<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period ended April 2, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ___ to ___
Commission File Number: 1-6192
GROUND ROUND RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New York 13-5637682
(State or other jurisdiction of incorporati on (I.R.S. Employer
or organization) Identification No.)
35 Braintree Hill Office Park, Braintree, Massachusetts 02184
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 380-3100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of Common Stock, $ .16 2/3 par value outstanding as of May 11,
1995: 11,158,896
<PAGE> 2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF APRIL 2, 1995 AND OCTOBER 2, 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,202 $ 1,457
Receivables, net of allowances for uncollectible
accounts of $709 and $276 in 1995 and 1994, respectively 1,266 1,511
Inventories 2,351 2,577
Prepaid expenses and other current assets 1,833 2,249
-------- --------
Total current assets 6,652 7,794
Property and equipment:
Land 10,240 11,203
Buildings and leasehold improvements 119,810 120,034
Machinery and equipment 40,294 39,867
-------- --------
170,344 171,104
Accumulated depreciation and amortization 48,108 43,531
-------- --------
Property and equipment, net 122,236 127,573
Other assets 20,495 21,405
-------- --------
$149,383 $156,772
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 6,478 $ 7,107
Accrued expenses 12,720 14,900
Income taxes 201
Current portion of long-term debt and capital lease obligations 4,321 902
-------- --------
Total current liabilities 23,519 23,110
Long-term debt and capital lease obligations 52,063 57,868
Deferred income taxes 1,718 3,080
Other long-term liabilities 7,963 7,678
STOCKHOLDERS' EQUITY:
Preferred Stock, undesignated, par value $100 per share;
authorized 30,000 shares; none issued
Common Stock, par value $.16 2/3 per share: authorized 35,000,000
shares in 1995 and 1994; issued 11,159,000 in 1995 and
11,114,000 shares in 1994 1,859 1,852
Additional paid-in capital 57,824 57,631
Retained earnings 4,437 5,649
-------- --------
64,120 65,132
Deferred Officer Compensation (96)
-------- --------
Total stockholders' equity 64,120 65,036
-------- --------
$149,383 $156,772
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE $ 56,937 $ 59,885 $119,335 $ 122,084
-------- -------- -------- ---------
COSTS AND EXPENSES:
Cost of products sold 48,818 50,485 100,879 101,953
Selling, general and administrative 4,175 3,672 8,684 7,801
Depreciation and amortization 3,781 3,367 7,446 6,636
Interest expense, net 1,276 979 2,479 2,055
Other expense (income) 849 (902) 1,629 (901)
-------- -------- -------- --------
58,899 57,601 121,117 117,544
-------- -------- -------- --------
Income (loss) before taxes (1,962) 2,284 (1,782) 4,540
Income taxes (benefit) (628) 730 (570) 1,452
-------- -------- -------- --------
NET INCOME (LOSS) $ (1,334) $ 1,554 $ (1,212) $ 3,088
======== ======== ======== ========
Weighted average common shares 11,114 11,113 11,114 11,106
outstanding
NET INCOME (LOSS) PER COMMON
SHARE $ (.12) $ .14 $ (.11) $ .28
======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
GROUND ROUND RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 2, 1995 AND APRIL 3, 1994
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,212) $ 3,088
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,626 6,801
Deferred taxes (1,362) 14
Gain on disposition of assets (1,542)
Other 96 46
Change in operating assets and liabilities:
Accounts receivable 122 (139)
Inventories and prepaid expenses 642 3,748
Accounts payable and other liabilities (709) (1,093)
-------- --------
Net cash provided by operating activities 5,203 10,923
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,177) (8,664)
Proceeds on sale of property & equipment 3,524 1,950
Purchase of liquor license (16) (181)
Sale of liquor license 84
Deposits received (paid) 172 (101)
Pre-opening costs (302) (532)
-------- --------
Net cash used in investing activities (3,715) (7,528)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 30,200 21,200
Payments of long-term borrowings (32,136) (21,682)
Proceeds from issuance of common stock 200
Payments of deferred debt costs (7) (604)
-------- --------
Net cash used in financing activities (1,743) (1,086)
-------- --------
Net increase (decrease) in cash (255) 2,309
Cash and cash equivalents at beginning of period 1,457 1,262
-------- --------
Cash and cash equivalents at end of period $ 1,202 $ 3,571
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED APRIL 2, 1995 AND APRIL 3, 1994
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited Consolidated
Financial Statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly Ground Round Restaurants,
Inc.'s (the "Company") financial position as of April 2, 1995 and the
results of operations for the 13-week and 26-week periods ended April 2,
1995 and April 3, 1994. These financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such regulations, although the Company believes the disclosures provided are
adequate to prevent the information presented from being misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended October 2, 1994 and Form 10-Q for the
quarterly period ended January 1, 1995.
Certain items in specific captions in the accompanying Consolidated
Financial Statements have been reclassified for comparative purposes.
2. 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 for the
training period before the restaurant opens, are capitalized and amortized
for all restaurants opened in fiscal 1995 and 1994 over the 12-month period
following the restaurant opening. For all restaurants opened prior to
fiscal 1994, costs are amortized over a 24 - month period. The impact of
the change in amortization period was not material on the financial
statements for the quarter and six months ended April 2, 1995.
3. COST OF PRODUCTS SOLD
Cost of products sold comprises the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Food and beverage costs $ 17,958 $ 19,107 $ 37,597 $ 38,829
Labor Costs 18,945 19,110 39,015 38,576
Other Costs 11,915 12,268 24,267 24,548
--------- --------- --------- ---------
$ 48,818 $ 50,485 $ 100,879 $ 101,953
========= ========= ========= =========
</TABLE>
<PAGE> 6
4. LITIGATION
The Company has been named in a number of separate claims brought by former
employees alleging that the Company engaged in discriminatory practices
based on age, race, sex or disability. Plaintiffs bringing claims of
employment discrimination, such as those being brought against the Company,
generally are entitled to have their claims tried by a jury and such claims
may result in punitive damage awards. Most of the proceedings against the
Company are still in the discovery phase. Management believes that the
discrimination claims against the Company are without merit and the Company
is actively defending the claims. Management does not expect that the
resolution of these matters will have a material adverse effect on the
consolidated financial position of the Company.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company operated 156 and franchised 44 family-oriented, full service casual
dining restaurants at April 2, 1995.
For purposes of this discussion and analysis, the 26-week periods ended April
2, 1995 and April 3, 1994 are referred to as the first six months ended 1995
and 1994, respectively. The 13-week periods ended April 2, 1995 and April 3,
1994 are referred to as the second quarter of 1995 and 1994, respectively.
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 2,
1995 AND APRIL 3, 1994
The following table sets forth the percentages which the items in the Company's
Consolidated Statements of Operations bear to total revenue or Company-operated
restaurant revenue, as indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
April 2, April 3, April 2, April 3,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Restaurant revenue 99.1 % 99.2 % 99.1 % 99.1 %
Franchise revenue .9 .8 .9 .9
----- ----- ----- -----
Total Revenue 100.0 100.0 100.0 100.0
Cost of products sold(1) 86.5 85.0 85.3 84.2
Selling, general & administrative 7.3 6.1 7.3 6.4
Depreciation and amortization 6.6 5.6 6.2 5.4
Interest expense, net 2.2 1.6 2.1 1.7
Other (income) expense 1.5 (1.5) 1.4 (.7)
Income (loss) before taxes (3.4) 3.8 (1.5) 3.7
Income taxes (benefit) (1.1) 1.2 (.5) 1.2
Net income (loss) (2.3)% 2.6 % (1.0)% 2.5 %
</TABLE>
- - - - ---------------
(1) As a percentage of Company-operated restaurant revenue.
RESTAURANT REVENUE: Restaurant revenue totalled $56.4 million for the quarter
and $118.3 million for the six months ended April 2, 1995, versus $59.4 million
and $121.0 million for the second quarter and six months ended April 3, 1994.
Restaurant revenue is comprised of comparable restaurant revenue (revenue
generated from restaurants open during all of both fiscal years) and non-
comparable restaurant revenue.
Comparable restaurant revenue decreased by 3.6% and 3.0% for the second quarter
and six months ended April 2, 1995, respectively, versus the same periods in
the prior year.
<PAGE> 8
Non-comparable restaurant revenue decreased $1.1 million in the second quarter
and increased $ .6 million in the six months ended April 2, 1995, respectively,
over the same periods ended April 3, 1994. The decrease in revenue for the
second quarter was due to 11 restaurants that were sold or closed during the
1994 fiscal year and 10 restaurants which were sold or closed during the six
month period ended April 2, 1995. The increase in the revenue for the six
months ended April 2, 1995 is attributable to nine new restaurants opened in
1994 and two new restaurants opened in the first two quarters of 1995, offset
by the 21 restaurants closed during the 1994 and 1995 fiscal years.
FRANCHISE REVENUE: The Company's franchise base consisted of 44 restaurants in
the second quarter of 1995 and 45 restaurants in the second quarter of 1994.
Net revenue from franchise restaurants (consisting of royalties and franchise
fees) were approximately $495,000 for the second quarter and $1.0 million for
the six months ended April 2, 1995, respectively, versus approximately $487,000
and $1.1 million for the second quarter and six months ended April 3, 1994,
respectively. One initial franchise fee of $40,000 was recognized in the
second quarter of 1995.
COST OF PRODUCTS SOLD: Cost of products sold consists of both food and
beverage costs and restaurant operating expenses. Food and beverage costs
totaled 31.8% of Company-operated restaurant revenue in the second quarter and
six months ended April 2, 1995, versus 32.2% and 32.1% for the second quarter
and six months ended April 3, 1994, respectively. Restaurant operating
expenses were 54.7% and 53.5% of Company-operated restaurant revenue in the
second quarter and six months ended April 2, 1995, respectively, versus 52.8%
and 52.1% for the second quarter and six months ended April 3, 1994.
Food and beverage costs as a percentage of revenue decreased by .4% and .3% for
the second quarter and six months ended April 2, 1995, respectively, due to
lower product costs and management's increased efforts on controlling waste and
portions as the Company introduced a new menu in the first quarter of 1995.
Restaurant operating expenses as a percentage of Company-operated restaurant
revenue increased 1.9% and 1.4% for the second quarter and six months ended
April 2, 1995, respectively. Labor costs have increased 1.4% for the second
quarter and 1.1% for the six months ended April 2, 1995, respectively. This
increase is a result of a change last year in the Company's policy on paying
accrued vacation to employees upon termination of employment in conjunction
with the sales shortfall this year resulting in fixed payroll costs increasing
as a percentage of revenue. Other costs have remained at relatively constant
levels with the exception of casualty insurance accruals which have increased
by .5% of restaurant revenue for the second quarter and .3% of restaurant
revenue for the six months ended April 2, 1995, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were 7.3% of total revenue for the second quarter and
six months ended April 2, 1995 as compared with 6.1% and 6.4% for the same
periods in 1994. Selling expenses, comprised of advertising and development
and production costs for point of purchase materials were 1.2% and 1.3% of
total revenue in the second quarter and six months ended April 2, 1995,
respectively, versus .4% and .5% for the second quarter and six months ended
April 3, 1994. The first six months of 1995 included approximately $1.4
million of radio advertising costs as compared to $ .6 million of advertising
costs for television and radio in the first six months of 1994.
General and administrative costs, comprised of restaurant manager training
expenses, regional overhead and corporate administrative costs were 6.1% and
6.0% of total revenue in the second
<PAGE> 9
quarter and six months ended April 2, 1995, respectively, versus 5.7% and 5.9%
for the same periods in 1994. The six months ended April 2, 1995 reflects a
decrease in corporate bonus expense of .3% offset by increased litigation
expenses of .3% and a decrease in the executive retirement plan of .1% last
year.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses were
6.6% and 6.2% of total revenue in the second quarter and six months ended April
2, 1995, respectively, versus 5.6% and 5.4% for the second quarter and six
months ended April 3, 1994. The increase is the result of nine new restaurants
opened during 1994 and two opened in 1995, as well as 106 completed remodels as
of the second quarter of 1995 as compared to 46 completed renovations as of the
second quarter of 1994. In addition, the second quarter of 1995 reflects a one
time expense of $ .2 million for the write-off of pre-construction costs
associated with proposed new locations that were canceled by the Company.
OTHER EXPENSE: The second quarter of 1995 reflects $ .8 million in expenses
related to the resignation of the Company's President, Chief Executive Officer
and Chairman of the Board, and the six months ended April 2, 1995 also 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.
Developments in the high yield financing market prevented the completion of the
financing for the acquisition. The second quarter of 1994 reflects a pre-tax
gain of $1.4 million on the sale of one location offset by the write-off of $
.6 million in expenses associated with a proposed public offering of
convertible subordinated debentures which the Company withdrew due to market
conditions.
INTEREST EXPENSE. Interest expense increased by .6% and .4% of total revenue
for the second quarter and six months ended April 2, 1995 primarily as a result
of higher base and LIBOR interest rates. The Company's weighted average
borrowing rates were 7.82% and 7.36% for the second quarter and six months
ended April 2, 1995, respectively, versus 5.28% and 5.19% for the same periods
in 1994.
INCOME TAXES. The Company's effective income tax rate was 32% in the first
quarter and six months ended April 2, 1995 and April 3, 1994.
LIQUIDITY AND CAPITAL RESOURCES
A significant amount of the Company's restaurant sales are for cash, with the
remainder made with credit cards that are generally realized in cash within a
few days. Because the Company does not have significant accounts receivable or
inventories and pays its expenses within normal terms, the Company operates with
working capital deficits as is typical in the restaurant industry. The Company
had working capital deficits of $16.9 million and $15.3 million as of April 2,
1995 and October 2, 1994, respectively.
Net cash provided by operating activities totalled $5.2 million in the first six
months of 1995 as compared with $10.9 million in the first six months of 1994.
The first six months of 1994 included $4.7 million related to the exchange of an
irrevocable letter of credit for cash casualty insurance reserves. In addition,
the Company generated $3.5 million and $2.0 million through the sale of
restaurant locations during the first six months of 1995 and 1994, respectively.
The Company incurred capital expenditures totaling $7.2 million and $8.7 million
in the first six months of 1995 and 1994, respectively, primarily for new
restaurant construction, restaurant remodeling, and capital maintenance. The
Company has reduced its new restaurant development goals to five new
<PAGE> 10
restaurants through fiscal 1995.
Pursuant to an amendment dated October 8, 1993, the Company's credit facilities
totalled $70 million, with the aggregate balance of $53.7 million of the
combined facility balances on that date converted to term debt. The balance of
$16.3 million is a revolving facility to fund operations and new store
development which converts to term debt on October 8, 1995. Principal payments
under these facilities begin in October 1995 and are scheduled through July
2000. As of April 2, 1995, the Company has prepaid approximately $5.9 million
of term debt, reducing the total commitment to $64.1 million, and amounts
outstanding under the commitment to approximately $51.5 million.
The credit facilities contain certain restrictions on the conduct of the
Company's business including a prohibition on the payment of dividends. In
addition, the Company is required to comply with certain financial covenants
relating to maintenance of net worth, interest coverage, fixed charges coverage,
the ratio of funded debt to free operating cash flow and capital expenditures
(other than the separate limitations for capital expenditures for new
restaurants). The revolving line of credit requires the satisfaction of certain
criteria prior to entering into a commitment to open a new restaurant.
On May 10, 1995 the Company and its banks amended the financial covenants
related to fixed charges coverage and the ratio of funded debt to free operating
cash flow to be less restrictive, and eliminated the interest charges coverage
covenant to accommodate the effects of the Company's recent results. In
addition, the Company permanently reduced the revolving commitment to $11.4
million until October 8, 1995, at which time up to $4.7 million outstanding
under the revolving commitment will be converted to term debt and the revolving
facility is reduced to $6.7 million, of which $4.7 million is available for
letters of credit and $2.0 million is available for advances. The revolving
facility terminates on January 15, 1999. Finally, the Company has agreed to
enter into no new restaurant commitments until the fixed charge coverage ratio
exceeds 2.50 to 1 for two consecutive quarters.
The Company expects to incur approximately $13 million in capital expenditures
during fiscal 1995. Management believes that existing cash, cash flow from
operations, and available borrowings under the credit facilities will be
sufficient to meet operating needs for anticipated capital expenditures, and to
service debt requirements during fiscal 1995.
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 24, 1994, a suit styled as Perry v. O'Donnell, et al, Civil
Action No. 94-4648 G, was filed in the Massachusetts Superior Court,
Suffolk County, in which the Company and each member of its Board of
Directors were named as defendants. The suit, which was brought by a
purported shareholder seeking to be certified as a representative of
a class of shareholders, alleged in substance that the members of the
Board of Directors acted in breach of their fiduciary duty to the
Company's shareholders in connection with the proposed merger of the
Company pursuant to an Agreement and Plan of Merger dated August 23,
1994 among the Company, GRR, Inc. and GRR Acquisition Corp., as
amended on November 16, 1994. On September 13, 1994, a similar suit
styled Weinstein v. Ground Round Restaurants, Inc., Civil Action No.
94-4714 A was brought by another purported shareholder. Both of
these suits were voluntarily dismissed with prejudice on February 3,
1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following nominees for the Board of Directors, each to be elected
for the ensuing fiscal year and until his successor is elected and
qualified, were elected at the Annual Meeting of Shareholders on
March 31, 1995:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Michael P. O'Donnell 10,336,291 26,888
J. Eric Hanson 10,336,822 26,357
Robert E. Lee 10,336,822 26,357
David J.P. Meachin 10,336,822 26,357
Stanley J. Moss 10,335,822 26,357
Thomas J. Russo 10,336,822 26,357
Daniel J. Scoggin 10,335,422 27,757
</TABLE>
No other matters were submitted to a vote of security holders.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits Title
-------- -----
<S> <C>
Exhibit No. 10.39 Third Amendment, dated as of May
10, 1995, to the Amended and
Restated Credit Agreement dated as
of October 8, 1993, among The
Ground Round, Inc. and GR of Minn.,
Inc., as Borrowers, and The Bank of
New York, as Agent and Chemical
Bank as Co-Agent, and the banks
named therein.
Exhibit No. 10.40 Separation Agreement, dated as of
April 3, 1995, between the Company
and Michael P. O'Donnell
</TABLE>
<PAGE> 12
(b) The Company filed a report on Form 8-K dated January 13, 1995
to report under Item 2, "Acquisition or Disposition of Assets",
that Ground Round Restaurants, Inc. and GRR Acquisition Corp.
announced on January 13, 1995 that effective that they,
together with GRR Inc. entered into a Termination Agreement
dated January 13, 1995 to terminate the Merger Agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROUND ROUND RESTAURANTS, INC.
Date: May 17, 1995 By: /s/ Michael R. Jorgensen
------------------------
Senior Vice President, Chief Financial
Officer and Treasurer
duly authorized
<PAGE> 1
EXHIBIT 10.39
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIRD AMENDMENT (this "Amendment"), dated as of May 10, 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 (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 desire to obtain consent to the transfer of legal and
beneficial ownership of those shares of GRR owned by HMH to U.S. Industries,
Inc. and to amend the Credit Agreement to (i) reduce the Revolving Commitment
on the effective date of this Amendment and on the Conversion Date, (ii) extend
the availability of a portion of the Revolving Commitment past the Conversion
Date through the Tranche A Termination Date, (iii) reduce the Net Worth
covenant for the last three quarters of fiscal year 1996 and fiscal years 1997
through 2000, (iv) delete the interest coverage ratio covenant, (v) decrease
the fixed charge coverage ratio covenant for the last three quarters of fiscal
year 1995, (vi) increase the Funded Debt to Free Operating Cash Flow Ratio for
the second quarter of fiscal year 1995 through the first quarter of fiscal year
1997, (vii) decrease the ratio of Maintenance Capital Expenditures to
consolidated depreciation and amortization covenant for fiscal year 1995 and
thereafter, (viii) place certain restrictions on the building of new stores,
and (ix) amend the definition of Excess Cash Flow to exclude new store
expenditures.
C. The Banks and the Agent are willing to grant the consent and amend
the Credit Agreement with respect to the foregoing.
<PAGE> 2
D. 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 1. Consent.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 below, and notwithstanding anything to the contrary in Section
6.01(k) and (l) of the Credit Agreement, the Agent and the Banks hereby
consent to the transfer of ownership of 100% of the shares of capital stock of
GRR owned by HMH to U.S. Industries, Inc. and waive any Event of Default
arising from such transfer in ownership.
SECTION 2. 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:
(a) Section 1.01 of the Credit Agreement is amended by deleting
subsection (b) (iv) of the definition "Excess Cash Flow" in its entirety and
substituting therefor the following:
"(iv) the aggregate amount of capital expenditures (excluding New
Restaurant Capital Expenditures), to the extent actually paid in cash, of
GRR and its Subsidiaries made during such period,"
(b) Section 1.01 of the Credit Agreement is amended by inserting the
following definition of "USI" in alphabetical order:
"USI" means U.S. Industries, Inc., a company organized under the laws
of Delaware."
(c) Section 2.01(b)(ii) of the Credit Agreement is amended to delete the
words "Conversion Date" in the seventh line of the first sentence and
substitute therefor the words "Tranche A Termination Date".
- 2 -
<PAGE> 3
(d) Section 2.03(a) is amended in its entirety to read as follows:
"(a) Revolving Advances. Provided that no Default or Event of
Default shall then exist, at the close of business on the Conversion Date
(i) the aggregate outstanding principal balance of each Tranche A Lender's
Revolving Advances in an amount up to but not to exceed $4,700,000 shall
automatically convert into a term loan (each, a "Converted Term Loan" and
together with the Converted Term Loans of all other Lenders, the "Converted
Term Loans"), and (ii) the remaining aggregate outstanding principal
balance, if any, of each Tranche A Lender's Revolving Advances in excess of
$4,700,000, together with the aggregate undrawn Revolving Commitment of each
Tranche A Lender shall continue to be available to the Borrowers for
Revolving Advances up to an aggregate amount not to exceed $2,000,000. Such
Conversion shall be deemed to be a Borrowing for purposes of Articles III
and IV."
(e) Section 2.05(a) is amended by deleting the second sentence thereof
in its entirety and substituting therefor the sentence to read as follows:
"Each such prepayment shall be applied to the Term Advances to be
applied pro rata to the installments thereof under Section 2.03; provided,
however, that the Borrowers may prepay outstandings under the Revolving
Facility in an aggregate principal amount of $400,000 or an integral
multiple of $100,000 in excess thereof and provided further that prepayments
under the Revolving Facility prior to the Conversion Date may be made
without regard to the application of prepayments set forth in this clause
(a), except that if at any time prior to the Conversion Date any prepayments
are made in an amount exceeding the then outstanding principal balance of
the Revolving Advances, the amount of such excess shall be applied to
permanently reduce the Term Facility as set forth above, and such prepaid
amount may not thereafter be reborrowed under the Revolving Facility."
(f) Section 2.05(b)(i) is amended by deleting the second sentence
thereof in its entirety and substituting therefor the sentence to read as
follows:
- 3 -
<PAGE> 4
"Each such prepayment shall be applied pro rata to the installments
of principal of the outstanding Term Advances under Section 2.03."
(g) Section 2.05(b)(ii) is amended by deleting the second and third
sentences thereof in their entirety and substituting therefor the sentences to
read as follows:
"Each such prepayment pursuant to clause (A) of this subsection,
with respect to any sale of assets shall be applied first to the Term
Advances to be applied pro rata to the installments thereof under Section
2.03, and second to reduce outstandings under the Revolving Facility. Each
such prepayment pursuant to clause (B) of this subsection, with respect to
issuance of Debt shall be applied first to the Tranche B Term Advances to be
applied in the inverse order of the maturity thereof, second to the Tranche A
Term Advances to be applied pro rata to the installments thereof under
Section 2.03, and third to reduce outstandings under the Revolving Facility."
(h) Section 2.05(b)(v) is amended by deleting the second sentence thereof
in its entirety and substituting therefor the sentence to read as follows:
"Each such prepayment shall be applied first to the Tranche A Term
Advances to be applied pro rata to the installments thereof, and second to
the Tranche B Term Advances to be applied pro rata to the installments
thereof under Section 2.03, and third to the outstandings under the Revolving
Facility to be applied pro rata to the outstandings thereunder."
(i) Section 2.05(b)(vi) is amended by deleting the second sentence
thereof in its entirety and substituting therefor the sentence to read as
follows:
"Each such prepayment shall be applied first to the Tranche A Term
Advances to be applied pro rata to the installments thereof, second to the
Tranche B Term Advances to be applied pro rata to the installments thereof
under Section 2.03, and third to reduce outstandings under the Revolving
Facility."
(j) Section 2.13(a) is amended by deleting the section beginning with
the third sentence to the end thereof and substituting therefor the following:
- 4 -
<PAGE> 5
"The Letter of Credit shall have an initial term of no longer than
one year, but at the request of the Borrowers to BNY and the Agent, given
not less than 45 days prior to the expiration of the then-outstanding Letter
of Credit, BNY may, at its option renew or extend such Letter of Credit for
a term of one year, for one or more years, provided that the Letter of
Credit shall have a final termination date which shall be not later than the
Business Day immediately preceding the Tranche A Termination Date. The
Letter of Credit shall not be issued if the Agent, or any Lender by notice
to the Agent no later than 1:00 P.M. one Business Day prior to the requested
date of issuance of such Letter of Credit, shall have determined that the
conditions set forth in Section 3.02 have not been satisfied."
(k) Section 5.01(n) is amended by deleting the chart for each period
and inserting the following in substitution therefor:
<TABLE>
<CAPTION>
"Fiscal Year Fiscal Quarter
----------- --------------
<S> <C> <C>
1995 2nd-4th $ 63,473,000
1996 1st $ 63,473,000
1996 2nd-4th $ 65,000,000
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>
(l) Section 5.01(p) is deleted in its entirety.
(m) Section 5.01(q) is amended by deleting the chart for each Rolling
Period and inserting the following in substitution therefor:
<TABLE>
<CAPTION>
"Fiscal Year Fiscal Quarter
----------- --------------
<S> <C> <C>
1995 1st 2.25 to 1.00
1995 2nd 1.75 to 1.00
1995 3rd 1.60 to 1.00
1995 4th, 1.75 to 1.00
and thereafter 1.25 to 1.00"
</TABLE>
(n) Section 5.01(r) is amended by deleting the chart for each Rolling
Period and inserting the following in substitution therefor:
- 5 -
<PAGE> 6
<TABLE>
<CAPTION>
"Fiscal Year Fiscal Quarter
----------- --------------
<S> <C> <C>
1995 1st 4.25 to 1.00
1995 2nd-4th 5.50 to 1.00
1996 1st 4.40 to 1.00
1996 2nd 3.20 to 1.00
1996 3rd 3.00 to 1.00
1996 4th 2.50 to 1.00
1997 1st, 2.50 to 1.00
and thereafter 2.25 to 1.00"
</TABLE>
(o) Section 5.01(s) is amended by deleting the chart for each Rolling
Period and inserting the following in substitution therefor:
<TABLE>
<CAPTION>
"Fiscal Year
-----------
<S> <C>
1995 0.75 to 1.00
1996 and thereafter 0.50 to 1.00"
</TABLE>
(p) Section 5.02(i)(ii) to the Credit Agreement is amended by adding at
the end thereof a new subsection (D) to read as follows:
"(D) the Borrowers shall not make any New Restaurant Capital
Expenditures or enter into any Restaurant Commitments to do so (except for the
two New Restaurants to be located in Whitemarsh, Pennsylvania and South Des
Moines, Iowa) unless the Funded Debt to Free Operating Cash Flow Ratio equals or
exceeds the following for a period of two consecutive quarters:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C> <C>
1995 2nd-4th 2.50 to 1.0
1996 1st-4th 2.50 to 1.0
1997 1st 2.50 to 1.0
1997 2nd-4th,
and thereafter 2.25 to 1.0"
</TABLE>
(q) Section 6.01 is amended by deleting subsections (k), (l) and (m)
thereof in their entirety and substituting therefor the following:
"(k) USI shall at any time for any reason cease to be the legal
and beneficial owner of at least 25% of the shares of capital stock of GRR,
provided, that on and after such date as GRR has received additional common
- 6 -
<PAGE> 7
equity capital in an amount not less than $10,000,000 in excess of the amount
of common stockholders' equity in existence on the Restatement Date and
provided that no Default or Event of Default then exists or is continuing,
this clause (k) shall be of no further effect; or
(l) USI shall at any time when it is a legal and beneficial owner
of the capital stock of GRR fail to have two nominees of USI serving on the
board of directors of GRR at all times; provided, however, that if one or both
of the nominees of USI cease to serve on the board of directors of GRR as a
result of death or resignation, USI shall have ten days in which to appoint
their successor or successors and, provided further, however, that on and after
such date as GRR has received additional common equity capital in an amount not
less than $10,000,000 in excess of the amount of common stockholders' equity in
existence on the Restatement Date and provided that no Default or Event of
Default then exists or is continuing, this clause (l) shall be of no further
effect; or
(m) any Person or two or more Persons (other than USI or any of its
Affiliates) acting in concert shall have acquired beneficial ownership (within
the meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of GRR
(or other securities convertible into such Voting Stock) representing 50% or
more of the combined voting power of all Voting Stock of GRR; or"
(r) Schedule 1.1 to the Credit Agreement is amended by deleting Parts I
B. and C. thereof in their entirety and substituting therefor Part I B. of
Schedule 1.1 attached hereto.
SECTION 3. Conditions of Effectiveness.
This Amendment, except Section 2(q) herein, 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 Banks 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; and
- 7 -
<PAGE> 8
(b) a fee in the amount of 1/4 of 1% on each Lender's Commitment as
in effect on the date of this Amendment, paid by the Borrowers for the
account of each of the Lenders.
Section 2(q) shall become effective upon the date of transfer of
legal and beneficial ownership of those shares of GRR owned by HMH to USI
provided the requirements of this Section 3(a) and (b) have been satisfied.
SECTION 4. 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.
SECTION 5. Reference to and Effect on the Loan Documents.
(a) 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;
(b) Except as specifically amended 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
(c) 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 Bank or the Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
- 8 -
<PAGE> 9
SECTION 6. Costs and Expenses.
The Borrowers agree to pay on demand all reasonable costs and expenses
of the Agent in connection with the 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 7. 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 8. 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.
- 9 -
<PAGE> 10
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:/s/ Michael R. Jorgensen
-----------------------------------
Name: Michael R. Jorgensen
Title: Senior V.P., CFO & Treasurer
GR OF MINN., INC.
By:/s/ Michael R. Jorgensen
-----------------------------------
Name: Michael R. Jorgensen
Title: Vice President & Treasurer
THE BANK OF NEW YORK,
individually and as Agent
By:/s/ Glenn Autorino
-----------------------------------
Name: Glenn Autorino
Title: Vice President
CHEMICAL BANK, individually and
as Co-Agent
By:/s/ William J. Caggiano
-----------------------------------
Name: William J. Caggiano
Title: Managing Director
BANK OF AMERICA ILLINOIS
By:/s/ Arlene Pedovich
-----------------------------------
Name: Arlene Pedovich
Title: Vice President
- 10 -
<PAGE> 11
NBD BANK
By:/s/ James T. Verlinde
-----------------------------------
Name: James T. Verlinde
Title: Second Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By:/s/ Alain Papiasse
-----------------------------------
Name: Alain Papiasse
Title: Senior Vice President,
Deputy General Manager
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Alain Papiasse
-----------------------------------
Name: Alain Papiasse
Title: Authorized Signatory
- 11 -
<PAGE> 12
CONSENT OF GUARANTORS
DATED AS OF MAY 10, 1995
The undersigned, as the Guarantors referred to in the foregoing
Amendment, dated as of May 10, 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,
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 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:/s/ Michael R. Jorgensen
---------------------------------
Name: Michael R. Jorgensen
Title: Vice President & Treasurer
GROUND ROUND HOLDINGS, INC.
By:/s/ Michael R. Jorgensen
---------------------------------
Name: Michael R. Jorgensen
Title: Vice President & Treasurer
GROUND ROUND RESTAURANTS, INC.
By:/s/ Michael R. Jorgensen
-----------------------------------
Name: Michael R. Jorgensen
Title: Senior V.P., CFO & Treasurer
- 12 -
<PAGE> 13
G.R. GLENDLOC, INCORPORATED
By:/s/ Robin L. Moroz
---------------------------------------
Name: Robin L. Moroz
Title: Vice President & Asst. Secretary
GROUND ROUND OF BALTIMORE, INC.
By:/s/ Robin L. Moroz
---------------------------------------
Name: Robin L. Moroz
Title: Vice President & Secretary
GRXR OF BEL AIR, INC.
By:/s/ Robin L. Moroz
---------------------------------------
Name: Robin L. Moroz
Title: President
GRXR OF FREDERICK, INC.
By:/s/ Robin L. Moroz
---------------------------------------
Name: Robin L. Moroz
Title: President & Asst. Secretary
GRXR OF HAGERSTOWN, INC.
By:/s/ Robin L. Moroz
---------------------------------------
Name: Robin L. Moroz
Title: President & Asst. Secretary
- 13 -
<PAGE> 1
EXHIBIT 10.40
SEPARATION AGREEMENT
This Agreement (this "Agreement") is entered into this 3rd day
of April, 1995 by and between Ground Round Restaurants, Inc. (the "Company") and
Michael P. O'Donnell (Mr. O'Donnell"), an individual resident of the State of
Florida.
WHEREAS, Mr. O'Donnell is currently serving as Chairman,
President and Chief Executive Officer of the Company; and
WHEREAS, Mr. O'Donnell and the Company wish to amicably
terminate their employment relationship.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the Company and Mr. O'Donnell hereby enter into this
Agreement as follows:
1. Mr. O'Donnell hereby resigns as Chairman, a member of
the Board of Directors, President, Chief Executive Officer and an employee of
the Company and as an officer, director and employee of any affiliates of the
Company, as well as any committees or fiduciary positions with respect to the
Company or its affiliates, effective as of the close of business on March 31,
1995 (the "Separation Date"). Mr. O'Donnell agrees to vacate his office at the
Company's principal executive offices location no later than April 15, 1995.
2. (a) The Company agrees to pay Mr. O'Donnell within
two (2) business days following the date on which this agreement is executed by
both parties (the "Payment Date") (i) a lump sum payment of $550,000,
representing an amount equal to two years of base salary, plus (ii) an amount
equal to salary which would have otherwise been paid to Mr. O'Donnell as his
normal payroll distribution on April 14, 1995. In addition, any compensation
and other amounts deferred by Mr. O'Donnell or otherwise credited or creditable
to him or for his account pursuant to the Company's Deferred Compensation Plan,
together with accrued interest thereon, if any, to which Mr. O'Donnell is
entitled under such Plan (which the parties acknowledge and agree aggregated not
less than $160,000 as of December 3, 1994), and all accrued vacation pay
(representing two weeks of unused vacation) not yet paid by the Company, shall
be paid to Mr. O'Donnell on the Payment Date of (in the case of payments under
such Plan), if such payment is not then permitted pursuant to such Plan, then on
the earliest date or dates permitted thereunder. All payments under this
Agreement are subject to all applicable tax withholdings, if any, and shall be
made by wire transfer to an account designated (no later than the Payment Date)
by Mr. O'Donnell to the Company.
(b) Until 12:00 midnight on March 31, 1997, the
Company agrees to provide Mr. O'Donnell with life, disability, accident, dental,
health and similar benefits, substantially similar to those which Mr. O'Donnell
is receiving as of the Separation Date and, for a period of six (6) months
following the Separation Date, the Company agrees to
<PAGE> 2
provide Mr. O'Donnell with the car allowance program which Mr. O'Donnell is
receiving as of the Separation Date. At the time, if any, Mr. O'Donnell is
employed on a full time basis by another corporation or other entity, such
benefits shall cease to the extent, but only to the extent, otherwise provided
to Mr. O'Donnell by such other corporation or other entity.
(c) It is agreed that all vested and unvested
stock options held by Mr. O'Donnell shall be cancelled as of the Separation
Date. In consideration of such cancellation and as additional consideration
hereunder, it is agreed that the Company will pay to Mr. O'Donnell an amount
equal to $130,279.95, representing the difference between $5.50 (the closing
price of the Company's common stock on the Separation Date) and the applicable
exercise price with respect to Mr. O'Donnell's vested share options. Such
amount will be paid to Mr. O'Donnell on the Payment Date.
(d) Mr. O'Donnell will retain whatever rights he
may have as of the Separation Date in the Company's pension, savings and similar
plans, and he will receive benefits and payments, if any, in accordance with
such plans.
(e) On the Payment Date, the Company will deliver
to Mr. O'Donnell a certificate or certificates representing 30,000 shares of
common stock of the Company. Such shares represent 20,000 previously vested
shares and 10,000 previously unvested shares (which the Company agrees are
hereby deemed vested), of common stock of the Company, awarded to Mr. O'Donnell
pursuant to a certain restricted stock agreement effective February 2, 1993
between Mr. O'Donnell and the Company.
(f) Until the close of business on April 15, 1995,
the Company will provide Mr. O'Donnell, at the Company's expense, with office
space and the services of one secretary at the Company's offices at Ground Round
Restaurants, Inc., 35 Braintree Hill Office Park, Braintree, Massachusetts
02184. Thereafter until the close of business on March 31, 1997, the Company
will provide Mr. O'Donnell, at the Company's expense, with secretarial support
(including general telephone and voicemail support) at such location. The
company hereby transfers and assigns to Mr. O'Donnell, at no cost to Mr.
O'Donnell (including transportation thereof to Mr. O'Donnell's residence), the
personal computer equipment currently located at such offices of the Company
and/or at Mr. O'Donnell's residence.
3. Mr. O'Donnell will have no further rights with respect
to employment by the Company and its affiliates as of the Separation Date. As
of the Separation Date, the employment agreement dated June 10, 1991, as amended
by an agreement dated April 21, 1992 (collectively, the "1991 Employment
Agreement"), and the change of control severance agreement dated July 26, 1994
(the "1994 Severance Agreement"), shall in all respects be of no further force
and effect. It is recognized that Mr. O'Donnell shall have no further rights
under the 1991 Employment Agreement and the 1994 Severance Agreement
notwithstanding any events that may have occurred prior to the date hereof or
will occur subsequent to the date hereof and whether such events are known or
unknown to Mr. O'Donnell or the Company.
<PAGE> 3
4. (a) It is acknowledged and agreed by the parties
hereto that Mr. O'Donnell intends to seek a senior management position with
other corporations or other entities, including, without limitation,
corporations or other entities engaged in the restaurant business.
(b) Except as to compliance as may be required by
law or legal process, Mr. O'Donnell agrees that he will not at any time,
directly or indirectly, use, divulge, disclose or communicate to any person,
firm or corporation in any manner whatsoever, without the prior written consent
of the Company or the Company affiliates to which such information relates, any
confidential information of any kind relating to the Company, its and their
predecessors, successors and affiliates, including, without limitation of the
foregoing, information pertaining to products, services, present and future
developments, marketing strategies and related data, buying practices, sales and
profits, costs and suppliers, and personnel. Confidential information shall not
include any information known generally to the public or any information of a
type not otherwise considered confidential by persons engaged in the same
business or a business similar to that of the Company.
(c) Without any limitation on, but subject to, the
foregoing paragraph 4(b), Mr. O'Donnell specifically recognizes and acknowledges
that the names, trade or service marks, records, plans and methods of the
Company's business constitute a valuable, special and unique asset of the
Company. Accordingly, at not time shall Mr. O'Donnell use such names and marks
or use or disclose records, plans and methods of the Company's business to any
person, corporation, association or other entity for any reason or purpose
whatsoever. At no time shall Mr. O'Donnell remove or retain, without the
Company's consent, any figures, calculations, letters, papers, documents,
drawings, or copies thereof, or other confidential information of any type or
description belonging to the Company.
(d) Mr. O'Donnell agrees that, until March 31,
1997, he shall not, directly or indirectly, solicit or induce any employee of
the Company or any of its subsidiaries or affiliates to leave the employ of the
Company or such subsidiaries or affiliates for any reason.
5. Each of the parties hereto agrees that it will not
make disparaging comments about the other party which adversely affect such
other party or such other party's business.
6. This Agreement shall be binding upon, and inure to the
benefit of, the company and its successors and assigns. The rights of Mr.
O'Donnell under this Agreement shall inure to the benefit of Mr. O'Donnell and,
in the event of his death or disability, his estate or other legal
representative.
7. This Agreement is the entire agreement regarding the
matters covered herein and, except as otherwise provided herein, supersedes,
cancels and is in lieu of any other agreements, verbal or written, with respect
to the matters herein contained including,
<PAGE> 4
without limitation, the 1991 Employment Agreement and the 1994 Severance
Agreement and any other agreements between the Company or its affiliates and
their respective predecessors and Mr. O'Donnell relating to his employment or
change of control of the Company. This Agreement may be amended or supplemented
only by a subsequent writing signed by both parties hereto.
8. In case any provision of this Agreement for any reason
is held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision(s) had never been contained herein.
9. (a) In consideration of the payments and other
benefits furnished by the Company to Mr. O'Donnell as set forth herein, Mr.
O'Donnell hereby voluntarily releases and forever discharges the Company, its
parents, subsidiaries, affiliates and stockholders, and its and their
respective directors, officers, employees, agents, successors and assigns (the
"Released Parties") of and from any and all causes of action, suits, claims,
charges, complaints, contracts, agreements and promises whatsoever, in law or
equity, against the Released Parties which Mr. O'Donnell, his heirs, executors
or administrators, may now have or hereafter can, shall or may have for, upon,
or by reason of any matter, cause or thing whatsoever, including, but no limited
to, the 1991 Employment Agreement, the 1994 Severance Agreement and any and all
matters arising out of his employment by any of the Released Parties and the
cessation of said employment, including, but not limited to, any alleged
violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act of 1967, the Employee Retirement Income Security Act, and any
other federal, state or local law, regulation or ordinance, and/or public
policy, having any bearing whatsoever on the terms and conditions and/or
cessation of his employment with the Company; provided, however,
that Mr. O'Donnell does not waive, release or relinquish (i) any rights set
forth in this Agreement or the right to enforce such rights or (ii) any rights
with respect to indemnification as, or insurance policies currently in place for
the benefit of, an officer or director of the Company or any of its affiliates
for actions occurring on or prior to the date of execution hereof.
(b) Mr. O'Donnell certifies that he has the
intention of releasing all claims recited herein in exchange for the
consideration described herein, which he acknowledges as adequate, satisfactory
and additional consideration to him. Mr. O'Donnell acknowledges that neither
the Company nor any of its agents or representatives have made any
representations to Mr. O'Donnell concerning the terms or effects of this
Agreement other than those contained herein.
10. Mr. O'Donnell further agrees that, except with respect
to the matters set forth in the proviso to paragraph 9(a), he will not initiate
any suit or action before an federal, state or local judicial or administrative
forum with respect to any matter arising our of or connected with his employment
by the company and/or his resignation of that employment and that, without
subpoena, he will, at the Company's request and expense, testify in any
judicial or administrative proceedings to which the Company is a party in
respect of any matter involving the affairs of the Company of which he has
knowledge.
<PAGE> 5
11. Mr. O'Donnell agrees that a breach by him of this
Agreement, including its covenants, could not reasonably or adequately be
compensated in damages in an action at law and that the Company shall be
entitled to injunctive relief, which may include, but shall not be limited to,
restraining Mr. O'Donnell from taking any actions that would breach this
Agreement.
12. No remedy conferred by any of the specific provisions
of this Agreement (including paragraph 11) is intended to be exclusive of any
other remedy, and each and every remedy shall be cumulative and in addition to
every other remedy given under this Agreement or now or hereafter existing at
law or in equity or by statute or otherwise. The election of any one or more
remedies by the Company or Mr. O'Donnell shall not constitute a waiver of the
right to pursue other available remedies.
13. Mr. O'Donnell acknowledges and agrees that he is fully
aware of his right to discuss any and all aspects of this Agreement with an
attorney of his choice, that the Company has advised him of that right, that he
has carefully read and fully understands all of the provisions of this
Agreement, and that he is voluntarily entering into this Agreement. The Company
agrees that it will pay all reasonable fees and expenses of counsel to Mr.
O'Donnell associated with the negotiation, execution and delivery of this
Agreement.
14. This Agreement has been individually negotiated and is
not part of a group exit incentive or other termination program.
15. The parties hereto represent and agree that they will
keep the terms, amount and fact of this Agreement confidential, and will not
hereafter disclose any information concerning this Agreement to any third
person, including but not limited to, any past or present employee of the
Company, except as may be required by law and except with respect to seeking
legal, financial or tax advice from a legal, financial or tax advisor.
16. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Company and Mr. O'Donnell have executed
this Agreement as of the date set forth below.
THE GROUND ROUND RESTAURANTS, INC.
/s/ Michael P. O'Donnell By:/s/ Michael R. Jorgensen
- - - - ------------------------ ---------------------------------------
MICHAEL P. O'DONNELL Name: Michael R. Jorgensen
Title: Sr. Vice President, Chief Financial
Officer, Treasurer
Executed: April 3, 1995 Executed: April 3, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-03-1994
<PERIOD-END> APR-02-1995
<EXCHANGE-RATE> 1
<CASH> 1,202
<SECURITIES> 0
<RECEIVABLES> 1,975
<ALLOWANCES> 709
<INVENTORY> 2,351
<CURRENT-ASSETS> 6,652
<PP&E> 170,344
<DEPRECIATION> 48,108
<TOTAL-ASSETS> 149,383
<CURRENT-LIABILITIES> 23,519
<BONDS> 0
<COMMON> 1,859
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 149,383
<SALES> 119,335
<TOTAL-REVENUES> 119,335
<CGS> 100,879
<TOTAL-COSTS> 117,009
<OTHER-EXPENSES> 1,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,479
<INCOME-PRETAX> (1,782)
<INCOME-TAX> (570)
<INCOME-CONTINUING> (1,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,212)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
