<PAGE> 1
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 1, 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)
New York 13-5637682
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each Exchange on which registered
- ------------------- -----------------------------------------
<S> <C>
Common Stock, $ .1667 par value NASDAQ National Market System
</TABLE>
Securities registered pursuant to Section 12(b) 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 December 12, 1995, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $ 17.2 million, based upon
the last reported sale price for a share of the Registrant's Common Stock on the
NASDAQ National Market System.
The number of shares of Common Stock outstanding as of December 12, 1995 was
11,173,421.
(iii)
<PAGE> 2
FORM 10-K INDEX
<TABLE>
<S> <C>
PART I ................................................................................................... -1-
Item 1. Business.................................................................................. -1-
Item 2. Properties................................................................................ -6-
Item 3. Legal Proceedings......................................................................... -9-
Item 4. Submission of Matters to a Vote of Security Holders....................................... -9-
PART II .................................................................................................. -10-
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters................. -10-
Item 6. Selected Financial Data.................................................................. -11-
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... -12-
Item 8. Financial Statements and Supplementary Data.............................................. -16-
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
........................................................................................ -16-
PART III .................................................................................................. -17-
Item 10. Directors and Executive Officers of the Registrant...................................... -17-
Item 11. Executive Compensation.................................................................. -17-
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... -17-
Item 13. Certain Relationships and Related Transactions.......................................... -17-
PART IV .................................................................................................. -18-
Item 14. Financial Statements, Exhibits, and Reports on Form 8-K................................. -18-
</TABLE>
(iv)
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW
In this Form 10-K, the "Company" refers to Ground Round Restaurants, Inc., a New
York corporation, and its consolidated subsidiaries, unless the context
otherwise requires. The Company is a holding company which has principal
subsidiaries that operate and franchise 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 (see "The Menu" below). As of October 1, 1995, the end of the
Company's most recent fiscal year, there were 197 restaurants system-wide, 151
of which were Company-operated and 46 of which were operated by franchisees.
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 approximately $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 1995, the average guest check in Company-operated
restaurants was approximately $8.21 (including alcoholic beverages). Alcoholic
beverages have accounted for approximately 21% of restaurant revenue during the
last three fiscal years.
THE RESTAURANTS
The Company's restaurants are divided into 4 divisions, comprised of 25
geographic regions, managed by a Senior Vice President and three Directors of
Operations. Each region has a Regional Director who typically oversees between
four and eight Company-operated restaurants and one to five franchised
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.
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. 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
-1-
<PAGE> 4
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 income of approximately $35,000.
The Company intends to locate new restaurants primarily within or near markets
in which existing Ground Round restaurants are concentrated to benefit from
marketing and operating efficiencies. There were three new restaurants opened
during fiscal 1995: one in Maryland, one in Ohio, and one in Pennsylvania. Of
the six franchised stores added during 1995, two were new stores: one in Indiana
and one in Ohio; four were formerly Company-operated restaurants which became
franchise restaurants: one in Michigan, one in Minnesota, and two in New Jersey.
The Company periodically evaluates the prospects of existing Company-operated
restaurants and will, from time to time, sell or close individual restaurants.
Similarly, franchised restaurants have closed in the past and may close in the
future. During fiscal 1995, 15 Company-operated restaurants and one franchised
restaurant were sold or closed.
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,
-2-
<PAGE> 5
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 maintains 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.
Restaurant Reporting. The Company utilizes a point of sale system in all
Company-owned 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 uses the information generated by the point of sale
system to facilitate planning activities at both the corporate and restaurant
levels.
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 increasing
training and staffing at the restaurant level, and improving and modifying menu
selections. The Company now principally employs in-store, point of purchase
materials such as banners, posters and buttons as marketing tools.
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.
The Menu. The Ground Round offers a broad selection of high quality food at
moderate prices. A new menu was introduced in November of 1994, which reduced
the number of items from approximately 88 items to 50 items including
appetizers, salads, specialty sandwiches, hamburgers and entrees featuring
seafood, ribs, steak, chicken and pasta. Based upon the feedback the Company
received from guests on the cutback in menu items through the first half of
fiscal 1995, the Company determined that it was necessary to improve the quality
and variety of its menu offerings. During the second half of fiscal 1995, the
Company designed a new menu with over 200 offerings which was installed in the
restaurants in December 1995. This new menu has been substantially redesigned
and contains many new offerings and selections which are perceived to be of
higher quality and which reflects changes in guest preferences. Examples include
new pasta and saute dishes, gourmet salads, a "pick-two" selection, new
appetizers and desserts. In addition, the Company has designed a new children's
menu with eight offerings and includes a drawing slate which the child can take
home. All Ground Round restaurants serve alcoholic beverages, including a wide
selection of imported, domestic and draft beers, wines and specialty drinks.
-3-
<PAGE> 6
FRANCHISING
As of October 1, 1995, the Company had 46 franchised restaurants, the majority
of which were located in the same geographic regions as, or in close proximity
to, Company-operated restaurants. During fiscal 1995, 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. During
1995, the Company added six franchised restaurants, consisting of two new
franchised restaurants and four formerly Company-operated restaurants which were
acquired by franchisees. One franchised restaurant was closed during 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 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 nine of the 46 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.
EMPLOYEES
As of October 1, 1995, 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
-4-
<PAGE> 7
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 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.
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. To date, 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.
Management is not aware of any federal or state environmental regulations that
have had a material effect 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.
-5-
<PAGE> 8
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(R) and its logo with the
United States Patent and Trademark Office. In addition, the Company currently
holds other federal trademarks, including but not limited to, THE GROUND
ROUNDER(R); CINNAMON DIPPERS(R) and SLIDER(R) sundae. Pending trademark
applications are FRESH TO GO(TM); YOU CAN TAKE IT WITH YOU(TM); FOCACCIA
BURGER(TM); TRIPLE CHIPS(TM); and THAT REALLY BIG PRETZEL(TM). There can be no
assurance that the Company will be granted trademarks on any or all of such
trademarks.
OTHER ITEMS
During 1995, the Merger Agreement dated August 23, 1994 among the Company, GRR
Acquisition Corp. and GRR, Inc., was terminated pursuant to the terms of a
Termination Agreement date January 13, 1995. Developments in the high-yield
financing market prevented the timely completion of financing for the merger.
See footnote I of the Company's financial statements, included elsewhere in this
Form 10K.
ITEM 2. PROPERTIES
As of October 1, 1995, the Company operated 151 of the 197 Ground Round
restaurants. At 27 locations (including one closed location), both the real
estate and structure are owned by the Company in fee. At 106 locations, both the
real estate and structure are leased. At the remaining 19 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 least one additional
term of five years. Within the next five years, 71 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 1997 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.
-6-
<PAGE> 9
COMPANY-OPERATED RESTAURANT LOCATIONS
The following table sets forth the location of the 151 Company-operated
restaurants as of October 1, 1995. The real estate and/or the structure of all
locations are leased except for those locations indicated by "*", which are
owned by the Company in fee. An "**" denotes a new restaurant added during
fiscal 1995:
<TABLE>
<S> <C> <C> <C>
CONNECTICUT Salem NEW YORK Toledo
Enfield Saugus Albany - Colonie Willowick
Groton Springfield Albany - Central
Manchester Stoneham Bayshore PENNSYLVANIA
Plainville Stoughton Fayetteville Camp Hill*
Rocky Hill W. Springfield Garden City Corapolis
Waterbury Taunton Kingston Erie
Walpole Latham Greensburg
DELAWARE Worcester Liverpool - Clay Hazelton**
Newark Liverpool - Salina* Johnstown
Wilmington MICHIGAN Middletown Nanuet* Monroeville
Jackson New Hartford Montgomeryville
ILLINOIS Kalamazoo* Newburgh Philadelphia
Bloomington Livonia Niagara Falls Pittsburgh - Mt. Lebanon
Decatur* Royal Oak Northport Pittsburgh - Scott Township
Rockford Port Jefferson Reading*
Springfield MINNESOTA Poughkeepsie Scranton
Brooklyn Center Rochester - Gates* Springfield
INDIANA Burnsville Rochester - Greece West Chester
Greenwood Coon Rapids* Rochester - Henrietta* Wexford
Crystal* Rochester - Marketplace Whitehall*
IOWA Duluth Roslyn
Davenport Fridley Schenectady - State RHODE ISLAND
Des Moines Mankato Schenectady - Mohawk Johnston
Dubuque* Richfield Utica Warwick
Iowa City Roseville Vestal*
Waterloo* St. Cloud Yonkers VIRGINIA
St. Paul Winchester
KENTUCKY West St. Paul OHIO
Florence Akron - Romig WISCONSIN
MISSOURI Akron - Tallmadge Glendale
MARYLAND Bridgeton* Cincinnati - Colerain* Greenfield
Baltimore St. Joseph Cincinnati - Beechmont Janesville*
Bel Air St. Louis Cincinnati - Springdale* Racine
Frederick St. Peters Columbus - Dublin Wauwatosa*
Hagerstown Columbus - North High West Allis
Waldorf** NEW HAMPSHIRE Columbus - Phillipi
Manchester Elyria
MASSACHUSETTS Kent
Allston NEW JERSEY Kettering
Andover Deptford Lima
Boston Ewing Township* Macedonia**
Braintree Gloucester* Madeira*
Brighton Greenbrook* Mentor
Cambridge Hackensack Miamisburg
Danvers* Hasbrouck Heights North Olmsted
Framingham Keyport Parma*
Natick Maple Shade* Parma Heights
North Dartmouth Voorhees Solon
Norwell Strongsville
Norwood
</TABLE>
-7-
<PAGE> 10
FRANCHISED RESTAURANT LOCATIONS
The following table sets forth the location of the 46 franchise restaurants as
of October 1, 1995. An * denotes a new restaurant added during fiscal 1995:
<TABLE>
<S> <C> <C> <C>
CONNECTICUT MICHIGAN NEW YORK SOUTH DAKOTA
Branford Dearborn Hts. Commack Sioux Falls
Danbury Grand Rapids* Farmingdale
Glastonbury Hicksville VERMONT
MINNESOTA Plattsburgh So. Burlington
INDIANA North St. Paul* Rensselaer
Richmond* Sayville VIRGINIA
NEW HAMPSHIRE Danville
MAINE Nashua NORTH DAKOTA Lynchburg
Auburn Bismarck Roanoke
Augusta NEW JERSEY Fargo
Bangor Bordentown Grand Forks CANADA
So. Portland Cedar Knolls* Minot Niagara Falls
Egg Harbor
MARYLAND Flemington OHIO
Annapolis Lawrenceville Boardman
Sayreville* Warren*
MASSACHUSETTS Toms River
Chelmsford PENNSYLVANIA
Hadley York
Lanesboro
Needham RHODE ISLAND
Shrewsbury Pawtucket
Waltham
</TABLE>
-8-
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions that arise in the
ordinary course of business, including, but not limited to, claims and actions
brought pursuant to "dram shop" statutes and under federal and state employment
laws prohibiting employment discrimination. The Company believes it is not
currently a party to any "material" pending legal proceedings as defined in Item
103 of Regulation S-K of the Securities Exchange Act of 1934, as amended.
The Company has been named in a number of separate claims brought by former
employees alleging that the Company engaged in discriminatory practices,
including those based on age, race or sex. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-9-
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Common Stock of the Company is traded 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 1,
1995 and October 2, 1994, respectively.
<TABLE>
<CAPTION>
1995 1994
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Fiscal Quarter $ 8.63 $ 6.00 $ 8.13 $ 6.50
2nd Fiscal Quarter 7.13 5.00 8.00 5.50
3rd Fiscal Quarter 5.50 2.75 7.13 5.50
4th Fiscal Quarter 6.56 3.13 8.63 5.63
</TABLE>
As of December 12, 1995, the approximate number of holders of record of shares
of the Company's Common Stock was 865.
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.
-10-
<PAGE> 13
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.
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS 9 MONTHS
ENDED ENDED ENDED ENDED ENDED
OCTOBER 1, OCTOBER 2, OCTOBER 3, SEPTEMBER 27, SEPTEMBER 29,
1995 1994 1993 1992 1991
--------- --------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue ...................................... $ 230,406 $ 243,971 $ 232,556 $ 226,466 $ 162,055
Operating income (loss) from
continuing operations ...................... (2,659) 13,277 11,866 12,090 7,714
Interest expense from
continuing operations, net ................. 4,957 4,091 4,031 4,598 5,032
Income (loss) from continuing
operations before income taxes ............. (7,616) 9,186 7,835 7,492 2,682
Income taxes (benefit) ....................... (1,906) 2,940 2,507 2,846 1,152
--------- --------- --------- --------- ---------
Income (loss) from continuing operations:
Total ...................................... (5,710) 6,246 5,328 4,646 1,530
Per share .................................. (.51) .56 .48 .42 .24
Weighted average common shares outstanding ... 11,151 11,109 11,086 11,064 6,509
OPERATING DATA:
Systemwide sales:
Company-operated ........................... $ 228,235 $ 241,777 $ 230,017 $ 224,048 $ 160,700
Franchised ................................. 71,817 72,726 71,876 72,692 52,027
--------- --------- --------- --------- ---------
Total systemwide sales ..................... 300,052 314,503 301,893 296,740 212,727
Average annual systemwide sales per
restaurant ................................... 1,457 1,534 1,438 1,455 1,433(a)
Number of restaurants (at period end):
Company-operated ........................... 151 164 166 160 154
Franchised ................................. 46 41 44 44 44
--------- --------- --------- --------- ---------
Total restaurants .......................... 197 205 210 204 198
BALANCE SHEET DATA:
Total assets ............................... $ 145,356 $ 156,772 $ 151,813 $ 137,780 $ 134,968
Long-term debt, including current maturities 58,580 58,770 60,305 51,965 56,391
Stockholders' equity ....................... 59,684 65,036 58,637 53,219 48,573
</TABLE>
(a) Annualized to a 52 week year
-11-
<PAGE> 14
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, and should be read in conjunction
with the financial statements and notes thereto included elsewhere in this
report. As of October 1, 1995, the Company operated 151 and franchised 46
family-oriented, full service, casual dining restaurants.
For purposes of this discussion and analysis, the 52 week year ended October 1,
1995, the 52 week year ended October 2, 1994 and the 53 week year ended October
3, 1993, are referred to as 1995, 1994, and 1993, respectively.
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 unless otherwise
indicated:
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 53 Weeks Ended
October 1, October 2, October 3,
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Restaurant revenue 99.1% 99.1% 98.9%
Franchise revenue .9 .9 1.1
----- ----- -----
Total Revenue 100.0 100.0 100.0
Costs and Expenses:
Cost of products sold (1) 88.0 83.9 84.2
Selling, general and administrative 6.9 6.3 6.8
Depreciation and amortization 6.4 5.5 4.8
Interest expense 2.2 1.7 1.7
Other (income) expense .7 (.4) (.1)
Net income (loss) before income taxes (3.3) 3.8 3.4
Income taxes (benefit) (.8) 1.2 1.1
----- ----- -----
Net income (loss) (2.5)% 2.6% 2.3%
</TABLE>
(1) As a percentage of Company-operated restaurant revenue.
-12-
<PAGE> 15
RESTAURANT REVENUE. Restaurant revenue totaled $228.2, $241.8 and $230.0 million
for fiscal 1995, 1994 and 1993, 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 1995 and 1994, decreased in 1995 by 5.3% to $202.6 million for the
comparable 1994 52-week period. Comparable restaurant revenue in 1994 increased
.7% for the comparable 1993 53-week period. Sales levels in 1995 were primarily
impacted by increased competition within the casual dining sector coupled with a
change in consumer spending as a result of declining discretionary income.
The average guest check was approximately $8.21, $8.12 and $7.82 in 1995, 1994
and 1993, respectively. These increases primarily reflected an evolving menu mix
with higher priced menu items, as well as continued de-emphasized discounting in
1995, 1994 and 1993. 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 20%, 21% and 22% of
revenue in 1995, 1994 and 1993, respectively.
Non-comparable restaurant revenue, consisting of those restaurants not in
operation during all of both comparable years, increased to $19.4 million in
1995 from $6.7 million in 1994. The increase in 1995 was attributable to the
full year operation of nine new restaurants added in 1994. These increases were
partially offset by the sale or closing of 15 locations during 1995. In 1994,
the increase in non-comparable restaurant revenue to $28.2 million from $13.8
million in 1993 was attributable to the full year operation of nine new
restaurants added in 1994, as well as nine new restaurants added during 1993.
These increases were partially offset by the sale or closing of eleven locations
during 1994.
FRANCHISE REVENUE. The Company's franchise base consisted of 46 franchised
restaurants in 1995, 41 in 1994 and 44 in 1993. During 1995, the Company added
six franchised restaurants, consisting of two new franchised restaurants and
four formerly Company-operated existing restaurants which were acquired by
franchisees. One franchised restaurant was closed during 1995. During 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 was opened by an existing franchisee.
During 1993, 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, $2.2 million and $2.5 million in 1995, 1994 and 1993, respectively. In
1993, $.2 million, 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 totaled 32.4%,
31.8% and 31.9% of Company-operated restaurant revenue in 1995, 1994 and 1993,
respectively. Restaurant operating expenses were 55.7%, 52.1% and 52.3% of
Company-operated restaurant revenue, respectively, in 1995, 1994 and 1993.
Food and beverage costs as a percentage of Company-operated restaurant revenue
increased .6% from 1994 to 1995 as compared to the decrease of .1% from 1993 to
1994. The increase in food and beverage costs in 1995 was attributable to
increased lettuce costs caused by flooding in California during the third
quarter of 1995 along with the implementation of a summer menu in the fourth
quarter of 1995. The decrease in food and beverage costs in 1994 was
attributable to lower food product costs offset by an increase in beverage costs
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.
-13-
<PAGE> 16
Restaurant operating expenses as a percentage of Company-operated restaurant
revenue increased 3.6% in 1995 from 1994 primarily due to a $.9 million increase
in hourly labor costs associated with the roll-out of the Company's summer menu
and an increase in front-of-the-house staff to improve guest service. Other
costs have remained at relatively constant dollar levels, due to the fixed
nature of costs associated with operating a restaurant. During 1994, restaurant
operating expenses decreased by .2% of 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. Other costs in 1994 remained at
relatively constant levels as compared with 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 6.9%, 6.3% and 6.8% of total revenue in 1995, 1994
and 1993, respectively. Selling expenses, comprised of advertising and point of
purchase materials, development and production costs, were .9%, .5% and .7% of
total revenue for 1995, 1994 and 1993, respectively. Selling expenses increased
in 1995 by .4% of total revenue from 1994, primarily due to an increase in radio
advertising during the first two quarters of 1995. Selling expenses decreased in
1994 by .2% of total revenue from 1993, primarily due to an additional credit of
$.4 million from Coca-Cola(R) based on product usage.
General and administrative costs, comprised of restaurant manager training,
regional overhead, and corporate administrative costs, were 6.0%, 5.8% and 6.1%
of total revenue in 1995, 1994 and 1993, respectively. General and
administrative costs have remained relatively constant in dollars in 1995 as
compared to 1994 with the exception of an increase in litigation expense of $.3
million. General and administrative costs remained at relatively constant dollar
levels from 1993 to 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were 6.4%,
5.5% and 4.8% of total revenue in 1995, 1994 and 1993, respectively.
Depreciation and amortization expenses increased by .9% in 1995 as compared to
1994 primarily due to the remodeling of 120 restaurants since 1992 and an
increase in pre-opening expenses. 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.
OTHER (INCOME) AND EXPENSE. Fiscal 1995 reflects $.8 million in expenses related
to the termination of the Merger Agreement among the Company, GRR Acquisition
Corp. and GRR, Inc., which the parties entered into on August 23, 1994 and which
was terminated on January 13, 1995. In addition, 1995 also reflects $.8 million
in expenses related to the resignation of the Company's former Chairman of the
Board, President, and Chief Executive Officer. 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.
INTEREST EXPENSE. Interest expenses were 2.2%, 1.7% and 1.7% of total revenue in
1995, 1994 and 1993, respectively. Interest expense increased in 1995 due to the
increase in the average interest rate under the Company's credit facility to
7.7% in 1995 from 6.5% in 1994. Interest expense in 1994 remained constant as a
percentage of total revenue as compared to 1993.
INCOME TAXES. The Company's effective income tax rates were 25%, 32% and 32% in
1995, 1994 and 1993, respectively. The reduction in the 1995 effective tax rate
was primarily due to the generation of additional targeted jobs tax credits,
FICA credits and the net operating loss that did not provide a benefit for the
current year. In addition, the settlement of an Internal Revenue Service audit
for the years 1986 through 1989
-14-
<PAGE> 17
impacted the 1995 rate.
NET INCOME (LOSS). As a result of the foregoing, the Company reported a net loss
of $(5.7) million in fiscal 1995, compared to net income of $6.2 million in 1994
and $5.3 million in 1993, representing (2.5)%, 2.6% and 2.3% of total revenue,
respectively. The net loss was $(.51) per share in 1995, compared to net income
of $.56 and $.48 per share for 1994 and 1993, 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 $15.7 million and $15.3 million as of October 1,
1995 and October 2, 1994, respectively.
Net cash provided by operating activities totaled $6.7 million in 1995, and
$22.4 million in 1994. The Company incurred capital expenditures totaling $10.2
million and $24.1 million in 1995 and 1994, respectively, primarily for
restaurant capital maintenance, remodeling and new restaurant construction.
Proceeds from the sale of locations totaled $4.3 million and $4.4 million in
1995 and 1994, respectively. On October 1, 1995 and October 2, 1994, the
Company's borrowings under its credit facilities with its banks (the "Credit
Facility") were approximately $54.1 million and $53.0 million, respectively.
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. The Company has entered into
interest rate cap agreements solely to hedge its interest rate risk as required
by the Credit Facility. In 1995 and 1994, the Company entered into interest rate
cap agreements under which the maximum base interest rate of its LIBOR-based
payments would have been 12.0% and 7.0%, respectively. The interest rate cap
agreements had an immaterial effect on the Company's interest expense during
fiscal 1995 and 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).
At fiscal year end, the Company was not in compliance with the net worth, fixed
charge coverage ratio, and funded debt to free operating cash flow covenants as
contained in the Third Amendment of the credit facilities, dated May 10, 1995
(see note D of the financial statements). On November 22, 1995, the Company
entered into the Fourth Amendment to the Amended and Restated Credit Agreement
(the "Fourth Amendment"). The Fourth Amendment waives the fixed charge coverage
ratio and the funded debt to free operating cash flow covenants for the fourth
quarter of fiscal 1995 and for all of fiscal 1996. The Fourth Amendment also
reduces the minimum net worth required to be maintained under the net worth
covenant for the fourth quarter of 1995 and all of fiscal 1996, and introduces a
quarterly covenant on earnings before interest, taxes, depreciation and
amortization, and a quarterly covenant on capital expenditures. Adverse
operating results may result in the Company's non-compliance with the covenants
contained in the Fourth Amendment. There can be no assurance that the Company
could obtain a waiver of such non-compliance or the Company would be able to
further amend the Credit Facility.
-15-
<PAGE> 18
The Company expects to incur approximately $3.4 million in capital expenditures
during the 1996 fiscal year. Based upon the Company's present plans, Management
believes that existing cash, cash flow from operations, and proceeds from the
sales of restaurant locations will be sufficient to meet operating needs, fund
anticipated capital expenditures and service debt requirements during fiscal
1996.
The effect of inflation has not been significant upon either the operations or
financial condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this item is set forth on pages F-1 through F-16
of this form 10K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-16-
<PAGE> 19
PART III
The information called for pursuant to this Part III, items 10, 11, 12 and 13,
is incorporated by reference from the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the fiscal year ended October 1, 1995.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-17-
<PAGE> 20
PART IV
ITEM 14. FINANCIAL STATEMENTS, EXHIBITS, AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors.
Consolidated Balance Sheets - October 1, 1995 and October 2, 1994.
Consolidated Statements of Operations - Years Ended October 1, 1995,
October 2, 1994 and October 3, 1993.
Consolidated Statements of Stockholders' Equity - Years Ended October 1,
1995, October 2, 1994, and October 3, 1993.
Consolidated Statements of Cash Flows - Years Ended October 1, 1995,
October 2, 1994, and October 3, 1993.
Notes to Consolidated Financial Statements - Years Ended October 1, 1995,
October 2, 1994, and October 3, 1993.
FINANCIAL STATEMENT SCHEDULE
Schedule VIII - Valuation and Qualifying Accounts
(B) EXHIBITS
2.1 Agreement and Plan of Merger dated August 23, 1994 (the "Merger
Agreement") among the Company, GRR, Inc. and GRR Acquisition
Corporation (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended October 2, 1994).
2.2 First Amendment dated November 16, 1994 to Merger Agreement
(incorporated by reference to the Company's Annual Report on Form
10-K for the year ended October 2, 1994).
2.3 Termination Agreement dated January 13, 1995 to terminate the
Merger Agreeement (incorporated by reference to the Company's
Current Report on Form 8-K dated January 13, 1995).
3.1 Restated Certificate of Incorporation of the Company (incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended October 2, 1994).
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).
10.01 Agreement between Michael P. O'Donnell and the Company dated April
21, 1992
-18-
<PAGE> 21
(incorporated by reference to the Company's Annual Report on Form
10-K for the year ended September 27, 1992).
10.02 Amended and Restated Credit Agreement (the "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 bank 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).
10.03 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).
10.04 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).
10.05 Agreement between Michael P. O'Donnell and the Company dated July
26, 1994 (incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended October 2, 1994).
10.06 Agreement between Peter J. Beaudrault and the Company dated July
26, 1994 (incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended October 2, 1994).
10.07 Agreement between Michael R. Jorgensen and the Company dated July
26, 1994 (incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended October 2, 1994).
10.08 Agreement between William C. Schoener and the Company dated July
26, 1994 (incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended October 2, 1994).
10.09 Third Amendment, dated as of May 10, 1995, to the Credit Agreement
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the Quarter ended April 2, 1995).
10.10 Separation Agreement, dated as of April 3, 1995, between the
Company and Michael P. O'Donnell (incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
April 2, 1995).
10.11 Employment Agreement, dated as of July 21, 1995, between the
Company and Daniel R. Scoggin (incorporated by the Company's
Quarterly Report on Form 10-Q for the quarter ended July 2, 1995).
10.12 Amendment dated May 18, 1995 to Agreement between Michael R.
Jorgensen and the Company dated July 26, 1994.*
10.13 Amendment dated May 18, 1995 to Agreement between William C.
Schoener and the Company dated July 26, 1994.*
-19-
<PAGE> 22
10.14 Amendment dated August 18, 1995 to Agreement between Michael R.
Jorgensen and the Company dated July 26, 1994, and as amended on
May 18, 1995.*
10.15 Agreement between Robin L. Moroz and the Company dated August 18,
1995.*
10.16 Amendment dated August 18, 1995 to Agreement between Robin L.
Moroz and the Company dated August 18, 1995.*
10.17 Amendment dated August 18, 1995 to Employment Agreement, dated as
of July 21, 1995, between the Company and Daniel R. Scoggin.*
10.18 Fourth Amendment, dated as of November 22, 1995, to the Credit
Agreement.*
21 List of Subsidiaries (incorporated by reference to the Compny's
Annual report on Form 10- K for the year ended October 2, 1994).
* Asterisk (*) denotes that the Exhibit is filed herewith.
(c) Reports on Form 8-K
The only report on form 8-K filed by the Company during the fiscal year
ended October 1, 1995 was the following:
<TABLE>
<CAPTION>
Date of Report Items Reported
-------------- --------------
<S> <C>
January 13, 1995 The Company and GRR Acquisition Corp.
announced on January 13, 1995 that
effective that date, they, together
with GRR, Inc., entered into a
Termination Agreement dated January
13, 1995, to terminate the Merger
Agreement, dated August 23, 1994, as
amended November 16, 1994, among the
Company, GRR Acquisition and GRR,
Inc. and to abandon the merger
contemplated thereby.
</TABLE>
-20-
<PAGE> 23
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 12th day of
December, 1995.
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)
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel R. Scoggin Chairman of the Board, President, December 12, 1995
- ---------------------------- and Chief Executive Officer
Daniel R. Scoggin
/s/Michael R. Jorgensen Senior Vice President, Chief Financial December 12, 1995
- ---------------------------- Officer and Treasurer
Michael R. Jorgensen (Principal Financial and
Accounting Officer)
/s/Christian R. Guntner Director December 12, 1995
- ----------------------------
Christian R. Guntner
/s/J. Eric Hanson Director December 12, 1995
- ----------------------------
J. Eric Hanson
/s/David J. P. Meachin Director December 12, 1995
- ----------------------------
David J. P. Meachin
/s/John A. Mistretta Director December 12, 1995
- ----------------------------
John A. Mistretta
/s/James. R. Olson Director December 12, 1995
- ----------------------------
James R. Olson
/s/Joseph Schollenberger Director December 12, 1995
- ----------------------------
Joseph Schollenberger
</TABLE>
-21-
<PAGE> 24
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 1, 1995 and October 2, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended October 1, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 1, 1995 and October 2, 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended October 1, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material repects the information set forth
therein.
ERNST & YOUNG LLP
Boston, Massachusetts
November 22, 1995
F-1
<PAGE> 25
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 1, 1995 AND OCTOBER 2, 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,425 $ 1,457
Receivables, net of allowances for doubtful
accounts of $797 in 1995 and $276 in 1994 1,147 1,511
Income tax refunds receivable 1,541
Inventories 2,511 2,577
Prepaid expenses and other current assets 2,115 2,249
--------- --------
Total current assets 9,739 7,794
Property and equipment:
Land 10,240 11,203
Buildings and leasehold improvements 119,749 120,034
Machinery and equipment 40,399 39,867
--------- --------
170,388 171,104
Accumulated depreciation and amortization 53,484 43,531
--------- --------
Property and equipment, net 116,904 127,573
Other assets 18,713 21,405
--------- --------
$ 145,356 $156,772
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 5,933 $ 7,107
Accrued expenses 11,190 14,900
Income taxes 201
Current portion of long-term debt and capital lease obligations 8,277 902
--------- --------
Total current liabilities 25,400 23,110
Long-term debt and capital lease obligations 50,303 57,868
Deferred income taxes 1,120 1,925
Other long-term liabilities 8,849 8,833
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 11,174,000 in 1995 and
11,114,000 shares in 1994 1,862 1,852
Additional paid-in capital 57,883 57,631
Accumulated earnings (deficit) (61) 5,649
--------- --------
59,684 65,132
Deferred Officer Compensation (96)
--------- --------
Total stockholders' equity 59,684 65,036
--------- --------
$ 145,356 $156,772
========= ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 26
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
OCTOBER 1, OCTOBER 2, OCTOBER 3,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUE $ 230,406 $ 243,971 $ 232,556
--------- --------- ---------
COSTS AND EXPENSES:
Cost of products sold 200,756 202,819 193,707
Selling, general and administrative 16,043 15,370 15,923
Depreciation and amortization 14,667 13,507 11,205
Interest expense 4,957 4,091 4,031
Other (income) expense 1,599 (1,002) (145)
--------- --------- ---------
238,022 234,785 224,721
--------- --------- ---------
Net income (loss) before income taxes (7,616) 9,186 7,835
Income taxes (benefit) (1,906) 2,940 2,507
--------- --------- ---------
NET INCOME (LOSS) $ (5,710) $ 6,246 $ 5,328
========= ========= =========
Weighted average common shares outstanding 11,151 11,109 11,086
========= ========= =========
PER SHARE DATA:
Net income (loss) per common share $ (.51) $ .56 $ .48
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 27
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<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 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
Amortization of deferred
officer compensation 96 96
Converted stock options 60 10 252 262
Net loss (5,710) (5,710)
-------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 1, 1995 11,174 0 $ 1,862 $ 57,883 $ (61) $ 0 $ 0 $ 59,684
====== === ======= ======== ======== ==== ====== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 28
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
OCTOBER 1, 1995 OCTOBER 2, 1994 OCTOBER 3, 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,710) $ 6,246 $ 5,328
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,029 13,851 11,583
Deferred income taxes (805) 336 705
Write-off of deferred debt costs 572
Gain on disposition of assets (1,574) (186)
Other, net 96 92
Return of insurance deposits 819 4,690
Change in operating assets and liabilities:
Accounts receivable 263 (152) 310
Income tax receivable (1,541)
Inventories and prepaid expenses 481 (1,468) (2,504)
Accounts payable and accrued expenses (1.981) (218) 276
-------- -------- --------
Net cash provided by operating activities 6,651 22,375 15,512
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,695) (22,437) (23,857)
Proceeds from sale of property and equipment 4,289 4,378
Purchase of liquor licenses (164) (681) (387)
Proceeds from sale of liquor license 200
Deposits received (paid) (217) 17
Notes receivable and working capital loan collections 130 (76)
Pre-opening costs and related items (390) (988) (900)
-------- -------- --------
Net cash used in investing activities (5,960) (19,815) (25,003)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 49,600 28,800 14,100
Payments of long-term borrowings (49,340) (29,813) (5,506)
Payments of deferred debt costs (245) (1,413) (61)
Proceeds from issuance of common stock 262 61
-------- -------- --------
Net cash provided by (used in) financing activities 277 (2,365) 8,533
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 968 195 (958)
Cash at beginning of period 1,457 1,262 2,220
-------- -------- --------
Cash at end of period $ 2,425 $ 1,457 $ 1,262
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,728 $ 3,458 $ 4,255
Taxes paid 1,067 2,339 1,444
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 29
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended October 1, 1995 and October 2, 1994 and October 3, 1993
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 1, 1995, the 52
week fiscal year ended October 2, 1994, and the 53 week fiscal year ended
October 3, 1993, are referred to as 1995, 1994, and 1993, 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
original maturities of three months or less, 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 are generally 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 are included in other assets and consist
primarily of trade names, liquor licenses and franchise value. These assets
are being amortized by the straight-line method over lives ranging between 15
and 40 years. The excess of cost of acquired companies over the value assigned
to net tangible assets, representing goodwill, is amortized on a straight line
basis over 40 years. On an annual basis, the Company compares the carrying
value of its intangible assets to the projected undiscounted cash flow of the
related businesses in order to evaluate the propriety of the amortization
periods.
ACCRUED INSURANCE CLAIMS: The Company maintains insurance coverage for
workers' compensation risks under
F-6
<PAGE> 30
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.
INCOME TAXES: Tax provisions and credits are recorded at statutory rates for
taxable items included in the consolidated statements of operations regardless
of the period for which such items are reported for tax purposes. Deferred
income taxes are recognized for temporary differences between financial
statement and income tax based assets and liabilities. Deferred tax assets are
reduced by a valuation allowance when the determination can be made that it is
more likely than not that some portion or all of the related tax asset will be
realized.
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 are recognized as revenue
when substantially all commitments and obligations have been fulfilled, which
is generally when the restaurant opens. Terms of franchise agreements are
generally over a twenty year period and provide for 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
$2,171,000, $2,192,000 and $2,539,000 for 1995, 1994 and 1993, respectively.
PENDING ACCOUNTING STANDARDS: In March of 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121,
which is not effective until the Company's fiscal year beginning September 30,
1996, requires an evaluation of the productive assets of the Company in
relation to the future cash flows generated in order to determine if an
impairment of the assets' value exists. SFAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. Due to the
significant number of store locations the Company maintains and the extensive
number of estimates that must be made, Management has not yet fully determined
the impact of SFAS 121, but it is not expected to have a material impact on the
Company's results of operations or its financial position.
B. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Deferred debt acquisition costs $3,417 $3,172
Deferred pre-opening costs 3,124 2,735
Franchise Value 4,696 4,696
Goodwill 4,166 4,166
Liquor licenses 4,666 4,662
Tradename 3,073 3,073
Prepaid insurance 2,771 3,871
Other 300 409
------ -------
26,213 26,784
Less accumulated amortization 7,500 5,379
-------- -------
$18,713 $21,405
======= =======
</TABLE>
Other assets were net of allowances for doubtful accounts of $232,000 and
$307,000 at October 1, 1995 and October
F-7
<PAGE> 31
2, 1994, respectively.
C. PREPAID AND ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Casualty insurance $ 1,998 $ 2,336
Occupancy costs 2,728 2,747
Payroll and payroll related expenses 3,639 5,273
Sales taxes 1,296 1,319
Other 1,529 3,225
------- -------
$11,190 $14,900
======= =======
</TABLE>
Prepaid expenses and other current assets of $2,115,000 at October 1, 1995 and
$2,249,000 at October 2, 1994 included prepaid casualty insurance costs of
$960,000 and $1,510,000, respectively.
D. LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt and capitalized lease obligations consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Amended Credit Agreement dated
October 8, 1993:
Tranche A Term $34,151 $36,641
Tranche A Revolving 6,700 2,100
Tranche B Term 13,255 14,220
Capitalized lease obligations at 5% to 15% 4,474 5,809
------- -------
58,580 58,770
Less current portion 8,277 902
------- -------
$50,303 $57,868
======= =======
</TABLE>
On October 8, 1993 the Company and a majority of its lenders along with certain
new banks, amended the outstanding agreement dated April 26, 1992. The Amended
and Restated Credit Agreement ("Amended Agreement") provided the Company with
$70,000,000 that was 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 ($6,700,000
outstanding at October 1, 1995 and $2,100,000 outstanding at October 2, 1994),
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 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
F-8
<PAGE> 32
the payment of dividends would prevent the Company from paying dividends during
the term of the Amended Agreement.
The Third Amendment to the Amended and Restated Credit Agreement (the "Third
Amendment"), dated May 10, 1995, 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 was converted to term debt,
and the revolving facility was 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. The interest rates under the
Amended Agreement at October 1, 1995 on Tranche A Term, Tranche A Revolving, and
Tranche B Term were 7.125%, 8.75% and 8.0625%, respectively.
At fiscal year end, the Company was not in compliance with the net worth, fixed
charge coverage ratio, and funded debt to free operating cash flow covenants as
contained in the Third Amendment of the credit facilities. On November 22,
1995, the Company entered into the Fourth Amendment to the Amended and Restated
Credit Agreement (the "Fourth Amendment"). The Fourth Amendment waives the
fixed charge coverage ratio and the funded debt to free operating cash flow
covenants for the fourth quarter of fiscal 1995 and for all of fiscal 1996. The
Fourth Amendment also reduces the minimum levels of net worth for the fourth
quarter of fiscal 1995 and for all of fiscal 1996. The Fourth Amendment
introduces two covenants: (1) a quarterly covenant on earnings before interest,
income taxes, depreciation and amortization and (2) a quarterly covenant on
capital expenditures.
Maturities of long-term debt for the years succeeding October 1, 1995 are as
follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1996 $ 8,277
1997 10,705
1998 14,224
1999 16,069
2000 8,626
Thereafter 679
</TABLE>
Interest expense for 1995, 1994 and 1993 as presented has been reduced by
interest income of $162,000, $171,000 and $248,000, respectively.
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 1995, the Company entered into two interest rate cap agreements in the
aggregate of $30,000,000 expiring during fiscal 1996. The fixed interest rate
on these contracts at October 1, 1995 was 12%. During 1994, the Company entered
into two interest rate cap agreements in the aggregate of $15,000,000 that
expired 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 that expired in fiscal 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.
F-9
<PAGE> 33
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.
A summary of property leased under capital leases is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Real Estate $8,703 $9,353
Equipment 456 456
------ ------
9,159 9,809
Less accumulated amortization 5,699 5,107
------ ------
$3,460 $4,702
====== ======
</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.
Future minimum lease payments under noncancelable leases as of October 1, 1995
for each of the following years are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ------
(In thousands)
<C> <C> <C>
1996 $ 1,305 $ 6,095
1997 1,132 5,558
1998 999 4,946
1999 904 4,156
2000 746 3,857
Thereafter 752 23,704
------- -------
Total minimum payments 5,838 $48,316
=======
Less: Amounts representing interest 1,364
-------
Present value of net minimum payments 4,474
Current portion of capital lease obligations 895
-------
Long-term capital lease obligations $ 3,579
=======
</TABLE>
Minimum obligations for noncancelable operating leases have been reduced by
minimum noncancellable operating sublease rentals of $451,000.
Rent expense under operating leases for continuing operations was $8,391,000,
$8,280,000 and $7,623,000 for 1995, 1994 and 1993, respectively. Rent expense
includes contingent rental expense for capital and operating leases of
$2,011,000, $2,373,000 and $2,424,000 for 1995, 1994 and 1993, 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. The 1989 Stock Option Plan
F-10
<PAGE> 34
authorizes the grant of options to purchase up to an aggregate of 575,000 shares
of common stock of the Company (less any shares issued pursuant to the exercise
of options granted under the Company's 1987 and 1982 stock option plans).
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.
The following is a summary of stock option transactions during 1995, 1994
and 1993:
<TABLE>
<CAPTION>
Shares Option Prices
------ -------------
<S> <C> <C>
Options outstanding September 27, 1992 477,000 $ 3.29 to $ 10.06
Granted 304,000 $ 7.00 to $ 9.13
Canceled (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
Canceled (95,000) $ 4.63 to $ 9.13
--------
Options outstanding at October 2, 1994 628,000 $ 3.29 to $ 10.06
Granted 183,000 $ 3.75 to $ 5.50
Canceled (386,000) $ 3.29 to $ 7.88
--------
Options outstanding at October 1, 1995 425,000 $ 3.29 to $ 10.06
======== ======== =========
</TABLE>
As of October 1, 1995, options to purchase 425,000 shares of Common Stock were
outstanding pursuant to the 1992 Equity Incentive Plan and the 1989 Stock Option
Plan, options to purchase 338,000 shares of Common Stock were available for
future grants pursuant to such plans and 763,000 shares of Common Stock were
reserved for issuance.
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, former Chairman of the Board, President, and Chief Executive Officer.
These shares, valued at $274,000 at issuance, were 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
were released on 10,000 shares. Pursuant to the terms of a Separation Agreement
dated April 3, 1995 between the Company and Mr. O'Donnell, all 30,000 shares of
Common Stock became fully vested and were delivered to Mr. O'Donnell. As a
result, an aggregate amount of $274,000 has been recorded as compensation
expense through fiscal 1995.
F. INCOME TAXES
The Company's effective income tax rates were 25%, 32% and 32% in 1995, 1994 and
1993, respectively. The reduction in the 1995 effective tax rate was primarily
due to the generation of additional targeted jobs tax credits, FICA credits and
the net operating loss that did not provide a benefit for the current year. In
addition, the settlement of an Internal Revenue Service audit for the years 1986
through 1989 impacted the 1995 rate.
F-11
<PAGE> 35
The provision for income taxes (benefit) computed under SFAS No. 109 in 1995,
1994 and 1993 consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $(1,247) $ 2,344 $ 1,574
State 146 260 226
------- ------- -------
(1,101) 2,604 1,800
Deferred:
Federal (734) 298 654
State (71) 38 53
------- ------- -------
$(1,906) $ 2,940 $ 2,507
======= ======= =======
</TABLE>
The reasons for the difference between total tax expense (benefit) and the
amount computed by applying the statutory federal income tax rate to income
(loss) are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Taxes at statutory rate applied to pretax $(2,589) $ 3,123 $ 2,664
income (loss)
Increases (reductions) in tax resulting from:
State income taxes 51 197 184
Targeted jobs tax credits (515) (499) (232)
FICA tax credits (815) (422)
Credits and net operating loss-no benefit 1,411
Resolution of tax concerns 481
Other 70 541 (109)
------- ------- -------
$(1,906) $ 2,940 $ 2,507
======= ======= =======
</TABLE>
Deferred income taxes (benefit) 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 1,
1995 and October 2, 1994 are as follows:
F-12
<PAGE> 36
<TABLE>
<CAPTION>
OCTOBER 1, 1995
ASSETS LIABILITIES TOTAL
------ ----------- -----
(In thousands)
<S> <C> <C> <C>
Current:
Vacation pay $ 228 $ 228
Accounts receivable 237 237
Other deductible (income) amounts 53 $ (30) 23
Less valuation allowance (488) (488)
------- ------- -------
$ 30 $ (30) $ 0
------- ------- -------
Noncurrent:
Credits $ 3,749 $ 3,749
Depreciation 1,535 $(4,008) (2,473)
Lease obligations 2,454 (2,199) 255
Accrued insurance 2,685 2,685
Closed location reserve 507 507
Amortization 143 (658) (515)
Land (272) (272)
Sales & use tax 276 276
Deferred Compensation 249 249
Executive Retirement 229 229
Other deductible (income amounts) 168 37 205
Less valuation allowances (6,015) (6,015)
------- ------- -------
$ 5,980 $(7,100) $(1,120)
------- ------- -------
$ 6,010 $(7,130) $(1,120)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 2, 1994
ASSETS LIABILITIES TOTAL
------ ----------- -----
(In thousands)
<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)
------- ------- -------
Total current $ 72 $ (72) $ 0
------- ------- -------
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) 1,155 (274) 881
Less valuation allowances (4,718) (4,718)
------- ------- -------
Total noncurrent $ 5,525 $(7,450) $(1,925)
------- ------- -------
Total current and noncurrent $ 5,597 $(7,522) $(1,925)
======= ======= =======
</TABLE>
F-13
<PAGE> 37
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 1, 1995 the Company had approximately $1,277,000 of
alternative minimum tax credit carryforwards for federal tax purposes,
approximately $999,000 of targeted jobs tax credits, approximately $1,456,000 of
FICA tax credits, and $18,000 of foreign tax credits which expire on various
dates through 2009.
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 $218,000, $221,000 and $240,000 for
1995, 1994 and 1993, 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 $100,000, $112,000 and $97,000
for 1995, 1994 and 1993, respectively. Except as set forth above, the Company
has no liability for health or other benefits to retirees.
H. COST OF PRODUCTS SOLD
Cost of products sold comprises the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Food and beverage costs $ 73,837 $ 76,949 $ 73,309
Labor costs 77,779 76,845 73,537
Other costs 49,142 49,025 46,861
-------- -------- --------
$200,756 $202,819 $193,707
======== ======== ========
</TABLE>
I. OTHER INCOME AND EXPENSE
During 1995, the Company recognized approximately $ .8 million in expenses
related to the resignation of the Company's Chairman of the Board, President,
and Chief Executive Officer. Also recognized was approximately $ .8 million in
expenses related to the termination of the Merger Agreement among the Company,
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 timely completion of the financing for
the merger.
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.
F-14
<PAGE> 38
J. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly consolidated results of
operations for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995: JANUARY 1 APRIL 2 JULY 2 OCTOBER 1
--------- ------- ------ ---------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Revenue $62,398 $56,937 $56,145 $54,926
Gross profit 10,337 8,119 7,231 3,963
Net income (loss) 122 (1,334) (738) (3,760)
Per share data:
Net income (loss) .01 (.12) (.07) (.33)
<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
<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>
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
including those based on age, race or sex. 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. 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-15
<PAGE> 39
SCHEDULE VIII
GROUND ROUND RESTAURANTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<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 1, 1995
Allowances deducted from assets
to which they apply:
For doubtful accounts $ 583 $ 447 - - $ 1,030
YEAR ENDED OCTOBER 2, 1994:
Allowances deducted from assets
to which they apply:
For doubtful accounts 447 140 - 4 (b) 583
YEAR ENDED OCTOBER 3, 1993:
Allowances deducted from assets
to which they apply:
For doubtful accounts 1,270 51 - 874 (a)(b) 447
</TABLE>
(a) Write-off in connection with uncollectible account.
(b) Recoveries.
F-16
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
Document Page No.
-------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated August 23, 1994 (the
"Merger Agreement") among the Company, GRR, Inc. and GRR
Acquisition Corporation (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
October 2, 1994).
2.2 First Amendment dated November 16, 1994 to Merger Agreement
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended October 2, 1994).
2.3 Termination Agreement dated January 13, 1995 to terminate the
Merger Agreeement (incorporated by reference to the Company's
Current Report on Form 8-K dated January 13, 1995).
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended October 2, 1994).
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).
10.01 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).
10.02 Amended and Restated Credit Agreement (the "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 bank 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).
10.03 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).
10.04 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).
10.05 Agreement between Michael P. O'Donnell and the Company dated
July 26, 1994 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended October 2,
1994).
10.06 Agreement between Peter J. Beaudrault and the Company dated
July 26,
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C>
1994 (incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended October 2, 1994).
10.07 Agreement between Michael R. Jorgensen and the Company dated
July 26, 1994 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended October 2,
1994).
10.08 Agreement between William C. Schoener and the Company dated
July 26, 1994 (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended October 2,
1994).
10.09 Third Amendment, dated as of May 10, 1995, to the Credit
Agreement (incorporated by reference to the Company's
Quarterly Report on Form 10- Q for the Quarter ended April 2,
1995).
10.10 Separation Agreement, dated as of April 3, 1995, between the
Company and Michael P. O'Donnell (incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 2, 1995).
10.11 Employment Agreement, dated as of July 21, 1995, between the
Company and Daniel R. Scoggin (incorporated by the Company's
Quarterly Report on Form 10-Q for the quarter ended July 2,
1995).
10.12 Amendment dated May 18, 1995 to Agreement between Michael R.
Jorgensen and the Company dated July 26, 1994.*
10.13 Amendment dated May 18, 1995 to Agreement between William C.
Schoener and the Company dated July 26, 1994.*
10.14 Amendment dated August 18, 1995 to Agreement between Michael R.
Jorgensen and the Company dated July 26, 1994, and as amended on May
18, 1995.*
10.15 Agreement between Robin L. Moroz and the Company dated August 18,
1995.*
10.16 Amendment dated August 18, 1995 to Agreement between Robin L. Moroz
and the Company dated August 18, 1995.*
10.17 Amendment dated August 18, 1995 to Employment Agreement, dated as
of July 21, 1995, between the Company and Daniel R. Scoggin.*
10.18 Fourth Amendment, dated as of November 22, 1995, to the Credit
Agreement.*
21 List of Subsidiaries (incorporated by reference to the
Compny's Annual report on Form 10-K for the year ended
October 2, 1994).
</TABLE>
* Asterisk (*) denotes that the Exhibit is filed herewith.
<PAGE> 1
Exhibit 10.12
May 18, 1995
Michael R. Jorgensen
1906 Hockley Drive
Hingham, MA 02043
Dear Mike:
Reference is made to the letter agreement between you and the
undersigned dated July 26, 1994 (the "Agreement") relating to payments to you in
the event of a change of control of Ground Round Restaurants, Inc.
Effective as of the date HM Holdings, Inc. transfers its stock
ownership in the corporation to U.S. Industries, Inc., Section 3(b) of the
Agreement shall be amended as follows: the words "HM Holdings, Inc." shall be
replaced by the words "U.S. Industries, Inc." and the word "HMH" shall be
replaced by the word "USI".
Except as hereby amended, the Agreement shall continue in full force
and effect.
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:
---------------------------
AGREED:
/s/ Michael R. Jorgensen
- ------------------------
Michael R. Jorgensen
<PAGE> 1
Exhibit 10.13
May 18, 1995
William C. Schoener
15680 Laura Lane
Brookfield, Wisconsin 53005
Dear Bill::
Reference is made to the letter agreement between you and the
undersigned dated July 26, 1994 (the "Agreement") relating to payments to you in
the event of a change of control of Ground Round Restaurants, Inc.
Effective as of the date HM Holdings, Inc. transfers its stock
ownership in the corporation to U.S. Industries, Inc., Section 3(b) of the
Agreement shall be amended as follows: the words "HM Holdings, Inc." shall be
replaced by the words "U.S. Industries, Inc." and the word "HMH" shall be
replaced by the word "USI".
Except as hereby amended, the Agreement shall continue in full force
and effect.
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:
---------------------------
AGREED:
/s/ William C. Schoener
- -----------------------
William C. Schoener
<PAGE> 1
Exhibit 10.14
August 18, 1995
Michael R. Jorgensen
28 Whaler Lane
North Quincy, MA 02171
Dear Mr. Jorgensen:
Reference is made to the letter agreement between you and the
undersigned dated Ju1y 26, 1994 (the "Agreement") relating to payments to you in
the event of a change of control of Ground Round Restaurants, Inc.
Effective as of August 18, 1995, paragraph 2 under Section 1 of the
Agreement shall be replaced with the following language:
"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. In
addition, the lump sum compensation shall also include one year of your
current annual base salary and if your base salary is hereafter
increased, your highest annual base salary from time to time hereafter
in effect and such additional one year of base salary shall only be
paid if you use best efforts to cooperate and assist with any
transition resulting from a sale or change of control of the
Corporation. 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")."
Michael R. Jorgensen
August 18, 1995
Page two
Except as hereby amended, the Agreement shall continue in full force
and effect.
<PAGE> 2
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:
---------------------------------------------------------
AGREED:
/s/ Michael R. Jorgensen
- ------------------------
Michael R. Jorgensen
<PAGE> 1
Exhibit 10.15
August 18, 1995
Robin L. Moroz
56 Pinecliff Road
Weymouth, MA 02189
Dear Ms. Moroz:
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
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
<PAGE> 2
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).
(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.
<PAGE> 3
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.
(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
<PAGE> 4
(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.
(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
<PAGE> 5
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 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.
<PAGE> 6
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 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
----------------------------
Agreed:
/s/ Robin L. Moroz
- ------------------
Robin L. Moroz
<PAGE> 1
Exhibit 10.16
August 18, 1995
Robin L. Moroz
56 Pinecliff Road
Weymouth, MA 02189
Dear Ms. Moroz:
Reference is made to the letter agreement between you and the
undersigned dated August 18, 1995 (the "Agreement") relating to payments to you
in the event of a change of control of Ground Round Restaurants, Inc.
Effective as of the date HM Holdings, Inc. transfers its stock
ownership in the corporation to U.S. Industries, Inc., Section 3(b) of the
Agreement shall be amended as follows: the words "HM Holdings, Inc." shall be
replaced by the words "U.S. Industries, Inc." and the word "HMH" shall be
replaced by the word "USI".
Except as hereby amended, the Agreement shall continue in full force
and effect.
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:
-----------------------------------
AGREED:
/s/ Robin L. Moroz
- ------------------
Robin L. Moroz
<PAGE> 1
Exhibit 10.17
AMENDMENT TO EMPLOYMENT AGREEMENT
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, in consideration of the promises and mutual covenants contained
herein, the parties agree to amend the Employment Agreement by and between
Ground Round and Employee dated July 21, 1995 (the "Agreement") as follows:
I. Paragraph 5 (Change of Control) under section (d) shall be amended to
include the following additional section designated as 5(d)(v):
(v)There shall cease to be a public trading market for shares of common
stock of the Company.
II. Paragraph 8 (Non-Compete Provision) shall be replaced with the
following language:
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 Ground Round restaurants within geographic proximity
to any Ground Round restaurant. 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.
Except as hereby amended, the Agreement shall continue in full force
and effect.
WHEREOF, this Agreement has been executed as a sealed instrument by the
Company, by its duly authorized representative, and by the Employee, as of this
18th day of August, 1995.
Ground Round Restaurants, Inc.
By:
------------------------
/s/ Michael R. Jorgensen
------------------------
Michael R. Jorgensen
Senior Vice President
/s/ Daniel R. Scoggin
---------------------
Daniel R. Scoggin
<PAGE> 1
Exhibit 10.18
FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
FOURTH AMENDMENT (this "Amendment"), dated as of November 22, 1995, to
the Amended and Restated Credit Agreement, dated as of October 8, 1993, as
amended by a First Amendment, dated as of January 20, 1994, and a Second
Amendment, dated as of February 10, 1995, and a Third Amendment, dated as of May
10, 1995 (as so amended, the "Credit Agreement"), among The Ground Round, Inc.
(the "First Borrower"), a Delaware corporation, GR of Minn., Inc., a Delaware
corporation (the "Second Borrower", and together with the First Borrower, the
"Borrowers"), the banks named therein (the "Banks"), The Bank of New York, as
Agent (the "Agent") and Chemical Bank, as Co-Agent.
PRELIMINARY STATEMENTS:
a. The Credit Agreement amended and restated the Amended and
Restated Credit Agreement, dated as of April 26, 1992,
among the Borrowers, the banks named therein and Citibank,
N.A., as original agent.
b. The Borrowers have requested that the Agent and the
Lenders waive each of the Fixed Charge Coverage Ratio
covenant and the Funded Debt to Free Operating Cash Flow
Ratio covenant for the fourth quarter of fiscal year 1995
and for fiscal year 1996.
c. The Borrowers desire to amend the Credit Agreement to (i)
reduce the amounts required under the Net Worth covenant
for the fourth quarter of fiscal year 1995 and for fiscal
year 1996, (ii) permit the Borrowers to sell certain
restaurants and other assets and to retain up to 25% of
the proceeds of such asset sales prior to and including
March 31, 1996, and (iii) provide for additional covenants
with respect to EBITDA and Capital Expenditures.
d. The Lenders and the Agent are willing to grant the waivers
and to amend the Credit Agreement with respect to the
foregoing.
e. Unless otherwise defined herein, all terms defined in the
Credit Agreement shall be used herein as therein defined.
In consideration of the covenants, conditions and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:
SECTION i. Waivers.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 below, the Agent and the Lenders hereby waive the Borrowers'
compliance with the Fixed Charge Covenant Ratio in Section 5.01(q) of the Credit
Agreement and the Funded Debt to Free Operating Cash Flow Ratio in Section
5.01(r) of the Credit Agreement for the fourth fiscal quarter of 1995 and for
fiscal year 1996.
<PAGE> 2
SECTION ii. Amendments to Credit Agreement.
The Credit Agreement is, effective as of the date hereof, subject to
the satisfaction of the conditions precedent set forth in Section 3 below,
hereby amended as follows:
(i)Section 1.01 is hereby amended by deleting the
definition of "Applicable Margin" and inserting the
following in substitution therefor:
"`Applicable Margin': means, at all times: (i) with
respect to the unpaid principal amount of Alternate Base
Rate Advances, 0.75%, and (ii) with respect to the unpaid
principal amount of Eurodollar Rate Advances, 2.00%."
(ii)Section 1.01 is hereby further amended by inserting
the following new definitions:
"`Fourth Amendment': means the Fourth Amendment, dated as
of November 22, 1995, to this Agreement.
`Restaurant Capital Gains': means capital gains,
calculated in accordance with GAAP, and as reported by GRR
on its reports to the SEC on Form 10-Q and Form 10-K, with
respect to each Ground Round restaurant which is sold.
`Restaurant Disclosure Letter': means that certain letter
dated November 22, 1995 from the Borrowers addressed to
the Agent and the Lenders, with respect to restaurants and
other assets which the Borrowers propose selling on or
prior to March 31, 1996."
(iii)Section 2.05(b)(ii) is hereby amended by inserting
the following at the end of the first sentence thereof:
"provided, further, however, that with respect to Net Cash
Proceeds received from the sale, lease, transfer or other
disposition of any assets of the Borrowers completed on or
after the date of the Fourth Amendment but on or before
March 31, 1996, the Borrowers may retain an amount up to
25% of Net Cash Proceeds with respect to each such asset
sold which is a restaurant or other asset shown on the
Restaurant Disclosure Letter, or which is an asset
otherwise permitted to be sold pursuant to the provisions
of Section 5.02(e)."
(iv)Section 2.06(b)(i) is hereby amended by deleting the
percentage "0.375%" therein and inserting "0.75%" in
substitution therefor.
(v)Section 2.06(b)(ii) is hereby amended by deleting the
percentage "2.25%" therein and inserting "2.625%" in
substitution therefor.
(vi)Section 5.01(n) is amended by deleting the chart for
each period and inserting the following in substitution
therefor:
"Fiscal Year Fiscal Quarter
<TABLE>
<S> <C> <C>
1995 4th $58,500,000
1996 1st $56,000,000
1996 2nd-4th $54,700,000*
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
1997 1st-4th $68,000,000
1998 1st-4th $71,000,000
1999 1st-4th $80,000,000
2000 1st-4th $89,000,000"
</TABLE>
* For purposes of this covenant, the Net Worth
required for the 2nd-4th fiscal quarters of 1996 shall be
increased by the amount of Restaurant Capital Gains for
such fiscal period.
(vii)Section 5.01(t)(ii)(C) is amended to
read as follows:
"(C) a Compliance Certificate satisfactory to the Agent
showing computations used by the Borrowers in determining compliance
with the covenants contained in Sections 5.01(m), 5.01(n) through (s),
5.01(u) and (v), 5.02(a) through (c), 5.02(f) through (i) and 5.02(r)."
(viii)Section 5.01(t)(iii)(D) is amended to
read as follows:
"(D) a schedule in form satisfactory to the Agent of the
computations used by such accountants in determining, as of the end of
such Fiscal Year, compliance with the covenants contained in Sections
5.01(m), 5.01(n) through (s), 5.01 (u) and (v), 5.02(a) through (c),
5.02(f) through (i) and 5.02(r), which may be in the form of the
Compliance Certificate and . . ."
(ix)Section 5.01 is further amended by adding
new subsections (u) and (v) thereto to read as follows:
"(u) Capital Expenditures.
Not permit Capital Expenditures to exceed the
amounts set forth below for each period set forth below:
Fiscal Year Fiscal Quarter
<TABLE>
<S> <C> <C>
1996 1st $500,000
1996 2nd $700,000
1996 3rd $2,000,000*
1996 4th $1,200,000
</TABLE>
* For purposes of this covenant, the maximum Capital
Expenditure threshold for the third fiscal quarter of 1996
shall be decreased to $1,000,000 if the Borrowers do not
complete the New Restaurant to be located in Whitemarsh,
Pennsylvania.
(v) EBITDA.
Maintain at all times, EBITDA, after
deducting the amount of Restaurant Capital Gains included
in the definition of net income for purposes of
calculating EBITDA, of not less than the amount set forth
below for each period set forth below:
Fiscal Year Fiscal Quarter
<PAGE> 4
<TABLE>
<S> <C> <C>
1996 1st $1,100,000
1996 2nd $1,650,000
1996 3rd $2,600,000
1996 4th $3,100,000"
</TABLE>
(x)Section 5.02(e) is amended by amending
clause (iii) thereof, and inserting a new clause (iv) at
the end thereof, to read as follows:
"(iii) sales of any restaurant the Location Operating
Profit of which has been less than $200,000 for the most
recent 12 month period, provided, that all such
restaurants are sold for cash, and (iv) sales of any
restaurant or other asset listed on the Restaurant
Disclosure Letter, provided that all such restaurants or
other assets are sold for cash and that not less than 90%
of the amount of anticipated cash proceeds, as shown on
said Restaurant Disclosure Letter, is actually received by
the Borrowers, and provided, further, that all such sales
shall be completed on or before March 31, 1996."
SECTION iii. Conditions of Effectiveness.
This Amendment shall become effective as of the date hereof, when the
Agent shall have received:
(a) counterparts of (i) this Amendment executed by the
Borrowers, the Required Lenders and the Agent, (ii) the Consent
appended hereto (the "Consent") executed by each of the Guarantors, and
(iii) such other documents as the Agent shall reasonably request;
(b) a fee in the amount of 1/4 of 1% on each Lenders'
Commitment as in effect on the date of this Amendment, paid to the
Agent by the Borrowers for the account of each of the Lenders which
have executed the Fourth Amendment;
(c) a certificate of the Secretary or Assistant Secretary
of each of the Borrowers (a) attaching a true and complete copy of the
resolutions of its Board of Directors evidencing authorization of this
Amendment and the Credit Agreement as amended thereby, (b) attaching a
true and complete copy of its certificate of incorporation and by-laws,
or stating that such documents have not been amended since the
Reinstatement Date, (c) setting forth the incumbency of its officer or
officers who may sign this Amendment; and
(d) A favorable opinion of counsel to the Borrowers and
the Guarantors to the effect that this Amendment and the Consent have
been duly authorized, executed and delivered by the Loan Parties party
thereto.
SECTION iv. Representations and Warranties.
The Borrowers hereby (a) reaffirm and admit the validity and
enforceability of the Loan Documents and all of their obligations thereunder,
(b) agree and admit that they have no defenses to or offsets against any of
their obligations to the Agent or any Lender under the Loan Documents, and (c)
represent and warrant that there exists no Default or Event of Default and that
the representations and warranties contained in the Credit Agreement are true
and correct on and as of the date hereof.
<PAGE> 5
SECTION v. Reference to and Effect on the Loan
Documents.
(i)Upon the effectiveness of this Amendment,
on and after the date hereof, each reference
in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein", or words of
like import, and each reference in the other
Loan Documents to the Credit Agreement, shall
mean and be a reference to the Credit
Agreement as amended hereby;
(ii)Except as specifically amended or waived
above, the Credit Agreement and the Notes,
and all other Loan Documents, shall remain in
full force and effect and are hereby ratified
and confirmed. Without limiting the
generality of the foregoing, the Collateral
Documents and all Collateral described
therein shall continue to secure the payment
of the obligations of the Borrowers
thereunder, under the Credit Agreement, as
amended hereby, and under the Notes and other
Loan Documents; and
(iii)The execution, delivery and
effectiveness of this Amendment shall not,
except as expressly provided herein, operate
as a waiver of any right, power or remedy of
any Lender or the Agent under any of the Loan
Documents, nor, except as provided herein,
constitute a waiver of any provision of any
of the Loan Documents.
SECTION vi. Costs and Expenses.
The Borrowers agree to pay on demand all reasonable costs and expenses
of the Agent in connection with the arranging, preparation, reproduction,
execution and delivery of this Amendment and the other instruments and documents
to be delivered hereunder, including the reasonable fees and expenses of Emmet,
Marvin & Martin, LLP, special counsel for the Agent, with respect thereto, and
of local counsel, if any, who may be retained by said special counsel with
respect thereto.
SECTION vii. Counterparts.
This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be an
original and all of which together shall constitute but one and the same
document.
SECTION viii. Governing Law.
This Amendment is intended to be performed in the State of New York and
shall be construed and is enforceable in accordance with, and shall be governed
by, the internal laws of the State of New York without regard to principles of
conflict of laws.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
THE GROUND ROUND, INC.
By:
- ----------- ---------------
Name:
Title:
GR OF MINN., INC.
By:
- ----------- ---------------
Name:
Title:
THE BANK OF NEW YORK,
individually and as Agent
By:
- ----------- ---------------
Name:
Title:
CHEMICAL BANK, individually and
as Co-Agent
By:
- ----------- ---------------
Name:
Title:
BANK OF AMERICA ILLINOIS
By:
- ----------- ---------------
Name:
Title:
<PAGE> 7
NBD BANK
By:
- ----------- ---------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
- ----------- ---------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By:
- ----------- ---------------
Name:
Title: Authorized Signatory
<PAGE> 8
CONSENT OF GUARANTORS
DATED AS OF NOVEMBER 22, 1995
The undersigned, as the Guarantors referred to in the foregoing Fourth
Amendment, dated as of November 22, 1995, to the Amended and Restated Credit
Agreement, dated as of October 8, 1993, as amended by a First Amendment, dated
as of January 20, 1994, and a Second Amendment, dated as of February 10, 1995,
and a Third Amendment dated as of May 10, 1995, among The Ground Round, Inc., GR
of Minn., Inc., the banks named therein, The Bank of New York, as Agent, and
Chemical Bank as Co-Agent, each hereby consents to the foregoing Amendment and
hereby confirms and agrees that, notwithstanding the effectiveness of said
Amendment, (i) the Guaranty and each Collateral Document in effect on the date
hereof to which it is a party are, and shall continue to be, in full force and
effect and are hereby confirmed and ratified in all respects, except that, upon
the effectiveness of, and after the date of, said Amendment, all references in
the Guaranty and each such Collateral Document to the Credit Agreement shall
mean the Credit Agreement as amended by said Amendment and (ii) such Collateral
Documents consisting of security agreements and all collateral described therein
do, and shall continue to, secure the payments by the Borrowers referred to in
said Amendment of their obligations under the Credit Agreement, as amended by
said Amendment, and under the Notes.
GRH OF NJ, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
GROUND ROUND HOLDINGS, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
GROUND ROUND RESTAURANTS, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
G.R. GLENDLOC, INCORPORATED
By:
---------------------
Name:
-------------------
Title:
------------------
<PAGE> 9
GROUND ROUND OF BALTIMORE, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
GRXR OF BEL AIR, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
GRXR OF FREDERICK, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
GRXR OF HAGERSTOWN, INC.
By:
---------------------
Name:
-------------------
Title:
------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF GROUND ROUND INC. FOR THE YEAR
ENDED OCTOBER 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-03-1994
<PERIOD-END> OCT-01-1995
<EXCHANGE-RATE> 1
<CASH> 2,425
<SECURITIES> 0
<RECEIVABLES> 1,944
<ALLOWANCES> 797
<INVENTORY> 2,511
<CURRENT-ASSETS> 9,739
<PP&E> 170,388
<DEPRECIATION> 53,484
<TOTAL-ASSETS> 145,356
<CURRENT-LIABILITIES> 25,400
<BONDS> 0
<COMMON> 1,862
0
0
<OTHER-SE> 57,822
<TOTAL-LIABILITY-AND-EQUITY> 145,356
<SALES> 230,406
<TOTAL-REVENUES> 230,406
<CGS> 200,756
<TOTAL-COSTS> 233,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,957
<INCOME-PRETAX> (7,616)
<INCOME-TAX> (1,906)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,710)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
