expenses
incurred by you in seeking to obtain or enforce any right or benefit
provided by this Agreement, regardless of the outcome thereof.
(d) The Corporation shall maintain in full force and effect,
for the continued benefit of you and/or your family for two years after
the Termination Date, all employee welfare benefit plans and any other
employee benefit programs or arrangements (including, without
limitation, medical and dental insurance plans, disability and life
insurance plans and car allowance programs) in which you were entitled
to participate immediately prior to the Change of Control, provided
that your continued participation is possible under the general terms
and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Corporation
shall arrange to provide you with benefits substantially similar to
those which you are entitled to receive under such plans and programs.
At the end of the period of coverage, you shall have the option to have
assigned to you at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Corporation and
relating specifically to you.
(e) All outstanding stock options which you hold shall vest
immediately upon a Change of Control.
3. For purposes of this Agreement:
(a) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(b) A "Change of Control" shall be deemed to have taken place
if (i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) other than HM Holdings, Inc. ("HMH") is
or becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding securities, (ii) HMH
or any of its "affiliates" or "associates" (as such terms are used in
Rule 12b-2 promulgated under the Exchange Act), either singly or
collectively, is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation representing 50% or more
of the combined voting power of the Corporation's then outstanding
securities, (iii) the stockholders of the Corporation shall have
approved (A) a reorganization, merger or consolidation, in each case,
with respect to which persons who were stockholders of the Corporation
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50% of the combined voting
power
-3-
<PAGE> 4
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities, (B) a liquidation or dissolution of the Corporation, or (C)
a sale of all or substantially all of the assets of the Corporation, or
(iv) as the result of a tender offer, exchange offer, merger,
consolidation, sale of assets or contested election or any combination
of the foregoing transactions (a "Transaction"), the persons who
were directors of the Corporation immediately before the Transaction
shall cease to constitute a majority of the Board of Directors of the
Corporation or of any parent of or successor to the Corporation
immediately after the Transaction occurs.
(c) "Cause" means (i) an act or acts of personal dishonesty on
your part intended to result in substantial personal enrichment at the
expense of the Corporation, or (ii) your conviction for a felony.
(d) "Good Reason" means:
(i) The assignment to you of any duties inconsistent in any
respect with your position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
in effect on the date of the Change of Control, or any other action
by the Corporation which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Corporation promptly after
receipt of notice from you;
(ii) Any reduction of your base salary or the failure by the
Corporation to provide you with an incentive compensation program,
welfare benefits, retirement benefits and other benefits which in
the aggregate are no less favorable than the benefits to which you
were entitled prior to the Change of Control;
(iii) The Corporation's requiring you to be based at any
office or location more than fifty miles from the location at
which you are employed on the date of the Change of Control,
except for travel reasonably required in the performance
of your responsibilities, or the Corporation's requiring you to
move your principal residence more than fifty miles from the
location of your principal residence on the date of the Change
of Control; or
-4-
<PAGE> 5
(iv) Any action taken or suffered by the Corporation as of or
following the Change of Control (such as, without limitation,
transfer or encumbrance of assets or incurring of indebtedness)
which materially impairs the ability of the Corporation to make any
payments due or which may become due to you under this Agreement.
For purposes of this Agreement, any good faith determination of "Good
Reason" made by you shall be conclusive.
4.(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Corporation to you or for your benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible by the Corporation for Federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the aggregate present value of amounts payable or
distributable to you or for your benefit pursuant to this Agreement (such
payments or distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value which maximizes
the aggregate present value of Agreement Payments without causing any Payment
to be nondeductible by the Corporation because of Section 280G of the Code.
For purposes of this Section 4, present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 4
shall be made by Ernst & Young (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Corporation and you within 15
business days of the date your employment with the Corporation terminates, or
such earlier time as is requested by the Corporation, and an opinion to you
that you have substantial authority not to report any Excise Tax on your
federal income tax return with respect to the Agreement Payments. Any such
determination by the Accounting Firm shall be binding upon the Corporation and
you. You shall determine which and how much of the Agreement Payments shall be
eliminated or reduced consistent with the requirements of this Section 4,
provided that, if you do not make such determination within ten business days
of the receipt of the calculations made by the Accounting Firm, the Corporation
shall elect which and how much of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify you
promptly of such election. Within five business days thereafter, the
Corporation shall pay to or distribute to you or for your benefit such amounts
as are then due to you under this Agreement. For purposes of this Section 4,
"Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code or
any interest or penalties with respect to such excise tax.
-5-
<PAGE> 6
(c) As a result of the uncertainty in the application of Section
280G of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Agreement Payments will have been made by
the Corporation which should not have been made ("Overpayment") or that
additional Agreement Payments which will not have been made by the Corporation
could have been made ("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the event that the Accounting
Firm, based upon the assertion of a deficiency by the Internal Revenue Service
against you which the Accounting Firm believes has a high probability of
success determines that an Overpayment has been made, any such Overpayment paid
or distributed by the Corporation to you or for your benefit shall be treated
for all purposes as a loan ab initio to you which you shall repay to the
Corporation together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall
be deemed to have been made and no amount shall be payable by you to the
Corporation if and to the extent such deemed loan and payment would not either
reduce the amount on which you are subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that the
Accounting Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Corporation to you or for your benefit together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.
5 . You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by you as the result of employment by another employer
after the Termination Date, or otherwise. The Corporation's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which it may have against
you or others.
6 . Anything in this Agreement to the contrary notwithstanding, if your
employment with the Corporation is terminated prior to the date on which a
Change of Control occurs, and it is reasonably demonstrated by you that such
termination (a) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (b) otherwise arose in
connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement, a Change of Control shall be deemed to have
occurred the date immediately prior to the date of such termination.
7 . This Agreement shall be binding upon and inure to the benefit of
you, your estate and the Corporation and any successor or assign of the
Corporation, but
-6-
<PAGE> 7
neither this Agreement nor any rights arising hereunder may be assigned or
pledged by you.
8. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (all notices
to the Corporation to be directed to the attention of the President of the
Corporation with a copy to the Secretary of the Corporation) or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be
effective only upon receipt. The failure by you to set forth in any notice of
termination of employment any fact or circumstances which contributes to a
showing of Good Reason shall not waive any of your rights hereunder or preclude
you from asserting such fact or circumstance in enforcing your rights
hereunder.
9. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by you and such officer as may be specifically designed by the
Board of Directors of the Corporation (which shall in any event include the
Corporation's President). No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the time or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts without
regard to principles of conflicts of laws.
10. The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
11. Nothing in this Agreement shall prevent or limit your continuing or
future participation in any benefit, bonus, incentive or other plan or program
provided by the Corporation and for which you may qualify. Amounts which are
vested benefits or which you are otherwise entitled to receive under any plan
or program
-7-
<PAGE> 8
of the Corporation at or subsequent to any Change of Control shall be payable in
accordance with such plan or program.
12. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If you are in agreement with the foregoing, please so indicate by
signing and returning to the Corporation the enclosed copy of this letter,
whereupon this letter shall constitute a binding agreement under seal between
you and the Corporation.
Very truly yours,
GROUND ROUND RESTAURANTS, INC.
By /s/ Michael P. O'Donnell
---------------------------
Michael P. O'Donnell
Agreed:
/s/ Michael R. Jorgensen
- - ------------------------
Michael R. Jorgensen
-8-
<PAGE> 1
Exhibit 10.38
July 26, 1994
William C. Schoener
15680 Laura Lane
Brookfield, Wisconsin 53005
Dear Mr. Schoener:
The Board of Directors of Ground Round Restaurants, Inc. (the
"Corporation") and the Compensation Committee (the "Committee") of the Board
have determined that it is in the best interests of the Corporation and its
shareholders for the Corporation to agree, as provided herein, to pay you
compensation, including termination compensation in the event you should leave
the employ of the Corporation under the circumstances described below.
The Board and the Committee recognize that the continuing possibility
of a sale or change of control of the Corporation is unsettling to you and
other senior executives of the Corporation. Therefore, these arrangements are
being made to help assure a continuing dedication by you to your duties to the
Corporation by diminishing the inevitable distraction to you from the personal
uncertainties and risks created by a pending sale or change of control of the
Corporation. In particular, the Board and the Committee believe it important,
should the Corporation receive proposals from third parties with respect to its
future, to enable you, without being influenced by the uncertainties of your
own situation, to assess and advise the Board whether such proposals would be
in the best interests of the Corporation and its shareholders and to take such
other action regarding such proposals as the Board might determine to be
appropriate, including being available to assist in any transition should there
be a sale or change of control of the Corporation. The Board and the Committee
also wish to demonstrate to executives of the Corporation that the Corporation
is concerned with the welfare of its executives and intends to see that loyal
executives are treated fairly.
1. In view of the foregoing and in further consideration of your
continued employment with the Corporation, the Corporation will pay to you as a
bonus (hereinafter referred to as the "Bonus") a lump sum amount, determined as
provided below, in the event that (a) within one hundred twenty (120) days
after a Change of Control of the Corporation has occurred (hereinafter referred
to as the "Stay Period") you terminate your employment with the Company and
such termination constitutes Good Reason within the meaning of Section 3(d)(ii)
or
<PAGE> 2
Section 3(d)(iii) of this Agreement, (b) during the Stay Period your employment
with the Corporation is terminated by the Corporation for any reason other than
Cause, or (c) upon expiration of the Stay Period you have not terminated your
employment with the Corporation (other than for on a basis which constitutes
Good Reason within the meaning of Section 3(d)(ii) or Section 3(d)(iii) of this
Agreement). The Bonus shall be equal to one-half of your current annual base
salary or, if your base salary is hereafter increased, one-half of your highest
annual base salary from time to time in effect, and shall be paid to you within
five days after the expiration of the Stay Period (hereinafter referred to as
the "Payment Date")
In further view of the foregoing and in further consideration of your
continued employment with the Corporation, the Corporation will pay to you as
termination compensation (in addition to any Bonus to which you may be
entitled), a lump sum amount, determined as provided below, in the event that
(a) within twenty-four months after a Change of Control of the Corporation has
occurred, you terminate your employment with the Corporation for Good Reason
within ninety (90) days after the event which constitutes Good Reason or (b)
within such twenty-four month period your employment with the Corporation is
terminated by the Corporation for any reason other than Cause. The lump sum
compensation so payable (hereinafter referred to as the "Severance Payment")
shall be an amount equal to the product of two (2) times the sum of (a) the
higher of (i) your current annual base salary and (ii), if your base salary is
hereafter increased, your highest annual base salary from time to time
hereafter in effect plus (b) the higher of (i) your current targeted bonus
under the Corporation's incentive bonus plan and (ii), if your targeted bonus
is hereafter increased, your highest targeted bonus from time to time hereafter
in effect. The Severance Payment shall be paid to you within five days after
the date of termination of your employment (hereinafter referred to as the
"Termination Date").
For the purposes of this Section 1, your death or disability which
prohibits you from performing your duties to the Corporation for more than 60
consecutive days shall be deemed a termination of your employment with the
Corporation.
2. In addition:
(a) Any compensation and other amounts previously deferred by
you, together with accrued interest thereon, if any, to which you are
entitled, and any accrued vacation pay not yet paid by the Corporation,
shall be paid to you on the Payment Date.
(b) All other amounts accrued or earned by you through the
Payment Date and amounts otherwise then owing under the Corporation's
plans and policies shall be paid to you on the Payment Date, other than
benefits due to you under any qualified plan(s) of the Corporation,
which benefits shall be paid in accordance with the terms of such
plan(s).
<PAGE> 3
(c) The Corporation shall pay all legal fees and expenses
incurred by you in seeking to obtain or enforce any right or benefit
provided by this Agreement, regardless of the outcome thereof.
(d) The Corporation shall maintain in full force and effect,
for the continued benefit of you and/or your family for two years after
the Termination Date, all employee welfare benefit plans and any other
employee benefit programs or arrangements (including, without
limitation, medical and dental insurance plans, disability and life
insurance plans and car allowance programs) in which you were entitled
to participate immediately prior to the Change of Control, provided
that your continued participation is possible under the general terms
and provisions of such plans and programs. In the event that your
participation in any such plan or program is barred, the Corporation
shall arrange to provide you with benefits substantially similar to
those which you are entitled to receive under such plans and programs.
At the end of the period of coverage, you shall have the option to have
assigned to you at no cost and with no apportionment of prepaid
premiums, any assignable insurance policy owned by the Corporation and
relating specifically to you.
(e) All outstanding stock options which you hold shall vest
immediately upon a Change of Control.
3. For purposes of this Agreement:
(a) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(b) A "Change of Control" shall be deemed to have taken place
if (i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) other than HM Holdings, Inc. ("HMH") is
or becomes the beneficial owner (within the meaning of Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 25% or more of the combined
voting power of the Corporation's then outstanding securities, (ii) HMH
or any of its "affiliates" or "associates" (as such terms are used in
Rule 12b-2 promulgated under the Exchange Act), either singly or
collectively, is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation representing 50% or more
of the combined voting power of the Corporation's then outstanding
securities, (iii) the stockholders of the Corporation shall have
approved (A) a reorganization, merger or consolidation, in each case,
with respect to which persons who were stockholders of the Corporation
immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 50% of the combined voting
power
-3-
<PAGE> 4
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities, (B) a liquidation or dissolution of the Corporation, or (C)
a sale of all or substantially all of the assets of the Corporation, or
(iv) as the result of a tender offer, exchange offer, merger,
consolidation, sale of assets or contested election or any combination
of the foregoing transactions (a "Transaction"), the persons who were
directors of the Corporation immediately before the Transaction shall
cease to constitute a majority of the Board of Directors of the
Corporation or of any parent of or successor to the Corporation
immediately after the Transaction occurs.
(c) "Cause" means (i) an act or acts of personal dishonesty on
your part intended to result in substantial personal enrichment at the
expense of the Corporation, or (ii) your conviction for a felony.
(d) "Good Reason" means:
(i) The assignment to you of any duties inconsistent in any
respect with your position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as in
effect on the date of the Change of Control, or any other action by
the Corporation which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Corporation promptly after
receipt of notice from you;
(ii) Any reduction of your base salary or the failure by the
Corporation to provide you with an incentive compensation program,
welfare benefits, retirement benefits and other benefits which in
the aggregate are no less favorable than the benefits to which you
were entitled prior to the Change of Control;
(iii) The Corporation's requiring you to be based at any office
or location more than fifty miles from the location at which you are
employed on the date of the Change of Control, except for travel
reasonably required in the performance of your responsibilities, or
the Corporation's requiring you to move your principal residence
more than fifty miles from the location of your principal residence
on the date of the Change of Control; or
-4-
<PAGE> 5
(iv) Any action taken or suffered by the Corporation as of or
following the Change of Control (such as, without limitation,
transfer or encumbrance of assets or incurring of indebtedness)
which materially impairs the ability of the Corporation to make any
payments due or which may become due to you under this Agreement.
For purposes of this Agreement, any good faith determination of "Good
Reason" made by you shall be conclusive.
4.(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Corporation to you or for your benefit (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would be nondeductible by the Corporation for Federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the aggregate present value of amounts payable or
distributable to you or for your benefit pursuant to this Agreement (such
payments or distributions pursuant to this Agreement are hereinafter referred
to as "Agreement Payments") shall be reduced to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value which maximizes
the aggregate present value of Agreement Payments without causing any Payment
to be nondeductible by the Corporation because of Section 280G of the Code.
For purposes of this Section 4, present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 4
shall be made by Ernst & Young (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Corporation and you within 15
business days of the date your employment with the Corporation terminates, or
such earlier time as is requested by the Corporation, and an opinion to you
that you have substantial authority not to report any Excise Tax on your
federal income tax return with respect to the Agreement Payments. Any such
determination by the Accounting Firm shall be binding upon the Corporation and
you. You shall determine which and how much of the Agreement Payments shall be
eliminated or reduced consistent with the requirements of this Section 4,
provided that, if you do not make such determination within ten business days
of the receipt of the calculations made by the Accounting Firm, the Corporation
shall elect which and how much of the Agreement Payments shall be eliminated or
reduced consistent with the requirements of this Section 4 and shall notify you
promptly of such election. Within five business days thereafter, the
Corporation shall pay to or distribute to you or for your benefit such amounts
as are then due to you under this Agreement. For purposes of this Section 4,
"Excise Tax" shall mean the excise tax imposed by Section 4999 of the Code or
any interest or penalties with respect to such excise tax.
-5-
<PAGE> 6
(c) As a result of the uncertainty in the application of Section
280G of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Agreement Payments will have been made by
the Corporation which should not have been made ("Overpayment") or that
additional Agreement Payments which will not have been made by the Corporation
could have been made ("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the event that the Accounting
Firm, based upon the assertion of a deficiency by the Internal Revenue Service
against you which the Accounting Firm believes has a high probability of
success determines that an Overpayment has been made, any such Overpayment paid
or distributed by the Corporation to you or for your benefit shall be treated
for all purposes as a loan ab initio to you which you shall repay to the
Corporation together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall
be deemed to have been made and no amount shall be payable by you to the
Corporation if and to the extent such deemed loan and payment would not either
reduce the amount on which you are subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes. In the event that the
Accounting Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Corporation to you or for your benefit together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.
5. You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Agreement be reduced by
any compensation earned by you as the result of employment by another employer
after the Termination Date, or otherwise. The Corporation's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunderd shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which it may have against
you or others.
6. Anything in this Agreement to the contrary notwithstanding, if your
employment with the Corporation is terminated prior to the date on which a
Change of Control occurs, and it is reasonably demonstrated by you that such
termination (a) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (b) otherwise arose in
connection with or in anticipation of a Change of Control, then for all
purposes of this Agreement, a Change of Control shall be deemed to have
occurred the date immediately prior to the date of such termination.
7. This Agreement shall be binding upon and inure to the benefit of
you, your estate and the Corporation and any successor or assign of the
Corporation, but
-6-
<PAGE> 7
neither this Agreement nor any rights arising hereunder may be assigned or
pledged by you.
8. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (all notices
to the Corporation to be directed to the attention of the President of the
Corporation with a copy to the Secretary of the Corporation) or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be
effective only upon receipt. The failure by you to set forth in any notice of
termination of employment any fact or circumstances which contributes to a
showing of Good Reason shall not waive any of your rights hereunder or preclude
you from asserting such fact or circumstance in enforcing your rights
hereunder.
9. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by you and such officer as may be specifically designed by the
Board of Directors of the Corporation (which shall in any event include the
Corporation's President). No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the time or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts without
regard to principles of conflicts of laws.
10. The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
11. Nothing in this Agreement shall prevent or limit your continuing or
future participation in any benefit, bonus, incentive or other plan or program
provided by the Corporation and for which you may qualify. Amounts which are
vested benefits or which you are otherwise entitled to receive under any plan
or program
-7-
<PAGE> 8
of the Corporation at or subsequent to any Change of Control shall be payable in
accordance with such plan or program.
12. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
If you are in agreement with the foregoing, please so indicate by
signing and returning to the Corporation the enclosed copy of this letter,
whereupon this letter shall constitute a binding agreement under seal between
you and the Corporation.
Very truly yours,
GROUND ROUND RESTAURANTS, INC.
By /s/ Michael P. O'Donnell
---------------------------
Michael P. O'Donnell
Agreed:
/s/ William C. Schoener
- - -----------------------
William C. Schoener
-8-
<PAGE> 1
EXHIBIT 21
GROUND ROUND RESTAURANTS, INC.
LIST OF SUBSIDIARIES
--------------------
Ground Round Holdings, Inc.
G.R. Glendloc, Incorporated
Ground Round of Baltimore, Inc.
GRXR of Frederick, Inc.
GRXR of Bel Air, Inc.
GRXR of Hagerstown, Inc.
GRXR of Charles County, Inc.
GR of Minn., Inc.
The Ground Round, Inc.
GRH of NJ, Inc.
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-23797) pertaining to the 1982 and 1987 Stock Option Plan, and
in the Registration Statement (Form S-8, No. 33-47968) pertaining to the 1989
Stock Option Plan and 1992 Equity Incentive Plan, of our report dated November
1, 1994, with respect to the consolidated financial statements and schedules of
Ground Round Restaurants, Inc. and subsidiaries included in the Annual Report
(Form 10-K) for the year ended October 2, 1994.
ERNST & YOUNG LLP
Boston, Massachusetts
December 14, 1994
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of Ground Round Restaurants, Inc. severally
constitute and appoint each of Michael R. Jorgensen and Robin L. Moroz, and
each of them individually, their attorneys-in-fact and agent, with full power
of substitution for them in any and all capacities, to sign for them and in
their names, the Annual Report on Form 10-K of Ground Round Restaurants, Inc.
required by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, for the fiscal year ended October 2, 1994, and any amendments thereto
filed under cover of Form 8 or otherwise, and to file the same, with exhibits
and schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any other regulatory authority or body,
granting said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection with said Annual Report and any amendment thereto, as fully as they
might or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent, or his/her substitute or substitutes, may do or
cause to be done by virtue hereof.
Executed this 12th day of December, 1994.
/s/ Michael P. O'Donnell
- - ------------------------------------------
Michael P. O'Donnell
/s/ J. Eric Hanson
- - ------------------------------------------
J. Eric Hanson
/s/ Robert E. Lee
- - ------------------------------------------
Robert E. Lee
/s/ David J.P. Meachin
- - ------------------------------------------
David J.P. Meachin
/s/ Stanley J. Moss
- - ------------------------------------------
Stanley J. Moss
/s/ Thomas J. Russo
- - ------------------------------------------
Thomas J. Russo
/s/ Daniel R. Scoggin
- - ------------------------------------------
Daniel R. Scoggin
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF GROUND ROUND RESTAURANTS, INC.
FOR THE YEAR ENDED OCTOBER 2, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> OCT-02-1994
<PERIOD-START> OCT-03-1993
<PERIOD-END> OCT-02-1994
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<RECEIVABLES> 1,787
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<PP&E> 171,104
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<BONDS> 57,868
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0
0
<OTHER-SE> 63,184
<TOTAL-LIABILITY-AND-EQUITY> 156,772
<SALES> 243,971
<TOTAL-REVENUES> 243,971
<CGS> 202,819
<TOTAL-COSTS> 27,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,091
<INCOME-PRETAX> 9,186
<INCOME-TAX> 2,940
<INCOME-CONTINUING> 6,246
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