<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
GROUND ROUND RESTAURANTS, INC.
(NAME OF SUBJECT COMPANY)
GROUND ROUND RESTAURANTS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.16 2/3 PER SHARE
(TITLE OF CLASS OF SECURITIES)
399427 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
DANIEL R. SCOGGIN
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
GROUND ROUND RESTAURANTS, INC.
35 BRAINTREE HILL OFFICE PARK
BRAINTREE, MASSACHUSETTS 02184
(617) 380-3100
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
JEFFREY S. TULLMAN, ESQ.
KANE KESSLER, P.C.
1350 AVENUE OF THE AMERICAS -- 26TH FLOOR
NEW YORK, NEW YORK 10019
(212) 541-6222
================================================================================
<PAGE> 2
This Amendment No. 1 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9 originally filed on September 8, 1997 (the
"Statement") with respect to the tender offer by GRR Merger Corp., a New York
corporation (the "Purchaser") and a wholly owned subsidiary of GRR Holdings,
LLC, a Delaware limited liability company ("Parent"), to purchase all
outstanding shares of common stock, par value $.16 2/3 per share (the "Shares"),
of Ground Round Restaurants, Inc., a New York corporation (the "Company"), at a
purchase price of $1.65 per Share, net to the seller in cash. The items of the
Statement set forth below are hereby amended and supplemented as follows:
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of Ground Round Restaurants, Inc., which is the
person filing this Statement, are set forth in Item 1 above.
(b) Except as described in this Schedule and on Annex I attached hereto
which is incorporated herein by reference, there are, to the knowledge of the
Company, no material contracts, agreements, arrangements or understandings or
any actual or potential conflicts of interest between the Company or its
affiliates and (i) its executive officers, directors or affiliates or (ii)
Parent, Purchaser, their respective executive officers, directors or affiliates.
<PAGE> 3
AGREEMENT AND PLAN OF MERGER
The following is a summary of the Merger Agreement. Defined terms used
below and not defined herein have the respective meanings assigned to those
terms in the Merger Agreement. Such summary is qualified in its entirety by
reference to the Merger Agreement, a copy of which is filed as Exhibit 1 hereto
and is incorporated herein by reference.
THE OFFER. In the Merger Agreement, the Purchaser has agreed, subject to
certain conditions, among other things, (i) to pay a purchase price of $1.65 per
offered Share, net to the seller in cash, and (ii) to accept for payment and pay
for all Shares validly tendered and not withdrawn pursuant to the Offer at the
earliest time following expiration of the Offer provided that all conditions to
the Offer shall have been satisfied or waived by the Purchaser. "Expiration
Date" means the latest time and date at which the Offer, as may be extended from
time to time by the Purchaser, shall expire. The Purchaser has expressly
reserved the right to waive any condition to the Offer, to increase the purchase
price payable pursuant to the Offer or make any other changes in the terms and
conditions of the Offer, provided, however, that unless previously approved by
the Company in writing, no change may be made that (i) decreases the price per
Share payable in the Offer, (ii) changes the form of consideration to be paid in
the Offer, (iii) imposes additional conditions to the Offer, (iv) increases the
minimum number of Shares that must be tendered as a condition to the acceptance
for payment and payment for Shares in the Offer, (v) waives the Minimum
Condition if such waiver would result in the purchase pursuant to the Offer of
less than the number of Shares which, together with the Contributed Shares,
would constitute less than 50.1% of the outstanding Shares, or (vi) extends the
Offer, provided, however, that the Purchaser may, without the consent of the
Company, extend the Offer (A) from time to time but not beyond 12 midnight, New
York City time, on October 22, 1997 if, at the scheduled expiration date of the
Offer, any of the conditions to the Purchaser's obligation to purchase Shares
are not satisfied or waived until such time as such conditions are satisfied or
(B) as provided in Section 9.03(a) of the Merger Agreement. The Purchaser agreed
to extend the Offer for a period of up to ten further Business Days, in the
event that the Minimum Condition is not satisfied or waived at the initial
expiration date of the Offer.
RECOMMENDATION. Pursuant to the Merger Agreement, the Company has approved
of and consented to the Offer and represented, among other things, that its
Board of Directors, at a meeting duly called and held on August 29, 1997 has,
among other things, unanimously (A) determined that the Merger Agreement and the
transactions contemplated thereby, including each of the Offer and the Merger,
are fair to, and in the best interests of, the shareholders of the Company, (B)
approved and adopted the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger and the transactions contemplated
thereby, in all respects and that such approval constitutes approval of the
Offer, the Merger Agreement and the Merger and the transactions contemplated
thereby, for purposes of Sections 902 and 912 of the NYBCL, (C) recommended that
the Shareholders of the Company accept the Offer, tender their Shares thereunder
to the Purchaser and approve and adopt the Merger Agreement and the Merger and
(D) provided for the cancellation of all Options.
THE MERGER. The Merger Agreement provides that, subject to the terms and
conditions thereof and in accordance with New York Law, at the Effective Time,
Parent shall cause the Purchaser to merge with and into the Company. Upon
surrender of the stock certificate that, immediately prior to the Effective
Time, represented an issued and outstanding Share, by virtue of the Merger, at
the Effective Time, each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares owned by Parent, the Purchaser or any
other wholly-owned subsidiary of Parent, Dissenting Shares and any Shares held
in the treasury of the Company or by any subsidiary of the Company), shall be
converted into a certificate (a "Certificate") that represents the right to
receive an amount in cash equal to the greater of $1.65 or any greater amount
per Share paid pursuant to the Offer as it may be amended, without interest (the
"Merger Consideration"). Each Share issued and outstanding immediately prior to
the Effective Time and owned by Parent, the Purchaser or any other wholly-owned
subsidiary of Parent or held in the Company's treasury or by any subsidiary of
the Company, shall be canceled without payment of any consideration therefor.
Each share of Common Stock, $0.01 par value, of the Purchaser issued and
outstanding immediately prior to the Effective Time shall be converted into and
become that number of fully-paid and non-assessable shares of Common
2
<PAGE> 4
Stock, par value $.16 2/3 per share, of the Surviving Corporation as shall equal
the quotient of the number of Shares issued and outstanding at the Effective
Time divided by 1,000.
AGREEMENTS OF THE COMPANY, THE PURCHASER AND THE PARENT. In the Merger
Agreement, the Company has covenanted and agreed that, it shall, and shall cause
each of its subsidiaries to, use its reasonable efforts in light of the
Company's present financial condition to preserve intact the business
organization of the Company and each of its subsidiaries, to keep available,
consistent with the Merger Agreement, the services of their respective operating
personnel and to preserve the goodwill of the Company and its subsidiaries with
respect to third parties having a business relationship with each of them,
including, without limitation, suppliers. Except as contemplated by the Merger
Agreement, during the period from the date of the Merger Agreement to the
Effective Time, the Company and each of its subsidiaries will conduct their
respective businesses and operations only in the ordinary and usual course of
business consistent with past practice.
Without limiting the generality of the provisions described in the
preceding paragraph, the Merger Agreement provides that prior to the Effective
Time, without the written Consent of Parent, the Company will not and will cause
each of its subsidiaries not to:
(a) amend its certificate of incorporation or by-laws or similar
governing documents;
(b) (i) create, incur or assume any indebtedness for borrowed money,
except indebtedness for borrowed money incurred under the Credit Agreement
or pursuant to a new credit agreement refinancing such borrowing in
conformity with the terms of the Bank Letter of Intent, or the Bank
Standstill Agreement, or (ii) assume, guarantee, endorse or otherwise
become liable or responsible for the obligations of any other person other
than any subsidiaries of the Company;
(c) declare, set aside or pay any dividend or other distribution in
respect of its capital stock;
(d) issue, sell, grant purchase or redeem, whether by dividend or
otherwise, any shares of its capital stock or securities convertible into
or exercisable for, or options with respect to, or warrants to purchase or
rights to subscribe to or otherwise purchase, or subdivide or in any way
reclassify, any shares of its capital stock, except for the issuance of
Shares issuable upon conversion of the Convertible Loan Notes in accordance
with their terms or the exercise of Options outstanding on the date of the
Merger Agreement;
(e) except in respect of regularly scheduled raises or raises which
have been approved by the compensation committee of the Board prior to the
date of the Merger Agreement in the ordinary course of business consistent
with past practice: (i) increase the aggregate amount of compensation
payable or to become payable to any of its directors, officers or certain
employees of the Company, whether by salary or bonus, (ii) increase the
rate or term of, or otherwise alter, amend or nullify any, or enter into
any new, employment agreement bonuses, insurance, pension, severance or
other Company Benefit Plan, payment or arrangement made to, for or with any
such directors, officers or employees;
(f) enter into any agreement, commitment or transaction, which, if
entered into prior to the date of the Merger Agreement, would have been
required to be disclosed in the Company Disclosure Letter, with certain
exceptions;
(g) sell, transfer, mortgage, pledge, grant any security interest in,
or permit the imposition of any lien or other encumbrance on, any asset
other than in the ordinary course of business consistent with past practice
and except (i) pursuant to the Credit Agreement, or (ii) pursuant to the
refinancing of borrowings under the Credit Agreement pursuant to a new
credit agreement in conformity with the terms set forth in the Bank Letter
of Intent or (iii) pursuant to the Sale and Leaseback Letter of Intent;
(h) waive any material right under any material agreement;
(i) other than as required by any change in GAAP, make any material
change in its accounting methods or practices or make any material change
in depreciation or amortization policies or rates
3
<PAGE> 5
adopted by it for accounting purposes or, other than normal writedowns or
writeoffs consistent with past practice, make any writeoffs of notes or
accounts receivable;
(j) make any loan or advance to any of its shareholders, officers,
directors, employees, with certain exceptions, or make any other loan or
advance to any other person (other than any subsidiary of the Company) or
group otherwise than in the ordinary course of business consistent with
past practice;
(k) terminate or fail to renew, where such renewal is at the Company's
or a subsidiary's option, or replace on substantially similar or more
favorable terms any contract or other agreement other than in the ordinary
course of business, which termination or failure to renew, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect;
(l) fail to maintain all Insurance Policies in full force and effect
or fail to renew or replace with equivalent coverage any Insurance Policy
which has expired;
(m) take any action which constitutes a violation of any Liquor
License which violation individually or in the aggregate would, in the
reasonable judgment of the Company, be likely to result in the termination
of any one or more Liquor Licenses covering operations generating,
individually or in the aggregate for the three months ended June 30, 1997,
average weekly gross food and beverage revenues in excess of $300,000;
(n) fail to operate, maintain, repair or otherwise preserve the Real
Property substantially in accordance with current practice in light of the
Company's present financial condition and not to exceed the capital
expenditure budget of the Company previously disclosed to Parent;
(o) fail to comply with all applicable filings, payment and
withholding obligations under all applicable federal, state, local and
foreign tax laws except where such failure to comply would not have a
Material Adverse Effect;
(p) breach, terminate or amend the Bank Standstill Agreement or
terminate or amend either the Bank Letter of Intent or the Sale and
Leaseback Letter of Intent or take any action not otherwise permitted or
required pursuant to such agreements that directly results in the
counterparty to the Bank Letter of Intent or the Sale and Leaseback Letter
of Intent terminating or stating an intention to terminate the same; or
(q) agree in writing to, or otherwise take or authorize, any of the
foregoing actions.
The Merger Agreement provides that if required by applicable law in order
to consummate the Merger following expiration of the Offer and acceptance for
payment and purchase of Shares by the Purchaser pursuant to the terms of the
Offer, the Company shall (and Parent and the Purchaser shall use all reasonable
efforts to cause the Company to) take all action to the extent necessary to
consummate the Merger in accordance with applicable law, its Certificate of
Incorporation and By-Laws, including (i) duly call, give notice of, convene and
hold an annual or special meeting of its shareholders (the "Shareholders'
Meeting"), to be held as soon as practicable, for the purpose of approving the
Merger Agreement, the Merger and the transactions contemplated thereby; (ii)
include in a proxy statement the recommendation of the Board that shareholders
of the Company vote in favor of the approval and adoption of the Merger
Agreement and the Merger and the other transactions contemplated thereby and the
determination of the Board that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to, and in
the best interests of, the shareholders of the Company; and (iii) prepare and
file a preliminary Proxy Statement with the SEC and, after consultation with
Parent and the Purchase, respond promptly to any comments made by the SEC with
respect to the Proxy Statement and any preliminary version thereof and cause the
Proxy Statement to be mailed to its shareholders at the earliest practicable
time after responding to all such comments to the satisfaction of the Staff of
the SEC and to obtain the necessary approvals by its shareholders of this
Agreement.
The Merger Agreement provides that the Company, Parent and the Purchaser,
as the case may be, shall promptly prepare and file any other filings required
under the Exchange Act or any other Federal or state
4
<PAGE> 6
securities or corporate laws relating to the Merger and the transactions
contemplated thereby (the "Other Filings").
The Merger Agreement provides that at the Shareholders' Meeting, Parent,
the Purchaser, their affiliates and Permitted Assigns will vote all Shares owned
by them in favor of approval and adoption of the Merger Agreement, the Merger,
and the transactions contemplated thereby.
The Merger Agreement provides that in the event that the Purchaser or any
Permitted Assigns shall acquire at least 90 percent of the outstanding Shares
pursuant to the Offer or otherwise, the parties agree, at the request of the
Purchaser, to take all necessary and appropriate action to cause the Merger to
become effective, in accordance with Section 905 of the NYBCL, as soon as
reasonably practicable after such acquisition and the satisfaction or waiver of
the conditions of the Merger Agreement, without a meeting of the shareholders of
the Company.
Pursuant to the Merger Agreement, promptly upon the acceptance for payment
of, and payment by the Purchaser in accordance with the Offer for, Shares
pursuant to the Offer, provided the Purchaser shall have purchased not less than
50.1% of the outstanding Shares, the Purchaser shall be entitled to designate
such number of directors, rounded up to the next whole number, equal to that
number of directors which equals the product of the total number of directors on
the Board (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that such number of Shares owned in the aggregate
by the Purchaser or Parent, upon such acceptance for payment, bears to the
number of Shares outstanding; provided, however, that until the Effective Time
there shall be at least three Continuing Directors. The Company shall upon the
written request of the Purchaser, use its best efforts to cause the Purchaser's
designees to be so elected. Notwithstanding the foregoing, it is the parties
present intention to have a Board of seven directors following consummation of
the Offer and prior to the Effective Time, the Board to consist of four
designees of the Purchaser and three Continuing Directors, and the Company
shall, upon the written request of the Purchaser, use its best efforts to cause
the resignation of such current directors as necessary, and the election of the
Purchaser's designees, to result in such seven member Board.
The Company has agreed to take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to
fulfill its obligations under the Merger Agreement described in the preceding
paragraph. Annex I to this Schedule 14D-9 fulfills the Company's obligations in
this regard under the Merger Agreement. Pursuant to the Merger Agreement, Parent
and the Purchaser will supply to the Company any information with respect to any
of them and their nominees, officers, directors and affiliates required by
Section 14(f) and Rule 14f-1 and such other rules and regulations as are
applicable.
After the time that the Purchaser's designees constitute at least a
majority of the Board and until the Effective Time, any amendment or termination
of the Merger Agreement or the Certificate of Incorporation or By-laws of the
Company and any extension for the performance or waiver of the obligations or
other acts of Parent or the Purchaser or waiver of the Company's rights
hereunder shall also require the approval of a majority of the then serving
directors, if any, who are directors as of the date hereof (the "Continuing
Directors" who shall include each member of the Special Committee of the Board
formed to consider the Merger for so long as he wishes to serve) except to the
extent that applicable law requires that such action be acted upon by the full
Board, in which case such action will require the concurrence of a majority of
the Board, which majority shall include each of the Continuing Directors. If the
number of Continuing Directors prior to the Effective Time is reduced below
three for any reason, the remaining Continuing Directors or Director shall be
entitled to designate persons to fill such vacancies who shall be deemed
Continuing Directors for all purposes of this Agreement. The Board shall not
delegate any matter set forth in this paragraph to any committee of the Board.
Under the Merger Agreement, the directors of the Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation and the officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
5
<PAGE> 7
Pursuant to the Merger Agreement, from the date of the Merger Agreement to
the Effective Time, subject to appropriate provisions regarding confidentiality,
the Company shall, during ordinary business hours and upon reasonable advance
notice, (i) give Parent and Parent's authorized representatives all access
Parent shall reasonably request to all of its and each of its subsidiaries
books, records, contracts, commitments, restaurants, offices and other
facilities and properties, and its and each of its subsidiaries' personnel,
representatives, accountants and agents; (ii) permit Parent to make such
inspections thereof, except as limited by the Merger Agreement with respect to
environmental investigations, as it may reasonably request during normal
business hours, and (iii) cause its and each of its subsidiaries' officers and
advisors to furnish to Parent its financial and operating data and such other
existing information with respect to its business, properties, assets,
liabilities and personnel, as Parent may from time to time reasonably request,
provided, however, that any such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operation of the business of
the Company.
DISSENTERS' RIGHTS. Notwithstanding any other provision of the Merger
Agreement to the contrary, Shares that have not been voted in favor of the
approval and adoption of the Merger and with respect to which dissenters' rights
shall have been demanded and perfected in accordance with Sections 623 and 910
of the NYBCL (the "Dissenting Shares") and not withdrawn shall not be converted
into the right to receive cash at or after the Effective Time, but such Shares
shall become the right to receive such consideration as may be determined to be
due to holders of Dissenting Shares pursuant to the laws of the State of New
York unless and until the holder of such Dissenting Shares withdraws his or her
demand for such appraisal or becomes ineligible for such appraisal. If a holder
of Dissenting Shares shall withdraw his or her demand for such appraisal or
shall become ineligible for such appraisal under applicable law (through failure
to perfect or otherwise), then, as of the Effective Time or the occurrence of
such event, whichever last occurs, such holder's Dissenting Shares shall
automatically be converted into and represent the right to receive the Merger
Consideration, without interest.
NO SOLICITATION. In accordance with the terms of the Merger Agreement, the
Company has agreed that it will not, and will not permit any of its officers,
directors, advisors, agents or representatives to, directly or indirectly,
solicit or encourage the initiation or submission of any inquiries, proposals or
offers regarding any acquisition, merger, tender offer, exchange offer,
recapitalization (involving an equity investment other than solely from existing
shareholders) or similar transaction involving, sale of all or a substantial
portion of the assets of, or sale of shares of capital stock or securities
convertible into capital stock, (other than a sale only to existing lenders in
connection with a refinancing of debt) of the Company, whether or not in writing
and whether or not delivered to the shareholders of the Company, or similar
transactions involving the Company (any of the foregoing inquires, proposals or
offers being referred to herein as an "Acquisition Proposal"); provided however,
that nothing contained in the Merger Agreement shall prevent the Company's Board
from (i) referring any third party to this provision, (ii) considering
negotiating or participating in discussions regarding an unsolicited bona fide
written Acquisition Proposal or (iii) complying with Rule 14e-2(a) or Rule 14d-9
promulgated under the Exchange Act, if applicable, with regard to an Acquisition
Proposal made in the form of a tender offer by a third party. If the Board of
the Company after duly considering advice written or otherwise, of the Company's
outside counsel and financial advisor, determines in good faith that it would be
consistent with its fiduciary responsibilities to approve or recommend a
Superior Proposal, then (A) the Company shall not enter into any agreement with
respect to the Superior Proposal and (B) any other obligation of the Company
under the Merger Agreement shall not be affected unless the Merger Agreement is
terminated and fees and/or expenses are paid in accordance with the terms of the
Merger Agreement. As used in the Merger Agreement, the term "Superior Proposal"
means a bona fide proposal made by a third party to acquire the Company pursuant
to a tender or exchange offer, a merger, a sale of all or substantially all of
its assets or otherwise that the Board determines in its good faith judgment to
be more favorable to the Company's shareholders than the Offer and the Merger
(after considering the advice, written or otherwise, of its outside counsel and
financial advisor).
HSR FILINGS. The Merger Agreement provides that, upon the terms and
subject to the conditions thereof, each of the parties thereto shall file, or
cause to be filed, as promptly as possible and in no event later than ten
Business Days after the execution date of the Merger Agreement, with the United
States Federal
6
<PAGE> 8
Trade Commission and the Antitrust Division of the United States Department of
Justice pursuant to the HSR Act, the notification required by the HSR Act,
including all requisite documents, materials and information therefor, and
request early termination of the waiting period under the HSR Act.
EMPLOYEE BENEFITS MATTERS. Under the Merger Agreement (a) from and after
the date of purchase of Shares pursuant to the Offer, the Company or the
Surviving Corporation will, and Parent will cause the Company or the Surviving
Corporation to honor, in accordance with their terms, all individual employment,
severance and change of control agreements between the Company and any officer,
director or employee of the Company including, without limitation, bonuses,
incentive or deferred compensation in existence on the date of the Merger
Agreement, (b) from and after the date of purchase of Shares pursuant to the
Offer, the Company or the Surviving Corporation, as applicable, will, and Parent
will, or will cause the Company, the Surviving Corporation or the Company to,
provide or pay when due to employees and former employees of the Company all
benefits and compensation pursuant to the Company Benefit Plans, policies and
arrangements in effect on the date of the Merger Agreement (other than with
respect to stock and stock-based plans or programs, including stock grants,
options to purchase stock, stock investment alternatives, or other stock-based
benefits or awards) earned or accrued through, and to which such individuals are
entitled as of, the Effective Time (or such later time as such Company Benefit
Plans as in effect at the Effective Time or terminated or canceled by the
Surviving Corporation in the manner and subject to the conditions of the Merger
Agreement); (c) for a period ending two (2) years after the Effective Time, the
Company or the Surviving Corporation, as applicable, will, and Parent, will
cause the Company or the Surviving Corporation to, provide to Company employees
and former employees benefits under all Company Benefit Plans, programs and
arrangements that provide benefits which are no less favorable in the aggregate
than those provided to such persons under the Company Benefit Plans, programs
and arrangements of the Company in effect on the date (other than with respect
to the agreements subject to subsection (a) above and other than with respect to
stock and stock-based plans or programs, including stock grants, options to
purchase stock, stock investment, alternatives, other stock based benefits or
awards; and (d) nothing in the Merger Agreement shall require the continued
employment of any person, and except as expressly set forth in the Merger
Agreement no provision therein shall prevent Parent or Surviving Corporation
from amending or terminating any Company Benefit Plan.
Pursuant to the Merger Agreement, Parent shall cause the Company to pay, in
accordance with their respective terms all bonuses, payments of incentive
compensation pursuant to the Company's incentive compensation plans, severance
payments and other payments as disclosed on the Company Disclosure Letter in
accordance with the terms of the Merger Agreement.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger
Agreement provides that the Certificate of Incorporation of the Surviving
Corporation shall, for a period of six years from the Effective Time, contain
provisions no less favorable with respect to indemnification than are set forth
in such Certificate of Incorporation of the Company, as amended as set forth in
Exhibit A to the Merger Agreement, to provide that officers and directors shall
be indemnified to the fullest extent permitted under New York law, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at any time prior to the Effective Time
were directors, officers, agents or employees of the Company, unless such
modification shall be required by law.
Under the Merger Agreement, the Company shall, to the fullest extent
permitted under New York law and regardless of whether the Merger becomes
effective, indemnify and hold harmless, and, after the Effective Time the
Surviving Corporation shall, to the fullest extent permitted under New York law,
indemnify and hold harmless, each present and former director and officer of the
Company and each of its Subsidiaries (collectively, the "Indemnified Parties")
against judgments, fines, reasonable amounts paid in settlement and reasonable
expenses (including attorneys' fees, costs and charges) incurred as a result of
any action or proceeding (whether arising before or after the Effective Time),
or any appeal therefrom whether civil or criminal, arising out of or pertaining
to any action or omission in their capacity as an officer or director, prior to
or at the Effective Time, for a period of six years after the Effective Time (or
with respect to claims arising from service as an officer or director prior to
the Effective Time and asserted or made prior to such sixth
7
<PAGE> 9
anniversary which have not been resolved prior to such sixth anniversary, until
the time such matters are finally resolved). In the event of any such action or
proceeding (i) the Company or the Surviving Corporation, as the case may be,
shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Company or the Surviving Corporation, promptly after statements therefor are
received provided that an agreement has been entered into by such Indemnified
Party agreeing to repay such amounts to the Company if the Indemnified Party is
ultimately found not to be entitled to indemnification, by a final judgment (not
subject to further appeal) of a court of competent jurisdiction, or to the
extent such amount exceeds the indemnification to which such Indemnified Party
is entitled, under New York law, and (ii) the Company and the Surviving
Corporation shall cooperate and provide access to all documents necessary or
beneficial to the defense of any such matter; provided, however, that neither
the Company nor the Surviving Corporation shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld, delayed or conditioned); and provided further that neither the Company
nor the Surviving Corporation shall be obligated to pay the fees and expenses of
more than one counsel for all Indemnified Parties in any single action except to
the extent that two or more of such Indemnified Parties shall have conflicting
interests in the outcome of such action.
Under the Merger Agreement, the Surviving Corporation has agreed to use its
best efforts to maintain in effect for six years from the Effective Time, if
available, the current directors' and officers' liability insurance policies
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring prior to the Effective Time; provided, however, that the Surviving
Corporation shall not be required to maintain such insurance to the extent that
the annual premiums therefor exceed 120% of the annual premiums currently paid
by the company in respect of the current policy or policies (the "Maximum
Amount"), but in such case shall purchase as much comparable coverage as
available for the Maximum Amount.
The Merger Agreement further provides that in the event the Company or the
Surviving Corporation or any of their respective successors (i) is consolidated
with or merges into another person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person in a single
transaction or a series of transactions, then, and in each such case, the Parent
shall make or cause to be made proper provision so that the successors or
transferees of the Company or the Surviving Corporation, as the case may be,
shall comply in all material respects with the indemnification and insurance
provisions provided in the Merger Agreement.
CANCELLATION OF OPTIONS. Pursuant to the Merger Agreement, the Company
agreed that at or immediately prior to the Effective Time, each outstanding
option (an "Option") to purchase shares of Common Stock of the Company pursuant
to the Company's 1989 Amended and Restated Stock Option Plan (the "Stock Option
Plan"), the Company's 1992 Equity Incentive Plan (the "Equity Incentive Plan")
or otherwise (collectively, the "Stock Plans"), whether or not then exercisable,
shall be cancelled by the Company, and each holder of a cancelled Option shall
have the right to receive at the Effective Time from the Company, in
consideration for the cancellation of such Option (i) in the case of Options
that are "in the money", an amount in cash equal to the product of (A) the
number of Shares previously subject to such Option and (B) the excess, if any,
of the Merger Consideration over the exercise price per Share previously subject
to such Option and (ii) in the case of Options that are not "in the money", an
amount of cash set forth on the Schedule of Option Payments authorized and
approved by the Compensation Committee of the Board.
(b) Pursuant to the Merger Agreement, the Company has agreed to terminate
all Stock Plans as of the Effective Time, and the Company shall ensure that
following the Effective Time no holder of an Option or any participant in any
Stock Plans shall have any right thereunder to acquire any capital stock of the
Company, Parent or the Surviving Corporation.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains customary
representations and warranties with respect to the Company, including, but not
limited to, (i) the Company's organization and capitalization, (ii) that the
Board of Directors of the Company has approved the Merger Agreement and the
transactions contemplated thereby (including the Offer and the Merger) so as to
render the prohibitions of
8
<PAGE> 10
Section 912 of the NYBCL to be inapplicable to the Merger Agreement and the
transactions contemplated thereby, (iii) relating to required consents,
approvals and governmental filings (iv) the accuracy of the Company's documents
and reports filed with the SEC, the Company's financial statements and financial
condition, (v) the absence of certain changes or events which, in the reasonable
opinion of the Company, are likely, individually or in the aggregate, to have a
Material Adverse Effect or adversely affect the ability of the Company to
consummate the transactions contemplated by the Merger Agreement, (vi) the
absence of certain litigation, (vii) the Company's employee benefit plans, (vii)
real property matters, (viii) tax matters, (ix) environmental matters, and (x)
intellectual property matters.
In the Merger Agreement, Parent and the Purchaser have made customary
representations and warranties, including without limitation, relating to their
respective corporate organization, authority to execute, deliver and perform the
Merger Agreement, and that Parent has or will have and will make available to
the Purchaser or the Paying Agent, as applicable, sufficient funds in sufficient
time to consummate the Offer and the Merger in accordance with the terms of the
Merger Agreement.
CONDITIONS TO MERGER. The respective obligations of each party to the
Merger Agreement to effect the Merger are subject to the satisfaction at or
prior to the Effective Time of the following conditions: (a) the Purchaser shall
have accepted for payment, and paid for, Shares validly tendered and not
withdrawn pursuant to the Offer representing (together with Shares otherwise
owned by Parent or the Purchaser) not less than 50.1% of the then outstanding
Shares; (b) the Merger Agreement and the Merger shall have been approved and
adopted by the requisite vote or consent, if any, of the shareholders of the
Company required by the NYBCL; and (c) no order, statute, rule, regulation,
execution order, stay, decree, judgment, or injunction shall have been enacted,
entered issued, promulgated or enforced by any court or governmental authority
which prohibits or restricts the consummator of the Merger. The Merger Agreement
provides that the obligations of Parent and the Purchaser to effect the Merger
shall be further subject to satisfaction of the condition, unless waived by
Parent, that all outstanding Options shall have been surrendered prior to or
simultaneously with the Effective Time.
TERMINATION. The Merger Agreement may be terminated and the Offer and the
Merger may be abandoned at any time prior to the Effective Time, whether prior
to or after approval of the Merger by the shareholders of the Company, if
required:
(a) by mutual written consent of Parent, the Purchaser and the
Company;
(b) by the Company if: (i) the Purchaser shall fail to commerce the
Offer within five Business Days of the public announcement thereof unless
the failure to commence the Offer shall be due to (A) the failure of the
Company (or any of its subsidiaries) to perform in any material respect any
of its obligations under the Merger Agreement then required to be performed
or (B) any occurrence or circumstance which would result in the failure of
any condition to the Offer set forth in the Merger Agreement; (ii) the
Purchaser shall have (A) terminated the Offer, (B) allowed the Offer to
expire without the purchase of any Shares thereunder in accordance with the
terms of the Merger Agreement, or (C) failed to accept Shares for payment
pursuant to the Offer on or prior to October 22, 1997 unless (I) such
termination or expiration or failure shall be due to the failure of any
condition set forth in (i) subsections (iv), (vii), (viii) or (ix) of this
paragraph (with respect to any consent or approval required to be obtained
by the Company) of Annex A of the Merger Agreement or paragraph (ii) of
Annex A (otherwise than in circumstances that would entitle the Company to
terminate the Merger Agreement pursuant to Section 9.01(d) of the Merger
Agreement or (2) paragraph (i) of Annex A, unless the Purchaser shall have
failed to accept Shares for payment on or prior to October 31, 1997 or (II)
the provisions of the proviso in Section 9.03(a) of the Merger Agreement
are applicable, unless the Purchaser shall have failed to accept Shares for
payment on or prior to October 31, 1997; (iii) prior to the purchase of
Shares pursuant to the Offer, the Purchaser shall have breached or failed
to perform in any material respect any of its obligations under the Merger
Agreement which is required to be performed at such time and such breach or
failure materially delays consummation of the Offer, or materially and
adversely affects the ability of the Purchaser and Parent to consummate the
Offer and the Merger on substantially the terms set forth in the Merger
Agreement; (iv) if the representations and warranties of
9
<PAGE> 11
the Purchaser set forth in the Merger Agreement are not true and correct in
all material respects at any time prior to the expiration of termination of
the Offer (except as to those representations and warranties which are made
as of a specified date, which shall be true and correct as of such date)
and such failure materially delays consummation of the Offer, or materially
and adversely affects the ability of the Purchaser and Parent to consummate
the Offer and the Merger on substantially the terms set forth in the Merger
Agreement; (v) prior to the purchase of Shares pursuant to the Offer, a
corporation, partnership, person or other entity or group (each a "Person")
shall have made a Superior Proposal and the Board, after duly considering
advice written or otherwise of the Company's outside counsel and financial
advisors, determines in good faith that it would be consistent with its
fiduciary responsibilities to approve or recommend such Superior Proposal
provided that such termination shall not be effective until payment of the
Termination Fee and Expenses in the manner required by the Merger
Agreement; or (vi) the Minimum Condition is not satisfied or waived as
permitted by the Merger Agreement upon final expiration of the Offer.
(c) by Parent and the Purchaser if (i) due to any occurrence or
circumstances which would result in a failure to satisfy any of the
conditions set forth in Annex A to the Merger Agreement, the Purchaser
shall have failed to commence the Offer within five Business Days of the
public announcement thereof; (ii) as a result of a failure to satisfy any
of the conditions set forth in Annex A to the Merger Agreement, the
Purchaser shall have (A) terminated the Offer or (B) failed to accept
Shares for payment pursuant to the Offer on or prior to October 22, 1997;
(iii) the Effective Time shall not have occurred on or prior to November
30, 1997, due to a failure of the Company obtaining the requisite
Shareholder approval for the Merger or the cancellation of options pursuant
to the Merger Agreement or an intervening law or statute. Otherwise than as
a result of a breach or default by Parent or the Purchaser hereunder; (iv)
the Company shall have breached its obligations regarding solicitation
restrictions contained in the Merger Agreement; (v) the Board shall have
withdrawn or modified (including by amendment of this Schedule 14D-9), in a
manner adverse to the Purchaser, its approval or recommendation of the
Offer, this Agreement or the Merger or shall have recommended or approved
another tender or exchange offer or Acquisition Proposal (whether or not a
Superior Proposal), or shall have adopted any resolution to effect any of
the foregoing;
(d) by Parent and the Purchaser or the Company if any court of
competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger or
the acceptance for payment and payment for the Shares in the Offer and such
order, decree, ruling or other action is or shall have become
nonappealable.
In the event of the termination of the Merger Agreement and the abandonment
of the Offer and the Merger pursuant to the terms of the Merger Agreement, the
Merger Agreement shall forthwith become void and have no effect, without any
liability on the part of any party hereto or its affiliates, directors, officers
or shareholders, provided that no such termination shall relieve any of the
Company, Parent or the Purchaser, as the case may be, from liability for damages
arising (a) from any willful or intentional breach of the Merger Agreement or
(b) from certain obligations regarding fees and expenses.
FEES AND EXPENSES. In accordance with the terms of the Merger Agreement,
in the event that : (i) the Company terminates the Merger Agreement due to the
acceptance of the board of a Superior Proposal, pursuant to Section 9.01(b)(v)
or (ii) prior to the final expiration date ("Expiration Date") of the Offer, (A)
an Acquisition Proposal, or interest in or intention to pursue an Acquisition
Proposal has been publicly announced or publicly confirmed by any person (other
than Parent or the Purchaser) (whether by press release Exchange Act filing or
otherwise), and (B) on or prior to the 180th day following the initial
expiration date of the Offer (I) the Company enters into any agreement with
respect to any Acquisition Proposal or (II) any Acquisition Proposal is
commenced by way of tender offer or exchange offer: then, in either such event,
the Company shall pay to Parent a fee in the amount of $1,100,000 (the
"Termination Fee"), plus Expenses. Notwithstanding the foregoing, no Termination
Fee will be payable in the case of clause (ii) above if the Purchaser has not,
prior to the Expiration Date, waived the Minimum Condition so as to provide that
the minimum number of Shares that must be validly tendered as a condition to the
Purchaser's acceptance for payment of Shares pursuant to the Offer, together
with the Contributed Shares, shall be no greater than 66 2/3%
10
<PAGE> 12
of the outstanding Shares; provided, however, that in event of such reduction in
the Minimum Condition, the Purchaser shall be entitled to extend the Offer from
time to time, but in no event beyond October 31, 1997, until Shares validly
tendered (and not withdrawn) in the Offer, together with the Contributed Shares,
represent at least 90% of the outstanding Shares.
If (i) the Merger Agreement is terminated by the Purchaser and Parent
pursuant to Section 9.01(c)(i) of the Merger Agreement or as a result of the
Company's failure to satisfy the condition set forth in paragraph (iv) of Annex
A thereto and (ii) the Company's breach of any of its representations and
warranties under the Merger Agreement and/or its failure to perform its material
obligations, covenants or agreements under the Merger Agreement resulting in the
failure to satisfy such condition set forth in paragraph (iv) of Annex A,
individually or in the aggregate, has had or is reasonably likely to have a
Material Adverse Effect, the Company shall reimburse Parent and Purchaser for
all Expenses.
AMENDMENTS. The Merger Agreement may be amended, modified or supplemented
only by written agreement of Parent (for itself and the Purchaser) and the
Company at any time prior to the Effective Time with respect to any of the terms
contained herein executed by duly authorized officers of the respective parties,
except that after the earlier of (a) the purchase by the Purchaser of a majority
of the Shares on a fully diluted basis, and (b) the meeting of shareholders to
approve the Merger contemplated by the Merger Agreement, the price per Share to
be paid pursuant to the Merger Agreement to the holders of Shares shall in no
event be decreased and the form of consideration to be received by the holders
of such Shares in the Merger shall in no event be altered without the approval
of such holders.
CERTAIN CONDITIONS OF THE OFFER. Pursuant to the Merger Agreement, the
Minimum Condition and other conditions to the Offer are as follows:
Notwithstanding any other provision of the Merger Agreement or the
Offer, the Purchaser shall not be required to accept for payment, purchase
or pay for any Shares tendered pursuant to the Offer, may postpone the
acceptance for payment of and payment for any tendered Shares and may
terminate or subject to the terms of the Merger Agreement, amend the Offer
if (a) there shall not have been validly tendered to the Purchaser (and not
withdrawn) that number of Shares which, when aggregated with the
Contributed Shares, represents at least 90% of the Shares outstanding (the
"Minimum Condition"); or (b) on or after the date of the Merger Agreement
and at or before the time of acceptance for payment of any such Shares
(whether or not any Shares have theretofore been accepted for payment or
paid for pursuant to the Offer) any of the following shall occur (each of
paragraphs (i) through (ix) providing a separate and independent condition
to the Purchaser's obligation pursuant to the Offer):
(i) any waiting period applicable to the Offer and the Merger
pursuant to the HSR Act shall not have expired or been terminated; or
(ii) there shall have been instituted or be pending any action,
proceeding, application, claim or counterclaim by any government or
governmental authority or agency, domestic or foreign, before any court
or governmental regulatory or administrative agency, authority or
tribunal, domestic or foreign (a "Claim"), challenging the acquisition
by Parent or the Purchaser of the Shares, restraining or prohibiting the
making or consummation of the Offer or the Merger or seeking to obtain
from Parent or the Purchaser any damages that would result in a Material
Adverse Effect if such were assessed against the Company restraining or
prohibiting, or limiting in any material respect, the ownership or
operation by Parent or the Purchaser of any material portion of the
business or assets of the Company or any of its subsidiaries or to
compel Parent or the Purchaser to dispose of or forfeit material
incidents of control of all or any material portion of the business or
assets of the Company or any of its subsidiaries or imposing limitations
on the ability of Parent or the Purchaser of effectively to exercise
full rights of ownership of the Shares, including without limitation,
the right to vote any Shares acquired or owned by Parent or the
Purchaser on all matters properly presented, to the Company's
shareholders; or seeking to require divestiture by Parent or the
Purchaser of any Shares; or
11
<PAGE> 13
(iii) there shall be any statute, rule, regulation, judgment, order
or injunction, enacted, promulgated, entered, enforced or deemed
applicable to the Offer, the Merger or the Merger Agreement, or any
other action shall have been taken by any government, governmental
authority or court, domestic or foreign,and other than relating to
Liquor License Approvals, which are addressed in paragraph (ix) below,
other than the routine application to the Offer or the Merger of waiting
periods under the HSR Act, that has, or has a substantial likelihood of
resulting in, any of the consequences referred to in paragraph (ii)
above; or
(iv) the Company shall have breached or failed to perform in any
material respect any of its material obligations, covenants or
agreements contained in the Merger Agreement, or any of the
representations and warranties of the Company set forth in the Merger
Agreement shall not have been true and correct in any material respect
when made or, except for any representations and warranties made as of a
specific date, shall have ceased to be true and correct in any material
respect (or, in the case of representations and warranties that are
specifically qualified as to materiality, shall not have been true and
correct when made or shall have ceased to be true and correct) and if
curable, the Company shall have failed to cure such breach within three
(3) Business Days after written notice from Purchaser of such failure;
or
(v) there shall have occurred (A) (1) any general suspension of
trading in, or limitation on prices for, securities on the New York
Stock Exchange, Inc, any other national securities exchange or NASDAQ,
(2) the declaration of a banking moratorium or any mandatory suspension
of payments in respect of banks in the United States (3) the
commencement of or escalation of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
Untied States, (4) in the case of any of the foregoing existing on
August 29, 1997, a material acceleration or worsening thereof, and (B)
such occurrence has a Material Adverse Effect; or
(vi) the Merger Agreement shall have been terminated in accordance
with its terms; or
(vii) the Company's Board of Directors shall have withdrawn or
modified (including by amendment of the Schedule 14D-9) its approval or
recommendation of the Offer, the Merger Agreement or the Merger or shall
have approved or recommended any other tender or exchange offer or
Acquisition Proposal, which, in the sole judgment of Parent in any such
case, and regardless of the circumstances (including any action or
omission by Parent) giving rise to such condition, makes it inadvisable
to proceed with such acceptance for payment, except where as a result of
the Company's receipt of an unsolicited Acquisition Proposal from, or
commencement of an unsolicited tender or exchange offer by, a third
party (A) the Company issues to its shareholders a communication that
contains only the statements permitted by Rule 14d-9(e) under the
Exchange Act (and does not otherwise withdraw, modify or amend its
approval or recommendation of the Offer, the Merger or the Merger
Agreement) and (B) within five Business Days of issuing such
communication the Company publicly reconfirms its approval and
recommendation of the Offer the Merger and the Merger Agreement; or
(viii) either (A) any change or development, outside of the
ordinary course of business consistent with past practice of the
Company, not disclosed in the Company Disclosure Letter shall have
occurred in the financial condition, assets, capitalization, prospects,
shareholders' equity, licenses, permits, business or results of
operations of the Company and its subsidiaries which in the reasonable
judgment of the Purchaser is or is likely, individually or in the
aggregate, to be materially adverse to the Company or any of its
subsidiaries taken as a whole, or the Purchaser shall become aware of
any fact (including, but not limited to, any such change or development)
which is likely to have materially adverse significance with respect to
the Company and its subsidiaries taken as a whole; provided, however,
that no change, development or fact shall be deemed to be materially
adverse for the purpose of this clause (A) unless, individually or when
combined with all other changes, developments or facts, it is, in the
reasonable judgment of the Purchaser, likely to result in losses (after
taking into account any amounts recovered or insurance proceeds
receivable by the Company in compensation for such losses) in excess of
$4,500,000, or (B) the average gross sales of
12
<PAGE> 14
the Company as reported by the Company in any 21 day period after the
date of the Merger Agreement shall be less than $3,000,000 per week; or
(ix) the Company and/or the Purchaser shall not have obtained (1)
any Liquor License Approval required to be obtained prior to Parent's
and the Purchaser's obtaining control of the Company through the
Purchaser's acceptance for payment of Shares pursuant to the Offer (or
Parent and the Purchaser shall not have made arrangements reasonably
satisfactory to them to allow any Liquor License subject to any such
Liquor License Approval to continue in full force and effect following
consummation of the Offer and the Merger pending receipt of such Liquor
License Approval), other than any Liquor License Approvals with respect
to Liquor Licenses that, individually or in the aggregate, cover
restaurant operations (I) generating, individually or in the aggregate,
for the three months ended June 30, 1997, average weekly gross food and
beverage revenue of less than $300,000 and (II) with average profit
after controllables in any 21 day period after the date of the Merger
Agreement which, when deducted from the average profit after
controllables of the Company in the same 21 day period, would not result
in such average profit after controllables of the Company totaling less
than $540,000 per week, or (2) any consent or approval which is legally
required to be obtained prior to consummation of the Offer and the
Merger and was not disclosed in the Company Disclosure Letter which, if
not obtained would, individually or in the aggregate, have a Material
Adverse Effect, or (B) Parent and the Purchaser shall not have obtained
continuing assurances from the appropriate authority in any of the
Commonwealth of Massachusetts, State of New York or State of Ohio, or
otherwise made arrangements with such authority, satisfactory to Parent
and the Purchaser in their sole discretion, that there is no legal
impediment to their obtaining control of the Company under such
Commonwealth's or State's tied-house statute.
SHAREHOLDER AGREEMENT
The following is a summary of the Shareholder Agreement (the "Shareholder
Agreement"), dated as of August 29, 1997, between the Purchaser, Parent, and
each of Christian R. Guntner and David T. DiPasquale. Parent and the Purchaser
have required Christian R. Guntner and David T. DiPasquale (collectively, the
"Significant Shareholders") to enter into the Shareholder Agreement as a
condition to their entering into the Merger Agreement. Defined Terms used below
and not defined herein have the respective meanings assigned to them in the
Merger Agreement. Such summary is qualified in its entirety by reference to the
Shareholder Agreement, a copy of which is filed as Exhibit 5 hereto and is
incorporated herein by reference.
Pursuant to the Shareholder Agreement, each Significant Shareholder has
agreed to validly tender all of the shares of Common Stock beneficially owned by
them or which may subsequently be acquired by them after the date of the
Shareholder Agreement and prior to the termination of the Offer. In addition,
each of the Significant Shareholders agreed that, during the term of the
Shareholder Agreement, at any meeting of the shareholders of the Company, they
shall (a) vote their respective shares of the Common Stock in favor of the
Merger; (b) vote their respective shares of Common Stock against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement and (c) vote their respective shares of Common Stock
against any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage the Merger or the Offer.
The Shareholder Agreement and the obligations of each of the Significant
Shareholder to tender his shares of Common Stock shall terminate on the earlier
of the (a) consummation of the purchase of such shares or (b) the termination of
the Merger Agreement in accordance with its terms.
In addition, each Significant Shareholders agreed, while the Shareholder
Agreement is in effect, except as contemplated thereby, not to (i) sell,
transfer, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the sale,
transfer pledge, encumbrance, assignment or other disposition of, any of their
respective shares of Common Stock (ii) grant any proxies, deposit any shares of
Common Stock into a voting trust or enter into a voting agreement with respect
to any such shares or (iii) take any action that would make any representation
or warranty of such
13
<PAGE> 15
Significant Shareholders contained in the Shareholder Agreement untrue or
incorrect or have the effect of preventing or disabling such Significant
Shareholders from performing his obligations under the Shareholder Agreement.
Reference is hereby made to the information contained in Annex I under the
heading "EXECUTIVE COMPENSATION" for a description of certain arrangements
relating to the occurrence of a "Change in Control" of the Company and the
Amendment dated August 29, 1997 to the Employment Agreement between the Company
and Daniel R. Scoggin, and by such reference, such information is incorporated
herein as though fully set forth herein.
THE BANK STANDSTILL AGREEMENT. The following is a summary of the Bank
Standstill Agreement (as defined below). Such summary is qualified in its
entirety by reference to the Bank Standstill Agreement, a copy of which is filed
as Exhibit 6 hereto and is incorporated herein by reference.
The Company currently is a guarantor under an Amended and Restated Credit
Agreement (as amended, the "Existing Credit Agreement"), dated as of September
12, 1996, among its direct and indirect subsidiaries The Ground Round, Inc.
("GRI"), and GR of Minn., Inc. (together with GRI, the "Borrowers"), each of the
financial institutions party thereto (the "Lenders"), The Bank of New York, as
agent for the Lenders (the "Agent"), and The Chase Manhattan Bank, as co-agent
for the Lenders. In connection with and as a condition to Parent and the
Purchaser's execution of the Merger Agreement, the Lenders have agreed, pursuant
to a letter agreement (the "Bank Standstill Agreement"), dated as of August 29,
1997, among the parties to the Existing Credit Agreement, to waive the
Borrowers' and their subsidiary guarantors' compliance with the EBITDA
maintenance covenant contained in the Existing Credit Agreement for the fiscal
months ended July, August and September, 1997. Pursuant to the Bank Standstill
Agreement, the Borrowers (i) have deposited into an interest-bearing account
(the "Account") (a) $235,000, representing accrued and unpaid interest on the
term loans under the Existing Credit Agreement and (b) $50,000, representing the
net cash proceeds from the sale of one of the Borrower's Liquor Licenses and
(ii) will deposit into the Account (a) certain insurance proceeds and (b) an
amount equal to interest on the term loans under the Existing Credit Agreement
which became and will become due and payable on August 23, 1997 and September
30, 1997. The Borrowers will be permitted to withdraw such funds from the
Account, so long as, among other things, (i) on the date of each withdrawal (a)
the Borrowers shall have demonstrated to the Agent that a cash deficiency exists
in their business and that such funds will be used in the ordinary course of
their business and (b) no default or event of default under the Existing Credit
Agreement shall have occurred and be continuing (other than events of default
occurring prior to the date of the Bank Standstill Agreement and disclosed in
writing to the Agent), (ii) neither the Purchaser nor the Company shall have
announced that the Offer has been terminated and (iii) the Borrowers shall have
retained Zolpho Cooper, LLC or such other firm mutually satisfactory to the
Borrowers, the Agent and the Lenders under the Existing Credit Agreement to
assist the Company by analyzing the Company's cash, operating and financial
plans, actions and results and to report its observations and any issues that
are identified which could potentially impact the Company's strategic and
financial restructuring initiatives. In consideration for executing the Bank
Standstill Agreement, the Borrowers have agreed that, so long as the Bank
Standstill Agreement is in effect, (x) each Eurodollar Rate Loan (as defined in
the Existing Credit Agreement) will convert automatically, on the last day of
the then-existing interest period therefor, into an Alternate Base Rate Loan (as
defined in the Existing Credit Agreement) and (y) the obligation of the Lenders
to make, or convert term loans into, Eurodollar Rate Loans, shall be suspended.
THE BANK LETTER OF INTENT. The consummation of the Offer would constitute
an event of default under the Existing Credit Agreement. Pursuant to a letter of
intent, dated August 29, 1997 among the parties to the Existing Credit
Agreement, in connection with the execution of the Merger Agreement, each of the
parties to the Existing Credit Agreement has agreed, subject to certain
conditions, to proceed in good faith to amend the Existing Credit Agreement (as
amended, the "New Credit Agreement") upon consummation of the Offer and the
Merger, and which requires, among other things, that the Parent will make an
equity infusion for working capital purposes of not less than $7,500,000.
14
<PAGE> 16
PROPOSED SALE AND LEASEBACK TRANSACTION. On September 9, 1997, the Company
entered into a Commitment Letter (the "Commitment Letter") with CNL Fund
Advisors, Inc. ("CNL") which has agreed to purchase, subject to certain
conditions, a minimum of fifteen (15) and a maximum of twenty (20) restaurants
owned in fee by the Company, for a purchase price not to exceed $20 million,
plus certain approved transactional costs, which restaurants are to be leased
and operated by the Company (the "Sale and Leaseback Transaction").
In the event that a minimum of fifteen (15) properties having an agreed
purchase price of at least $15 million do not meet the requirements of CNL, as
set forth in the Commitment Letter, then the Commitment Letter may be terminated
by either party; however, in such event, the Company is obligated to reimburse
CNL for the reasonable costs incurred by CNL and its representatives, including
attorneys fees in connection with CNL entering into the Commitment Letter and
conducting its due diligence review. The Sale and Leaseback Transaction is
scheduled to close on September 30, 1997, subject to satisfaction of certain
conditions including, among others, satisfactory completion of due diligence
investigations by CNL, approval by the Company's commercial lenders, and the
Company entering into lease agreements that are reasonably satisfactory to the
parties. Virtually all of the proceeds from the Sale and Leaseback Transaction
will be used to repay a portion of the term loan in connection with the
Company's Credit facility. There can be no assurance that the Sale and Leaseback
Transaction will be consummated on or before September 30, 1997, or at all.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) The Board of Directors of the Company (the "Board") has unanimously
approved the Offer and the Merger Agreement and the transactions contemplated
thereby and determined that the Offer and the Merger are fair to, and in the
best interests of, the shareholders of the Company. The Board of Directors
unanimously recommends that all shareholders accept the Offer and tender their
Shares pursuant to the Offer.
(b) The Company has not been successful in consummating a transaction to
raise investment funds for working capital and refurbishment purposes. Since
August 1994, USI, the Company's principal shareholder until July 9, 1997, was
seeking to sell its approximately 33% interest in the Company and in 1996 had
caused the Company to register its Shares under the Securities Act of 1933 in
accordance with certain registration rights granted to USI with a view to
selling them in the market.
On May 27, 1997, Boston Ventures sent a letter to the Board offering to
purchase 549,000 Shares of the Company's common stock from USI upon the
conditions that (a) the Company allow Boston Ventures an exclusive period of
three weeks to conduct a due diligence review of the Company and (b) the parties
enter a confidentiality agreement precluding the Company from disclosing the
purchase of the USI Shares or Boston Ventures' interest in acquiring the
Company. On May 28, 1997 the Board authorized Boston Ventures to conduct a due
diligence investigation, subject to execution of a confidentiality agreement for
a three week exclusive period.
On June 3, 1997, the Company and Boston Ventures executed a confidentiality
agreement containing customary confidentiality and stand still provisions and
USI sold an aggregate of 540,000 Shares of the Company's common stock to an
affiliate of Boston Ventures and Mr. Thomas J. Russo at a price of $1.25 per
share. Mr. Russo had served as President of Howard Johnson's Restaurants and
Motor Lodge Group, including the Ground Round restaurants and as a director of
the Company from 1991 to 1995. On June 3, Boston Ventures commenced its due
diligence investigation of the Company. Subsequently, the 540,000 shares and
14,900 shares previously purchased by Mr. Russo's spouse were transferred to
Parent.
On June 26, 1997, at the request of Boston Ventures, after consideration by
the Board, the exclusivity period for Boston Ventures to complete its due
diligence was extended to July 1.
On July 1, 1997, the Company received a letter from Boston Ventures, which
expressed an interest in pursuing an acquisition of all the outstanding stock of
the Company for a premium to the then current market price of the Shares,
subject to the execution of a definitive agreement and numerous other
conditions. On July 2, 1997 the Board met to consider Boston Ventures' letter
and concluded that the letter failed to make a
15
<PAGE> 17
firm financial offer and the numerous conditions to which any such offer would
be subject were unacceptable, but that representatives of the Company would be
willing to meet with representatives of Boston Ventures after the July 4th
holiday, on a non-exclusive basis, to continue discussions with respect to a
possible transaction.
On July 9, 1997, USI sold all its remaining 3,092,100 Shares to two
investors, David DiPasquale and Christian R. Guntner, who prior to that day had
been executives of USI, for an aggregate cash purchase price of $4.08 million.
See Item 6 below. On July 10, 1997 at a meeting of the Board, Mr. DiPasquale was
elected as a director. During the Board meeting, the Board reviewed a letter
received by the Company earlier that day from Boston Ventures which recited its
interest in continuing negotiations with respect to an acquisition of all
outstanding Shares at a price of approximately $1.65 per Share, subject to
certain conditions set forth in their letter of July 1, 1997. In addition, the
letter stated Boston Ventures willingness to make an additional equity
investment in the Company following such acquisition, and also stated that, if
the Board was not interested in a sale of the Company at that time, Boston
Ventures would be prepared to negotiate the purchase of newly issued equity,
alone or in combination with a purchase of the Shares owned by Messrs. Guntner
and DiPasquale, in a transaction resulting in Boston Ventures obtaining voting
control of the Company. Messrs. Guntner and DiPasquale indicated that they had
no interest in selling their Shares except in conjunction with an offer for all
of the Company's outstanding Shares. The Board concluded that although the
letter lacked a firm price and was subject to numerous conditions, and therefore
did not constitute a firm offer, it was nonetheless worth further consideration
by the Company. The Board then discussed the growing concerns of the Company's
Lenders regarding the Company's liquidity and compliance with its obligations
under the Existing Credit Agreement. To address these matters, the Board
designated the following two committees of the Board of Directors: (i) the
"Special Committee" was empowered to review, negotiate and make recommendations
to the Board with respect to investment and acquisition proposals ("Investment
Proposals") including an Investment Proposal from Boston Ventures and (ii) the
"Banking Committee" was empowered to negotiate and make recommendations to the
Board concerning revisions to the Existing Credit Agreement and other financial
accommodations with the Lenders. Messrs. Guntner, Alan D. Weingarten and Fred H.
(Fritz) Beaumont, Jr., comprised the Special Committee with Mr. Guntner serving
as chairman. Messrs. DiPasquale, Scoggin and Guntner comprised the Banking
Committee, with Mr. DiPasquale serving as chairman. The full Board of Directors
retained the exclusive authority to enter into any transaction or agreement on
behalf of the Company recommended by either Committee.
Later on July 10, 1997, a representative of the Lenders called Mr.
DiPasquale, as chairman of the Banking Committee, urging that members of the
Board meet with Boston Ventures as soon as possible. A meeting was arranged that
evening for the following morning July 11, 1997 between representatives of
Boston Ventures, Messrs. Guntner and DiPasquale, as representatives of the
Board, and their respective counsel.
At that meeting, Boston Ventures proposed a possible acquisition of all of
the outstanding Shares, or, in the alternative, a sale by Messrs. Guntner and
DiPasquale of their Shares in the Company, together with an investment by Boston
Ventures in newly issued equity of the Company. Messrs. Guntner and DiPasquale
indicated they would not discuss a sale of their Shares except in conjunction
with an acquisition of all outstanding Shares by merger or otherwise. During
lengthy discussions concerning the structure and conditions of any proposal it
might make, Boston Ventures indicated that any proposal it might make would be
at a price of $1.65 per Share, which price was not negotiable, and in response
to a request by Messrs. Guntner and DiPasquale, that it would not fund any
working capital requirements of the Company pending consummation of a
transaction by Boston Ventures. Following the meeting, Mr. Guntner requested
that Mr. Scoggin, as Chairman of the Board of Directors, call a meeting of the
Board to discuss the results of the meeting with Boston Ventures.
On July 16, 1997 a meeting of the Board was held to hear a report on the
Company's financial condition from Stephen Kiel, the Company's Chief Financial
Officer, and to discuss Boston Ventures Investment Proposal. During the meeting
the Board considered concerns that had been raised by the Company's Lenders with
respect to the Company's liquidity and its ability to meet its obligations under
the Existing Credit Agreement. In addition, the Board discussed the suggestion
of the Lenders that they would be willing to enter into a credit support
agreement (the "Bank Standstill Agreement") if the Company entered into the
definitive
16
<PAGE> 18
merger agreement with Boston Ventures. Although the Board did not accept the
price of $1.65 contemplated by Boston Ventures, the Board directed the Special
Committee to continue negotiations with Boston Ventures and retained Rothschild
Inc. ("Rothschild") to act as financial advisor to the Special Committee and the
Company for the purpose of rendering an opinion to the Board, as to whether the
terms of the transaction contemplated by the Merger Agreement are fair, from a
financial standpoint, to the shareholders of the Company.
On July 22, 1997 the Board met to review the status of the on-going
negotiations with Boston Ventures and the Company's financial condition, as well
as the Company's strategic and financial options, including a proposed Sale and
Leaseback Transaction of up to 20 Company owned restaurants. See Item 3(b)
above. Mr. Guntner advised the Board that following a review of the Company's
short-term cash flow projections, the Lenders sought a commitment from Mr.
Guntner, which request was supported by Boston Ventures, for a $1,000,000 letter
of credit to enhance the Company's liquidity. Mr. Guntner advised the Board that
he had declined to provide such unilateral credit support to the Company and
expressed his belief that such request had irreparably compromised his ability
to effectively serve as a member of the Special Committee. He thereupon resigned
from the Special Committee. The Board then elected Mr. DiPasquale to replace Mr.
Guntner as a member of the Special Committee. As a result of the Board's
interest in considering a sale of the entire Company, on July 23, 1997, Boston
Ventures' counsel delivered the initial draft of the merger agreement to the
Company and its counsel. Counsel for the respective parties met on July 25 and
29, 1997 to discuss points of principle of the merger agreement, after which a
revised draft was circulated.
On July 28, 1997, a meeting of the Special Committee was held to discuss
the principal points of the initial draft of the merger agreement with counsel.
At the meeting, Rothschild delivered a preliminary presentation to the Special
Committee regarding the Company and the proposed transaction with Boston
Ventures.
During the week of August 3, 1997, the Special Committee and counsel
engaged in intensive negotiations with representatives of Boston Ventures and
its counsel regarding the terms and conditions of the merger agreement. Boston
Ventures also engaged in negotiations with Mr. Scoggin with respect to a
proposed amendment to his employment agreement to clarify the terms of the
restrictive covenant upon a change of control (see Annex I) and with Messrs.
Guntner and DiPasquale with respect to the terms of a Shareholder Agreement. See
Item 3 -- Shareholder Agreement. Execution of such agreements were conditions of
Boston Ventures to its entering into a merger agreement.
On August 7, 1997, the Board met to review the terms of the current drafts
of the Merger Agreement, the Shareholder Agreement, the Amendment to Mr.
Scoggin's Employment Agreement, the Bank Standstill Agreement and related bank
documents and to receive Rothschild's analysis of the Investment Proposal.
Following a detailed presentation by Rothschild with respect to its evaluation
of the Investment Proposal being negotiated with Boston Ventures. Rothschild
orally confirmed to the Board that the proposed offer of $1.65 per Share was
fair from a financial point of view to the Company's shareholders, subject to
confirmation of the final terms and conditions of the Merger Agreement being
negotiated. The Board then engaged in a lengthy discussion concerning the terms
and conditions of the draft merger agreement. Following such discussion the
Board directed the Special Committee to resolve certain outstanding issues,
including Boston Ventures' proposed condition to the transaction that certain
liquor license approvals be obtained. Pending resolution of those issues, the
Board adjourned its meeting to be reconvened on August 8, 1997.
On August 8, 1997, immediately prior to reconvening the Board meeting,
Company counsel was advised by representatives of Boston Ventures, that it was
not willing to proceed with an acquisition until Boston Ventures resolved its
concern over the possible applicability of certain "tied-house" statutes to the
proposed transaction as described in Section 16 of the Offer to Purchase. The
Board thereupon reconvened its meeting, was apprised of such development and
adjourned without taking further action with respect to the proposed merger
agreement.
During the ensuing three weeks, Boston Ventures periodically advised the
Special Committee and Company counsel as to its progress in resolving its
concerns over the tied-house statutes and in obtaining requisite liquor license
approvals. During this time, the parties and their counsel continued to
negotiate the
17
<PAGE> 19
remaining open terms of the merger agreement and discuss with the Lenders a
possible extension of the expiration date of the proposed Bank Standstill
Agreement from September 30, 1997 to October 22, 1997. The Company, Boston
Ventures and Mr. Scoggins continued their negotiations to finalize the Amendment
to Mr. Scoggins' Employment Agreement.
On August 25, 1997 and August 27, 1997 the Special Committee met to hear
reports by Company counsel as to the status of Boston Ventures' progress in
resolving the tied-house issues and as to the status of the negotiations of the
remaining issues concerning the merger agreement. In addition, Company counsel
provided the Special Committee with an update of the status of discussion with
the Lenders concerning certain revisions to and the extension of the term of the
draft Bank Standstill Agreement. From August 27, 1997 through August 29, 1997,
counsel to the Company and Boston Ventures engaged in intensive negotiations
regarding the final unresolved issues concerning the Merger Agreement, including
the tied-house statutes.
On August 29, 1997, Boston Ventures notified the Company and its counsel
that it was prepared to enter into a Merger Agreement, subject to approval of
the Merger Agreement by the Board.
On August 29, 1997, the Special Committee met and, after receiving the
opinion of Rothschild that the offer price of $1.65 per Share pursuant to the
Merger Agreement was fair to shareholders from a financial point of view,
recommended to the Board that the Offer and the Merger Agreement be approved.
The Compensation Committee thereupon approved the Amendment to Mr. Scoggin's
Employment Agreement. The Board of Directors then convened to consider the
recommendation of the Special Committee and to review the written fairness
opinion from Rothschild. After extensive discussion of the terms of the Offer
and Merger contemplated by the Merger Agreement involving the Company's legal
and financial advisors, the Board unanimously approved the Offer and the Merger
and determined that they are fair to, and in the best interest of, the Company
and its shareholders. The Board thereupon authorized the execution and delivery
of the Merger Agreement and approved the Shareholder Agreement (Messrs. Guntner
and DiPasquale abstaining), the Bank Standstill Agreement and related documents,
and ratified the Amendment to Mr. Scoggin's Employment Agreement (Mr. Scoggin
abstaining). The Board unanimously voted to recommend that shareholders accept
the Offer and tender their shares pursuant to the Offer. Following such actions,
the Merger Agreement, the Bank Standstill Agreement, and the Amendment to Mr.
Scoggin's Employment Agreement were executed and delivered by the parties
thereto. A public announcement regarding the Merger Agreement was made on
Tuesday, September 2, 1997 prior to the opening of NASDAQ Stock Market.
In making the determinations and recommendations set forth in Item 4(a)
above, the Board considered a number of factors, including, without limitations,
the following:
(i) The terms and conditions of the Offer and the Merger Agreement.
(ii) Presentations by management at Board meetings and Board committee
meetings held on and before August 29, 1997 and the knowledge of the Board
of Directors with respect to the financial condition, results of
operations, business and prospects of the Company and limited alternative
strategic transactions.
(iii) Since August 1994, when the Company announced it had entered
into a definitive merger agreement to be acquired by a new company formed
by the then management and 399 Ventures, Inc., a venture capital company,
which agreement was subsequently terminated by the potential purchaser due
to lack of financing, the Company has been unsuccessful in consumating a
transaction to raise investment funds for working capital and investment
capital needed to refurbish and upgrade the Company's restaurants in order
to enable the Company to remain viable in the highly competitive mid-price
family restaurant market. Despite such efforts of Company management, no
person has made any firm offer for the whole Company on terms equal to or
superior to those contained in the Offer, nor has the Company been able to
consummate a significant investment transaction.
(iv) The Offer price of $1.65 net in cash for each of the Company's
Shares constitutes an approximate 10% premium to the closing market price
for the Company's Shares on the NASDAQ
18
<PAGE> 20
Stock Market on August 29, 1997, the date the Merger Agreement was approved
by the Company's Board of Directors.
(v) The recent historical market prices for the Shares.
(vi) The presentations of Rothschild at the Special Committee meeting
on July 28, 1997 and at each of the August 7, 1997 and the August 29, 1997
Board meetings of the Company and the written opinion of Rothschild,
delivered to the Board at a meeting held on August 29, 1997 that, as of the
date of such opinion and based upon factors set forth therein, the
consideration of $1.65 per share net in cash to be received by the
Company's shareholders pursuant to the Offer and the Merger is fair, from a
financial point of view, to such shareholders. The full text of such
opinion, dated August 29, 1997, which sets forth the assumptions made, the
matters considered and the limitations on the review undertaken by
Rothschild, is attached as an Exhibit hereto and is incorporated herein by
reference. Such opinion should be read carefully in its entirety by
shareholders in conjunction with the foregoing matters.
(vii) The agreement of the Lenders to enter into the Bank Standstill
Agreement only upon the Company's execution of the Merger Agreement,
thereby providing the Company with additional liquidity through October 22,
1997 subject to certain conditions and waiving certain financial covenants
under the Existing Credit Agreement for the months of July, August and
September.
(viii) That under the terms of the Merger Agreement the Board is not
prohibited from (a) furnishing information in response to certain
unsolicited requests, and (b) considering, negotiating or participating in
discussions regarding an unsolicited bonafide written Acquisition Proposal
(as defined in the Merger Agreement), and upon advice of outside counsel
that it would be consistent with the Board's fiduciary responsibility to
approve or recommend a Superior Proposal, the Board may terminate the
Merger Agreement upon payment of fees and expenses to the Parent.
(ix) Under the terms of the Shareholder Agreement, the Significant
Shareholders, who collectively own approximately 28% of the outstanding
Shares, may terminate such Shareholder Agreement if the Board of Directors
of the Company exercises its fiduciary responsibility and terminates the
Merger Agreement in order to recommend a Superior Proposal.
The Board did not assign relative weights to the foregoing factors or
determine that any factor was of particular importance. Rather, the Board of
Directors viewed its position and recommendations as being based on the totality
of the information presented to and considered by it.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached hereto as Annex I is being furnished in
connection with the contemplated designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's shareholders, following
the acceptance for payment of, and payment by the Purchaser in accordance with
the Offer for, Shares pursuant to the Offer provided the Purchaser shall have
purchased not less than 50.1% of the outstanding Shares. On or about December
26, 1997 the Company sent a letter to shareholders setting forth certain
additional information with respect to the Offer and the Merger. A copy of such
letter is annexed hereto as Exhibit 9 and is incorporated herein by reference.
NYBCL 912. Section 912 of the NYBCL regulates certain business
combinations, including mergers, of a New York corporation, such as the Company,
with a shareholder that beneficially owns 20% or more of the outstanding voting
stock of such corporation. Because the Board has approved the Merger Agreement
and the transactions contemplated thereby, Section 912 of the NYBCL will not
apply to the Merger.
VOTE REQUIRED TO APPROVE MERGER. New York law provides that the adoption
of any plan of merger or consolidation by the Company requires the approval of
the Board and the affirmative vote of at least 66 2/3% of all outstanding shares
entitled to vote thereon (including the votes of any Shares owned by Parent and
Purchaser that have voting rights at such time), if the "short form" merger
procedure described below is not available. The Board has authorized and
approved the Offer and the Merger; consequently, an additional
19
<PAGE> 21
action of the Company that may be necessary to effect the Merger is approval by
such shareholders at a meeting of the Company's shareholders convened for that
purpose (the "Shareholders Meeting") if the "short form" merger procedure
described below is not available. New York law also provides that the Merger
will not require the approval of the Company's shareholders, and can be adopted
by Purchaser's Board of Directors, if Purchaser owns at least 90% of the
outstanding Shares. Accordingly, if, as a result of the Offer or otherwise,
Purchaser acquires or controls the voting power of at least 90% of the
outstanding Shares, Purchaser could, and intends to, effect the Merger without
the Shareholders Meeting and without approval by shareholders of the Company.
If, however, Purchaser waives the Minimum Condition and does not acquire at
least 90% of the then outstanding Shares pursuant to the Offer or otherwise and
a vote of the Company's shareholders is required under New York law, a
significantly longer period of time will be required to effect the Merger.
TAX MATTERS. Each shareholder of the Company should consult with such
shareholder's own tax advisor to determine the particular tax effects of the
Offer and the Merger, including the application and effect of state, local,
foreign and other income tax laws.
APPRAISAL RIGHTS. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, shareholders of the Company may
have certain rights under the NYBCL to dissent and demand appraisal of, and
payment in cash for the fair value of, the Shares. Such rights, if the statutory
procedures are complied with, could lead to a judicial determination of fair
value (excluding any element of value arising from accomplishment or expectation
of the Merger) required to be paid in cash to such dissenting holders for their
Shares. Any such judicial determination of the fair value of Shares could be
based upon considerations other than or in addition to the price paid in the
Offer and the market value of the Shares, including asset values and the
investment value of the Shares. The value so determined could be more or less
than the purchase price per Share pursuant to the Offer or the consideration per
Share to be paid in the Merger.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits were previously filed with the Schedule 14D-9:
Exhibit 1 -- Agreement and Plan of Merger, dated as of August 29, 1997, among
the Company, Parent and the Purchaser
Exhibit 2 -- Opinion of Rothschild, dated August 29, 1997.*
Exhibit 3 -- Letter to Shareholders of the Company.*
Exhibit 4 -- Press Release of the Company, dated September 2, 1997.
Exhibit 5 -- Shareholder Agreement, dated August 29, 1997 among Parent,
Purchaser and Christian R. Guntner and David T. DiPasquale.
Exhibit 6 -- Bank Standstill Letter.
Exhibit 7 -- Clarification to Employment Agreement and Amendment dated as of
August 29, 1997 between the Company and Daniel R. Scoggin.
The following Exhibits are filed herewith:
Exhibit 8 -- Commitment Letter between CNL Fund Advisors, Inc. and the Company.
Exhibit 9 -- Letter to Shareholders of the Company dated September 26, 1997**
- ---------------
* Included in copies of the Schedule 14D-9 mailed to shareholders.
** Mailed to Shareholders on or about September 26, 1997.
20
<PAGE> 22
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
GROUND ROUND RESTAURANTS, INC.
By: /s/ DANIEL R. SCOGGIN
------------------------------------
Name: Daniel R. Scoggin
Title: Chairman and Chief
Executive Officer
and President
Dated: September 26, 1997
21
<PAGE> 1
EXHIBIT 8
September 9, 1997
VIA TELECOPY AND
FEDERAL EXPRESS
Mr. Stephen J. Kiel, Senior Vice President
The Ground Round, Inc.
35 Braintree Hill Office Park
Braintree, Massachusetts 02184-9078
RE: $20,000,000.00 OF SALE/LEASEBACK FINANCING FOR THE GROUND ROUND, INC.
(THE "PROPERTIES")
Dear Sirs:
CNL Fund Advisors, Inc. (the "Company") hereby issues this commitment
letter ("Commitment") by which it agrees to enter, or cause an affiliate to
enter, into sale-leaseback transactions with The Ground Round, Inc. (as
"Seller/Lessee") for an amount not to exceed Twenty Million Dollars
($20,000,000.00) plus costs approved herein for properties which are to be
operated as The Ground Round or Gold Fork Restaurants, or any other restaurant
operated by Seller/Lessee, (the "Properties"). Up to Two Million Dollars
($2,000,000.00) of this Commitment plus costs approved herein shall be funded
following completion of renovations and repairs of the restaurants located in
Coon Rapids, Minnesota and Bridgeton, Missouri, provided that the closing occurs
on or before September 4, 1998. Seller/Lessee agrees to make the Properties
available for acquisition and leaseback within the time periods and subject to
the terms and conditions set forth herein.
Seller/Lessee may withdraw from consideration and funding any Property
which does not meet the requirements of this Commitment; additionally,
Seller/Lessee may withdraw from consideration the Properties located in Coon
Rapids, Minnesota and/or Bridgeton, Missouri in the event Seller/Lessee elects
not to repair and renovate such Properties. In the event fifteen (15) Properties
having an agreed Purchase Price (as hereinafter defined) of at least Fifteen
Million Dollars ($15,000,000.00) are not available which meet the requirements
of this Commitment, then this Commitment and the obligations hereunder may be
terminated by either party; however, in such event, Seller/Lessee shall
reimburse the Company for reasonable costs incurred in connection with any
withdrawn properties, subject to the limitations set forth in this Commitment.
<PAGE> 2
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 2
This Commitment provides funding for the acquisition of Properties
beginning as of the date hereof. Subject to the Seller/Lessee's delivery and
Company's satisfactory review of the items required by this Commitment, the
parties will use their best efforts to close on all Properties except the Coon
Rapids and Bridgeton sites by September 30, 1997, and to close the Coon Rapids
and Bridgeton sites by September 4, 1998. Funding under this Commitment and the
obligations of the Company hereunder are both expressly conditioned upon: (a)
approval of each Property by the Company based on a physical inspection of the
Properties and a review of the site and other information to be provided to the
Company by Seller/Lessee and specified in the following paragraph; and (b)
restructuring of Seller/Lessee's term debt in a manner satisfactory to Company.
Within ten (10) days following the full execution of this Commitment,
Seller/Lessee shall submit to the Company, in writing, a list of the prospective
Properties for acquisition by the Company which lists shall specify the
estimated Purchase Prices (as defined below). Seller/Lessee has furnished
certain information regarding the prospective Properties which will be reviewed
by Company, in the form of Phase I environmental reports, surveys and title
commitments; other information shall either by furnished by Seller/Lessee or
obtained by Company as provided in this Commitment. Company shall use its best
efforts to review the Phase I environmental reports by September 2, 1997, and
notify Seller/Lessee regarding: (a) those Properties which are rejected on the
basis of such reports; and (b) those Properties whose Phase I environmental
reports require further clarification prior to a determination of approval of
such reports. Upon receipt of such information, Seller/Lessee may elect to
withdraw one or more Properties from consideration, and shall by September 5,
1997, authorize Company to proceed with its due diligence review on all
Properties which are not theretofore rejected or removed from consideration,
including without limitation, ordering appraisals and conducting physical
inspections of the Properties.
This Commitment is made subject to the following terms and conditions:
1. Purchase Price. The purchase price for each Property (the "Purchase
Price") shall be subject to the total amount of this Commitment, subject to the
appraisal requirements set forth in Paragraph 8B of this Commitment, and shall
equal the total of (i) the purchase price of the land and building improvements
as established by agreement of Seller/Lessee and Company, plus (ii) all approved
Seller/Lessee closing costs, plus (iii) all Company closing and acquisition
costs. All Company acquisition costs incurred in connection with this
transaction shall be paid by Seller/Lessee, but as indicated above the Company
will permit Seller/Lessee to include them in the Purchase Price so that the
costs will be funded at closing out of the sale-leaseback proceeds. Company
acquisition costs will include an appraisal fee (approximately $2,500 per
property), Company's legal fees equal to 0.65% of the Purchase Price, travel and
lodging expenses (not to exceed $1,000.00 per site) related to the physical
inspection of each Property by a Company representative, and related
miscellaneous out-of-pocket expenses (e.g., telecopy and Federal Express
<PAGE> 3
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 3
charges). Seller/Lessee's closing costs which may be included in the Purchase
Price include title insurance premiums, transfer taxes or stamps, environmental
audit costs, survey costs, recording fees, Seller/Lessee's legal fees and costs,
Seller/Lessee's brokerage fees, and other closing costs.
2. Contract for Purchase and Sale. Prior to each closing, the Company
and Seller/Lessee shall enter into a contract for purchase and sale consistent
with this Commitment and containing such commercially reasonable representations
and warranties as may be required by the Company. The form of such contract
shall be mutually satisfactory to Seller/Lessee and Company.
3. Lease. The lease agreements to be entered into between the Company
and Seller/Lessee (the "Lease") shall be in form reasonably satisfactory to
Seller/Lessee and Company. The Lease shall include the following provisions:
A. Term. The primary term of the Lease will be twenty
(20) years with five (5) successive five (5) year
renewal options.
B. Rent. The initial annual minimum rent ("Minimum
Rent") under the Lease shall be equal to ten and
one-quarter percent (10.25%) multiplied by the
Purchase Price. A percentage rent sum ("Percentage
Rent") shall be due and payable in addition to the
Minimum Rent. Percentage Rent shall be payable within
thirty (30) days following the end of each Lease
Year. For purposes of calculating Percentage Rent,
Seller/Lessee and Company shall agree on a base level
for gross sales for each store (the "Base Sales") and
Percentage Rent shall be calculated upon the amount
of gross sales above the Base Sales for such stores.
The amount of such Percentage Rent shall be
calculated according to the following:
<TABLE>
<CAPTION>
Increase above Base Sales Percentage Rent
------------------------- ---------------
<S> <C>
0 - 33.33% increase 6%
33.34 - 66.7% increase 5.5%
66.8 - 100% increase 5.0%
</TABLE>
For increases in gross sales in excess of 100%, then Percentage Rent shall
decrease by 0.5% for every additional 33.33% increase above Base Sales.
Percentage Rent shall be calculated on a pro rata basis for any partial Lease
Year.
<PAGE> 4
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 4
C. Late Charges. The lease shall contain provisions
regarding the payment of additional charges by
Seller/Lessee in the event payments due under the
lease are not timely received.
D. Insurance, Taxes, Utilities, Maintenance and Repairs.
The Lease shall be absolutely triple net.
Accordingly, Seller/Lessee shall pay all taxes and
assessments, utilities, maintenance costs, repair
costs, the costs of replacing obsolete components,
and insurance costs applicable to both the Property
and any equipment thereon. Seller/Lessee will be
required to maintain the Property and all components
thereof to a standard which complies with the Lease.
At or prior to the closing, Seller/Lessee shall
deliver to the Company certificates of insurance
evidencing (i) "all risk" property insurance
(including earthquake and flood insurance, where
applicable and if available) in an amount not less
than the insurable replacement cost of the Property
with any deductible in excess of One Hundred Thousand
Dollars ($100,000.00) to be approved by Company (such
approval not to be unreasonably withheld), (ii)
commercial general liability insurance and liquor
liability insurance, each in an amount not less than
One Million Dollars ($1,000,000.00) for each
occurrence, with any deductible in excess of Two
Hundred and Fifty Thousand Dollars ($250,000.00) to
be approved by the Company (such approval not to be
unreasonably withheld), and with an umbrella policy
in an amount not less than Six Million Dollars
($6,000,000.00) per occurrence in excess of the
general liability and liquor liability coverages
required above, and (iii) rental value insurance
covering risk of loss due to the occurrence of any of
the hazards insured against under Tenants' "all risk"
coverage insurance and providing coverage in an
amount sufficient to permit the payment of rents
payable hereunder for a period (in such case) of not
less than six (6) months, provided such coverage is
available at commercially reasonable rates. In each
case, all insurance shall name the Company and/or its
affiliates as an additional insured and coverage may
not be canceled without thirty (30) days prior
written notice to the Company. All insurance
companies shall be selected by Seller/Lessee, rated A
minus (A-) or better by Best's Insurance Rating
Service (or if Best's Insurance Rating Service no
longer rates insurance companies, then by a similar
rating service and for a reasonable equivalent
rating), and shall be acceptable to the Company in
Company's reasonable discretion.
E. Assignability of Lease Interest. Seller/Lessee shall
have the right to sublease the Property or assign its
rights under the Lease, but only if: (1)
Seller/Lessee
<PAGE> 5
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 5
remains fully liable for Seller/Lessee's obligations
under the Lease; and (2) the Property is used for the
operation of a nationally or regionally recognized
restaurant or retail chain and which does not violate
any applicable governmental zoning codes, and which
is not noxious or offensive, and which does not
relate to the sale or exhibition of sexually explicit
material; and (3) the sublessee or assignee has a
financial worth and ability to generate percentage
rentals at the Property in amounts not less than
Seller/Lessee. Seller/Lessee shall have the full and
free right to sublet, assign, or otherwise transfer
its interest in the Lease and the premises described
therein to a subsidiary of Seller/Lessee or to a
franchisee or any parent or operating subsidiary of
Seller/Lessee, or a corporation or other entity with
which Seller/Lessee may merge or consolidate or to
which Seller/Lessee may sell all or a substantial
portion of its assets or stock, without the Company's
approval, written or otherwise; provided, however,
that the Property shall be used only as it was used
prior to such transfer event. No assignment or
subletting shall operate to release Seller/Lessee
from its obligations under the Lease. In connection
with and prior to any permitted assignment or
subletting, Seller/Lessee shall give the Company
written notice of such an assignment or subletting
together with (i) a copy of the assignment or
subletting documents, and the name, address and
telephone number of the assignee or sublet tenant and
(ii) a new insurance policy and binder naming the
assignee or sublet tenant operator and occupant of
the Property. The Company may assign its rights under
the Lease without Seller/Lessee's consent in
connection with a transfer of the Property to any
affiliate of the Company, and in such event,
Seller/Lessee's right of first refusal (defined
elsewhere in this Commitment) shall not apply to such
assignment and transfer., but shall remain in full
force and effect.
F. Conduct of Business. Except as may be permitted in 7E
above, the use of the Property shall be limited to
the operation of The Ground Round or Gold Fork
Restaurant or any other restaurant operated by
Seller/Lessee, and Seller/Lessee shall continuously
operate such restaurant on the Property except for
temporary closure due to repairs, Acts of God and
similar matters. The Seller/Lessee shall at all times
maintain the Property and operate its business in
material compliance with all applicable regulations
and requirements of all county, municipal, state,
federal and other governmental authorities, and
instruments of record affecting the Property which
are now in force or which are enacted during the term
of the Lease.
<PAGE> 6
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 6
G. Form of Entity. Seller/Lessee must be duly formed and
in good standing under the laws of the state of its
formation and, if it is a foreign entity, it shall be
qualified to do business in the state where the
Property is located.
H. Cross Default. A monetary default under any Lease
which is not cured within the applicable cure period
provided for in the lease shall, at Company's option
be and constitute a default under all Leases.
I. Seller/Lessee's First Right of Refusal. The Lease
shall provide the Seller/Lessee with a first right of
refusal to purchase the Property on the same terms
and conditions as those contained in an offer
received by the Company from a third party if the
Company intends to accept such third party offer.
Seller/Lessee's right of first refusal shall not
apply to assignments and transfers made by the
Company to an affiliate of the Company.
J. Option to Purchase. At any time after the seventh (7)
Lease Year, the Seller/Lessee shall have the option
of purchasing the Property upon the terms and
conditions set forth in the Lease provided that
Seller/Lessee is not in default at the time of the
exercise of such option. The option to purchase the
Property shall terminate if the Seller/Lessee's right
of first refusal becomes operative, Seller/Lessee
does not exercise such right, and the offer
triggering Seller/Lessee's right of first refusal
closes. In the event the Seller/Lessee exercises its
option to purchase, the option purchase price shall
be the greater of:
i. The fair market value of the Property as of
the option exercise date determined by an
appraiser selected according to the
requirements of this section; or
ii. The Purchase Price paid by the Company for
the Property (as determined under Paragraph
1 hereof) plus twenty percent (20%).
For purposes of determining the fair market value of the Property, the Company
shall select an appraiser (at its expense) to determine the fair market value of
the Property and Seller/Lessee shall also select an appraiser (at its expense)
to determine the fair market value of the Property. If such appraisers cannot
agree on the fair market value of the Property as of the option exercise date
and the lower of the two appraisals is not less than ninety-five percent (95%)
of the higher appraisal, then the average of the two (2) appraisals shall be
conclusively considered to be the fair market value of the Property. If such
appraisers cannot agree on the fair market value of the Property
<PAGE> 7
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 7
as of the option exercise date and the lower of the two appraisals is less than
ninety-five percent (95%) of the higher appraisal, then the two (2) appraisers
shall select a third appraiser (the expense of which shall be shared equally by
Seller/Lessee and the Company) to determine such fair market value and the
average of the three (3) appraisals shall be conclusively considered to be the
fair market value of the Property. If one party fails to select an appraiser
within thirty (30) days after the option exercise date, and the other party (the
"Second Party") does select an appraiser, then the Second Party may notify the
First Party that unless First Party has selected an appraiser within ten (10)
days following delivery of the said notice to the First Party, the Second
Party's appraisal shall be deemed to represent the fair market value of the
Property.
K. Non-Compete. During the term of the Lease and any
extensions thereof, Seller/Lessee shall not own an
interest in, or operate, another restaurant within a
two (2) mile radius of the Property. Seller/Lessee
may request a shorter radius on a case by case basis,
and Company agrees to reasonably consider such
request.
L. Guaranty. If The Ground Round, Inc. is not the
Seller/Lessee of the Property, then The Ground Round,
Inc. shall unconditionally guarantee Seller/Lessee's
full and faithful performance of all of
Seller/Lessee's obligations under the Lease.
5. Site Inspections. The Company reserves the right to physically
inspect and approve each Property proposed by Seller/Lessee for closing in
accordance with the transactions contemplated herein. Company shall conduct its
site inspections in a manner which is sensitive to the ongoing business at the
Properties.
6. Adverse Conditions. This Commitment shall be contingent upon no
material adverse change in the financial condition of Seller/Lessee or the
occurrence of any event which may, in the Company's reasonable judgment, have a
material adverse effect upon the Seller/Lessee. To that end, the Company shall
have the right to review quarterly unaudited statements of Seller/Lessee, along
with any other financial information the Company may reasonably require.
7. Legal Documents. Company's counsel will prepare all leases, purchase
agreements, and related documents, which documents shall be mutually acceptable
to all parties.
8. Required Documents. Not later than ten (10) days prior to any
closing, the Seller/Lessee must submit or cause to be submitted to the Company
or the Company shall have otherwise received the following documents or
information in form and substance satisfactory to the Company, and the Company
will use its best efforts to review such documents and information and
<PAGE> 8
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 8
to prepare closing documentation in a timely manner. Failure to furnish any of
this information in a timely manner may delay the closing. The Company shall
have received and approved:
A. The Seller/Lessee has provided the Company with ALTA Owner's
Form of Title Insurance Commitments in the amount of the
Purchase Price issued by a National Division Office of First
American Title Insurance Company or another title insurance
company acceptable to the Company, which commitments have not
been reviewed at the time of this Commitment for sufficiency
and accuracy. A 50 year chain of title shall also be provided
to the Company, unless the Phase I environmental reports
provided to Company otherwise satisfy the historical data
search requirements of ASTM standards for such reports. The
title insurance commitment shall provide for extended coverage
and any reasonably necessary title endorsements reasonably
required by Company's counsel, and title shall be subject to
no material exceptions, unless approved in writing by the
Company prior to closing.
B. The Company shall order an appraisal completed by an appraiser
selected by the Company showing the fair market value of the
Property (including improvements to be funded by the Company)
meets Company's requirements.
C. The Seller/Lessee has provided the Company with Phase I
environmental assessment reports, and the Company is currently
reviewing same. Such reports must be dated within 180 days of
the date of closing, must be prepared according to ASTM
standards and including the review and delivery to the Company
of a 50 year chain of title report unless the reports
otherwise satisfy the historical data search requirements of
ASTM standards for such report), and must be approved by and
certified to the Company and its affiliates in accordance with
the Company's certification instructions (i.e., Company's
designation of the names to whom such reports should be
certified) prepared by an appropriately licensed professional
selected and approved by the Company, stating, among other
things, that:
i. There is a low likelihood of the existence on the
Property of the presence beyond minimum action levels
of petroleum, petrochemical, toxic or other hazardous
substances.
ii. Neither the Property nor any property within a
one-half (1/2) mile radius thereof (that by reason of
its elevation or relative groundwater gradient could
result in any contaminants migrating to the Property)
is identified on any local, state or federal register
as a site containing or potentially containing any
hazardous waste or toxic material beyond minimum
action levels;
<PAGE> 9
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 9
iii. Nothing in the public records discloses a condition
or circumstance with respect to the Property which
may require or may hereafter require a clean-up,
removal or other remedial action or response which
could subject an owner of the Property to any
damages, penalties, claims, costs, or expenses;
iv. Based on an actual inspection of the Property and a
review of available public records it does not appear
that tanks or other facilities (including, but not
limited to, petroleum, petrochemical or hazardous
waste storage tanks or other facilities) are
presently (or have ever been unless removed in
accordance with law and with no further action
recommended by the applicable governmental authority)
located on, under or at the Property.
The firm providing the Phase I report or audit shall deliver to the Company (a)
a copy of their errors and omissions liability coverage policy, which shall be
in an amount which is not less than One Million Dollars ($1,000,000.00); (b) a
statement describing any pending or threatened litigation against such firm; and
(c) a resume of the engineers preparing such report or audit.
D. The Seller/Lessee shall provide the Company with a copy of the
most recent Property real estate tax bill and a copy of the
paid receipt therefor.
E. The Seller/Lessee shall provide the Company with two (2)
copies of a current survey (within 90 days prior to closing or
otherwise sufficient to permit deletion of the standard survey
exceptions for Company's owner title insurance policy) of the
Property certified to the Company and/or its affiliates (as
directed by the Company) and the title company, which survey
was prepared after the date hereof by a registered surveyor
acceptable to the Company and to the title company issuing the
title commitment. The survey must show all existing
improvements on the Property, all setback lines, all easements
and utility lines, and shall reveal no material encroachments,
unless waived by the Company.
F. The Seller/Lessee shall provide the Company with certificates
of insurance evidencing liability casualty insurance coverage
in the form and amounts required above.
G. Such documentation as is necessary to evidence the fact that
Seller/Lessee is validly organized and in good standing under
the laws of the state of its formation and that it is
authorized to do business in the state where the Property is
located, together with
<PAGE> 10
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 10
such resolutions or approvals as are required for it to enter
into this Commitment and to consummate the transactions
contemplated hereby.
H. The name, address, telephone and contact name of the party who
currently provides Seller/Lessee's equipment financing
relating to the Property, if any, together with a list of all
items financed by the equipment lender/lessor.
I. The Seller/Lessee shall provide copies of all necessary
governmental permits, licenses and approvals required to
operate the Property as a Ground Round Restaurant (including
without limitation, the liquor license and the certificate of
occupancy or equivalent, issued by the applicable governmental
authority).
J. Such other information or documentation as the Company might
reasonably request as a prudent purchaser in order to finalize
the transactions contemplated hereby.
9. Opinion of Counsel. As a condition to closing, Company's counsel
shall require the opinion of Seller/Lessee's counsel as to such matters as
Company's counsel may deem appropriate, as to the following:
A. Seller/Lessee is duly organized and validly existing under the
laws of the state of their formation; has the power and its
representatives have been duly authorized to enter into the
transactions contemplated by this Commitment; and all
necessary approvals required to consummate the transactions
contemplated hereby have been obtained.
B. There is no threatened or pending litigation relating to
Seller/Lessee or any affiliate of Seller/Lessee which might
affect either the sale or lease of the Property, or the
operation of the contemplated business therein, or which might
have a material adverse affect upon the financial condition of
Seller/Lessee.
C. Seller/Lessee is not in material violation of any material
agreement, law, ordinance, regulation, ruling, court order or
other governmental enactment regarding the Property and that
consummation of the transactions contemplated hereby will not
place Seller/Lessee in violation of any such matter.
D. All documents executed by Seller/Lessee in connection with the
closing have been duly executed and delivered, constitute
valid and binding obligations of Seller/Lessee, and are
enforceable according to their terms.
<PAGE> 11
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 11
10. Closing. At each closing, Seller/Lessee and Company shall each
execute and/or deliver to the Company all documents, monies, instruments and
other items required by this Commitment. Each party's obligation to close is
conditioned upon its receipt and approval of all such documents, monies,
instruments and items.
11. Applicable Law. This Commitment shall be construed in accordance
with the laws of the State of Florida. It is agreed that time shall be of the
essence all terms and provisions of this Commitment.
12. Survival. The terms and conditions of this Commitment shall survive
closing with respect to the transaction contemplated herein.
13. Not a Security Arrangement. The parties hereto acknowledge and
agree that the contemplated transactions are not intended as a security
arrangement or financing of real property, but rather shall be construed for all
purposes as true leases.
14. Company's Right of First Refusal. During the period of this
Commitment, the Company shall have the right to finance, and Seller/Lessee
agrees to place with the Company, up to Twenty Million Dollars ($20,000,000.00)
of sale/leaseback transactions. If during the one (1) year period following the
closing, Seller/Lessee desires to enter into restaurant real estate financing
transactions in excess of the funding limits to which the Company is then
committed, the Company shall have the right of first refusal to provide such
restaurant real estate financing on the same or better terms than are being
offered by any third party financing entity.
15. Commitment Period. This Commitment shall expire unless, on or
before ten (10) business days from the date of this Commitment set forth above,
this Commitment is accepted and returned to the Company. If the transactions
contemplated herein do not close within the time periods specified in this
Commitment due to Seller/Lessee's failure to comply with the terms of this
Commitment, then the Company shall have the option to terminate its obligations
hereunder, in which event this Commitment shall be of no further force or
effect.
16. Brokerage. The Seller/Lessee Company has engaged Jones Lang Wootton
as broker with respect to the Properties subject to this Commitment, the sale of
Properties by Seller/Lessee to the Company and the leaseback thereof. In the
event any brokerage fee or commission is payable to Jones Lang Wootton or any
other person or entity in connection with the transactions contemplated herein,
Seller/Lessee shall be responsible for paying such fee(s).
<PAGE> 12
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 12
17. Assignment of Commitment. This Commitment is not assignable by
Seller/Lessee except to its parent or its affiliates. The Company may assign
this Commitment in whole or part to an affiliate of the Company without
Seller/Lessee's consent; however in the event of such assignment, Company shall
remain responsible for its obligations hereunder.
18. Faxed Counterparts as Originals. This Commitment may be signed in
counterparts, each of which shall be deemed an original. Original signatures to
faxed copies shall also be sufficient to bind the parties hereto.
[Continued on next page]
<PAGE> 13
Mr. Stephen J. Kiel, Senior VP
September 24, 1997
Page 13
If this Commitment is acceptable to you, please sign in the space
provided below and return one executed original letter to my office. Following
receipt of the executed Commitment, I shall instruct our legal counsel to
prepare definitive documents consistent with the foregoing terms and conditions.
If you have any questions, please do not hesitate to call me.
Very truly yours,
CNL FUND ADVISORS, INC.
By: /s/ John T. Walker
_______________________________________
John T. Walker, Chief Operating Officer
ACCEPTED AND AGREED:
AS TO SELLER/LESSEE
THE GROUND ROUND, INC.
By: /s/ Stephen J. Kiel
______________________________
Stephen J. Kiel
As Its: Senior Vice President
Date: 9/9/97
_____________________________
<PAGE> 1
Exhibit 9 GROUND ROUND LETTERHEAD
September 26, 1997
To Our Shareholders;
On September 8, 1997, you were sent a letter from the Chairman of the Board
of Directors of Ground Round Restaurants, Inc. (the "Company" or "Ground
Round"), announcing that the Board had unanimously approved a merger of Ground
Round with GRR Merger Corp. (the "Purchaser"), a wholly owned subsidiary of GRR
Holdings, LLC ("Parent"), companies formed by Boston Ventures. Enclosed with the
Chairman's letter were various tender offer materials, including the Offer to
Purchase and the Company's Solicitation/Recommendation Statement on Schedule
14D-9.
Although the Schedule 14D-9 was designed to provide you with all necessary
information, the Company has received many telephone calls from shareholders
with questions regarding the tender offer and your Board's reasons for
determining to sell the Company. As the three members of the Special Committee
who negotiated, and recommended that the Board approve, the merger and tender
offer, we would like to share with you the most frequently asked questions and
the Company's answers. If you have any questions not addressed, please feel free
to call the Company, at (617) 380-3100, or the Purchaser's Information Agent for
the tender offer, MacKenzie Partners, at (800) 322-2885.
THE TENDER OFFER IS SCHEDULED TO EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, OCTOBER 3, 1997 -- 7 DAYS FROM TODAY -- UNLESS EXTENDED.
Your decision with respect to the offer is important. We urge you to
carefully read the enclosed materials, together with the more detailed
information as to these and other matters relating to the tender offer, the
merger and the Company contained in the Offer to Purchase and Schedule 14D-9
previously sent to you, before making your decision.
We, and the Board, continue to believe that the tender offer and merger are
fair to, and in the best interests of, the Company and its shareholders, and
recommend that you accept the tender offer and tender your shares pursuant to
the tender offer.
Sincerely,
Members of the Special Committee
of the Board of Directors
Fred H. Beaumont, Jr., Chairman
Allan D. Weingarten
David T. DiPasquale
<PAGE> 2
SHAREHOLDER QUESTIONS CONCERNING THE TENDER OFFER AND THE MERGER
WHY HAS THE BOARD OF DIRECTORS OF THE COMPANY DECIDED TO SELL THE COMPANY AT
THIS TIME?
The Company may not be able to refinance its bank debt. It owes
approximately $38,500,000 to its commercial lenders under a credit agreement
which now expires on December 31, 1997, including approximately $1,400,000 in
demand notes to such lenders. The lenders have indicated their desire that such
debt be significantly reduced and that a repayment plan for the balance be
developed. In connection with the standstill agreement discussed below, the
Company's lenders have agreed to work with the Company and Boston Ventures to
amend and extend the existing credit agreement upon consummation of the merger
to provide for more operating flexibility for the Company. If the tender offer
is not consummated the Company would have to attempt to negotiate amendments to
its existing credit agreement and provide a plan for repayment of amounts
borrowed thereunder, or refinance the current borrowings, which may not be
possible in view of the Company's recent financial performance.
At the same time, the Company, has substantial capital requirements. It
needs significant additional capital simply to repair and maintain its
restaurants. It also needs to refurbish and upgrade its restaurants if it is to
remain viable in the highly competitive mid-price family restaurant market. The
Company needs to find additional third party capital to cover its deferred
maintenance requirements, fund operations and provide for these needed capital
improvements, in the face of declining sales. The Company has been unsuccessful
in consummating a transaction to raise investment funds for such working capital
and capital investment needs.
In addition, the Company's short-term liquidity has deteriorated. Sales
have recently been below expectations, and have declined compared to the same
period last year. As a result, the Company's cash has declined by more than
$2,000,000 and has dropped below $1,000,000, the minimum level that management
believes necessary to fund day-to-day operations. In connection with the
Company's execution of the merger agreement, the Company's lenders entered into
a standstill agreement that waived compliance by the Company with EBITDA
maintenance covenants in the existing credit agreement through September and
allows the Company to use certain funds to satisfy the Company's current working
capital requirements, which funds would otherwise be required to be paid to the
lenders. However, this standstill agreement, and the Company's ability to use
such funds, will expire on October 22, 1997, or earlier if the tender offer is
terminated.
BUT WON'T THE COMPANY'S PROPOSED SALE AND LEASEBACK TRANSACTION WITH CNL FUND
ADVISOR, INC. ("CNL") RESOLVE THE COMPANY'S LIQUIDITY AND CAPITAL REQUIREMENT
NEEDS?
No. As announced, the Company entered into a Commitment Letter dated
September 9, 1997, with CNL which has agreed to purchase, subject to certain
conditions, a minimum of 15 and a maximum of 20 restaurants owned in fee by the
Company, for a purchase price not to exceed $20 million, plus certain approved
transactional costs, which restaurants are to be leased and operated by the
Company. If this sale and leaseback transaction is consummated, virtually all of
the purchase price received would be used to repay a portion of the Company's
existing bank debt. The transaction will not provide the Company with any
significant cash to fund operations and, as a result of the additional rent
expense, will have a negative effect on the Company's operating cash flow
(EBITDA) and little or no positive effect on earnings. In addition, the sale and
leaseback transaction is subject to satisfaction of certain conditions,
including satisfactory completion of due diligence investigations by CNL,
approval by the Company's commercial lenders, and the Company entering into
lease agreements that are reasonably satisfactory to the parties. As a result,
although the transaction is scheduled to close on September 30, 1997, there can
be no assurance that the transaction will be consummated, on that date or at
all.
2
<PAGE> 3
IS THE MERGER AN INSIDE DEAL -- ARE ANY OF THE DIRECTORS, OFFICERS OR OTHER
MANAGEMENT OF THE COMPANY PARTICIPATING WITH BOSTON VENTURES IN THE ACQUISITION
OF THE COMPANY?
No. Parent and the Purchaser, which were formed by Boston Ventures, are
independent third parties that have no ties to the Board or any member of the
Company's management. The merger agreement was negotiated on an arm's-length
basis by a Special Committee of the Board, comprised of three non-management
directors, and no officer or director of the Company has an interest in Parent,
the Purchaser or Boston Ventures.
IN THAT CASE, ARE INSIDERS TENDERING THEIR GROUND ROUND STOCK?
Yes. After carefully evaluating the offer, all of the directors and
executive officers of the Company have indicated their intention to tender their
shares pursuant to the offer.
HOW LONG DID THE BOARD CONSIDER THE MERITS OF THIS TRANSACTION?
Boston Ventures first approached the Company with respect to a possible
acquisition on May 27, 1997. On July 10, 1997, after substantial due diligence,
it indicated that, subject to a number of conditions, it was still interested in
an acquisition of the Company at a price of approximately $1.65 per share, in
cash. Although the Board did not accept the suggested price, it determined to
continue negotiations, and appointed the Special Committee to review, negotiate
and make recommendations to the full Board regarding any acquisition or
investment proposal received from third parties. From that time until receipt of
a firm offer and approval of the merger agreement on August 29, 1997, the
Special Committee engaged in negotiations with Boston Ventures, on behalf of the
Purchaser and Parent, and the Special Committee and the Board evaluated the
proposed terms, as negotiated, of such a transaction.
DID THE BOARD RECEIVE AN OUTSIDE OPINION AS TO THE FAIRNESS OF THE $1.65 PRICE?
Yes. The Special Committee and the Board received the opinion of
Rothschild Inc. that the price of $1.65 per share in cash was fair, from a
financial point of view, to the Company's shareholders. The full text of such
opinion, which sets forth the assumptions made, the matters considered and the
limitations on the review undertaken by Rothschild Inc., is attached as an
exhibit to the Company's Schedule 14D-9.
WAS THE BOARD'S APPROVAL OF THE TRANSACTION UNANIMOUS?
Yes. The Special Committee unanimously recommended to the full Board that
the transaction be approved, and the Board, with all members present and voting,
unanimously approved the merger agreement, the offer and the merger as fair to,
and in the best interests of, the Company and its shareholders.
WHY SHOULD I TENDER MY SHARES NOW, INSTEAD OF WAITING?
If less than 85.1% of the outstanding common stock (90% less the 4.9%
currently owned by Parent) is tendered by October 3rd, the expiration date of
the offer, unless extended, the Purchaser can terminate the offer without
purchasing any shares, and the merger agreement would terminate. Although the
Purchaser has reserved the right to waive the minimum condition (which would
require an extension of the offer), there can be no assurance that it will do
so.
If, however, the Purchaser were to waive the minimum condition and purchase
the tendered shares, so long as sufficient shares were tendered to give the
Purchaser and Parent 66 2/3% of the outstanding shares, the Purchaser would
still be able, and obligated under the merger agreement, to consummate the
merger without the vote of any other shareholder. In that case, shareholders who
did not tender their shares would not receive payment for their shares pursuant
to the merger until a proxy statement is prepared and filed with the Securities
and Exchange Commission and then sent to shareholders, and the merger completed,
which could take several months.
3
<PAGE> 4
WHAT HAPPENS IF I TENDER MY SHARES AND A HIGHER BID IS RECEIVED?
If an alternative bid which the Board determines to be superior to the
tender offer is received by the Company prior to consummation of the offer, the
Company's Board of Directors can terminate the merger agreement. You may also
withdraw any tendered shares at any time prior to expiration of the tender
offer, allowing you to participate in the superior transaction.
EVEN IF NO HIGHER BID IS RECEIVED, WOULDN'T I FARE BETTER THAN $1.65 PER SHARE
IF THE COMPANY WERE TO FILE FOR REORGANIZATION UNDER CHAPTER 11 OF THE
BANKRUPTCY CODE?
Typically, when a company files for protection and reorganization under
Chapter 11, the financial interest of equity holders is materially and adversely
affected. In the Company's case, if the Company were to file for protection from
creditors under Chapter 11, there is no assurance that the Company would be able
to secure debtor-in-possession financing necessary to sustain its operations
while it reorganized, and the Company would still need a substantial infusion of
new equity to maintain and upgrade its restaurants. Although the Company holds
many valuable leases, the ability of the Company to attract and retain employees
during a reorganization is likely to be impaired, which could result in reducing
the value of its leases. Rothschild Inc. considered the liquidation value of the
Company, in reaching its conclusion that the tender offer and the merger are
fair to the Company's shareholders, from a financial point of view. Thus,
although the Company might emerge from a Chapter 11 restructuring, shareholder
value could be significantly diminished or even eliminated, and any potential
distribution to shareholders would be reduced by the high costs of such a
restructuring.
IF I HOLD CERTIFICATES OF INTERNATIONAL PROTEINS CORPORATION, ARE THERE ANY
SPECIAL PROCEDURES FOR TENDERING THESE SHARES?
No. "International Proteins Corporation" is a prior name of the Company.
If you hold such certificates and wish to tender your shares, you should follow
the instructions applicable to certificates of "Ground Round Restaurants, Inc."
contained in the Letter of Transmittal.
4
