<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period ended July 2, 1995
[ ] 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)
<TABLE>
<S> <C>
New York 13-5637682
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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
Indicate by check mark whether the 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares of Common Stock, $ .16 2/3 par value outstanding as of
August 8, 1995: 11,173,421
<PAGE> 2
<TABLE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JULY 2, 1995 AND OCTOBER 2, 1994
(Dollars in thousands, except per share amounts)
<CAPTION>
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,290 $ 1,457
Receivables, net of allowances for uncollectible
accounts of $724 and $276 in 1995 and 1994, respectively 1,238 1,511
Inventories 2,608 2,577
Prepaid expenses and other current assets 2,171 2,249
-------- --------
Total current assets 7,307 7,794
Property and equipment:
Land 10,240 11,203
Buildings and leasehold improvements 120,240 120,034
Machinery and equipment 40,693 39,867
-------- --------
171,173 171,104
Accumulated depreciation and amortization 51,058 43,531
-------- --------
Property and equipment, net 120,115 127,573
Other assets 20,229 21,405
-------- --------
$147,651 $156,772
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 5,476 $ 7,107
Accrued expenses 12,648 14,900
Income taxes 201
Current portion of long-term debt and capital lease obligations 6,066 902
-------- --------
Total current liabilities 24,190 23,110
Long-term debt and capital lease obligations 51,020 57,868
Deferred income taxes 1,346 3,080
Other long-term liabilities 7,697 7,678
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 1995 and 1994; issued 11,164,000 in 1995 and
11,114,000 shares in 1994 1,861 1,852
Additional paid-in capital 57,838 57,631
Retained earnings 3,699 5,649
-------- --------
63,398 65,132
Deferred Officer Compensation (96)
-------- --------
Total stockholders' equity 63,398 65,036
-------- --------
$147,651 $156,772
======== ========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $56,145 $60,670 $175,480 $182,754
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of products sold 48,914 50,407 149,792 152,360
Selling, general and administrative 3,412 3,634 12,099 11,435
Depreciation and amortization 3,652 3,402 11,098 10,038
Interest expense, net 1,284 958 3,762 3,013
Other expense (income) (32) (77) 1,597 (978)
------- ------- -------- --------
57,230 58,324 178,348 175,868
------- ------- -------- --------
Income (loss) before taxes (1,085) 2,346 (2,868) 6,886
Income taxes (benefit) (347) 751 (918) 2,203
------- ------- -------- --------
NET INCOME (LOSS) $ (738) $ 1,595 $ (1,950) $ 4,683
======= ======= ======== ========
Weighted average common shares 11,159 11,113 11,129 11,107
outstanding
NET INCOME (LOSS) PER COMMON
SHARE $ (.07) $ .14 $ (.18) $ .42
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
<TABLE>
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 2, 1995 AND JULY 3, 1994
(Dollars in thousands)
(Unaudited)
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,950) $ 4,683
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 11,370 10,288
Deferred taxes (1,734) 559
Gain on disposition of assets (2,061)
Other 96 68
Change in operating assets and liabilities:
Accounts receivable 397 (148)
Inventories and prepaid expenses 47 3,336
Accounts payable and other liabilities (1,895) (1,458)
-------- ---------
Net cash provided by operating activities 6,331 15,267
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,259) (13,371)
Proceeds on sale of property & equipment 4,053 3,811
Purchase of liquor license (547)
Sale of liquor license 176
Deposits received (paid) 176 (111)
Pre-opening costs (386) (616)
--------- ---------
Net cash used in investing activities (5,240) (10,834)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 44,800 23,500
Payments of long-term borrowings (46,033) (26,375)
Proceeds from issuance of common stock 216 59
Payments of deferred debt costs (241) (705)
--------- ---------
Net cash used in financing activities (1,258) (3,521)
--------- ---------
Net increase (decrease) in cash (167) 912
Cash and cash equivalents at beginning of period 1,457 1,262
-------- --------
Cash and cash equivalents at end of period $ 1,290 $ 2,174
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JULY 2, 1995 AND JULY 3, 1994
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly Ground Round Restaurants,
Inc.'s (the "Company") financial position as of July 2, 1995 and the
results of operations for the 13-week and 39-week periods ended July 2,
1995 and July 3, 1994. These financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such regulations, although the Company believes the disclosures provided
are adequate to prevent the information presented from being misleading.
It is suggested that these financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended October 2, 1994 and
Form 10-Q for the quarterly period ended April 2, 1995.
Certain items in specific captions in the accompanying consolidated
financial statements have been reclassified for comparative purposes.
<TABLE>
2. COST OF PRODUCTS SOLD
Cost of products sold comprises the following:
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Food and beverage costs $18,164 $19,105 $ 55,760 $ 57,934
Labor Costs 18,586 19,158 57,601 57,734
Other Costs 12,164 12,144 36,431 36,692
------- ------- -------- --------
$48,914 $50,407 $149,792 $152,360
======= ======= ======== ========
</TABLE>
3. 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 bringing 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. Management does not expect that the
resolution of these matters will have a material adverse effect on the
consolidated financial position of the Company.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company operated 155 and franchised 47 family-oriented, full service casual
dining restaurants at July 2, 1995.
For purposes of this discussion and analysis, the 39-week periods ended July 2,
1995 and July 3, 1994 are referred to as the nine months ended 1995 and 1994,
respectively. The 13-week periods ended July 2, 1995 and July 3, 1994 are
referred to as the third quarter of 1995 and 1994, respectively.
<TABLE>
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JULY 2,
1995 AND JULY 3, 1994
The following table sets forth the percentages which the items in the Company's
Consolidated Statements of Operations bear to total revenue or restaurant
revenue, as indicated:
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Restaurant revenue 98.8% 99.1% 99.0% 99.1%
Franchise revenue 1.2 .9 1 .0 .9
----- ----- ----- -----
Total Revenue 100.0 100.0 100.0 100.0
Cost of products sold (1) 88.2 83.8 86.2 84.1
Selling, general & administrative 6.1 6.0 6.9 6.3
Depreciation and amortization 6.5 5 .6 6 .3 5.5
Interest expense, net 2.3 1 .6 2 .1 1.6
Other (income) expense (.1) ( .1) .9 (.5)
Income (loss) before taxes (1.9)% 3 .9% (1.6)% 3.8%
Income taxes (benefit) (.6) 1 .3 ( .5) 1.2
Net income (loss) (1.3)% 2 .6% (1.1)% 2.6%
<FN>
(1) As a percentage of restaurant revenue.
</TABLE>
RESTAURANT REVENUE: Restaurant revenue totaled $55.5 million for the third
quarter and $173.8 million for the nine months ended July 2, 1995, versus $50.1
million and $181.2 million for the third quarter and nine months ended July 3,
1994. Restaurant revenue is comprised of comparable restaurant revenue
(revenue generated from restaurants open during all of both fiscal years) and
non- comparable restaurant revenue (revenue generated from new locations not
yet open during more than one full fiscal year and from closed locations).
Comparable restaurant revenue decreased by 7.1% and 4.3% for the third quarter
and nine months ended
<PAGE> 7
July 2, 1995, respectively, versus the same periods in the prior year.
Non-comparable restaurant revenue decreased $.8 million in the third quarter
and decreased $ .4 million in the nine months ended July 2, 1995, respectively,
over the same periods ended July 3, 1994. Since the beginning of fiscal 1994,
the Company has sold or closed 23 restaurants and opened 12 restaurants.
FRANCHISE REVENUE: The Company's franchise base consisted of 47 restaurants in
the third quarter of 1995 and 44 restaurants in the third quarter of 1994. Net
revenue from franchise restaurants (consisting of royalties and franchise fees)
were approximately $663,000 for the third quarter and $1.7 million for the nine
months ended July 2, 1995, respectively, versus approximately $528,000 and $1.6
million for the third quarter and nine months ended July 3, 1994, respectively.
Three initial franchise fees totaling $115,000 were recognized in the third
quarter of 1995.
COST OF PRODUCTS SOLD: Cost of products sold consists of both food and
beverage costs and restaurant operating expenses. Food and beverage costs
totaled 32.7% and 32.1% of restaurant revenue in the third quarter and nine
months ended July 2, 1995, respectively, versus 31.8% and 32.0% for the third
quarter and nine months ended July 3, 1994, respectively. Restaurant operating
expenses were 55.5% and 54.1% of restaurant revenue in the third quarter and
nine months ended July 2, 1995, respectively, versus 52.0% and 52.1% for the
third quarter and nine months ended July 3, 1994.
Food and beverage costs as a percentage of restsurant revenue increased by .9%
and .1% for the third quarter and nine months ended July 2, 1995, respectively,
due to increased lettuce costs caused by flooding in California during the
third quarter of 1995.
Restaurant operating expenses as a percentage of restaurant revenue increased
3.1% and 2.0% for the third quarter and nine months ended July 2, 1995,
respectively. Labor costs as a percentage of Company-operated restaurant
revenue increased 1.6% for the third quarter and 1.2% for the nine months ended
July 2, 1995, respectively. This increase is a result of a change last year in
the Company's policy on paying accrued vacation to employees upon termination
of employment in conjunction with the decrease in sales this year which
resulted in fixed payroll costs increasing as a percentage of revenue. Other
costs have remained at relatively constant dollar levels in conjunction with
the decrease in sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were 6.1% and 6.9% of total revenue for the third
quarter and nine months ended July 2, 1995 as compared with 6.0% and 6.3% for
the same periods in 1994. Selling expenses, comprised of advertising and
development and production costs for point of purchase materials were .4% and
1.0% of total revenue in the third quarter and nine months ended July 2, 1995,
respectively, versus .7% and .6% for the third quarter and nine months ended
July 3, 1994. The first nine months of 1995 included approximately $1.7
million of radio advertising costs as compared to $1.0 million of advertising
costs for television and radio in the first nine months of 1994.
General and administrative costs, comprised of restaurant manager training
expenses, regional overhead and corporate administrative costs were 5.7% and
5.9% of total revenue in the third quarter and nine months ended July 2, 1995,
respectively, versus 5.3% and 5.7% for the same periods in 1994. General and
administrative costs for the third quarter and nine months ended July 2, 1995
have remained relatively constant in dollars spent compared to the same periods
in 1994.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses were
6.5% and 6.3% of total revenue in the third quarter and nine months ended July
2, 1995, respectively, versus 5.6% and 5.5%
<PAGE> 8
for the third quarter and nine months ended July 3, 1994. The increase is the
result of nine new restaurants opened during 1994 and two opened in 1995, as
well as 110 completed renovations as of the third quarter of 1995 as compared
to 62 completed renovations as of the third quarter of 1994. In addition, the
nine months ended July 2, 1995 reflects a one-time expense of $ .2 million for
the write-off of pre-construction costs associated with proposed new locations
that the Company chose not to pursue.
OTHER EXPENSE: The nine months ended July 2, 1995 reflects $ .8 million in
expenses related to the resignation of the Company's President, Chief Executive
Officer and Chairman of the Board, and $ .8 million in expenses related to the
termination of the Merger Agreement among Ground Round, GRR Acquisition Corp.
and GRR, Inc., which the parties entered into on August 23, 1994 and which was
terminated on January 13, 1995. Developments in the high yield financing
market prevented the completion of the financing for the acquisition. The nine
months ended July 3, 1994 reflects a pre-tax gain of $1.4 million on the sale
of one location 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.
INTEREST EXPENSE. Interest expense increased by .7% and .5% of total revenue
for the third quarter and nine months ended July 2, 1995 primarily as a result
of higher base and LIBOR interest rates. The Company's weighted average
borrowing rates were 8.1% and 7.6% for the third quarter and nine months ended
July 2, 1995, respectively, versus 5.5% and 5.3% for the same periods in 1994.
INCOME TAXES. The Company's effective income tax rate was 32% in the first
quarter and nine months ended July 2, 1995 and July 3, 1994.
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 $16.9 million and $15.3 million as of
July 2, 1995 and October 2, 1994, respectively.
Net cash provided by operating activities totaled $6.3 million in the first
nine months of 1995 as compared with $15.2 million in the first nine months of
1994. The first nine months of 1994 included $4.7 million related to the
exchange of an irrevocable letter of credit for cash casualty insurance
reserves. In addition, the Company generated $4.0 million and $3.8 million
through the sale of restaurant locations during the first nine months of 1995
and 1994, respectively. The Company incurred capital expenditures totaling
$9.3 million and $13.4 million during the first nine months of 1995 and 1994,
respectively, primarily for new restaurant construction, restaurant remodeling,
and capital maintenance. The Company adjusted its new restaurant development
goals to a total of three new restaurants during fiscal 1995, which were
constructed and are in operation as of July 2, 1995.
Pursuant to an amendment dated October 8, 1993, the Company's credit facilities
totaled $70 million, 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 and new store
development which converts to term debt on October 8, 1995. Principal payments
under these facilities begin in October 1995 and are scheduled through July
2000. As of July 2, 1995, the Company has prepaid approximately $6.3 million
of term debt. Amounts outstanding under the facilities total approximately
$53.1 million.
<PAGE> 9
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.
On May 10, 1995 the Company and its banks amended the financial covenants
related to fixed charges coverage and the ratio of funded debt to free
operating cash flow to be less restrictive, and eliminated the interest charges
coverage covenant to accommodate the effects of the Company's second quarter
results. In addition, the Company permanently reduced the revolving commitment
to $11.4 million until October 8, 1995, at which time up to $4.7 million
outstanding under the revolving commitment will be converted to term debt and
the revolving facility is reduced to $6.7 million, of which $4.7 million is
available for letters of credit and $2.0 million is available for advances.
The revolving facility terminates on January 15, 1999. Finally, the Company
has agreed to enter into no new restaurant commitments until the fixed charge
coverage ratio exceeds 2.50 to 1 for two consecutive quarters.
In connection with its third fiscal quarter results, the Company requested and
obtained a waiver from its banks with respect to technical defaults under the
funded debt to free operating cash flow covenant and net worth covenant.
Continuing adverse operating results may cause non-compliance in the future.
The Company expects to incur approximately $10.2 million in capital
expenditures during fiscal 1995. Management believes that existing cash and
cash flow from operations will be sufficient to meet operating needs for
anticipated capital expenditures, and to service debt requirements during
fiscal 1995.
<PAGE> 10
PART II. OTHER INFORMATION
<TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<CAPTION>
(a) Exhibits Title
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<S> <C> <C>
10.41 Employment Agreement, dated as of
July 21, 1995, between the Company
and Daniel R. Scoggin.
(b) No reports on Form 8-K were filed during the third quarter of
fiscal 1995.
</TABLE>
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROUND ROUND RESTAURANTS, INC.
Date: August 15, 1995 By: /s/ Michael R. Jorgensen
-------------------------------------
Senior Vice President, Chief Financial
Officer and Treasurer duly
authorized
<PAGE> 1
Exhibit 10.41
EMPLOYMENT AGREEMENT
This is an agreement (the "Agreement") between Ground Round Restaurants,
Inc. (the "Company" or "Ground Round") a New York corporation with its
principal place of business at 35 Braintree Hill Office Park, Braintree,
Massachusetts and Daniel R. Scoggin (the "Employee"), with a business address
of 35 Braintree Hill Office Park, Braintree, Massachusetts, effective as of
July 21, 1995 (the "Effective Date").
In consideration of the promises and mutual covenants contained herein, the
parties agree as follows:
1. Employment.
-----------
From and after the Effective Date, for and during the term, and subject to
the further conditions of this Agreement, Employee shall be employed in the
capacity of Chairman, President and Chief Executive Officer of Company and
its affiliates and subsidiaries and perform all duties that may reasonably
be required of him as Chairman, President and Chief Executive Officer or as
may be assigned by the Board of Directors (the "Board") of the Company.
Employee shall report to the Board and shall be subject to its discretion
and control.
The location for such employment shall be at the corporate offices of the
Company.
Employee shall devote substantially all of his business time and his best
efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company and to the ethical
discharge of his duties and responsibilities under this Agreement.
Employee shall not engage in any other business activity or serve in any
industry, trade, professional, governmental or academic position during the
term of employment, except for the following: serving as a member of the
Board of Directors of any Company that Employee is, as of the Effective
Date, acting in the capacity of Director; managing the personal business
affairs of Employee; and as may otherwise be expressly approved in writing
in advance by the Board.
2. Term.
-----
Company shall employ Employee for a period commencing on the Effective Date
and ending three (3) years from the Effective Date, unless Employee's
employment is sooner terminated pursuant to the provisions of this
Agreement, and provided that this Agreement shall continue for successive
one-year terms unless at least ninety (90) days prior to the expiration of
the original or any extended term either party shall advise the other in
writing that it wishes to terminate this Agreement as of the end of the
original or then extended term (the "Employment Period").
<PAGE> 2
3. Compensation and Benefits.
--------------------------
(a) Salary.
-------
During the Employment Period, the Company shall pay the Employee
base salary at a rate of Three Hundred Fifty Thousand Dollars
($350,000.00) per year, prorated for any partial period. All base
salary shall be payable in accordance with the payroll practices of
the Company for its executives.
(b) Bonus.
------
Employee shall be eligible to receive each year during the term of
this Agreement commencing in the Company's 1996 fiscal year, and
shall be paid within thirty (30) days of the annual audit of the
Company, if the calculations mandate such payment, a bonus comprised
of two components and which are based on audited figures. The first
component of the bonus is based on the earnings before interest and
taxes, excluding any profit or loss from the sale of restaurants or
non-recurring items ("EBIT") shown on Ground Round's audited
financial statements for the preceding fiscal year as filed with the
Securities and Exchange Commission. The first component of the
bonus will range from 0% to 80% of Employee's base salary for the
preceding fiscal year and will be calculated as follows: (a) the
Board shall determine a range of EBIT as part of the budget process
(the bottom amount of the range being called the "Minimum EBIT" and
the top amount of the range being called the "Maximum EBIT") with
respect to which the first component of the bonus shall be payable;
(b) when EBIT for such fiscal year has been determined ("Actual
EBIT"), if the Actual EBIT exceeds the Minimum EBIT the Bonus shall
equal the product of 80% of Employee's base salary for the preceding
fiscal year times a fraction, the numerator of which shall be the
difference between the lesser of the Actual EBIT or the Maximum EBIT
and Minimum EBIT, the denominator of which shall be the difference
between the Maximum EBIT and the Minimum EBIT.
The second component of the bonus is based upon net cash provided by
operating activities minus net cash used in investing activities
("Cash Flow"). For purposes of this paragraph, "net cash provided
by operating activities" and "net cash used in investing
activities" shall have the meaning as provided by generally accepted
accounting principles, consistently applied by the Company. In the
event of any dispute as to the computation of Cash Flow, the matter
shall be referred to the Company's then independent certified
accountants whose determination shall be final and binding.
The second component will range from 0% to 20% of Employee's base
salary for the preceding fiscal year and shall be calculated as
follows: (a) the Board shall determine a range of Cash Flow as
part of the budget process (the bottom amount of the range being
called the "Minimum Cash Flow" and the top amount of the range being
called the "Maximum Cash Flow") with respect to which the second
component of the bonus shall be payable; (b) when actual Cash Flow
for such fiscal year has been determined ("Actual Cash Flow"), if
the Actual Cash Flow
13
<PAGE> 3
exceeds the Minimum Cash Flow the Bonus shall equal the product
of 20% of Employee's base salary for the preceding fiscal year
times a fraction, the numerator of which shall be the difference
between the lesser of the Actual Cash Flow or the Maximum Cash Flow
and Minimum Cash Flow, the denominator of which shall be the
difference between the Maximum Cash Flow and the Minimum Cash
Flow.
The minimum and maximum ranges approved by the Board shall not be
modified by the Board during any fiscal year after such approval.
Notwithstanding the foregoing, no bonus shall be paid to Employee
if, as a result of the inclusion of the bonus in Company's fiscal
financial results, Company would have to report a net loss.
Employee shall be entitled to a pro rata share of the bonus
described in paragraph 3(b) if Employee dies, becomes disabled (as
stated in paragraph 4(b)), is terminated without Cause by the
Company prior to payment of any bonus only during that fiscal year
in which the Employee dies, becomes disabled or is terminated
without Cause. If Employee resigns (other than for reasons stated
in paragraph 4(e)(i)(ii)(iii)(iv), not to include paragraph
4(e)(v)), or is terminated for Cause by the Company (as stated in
paragraph 4(c)) prior to the payment of any bonus during a fiscal
year, Employee shall not be entitled to such bonus. Any pro rata
share of the bonus shall be determined by way of calculation, using
the results for the entire fiscal year.
(c) Stock Options.
--------------
The Company shall grant to Employee, on the Effective Date, a stock
option to purchase One Hundred Seventy-Five Thousand (175,000)
shares of common stock of the Company in accordance with the terms
of the Company's 1992 Equity Incentive Plan. The price at which
shares of Common Stock may be purchased pursuant to the option shall
be the closing price, as of the Effective Date, of a share of the
Company's common stock as listed on NASDAQ. The option shall become
exercisable in equal installments over a three-year period, with the
first installment being exercisable on July 20, 1996.
Promptly after the grant of the Option, the Company and Employee
shall execute and deliver to each other a Stock Option Agreement
evidencing the Option and the terms thereof (the "Stock Option
Agreement"). It is understood and agreed that the Option shall be
granted and governed in accordance with the terms of the Plan and
the rules and regulations of the Securities and Exchange Commission.
(d) Benefits.
---------
Except as otherwise provided herein, Employee shall be entitled to
receive the fringe benefits normally provided by the Company to
senior executives and in accordance with the terms of each Plan or
document which controls such benefit
14
<PAGE> 4
(including but not limited to life insurance coverage, medical and dental
insurance, travel and accident insurance, participation in Company's
non-qualified Deferred Compensation Plan, Executive Retirement Plan, stock
options and other benefits during the term of this Agreement). Employee
shall be entitled to the use of a company automobile in accordance with the
Company's Automobile Policy, and which the Company shall insure and
maintain, or to a car allowance which the Company shall insure in
accordance with Company policy. The Company agrees to pay an annual
membership fee to a country club in the Boston area for Employee's use.
The Employee's participation shall be subject to the terms of the
applicable plan documents, generally applicable company policies and
appropriate discretion of the Board or any administrative committee
contemplated by such plan. The Company shall pay reasonable legal fees
incurred by Employee in reviewing this Agreement prior to execution.
(e) Vacation.
---------
During the Employment Period, Employee shall be entitled to four (4)
weeks of vacation per year, prorated for partial calendar years, to
be taken at such times and intervals as mutually agreed by Company
and Employee, subject to the reasonable business needs of the
Company and in accordance with the terms of the Company's Vacation
Policy.
(f) Relocation.
-----------
Employee shall be relocating to the Commonwealth of Massachusetts
and Company agrees to reimburse Employee for reasonable and ordinary
expenses which are covered under the Company's Employee Relocation
Policy and in accordance with the terms of the Policy.
(g) Certain Expenses.
-----------------
The Company shall pay or reimburse the Employee for all reasonable,
customary business expenses incurred or paid by the Employee in the
performance of the duties and responsibilities of his position and
to such reasonable substantiation and documentation as may be
required by the Company.
4. Termination of Employment.
--------------------------
(a) Death.
------
If the Employee dies during the Employment Period, the Company shall
have no further obligations under this Agreement other than to pay
to the Employee's estate Base Salary through the end of the calendar
month of his death, any bonus payment as stated in paragraph 3(b),
and any other compensation hereunder that has been earned in
accordance with the applicable Company policy, but has not been
paid.
(b) Disability.
-----------
15
<PAGE> 5
The Company may terminate the Employee's employment by written
notice in the event that, for any reason, he becomes disabled,
either physically or psychologically, and is unable to perform
substantially all of his essential duties and responsibilities under
this Agreement for One Hundred Eighty (180) days during any period
of three hundred and sixty-five (365) consecutive days. In the
event of such a termination, the Company shall have no further
obligations under this Agreement other than to pay to the Employee
Base Salary through the end of the calendar month of his
termination, any bonus payment as stated in paragraph 3(b), and any
other compensation hereunder that has been earned and in accordance
with the applicable Company policy, but has not been paid.
The Employee shall at the request of the Company, submit to a
medical examination by a physician selected by the Company, to whom
the Employee or his duly appointed guardian has no reasonable
objection, to determine whether the Employee is disabled. Such
determination shall be conclusive. If the Employee fails to submit
to such medical examination, the Company's determination of the
Employee's disability shall be conclusive.
Paragraph 4(b) shall be interpreted and applied in accordance with
the Americans with Disabilities Act, including but not limited to,
the obligation to provide reasonable accommodations as specified
under such Act.
(c) Termination by the Company for Cause.
-------------------------------------
The Company may terminate the Employee's employment hereunder for
Cause at any time upon written notice setting forth in reasonable
detail the nature of the Cause. The following, as determined by the
Board in its reasonable judgment, will constitute Cause:
(i) The Employee's failure to perform his duties and
responsibilities to the Company; a breach of fiduciary duty;
any willful misconduct by the Employee which injures the
Company (monetarily or otherwise) or the Employee's gross
negligence in the performance of his duties and
responsibilities; or
(ii) fraud, embezzlement or other dishonesty by the Employee with
respect to the Company; or
(iii) the Employee's conviction of, or plea of nolo contendere to, a
felony or other crime involving moral turpitude; or
(iv) any material breach of this Agreement.
Employee shall have an opportunity to respond to the Board on any
finding of Cause for termination, but only if Cause is found for
failure to perform the duties and responsibilities, Employee shall
have thirty (30) days to cure before any termination can occur.
16
<PAGE> 6
Upon termination of the Employee's employment for Cause, the Company
shall have no further obligations under this Agreement other than to
pay to the Employee any Base Salary through the date of termination,
and any other amounts that have been earned in accordance with the
applicable Company policy, but has not been paid, but specifically
excluding any bonus payment stated in paragraph 3(b).
(d) Termination by the Company Other Than for Cause
-----------------------------------------------
(Excluding Change of Control).
------------------------------
The Company may (other than during a Change of Control time period
as defined below), terminate the Employee's employment hereunder,
other than for Cause, at any time upon written notice. In the event
of such termination, the Company shall do the following:
(i) Pay to the Employee within five (5) days of Employee's
termination, a lump sum amount consisting of an amount equal
to 2.99 times the higher of (a) current annual base salary or
(b) if base salary is hereafter increased, the highest annual
base salary from time to time hereafter in effect. In
addition, Employee will be entitled to receive any bonus
payment due, in accordance with and provided by paragraph
3(b).
(ii) Either continue to contribute to the cost of the Employee's
participation in the Company's medical and life insurance
arrangements during the remainder of the Employment Period or
pay to him the present value of such cost in a lump sum, with
the qualification that if Employee shall secure other
employment, the Company's contribution to the medical and life
insurance arrangements shall cease as of that time.
(iii) Pay to Employee any other compensation hereunder that has
been earned in accordance with the applicable Company policy,
but has not been paid.
The Company shall have no other obligations under this Agreement.
(e) Termination by the Executive (Excluding Change of Control).
----------------------------------------------------------
(i) If the Employee terminates his employment during the
Employment Period (other than during a Change of Control
period as defined below) because the Company has breached this
Agreement by failing to pay base salary in accordance with
paragraph 3(a), failing to pay any bonus payment due in
accordance with paragraph 3(b), reducing Employee's base
salary below the amount in paragraph 3(a), or failing to pay
other compensation due in accordance with applicable Company
policy or document controlling such other compensation, the
termination shall, for purposes of this Agreement, be treated
as a
17
<PAGE> 7
termination by the Company other than for Cause and governed
by paragraph 4(d). For failure to pay any bonus payment due
or other compensation as stated in the previous sentence, the
Employee shall notify the Company in writing of the specifics
of such failure to pay and Company shall have ten (10) days
to cure before being treated as a termination under the
provisions of this paragraph.
(ii) If, other than during a Change of Control time period as
defined below, at any time the Employee is not re-elected to
serve as both Chairman and Chief Executive Officer of the
Company or is removed either as Chairman or Chief Executive
Officer (specifically excluding the position of President),
in each case other than for Cause, as defined in Paragraph
4(c), or the Company assigns to Employee any duties that are
materially inconsistent with Employee's position, then the
termination shall, for purposes of this Agreement, be treated
as a termination by the Company other than for Cause and
governed by paragraph 4(d). As an illustration and not a
limitation, if Employee is re-elected as Chief Executive
Officer but not Chairman, Employee may treat such action as a
termination without Cause, as governed by paragraph 4(d). As
a second illustration and not a limitation, if Employee is
removed as Chairman but not removed as Chief Executive
Officer, Employee may treat such action as a termination
without Cause, as governed by paragraph 4(b).
(iii) If other than during a Change of Control time period as
defined below, the Company requires Employee to be based at
any office or location more than fifty (50) miles from the
location at which Employee is employed on the Effective Date,
except for travel reasonably required in the performance of
Employee's responsibilities, or the Company requires Employee
to move his principal residence more than fifty (50) miles
from the location of Employee's principal residence from the
Effective Date (specifically excluding the Employee moving his
principal residence from Florida to the Commonwealth of
Massachusetts on a one-time basis after the Effective Date),
then such event shall for purposes of this Agreement, be
treated as a termination by the Company other than for Cause
and governed by paragraph 4(d).
(iv) Other than during a Change of Control time period, any action
taken or suffered by the Company following the Effective Date
(such as, without limitation, transfer or encumbrance of
assets or incurring of indebtedness) which materially impairs
the ability of the Company to make any payments due or which
may become due to Employee under this Agreement, then such
event shall for purposes of this Agreement, be treated as a
termination by the Company other than for Cause and
18
<PAGE> 8
governed by paragraph 4(d).
(v) If, other than during a Change of Control time period as
defined below, the Employee terminates his employment with
the Company for any other reason, in addition to its other
rights and remedies, the Company shall have no further
obligations under this Agreement other than to pay to the
Employee any Base Salary through the date of termination and
any other amounts that have been earned but not paid, but
specifically excluding any bonus payment as stated in
paragraph 3(b).
(f) Stock Options.
--------------
Upon termination, death or disability, as such terms are defined in
paragraph 4, the Employee's rights with respect to any stock options
then held shall be governed by the Plan(s) and/or any applicable
documents under which such options were awarded.
(g) Severance.
----------
Upon termination, death or disability, Employee shall not be
entitled to receive any severance payments under the Company's
Severance Pay Plan.
(h) Deferred Compensation.
----------------------
Upon termination, death or disability, the Company will distribute
the entire amount credited to Employee's account under the Company's
non-qualified Deferred Compensation Plan, subject to the terms and
conditions of such Plan.
(i) Life Insurance.
---------------
Upon termination without Cause or upon disability, the Company shall
allow Employee to convert from a group life insurance policy to an
individual life insurance policy, within applicable policy time
frames, at Employee's cost, and if the Company's insurance carrier
allows such assignment.
(j) Mitigation.
-----------
Under paragraphs 4(d) and 4(e)(i)(ii)(iii)(iv), the Employee shall
not be required to mitigate the amount of any payments received by
the Employee from Company, by seeking other employment or otherwise,
nor shall any amount provided for in paragraphs 4(d) and
4(e)(i)(ii)(iii)(iv) be reduced by any compensation earned by
Employee as a result of employment by another employer after
termination. The Company's obligation to make any payment provided
for in paragraphs 4(d) and
19
<PAGE> 9
4(e)(i)(ii)(iii)(iv) 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 might
have against Employee or others.
5. Change of Control.
------------------
The following provisions of this paragraph 5 shall apply only in event of a
Change of Control.
(a) In the event of a Change of Control as defined below and in
consideration of Employee's continued employment with the Company,
the Company will pay Employee as termination compensation, a lump
sum amount, determined as provided below, in the event that within
twenty-four (24) months after a Change of Control of the Company has
occurred (i) Employee terminates employment with the Company for
Good Reason, as defined below, within ninety (90) days after the
event which constitutes Good Reason or (ii) Employee's employment
with the Company is terminated by the Company for any reason other
than Cause, death or disability (disability being defined as in
paragraph 4(b)). The lump sum compensation so payable (hereinafter
referred to as the "Severance Payment") shall be an amount equal to
the product of 2.99 times the Employee's current annual base salary
and, if Employee's base salary is hereafter increased, the
Employee's highest annual base salary from time to time hereafter in
effect. In addition to the Severance Payment, the Company shall pay
any bonus due in accordance with paragraph 3(b), and such bonus
shall be pro rated only for that fiscal year that the Change of
Control occurs. The Severance Payment and any bonus payment earned
in accordance with paragraph 3(b) shall be paid to Employee within
five (5) days after the date of termination of Employee's employment
(hereinafter referred to as the "Termination Date") and all other
amounts, if any, to be paid to Employee pursuant to a Change of
Control shall also be paid by Company within five (5) days of the
Termination Date (hereinafter referred to as the "Payment Date"),
unless the applicable plan or document governing the other amounts,
if any, states otherwise.
(b) In addition:
(i) Any compensation and other amounts previously deferred by
Employee, including amounts under the Company's Deferred
Compensation Plan, together with accrued interest thereon, if
any, to which Employee is entitled, and any accrued vacation
pay not yet paid by the Company, shall be paid to Employee on
the Payment Date.
(ii) All other amounts accrued or earned by Employee through the
Payment Date and amounts otherwise then owing under the
Company's plans and policies, excluding payment(s) due under
the Company's Severance Pay
20
<PAGE> 10
Plan (which Employee shall not participate in) shall be paid
to Employee on the Payment Date, other than benefits due to
Employee under any qualified plan(s) of the Company, which
benefits shall be paid in accordance with the terms of such
plan(s).
(iii) The Company shall pay all reasonable legal fees and expenses
incurred by Employee in seeking to obtain or enforce any right
or benefit provided by a Change of Control, regardless of the
outcome thereof, but specifically excluding legal
representation for initiation of a lawsuit and representation
thereafter.
(iv) The Company shall maintain in full force and effect, for the
continued benefit of Employee and/or Employee's family for two
years after the Termination Date, all employee welfare benefit
plans (including, without limitation, medical and dental
insurance plans, disability and life insurance plans and car
allowance programs) in which Employee was entitled to
participate immediately prior to the Change of Control,
provided that Employee's continued participation is possible
under the general terms and provisions of such plans and
programs. In the event that Employee's participation in any
such plan or program is barred, the Company shall arrange to
provide Employee with benefits substantially similar to those
which Employee is entitled to receive under such plans and
programs or at the Company's election, pay Employee in cash an
equivalent amount. At the end of the period of coverage,
Employee shall have the option to have assigned to him at no
cost and with no apportionment of prepaid premiums, any
assignable insurance policy owned by the Company and relating
specifically to Employee.
(v) All outstanding stock options which Employee holds shall vest
immediately upon a Change of Control.
(c) For purposes of this Agreement:
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(ii) A "Change of Control" shall be deemed to have taken place if
(a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) 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
Company representing 50% or more of the combined voting power
of the Company's then outstanding securities, (b) the
stockholders of the Company shall have approved (i) a
reorganization, merger or consolidation, in each case, with
respect to which persons who were stockholders of the Company
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
21
<PAGE> 11
consolidated company's then outstanding voting securities, or
(ii) a sale of all or substantially all of the assets of the
Company, or (c) 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
Company immediately before the Transaction shall cease to
constitute a majority of the Board of Directors of the
Company or of any parent of or successor to the Company
immediately after the Transaction occurs.
(iii) "Cause" is defined in paragraph 4(c) of this Agreement and
shall also be applicable to the Change of Control section.
(d) "Good Reason" means:
(i) The assignment to Employee of any duties materially
inconsistent in any respect with Employee's position of
Chairman and Chief Executive Officer (subject to the
provisions of paragraph 4(e)(ii)) of the Company (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 Company
which results in a dimunition 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 Company promptly after
receipt of notice from Employee;
(ii) Any reduction of Employee's base salary or the failure by the
Company to provide Employee 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 Employee was entitled prior to the Change of
Control;
(iii) The Company's requiring Employee to be based at any office or
location more than fifty (50) miles from the location at which
Employee is employed on the date of the Change of Control,
except for travel reasonably required in the performance of
Employee's responsibilities, or the Company's requiring
Employee to move his principal residence more than fifty (50)
miles from the location of Employee's principal residence at
which Employee resides on the date of the Change of Control
(specifically excluding the Employee moving his principal
residence from Florida to the Commonwealth of Massachusetts on
a one-time basis after the Effective Date of this Agreement);
or
22
<PAGE> 12
(iv) Any action taken or suffered by the Company as of or following
the Change of Control which shall cause the Company to have
the inability to make any payments due or which may become due
to Employee under this Agreement.
For purposes of this Agreement, any good faith determination of
"Good Reason" made by Employee shall be conclusive.
(e) (i) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or
distribution by the Company to Employee or for his 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 Company 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
Employee or for his 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 Company because of
Section 280G of the Code. For purposes of paragraphs
5(e)(i)(ii)(iii), present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
(ii) All determinations required to be made under paragraphs
5(e)(i)(ii)(iii) shall be made by the Company's then
independent certified accountants, which shall provide
detailed supporting calculations both to the Company and
Employee within fifteen (15) business days of the Termination
Date, or such earlier time as is requested by the Company,
and a written opinion to Employee at Employer's cost that
Employee has substantial authority not to report any Excise
Tax on Employee's federal income tax return with respect to the
Payments. Any such determination by the Company's then
independent certified accountants shall be binding upon the
Company and Employee. Employee shall determine which and how
much of the Payments shall be eliminated or reduced consistent
with the requirements of paragraphs 5(e)(i)(ii)(iii), provided
that, if Employee does not make such determination within ten
business days of the receipt of the calculations made by the
Company's then independent certified accountants, the Company
shall elect which and how much of the Payments shall be
eliminated or reduced consistent with the requirements of
paragraphs 5(e)(i)(ii)(iii) and shall notify Employee promptly
of such election. Within five business days thereafter, the
Company shall pay to or distribute to
23
<PAGE> 13
Employee or for Employee's benefit such amounts as are then
due to Employee under this Agreement. For purposes of
paragraphs 5(e)(i)(ii)(iii), "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.
(iii) As a result of the uncertainty in the application of Section
280G of the Code at the time of the initial determination by
the Company's then certified independent accountants
hereunder, it is possible that Payments will have been made by
the Company which should not have been made ("Overpayment") or
that additional Payments which will not have been made by the
Company could have been made ("Underpayment"), in each case,
consistent with the calculations required to be made
hereunder. In the event that the Company's then certified
independent accountants, based upon the assertion of a
deficiency by the Internal Revenue Service against Employee
which the Company's then certified independent accountants
believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or
distributed by the Company to Employee or for Employee's
benefit shall be treated for all purposes as a loan ab initio
to Employee which Employee shall repay to the Company 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 Employee to the Company if and to the
extent such deemed loan and payment would not either reduce
the amount on which Employee is subject to tax under Section 1
and Section 4999 of the Code or generate a refund of such
taxes. In the event that the Company's then certified
independent accountants, based upon controlling precedent or
other substantial authority, determines that an Underpayment
has occurred, any such Underpayment shall be promptly paid by
the Company to Employee or for Employee's benefit together
with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code.
(f) Employee shall not be required to mitigate the amount of any Payment
provided for in this paragraph 5 by seeking other employment or
otherwise, nor shall the amount of any Payment provided for in this
paragraph 5 be reduced by any compensation earned by Employee as the
result of employment by another employer after the Termination
Date, or otherwise. The Company's obligation to make the Payments
provided for in this paragraph 5 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 Employee or others.
(g) The failure by Employee to set forth in any notice of termination of
employment
24
<PAGE> 14
any fact or circumstances which contributes to a showing of Good
Reason shall not waive any of Employee's rights hereunder or
preclude Employee from asserting such fact or circumstance in
enforcing Employee's rights hereunder.
(h) If a Change of Control occurs, the terms and provisions of paragraph
5 of this Agreement governing the payments to be made shall control
in lieu of any provisions elsewhere in the Employment Agreement.
(i) The Company 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 Company to
expressly assume and agree to perform according to this paragraph 5
in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As
used in this paragraph 5, "Company" shall mean the Company 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.
(k) Nothing in this paragraph 5 shall prevent or limit Employee from any
continuing or future participation in any benefit, incentive or
other plan or program (excluding the Company's Severance Pay Plan)
provided by the Company and for which Employee may qualify. Amounts
which are vested benefits or which Employee is otherwise entitled to
receive under any plan or program of the Company at or subsequent to
any Change of Control shall be payable in accordance with such plan
or program.
6. D & O Liability Insurance.
--------------------------
The Employee shall be covered, both in his capacity as an officer and in
his capacity as a director of the Company, under the Company's directors
and officers liability insurance policy. The cost of such coverage shall
be borne by the Company.
7. Nondisclosure.
--------------
During the Employment Period, the Employee may become aware of information
which is nonpublic, confidential or proprietary in nature with respect to
the Company or with respect to other companies, persons, entities, ventures
or business opportunities in which the Company has, or, if it were
disclosed to the Company, the Company might have, an interest
("Confidential Information"). During the Employment Period and thereafter,
all Confidential Information will be kept strictly confidential by the
Employee and the Employee shall not: (a) copy, reproduce, distribute or
disclose any Confidential Information to any third party except in the
course of his employment by the Company; (b) use any Confidential
Information for any purpose other than in connection with his employment by
the Company; or (c) use any Confidential Information in any way that is
detrimental to the Company.
Confidential Information shall not include information which the Employee
can demonstrate:
25
<PAGE> 15
(a) is or becomes generally available to the public other than by breach
by the Employee of his agreement herein; (b) is required to be disclosed
by the Employee after due notice to the Company, pursuant to obligations
under law, regulation or court order; or (c) was prior to the Effective
Date, or thereafter becomes, known to the Employee on a nonconfidential
basis.
Upon termination of the Employee's employment, he shall immediately return
at Company's expense or destroy on request of Company's Counsel all
Confidential Information, including all notes, copies, reproductions,
summaries, analyses, or extracts thereof, then in his possession. Such
return or destruction shall not abrogate the continuing obligations of the
Employee under this Agreement.
In the event that the Employee is requested or required (by
interrogatories, request for information or documents, subpoena, civil
investigative demand or similar process) to disclose any Confidential
Information, he shall provide the Company with prompt written notice so
that it may seek a protective order or other appropriate remedy. In
the event such protection or other remedy is not obtained, the Employee
shall furnish only that portion of the Confidential Information which he is
advised by counsel agreed to by Company and Employee, at Company's expense,
is legally required and shall exercise best efforts to obtain assurance
that confidential treatment will be accorded to such Confidential
Information, but in no event shall Employee be required to withhold such
Confidential Information if incarceration of Employee may result.
The Employee agrees that until the expiration of two (2) years from the
date of termination of his employment by the Company, regardless of the
reason for termination, he will not without the prior written approval of
the Company (i) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly, any securities, assets or
property of the Company or any of its subsidiaries, whether such agreement
or proposal is with the Employee or with a third party, other than shares
of common stock he is entitled to acquire under the terms of this Agreement
or the Stock Option Plan or Equity Incentive Plan, or by inheritance, (ii)
propose to enter into, directly or indirectly, any merger or other business
combination involving the Company or any of its subsidiaries, (iii) make,
or in any way participate, directly or indirectly, in any "solicitation" or
"proxies" (as such terms are used in the proxy rules of the Securities and
Exchange Commission) to vote, or seek to advise or influence any person
with respect to the voting of, any voting securities of the Company or any
of its subsidiaries, (iv) form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934) with respect to any voting securities of the Company or any of
its subsidiaries, (v) otherwise act, alone or in concert with others, to
seek to control or influence the management, Board of Directors or policies
of the Company, (vi) disclose any intention, plan or arrangement
inconsistent with the foregoing or (vii) advise, encourage, provide
assistance (including financial assistance) to or hold discussions with any
other persons in connection with any of the foregoing. Employee may vote
any stock owned by Employee, either directly or indirectly, in any manner
Employee chooses, as long as such voting right does not violate any
securities laws.
The Employee hereby acknowledges that he is aware that the securities laws
prohibit any person who has material, nonpublic information concerning the
Company from purchasing or
26
<PAGE> 16
selling securities of the Company or from communicating such information to
any other person under circumstances in which it is reasonably foreseeable
that such person is likely to purchase or sell securities.
The obligations of the Employee stated in this paragraph shall, except
where expressly limited as to time, continue without limit as to time and
without regard to the employment status of the Employee.
8. Non-Compete Provision.
----------------------
Upon termination of this Agreement for any reason, Employee agrees that he
will not, for a period of two (2) years following any such termination,
either directly or indirectly, as a director, officer, employee, agent,
consultant, or owner, in whole or in part, engage in any related activities
which are competitive with the Company's (or its subsidiaries) full-service
restaurant operations within geographic proximity to the Company operations
or its subsidiaries. Employee acknowledges that the remedy at law
available to the Employer and its subsidiaries for a breach or threatened
breach of this paragraph would be inadequate and, therefore, Employee
agrees that in addition to any remedies at law, in the event of any such
breach or threatened breach, the Employer and/or its subsidiaries shall be
entitled to obtain equitable relief or injunctive relief to enforce the
provisions of this paragraph. Ownership of less than five (5%) percent of
any class of publicly-traded securities shall not be deemed a breach of
this paragraph.
9. Company Employees.
------------------
Employee agrees that during the term of the employment hereunder and for a
period of two (2) years thereafter, regardless of the reason employment
with the Company has terminated, Employee will not, directly or indirectly,
cause or induce any employee of the Company or of any of its subsidiaries
to leave the employ of the Company or such subsidiary in order to compete
with the Company or its subsidiaries or hire any such employee. Any
violation of this provision, or the provisions of paragraphs 7 or 8, will
entitle the Company to cease making payments and providing any benefits
under this Agreement.
10. Payments.
---------
The Company shall have the right to cause all payments pursuant to this
Agreement to be made by The Ground Round, Inc. ("TGRI") and to cause TGRI
to provide all benefits required hereunder, which benefits shall be those
normally provided by TGRI to senior executives of TGRI or the Company.
11. Withholding.
------------
All payments made by the Company under this Agreement shall be reduced by
any tax or other amounts required to withheld by the Company under
applicable law.
27
<PAGE> 17
12. Assignment.
-----------
Except as provided in this paragraph, neither the Company nor the Employee
may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the
other. The Company may without the consent of the Employee assign its
rights and obligations under this Agreement to any wholly-owned subsidiary
of the Company or to any corporation or other business entity into which
the Company has merged or with which it has consolidated or which has
acquired substantially all of the Company's assets, provided that no such
assignment shall relieve the Company of its obligations under this
Agreement. This Agreement shall inure to the benefit of and be binding
upon the Company and the Employee, their respective successors, executors,
administrators, heirs and permitted assigns.
13. Conflicting Agreement.
----------------------
The Employee hereby represents and warrants that the execution of this
Agreement and the performance of the obligations hereunder will not breach
or be in conflict with any other agreement to which Employee is a party or
is bound and that Employee is not now subject to any covenants against
competition or similar covenants that would affect the performance of
Employee's obligations hereunder.
14. Entire Agreement.
-----------------
This Agreement constitutes the entire agreement between the parties and
supersedes all prior communications, agreements, representations and
understandings, written or oral, express or implied, with respect to the
terms and conditions of the Employee's employment.
15. Amendment.
----------
This Agreement may be amended or modified only by a written instrument
signed by the Employee and by such officer as may be specifically
designated and authorized by the Board.
16. Governing Law.
--------------
This is a Massachusetts contract and shall be construed and enforced under
and be governed in all respects by the law of the Commonwealth of
Massachusetts without regard to principles of conflicts of laws.
17. Notice.
-------
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 by hand, telecopied (receipt
acknowledged) 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, provided that all notices to Company
shall be directed to the attention of the Board with a copy to the
Secretary of Company, or to such other address as either
28
<PAGE> 18
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.
18. Validity.
---------
The invalidity or unenforceability of any provision 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. 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. The provisions of paragraphs 7, 8 and 9 shall survive the
termination or expiration of this Agreement regardless of the reasons
therefor. 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.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized representative, and by the Employee, as
of the date first above written.
GROUND ROUND RESTAURANTS, INC.
By: /s/ Michael R. Jorgensen
----------------------------
Michael R. Jorgensen
Senior Vice President
DANIEL R. SCOGGIN
/s/ Daniel R. Scoggin
----------------------------
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF THE GROUND ROUND, INC. FOR THE
NINE MONTHS ENDED JULY 2, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-END> JUL-02-1995
<CASH> 1,290
<SECURITIES> 0
<RECEIVABLES> 1,962
<ALLOWANCES> 724
<INVENTORY> 2,351
<CURRENT-ASSETS> 7,307
<PP&E> 171,173
<DEPRECIATION> 51,058
<TOTAL-ASSETS> 147,651
<CURRENT-LIABILITIES> 24,190
<BONDS> 0
<COMMON> 1,861
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 147,651
<SALES> 173,790
<TOTAL-REVENUES> 175,480
<CGS> 149,792
<TOTAL-COSTS> 172,989
<OTHER-EXPENSES> 1,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,762
<INCOME-PRETAX> (2,868)
<INCOME-TAX> (918)
<INCOME-CONTINUING> (1,950)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,950)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
