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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Ground Round Restaurants, Inc., a New
York corporation ("Ground Round" or the "Company"), and the address of its
principal executive offices is 35 Braintree Hill Office Park, Braintree
Massachusetts 02184. The title of the class of equity securities to which this
statement relates is the Common Stock, par value $.16 2/3 per share, of the
Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1, dated September 8, 1997 (the "Schedule 14D-1"), of
GRR Merger Corp., a New York corporation (the "Purchaser"), a wholly-owned
subsidiary of GRR Holdings, LLC, a Delaware limited liability company
("Parent"), companies formed by Boston Ventures Management, Inc. ("Boston
Ventures") to purchase all outstanding Shares at a price of $1.65 per Share net
to the seller in cash, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated September 8, 1997 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger among
Parent, the Purchaser and the Company dated as of August 29, 1997 (the "Merger
Agreement"). The Merger Agreement provides, among other things, that upon the
terms and subject to the conditions contained therein, and in accordance with
the Business Corporation Law of the State of New York (the "NYBCL"), after the
satisfaction or waiver of the conditions contained therein, and the purchase of
Shares pursuant to the Offer, the Purchaser will be merged with and into the
Company (the "Merger").
According to the Schedule 14D-1, the address of the principal executive
offices of the Purchaser and Parent are 21 Custom House Street, Boston, MA
02110.
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.
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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
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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
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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
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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.
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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
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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
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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
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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
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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%
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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
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(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
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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
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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.
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PROPOSED SALE AND LEASEBACK TRANSACTION. In connection with the efforts of
the Company to transact a sale-leaseback of at least 18 fee properties (the
"Sales Leaseback Transaction"), the Company has with the assistance of Jones
Lang Wooton, U.S.A. (as Broker) entered into negotiations with CNL Fund
Advisors, Inc. ("CNL") of Orlando, Florida to sell up to 20 fee properties owned
by the Company. The Company is currently negotiating the terms of a commitment
letter relating to such Sales Leaseback Transaction containing the following
material terms: (i) CNL agreeing to enter into a sale-leaseback transaction with
the Company for a purchase price not to exceed Twenty Million Dollars
($20,000,000), plus certain transactional costs, for properties to be operated
as Ground Round, Gold Fork or other entities of the Company by September 30,
1997, (ii) that up to Two Million Dollars ($2,000,000) of the sale plus costs is
to be funded upon the renovation or rebuilding of either or both of the fire
damaged properties located in Coon Rapids, Minnesota and Bridgeton, Missouri by
September 4, 1998 and (iii) a minimum condition to the transaction that at least
fifteen (15) properties are accepted for purchase following environmental,
appraisal and title due diligence. There can be no assurance that such
commitment letter or the Sale-leaseback Transaction will be entered into or
consummated.
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 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.
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<PAGE> 17
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 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
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<PAGE> 18
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 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
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<PAGE> 19
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 Agrement 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 a cash offer for the whole Company on terms 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 Stock Market on August 29, 1997, the
date the Merger Agreement was approved by the Company's Board of Directors.
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<PAGE> 20
(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 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to the terms of an Engagement Letter (the "Rothschild Engagement
Letter"), dated as of July 14, 1997, between Rothschild and the Company, the
Company has retained Rothschild to render financial advisory services to the
Company for the purpose of rendering a written opinion (the "Opinion"),
addressed 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. Pursuant to the terms of the Rothschild Engagement
Letter, the Company agreed to pay Rothschild cash fees of (a) $25,000, payable
upon the Company's execution of the Rothschild Engagement Letter, and (b)
$175,000, payable upon Rothschild's delivery of the Opinion to the Company.
The Company has also agreed to reimburse Rothschild for all of Rothschild's
reasonable out-of-pocket expenses incurred in connection with its engagement
thereunder, including, but not limited to, all travel, telephone,
computer-related data retrieval and courier expenses and all reasonable fees and
expenses of Rothschild's counsel. Rothschild agreed that it shall, for no
additional fee, make appropriate personnel available at reasonable times to
testify in proceedings (including depositions) in respect of which the Company
is a party and relating to the provision of Rothchild's services provided
thereunder.
The Company agreed to indemnify Rothschild and to hold it harmless against
any losses, claims, damages or liabilities to which Rothschild may become
subject rising in any matter or in connection with Rothschild's rendering of
services under the Engagement Letter, subject to the provisions as more fully
described in the Indemnity Agreement attached to the Rothschild Engagement
Letter.
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<PAGE> 21
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to shareholders with respect to the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as set forth below, there have been no transactions in Shares
which were effected during the past sixty (60) days by the Company, or to the
best knowledge of the Company, by any executive officer, director, affiliate or
subsidiary of the Company.
On June 3, 1997, JUSI Holdings, Inc. ("JUSI"), an indirect wholly-owned
subsidiary of U.S. Industries, Inc. ("USI"), sold 540,000 shares for $1.25 per
share in negotiated transactions effected on NASDAQ to Boston Ventures, Inc., an
affiliate of Parent and Purchaser.
On July 9, 1997, JUSI sold 1,892,100 shares to Mr. Christian R. Guntner at
$1.32 per share for an aggregate purchase price of $2,497,572 and 1,200,000
shares to Mr. David T. DiPasquale at $1.32 per share for an aggregate purchase
price of $1,584,000, pursuant to a Stock Purchase Agreement (the "Stock Purchase
Agreement"), dated July 9, 1997, among JUSI, USI, Christian R. Guntner and David
T. DiPasquale. The Stock Purchase Agreement provides, among other things, that
if, within one year of the date of the Stock Purchase Agreement, Messrs. Guntner
or DiPasquale sell, transfer or assign (collectively, a "Sale") any shares of
Common Stock, Messrs. Guntner or DiPasquale, as the case may be, shall pay to
JUSI (i) 100% of the profit if the Sale occurs within 90 days of the date of the
Stock Purchase Agreement, (ii) 50% of the profit if the Sale occurs within 91 to
270 days of the date of the Stock Purchase Agreement and (iii) 25% of the profit
if the Sale occurs within 271 to 365 days of the date of the Stock Purchase
Agreement; provided that no profit need be paid to JUSI for certain Sales of up
to 309,210 shares after the 90th day.
(b) To the best knowledge of the Company, all of its executive officers,
directors, affiliates or subsidiaries presently intend to tender all Shares to
Parent pursuant to the Offer, which are owned beneficially by such persons,
subject to and consistent with any fiduciary obligations in the case of Shares
held by fiduciaries. In addition, Messrs. Guntner and DiPasquale entered into
the Shareholder Agreement, which is described in Item 3 above.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth above in Item 3 or in Item 4(b) above, or below,
the Company is not engaged in any negotiations in response to the Offer which
relates to or would result in (i) an extraordinary transaction, such as a merger
or reorganization, involving the Company or any subsidiary of the Company; (ii)
a purchase, sale or transfer of a material amount of assets by the Company or
any subsidiary of the Company; (iii) a tender offer for or other acquisition of
securities by or of the Company, or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3(b) above, there are no transactions,
Board of Directors resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
events referred to in Item 7(a) above.
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.
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
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<PAGE> 22
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 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 are filed herewith:
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.
- ---------------
* Included in copies of the Schedule 14D-9 mailed to shareholders.
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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 8, 1997
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<PAGE> 24
ANNEX I
GROUND ROUND RESTAURANTS, INC.
35 BRAINTREE HILL OFFICE PARK
BRAINTREE, MASSACHUSETTS 02184
INFORMATION STATEMENT
PURSUANT TO SECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about September 8, 1997 as
part of the Ground Round Restaurants, Inc. (the "Company")
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
with respect to the tender offer by GRR Merger Corp. ("Purchaser") to the
holders of record of the Company's Common Stock, $0.16 2/3 par value per share
("Common Stock"). Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in the Schedule 14D-9. You are receiving this
Information Statement in connection with the possible election of persons
designated by Purchaser to a majority of the seats on the Board of Directors of
the Company (the "Board") pursuant to an Agreement and Plan of Merger among GRR
Holdings, Inc., LLC, ("Parent"), Purchaser and the Company dated as of August
29, 1997 (the "Merger Agreement"). The Merger Agreement provides, among other
things, that 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, pursuant to the
Merger Agreement it is the present intention of the parties to the Merger
Agreement 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 Merger Agreement further provides that 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 under the Merger Agreement 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. Pursuant to the Merger
Agreement 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 the Merger Agreement.
Furthermore, the Merger Agreement also provides that the Board shall not
delegate any matter set forth above to any committee of the Board. To assist the
Board in consummating this transaction, the Board has formed a Special Committee
of the Board authorized, among other things, to enter into negotiations and
discussions with BV or any other interested party and make recommendation to the
Board. The current members of the Special Committee of the Board are Fred H.
Beaumont, Jr., David T.
<PAGE> 25
DiPasquale and Allan D. Weingarten. This Information Statement is required by
Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14F-1
promulgated thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
WE ARE NOT NOW ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY AT THIS TIME.
Purchaser commenced the Offer on September 8, 1997. The Offer is scheduled
to expire at 12:00 midnight, New York City time, on October 3, 1997. However,
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, on the Expiration Date, 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) for so long as the Bank Standstill Letter
remains in effect, 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 but only in the event that the
Purchaser reduces 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% of the outstanding Shares.
The Purchaser also agreed that, in the event that the Minimum Condition is not
satisfied or waived at the initial expiration date of the Offer, the Purchaser
will, upon written request of the Company, extend the Offer for a period of up
to ten further Business Days. If all conditions to the Offer have been satisfied
or waived, Purchaser shall purchase all of the Shares validly tendered pursuant
to the Offer prior to the "Expiration Date" and not properly withdrawn. The term
"Expiration Date" means 12:00 midnight, New York City time, on October 3, 1997
or the latest time and date which the Offer, as so extended by Purchaser, shall
expire.
The information contained in this Information Statement concerning
Purchaser and Parent has been furnished to the Company by Parent and the Company
assumes no responsibility for the accuracy, completeness or fairness of any such
information.
Purchaser has informed the Company that it currently intends to designate
the following persons (the "Acquisition Designees") for election.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE YEAR EMPLOYMENT HISTORY
- -------------------------------- -----------------------------------------------------------
<S> <C>
Martha H.W. Crowninshield
(57).......................... Director, Boston Ventures, for more than the past five
years; Director, the Purchaser, since August 1997.
Barbara M. Ginader(41).......... 1993 -- present, Director, Boston Ventures; prior thereto,
Managing Director, Bear, Stearns & Co. Inc.; Director,
President and Secretary, the Purchaser, since August 1997.
Thomas J. Russo(55)............. 1994 through February 1997, Chairman, President and Chief
Executive Officer, Miami Subs Corp. (develops, owns and
franchises fast food restaurants); 1987 to 1994, Group
Chairman and CEO, Housewares Group of Hanson Industries
PLC.
Neil A. Wallack (30)............ 1996 -- present, Associate Director, Boston Ventures;
1993 -- 1996, Associate, Boston Ventures; 1991 -- 1993,
Harvard Graduate School of Business Administration; Vice
President and Treasurer, the Purchaser, since August 1997
</TABLE>
The business address of each of such persons is 21 Custom House Street,
Boston, MA 02110. All such persons are United States citizens.
It is expected that the Acquisition Designees may assume office at any time
following the purchase by Purchaser of a majority of Shares pursuant to the
Offer, and that, upon assuming office, the Acquisition Designees will thereafter
constitute at least a majority of the Board. Purchaser has informed the Company
that each of the Acquisition Designees has consented to act as a director of the
Company, if so designated.
2
<PAGE> 26
Except as provided in the Merger Agreement, the Shareholder Agreement and
as otherwise described in the Offer to Purchase, the Company has been advised
that to the best knowledge of Purchaser and Parent, none of the Acquisition
Designees has any contract, arrangement, understanding or relationship with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or voting of such securities, finder's fees, joint ventures, loan
or option arrangements, puts or calls, guaranties of loans, guaranties against
loss, guarantees of profits, division of profits or loss or giving or
withholding of proxies. Except as set forth in the Offer to Purchase, the
Company has been advised that since January 1, 1996, to the best knowledge of
Purchaser and Parent, none of the Acquisition Designees has had any business
relationship or transaction with the Company or any of its executive officers,
directors or affiliates that is required to be reported under the rules and
regulations of the Commission applicable to the Offer. Except as set forth in
the Offer to Purchase, since January 1, 1996, the Company has been advised that
there have been no contacts, negotiations or transactions, to the best knowledge
of Purchaser and Parent, between any of the Acquisition Designees, on the one
hand, and the Company or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, tender offer or other acquisition of securities,
an election of directors or a sale or other transfer of a material amount of
assets.
INFORMATION WITH RESPECT TO THE COMPANY
As of August 29, 1997, there were 11,173,421 shares of Common Stock
outstanding and entitled to vote, with each share entitled to one vote. The
Common Stock is the only class of voting securities of the Company which are
outstanding.
BOARD OF DIRECTORS
GENERAL
The Company's By-laws provide that the number of directors that shall
constitute the Board of Directors shall be determined by the Board of Directors
from time to time, but in no event shall the number of directors be less than
three. The Company's Board of Directors has currently set the number of
directors at seven.
ACQUISITION DESIGNEES
It is expected that the Acquisition Designees may assume office at any time
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,
and that, upon assuming office, the Acquisition Designees will thereafter
constitute at least a majority of the Board of Directors.
CURRENT DIRECTORS
The persons named below are the current members of the Board. The following
sets forth as to each director, his age and principal occupation and business
experience, and the period during which each has served as a director of the
Company. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
for information regarding the beneficial ownership of Common Stock of each of
the directors.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
-------------------------------------------------------- ---- --------------
<S> <C> <C>
Daniel R. Scoggin....................................... 60 1991
Christian R. Guntner(1)................................. 43 1995
Joseph Schollenberger................................... 71 1995
James R. Olson.......................................... 56 1995
Fred H. Beaumont, Jr.................................... 60 1996
Allan D. Weingarten..................................... 59 1996
David T. DiPasquale(1).................................. 43 1997
</TABLE>
3
<PAGE> 27
- ---------------
(1) Mr. Christian Guntner was nominated to serve as a director by the Company
under the terms of a Stockholder Agreement dated August 1, 1991, as amended,
between the Company and JUSI Holdings, Inc. ("JUSI"). On July 9, 1997, JUSI
sold 1,892,100 shares to Mr. Guntner and 1,200,000 shares to David T.
DiPasquale, comprising all of JUSI's shares of the Company. Mr. DiPasquale
was elected to serve as a member of the Board on July 10, 1997. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
MR. SCOGGIN has been the Chairman of the Board, President and Chief
Executive Officer of the Company since July 21, 1995 and prior thereto was
interim Chairman of the Board, President and Chief Executive Officer of the
Company from April 1, 1995. He was the founder and former President and Chief
Executive Officer of TGI Friday's, Inc., a multi-unit restaurant company, until
November 1986, and prior to joining the Company, served as a consultant for
several restaurant concepts and founded Bison Group, a developer of foodservice
and entertainment concepts. Mr. Scoggin was a director of Roasters Corp. and
Harvest Buffet Restaurants, Inc.
MR. GUNTNER was Senior Vice President of Corporate Development of U.S.
Industries, Inc., a company engaged in the manufacture and distribution of
consumer, building and industrial products, from May 1995 through July 1997, and
since that time has been a private investor. He was Executive Vice President and
Chief Operating Officer of Publicker Industries, Inc. from July 1990 through
March 1995 and Vice President of Vornado, Inc. from February 1990 to July 1990.
MR. SCHOLLENBERGER has been Vice President of each of GSB Holdings, Inc.
and GSB, Inc. and Executive Vice President and Chief Operating Officer of their
parent company, Great South Beach Improvement Co., a corporation principally
engaged in real estate development, since January 1994. From 1980 to 1994, he
was associated with Able Fab Co. in various executive capacities.
MR. OLSON was President of PDQ Car Wash, Inc. from March of 1996 to
December of 1996 and since that time has been a private investor. He was
President of the Transportation Sector from December 1992 to July 1995 and
President of the Van Group from March 1987 to December 1992 of Schneider
National, Inc.
MR. BEAUMONT became a principal of Balukoff, Lindstrom & Co., P.A. in July
1995 and was the President, Director and sole shareholder of Fritz Beaumont, CPA
firm, from September 1971 to July 1995.
MR. WEINGARTEN was a Partner of Ernst & Young, LLP in New Jersey from 1972
through September of 1995 and since that time has been a business consultant and
private investor. Since April 1997, Mr. Weingarten has been a director of
Programmers Paradise, Inc.
MR. DIPASQUALE has been a private investor since July 1997. From May 1995
through July 1997 he was a Group Chairman of U.S. Industries. From July 1993
through May 1995 he was Chairman of the Recreation/Leisure Group of Hanson
Industries. From September 1990 through July 1993, he was Chairman, CEO and
President of Endicott Johnson Footwear Inc., a wholly owned subsidiary of Hanson
Industries. Mr. DiPasquale is also Chairman of the Board of Directors of the Two
Ten International Footwear Foundation, a non-profit organization serving the
members of the Footwear and allied industries.
4
<PAGE> 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth to the knowledge of the Company certain
information, as of August 29, 1997, regarding the beneficial ownership of Common
Stock, which is the Company's only class of voting securities, by shareholders
who own more than 5% of the outstanding shares, by each director of the Company,
by each of the five named executive officers of the Company and by all directors
and executive officers of the Company as a group. Substantially all the
information set forth in the following table has been furnished by the persons
listed in the table. Unless otherwise indicated, each person holds sole voting
and investment power with respect to shares shown opposite their name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------------------------------------------- ----------------------- --------
<S> <C> <C>
Christian R. Guntner......................................... 1,902,100(2) 17.0%
44 Front Street
Suite 770
Worcester, MA 01608
David DiPasquale............................................. 1,202,000(2) 10.7%
44 Front Street
Suite 770
Worcester, MA 01608
Wellington Management Company, LLP........................... 905,300(3) 8.1%
75 State Street
Boston, MA 02109
Dimensional Fund Advisors, Inc. ............................. 640,900(4) 5.7%
1299 Ocean Ave.
Santa Monica, CA 90401
GSB Holdings, Inc............................................ 503,300(5) 4.5%
One Bethany Road at Rt. 35
Building 6, Suite 94
Hazlet, NJ 07730
Daniel R. Scoggin............................................ 119,667 1.0%
Joseph Schollenberger........................................ 4,000(5)(6) *
James R. Olson............................................... 4,000 *
Fred H. Beaumont, Jr. ....................................... 3,000 *
Allan D. Weingarten.......................................... 5,000 *
Stephen J. Kiel.............................................. 16,667 *
Anthony E. Bezsylko.......................................... 13,333 *
A. Gerald Leneweaver......................................... 6,667 *
David L. Dobbs............................................... 0 *
Michael R. Jorgensen......................................... 0 *
All executive officers and directors as a group (14
persons)................................................... 3,325,830 29.2%
</TABLE>
- ---------------
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days upon the exercise of an
option are treated as outstanding for purposes of determining beneficial
ownership and the percent beneficially owned by such person.
(2) These shares were acquired from JUSI Holdings, Inc. ("JUSI"), a wholly-owned
subsidiary of U.S. Industries, Inc. ("USI"), in a privately negotiated
transaction on July 9, 1997. Messrs Guntner and DiPasquale are deemed to be
a group for purposes of the Exchange Act.
(3) Wellington Management Company, LLP, ("WMC") is an investment advisor
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended. As of January 24, 1997 WMC, in its
capacity as investment adviser, may be deemed to have beneficial ownership
of 905,300 shares of Company common stock that are owned by numerous
investment advisory
5
<PAGE> 29
clients, none of which is known to have such interest with respect to more
than five percent of the class. As of January 24, 1997, WMC had voting power
and dispositive power as follows:
<TABLE>
<S> <C> <C> <C>
Sole Voting Power = 0 Shares
Shared Voting Power = 163,300 Shares
Sole Dispositive Power = 0 Shares
Shared dispositive Power = 905,300 Shares
</TABLE>
(4) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, ia deemed to have beneficial ownership of 640,900 shares of Company
common stock as of December 31, 1996, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company (the "Fund"), or in series of the DFA Investment Trust
Company, a Delaware business trust (the "Trust"), or the DFA Group Trust and
DFA Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
<TABLE>
<S> <C> <C> <C>
Sole Voting Power = 469,850 Shares*
Shared Voting Power = 0
Sole Dispositive Power = 640,900
Shared Dispositive
Power = 0
</TABLE>
* Persons who are officers of Dimensional also serve as officers of the Fund
and the Trust, each an open-end management investment company registered
under the Investment Company Act of 1940. In their capacity of officers of
the Fund and the Trust, these persons vote 87,950 additional shares which
are owned by the Fund and 83,100 shares which are owned by the Trust (both
included in Sole Dispositive Power above).
(5) GSB Holdings, Inc. ("GSB Holdings"), which is the record holder of 503,300
shares of Company Common Stock, is engaged principally in the business of
holding investments and is a wholly-owned subsidiary of Great South Beach
Improvement Co. ("GSB Improvement"), a corporation principally engaged in
real estate development. The address of GSB Holdings is One Bethany Road at
Route 35, Building 6, Suite 94, Hazlet, New Jersey 07730. Mr. Clarke is a
director and officer of GSB Holdings and a director, officer and controlling
shareholder of GSB Improvement and may, therefore, be deemed to own
beneficially the shares of Common Stock owned by GSB Holdings. David H.
Clarke, who is the Chairman of the Board and Chief Executive Officer of U.S.
Industries, Inc., is a director and officer of GSB Holdings and a director,
officer and controlling shareholder of GSB Holdings' parent corporation, GSB
Improvement. Also excludes 4,000 shares of the Company Common Stock subject
to options granted to Mr. Schollenberger, a director of the Company, who is
a Vice President of GSB Holdings, as to which beneficial ownership is
disclaimed.
(6) Excludes 503,300 shares of Common stock owned directly by GSB Holdings, as
to which beneficial ownership is disclaimed.
CHANGE OF CONTROL
On July 9, 1997, JUSI sold 3,092,100 shares of Common Stock, being all of
JUSI's shares of Common Stock. Such shares, representing approximately 27.7% of
the outstanding shares of Common Stock, were purchased as follows: 1,892,100
shares of Common Stock by Christian R. Guntner for $2,497,572 and 1,200,000
shares of Common Stock by David T. DiPasquale for $1,584,000. Mr. Guntner and
Mr. DiPasquale purchased the Shares utilizing their personal funds. Messrs.
Guntner and DiPasquale filed a Form 13-D with the Securities and Exchange
Commission in connection with their purchase of the Shares, in which they
affirmed that they are holding such Shares as a group. Mr. Guntner and Mr.
DiPasquale hold, in the aggregate, 3,102,100 shares of Common Stock,
representing approximately 27.7% of the outstanding shares of Common Stock.
Messrs. Guntner and DiPasquale were executives of USI until they resigned their
positions with USI at the closing of their purchase of the Shares. Mr. Guntner,
who has been a director of the Company
6
<PAGE> 30
since 1995, remains a director of the Company's Board of Directors. Mr. David
DiPasquale was elected by the Company's Board of Directors as a director on the
Company's Board of Directors on July 10, 1997.
On July 21, 1997, Mr. John A. Mistretta resigned as a member of the Board
of Directors of the Company. Mr. Mistretta had been nominated by JUSI to serve
as a director of the Company pursuant to the terms of the Stockholder Agreement
dated August 1, 1991, as amended, between the Company and JUSI.
INFORMATION CONCERNING MEETINGS OF THE BOARD OF
DIRECTORS AND BOARD COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors currently has formed the following committees of the
Company:
(a) Compensation Committee, presently consisting of James R. Olson,
Allan D. Weingarten and Fred H. Beaumont, Jr. The function of the
Compensation Committee is to review compensation paid to the Company's
officers and employees and administer the Company's stock option and equity
incentive plans.
(b) Audit Committee, presently consisting of Christian R. Guntner,
James R. Olson and Allan D. Weingarten. The function of the Audit Committee
is to provide assistance to the Company's directors in fulfilling their
responsibility to the Company's shareholders, potential shareholders and
the investment community relating to corporate accounting, audit
procedures, reporting practices of the Company and the quality and
integrity of the Company's financial reports, and to facilitate the
maintenance of free and open means of communication between the Company's
directors, independent auditors, internal auditors and financial
management.
(c) Nominating Committee, presently consisting of Daniel R. Scoggin,
Christian R. Guntner and Allan D. Weingarten, whose function is to nominate
candidates for election to the Board of Directors. In carrying out its
responsibilities, the Nominating Committee will consider only candidates
nominated in accordance with the procedures set forth in Article II,
Section 9 of the Company's By-laws. Nominations of persons to serve on the
Company's Board of Directors may be made at a Special Meeting by or at the
direction of the Board of Directors or by any shareholder of record as of
the date such shareholder gives a Nomination Notice (as hereinafter
defined) to the Company who is entitled to vote in the election of
directors and who complies with the notice procedures contained in Article
II, Section 9 of the Company's By-laws. Nominations by a shareholder must
be in writing (a "Nomination Notice") and delivered to or mailed and
received by the Company's Secretary not less than 60 and not more than 90
days prior to the Special Meeting if at least 70 days' notice or prior
public disclosure of the date of the Special Meeting is given or made to
the Company's shareholders, or not later than the close of business on the
tenth day following the day on which such notice or disclosure was given or
made if less than 70 days' notice or disclosure was provided. Any
Nomination Notice must provide the information concerning the nominee or
nominees and the shareholder required by the By-laws. A shareholder may
obtain a copy of the Company's By-laws by making a written request to the
Company's Secretary, 35 Braintree Hill Office Park, Braintree, MA
02184-9078.
During fiscal year 1996, the Board of Directors of the Company met eight
times, the Compensation Committee met five times, the Audit Committee met five
times and the Nominating Committee did not meet. Each of the directors attended
at least 75 percent of the meetings of the Board of Directors held during the
period that he served during fiscal 1996, except for Christian R. Guntner who
has an attendance average of 63%. Each of the directors attended at least 75
percent of the meetings of all committees on which he served that were held in
fiscal 1996 during the period that he served, except for Christian R. Guntner
and Joseph Schollenberger who had attendance averages of 50% and Fred H.
Beaumont, Jr. who did not attend the Committee meetings due to extended travel.
7
<PAGE> 31
COMPENSATION OF DIRECTORS
Each of the directors of the Company, other than directors who are officers
or employees of the Company or The Ground Round, Inc. ("Ground Round") or of USI
or its affiliates, received an annual fee of $12,000 for serving as a director.
In addition, under the Company's 1992 Equity Incentive Plan, each director of
the Company, excepting any officer or employee of the Company or Ground Round
and any director who is an officer or an employee of USI or its affiliates,
received an option to purchase 2,000 shares of Common Stock of the Company when
he is first elected as director of the Company and an option to purchase 1,000
shares of Common Stock of the Company as of the date of each meeting of
shareholders at which the director is re-elected. These options are immediately
exercisable at a purchase price equal to the closing price of a share of the
Company's Common Stock on the NASDAQ/NMS on the date the option is granted and
have a five-year term. During fiscal year 1996, during the time that each was a
director, Messrs. Olson and Schollenberger each received an option to purchase
1,000 shares of Common Stock at an exercise price of $3.50 per share upon the
date of re-election as a director and, Messrs. Beaumont and Weingarten, each
received an option to purchase 2,000 shares of Common Stock at an exercise price
of $3.50 per share upon their election of the Board of Directors on January 23,
1996.
EXECUTIVE OFFICERS
Certain information is set forth below concerning the executive officers of
the Company who have been elected to hold office for such terms as may be
prescribed by the Board, and unless sooner removed in accordance with the Bylaws
of the Company, or until their successors are duly elected and qualified. The
executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------- --- -------------------------------------------
<S> <C> <C>
Daniel R. Scoggin.............. 60 Chairman of the Board, President and Chief
Executive Officer
Stephen J. Kiel................ 44 Senior Vice President, Chief Financial
Officer and Treasurer
Anthony E. Bezsylko............ 49 Senior Vice President -- Operations
Warren C. Hutchins............. 53 Vice President -- Purchasing & Distribution
Robin L. Moroz................. 40 Vice President -- General Counsel
A. Gerald Leneweaver........... 51 Vice President -- Human Resources
</TABLE>
Daniel R. Scoggin's business experience and current position with the
Company are described above. See "BOARD OF DIRECTORS."
Stephen J. Kiel has served as Sr. Vice President, Chief Financial Officer
and Treasurer of the Company and Ground Round since September 1996. He was
President of the Hudson Consulting Group, an Ohio based financial consulting
group, from September 1993 to August of 1996. Prior to that, Mr. Kiel was a
Partner with Lakewest, L.P. from June 1992 to September 1993. Prior thereto, he
was President of Craft 'N Flower, L.P. from June 1990 to June 1992 and a partner
with Deloitte & Touche from 1987 to 1990.
Anthony E. Bezsylko has served as Sr. Vice President of Operations for the
Company and Ground Round since February of 1996. Mr. Bezsylko was Director of
Operations for the Company and Ground Round since May of 1995. Before joining
Ground Round, Mr. Bezsylko was the Group General Manager of Knotsberry Farms
Restaurants out of California from 1994 to 1995. Prior thereto, he was a
Regional Manager for C.A. Muer from June 1991 to June 1994.
Warren C. Hutchins has served as Vice President, Purchasing and
Distribution of the Company and Ground Round since September 1991 and August
1986, respectively. He was Secretary of Ground Round from March 1990 through
February 1991.
8
<PAGE> 32
Robin L. Moroz has served as Vice President, General Counsel and Secretary
of the Company since December 1994. Prior thereto, Ms. Moroz served as a
corporate attorney to Ground Round from August 1989 and since October 1991 as
Assistant General Counsel of the Company.
A. Gerald Leneweaver has served as the Vice President of Human Resources of
the Company and Ground Round since January 1996. From August 1991 to January
1996, Mr. Leneweaver was the Executive Vice President and Founder of Travis,
Wolff Consulting, Inc., a Human Resource consulting practice located in Dallas,
Texas.
There is no family relationship among any of the Officers and Directors of
the Company.
9
<PAGE> 33
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
SUMMARY COMPENSATION TABLE
The following Table sets forth all compensation paid to, deferred or
accrued for the benefit of the Company's Chief Executive Officer during fiscal
year 1996 and all other executive officers of the Company (the "named executive
officers") who earned a total annual salary and compensation for fiscal year
1996 exceeding $100,000, as well as named executive officers who had a salary
above $100,000 but received less than such due to employment at the Company for
less than the full fiscal year of 1996. Except as disclosed below, no executive
officer of the Company earned a total annual salary and bonus for fiscal year
1996 exceeding $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ------------------------------------ ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Daniel R. Scoggin................... 1996 $350,000 $ 0 0 $ 0
Chairman of the Board, 1995 152,083(1) 0 176,000(5) 0
President and Chief 1994 0 0 1,000(5) 0
Executive Officer
Stephen J. Kiel..................... 1996 14,583(2) 0 50,000 0
Senior Vice-President, Chief 1995 0 0 0 0
Financial Officer and Treasurer 1994 0 0 0 0
Anthony Bezsylko.................... 1996 109,167(2) 0 20,000 3,275(6)
Senior Vice-President, 1995 38,335(3) 0 0 950(6)
Operations 1994 0 0 0 0
Gerry Leneweaver.................... 1996 93,750(2) 0 20,000 2,830(6)
Vice-President, 1995 0 0 0 0
Human Resources 1995 0 0 0 0
David Dobbs......................... 1996 11,667(2) 0 30,000 350(6)
Senior Vice President, 1995 0 0 0 40
Business Development 1994 0 0 0 0
Michael R. Jorgensen................ 1996 124,167(4) 0 0 45,575(7)
Senior Vice-President, 1995 130,000 0 0 5,716(6)
Chief Financial Officer 1994 130,000 69,033 0 4,642(6)
</TABLE>
- ---------------
Notes:
(1) Includes compensation received by Mr. Scoggin from April 1, 1995 through
July 20, 1995 as interim Chairman, President and Chief Executive Officer.
Commencing July 21, 1995, Mr. Scoggin was elected to serve as Chairman,
President and Chief Executive Officer of the Company and received
compensation pursuant to the terms of his employment agreement with the
Company. See "Employment Agreements".
(2) Messrs. Kiel, Bezsylko, Leneweaver and Dobbs were employed or promoted by
the Company commencing in September 1996, February 1996, January 1996 and
September 1996, respectively.
(3) Mr. Bezsylko was hired by the Company commencing April 10, 1995.
(4) Mr. Jorgensen resigned as Senior Vice-President, Chief Financial Officer and
as an employee of the Company effective August 26, 1996. Mr. Jorgensen was
employed by the Company commencing in June 1993.
(5) Includes 175,000 options Mr. Scoggin received pursuant to the terms of his
employment agreement with the Company and 1,000 shares of stock options
received on March 31, 1995 for regular service as a director, prior to
becoming Chairman, President and Chief Executive Officer. See "Employment
Agreements."
(6) Represents the amount of the Company's contributions to the non-qualified
Deferred Compensation Plan made on behalf of the named executive officers.
10
<PAGE> 34
(7) Represents the amount of the Company's contributions to the non-qualified
Deferred Compensation Plan of $3,575 plus $40,000 in severance compensation.
See "Severance Agreements."
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Employment Agreements. The company has entered into an employment
agreement (the "Agreement") with Daniel R. Scoggin, effective July 21, 1995 and
amended effective August 18, 1995 and August 29, 1997 under which Mr. Scoggin
has agreed to serve the Company as Chairman of the Board, President and Chief
Executive Officer for a term commencing on July 21, 1995 and extending until
July 20, 1998. The agreement is automatically renewable on each July 21
thereafter for an additional year, unless, not later than 90 days prior to each
July 21, either party gives notice to the other to terminate the agreement.
Under the agreement, Mr. Scoggin is entitled to compensation consisting of
(i) a base salary of $350,000 per annum, and (ii) an annual bonus commencing in
the Company's 1996 fiscal year. Mr. Scoggin was granted on July 21, 1995 stock
options to purchase 175,000 shares of Common Stock of the Company in accordance
with the terms of the Company's 1992 Equity Incentive Plan. The option shall be
exercisable in equal installments over a three-year period, with the first
installment being exercisable on July 20, 1996. Mr. Scoggin is also entitled to
receive certain benefits, including but not limited to, insurance, participation
in the Company's deferred compensation plan and retirement plan, and stock
option and equity incentive plans, use of a Company car or a car allowance, and
payment of an annual country club membership fee. The Company may terminate the
agreement at any time whether for "cause" or for "disability" (as defined in the
agreement). Mr. Scoggin may terminate the agreement at any time if the Company
is in breach of any of its obligations to him under the agreement; if he is not
re-elected to serve as both Chairman and Chief Executive Officer or is removed
from any of such positions, in each case other than for cause; if the Company
assigns him duties which are inconsistent with his position or if the Company
requires him to relocate more than 50 miles away from the current corporate
office. In the event Mr. Scoggin's employment is terminated by him pursuant to
the terms of the agreement or by the Company (other than for "cause", death or
"disability"), Mr. Scoggin will be entitled to receive a lump sum payment equal
to 2.99 times his highest annual base salary at any time in effect. In the event
Mr. Scoggin's employment terminates because of death, disability or expiration
of his agreement without renewal, he will receive his base salary through the
end of the calendar month of such termination or non-renewal. For fiscal year
1996 and future years under the agreement, Mr. Scoggin shall be entitled to a
bonus comprised of two components based on audited figures. The first component
of the bonus ranges from 0% to 80% of Mr. Scoggin's base salary for the
preceding fiscal year and is based one earnings before interest and taxes,
excluding any profit or loss from the sale of restaurants or nonrecurring items
("EBIT") as part of the budget process of the Company. The second component of
the bonus ranges from 0% to 20% of Mr. Scoggin's base salary for the preceding
fiscal year and is based on a range of cash flow as part of the budget process
of the Company. For fiscal year 1996, Mr. Scoggin did not receive a bonus. In
the event Mr. Scoggin's employment terminates because of death, disability,
termination without cause, or by expiration of his agreement without renewal, he
will receive his bonus pro-rated based upon the number of days during the fiscal
year he was employed. If his employment is terminated for cause or Mr. Scoggin
resigns, he shall not receive any bonus for that year.
Pursuant to the Clarification to Employment Agreement and Amendment dated
August 29, 1997 (the "Clarification Agreement"), Mr. Scoggin agreed, upon
termination of the Agreement and payment upon a change of control, that he will
not, for a period of two (2) years following termination, either directly or
indirectly, as a director, officer, employee, agent, consultant or owner, in
whole or in part, engage in competition with any restaurant owned or operated by
the Company or any of its subsidiaries or franchisees (each a "Ground Round
Restaurant") on the date of such termination, if such competition takes place
within a specified area. For purposes of the Clarification Agreement,
competition is activity in connection with a restaurant or restaurants which
meet all of the following criteria: (1) restaurant size between 2,500 and 7,000
square feet; (2) average check amount of between $8 and $11 per person; and (3)
orientation toward serving families including children in a casual-theme
setting.
The Company has entered into an employment agreement (the "employment
agreement") with Stephen J. Kiel, effective September 1, 1996, under which Mr.
Kiel has agreed to serve the Company as Senior Vice
11
<PAGE> 35
President, Chief Financial Officer and Treasurer for a term commencing upon
September 1, 1996, which term shall automatically extend for successive one-year
terms, until September 30, 1999, unless at least ninety (90) days prior to the
expiration of the original or extended term, either party gives notice to
terminate the employment agreement as of the end of the original or extended
term. Under the agreement, Mr. Kiel is entitled to compensation consisting of
(i) a base salary of $175,000 per annum, and (ii) an annual bonus commencing in
the Company's 1996 fiscal year, which, if earned in accordance with the
Company's Corporate Office Incentive Plan, shall be paid within thirty (30) days
of the annual audit of the Company. For fiscal 1996, Mr. Kiel is eligible to
receive a pro rata share of any bonus earned to reflect the number of days
worked by him in such year. For fiscal year 1996, Mr. Kiel did not receive a
bonus. Pursuant to such employment agreement, for fiscal 1997 only, if the
applicable Corporate Office Incentive Plan does not compensate Mr. Kiel with at
least $75,000 (the "1997 guaranteed minimum bonus"), the Company agreed to pay
Mr. Kiel an additional amount in order that the total bonus received by him is
not less than the 1997 guaranteed minimum bonus. Mr. Kiel was granted on
September 1, 1996 stock options to purchase 50,000 shares of common stock of the
Company. The option shall become exercisable in equal installments over a
three-year period, with the first installment being exercisable on August 29,
1997. Mr. Kiel is also entitled to receive certain benefits, including but not
limited to medical and dental insurance plans, disability and life insurance
plans, a Company car or a car allowance, and participation in the Company's
deferred compensation plan, retirement plan and stock option and equity
incentive plans. On May 15, 1997, the Company entered into an Amendment to the
Employment Agreement dated September 1, 1996 with Stephen J. Kiel, which
provides, among other things, for a severance payment equivalent to twice his
salary, if his employment is terminated under certain circumstances following a
"change of control" of the Company, as defined in such Amendment to the
Employment Agreement.
On May 15, 1997, the Company entered into an employment agreement (the
"Bezsylko Employment Agreement") with Anthony E. Bezsylko, pursuant to which Mr.
Bezsylko will serve as Senior Vice President of Operations of the Company for an
initial term of one (1) year commencing May 15, 1997. Such term shall be
automatically extended for additional one-year term unless, at least ninety (90)
days prior to the expiration of the original or any extended term, either party
shall notify the other in writing that it intends to terminate the Bezsylko
Employment Agreement as of the end of such term. As compensation for his
services pursuant to the Bezsylko Employment Agreement, Mr. Bezsylko shall
receive a base salary of One Hundred Fifty Thousand Dollars ($150,000) per year,
be eligible to participate in the Company's Office Incentive Plan and insurance
programs and other fringe benefits customarily provided to Company executives.
The Bezsylko Employment Agreement further provides that Mr. Bezsylko may be
entitled to receive a severance payment equivalent to twice his base salary if
his employment is terminated under certain circumstances following a "change of
control" of the Company, as defined in the Bezsylko Employment Agreement.
On May 15, 1997, the Company entered into an employment agreement (the
"Evans Employment Agreement") with Henri R. Evans, pursuant to which Mr. Evans
will serve as Vice President of Marketing of the Company for an initial term of
one (1) year, commencing May 15, 1997. Such term shall be automatically extended
for additional one-year terms unless, at least ninety (90) days prior to the
expiration of the original or any extended term, either party shall notify the
other in writing that it intends to terminate the Evans Employment Agreement as
of the end of such term. As compensation for his services pursuant to the Evans
Employment Agreement, Mr. Evans shall receive a base salary of One Hundred
Thirty Thousand Dollars ($130,000) per year, be eligible to participate in the
Company's Office Incentive Plan and insurance programs and other fringe benefits
customarily provided to Company executives. The Evans Employment Agreement
further provides that Mr. Evans may be entitled to receive a severance payment
equivalent to twice his base salary if his employment is terminated under
certain circumstances following a "change of control" of the Company, as defined
in the Evans Employment Agreement.
Severance Agreements. The Company currently has severance agreements (the
"Severance Agreements") with Daniel R. Scoggin, Stephen J. Kiel, Anthony E.
Bezsylko, and Henri R. Evans which are contained within their respective
employment agreements, and Robin L. Moroz, Vice President and General Counsel.
The Severance Agreements provide benefits in the event of a "change in control"
of the Company as defined therein.
12
<PAGE> 36
Mr. Scoggin's Severance Agreement is contained within his Employment
Agreement, as amended, and provides that he will receive a lump sum payment in
the event that within 24 months after a change of control (i) Mr. Scoggin
terminates employment with the Company for Good Reason (as defined in the
Severance Agreement) within 90 days after the event which constitutes Good
Reason or (ii) Mr. Scoggin's employment with the Company is terminated by the
Company for any reason other than "cause", death or "disability" (such quoted
words as defined in his Employment Agreement). The lump sum payment will be
equal to 2.99 times Mr. Scoggin's highest annual base salary at any time in
effect and the Company shall pay any bonus due Mr. Scoggin in accordance with
his Employment Agreement. In addition, for a period of two years after the
termination date resulting from a change of control, Mr. Scoggin will be
entitled to the benefit of all employee welfare benefit plans and arrangements
in which he is entitled to participate immediately prior to the change of
control (including, without limitation, medical and dental insurance plans,
disability and life insurance plans, and car allowance programs).
The Severance Agreement for Ms. Moroz provides for a bonus (a "Bonus
Payment") to be received within five days after the expiration of a period of
120 days after a change of control of the Company has occurred (the "Stay
Period"), if (i) during the Stay Period she terminates employment for Good
Reason (as defined in the Severance Agreement) or (ii) during the Stay Period
her employment is terminated by the Company for any reason other than cause or
(iii) she does not voluntarily terminate her employment during the Stay Period
other than for Good Reason. The Bonus Payment will be equal to one-half of the
employee's highest annual base salary at any time on or after the date of the
Severance Agreement. Such Severance Agreement also provides for an additional
payment (a "Severance Payment") to be received, if (i) within 24 months after a
change in control of the Company, the employee terminates her employment with
the Company for Good Reason within 90 days after the event which constitutes
Good Reason or (ii) within such 24-month period, the Company terminates her
employment for any reason other than cause. The Severance Payment will be equal
to two times the sum of (i) the employee's highest annual base salary at any
time on or after the date of the Severance Agreement and (ii) the employee's
highest targeted bonus under the Company's incentive bonus plan at any time on
or after the date of the Severance Agreement. In addition, Ms. Moroz will be
entitled for a period of 24 months after the date of termination of employment
to the benefit of all employee welfare benefit plans and arrangements in which
she is entitled to participate immediately prior to the change of control
(including, without limitation, medical and dental insurance plans, disability
and life insurance plans, and car allowance programs).
Each Severance Agreement provides that all outstanding Company Options (as
defined below) shall vest immediately upon a change of control.
Michael R. Jorgensen, former Chief Financial Officer, also had a Severance
Agreement identical to the Severance Agreement for Ms. Moroz. In addition, the
terms of his Severance Agreement were amended in August 1995 to also include one
additional year of his highest annual base salary at any time in effect, if he
used his best efforts to cooperate and assist with any transaction resulting
from a change of control. Michael Jorgensen's agreement became null and void
when he resigned from the Company on August 26, 1996.
13
<PAGE> 37
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on options granted to the named
executive officers during fiscal year 1996. No stock appreciation rights were
granted in fiscal year 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
RATES OF STOCK
PRICE
APPRECIATION FOR
# OF SHARES % OF TOTAL EXERCISE OR OPTION TERM
UNDERLYING OPTIONS GRANTED BASE PRICE EXPIRATION -----------------
NAME OPTIONS GRANTED TO EMPLOYEES PER SHARE DATE 5%($) 10%($)
- ---------------------------- --------------- --------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Kiel............. 15,500(1) 4.1% $ 2.50 8/29/06 $24,370 $61,758
34,500(1) 9.2% $ 2.50 8/29/06 $29,333 $66,547
Anthony E. Bezsylko......... 6,200(1) 1.6% $3.1875 10/10/05 $12,429 $31,496
3.7% $3.1875 10/10/01 $14,960 $33,939
A. Gerald Leneweaver........ 5,600(1) 1.5% $2.1875 12/10/05 $ 7,704 $19,523
3.8% $2.1875 12/10/01 $10,713 $24,304
David L. Dobbs.............. 9,300(1) 2.5% $ 2.50 8/29/06 $14,622 $37,055
20,700(1) 5.5% $ 2.50 8/29/06 $17,600 $39,928
Michael J. Jorgensen........ 10,850(1) 2.9% $3.1875 10/10/05 $21,750 $55,119
24,150(2) 6.4% $3.1875 10/10/01 $26,180 $59,393
</TABLE>
- ---------------
Notes:
(1) The per share option exercise price for the grant is the per share fair
market value of the Common Stock on the date of grant. All options are
exercisable in equal installments over a three year period and have a ten
year term.
(2) The per share option exercise price for the grant is the per share fair
market value of the Common Stock on the date of grant. All options are
exercisable in equal installments over a three year period and have a six
year term.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table shows certain information as of September 29, 1996
concerning unexercised stock options held by the named executive officers that
were granted under the Company's Amended and Restated 1989 Stock Option Plan and
1992 Equity Incentive Plan. The Company has not granted any SARs. None of the
name executive officers exercised any stock options during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END(#) OPTIONS AT FISCAL YEAR END($)
----------------------------- ---------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------------------- ----------------------------- ---------------------------------
<S> <C> <C>
Daniel R. Scoggin........................ 63,333/116,667 0/0
Stephen J. Kiel.......................... 0/50,000 0/0
Anthony E. Bezsylko...................... 0/20,000 0/0
A. Gerald Leneweaver..................... 0/20,000 0/2,500
David L. Dobbs........................... 0/30,000 0/0
Michael R. Jorgensen..................... 47,500/35,000 (2) 0/0
</TABLE>
- ---------------
Notes:
(1) Valuation is based on fair market value of the Company's common stock on
September 29, 1996 (the last day of the 1996 fiscal year) which was $2.3125
per share based upon the last reported sale price for a share on the NASDAQ
National Market System on September 27, 1996.
(2) Options expired on November 24, 1996 due to resignation of employment.
14
<PAGE> 38
DEFINED BENEFIT PLAN TABLE
The following is a pension plan table showing estimated annual benefits
(exclusive of Social Security benefits) payable upon normal retirement to
persons in specified compensation and years of service classifications under the
Company's unfunded, non-qualified retirement plan (the "Retirement Plan"), based
on final average salary for various years of service, assuming the employee
would retire at age 65 in 1996. Officers of the Company who hold the title of
President, Senior Vice President, Vice President or General Counsel are entitled
to participation in the Retirement Plan. The Company pays the full cost of the
Plan.
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ---------------------------------------------
SALARY 10 15 20 25
- ------------- ------- ------- -------- --------
<S> <C> <C> <C> <C>
$ 100,000 $20,000 $20,000 $ 35,000 $ 50,000
120,000 24,000 24,000 42,000 60,000
140,000 28,000 28,000 49,000 70,000
160,000 32,000 32,000 56,000 80,000
200,000 40,000 40,000 70,000 100,000
250,000 50,000 50,000 87,500 125,000
300,000 60,000 60,000 105,000 150,000
350,000 70,000 70,000 122,500 175,000
400,000 80,000 80,000 140,000 200,000
450,000 90,000 90,000 157,000 225,000
</TABLE>
The compensation covered by the Retirement Plan is the base salary of
individual participants as shown in the Summary Compensation Table. Final
average salary is the highest five-year average of consecutive years' salary
over an employee's career with the Company. Participants in the Retirement Plan
are entitled to monthly benefit upon retirement after attaining the age of 65
equal to 50% of final average compensation, reduced by 1/2 of 1% of final
average compensation of each month (not in excess of 120 months) by which the
participant's credited service with the Company is less than 300 months, less
the amount of the participant's primary Social Security benefit. Early
retirement benefits are also available for participants who are 55 and have
completed 15 years of service. The benefit is equal to the participant's normal
retirement benefit reduced for early commencement by 5/9 of 1% for each of the
first 60 months plus 5/18 of 1% for each month in excess of 60 months by which
the benefit commencement date precedes a participant's normal retirement date,
and increased by 148 of 1% of the participant's final average compensation times
months of projected credit service over 25 years, not to exceed 120 months, less
the amount of the participant's primary Social Security benefit. Projected
credit service indicates that period of time which commences on the participants
date of hire and ends on the participant's normal retirement date. Benefits are
payable for the life of the retiree only, and would be reduced on an actuarial
basis if survivor options were chosen. In addition, benefits are subject to a
100% deduction for Social Security amounts.
The years of service at October 1, 1996, under the plan for the named
executive officers were as follows: Mr. Scoggin, 1 year, 3 months; Mr. Kiel, 0
Years, 1 month; Mr. Dobbs, 0 years, 1 month; Mr. Bezsylko, 1 year, 6 months; Mr.
Leneweaver, 0 years, 9 months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996 each of the following directors served as a member of
the Compensation Committee of the Board of Directors: Messrs. Meachin (former
director), Olson, Mistretta and Beaumont. None of these individuals has served
as an officer or employee of the company or any of its subsidiaries. Mr.
Mistretta, who is an executive officer of U.S. Industries, Inc., was one of the
directors of the Company designated by JUSI Holdings, Inc. pursuant to the terms
of the 1991 Stockholder Agreement (hereinafter defined). See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".
15
<PAGE> 39
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of three
non-employee directors. The Committee is responsible for administering,
reviewing and making recommendations to the Board of Directors with respect to
executive compensation, which includes base salaries, annual incentives and
long-term equity incentive plans as well as any executive benefits and/or
perquisites. In addition, the Compensation Committee is responsible for the
granting of awards and administration of the 1989 Amended and Restated Stock
Option Plan and the 1992 Equity incentive Plan (collectively, the "Plans"). The
Committee ensures that executive compensation is at a level such that the
Company can attract, retain, motivate and reward its executives for contributing
toward the Company's short- and long-term financial and non-financial goals, and
places the most emphasis on long-term incentives. By emphasizing long-term
incentive compensation, the Committee creates a link between the Company's
executives and the shareholders' interests.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to publicly held companies for annual compensation in excess of one
million dollars earned by the Chief Executive Officer or any of the four highest
compensated officers. The deduction limit does not apply, however, to
performance-based compensation that satisfies certain requirements. Although no
named executives in the Company have or are expected to earn annual compensation
in excess of one million dollars, the Committee will continue to monitor and
review the implication of Section 162(m) with respect to the Company's executive
compensation policies.
BASE SALARIES
The Compensation Committee believes that a substantial portion of the Chief
Executive Officer's and all other executives' compensation should be tied to the
performance of the company and therefore at risk. This is accomplished by a
compensation plan that includes a base salary which is intentionally set at or
below competitive market data, and increasing bonus opportunities through an
annual incentive plan. Should the Company meet its financial goals, the
executives combined salary and bonus is intended to meet competitive market
levels and if the Company exceeds those goals, total compensation will exceed
competitive market levels.
The Committee periodically reviews the base salary of the executives and
makes pay increase recommendations to the Board of Directors in accordance with
the above philosophy. These recommendations are predicated upon external market
data, changes in the duties and responsibilities assigned to each position
and/or each executive's individual performance. In making salary determinations,
the Committee reviews various industry sources, including the current year's
Chain Restaurant Compensation Association Survey prepared by Towers Perrin, a
compensation consultant. Companies included in this survey are generally the
same as those included in the Performance Graph.
In addition, the Committee receives information and recommendations from
professional consulting organizations which have conducted various compensation
studies on the Chief Executive Officer and other selected senior executive
positions of the Company.
Based upon the above-mentioned information, The Board of Directors, upon
the recommendation of the Committee, employed or promoted the following
executive officers:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER POSITION SALARY ACTION DATE
- ------------------------------- ---------------------------- -------- --------- -------
<S> <C> <C> <C> <C>
A. Gerald Leneweaver........... VP, Human Resources $125,000 Employed 1/2/96
Anthony E. Bezsylko............ SVP, Operations $125,000 Promoted 2/1/96
David L. Dobbs................. SVP, Business Development $140,000 Employed 9/3/96
Stephen J. Kiel................ SVP, CFO & Treasurer $175,000 Employed 9/3/96
</TABLE>
16
<PAGE> 40
BONUS PLAN
The Company had in effect in fiscal 1996, the 1996 Corporate Executive
Incentive Plan (the "Incentive Plan") under which the Company's Chief Executive
Officer, executive officers, department directors and field operations
executives were eligible to receive cash bonuses based upon the Company's
Earnings before interest and taxes ("EBIT") and Cash Flow for the period from
October 2, 1995 through September 29, 1996.
The objective of the Incentive Plan was to ensure the Company met or
exceeded the Board of Director's expected earnings growth rate by motivating and
rewarding the Incentive Plan participants for achieving or exceeding these
expectations.
Participants in the Incentive Plan were eligible based on the following
criteria:
- Eighty percent (80%) of an executive's bonus award was to be based upon
the level of EBIT, excluding gains or losses from the sale of assets, achieved
by the Company; and
- Twenty percent (20%) of the bonus award was to be based upon the level of
achievement of net cash provided by operating activities minus net cash used in
investing activities ("Cash Flow") for the fiscal year.
The maximum amount of any bonus opportunity under the Incentive Plan varies
from 50% to 100% of a participant's annualized base salary. The Chief Executive
Officer's maximum bonus potential is 100% of his annualized base salary.
According to the Incentive Plan, the Company had to be profitable during
each of the last two quarters of the fiscal year, and the Company had to have a
1996 fiscal year loss of no more than $.10 per share for any bonus to be paid
out under this Incentive Plan.
For fiscal year 1996, the Company was not profitable during each of the
last two quarters of the fiscal year and suffered a loss greater than $.10 per
share. Therefore, the Incentive Plan did not pay the Chief Executive Officer or
any of the other Incentive Plan participants a bonus for fiscal year 1996.
STOCK OPTION AND EQUITY INCENTIVE PLANS
The Company has in effect two Plans, the 1989 Amended and Restated Stock
Option Plan and the 1992 Equity Incentive Plan (the "Plans"), which authorize
the Compensation Committee to grant; options to purchase shares of Common Stock
including both Incentive Stock Option and Non-Qualified Stock Options; stock
appreciation rights; performance stock units and restricted stock to qualified
officers and key employees of the Company.
The purpose of these Plans is to enable the Company to attract, retain and
motivate its executives and other key employees and to enable them to
participate in the long-term growth of the Company by providing for or
increasing their proprietary interests in the Company and to help the Company
achieve its long-range goals by aligning the interests of the Company's
executives and the other key employees with its shareholders.
The Compensation Committee determines the individuals who participate in
the Plans, the price and terms upon which awards shall be made including the
number of shares or units subject to each award, all subject to the terms and
conditions of the Plans.
Stock Options were awarded to the named executive officers below the Chief
Executive Officer. See "OPTIONS/SAR GRANTS IN LAST FISCAL YEAR".
CHIEF EXECUTIVE OFFICER AND COMPENSATION
There was no change in compensation for Daniel R. Scoggin, Chief Executive
Officer during fiscal year 1996. Mr. Scoggin, who previously held a position on
the Board of Directors with the Company, and served as interim Chairman,
President and Chief Executive Officer from April 1, 1995 through July 20, 1995,
became Chairman, President and Chief Executive Officer of the Company as of July
21, 1995, at an annual salary of $350,000. In addition, Mr. Scoggin is entitled
to participate in the Corporate Executive Incentive Plan (described above). As
with the other eligible officers, Mr. Scoggin did not receive a bonus under the
Incentive
17
<PAGE> 41
Plan for fiscal year 1996. Mr. Scoggin also participates in the Stock Option and
Equity Incentive Plans. Mr. Scoggin did not receive any additional stock options
during fiscal year 1996.
OTHER COMPENSATION
The Company provides certain other benefits such as health, dental and
long-term disability insurance to the Chief Executive Officer and other
executive officers that are generally available to Company employees. The Chief
Executive Officer along with the other key management employees who earn more
than $66,000 participate in the Company's non-qualified deferred compensation
plan. In addition, executive officers of the Company are eligible to receive an
automobile allowance or Company leased automobile. For the fiscal year ended
September 29, 1996, the amount of additional benefits to each of the named
executive officers of the Company did not exceed 10% of the total annual salary
and bonus for each named executive officer.
Respectfully submitted,
James R. Olson, Chairman
John A. Mistretta
Fred H. Beaumont, Jr.
18
<PAGE> 42
PERFORMANCE GRAPH
GROUND ROUND RESTAURANTS, INC.
COMPARISON OF CUMULATIVE TOTAL RETURN VS.
S&P 500 AND VALUE LINE RESTAURANT INDUSTRY GROUP
TOTAL SHAREHOLDER RETURNS YEARS ENDING
The graph assumes that $100 was invested on December 31, 1989 in Common
Stock of the Company, the S&P 500 and the Value Line Restaurant Group. Total
return assumes quarterly reinvestment of dividends and includes reinvestment of
the cash equivalent of the special dividend made by the Company to all of its
shareholders of record on September 11, 1991, of one share of MariFarms, Inc.
for each share of Common Stock of the Company.
<TABLE>
<CAPTION>
BASE 9/30/91 9/28/92 10/4/93 10/3/94 10/2/95
PERIOD TO TO TO TO TO
COMPANY/INDEX 12/31/90 9/28/92 10/4/93 10/3/94 10/2/95 9/29/96
- -------------------------------- -------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ground Round Restaurants,
Inc........................... 110.87 121.74 145.65 60.87 41.30
Peer Group...................... 123.11 148.23 145.19 186.99 226.35
S&P 500......................... 111.29 126.78 130.33 168.41 202.05
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALE OF SHARES BY JUSI. On July 9, 1997, JUSI sold 3,092,100 shares of
Common Stock, being all of JUSI's shares of Common Stock, to Christian R.
Guntner and David T. DiPasquale. See "CHANGE OF CONTROL and "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
JUSI AND THE AMENDED CREDIT AGREEMENT. The Amended Credit Agreement
provided that upon delivery by JUSI, to the Company's Lenders of an aggregate of
100,000 shares of the Company's Common Stock, it shall no longer constitute an
event of default under the Amended Credit Agreement if USI and its affiliates
(i) cease to be the legal and beneficial owners of at least 25% of the
outstanding shares of capital
19
<PAGE> 43
stock of the Company, or (ii) shall fail to have two nominees serving on the
Company's board of directors while USI owns 20% or more of the capital stock of
the Company, and one nominee serving on the Company's board of directors so long
as USI owns 10% or more but less than 20% of the outstanding capital stock of
the Company (the events listed in clauses (i) and (ii) being hereinafter
referred to as the "Prohibited Actions"). On October 1, 1996, JUSI transferred
100,000 shares of Common Stock to the Lenders, whereupon the Prohibited Actions
ceased to constitute events of default under the Amended Credit Agreement.
1991 SHAREHOLDER AGREEMENT. Pursuant to the terms of an Agreement dated
June 5, 1995, between HM Holdings, Inc., a Delaware corporation ("HM Holdings")
and JUSI, HM Holdings assigned and JUSI assumed all of HM Holdings' rights and
obligations under a shareholder agreement, dated as of August 1, 1991 between HM
Holdings and the Company (the "1991 Shareholder Agreement"). The 1991
Shareholder Agreement provided for certain rights and restrictions with respect
to JUSI's ownership of the Common Stock of the Company. Under the 1991
Shareholder Agreement, the Company agreed that, upon JUSI's request, it will use
its best efforts to nominate and cause to be elected to the Company's Board of
Directors two persons designated by JUSI as long as JUSI and its corporate
affiliates beneficially own 20% or more of the outstanding shares of Common
Stock, and one person designated by JUSI as long as JUSI and its corporate
affiliates beneficially own less than 20% but more than 10% of the outstanding
shares of Common Stock.
In its original form, the 1991 Shareholder Agreement provided that, except
in certain limited circumstances, so long as JUSI or its affiliates own 20% or
more of the outstanding shares of Common Stock, so long as JUSI or any such
affiliates seek to sell or otherwise dispose of all or substantially all of the
shares of Common Stock owned by it to a third party, except as may be otherwise
approved by a majority of the members of the Board of Directors not designated
by JUSI, JUSI or such affiliate would use it best efforts to cause such third
party to offer to purchase all other outstanding shares of Common Stock upon
substantially the same terms and conditions. The 1991 Shareholder Agreement
provided that, if such third party fails to make such offer, JUSI or such
affiliates would not so sell or otherwise dispose of such shares unless such
third party agrees to be subject to the same limitation on its ability to sell
and to the requirements applicable to JUSI with respect to the acquisition of
50% or more of the outstanding shares of common stock. In addition, in the 1991
Shareholders Agreement the Company agreed that, if at any time when JUSI or its
affiliates own 25% or more of the outstanding shares of common stock, the
Company shall propose to sell any shares of common stock or any warrants or
rights therefor or securities convertible into or exchangeable therefor, to any
person or entity other than JUSI or its affiliates, it shall give JUSI the
opportunity to purchase such number of shares or other securities as will permit
JUSI and its corporate affiliates to retain their percentage of the Company's
voting power. All of the restrictions placed on JUSI which are set forth above
in this paragraph, were eliminated in connection with the execution of the
Amended 1991 Shareholders Agreement (described below).
Pursuant to the 1991 Shareholder Agreement, the Company also agreed that,
so long as JUSI owns 5% or more of the outstanding shares of Common Stock, upon
JUSI's request, the Company will cause up to four registration statements to be
filed with the Commission in order to permit JUSI or a corporate affiliate to
sell all or a portion of its shares of Common Stock. In addition the Company
agreed, if requested, to include some or all shares of Common Stock owned by
JUSI or an affiliate in any registration statement it otherwise files (other
than registration statements relating to employee stock options). The Company
and JUSI also agreed to indemnify each other for certain liabilities that may
arise in connection with any such registration statements. On September 30,
1996, JUSI exercised one of its demand registration rights by giving written
notice to the Company to register its Shares.
AMENDMENT OF 1991 SHAREHOLDER AGREEMENT. In connection with the execution
of the Amended Credit Agreement, the Company and JUSI entered into an Amendment,
dated as of September 12, 1996, to the 1991 Shareholder Agreement (the "Amended
1991 Shareholder Agreement"), providing, among other things, that upon delivery
by JUSI to the Lenders of the 100,000 shares of common stock of the Company
described above, (x) JUSI would no longer be restricted from engaging in any of
the Prohibited Actions, (y) the restrictions relating to the sale, transfer or
disposal of the shares of common stock held by JUSI, and certain of its
affiliates described above, would lapse, and (z) JUSI consented to the Company
entering into the Lenders Registration Rights Agreement and agreed that the
number of shares that JUSI would otherwise be entitled to
20
<PAGE> 44
sell pursuant to its demand registration rights may be reduced, in certain
circumstances, if any of the Lenders exercised their "piggy-back" registration
rights.
1991 REGISTRATION RIGHTS AGREEMENT WITH GSB HOLDINGS. GSB Holdings, Inc.
("GSB Holdings") and the Company are parties to a Registration Rights Agreement,
dated as of August 20, 1991 (the "GSB Registration Rights Agreement"), which
allows GSB Holdings certain "piggy-back" registration rights with respect to its
shares of common stock. The Company agreed, if requested, to include no less
than 50,000 shares of common stock owned by GSB Holdings in any registration
statement it otherwise files (other than registration statements relating to
employee stock options). On November 11, 1996, GSB exercised it piggy-back
registration rights by delivering written notice to the Company to register its
Shares. GSB Holdings agreed to observe the same lock-ups with regard to the sale
of the shares of common stock owned by it as the Company agrees to, if any, in
connection with such registration statement if so requested by the managing
underwriter. The Company and GSB Holdings also agreed to indemnify each other
for certain liabilities that may arise in connection with any such registration
statement.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger
Agreement provides, among other things, that the certificate of incorporation of
the Surviving Corporation shall, for a period of six years from the Effective
Time (as defined in the Merger Agreement), contain provisions no less favorable
with respect to indemnification than are set forth in the Certificate of
Incorporation, in the forms to be amended as set forth in Exhibit A to the
Merger Agreement, which provisions shall not be amended, repealed or otherwise
modified for such period in any manner that would affect adversely the rights
thereunder of individuals who at any time prior to the Effective Time were
directors, officers, employees or agents of the Company, unless such
modification shall be required by law. Pursuant to the terms of 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 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 by a final
judgment (not subject to further appeal) of a court of competent jurisdiction
not to be entitled to indemnification, 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 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 pursuant to the Merger Agreement 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.
The Merger Agreement also 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 other person in a single
transaction or a series of related transactions, then in each such case the
Parent shall make or cause to be made proper provision so that the
21
<PAGE> 45
successor or transferee of the Company or the Surviving Corporation, as the case
may be, shall comply in all material respect with the foregoing terms.
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 the
annual premium therefor exceeds 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.
For a discussion concerning Directors' and Officers' Indemnification and
Insurance, see the information contained in Item 3(b) in the Schedule 14D-9,
which is incorporated herein by reference.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent of the Company's
Common Stock to file with the Securities and Exchange Commission ("SEC") reports
as to ownership and changes in ownership in respect of the Company's Common
Stock. Such persons are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations of certain of its officers and directors,
the Company believes that during fiscal year 1996 all persons subject to the
reporting requirements of Section 16(a) filed the required reports on a timely
basis.
22
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------------------------------------------------------------------------
<C> <C> <S> <C>
1 -- Agreement and Plan of Merger, dated as of August 29, 1997, among the
Company, Parent and the Purchaser......................................
2 -- Opinion of Rothschild, Inc. dated August 29, 1997........................
3 -- Letter to Shareholders of the Company....................................
4 -- Press Release of the Company, dated September 2, 1997....................
5 -- Shareholder Agreement, dated August 29, 1997 among Parent, Purchaser and
Christian R. Guntner and David T. DiPasquale...........................
6 -- Bank Standstill Letter...................................................
7 -- Clarification to Employment Agreement and Amendment dated as of August
29, 1997 between the Company and Daniel R. Scoggin.....................
</TABLE>
<PAGE> 1
EXHIBIT 1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
By and among
GRR HOLDINGS, LLC,
GRR MERGER CORP.
and
GROUND ROUND RESTAURANTS, INC.
Dated as of August 29, 1997
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"),
dated as of August 29, 1997, among Ground Round Restaurants, Inc., a New York
corporation (the "Company"),GRR Merger Corp., a New York corporation (the
"Purchaser"), and GRR Holdings, LLC, a Delaware limited liability company
("Parent").
WHEREAS, the respective Boards of Directors of the Purchaser and the
Company have determined that it is advisable and in the best interests of their
respective shareholders, and the managing member of Parent has determined that
it is advisable and in the best interests of Parent's members, for the Purchaser
to acquire the Company upon the terms and subject to the conditions set forth
herein;
WHEREAS, the Company, Parent and the Purchaser desire to make
certain representations, warranties, covenants and agreements in connection with
this Agreement;
WHEREAS, in furtherance of such acquisition, Parent proposes to
cause the Purchaser to make the Offer (as defined in Section 1.01) to purchase
all of the issued and outstanding shares of common stock of the Company, par
value $.16 2/3 per share (the "Common Stock"), upon the terms and subject to the
conditions of this Agreement, and the Board of Directors of the Company has
approved the Offer and determined to recommend that the Company's shareholders
accept the Offer; and
WHEREAS in furtherance of such acquisition, Christian R. Gunther and
David T. DiPasquale (the "Significant Shareholders") have agreed to tender an
aggregate of 3,102,100 shares of Common Stock into the Offer upon the terms and
subject to the conditions of a Shareholder Agreement dated as of August 29, 1997
by and among Parent, the Purchaser and the Significant Shareholders.
WHEREAS, to complete such acquisition, the respective Boards of
Directors of the Purchaser and the Company, the managing member of Parent and
Parent acting as the sole stockholder of the Purchaser, have approved the Offer
and the Merger (as defined in section 2.01) of the Purchaser with and into the
Company upon the terms and subject to the conditions of this Agreement; and
NOW, THEREFORE, in consideration of the representations, warranties
and agreements herein contained, and subject to the terms and conditions herein
contained, the parties hereto hereby agree as follows:
1
<PAGE> 3
ARTICLE I
THE TENDER OFFER
1.01 The Offer. (a) Provided that this Agreement shall not have been
terminated in accordance with Article IX and none of the events or conditions
set forth in Annex A shall have occurred and be existing, then, not later than
the first Business Day (as defined in Rule 14d-1(c)(6) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), after execution of this
Agreement, Parent and the Company shall issue a public announcement of the
execution of this Agreement, and within five Business Days of the date of the
public announcement of the execution of this Agreement the Purchaser shall,
subject to the provisions of this Agreement, commence (within the meaning of
Rule 14d-2(a) of the Exchange Act) a tender offer (the "Offer") for all of the
outstanding shares of Common Stock (the "Shares") at a price of $1.65 per Share,
net to the seller in cash. The Purchaser shall accept for payment and pay for
all Shares that have been validly tendered and not withdrawn pursuant to the
Offer at the earliest time following expiration of the Offer that all conditions
to the Offer set forth in Annex A hereto shall have been satisfied or waived by
the Purchaser. The obligation of the Purchaser to accept for payment, purchase
and pay for Shares tendered pursuant to the Offer shall be subject to the
conditions set forth in Annex A hereto, including the condition that a number of
Shares which, when aggregated with the 554,900 Shares owned by Parent to be
contributed to the Purchaser ("the Contributed Shares"), represents at least 90%
of the outstanding Shares shall have been validly tendered (and not withdrawn)
prior to the expiration date of the Offer (the "Minimum Condition"). The
Purchaser expressly reserves the right to increase the price per Share payable
in the Offer or to 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 conditions to the Offer in addition to those set forth in Annex A
hereto, (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 that 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). The
Purchaser hereby agrees that, in the event that the Minimum Condition is not
satisfied or waived at the initial expiration date of the Offer, the Purchaser
will, upon written request of the Company, extend the Offer for a period of up
to ten further Business Days. It is agreed that the conditions set forth in
Annex A are for the sole benefit of Parent and the Purchaser and may be asserted
by Parent or the Purchaser regardless of the circumstances giving rise to any
such condition or may be waived by Parent or the Purchaser,
2
<PAGE> 4
in whole or in part, in its sole discretion. The failure by Parent or the
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time. The Purchaser agrees to comply with
provisions of the Exchange Act, and the rules and regulations promulgated
thereunder, applicable to the Offer.
(b) On the commencement date of the Offer, Parent and the Purchaser
shall file with the Securities and Exchange Commission (the "SEC") a Tender
Offer Statement on Schedule 14D-1 with respect to the Offer, which shall contain
an offer to purchase and related letter of transmittal and summary advertisement
(such Schedule 14D-1 and the documents therein pursuant to which the Offer will
be made, together with any supplements or amendments thereto, the "Offer
Documents"). The Offer Documents shall comply as to form in all material
respects with the requirements of the Exchange Act, and the rules and
regulations promulgated thereunder and, on the date filed with the SEC and on
the date first published, sent or given to the holders of Shares, shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by Parent or the Purchaser
with respect to information supplied by the Company in writing specifically for
inclusion in the Offer Documents. Each of Parent, the Purchaser and the Company
agrees promptly to correct any information supplied by it specifically for
inclusion in the Offer Documents if and to the extent that such information
shall have become false or misleading in any material respect, and each of
Parent and the Purchaser further agrees to take all steps necessary to cause the
Offer Documents as so corrected to be filed with the SEC and to be disseminated
to holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Parent and the Purchaser agree to provide the Company
and its counsel in writing with any comments Parent, the Purchaser or their
counsel may receive from the SEC or its Staff, including, but not limited to,
comments with respect to the Offer Documents, promptly after the receipt of such
comments. The Company and its counsel shall be given a reasonable opportunity to
review and comment upon the Offer Documents and all amendments and supplements
thereto prior to their filing with the SEC or dissemination to the shareholders
of the Company.
1.02 Company Action. (a) The Company hereby approves of and consents
to the Offer and represents and warrants that the Board of Directors of the
Company (the "Board"), at a meeting duly called and held, has adopted
resolutions (i) determining that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger (as defined in Section
2.01), are fair to, and in the best interests of, the shareholders of the
Company, (ii) approving and adopting this Agreement and the transactions
contemplated hereby, including the Offer and the Merger and the transactions
contemplated thereby, in all respects and that such approval constitutes
approval of the Offer, this Agreement and the Merger and the transactions
contemplated hereby and thereby, for purposes of Sections 902 and 912 of the New
York Business Corporation Law (the "NYBCL"), and similar provisions of any other
similar state statutes applicable to the transactions contemplated hereby, (iii)
recommending that the shareholders of the Company accept the Offer, tender their
Shares
3
<PAGE> 5
thereunder to the Purchaser and approve and adopt this Agreement and the Merger,
subject to the provisions of Section 6.08, and (iv) providing for the
cancellation of all Options (as defined in Section 3.05) as provided in Section
3.05.
(b) The Company has been advised by each of its executive officers
and each of its Directors, that such person intends to tender pursuant to the
Offer all Shares owned or controlled by such person. The Company represents that
the Board has received the written opinion of Rothschild, Inc. ("Rothschild")
that the consideration to be received by holders of Shares pursuant to the Offer
and the Merger is fair to such holders from a financial point of view, and the
Company has provided a copy of such opinion to Parent.
(c) The Company shall file with the SEC a Solicitation/
Recommendation Statement on Schedule 14D-9 with respect to the Offer (such
Schedule 14D-9, as amended from time to time, the "Schedule 14D-9") on the date
the Offer Documents are filed with the SEC and the Offer is commenced,
containing the recommendation described in Section 1.02(a) and shall mail the
Schedule 14D-9 to the shareholders of the Company. The Schedule 14D-9 shall
comply in all material respects with the requirements of the Exchange Act and
the rules and regulations promulgated thereunder on the date filed with the SEC
and on the date first published, sent or given to the Company's shareholders,
and shall not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by the Company with
respect to information supplied in writing by Parent or the Purchaser
specifically for inclusion or incorporation by reference in the Schedule 14D-9.
Each of the Company, Parent and the Purchaser agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that such information shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to amend or
supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or
supplemented to be filed with the SEC and disseminated to the Company's
shareholders, in each case as and to the extent required by applicable federal
securities laws. Parent and its counsel shall be given a reasonable opportunity
to review and comment upon the Schedule 14D-9 and all amendments and supplements
thereto prior to their filing with the SEC or dissemination to shareholders of
the Company.
(d) In connection with the Offer, the Company will, and will cause
its transfer agent (the "Transfer Agent") to, furnish promptly to Parent and the
Purchaser mailing labels containing the names and addresses of all record
holders of Shares as of the most recent practicable date and of those persons
becoming record holders after such date, together with copies of all lists of
shareholders and security position listing and computer files and all other
information in the Company's possession and control regarding the beneficial
ownership of Shares. The Company shall promptly furnish to Parent and the
Purchaser such additional information (including, but not limited to, updated
lists of holders of Shares and their addresses, mailing labels and security
position listings and computer files) and such other assistance as Parent and
the Purchaser or their agents may reasonably request in
4
<PAGE> 6
communicating the Offer to the record and beneficial holders of Shares. Subject
to the requirements of law, and except for such steps as are necessary or
advisable to disseminate the Offer and any other documents necessary to
consummate the Merger and to solicit tenders of Shares and the approval of the
Merger, Parent and the Purchaser and each of their affiliates shall hold in
confidence the information contained in any of such labels, lists and additional
information, shall use such information in connection with the Offer and the
Merger, and, if this Agreement shall be terminated, shall deliver to the Company
all copies of such information then in their possession or under their control.
1.03 Composition of the Board of Directors. (a) 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 (as defined in Section 2.02) there shall be at least
three Continuing Directors (as defined in Section 1.03(c)). 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.
(b) The Company's obligations to cause designees of the Purchaser to
be elected or appointed to the Board of Directors of the Company shall be
subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder. The Company shall promptly take all actions required pursuant to
Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this
Section 1.03, and shall include in the Schedule 14D-9 such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1. 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.
(c) 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 this Agreement or the Restated Certificate of Incorporation (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
5
<PAGE> 7
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 Section 1.03(c) to any committee of the Board.
ARTICLE II
THE MERGER
2.01 The Merger. Subject to the terms and conditions of this
Agreement, and in accordance with New York law, at the Effective Time (as
defined in Section 2.02), Parent shall cause the Purchaser to merge (the
"Merger") with and into the Company and as a result thereof the separate
corporate existence of the Purchaser shall thereupon cease. The Company shall
continue as the surviving corporation (the "Surviving Corporation") of the
Merger (the Purchaser and the Company are sometimes hereinafter referred to as
the "Constituent Corporations") and shall, following the Merger, continue to be
governed by the laws of the State of New York, and the separate corporate
existence of the Company, with all its rights, privileges, immunities, powers
and franchises, of a public as well as of a private nature, shall continue
unaffected by the Merger. From and after the Effective Time, the Merger shall
have the effects specified in the NYBCL including, without limitation, Section
906 thereof.
2.02 Effective Time. At the Closing contemplated in Section 8.01,
the Company and Parent will cause a Certificate of Merger to be filed with the
state of New York ( the "Certificate of Merger") to be executed and filed by the
Company and the Purchaser with the New York Department of State, as provided in
and in accordance with the NYBCL. The Merger shall become effective as of the
date and at the time the Certificate of Merger has been duly filed with the
Department of State of the State of New York or such later time as is agreed
upon by the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time."
2.03 Certificate of Incorporation. The Certificate of Incorporation
of the Company, as amended at the Effective Time to read as set forth in Exhibit
A hereto, shall be the certificate of incorporation of the Surviving Corporation
until duly amended in accordance with the terms thereof and the NYBCL.
2.04 By-laws. The By-laws of the Company as in effect on the date
hereof, except as amended as set forth in Exhibit B hereto, shall be the By-laws
of the Surviving Corporation, until duly amended in accordance with the terms
thereof and the NYBCL.
6
<PAGE> 8
Promptly following the Effective Time, Parent shall approve such amendment to
the By-laws as the sole shareholder of the Surviving Corporation.
2.05 Directors and Officers. At the Effective Time, the directors of
the Purchaser immediately prior to the Effective Time shall be the directors of
the Surviving Corporation, each of such directors to hold office, subject to the
applicable provisions of the Certificate of Incorporation and By-Laws of the
Surviving Corporation, until their respective successors shall be duly elected
or appointed and qualified. 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.
2.06 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper: (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the proper officers and directors of the Surviving Corporation are
hereby authorized on behalf of the respective Constituent Corporations to
execute and deliver, in the name and on behalf of the respective Constituent
Corporations, all such deeds, bills of sale, assignments and assurances and do,
in the name and on behalf of the Constituent Corporations, all such other acts
and things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of the Constituent Corporations and otherwise
to carry out the purposes of this Agreement.
2.07 Shareholders' Meeting. (a) 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 this Agreement, the Merger and the
transactions contemplated hereby and thereby;
(ii) include in the Proxy Statement (as defined in Section 4.07) the
recommendation of the Board that shareholders of the Company vote in favor of
the approval and adoption of this Agreement and the Merger and the other
transactions contemplated hereby and thereby and the determination of the Board
that this Agreement and the transactions contemplated hereby, including the
Offer and the Merger, are fair to, and in the best interests of, the
shareholders of the Company; and
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(iii) as soon as practicable after Parent's request, prepare and
file a preliminary Proxy Statement with the SEC and, after consultation with
Parent and the Purchaser, 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. Without limiting the generality of the foregoing, the Company agrees
that its obligations pursuant to this Section 2.07(a) shall not be affected by
either the commencement, public proposal, public disclosure or other
communication to the Company by any third party of any offer to acquire some or
all of the Shares or all or any substantial portion of the assets of the Company
or any change in the recommendation of the Board.
(b) 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 securities or corporate laws relating to the Merger
and the transactions contemplated herein (the "Other Filings"). Each of the
parties hereto shall notify the other parties hereto promptly of the receipt by
it of any comments from the SEC or its Staff and of any request of the SEC for
amendments or supplements to the Proxy Statement or by the SEC or any other
governmental officials with respect to any Other Filings or for additional
information and will supply the other parties hereto with copies of all
correspondence between it and its representatives, on the one hand, and the SEC
or the members of its Staff or any other governmental officials, on the other
hand, with respect to the Proxy Statement, any Other Filings or the Merger. The
Company, Parent and the Purchaser each shall use all reasonable efforts to
obtain and furnish the information required to be included in the Proxy
Statement, any Other Filings or the Merger. If at any time prior to the time of
approval of this Agreement by the Company's shareholders there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company shall promptly prepare and mail to its shareholders such
amendment or supplement. The Company shall not mail the Proxy Statement or,
except as required by the Exchange Act or the rules and regulations promulgated
thereunder, any amendment or supplement thereto, to the Company's shareholders
unless the Company has first obtained the consent of Parent to such mailing.
(c) At the Shareholders' Meeting, Parent, the Purchaser, their
affiliates and Permitted Assigns (as defined in Section 10.07) will vote all
Shares owned by them in favor of approval and adoption of this Agreement, the
Merger, and the transactions contemplated hereby and thereby.
(d) Notwithstanding the foregoing, in the event that the Purchaser
or any Permitted Assigns shall acquire at least 90% of the outstanding Shares
pursuant to the Offer or otherwise, the parties hereto 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 Article VII, without a meeting of the shareholders of the
Company.
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ARTICLE III
CONVERSION OR CANCELLATION OF SHARES; STOCK RIGHTS
3.01 Conversion or Cancellation of Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than Shares owned by Parent, the Purchaser or any other
wholly-owned subsidiary of Parent, Dissenting Shares (as defined in Section
3.03) and any Shares held in the treasury of the Company or by any subsidiary of
the Company) shall be converted into and represent 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"), upon surrender of the certificate that, immediately prior to
the Effective Time, represented such issued and outstanding Share (a
"Certificate"). As of the Effective Time, all such Shares shall no longer be
outstanding, shall be automatically canceled and shall cease to exist, and each
holder of a Certificate which formerly represented any such Shares shall
thereafter cease to have any rights with respect to such Shares, except the
right to receive the Merger Consideration without interest for such Shares upon
the surrender of such Certificate or Certificates in accordance with Section
3.02.
(b) 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 and
shall cease to exist, and each holder of a Certificate representing any such
Shares shall thereafter cease to have any rights with respect to such Shares.
(c) 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 Stock, par value $.16-2/3 per share, of the Surviving Corporation as
shall equal the quotient of (i) the number of Shares issued and outstanding at
the Effective Time divided by (ii) 1,000.
3.02 Exchange of Certificates; Paying Agent. (a) Prior to the
Effective Time, Parent shall select a bank or trust company to act as paying
agent (the "Paying Agent") for the payment of the cash consideration specified
in Section 3.01 upon surrender of Certificates for Shares converted into the
right to receive the Merger Consideration pursuant to the Merger. Immediately
prior to the Effective Time, Parent shall make available, or cause the Purchaser
or the Surviving Corporation to make available, to the Paying Agent immediately
available funds in amounts and at times necessary for the payment of the Merger
Consideration (the "Funds") upon surrender of Certificates pursuant to Section
3.01, it being
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understood that any and all interest earned on the Funds shall be paid over by
the Paying Agent as Parent shall direct.
(b) Promptly after the Effective Time, the Paying Agent shall mail
to each person who was, at the Effective Time, a holder of record of a
Certificate or Certificates, other than the Parent, Company or any of their
respective subsidiaries, a letter of transmittal and instructions for use in
effecting the surrender, in exchange for payment in cash therefor, of the
Certificates. The letter of transmittal shall (i) specify that delivery shall be
effected, and risk of loss and title shall pass, only upon proper delivery to
and receipt of such Certificates by the Paying Agent and shall be in such form
and have such provisions as Parent and the Company shall reasonably specify and
(ii) include instructions for use in effecting the surrender of the Certificates
in exchange for payment of the Merger Consideration. Upon surrender to the
Paying Agent of such Certificates, together with the letter of transmittal, duly
executed and completed in accordance with the instructions thereto and such
other documents as may be reasonably required by the Paying Agent, the Paying
Agent shall promptly pay to the persons entitled thereto, out of the Funds, a
check in the amount to which such persons are entitled pursuant to Section
3.01(a), after giving effect to any required tax withholdings, and such
Certificate shall forthwith be canceled. No interest will accrue or be paid on
the amount payable upon the surrender of any such Certificates. If payment is to
be made to a person other than the registered holder of any Certificate
surrendered, it shall be a condition of such payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of the
Surviving Corporation or the Paying Agent that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 3.02, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the amount of cash, without
interest, into which the Shares theretofore represented by such Certificate
shall have been converted pursuant to Section 3.01(a).
(c) One hundred eighty days following the Effective Time, the
Surviving Corporation shall be entitled to cause the Paying Agent to deliver to
it any Funds (including any interest, dividends, earnings or distributions
received with respect thereto which shall be paid as directed by Parent) made
available to the Paying Agent by Parent which have not been disbursed, and
thereafter holders of Certificates who have not theretofore complied with the
instructions for exchanging their Certificates shall be entitled to look only to
the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) for payment as general creditors thereof with respect to the cash
in the amount of the Merger Consideration payable upon due surrender of their
Certificates.
(d) Notwithstanding anything to the contrary in this Section 3.02,
none of the Paying Agent, Parent, the Company, the Surviving Corporation or the
Purchaser shall be liable to any holder of a Certificate formerly representing
Shares for any amount properly
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delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
3.03 Dissenters' Rights. Notwithstanding the provisions of Section
3.01 or any other provision of this 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, as
provided in Section 3.01(a) and in accordance with the NYBCL. The Company shall
give Parent (i) prompt notice of any demands for appraisal of Shares received by
the Company and (ii) the opportunity to participate in and direct all
negotiations and proceedings with respect to any such demands. The Company shall
not, without the prior written consent of Parent, make any payment with respect
to, or settle, offer to settle or otherwise negotiate, any such demands.
3.04 Transfer of Shares After the Effective Time. No transfers of
Shares shall be made in the stock transfer books of the Surviving Corporation at
or after the Effective Time. If, after the Effective Time, Certificates formerly
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the amount of cash, without interest, into which the
Shares theretofore represented by such Certificates shall have been converted
pursuant to Section 3.01(a), subject to the provisions of Section 3.01(b).
3.05 Company Stock Rights. (a) 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"), as set forth on Schedule 4.03 of the disclosure letter delivered to
Parent as of the date of this Agreement (the "Company Disclosure Letter"),
whether or not then exercisable, shall be canceled by the Company, and each
holder of a canceled 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 as
set forth in the
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minutes of a meeting thereof, a copy of which has been delivered to the
Purchaser. The Company shall upon the payment of the consideration described in
the preceding sentence withhold from such payments any applicable federal,
state, local or foreign taxes.
(b) All Stock Plans shall terminate as of the Effective Time and the
provisions in any other Company Benefit Plan (as defined in Section 4.12)
providing for the issuance, transfer or grant of any capital stock of the
Company or any interest in respect of any capital stock of the Company shall be
amended as of the Effective Time to provide no continuing rights to acquire,
hold, transfer or grant any capital stock of the Company or any interest in
capital stock of the Company (other than an interest in any cash payments in
respect of Shares pursuant to Section 3.01(a) or as contemplated in Section
3.05(a)), 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.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and the
Purchaser that:
4.01 Organization, Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, and the Company has all requisite corporate power and authority to
own, lease and operate its properties and carry on its business as now being
conducted. The Company is duly qualified to do business and is in good standing
in each jurisdiction in which the nature of the Company's business or the
location of its properties makes such qualification necessary, except as set
forth on Schedule 4.01 of the Company Disclosure Letter. The Company has
heretofore made available to Parent and has filed with the SEC pursuant to the
Exchange Act, complete and correct copies of the Certificate of Incorporation
and By-Laws of the Company, as currently in effect. Schedule 4.01 of the Company
Disclosure Letter lists each jurisdiction in which the Company is, or is
required to be, duly qualified.
4.02 Company Subsidiaries. (a) Schedule 4.02 of the Company
Disclosure Letter lists all subsidiaries of the Company. Except as indicated
therein, all of the outstanding shares of capital stock of each such subsidiary
are owned by the Company either directly or indirectly through another of its
subsidiaries. Except as set forth in Schedule 4.02 of the Company Disclosure
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Letter, there are no contracts, commitments, understandings or arrangements by
which any subsidiary of the Company is bound to issue (other than to the
Company) additional shares of its capital stock or securities convertible into
or exchangeable for shares of its capital stock or subscriptions, options,
warrants or rights to purchase or acquire any additional shares of its capital
stock or securities convertible into or exchangeable for shares of its capital
stock. Except as set forth in Schedule 4.02 of the Company Disclosure Letter,
there are no contracts, commitments, understandings or arrangements by which the
Company or any of its subsidiaries is or may be obligated to transfer any shares
of the capital stock of any subsidiary of the Company. Except as set forth in
Schedule 4.02 of the Company Disclosure Letter, all of the shares of capital
stock of each subsidiary of the Company held by the Company or any subsidiary of
the Company are fully paid and nonassessable and are owned by the Company or
such subsidiary of the Company free and clear of any claim, lien or encumbrance
other than restrictions on transferability under federal and any applicable
state securities laws. Each subsidiary of the Company is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, has the corporate power and authority necessary for
it to own or lease its properties and assets and to carry on its business as it
is now being conducted, and is duly qualified to do business and in good
standing in the states of the United States in which the ownership of its
property or the conduct of its business requires it to be so qualified, except
as set forth on Schedule 4.02 of the Company Disclosure Letter. As used in this
Agreement, the term "subsidiary" of a specified person means (i) any corporation
of which equity securities possessing a majority of the ordinary voting power in
electing the board of directors are, at the time as of which such determination
being made, owned or controlled by such specified person either directly or
indirectly or in combination with one or more subsidiaries of such specified
person or (ii) any person (other than a corporation) in which such specified
person either directly or indirectly through or in combination with one or more
subsidiaries, at the time as of which such determination is being made, (x) is a
general partner, or (y) owns or controls more than a 50% ownership interest and
has the right to elect a majority of the members of the governing authority of
such specified person.
(b) Except for interests in the Company's subsidiaries and except as
set forth in Schedule 4.02 of the Company Disclosure Letter, neither the Company
nor any of the Company's subsidiaries owns, directly or indirectly, any interest
or investment (whether equity or debt) in any corporation, company, partnership,
joint venture, business, trust or entity, other than investments in marketable
securities acquired in the ordinary course of business, nor has the Company or
any of its subsidiaries made any loan or advance to any other entity.
4.03 The Company's Capitalization. The authorized capital stock of
the Company consists of (i) 35,000,000 Shares and (ii) 30,000 shares of
Preferred Stock, $.01 par value ("Preferred Stock"). As of the close of business
on August 7, 1997, there were (i) 11,173,421 Shares issued and outstanding and
no Shares held in the Company's treasury or by any of its subsidiaries, and (ii)
no shares of Preferred Stock issued and outstanding. All outstanding Shares have
been duly authorized and validly issued, are fully paid and nonassessable and
were issued free of preemptive rights. There are not now, except for the
Options, approximately $1.36 million principal amount of amended and restated
convertible loan notes of the Company (the "Convertible Loan Notes"),
convertible into up to 501,500 Shares, subject to adjustment as provided
therein, and as set forth in Schedule 4.03 of the Company Disclosure Letter, and
at the Effective Time there will not be, (i) any options, warrants, calls,
subscriptions, convertible securities or other rights (including preemptive
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rights), agreements, understandings, arrangements or commitments of any
character obligating the Company now or at any time in the future to issue or
sell any of its capital stock or other equity interest in the Company or any of
its subsidiaries, (ii) any obligations, contingent or otherwise, of the Company
or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares
of capital stock or other equity interests of the Company or any of its
subsidiaries, (iii) any outstanding bonds, debentures, notes or other
obligations of the Company or any of its subsidiaries, the holders of which have
the right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the holders of Shares on any matter, (iv) any
obligations, contingent or otherwise, guaranteeing the value of any of the Share
or the capital stock of any of its subsidiaries either not or at any time in the
future, or (v) any voting trusts, proxies or other agreements or understandings
to which the Company is a party or is bound with respect to the voting of any
capital stock or other equity interest of the Company or any other securities
convertible into or exchangeable for Shares or any other equity interests of the
Company, or options to acquire Shares or securities convertible into Share or
equity interests of the Company are held by any of the Company's subsidiaries.
4.04 Authority. The Company has full corporate power and authority
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
approved by the Board, and the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
including, without limitation, the Sale and Leaseback Letter of Intent (as
defined in Section 6.01) and the transactions contemplated thereby, the Bank
Letter of Intent (as defined in Section 6.01) and Bank Standstill Agreement and
the transactions contemplated thereby, and the other actions required to be
performed by the Company hereunder, including without limitation the Exchange
Act filings, the holding of the Shareholders' Meeting, if required, the HSR
Filing, and the cancellation of Options contemplated by Section 3.05, have been
duly and validly authorized by the Board and, except for any approval of the
Merger by the holders of the Shares required by the NYBCL, no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby, including the acquisition
of Shares pursuant to the Offer and the Merger. The Company has taken all
actions necessary to render the prohibitions of Section 912 of the NYBCL to be
inapplicable to the execution and delivery of this Agreement and the
transactions contemplated hereby, including the entry of Parent, the Purchaser
and the Significant Shareholders into the Shareholder Agreement and the
acquisition of the Shares pursuant to the Offer and the Merger. This Agreement
has been duly and validly executed and delivered by the Company and, assuming
due authorization, execution and delivery by Parent and the Purchaser,
constitutes the valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
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4.05 Consents, Approvals and Governmental Filings; No Violations.
(a) No notices, reports or other filings are required to be made by the Company
with, nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by the Company from, any public, governmental, or
regulatory body, agency, department, commission, board, bureau or other
authority or instrumentality of the United States, any state thereof or any
foreign jurisdiction (each a "Governmental Authority") in connection with the
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby, the failure to make or
obtain any or all of which could prevent, delay or burden the transactions
contemplated by this Agreement, except (A) in connection with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (B) in connection with the Exchange Act, (C) in connection with Article
16 of the NYBCL and (D) such consents, approvals, registrations, licenses and
permits with respect to Liquor Licenses listed in Exhibit 4.05B to Schedule 4.05
of the Company Disclosure Letter (together with the consents and approvals with
respect to Liquor Licenses listed on the Purchaser Disclosure Letter (as defined
in Section 5.06) the "Liquor License Approvals").
(b) Except as set forth on Schedule 4.05 of the Company Disclosure
Letter, and except for any required approval of the Merger by the shareholders
of the Company and the filing of the Certificate of Merger in accordance with
the NYBCL, neither the execution, delivery and performance of this Agreement by
the Company nor the consummation by it of the transactions contemplated hereby
will (i) violate, conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-Laws of the Company; (ii) require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, except (A) in connection with the HSR Act, (B)
in connection with the Exchange Act or (C) in connection with Article 16 of the
NYBCL; (iii) constitute a violation or breach of, or result (with or without due
notice or lapse of time or both) in a default or loss of any material benefit
under, or give rise to any right of termination, amendment, cancellation or
acceleration under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, franchise agreement, lease, license, contract,
agreement or other instrument or obligation of any kind to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of its or their respective assets may be bound, except as
any such breach, default or right as to which requisite waivers or consents have
been obtained, (iv) require the creation or imposition of any lien upon or with
respect to any properties of the Company or any of its subsidiaries or (v)
assuming compliance with the NYBCL, the Exchange Act, and the HSR Act, violate
any order, writ, injunction, judgment, decree, law, statute, rule, regulation or
governmental permit or license applicable to the Company or any of its
subsidiaries or any of its or their respective assets.
4.06 SEC Reports; Financial Statements. The Company has filed all
required forms, reports and documents with the SEC since October 1, 1993
(collectively, together with all forms, reports and documents to be filed with
the SEC on or after the date hereof, the "SEC Reports"), each of which, as
amended, has complied or will comply in all material respects with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, each as in effect on the dates so
filed. None of such
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forms, reports or documents, including, without limitation, any financial
statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has
heretofore made available complete and correct copies of the SEC Reports, and
any amendments to any SEC Report, filed to date, and promptly will make
available to Parent a complete and correct copy of any SEC Report filed
hereafter and any amendment to any SEC Report. The consolidated financial
statements of the Company and its subsidiaries included in such reports complied
as of the respective dates thereof as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC and with respect thereto, were prepared in accordance with United
States generally accepted accounting principles ("GAAP") as in effect on their
respective dates applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited interim financial statements, as permitted by Form 10-Q of the SEC)
and fairly presented (subject, in the case of the unaudited interim financial
statements, to normal, year-end audit adjustments) the consolidated financial
position of the Company and its subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. Since September 29, 1996, neither the Company nor any of its subsidiaries
has incurred any liabilities or obligations (whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due) of any nature, which would be required by GAAP, as of the date hereof, to
be set forth on a consolidated balance sheet of the Company and its subsidiaries
or in the notes thereto except liabilities, obligations or contingencies (a)
which are disclosed reflected or reserved for on the unaudited balance sheet of
the Company and its subsidiaries as of June 30, 1997 (including the notes
thereto) or in this Agreement or in Schedule 4.06 of the Company Disclosure
Letter or (b) which (i) were incurred in the ordinary course of business after
September 29, 1996 and consistent with past practices or (ii) are disclosed or
reflected or reserved for in the Company SEC Reports filed after September 29,
1996 and prior to the date hereof, or (c) which were incurred as a result of
actions taken or refrained from being taken (i) in furtherance of the
transactions contemplated by this Agreement, or (ii) at the request of Parent
and the Purchaser. Since September 29, 1996, there has been no change in any of
the significant accounting (including tax accounting) policies, practices or
procedures of the Company or any of its subsidiaries except as required by GAAP
or applicable law.
4.07 Proxy Statement; Offer Documents. Any proxy statement or
similar materials distributed to the Company's shareholders in connection with
the Merger, including any amendments or supplements thereto (the "Proxy
Statement"), will comply in all material respects with applicable federal
securities laws and will not contain any untrue statements of a material fact
required to be stated therein or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or the Purchaser in writing for inclusion in the Proxy Statement. None of
the information supplied by the
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Company in writing for inclusion in the Offer Documents or provided by the
Company in the Schedule 14D-9 will, at the respective times that the Offer
Documents and the Schedule 14D-9 or any amendments or supplements thereto are
filed with the SEC and are first published or sent or given to holders of
Shares, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.08 Absence of Certain Changes or Events. Except as set forth in
the SEC Reports filed prior to the date hereof or in Schedule 4.08 of the
Company Disclosure Letter, since September 29, 1996 (i) the business of the
Company and its subsidiaries has been conducted in the ordinary course
consistent with past practice (except as otherwise contemplated by this
Agreement); (ii) no events have occurred which, in the reasonable opinion of the
Company, are likely, individually or in the aggregate, to have a Material
Adverse Effect (as defined in Section 9.03(d)) or adversely affect the ability
of the Company to consummate the transactions contemplated by this Agreement;
(iii) neither the Company nor any of its subsidiaries has incurred or will incur
any material liabilities (direct, contingent or otherwise) or engaged in any
material transaction or entered into any material agreement outside the ordinary
course of business; (iv) there has been no declaration, setting aside or payment
of any dividend or other distribution with respect to any capital stock of the
Company and (v) neither the Company nor any of its subsidiaries has taken any
action described in Section 6.01.
4.09 Title, Etc.. (a) Schedule 4.09 of the Company Disclosure Letter
sets forth a list of all of the land, which includes the buildings, structures
and other improvements located thereon (the "Real Property"), which is owned in
fee by the Company or any of its subsidiaries. The Company or such subsidiary,
as the case may be, has, with respect to personal property, good, and, with
respect to real property, good, marketable and insurable, title to all of the
properties and assets which it purports to own and which are material to the
business, operation or financial condition of the Company or such subsidiary
free and clear of all mortgages, security interests, liens, claims, charges or
other encumbrances of any nature whatsoever, except for (i) any liens,
encumbrances or defects reflected in the most recent financial statements
included in the SEC Reports filed prior to the date hereof or disclosed in the
notes thereto; (ii) any liens, encumbrances or defects which do not materially
detract from the fair market value (free of such liens, encumbrances or defects)
of the property or assets subject thereto or materially interfere with the
current use by the Company and its subsidiaries of the property or assets
subject thereto or affected thereby; (iii) any liens or encumbrances for taxes
not delinquent or which are being contested in good faith, provided that
adequate reserves for the same have been established on the most recent
financial statements included in the SEC Reports to the extent required by GAAP
applied on a consistent basis; (iv) any liens or encumbrances for current taxes
and assessments not yet past due; (v) any inchoate mechanic's and materialmen's
liens and encumbrances for construction in progress; (vi) any workmen's,
repairmen's, warehousemen's and carriers' liens and encumbrances arising in the
ordinary course of business, so long as such liens have not been filed; and
(vii) any liens of
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the type referred to in (vi) above that have been filed, so long as such liens
do not aggregate in excess of $50,000;
(b) Schedule 4.09 of the Company Disclosure Letter sets forth a list
of all of the leases and subleases (the "Real Property Leases") under which, as
of the date hereof, the Company or any of its subsidiaries has the right to
occupy space. The summary of the Real Property Leases, including all amendments
thereto, attached to such Schedule, together with the spreadsheets attached to
such Schedule, are correct and complete in all material respects. Except as set
forth in Schedule 4.09, all Real Property Leases and material leases pursuant to
which the Company or any of its subsidiaries leases personal property from
others are, in all material respects, valid, binding and enforceable in
accordance with their terms and the Company, or the applicable subsidiary of the
Company, has good and valid leasehold title to all property leased pursuant to
each of the Real Property Leases; neither the Company nor any of its
subsidiaries has received notice of any default by the Company or any of its
subsidiaries under any Real Property Lease; there are no existing defaults, or
any condition or event known to the Company or any subsidiary which with the
giving of notice or lapse of time would constitute a default, by the Company or
any of its subsidiaries thereunder and, with respect to the Company's or any of
its subsidiaries' obligations thereunder without qualification and with respect
to the obligations of all other parties thereto, to the knowledge of the
Company, no uncured default or event or condition on the part of any landlord
exists under any Real Property Lease which with the giving of notice or the
lapse of time would constitute a default thereunder. Except as set forth in
Schedule 4.09 of the Company Disclosure Letter, the Company has not suspended
any Real Property Leases nor is the Company in any negotiations with any lessors
regarding any Real Property Leases.
(c) All of the land, buildings, structures and other improvements
occupied by the Company and its subsidiaries in the conduct of its business are
included in the Real Property or the Real Property Leases.
(d) Except as set forth in Schedule 4.09 of the Company Disclosure
Letter, neither the Company nor any subsidiary owns or holds, nor is obligated
under or a party to, any option, right of first refusal or other contractual
right to purchase, acquire, sell lease or dispose of any Real Property or any
Real Property Leases or any portion thereof or interest therein.
4.10 Patents, Trademarks, Etc.. Schedule 4.10 of the Company
Disclosure Letter identifies all registered trademarks, copyrights and patents
owned or licensed by the Company and its subsidiaries as of the date hereof. The
Company and its subsidiaries own, or are licensed or otherwise have adequate
right to use, all patents, patent rights, trademarks, trademark rights, service
marks, service mark rights, trade names, trade name rights, copyrights,
know-how, technology, trade secrets and other proprietary information which are
material to the conduct of the business of the Company and its subsidiaries
(collectively, the "Intellectual Property"). Except as set forth in Schedule
4.10 of the Company Disclosure Letter, no claims have been asserted by any
person, and neither the Company nor any of its
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subsidiaries has asserted a claim against any person, with respect to any of the
Intellectual Property owned or used by the Company or any of its subsidiaries or
challenging or questioning the validity or effectiveness of any license or
agreement relating thereto to which the Company or any of its subsidiaries is a
party, nor, to the Company's knowledge, are any such claims threatened.
4.11 Insurance. Schedule 4.11 of the Company Disclosure Letter
identifies all property, general liability and casualty insurance policies which
currently insure the Company or any of its subsidiaries ("Insurance Policies").
4.12 Employee Benefit Plans. (a) For purposes of this Section 4.12,
"Company Benefit Plans" means all employee benefit plans, agreements and
arrangements described in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained by the Company or any of
its subsidiaries to which the Company or any of its subsidiaries has contributed
or been required to contribute, or with respect to which the Company or any
subsidiary of the Company has a liability, whether direct or indirect, actual or
contingent, and all employment, bonus, deferred compensation, severance,
incentive, stock option, change of control and similar plans, policies or
arrangements (whether written or oral) maintained by the Company or any of its
subsidiaries (including descriptions of the number and level of employees
covered thereby).
(b) Schedule 4.12 of the Company Disclosure Letter sets forth a list
of all Company Benefit Plans. The Company has delivered or made available to
Parent accurate and complete copies of (i) all Company Benefit Plan documents
currently in effect and all amendments thereto, and all summary plan
descriptions thereof which have been distributed to employees of the Company or
any subsidiary, (ii) the most recent determination or opinion letter issued by
the Internal Revenue Service with respect to each Company Benefit Plan, (iii)
for the three most recent plan years, Annual Reports on Form 5500 Series filed
with any governmental agency for each Company Benefit Plan and (iv) a
description setting forth the amount of any material liability of the Company as
of the Closing Date for payments more than thirty (30) calendar days past due
with respect to each "employee welfare benefit plan" as defined in ERISA section
3(1) which covers or has covered employees of the Company or any subsidiary.
(c) Except as set forth in Schedule 4.12 of the Company Disclosure
Letter with respect to each Company Benefit Plan: (i) each Company Benefit Plan
has been administered and enforced in all material respects in accordance with
its terms and, both as to form and in operation, with the requirements
prescribed by ERISA, the Internal Revenue Code of 1986, as amended (the "Code"),
and all other applicable statutes, orders, rules and regulations; (ii) to the
knowledge of the Company, no breach of fiduciary duty or non-exempt prohibited
transaction has occurred; (iii) no actions, suits, claims or disputes are
pending or, to the knowledge of the Company, threatened, other than routine
claims for benefits; (iv) all contributions and premiums due have been made on a
timely basis; and (v) such Company Benefit Plan is not a multiemployer plan (as
defined in ERISA section 3(37)), a multiple
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employer plan within the meaning of the Code or ERISA, a defined benefit plan
within the meaning of ERISA section 3(35), a plan subject to section 302 of
ERISA or section 412 of the Code or Title IV of ERISA, or funded through a
"welfare benefit fund" (as defined in section 419(e) of the Code).
(d) Except as set forth in Schedule 4.12 of the Company Disclosure
Letter or as specifically provided in Section 3.05, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any individual
to severance pay, or (ii) accelerate the time of payment or vesting, or increase
the amount, of compensation due to any individual.
(e) Neither the Company nor any of its subsidiaries has any unfunded
liability with respect to retiree medical or retiree life insurance benefits or
other post-termination welfare benefits under the Company Benefit Plans or
otherwise, not reserved for in the Company's financial statements included in
the SEC Reports filed prior to the date hereof.
(f) Each Company Benefit Plan intended to be qualified under section
401(a) of the Code is so qualified, and each trust or other funding vehicle
related thereto is exempt from federal income tax under section 501(a) of the
Code.
(g) Except as set forth on Exhibit 4.06A to Schedule 4.06 of the
Company Disclosure Letter, with respect to any insurance policy providing
funding for benefits under any Company Benefit Plan, (i) there is no material
liability of the Company or any subsidiary of the Company in the nature of a
retroactive or retrospective rate adjustment, loss sharing arrangement, or other
actual or contingent liability, nor would there be any such material liability
if such insurance policy were terminated, and (ii) to the knowledge of the
Company, no insurance company issuing any such policy is in receivership,
conservatorship, liquidation or similar proceeding, and no such proceeding with
respect to any insurer is imminent.
(h) Schedule 4.12 of the Company Disclosure Letter sets forth the
name and current rates of salary, bonuses, benefits (including, but not limited
to, all employee welfare benefits) and any other form of employment compensation
(collectively "Compensation") of each officer, director or employee of the
Company and its subsidiaries whose current annual rate of Compensation from the
Company exceeds $60,000 and each Regional Director not otherwise included.
(i) Each "employee welfare benefit plan" as defined by ERISA section
3(1) which covers employees or former employees of the Company or any subsidiary
and which is a "group health plan," as defined in section 607(1) of ERISA, has
been operated in compliance with provisions of Part 6 of Title I, Subtitle B of
ERISA and section 4980B of the Code at all times except where any failure,
individually or in the aggregate, would not be reasonably expected to result in
material liability.
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(j) The Company has not announced generally any plan, nor does it
have any legally binding commitment, to create any additional Company Benefit
Plans which are intended to cover employees or former employees of the Company
or any subsidiary (with respect to their relationship with such entities) or to
amend or modify any existing Company Benefit Plan which covers or has covered
employees or former employees of the Company or any subsidiary (with respect to
their relationship with such entities).
(k) Except as set forth in Schedule 4.12 of the Company Disclosure
Letter, and except as provided by law, the employment of all persons employed or
retained by the Company or any of its subsidiaries is terminable at will. Except
as set forth in Schedule 4.12 of the Company Disclosure Letter, there is no
contract, agreement, plan or arrangement covering any employee that,
individually or collectively, provides for the payment of any amount (i) that is
not deductible under section 162(a)(l) or 404 of the Code or (ii) that is an
"excess parachute payment" pursuant to section 280G of the Code.
(l) To the knowledge of the Company, neither the Company, nor any of
its subsidiaries, nor any Company Benefit Plan, directly or indirectly, is, or
is reasonably likely to be, subject to any material unfunded liability (except
as reserved for in the Company's financial statements included in the SEC
Reports filed prior to the date hereof) (i) with respect to any employee benefit
plan, program, policy, agreement or arrangement (whether or not terminated) that
is or was maintained or contributed to by any entity during the past six years
that is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with or otherwise required to be
aggregated with the Company or any of its subsidiaries, as set forth in sections
414(b), (c) and (o) of the Code, (ii) pursuant to the penalty, excise or joint
and several liability provisions of ERISA or the Code as they relate to employee
benefit plans or (iii) pursuant to any obligation of the Company or any
subsidiary to indemnify any person against any liability referred to in (i) or
(ii) above.
4.13 Legal Proceedings, Etc.. Except as set forth in Schedule 4.13
of the Company Disclosure Letter, (i) there is no material claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or relating to the Company or any subsidiary before any court
or tribunal in any jurisdiction (domestic or foreign) or any Governmental
Authority, and (ii) neither the Company nor any subsidiary is subject to any
outstanding order, writ, judgment, injunction or decree of any court or
Governmental Authority or body.
4.14 Taxes.
(a) Filing of Tax Returns. The Company (which term shall include,
for purposes of this Section 4.14, each of its subsidiaries from time to time)
has timely filed with the appropriate taxing or other Governmental Authorities
all returns (including, without limitation, information returns and other
Tax-related information) in respect of Taxes (as such term is defined in Section
4.14(f)) required to be filed through the date hereof. Such returns and
information filed are complete, correct and accurate in all material respects.
The
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Company has made available to Parent copies of the Company's federal Tax
returns filed for its taxable years ended October 1, 1995 and September 29, 1996
and selected state and local Tax returns and will make available to Parent
copies of all the Company federal, state and local Tax returns filed for its
taxable years ended December 1990 and September 1991, 1992, 1993, 1994, 1995 and
1996, to the extent not previously provided, as requested by Parent.
(b) Payment of Taxes. Except as set forth in Schedule 4.14(b), all
Taxes required to be paid by the Company for any period or portion thereof
ending on or before the Closing Date, have been paid, or an adequate reserve (in
conformity with GAAP applied on a consistent basis and with the Company's past
custom and practice) has been established therefor, and the Company has no
material liability for Taxes in excess of the amounts so paid or reserves so
established. All material Taxes that the Company has been required to collect or
withhold have been duly collected or withheld and, to the extent required when
due, including extensions, have been or will be duly paid to the proper taxing
or Governmental Authority.
(c) Audit History. Except as set forth in Schedule 4.14(c) of
the Company Disclosure Letter:
(i) No deficiencies for Taxes of the Company or, to the
knowledge of the Company, of any other person with respect to which the Company
would be liable to make a payment under a tax sharing agreement have been
claimed, proposed or assessed by any taxing or Governmental Authority.
(ii) No extension of a statute of limitations relating to
Taxes is in effect with respect to the Company.
(d) Additional Tax Representations. Except as set forth in Schedule
4.14(d) of the Company Disclosure Letter:
(i) There are no material elections with respect to Taxes
affecting the Company.
(ii) The Company is not a party to or bound by any binding tax
sharing, tax indemnity or tax allocation agreement or other similar arrangement
with any other person or entity.
(iii) There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company.
(iv) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code (an
"affiliated group"), nor has the Company or any present or former subsidiary, or
any predecessor or affiliate of any of them, become liable (whether by contract,
as transferee or successor, by law or otherwise) for
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the Taxes of any other person or entity under Treasury Regulation Section
1.1502-6 or any similar provision of state, local or foreign law other than the
group of which the Company is the parent, except for the affiliated group of
which HM Holdings, Inc. was the parent (the "HMH group") as disclosed in
Schedule 4.14(d). The Company (A) has no knowledge of any liens for Taxes, any
Tax deficiency assessment against, or any audit or claimed or proposed Tax
deficiency assessment by any taxing authority against it or any member or former
member of the HMH group with respect to the Company's period of affiliation with
the HMH group, (B) is not liable to any member or former member of the HMH group
for Taxes (or any indemnity payments, make whole payments or like amounts)
attributable to such period under a tax sharing, tax indemnity, tax allocation
or similar agreement, and (C) has no knowledge of any member or former member of
the HMH group entering into any waivers or extensions of a statute of
limitations on assessment or collection of Taxes attributable to such period..
(e) Definition of Taxes. For purposes of this Agreement, the term
"Taxes" shall mean all federal, state, local, foreign and other taxes,
assessments or other government charges, including, without limitation, income,
estimated income, gross receipts, profits, occupation, franchise, capital stock,
real or personal property, sales, use, value added, transfer, license,
commercial rent, payroll, employment or unemployment, social security,
disability, withholding, alternative or add-on minimum, customs, excise, stamp
or environmental taxes, and further including all interest, penalties and
additions in connection therewith for which the Company or any of its
subsidiaries may be liable.
4.15 Material Agreements. Except as set forth in Schedule 4.15 of
the Company Disclosure Letter and except for agreements made for the purpose of
completing the transactions contemplated by this Agreement, neither the Company
nor any of its subsidiaries is a party to, or bound by, any material agreement
of any kind to be performed in whole or in part after the Effective Time. Solely
for the purpose of this Section 4.15, the term "material agreement" shall mean
any agreement which (i) is outside of the ordinary course of business of the
Company or its subsidiaries, (ii) involves the payment or receipt by the Company
or any of its subsidiaries, subsequent to the date of this Agreement and for so
long as such contract is in effect, of more than $50,000 (or $100,000 if the
agreement is for the purchase or sale of food or beverage items included in the
current menu at the Company's restaurants) or (iii), is not terminable without
penalty by the Company or the subsidiary party thereto on 60 days notice. Except
as set forth in Schedule 4.15 of the Company Disclosure Letter, to the best
knowledge of the Company, there is no breach or default and there are no facts
which with notice or the passage of time would constitute a breach or default
under, or give rise to any right of termination, amendment, cancellation or
acceleration under, whether as a result of the consummation of the transactions
contemplated hereby or otherwise, any obligation to be performed by any party to
a material agreement to which the Company or any subsidiary is a party.
4.16 Compliance with Law. Except as set forth in Schedule 4.16 of
the Company Disclosure Letter, the business of the Company and its subsidiaries
is being conducted and the properties and assets of the Company and its
subsidiaries are currently
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owned and operated in substantial compliance with all applicable laws,
ordinances, regulations, orders, judgments, injunctions, awards and decrees of
any Governmental Authority or court, tribunal or arbitrator.
4.17 Insider Interests. Except as set forth in the SEC Reports filed
prior to the date hereof or in Schedule 4.12 of the Company Disclosure Letter,
Schedule 4.17 of the Company Disclosure Letter sets forth all material
contracts, agreements of the Company with and other obligations of the Company
to any officer or director of the Company or any of its subsidiaries. Except as
set forth in Schedule 4.17 of the Company Disclosure Letter, no officer or
director of the Company or any of its subsidiaries and, to the knowledge of the
Company, no entity controlled by any such officer or director and no relative or
spouse who resides with any such officer or director (i) owns, directly or
indirectly, any material interest in any person that is, or is engaged in
business as, a competitor, lessor, lessee, customer or supplier of the Company
or any of its subsidiaries or (ii) owns, in whole or in part, any tangible or
intangible property that the Company or any of its subsidiaries uses in the
conduct of the business of the Company or any such subsidiary.
4.18 Environmental Matters.
The following definitions shall apply to this section:
A. "Environmental Claims" shall mean all notices of violation,
liens, claims, demands, suits, or causes of action for any damage, including,
without limitation, personal injury, property damage, lost use of property or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws. By way of example only, Environmental Claims
include (i) violations of or obligations under any contract related to
Environmental Laws or Environmental Conditions, (ii) actual or threatened
damages to natural resources, (iii) claims for nuisance or its statutory
equivalent, (iv) claims for the recovery of response costs, or administrative or
judicial orders directing the performance of investigations, responses or
remedial actions under any Environmental Laws, (v) requirements to implement
"corrective action" pursuant to any order or permit issued pursuant to
Environmental Laws, (vi) fines, penalties or liens of any kind against property
related to Environmental Laws or Environmental Conditions, and (vii) with regard
to any present or former employees, claims relating to exposure to or injury
from Environmental Conditions.
B. "Environmental Conditions" shall mean the state of the
environment, including natural resources, soil, surface water, ground water, or
ambient air, relating to or arising out of the use, storage, treatment,
transportation, release, disposal, dumping or threatened release of Hazardous
Substances.
C. "Environmental Laws" shall mean all applicable federal, state,
district, local and foreign laws, all rules or regulations promulgated
thereunder, and all orders, consent orders, judgments, notices, permits or
demand letters issued to or entered into by the Company or any of its
subsidiaries pursuant thereto, relating to pollution or protection of the
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environment (e.g., ambient air, surface water, ground water, or soil).
Environmental Laws shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Toxic Substances Control Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended, the
Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean
Air Act, as amended, the Atomic Energy Act of 1954, as amended, the Occupational
Safety and Health Act, as amended, and all analogous laws promulgated or issued
by any state or other Governmental Authority.
D. "Environmental Reports" shall mean any and all written analyses,
audits, assessments, summaries or explanations, in the possession or control of
the Company or any subsidiary, of (a) any Environmental Conditions in, on or
about the Properties (defined below) of, or any property or facility formerly
owned, leased or operated by, the Company or any of its subsidiaries or (b) the
Company's or any such subsidiary's compliance with Environmental Laws.
E. "Hazardous Substances" shall mean all pollutants, contaminants,
chemicals, wastes, and any other carcinogenic, ignitable, corrosive, reactive,
toxic or otherwise hazardous substances or materials subject to regulation,
control or remediation under Environmental Laws, including but not limited to
petroleum, urea formaldehyde, flammable, explosive and radioactive materials,
PCBs, pesticides, herbicides, asbestos, sludge, slag, acids, metals, and
solvents.
Except as set forth in Schedule 4.18 the Company Disclosure Letter, (i) the
Company and each of its subsidiaries are currently in material compliance with
all applicable Environmental Laws, including without limitation all permits or
licenses required thereunder; (ii) neither the Company nor any of its
subsidiaries has received any written notice that the Company or any such
subsidiary is not in compliance with, or is in material violation of, any such
Environmental Laws; (iii) there are no Environmental Claims pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries; (iv) no underground storage tank for Hazardous Substances, no
PCBs, and, to the knowledge of the Company, no asbestos containing material is
currently located at or on any of the properties or facilities owned, leased or
operated by the Company or any of its subsidiaries (the "Properties"); and (v)
to the best knowledge of the Company and each of its subsidiaries, there have
been no releases of Hazardous Substances in quantities exceeding the reportable
quantities as defined under Environmental Laws on, upon or into the Properties
other than those authorized by Environmental Laws. In addition, true and correct
copies of the Environmental Reports have been made available to Purchaser, and a
list of all such Environmental Reports is set forth in Schedule 4.18 of the
Company Disclosure Letter.
4.19 Labor Matters. None of the employees of the Company or any of
its subsidiaries are covered by a collective bargaining agreement. Neither the
Company nor any of its subsidiaries knows of any activity or proceedings of any
labor union (or representatives thereof) to organize any unorganized employees
employed by the Company or any of its subsidiaries, nor of any strikes,
slowdowns, work stoppages, lockouts or threats thereof, by or
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with respect to any of the employees of the Company or any of its subsidiaries.
Except as set forth in Schedule 4.19 of the Company Disclosure Letter, neither
the Company nor any of its subsidiaries has received any notice of any claim, or
has knowledge of any facts which, in the reasonable judgment of the Company, are
likely to give rise to any claim, that it has not complied in any material
respect with any laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, the payment of social security and similar taxes, equal employment
opportunity, employment discrimination or employment safety.
4.20 Certain Undisclosed Violations. Except as set forth in Schedule
4.20 of the Company Disclosure Letter, neither the Company nor any of its
subsidiaries is in violation, or has received notice or claim with respect to
such a violation, of any sale/lease back agreement, credit agreement or
franchise agreement ("Franchise Agreement") to which the Company or any of its
subsidiaries is a party. All liquor licenses held by the Company or any of its
subsidiaries (each a "Liquor License" and collectively the "Liquor Licenses")
are valid and in force, and neither the Company nor any of its subsidiaries has
(after reasonable inquiry) knowledge of any violation of any obligations set
forth under any Liquor License or of any facts which constitute any such
violation or has received any notice or claim with respect to any such
violation, which violation, individually or in the aggregate, would be likely to
result in the termination of any one or more Liquor Licenses covering restaurant
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.
4.21 Brokers and Finders. Neither the Company nor any of its
subsidiaries nor any of their respective officers, directors or employees has
employed any broker, finder or investment banker or incurred any liability for
any brokerage fees, commissions, finders' fees or banking fees in connection
with the transactions contemplated herein, except that the Company has employed,
and will pay the fees and expenses of Rothschild pursuant to a letter agreement
dated as of July 14, 1997, and Jones, Lang, Wootton USA as broker in connection
with solicitation of a sale and leaseback transaction as contemplated in the
Sale and Leaseback Letter of Intent pursuant to a letter agreement dated April
14, 1997, copies of which have been delivered to Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE PURCHASER
5.01 Corporation Organization. Parent is a limited liability company
duly organized and validly existing and in good standing under the laws of the
State of Delaware, and the Purchaser is a corporation duly organized and validly
existing and in good standing under the laws of the State of New York. Parent
and the Purchaser each has all requisite
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corporate power and authority to own its assets and carry on its business as now
being conducted or proposed to be conducted.
5.02 Authorized Capital. The authorized capital stock of the
Purchaser consists of 1,000 shares of Common Stock, $0.01 par value, of which
1,000 shares are outstanding and are owned, beneficially and of record, by
Parent. All of the issued and outstanding shares of capital stock of the
Purchaser are validly issued, fully paid and nonassessable and free of
preemptive rights and all liens.
5.03 Authority. Parent has the necessary limited liability company
power and authority, and the Purchaser has the necessary corporate power and
authority, to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement by each of Parent and
the Purchaser, the performance by Parent and the Purchaser of their respective
obligations hereunder and the consummation by Parent and the Purchaser of the
transactions contemplated hereby have been duly authorized by the managing
member of Parent and the board of directors of the Purchaser and approved by
Parent as sole stockholder of the Purchaser, and no other limited liability
company or corporate proceeding on the part of Parent or the Purchaser is
necessary for the execution and delivery of this Agreement by Parent and the
Purchaser and the performance by Parent and the Purchaser of their respective
obligations hereunder and the consummation by Parent and the Purchaser of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and the Purchaser and, assuming the due
authorization, execution and delivery hereof by the Company, is a legal, valid
and binding obligation of Parent and the Purchaser, enforceable against each of
Parent and the Purchaser in accordance with its terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
5.04 No Prior Activities. Neither Parent nor the Purchaser has
incurred, directly or indirectly, any liabilities or obligations, except those
incurred in connection with its incorporation or with the negotiation of this
Agreement, the Bank Standstill Agreement, the Bank Letter of Intent, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby and thereby. Neither Parent nor the Purchaser
has engaged, directly or indirectly, in any business or activity of any type or
kind, or entered into any agreement or arrangement with any person or entity,
and is not subject to or bound by any obligation or undertaking, that is not
contemplated by or in connection with this Agreement, the Offer Documents and
the transactions contemplated hereby and thereby.
5.05 No Financing Contingency. 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 this Agreement.
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5.06 Governmental Filings; No Violations. (a) Provided that the
Company's representations in Sections 4.04 and 4.05 hereof are true and correct,
except as set forth in the disclosure letter delivered to the Company as of the
date of this Agreement (the "Purchaser Disclosure Letter") no notices, reports
or other filings are required to be made by Parent or the Purchaser with, nor
are any consents, registrations, approvals, permits or authorizations required
to be obtained by Parent or the Purchaser from, any governmental or regulatory
authorities of the United States, the several States or any foreign
jurisdictions in connection with the execution and delivery of this Agreement by
Parent and the Purchaser and the consummation by Parent and the Purchaser of the
transaction contemplated hereby, the failure to make or obtain any or all of
which would adversely affect the ability of the Parent or the Purchaser to
consummate the transactions contemplated by this Agreement, except (A) in
connection with the HSR Act, (B) in connection with the Exchange Act, (C) in
connection with Article 16 of the NYBCL and (D) the Liquor License Approvals.
(b) Provided that the Company's representations in Sections 4.04 and
4.05 hereof are true and correct, except as set forth in the Purchaser
Disclosure Letter neither the execution and delivery of this Agreement by Parent
and the Purchaser nor the consummation by Parent and the Purchaser of the
transactions contemplated hereby nor compliance by Parent and the Purchaser with
any of the provisions hereof will: (i) violate, conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-Laws of Parent
or the Purchaser; (ii) require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, except (A) in
connection with HSR, (B) in connection with the Exchange Act, (C) in connection
with Article 16 of the NYBCL or (D) the Liquor License Approvals; (iii)
constitute a violation or breach of, or result (with or without due notice or
lapse of time or both) in a default or loss of any material benefit under, or
give rise to any right of termination, amendment, cancellation or acceleration
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, franchise agreement, lease, license, contract, agreement or other
instrument or obligation of any kind to which Parent or the Purchaser is a party
or by which Parent or the Purchaser or their respective assets may be bound,
except as any such breach, default or right as to which requisite waivers or
consents have been obtained, (iv) require the creation or imposition of any lien
upon or with respect to any properties of the Parent and the Purchaser or (v)
assuming compliance with the NYBCL and the HSR Act, violate any order, writ,
injunction, judgment, decree, law, statute, rule, regulation or governmental
permit or license applicable to Parent and the Purchaser or any of its or their
respective assets, with such exceptions with respect to the matters referred to
in clauses (ii) through (vi) as would not, individually or in the aggregate,
adversely affect the ability of the Parent or the Purchaser to consummate the
transactions contemplated by this Agreement.
5.07 Brokers and Finders. Neither Parent, the Purchaser nor any of
its officers, directors or employees has employed any broker, finder or
investment banker or incurred any liability for any brokerage fees, commissions,
finders fees or banking fees in connection with the transactions contemplated
herein.
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5.08 Information. All information supplied in writing by Parent or
the Purchaser specifically for inclusion in the Proxy Statement or the Schedule
14D-9 or provided by Parent or the Purchaser in the Schedule 14D-1 or the Offer
Documents will, at the respective times that such documents or any amendments or
supplements thereto are filed with the SEC and are first published, sent or
given to holders of shares, comply in all material respects with applicable
federal securities laws and will not contain any untrue statements of a material
fact required to be stated therein or omit to state, with respect to information
supplied by Parent and the Purchaser, any material fact required to be stated
therein or necessary in order to make the statements supplied by Parent and the
Purchaser, in light of the circumstances under which they were made, not
misleading, except that no representation is made by Parent or the Purchaser
with respect to information supplied by the Company.
5.09 Legal Proceedings, Etc.. There is no claim, action, proceeding
or investigation pending or, to the knowledge of Parent or the Purchaser,
threatened against or relating to Parent or the Purchaser before any court or
tribunal in any jurisdiction (domestic or foreign) or any Governmental Authority
which could individually or in the aggregate adversely affect the ability of the
Parent or the Purchaser to consummate the transactions contemplated by this
Agreement and neither Parent nor the Purchaser is subject to any outstanding
order, writ, judgment, injunction or decree of any court or Governmental
Authority or body that could, individually or in the aggregate, materially
effect Parent's or the Purchaser's ability to consummate the transactions
contemplated by this Agreement.
5.10 Ownership of Shares. Parent beneficially owns 554,900 Shares,
which it will contribute to the Purchaser prior to the Merger, and has the sole
right to receive net proceeds of any sale of such Shares.
ARTICLE VI
COVENANTS OF THE PARTIES
6.01 Conduct of Business of the Company. The Company 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 this Agreement, the services of their respective operating
personnel and to preserve the goodwill of those having a business relationship
with each of them, including, without limitation, suppliers. Except as
contemplated by this Agreement, during the period from the date of this
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 foregoing, and except as a result of entering into this
Agreement or as contemplated by this Agreement or as set forth in Schedule 6.01
of the Company Disclosure Letter, during the period from the date of this
Agreement to the Effective Time, without the advance written consent of Parent,
the Company will not and will cause each of its subsidiaries not to:
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(a) amend its certificate of incorporation or by-laws or
similar governing documents;
(b) (i) create, incur or assume any indebtedness for borrowed money
(including obligations in respect of capital leases, other than obligations of
not more than $50,000, individually or in the aggregate, created or incurred in
the ordinary course of business), except indebtedness for borrowed money
incurred under the Credit Agreement (as defined in Section 6.01(g)) or pursuant
to a new credit agreement refinancing such borrowing in conformity with the
terms of that certain letter of intent dated August 29, 1997, by and among the
Company and the Lenders (as defined therein) (the "Bank Letter of Intent"), or
the letter agreement dated August 29, 1997, by and among the Company and the
Lenders (the "Bank Standstill Agreement"), or (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person other than any subsidiary of
the Company set forth in Schedule 4.02 of the Company Disclosure Letter;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock other than on capital stock of subsidiaries set forth in
Schedule 4.02 of the Company Disclosure Letter.
(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 hereof;
(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
hereof in the ordinary course of business consistent with past practice, or as
disclosed in Schedule 6.01 of the Company Disclosure Letter, (i) increase the
aggregate amount of compensation payable or to become payable to any of its
directors, officers or employees whose compensation required to be disclosed on
Schedule 4.12 of the Company Disclosure Letter, 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, bonus, 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 hereof, would have been required to be disclosed
on Schedule 4.15 of the Company Disclosure Letter, except as required or
permitted by subsection (k) or (l) of this Section 6.01, provided, however, that
nothing herein shall prohibit the Company or any
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subsidiary from purchasing food and beverage items and restaurant supplies from
its vendors as of the date hereof in the ordinary course and in quantities
consistent with past practice;
(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, as amended, dated as of September
12, 1996 between the Company and Bank of America Illinois, NBD Bank, N.A.,
Credit Lyonnais New York Branch and The Bank of New York, as Agent, and The
Chase Manhattan Bank, as Co-Agent (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 that certain letter of intent between the Company
and CNL Fund Advisers, Inc. pursuant to which the Company intends to enter into
a sale and leaseback transaction in respect of all or substantially all of the
Real Property owned in fee by the Company (the "Sale and Leaseback Letter of
Intent");
(h) waive any material right under any contract or other
agreement identified in Schedule 4.15 of the Company Disclosure Letter;
(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 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 or employees (other than vacation advances, relocation advances and
travel advances, in each case in the ordinary course of business consistent with
past practice, and other advances up to $10,000 in the aggregate) or make any
other loan or advance to any other person (other than any subsidiary of the
Company set forth in Schedule 4.02 of the Company Disclosure Letter) 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 fail to 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 or so
replace, 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 Restaurant Company, be likely to result in the
termination of any one or more Liquor Licenses
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covering restaurant 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 filing, 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 any 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.
6.02 Notification of Certain Matters. (a) The Company shall
promptly notify Parent of any:
(i) notice or other communication from any Person (as defined in
Section 9.01) alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by this
Agreement;
(ii) notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) action, suit, claim, investigation or proceeding commenced or,
to the best of the Company's knowledge threatened against, relating to or
involving or otherwise affecting the Company or any of its subsidiaries
which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Article IV or which relate to the
consummation of the transactions contemplated by this Agreement; and
(iv) change or event (A) having or which could reasonably be
expected to have a Material Adverse Effect; or (B) impairing the ability
of the Company to consummate the transactions contemplated hereby.
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(b) Between the date of this Agreement and the Effective Time, the
Company shall give prompt notice to Parent of: (i) the initiation of any audit
or other review by the Internal Revenue Service (the "IRS") or any other state,
local or foreign taxing or governmental authority with respect to any Tax return
or that may result in any additional liability for Taxes, and (ii) any proposed
settlement or similar agreement ("Settlement") with the IRS or any other state,
local or foreign taxing or governmental authority and shall not enter into any
Settlement with respect to Taxes without the prior written consent of Parent,
which consent shall not be unreasonably withheld.
6.03 Access to Information. (a) Between the date of this Agreement
and the Effective Time, the Company will 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 (including, without limitation, the
workpapers of the Company's outside accountants), 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 set forth herein below
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 (including, without
limitation, title insurance reports, real property surveys and Environmental
Reports, if any), 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. The
Parent and Purchaser agree not to undertake or take any actions involving
exploration, drillings, borings or other independent subsurface environmental
testings or other "Phase II" environmental investigations including obtaining
subsurface environmental surveys or tests, relating to Environmental Conditions
at any Property.
(b) Any information provided pursuant to this Agreement shall be
held by Parent in accordance with and shall be subject to the terms of the
Confidentiality Agreement dated June 3, 1997 between the Company and Parent (the
"Confidentiality Agreement"). Notwithstanding anything herein or in the
Confidentiality Agreement to the contrary, Parent, the Purchaser or the Company
may disclose any information required to be disclosed pursuant to the Exchange
Act, or otherwise required or requested to be disclosed by the SEC after
consultation of the parties and upon advice of counsel or as otherwise permitted
by the Confidentiality Agreement.
6.04 Further Information. The Company and Parent shall give prompt
written notice to the other of (i) any representation or warranty made by the
Company or the Purchaser, respectively, contained in this Agreement becoming
untrue or inaccurate in any material respect or (ii) the failure by the Company
or the Purchaser, respectively, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied
under this Agreement and shall use reasonable efforts to notify the other
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promptly upon becoming aware of any event or circumstance which it believes is
reasonably likely to give rise to a failure of any condition to the Offer set
forth in Annex A; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
6.05 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, the Company, Parent and the Purchaser shall use their respective
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, subject to the terms of this Agreement, and
shall use their respective reasonable best efforts to satisfy the conditions to
the transactions contemplated hereby, to obtain all waivers, permits, consents
and approvals and to effect all registrations, filings and notices with or to
third parties or governmental or public bodies or authorities which are
necessary or desirable in connection with the transactions contemplated by this
Agreement, including, but not limited to, filings to the extent required under
the Exchange Act, the HSR Act and Article 16 of the NYBCL, filings and consents
with respect to Liquor Licenses (including without limitation the Liquor License
Approvals) and submissions of information requested by Governmental Authorities
and to defend against any lawsuit or proceeding, whether judicial or
administrative, challenging this Agreement or the consummation of any of the
transactions contemplated hereby. If at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers or directors of each of the parties hereto shall
take such action. Parent as the sole shareholder of the Purchaser, and the
Purchaser as a shareholder of the Company, will consent and/or vote in favor of
the transactions contemplated hereunder.
6.06 HSR Filings. The Company and Parent will file, or cause to be
filed, as promptly as possible and in no event later than ten Business Days
after the date hereof, with the United States Federal Trade Commission (the
"FTC") and the Antitrust Division of the United States Department of Justice
(the "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.
Each of the Company and Parent shall furnish to the other such necessary
information and reasonable assistance as the other may request in connection
with its preparation of any filing or submission which is necessary under the
HSR Act. The Company and Parent shall each keep the other apprised of the status
of any inquiries or requests for additional information made by any governmental
authority and shall comply promptly with any such inquiry or request.
6.07 Public Announcements. The initial press release with respect to
the transactions contemplated hereby shall be a joint press release,
substantially in the form of Exhibit C hereto, and thereafter the Company and
Parent shall consult with each other before issuing any press release or
otherwise making any public statements with respect to the
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transactions contemplated hereby and shall not issue any such press release or
make any such public statement prior to such consultation.
6.08 No Solicitation. (a) The Company 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 inquiries,
proposals or offers being referred to herein as an "Acquisition Proposal");
provided, however, that nothing contained in this Section 6.08 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 (as defined below), 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 this Agreement shall not be
affected unless this Agreement is terminated pursuant to Section 9.01(b)(v) and
all amounts payable pursuant to Section 9.03(a) are paid to Parent prior to or
concurrently with such termination. As used herein 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).
(b) The Company shall promptly notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company by any third party in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company that informs the Board
of Directors that such third party is considering making, or has made, an
Acquisition Proposal. Such notice to Parent shall be made orally and in writing
and shall indicate in reasonable detail the terms and conditions of such
proposal, inquiry or contact and, unless precluded by the terms of a
confidentiality agreement, the identity of the offeror.
(c) If the Company's Board of Directors receives a request for
material nonpublic information by a third party who makes or who states in
writing that it intends,
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subject to satisfactory review of such nonpublic information, to make a bona
fide Acquisition Proposal, the Company may, subject to the execution of a
confidentiality agreement substantially similar to that then in effect between
the Company and Parent but allowing for disclosure to Parent as required in
paragraph (b) of this Section 6.08, provide such third party with access to such
information.
6.09 Indemnity; D&O Insurance.
(a) 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 the
Certificate of Incorporation, as amended as set forth in Exhibit A hereto, which
provisions shall not be amended, repealed or otherwise modified for such period
in any manner that would affect adversely the rights thereunder of individuals
who at any time prior to the Effective Time were directors, officers, employees
or agents of the Company, unless such modification shall be required by law.
(b) 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 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 by a final
judgment (not subject to further appeal) of a court of competent jurisdiction
not to be entitled to indemnification, 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 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 pursuant to this Section 6.10(b) above to pay the fees
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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.
(c) The Surviving Corporation shall 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 the annual premium therefor exceeds 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.
(d) 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 other person in a single transaction or a series of
related transactions, then in each such case the Parent shall make or cause to
be made proper provision so that the successor or transferee of the Company or
the Surviving Corporation, as the case may be, shall comply in all material
respects with the terms of this Section 6.09.
6.10 Employee Benefits Matters.
(a) 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 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 hereof and disclosed to Parent in Schedule
4.12 of the Company Disclosure Letter.
(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 cause the Company, the Surviving Corporation or the Company Benefit Plans
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 hereof and disclosed to Parent in Section
4.12 of the Company Disclosure Letter (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
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later time as such Company Benefit Plans as in effect at the Effective Time are
terminated or canceled by the Surviving Corporation subject to compliance with
this Section 6.10).
(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
to such persons than those provided to such persons under the Company Benefit
Plans, programs and arrangements of the Company in effect on the date hereof and
disclosed to Parent in Schedule 4.12 of the Company Disclosure Letter (other
than with respect to the agreements subject to Section 6.10 (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, or other
stock-based benefits or awards).
(d) Nothing in this Agreement shall require the continued employment
of any person, and except as expressly set forth in this Section 6.10, no
provision of this Agreement shall prevent Parent or Surviving Corporation from
amending or terminating any Company Benefit Plan.
6.11 Payment of Bonuses. 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 Schedule 4.12 of the Company
Disclosure Letter in accordance with the terms hereof.
ARTICLE VII
CONDITIONS TO THE MERGER
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to consummate the Merger
shall be subject to the following conditions, unless waived by all parties at or
prior to the Closing:
(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) this 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
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(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 consummation of the Merger.
7.02 Conditions to the Obligations of Parent and the Purchaser to
Effect the Merger. 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 and canceled
prior to or simultaneously with the Effective Time.
ARTICLE VIII
CLOSING
8.01 Time and Place. The closing of the Merger (the "Closing") shall
take place at the offices of Latham & Watkins, 885 Third Avenue, New York, New
York, at 10 a.m. local time on a date to be specified by the parties which shall
be no later than the third Business Day after the date that all of the closing
conditions set forth in Article VII have been satisfied or waived (if waivable)
unless another time, date or place is agreed upon in writing by the parties
hereto. The date on which the Closing actually occurs is herein referred to as
the "Closing Date."
8.02 Filings at the Closing. At the Closing Date, the Purchaser
shall cause the Certificate of Merger to be filed and recorded with the
Secretary of State of the State of New York, in accordance with the provisions
of Section 904 or Section 905, as applicable, of the NYBCL and shall take any
and all other lawful actions and do any and all other lawful things necessary to
cause the Merger to become effective.
ARTICLE IX
TERMINATION; AMENDMENT; WAIVER
9.01 Termination. This Agreement may be terminated and the Offer (if
the Purchaser has not accepted Shares for payment) 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 have failed to commence (within the meaning
of Rule 14d-2(a) of the Exchange Act) the Offer within five Business Days of the
public announcement
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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 this 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 Annex A hereto;
(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 this 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 (1) paragraph (iv), (vii), (viii) or (ix) (with respect
to any consent or approval required to be obtained by the Company as provided in
Annex A) of Annex A or paragraph (ii) of Annex A (otherwise than in
circumstances that would entitle the Company to terminate this Agreement
pursuant to Section 9.01(d)) 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) 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 this Agreement which obligation 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 Agreement;
(iv) if the representations and warranties of the Purchaser set
forth in this Agreement are not true and correct in all material respects at any
time prior to the expiration or 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 this 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 under this clause (v) shall not be effective until payment of
the Termination Fee and Expenses in the manner required by Section 9.03 (a); or
(vi) the Minimum Condition is not satisfied or waived as
permitted by this Agreement upon final expiration of the Offer;
(c) by Parent and the Purchaser if:
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(i) due to any occurrence or circumstance which would result in a
failure to satisfy any of the conditions set forth in Annex A hereto, the
Purchaser shall have failed to commence (within the meaning of Rule 14d-2(a) of
the Exchange Act) the Offer within five Business Days of the public announcement
thereof;
(ii) as a result any of the conditions set forth in Annex A hereto
not having been satisfied, 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 any of the conditions to the obligations
of the Purchaser to effect the Merger set forth in Sections 7.01(b), 7.01(c) or
7.02 otherwise than as a result of a breach or default by Parent or the
Purchaser hereunder;
(iv) the Company shall have breached its obligations under
Section 6.08; or
(v) the Board shall have withdrawn or modified (including by
amendment of the 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 other
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.
9.02 Effect of Termination. In the event of the termination of this
Agreement and the abandonment of the Offer and the Merger pursuant to Section
9.01, this 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 this Agreement or (b) from
their obligations under Sections 4.21, 5.07, 6.03(b), this Section 9.02, Section
9.03 and Article X. If this Agreement is terminated as provided herein, each
party (the "Redelivering Party") upon request therefor shall redeliver all
documents, work papers and other materials obtained (whether before or after
execution of this Agreement) by the Redelivering Party from the requesting party
in connection with the transaction contemplated hereby, together with all copies
thereof in the possession of the Redelivering Party.
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<PAGE> 43
9.03 Fees and Expenses. In recognition of the significant time
and expense necessarily expended and to be expended by Parent and the
Purchaser in negotiation of this Agreement and furtherance of the
transactions contemplated hereby,
(a) in the event that:
(i) the Company terminates this Agreement 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 or
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 (as defined below), at the
time and manner hereinafter set forth. 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% of
the outstanding Shares; provided, however, that in the event of such reduction
in the Minimum Condition, the Purchaser shall be entitled to extend the Offer
from time to time, for so long as the Bank Standstill Letter remains in effect,
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. The Termination Fee and Expenses shall be
paid in immediately available funds concurrently with any termination described
only in clause (i) above. Expenses and the Termination Fee, if payable, shall be
paid only in the event of, and concurrently with, the consummation of any such
Acquisition Proposal in the case of clause (ii) above immediately in available
funds.
(b) if (i) this Agreement is terminated by the Purchaser and Parent
pursuant to Section 9.01(c)(i) or (ii) as a result of the Company's failure to
satisfy the condition set forth in paragraph (iv) of Annex A hereto and (ii) the
Company's breach of any of its representations and warranties under the
Agreement and/or its failure to perform its material obligations, covenants or
agreements under this 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. Expenses
payable pursuant to this Section 9.03(b)
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shall be paid in immediately available funds within one Business Day following
such termination.
(c) Upon the occurrence of any Event under clause (a) or (b) of this
Section 9.03 entitling Purchaser and Parent to payment of their Expenses,
Purchaser and Parent shall promptly provide the Company with invoices or other
reasonable evidence of the Expenses upon request, and Parent shall forthwith
return any portion of Expenses reimbursed by the Company as to which such
invoices or other evidence are not received.
(d) For purposes of this Agreement (i) "Material Adverse Effect"
means a material adverse effect on the business, assets, financial condition,
cash flow or results of operation of the Company and its subsidiaries,
considered on a consolidated basis, or a material adverse affect on the ability
of the Company, on the one hand, or Parent and Purchaser, on the other, to
consummate the transactions contemplated by this Agreement, provided, however,
that the Company's breach of its representation under Article IV that no more
than fifteen Real Property Leases require consents which have not been obtained
shall not be deemed to have such a Material Adverse Effect; and (ii) "Expenses"
shall mean out-of-pocket expenses incurred by Parent or the Purchaser or on
their behalf in connection with the Offer and the Merger and the consummation of
the transactions contemplated by this Agreement, (including, without limitation,
reasonable attorneys' fees and disbursements and other charges, solicitation
agent and depository fees and expenses, fees payable to the Lenders not paid by
the Company and accountants and filing fees and printing costs) up to a maximum
amount of $900,000.
ARTICLE X
MISCELLANEOUS
10.01 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties and agreements of the parties
contained in Sections 2.06, 3.01, 3.02 (but only to the extent that such Section
expressly relates to actions to be taken after the Effective Time), 3.03, 3.04,
3.05, 4.21, 6.05, 6.08, 6.09, 6.10, 6.11 and Article X hereof, shall survive the
consummation of the Offer and the Merger. The agreements of the parties
contained in Sections 4.21, 5.07, 6.03(b), 9.02, 9.03 and Article X shall
survive any termination of this Agreement. If this Agreement shall terminate
after acceptance for payment by the Purchaser of Shares pursuant to the Offer,
but prior to the Effective Time, the agreement of the parties contained in
Sections 6.09, 6.10 and 6.11 shall also survive the termination of this
Agreement, and Parent shall, or shall cause the Purchaser to, cause Article
NINTH of the Certificate of Incorporation and Article VII of the Company's
By-laws to be amended as provided in Exhibit A and Exhibit B, respectively. All
other representations, warranties, agreements and covenants in this Agreement
shall not survive the consummation of the Offer and the Merger or the
termination of this Agreement.
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10.02 Amendment and Modification. Subject to Section 1.03(c), if
applicable, and subject to applicable law, this 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 this Agreement,
the price per Share to be paid pursuant to this 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.
10.03 Waiver of Compliance; Consents. At any time prior to the
Effective Time, subject to Section 1.03(c) if applicable, the parties hereto may
extend the time for performance of any of the obligations or other acts or waive
any inaccuracies in the representations and warranties contained herein or in
the documents delivered pursuant hereto. Any failure of Parent (for itself and
the Purchaser), on the one hand, or the Company, on the other hand, to comply
with any obligation, covenant, agreement or condition herein may be waived in
writing by Parent (for itself and the Purchaser) or the Company, respectively,
but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of or
estoppel with respect to any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto or any
extensions, such consent or extension shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
Section 10.03.
10.04 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
10.05 Governing Law; Submission to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of New York
without regard to its conflicts of laws rules. Each party hereto hereby (i)
irrevocably and unconditionally submits in any legal action or proceeding
relating to this Agreement, or for recognition and enforcement of any judgment
in respect thereof, to the general jurisdiction of the state and federal courts
in the state of New York, and appellate courts thereof and (ii) consents that
any action or proceeding may be brought in such courts and waives any objection
that it may now or hereafter have to the venue of any such action or proceeding
in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same.
10.06 Notices. All notices and other communications hereunder shall
be in writing (except as otherwise specified in Section 6.08(b)) and shall be
deemed given if delivered personally, or mailed by registered or certified mail
(return receipt requested) or by
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overnight courier service or transmitted by facsimile (effective upon
confirmation of transmission) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) If to the Company, to:
Ground Round Restaurants, Inc.
35 Braintree Hill Office Park
P.O. Box 9078
Braintree MA 02184-9078
Attention: President
Fax: (617) 380-3100
with copies to:
Kane Kessler, P.C.
1350 Avenue of the Americas
26th Floor
New York, New York 10019
Attention: Jeffrey S. Tullman, Esq.
Fax: (212) 245-3009
(b) if to Parent or the Purchaser, to:
GRR Holdings, LLC
c/o Boston Ventures Management, Inc.
21 Custom House Street
Boston, MA 02110
Attention: Barbara M. Ginader
Fax: (617) 737-3709
with copies to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attention: Erica H. Steinberger, Esq.
Fax: (212) 751-4864
10.07 Entire Agreement, Assignment Etc.. This Agreement, which
hereby incorporates the Company Disclosure Letter, and the Confidentiality
Agreement embodies the entire agreement and understanding of the parties hereto
in respect of the subject matter
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hereof. This Agreement supersedes all prior agreements and understanding of the
parties with respect to the subject matter hereof other than the Confidentiality
Agreement. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and Permitted Assigns, but neither this Agreement nor any of the rights,
interest or obligations hereunder shall be assigned by any party hereto, except
that Parent shall have the right to assign the rights of the Purchaser to any
other (directly or indirectly) wholly-owned subsidiary of Parent (the "Permitted
Assigns").
10.08 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
10.09 Headings; Certain Definitions. The Articles and Section
headings contained in this Agreement are solely for the purpose of reference,
are not part of the agreement of the parties and shall not affect in any way the
meaning or interpretation of this Agreement.
10.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Sections 2.03, 2.04, 6.09, 6.10 and 6.11 (each of which is
intended to be for the benefit of the persons covered thereby and may be
enforced by such persons).
[Signatures on the following page]
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first above written.
GRR HOLDINGS, LLC
By: Boston Ventures Limited Partnership V,
its Managing Member
By: Boston Ventures Company V, L.L.C.,
its General Partner
By: /s/Barbara M. Ginader
-----------------------------------
Name: Barbara M. Ginader
Title: Managing Director
GRR MERGER CORP.
By: /s/Barbara M. Ginader
-----------------------------------
Name: Barbara M. Ginader
Title: President
GROUND ROUND RESTAURANTS, INC.
By: /s/Daniel R. Scoggin
-----------------------------------
Name: Daniel R. Scoggin
Title: Chairman, President
and Chief Executive Officer
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ANNEX A
The capitalized terms used herein have the meanings set forth in the
Agreement and Plan of Merger to which this Annex A is attached.
Notwithstanding any other provision of the Agreement and Plan of
Merger to which this Annex A is attached (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
seeking 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
(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,
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other than the routine application to the Offer or the Merger of
waiting periods under the HSR Act, and other than relating to the
Liquor License Approvals, which are addressed in paragraph (ix)
below, 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 United 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 other 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)
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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 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) (A) 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 revenues 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
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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 (see Section 16 of the Offer to
Purchase).
The foregoing conditions are for the sole benefit of the Purchaser
and may be asserted by the Purchaser regardless of the circumstances (including
any action or inaction by Parent or the Purchaser) giving rise to any such
condition and may be waived by the Purchaser, in whole or in part in its sole
discretion. The failure by the Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
such right with respect to any particular facts or circumstances shall not be
deemed a waiver with respect to any other facts or circumstances, and each such
right will be deemed an ongoing right which may be asserted at any time and from
time to time.
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EXHIBIT A
The Restated Certificate of Incorporation is hereby amended by
deleting Article NINTH in its entirety and substituting the following new
Article NINTH in lieu thereof:
"NINTH: (a) To the fullest extent permitted by the New York Business
Corporation Law as exists on the date hereof, or as it may hereafter be
amended, no director or officer of the Corporation shall be liable to
the Corporation or its shareholders for damages for any breach of duty
as a director or officer.
(b) The Corporation shall, to the fullest extent permitted by
applicable law, as amended from time to time, indemnify any present or
former officer or director of the Corporation or the personal
representatives thereof, made or threatened to be made a party in any
civil, criminal, administrative or investigative action, suit or
proceeding (other than any action, suit or proceeding brought by such
person except as authorized by the Corporation's Board of Directors or
to enforce such persons indemnification rights under this Article NINTH
or the Bylaws of the Corporation), by reason of the fact that he, his
testator or intestate is or was a director or officer of the
Corporation, or served any other corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise in any
capacity at the request of the Corporation (collectively, "Actions"),
against judgments, fines (including excise tax assessed on such a
person in connection with service to an employee benefit plan), amount
paid in settlement and expenses, including without limitation, court
costs, attorneys' fees and disbursement and those of accountants and
other experts and consultants incurred as a result of such Action.
(c) Expenses (including attorneys' fees) incurred by an
officer or director in defending any Action shall be paid by the
Corporation in advance of the final disposition of such Action upon
receipt of an undertaking by or on behalf of such director or officer
to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation authorized in this
Article NINTH, and shall be paid by the Corporation within twenty days
of a written request therefor by a director or officer accompanied with
appropriate documentation supporting such request, unless the Board of
Directors of the Corporation acting in good faith affirmatively
determines that the acts of such director or officer were committed in
bad faith or were the result of active and deliberate dishonesty and
were material to the cause of action for which the director is being
sued, in which case the Corporation is not required to pay expenses in
advance of adjudication of such suit.
<PAGE> 54
(d) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other sections of this Article NINTH
shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled
under any applicable law (including, but not limited to the New York
Business Corporation Law as it exists on the date hereof, or as it may
hereafter be amended), by-law, agreement, vote of shareholders or
disinterested directors or otherwise.
(e) For purposes of this Article NINTH, references to "the
Corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors or officers so that any person who is or was a
director or officer of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article NINTH with respect to the
resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
(f) This indemnification and advancement of expenses provided
by, or granted pursuant to, this Article NINTH shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) Any repeal or modification of this Article NINTH by the
directors or the shareholders of the Corporation shall not adversely
affect the right or protection of a director or officer or former
director or officer of the Corporation existing at the time of such
repeal or modification.
(h) The foregoing provisions of this Article NINTH shall be
deemed to be a contract between the Corporation and each director and
officer who serves in such capacity at any time while this Article
NINTH and the relevant provisions of the New York Business Corporation
law, if any, are in effect, and, except to the extent otherwise
required by law, any repeal or modification thereof shall not affect
any rights or obligations then existing or thereafter arising with
respect to any state of facts then existing or any Actions theretofore
or thereafter brought or threatened based in whole or in part upon any
such state of facts."
<PAGE> 55
EXHIBIT B
Article VII of the By-Laws of the Corporation are hereby
amended by inserting the following new Section 13:
Section 13. Notwithstanding anything to the contrary contained
in ARTICLE XVI hereof, any repeal or modification of this ARTICLE VII by the
directors or the shareholders of the Corporation shall not adversely affect the
right or protection of a director or officer of the Corporation, who is serving
or has served in such capacity on or prior to August 29, 1997, existing at the
time of such repeal or modification.
<PAGE> 1
EXHIBIT 2
Board of Directors
Ground Round Restaurants, Inc.
35 Braintree Hill Office Park
Braintree, Massachusetts 02184
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the common shareholders of Ground Round Restaurants, Inc., a New
York corporation (the "Company"), of the consideration to be received by such
holders pursuant to the Agreement and Plan of Merger dated August 29, 1997 (the
"Merger Agreement") by and among the Company, GRR Merger Corp., a New York
corporation ("Purchaser"), and GRR Holdings, LLC, a Delaware limited liability
company ("Parent"). Pursuant to the Merger Agreement, Parent will cause
Purchaser to make a tender offer (the "Offer") to purchase for $1.65 per share
net in cash all of the issued and outstanding shares of common stock (the
"Common Stock") of the Company, par value $.16 2/3 per share. Upon completion of
the Offer, Parent is to cause Purchaser to merge with and into the Company (the
"Merger") and each outstanding share of common stock of the Company not
purchased pursuant to the Offer shall be converted into a right to receive $1.65
net in cash pursuant to the Merger.
In formulating our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to the Company,
including (a) the consolidated financial statements for the 1994, 1995 and 1996
fiscal years and interim periods to March 30, 1997 and (b) the June 29, 1997
quarterly report on form 10-Q, in draft form, and certain other financial and
operating data relating to the Company made available to us from published
sources and from the internal records of the Company; (ii) reviewed the Merger
Agreement; (iii) reviewed current and historical market prices and trading
volumes of the Common Stock and the capitalization and financial condition of
the Company; (iv) compared the Company, from a financial point of view, with
certain other companies in the restaurant industry; (v) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies in the restaurant industry which we deemed to be
comparable, in whole or in part, to the Offer and the Merger; (vi) reviewed and
discussed with directors and management of the Company certain information of a
business and financial nature regarding the Company, furnished to us by the
Company, including financial forecasts and related assumptions of the Company;
(vii) reviewed and discussed with management historical and forecasted capital
expenditure requirements for both maintenance and remodelling/operational
improvement purposes; (viii) reviewed and discussed with management the existing
Credit Agreement (as amended) which has been extended to December 31, 1997 and
future refinancing and financing opportunities; (ix) made inquiries regarding
and discussed the Offer and the Merger Agreement and other matters related
thereto with the Company's counsel; and (x) performed such other analyses and
examinations and considered such other financial, economic and market criteria
as we deemed relevant and appropriate.
In connection with this review, we have not assumed any obligation
independently to verify any information utilized, reviewed or considered by us
in formulating our Opinion and have relied on its being accurate and complete in
all material respects. With respect to the financial forecasts for the Company
provided to us, we have assumed for purposes of our opinion that the forecasts
have been reasonably prepared on bases reflecting the best available estimates
and judgments of the Company's management at the time of preparation as to the
future financial performance of the Company. We have also assumed that there has
not occurred any material change in the Company's assets, financial condition,
results of operations, business or prospects since the respective dates on which
the Company's most recent financial statements were made available to us. We
have relied on advice of counsel and independent accountants to the Company as
to all legal and financial reporting matters with respect to the Company, the
Offer and the Merger Agreement. In addition, we have not assumed responsibility
for making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of the Company, nor have we
been furnished with any such appraisal. Our opinion is based on economic,
monetary and market and other
<PAGE> 2
conditions as in effect on, and the information made available to us as of, the
date hereof. Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligations to update, revise or reaffirm this
opinion.
We have further assumed that the Offer will be consummated in accordance
with the terms described in the Merger Agreement without waiver by the Company
of any of the conditions to its obligations thereunder.
We have not acted as financial advisor to the Company in connection with
the Offer or the Merger. We have been retained to render this opinion and are
being compensated therefor.
This opinion is directed to the Board of Directors of the Company in its
consideration of the fairness of the Offer and the Merger to the Company's
shareholders, from a financial point of view, and does not constitute a
recommendation to any shareholder of the Company as to how such shareholders
should vote with respect to the Merger at any shareholders meeting called to
approve such Merger or as to whether or not such shareholder should tender his
or her shares pursuant to the Offer.
Based upon the foregoing and other factors we deem relevant and in reliance
thereon, it is our opinion that as of the date hereof the consideration to be
received by the shareholders of the Company pursuant to the Offer and the Merger
is fair, from a financial point of view, to the shareholders of the Company.
Very truly yours,
Rothschild Inc.
<PAGE> 1
GROUND ROUND LETTERHEAD
September 8, 1997
To Our Shareholders:
Your Board of Directors is pleased to inform you that on August 29, 1997,
Ground Round Restaurants, Inc. (the "Company") entered into an Agreement and
Plan of Merger (the "Merger Agreement") with GRR Merger Corp. (the "Purchaser"),
a wholly-owned subsidiary of GRR Holdings, LLC (the "Parent"), companies formed
by Barton Ventues, a private investment firm pursuant to which Purchaser has
commenced today a tender offer for all outstanding shares of the Company's
Common Stock for $1.65 net per share in cash. Following the completion of the
tender offer, upon the terms and subject to the conditions of the Merger
Agreement, the Company will be merged into the Purchaser (the "Merger"), and
each share of the Company's Common Stock, other than shares owned by dissenting
shareholders, will be converted into the right to receive $1.65 net per share in
cash, the same price per share paid pursuant to the tender offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TENDER OFFER AND THE
MERGER, HAS DETERMINED THAT THE TENDER OFFER AND THE MERGER ARE FAIR TO, AND IN
THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY, AND RECOMMENDS THAT
SHAREHOLDERS ACCEPT THE TENDER OFFER AND TENDER THEIR SHARES PURSUANT TO THE
TENDER OFFER.
In arriving at its decision, your Board of Directors gave careful
consideration to a number of factors described in the enclosed Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the opinion of Rothchild Inc., the Company's
financial advisor, that the consideration to be received by shareholders in the
tender offer and the Merger is fair to the shareholders of the Company from a
financial point of view. The enclosed Schedule 14D-9 describes the Board's
decision and contains other important information relating to that decision. We
urge you to read it carefully.
Accompanying this letter, in addition to the Schedule 14D-9, is the Offer
to Purchase, together with related materials including a Letter of Transmittal
for use in tendering shares. These documents set forth the terms and conditions
of the tender offer and provide instructions as to how you can tender your
shares. We urge you to read the enclosed materials carefully and consider all
the factors set forth therein before making your decision with respect to the
tender offer.
Sincerely,
/s/ DANIEL R. SCOGGIN
Daniel R. Scoggin
Chairman, President and
Chief Executive Officer
<PAGE> 1
PRESS RELEASE
Boston, Mass., September 2, 1997 -- GRR Holdings, LLC ("Holdings"), a
limited liability company formed by Boston Ventures, and Ground Round
Restaurants, Inc. ("Ground Round") (Nasdaq NMS: GRXR) today announced that they
have signed a definitive merger agreement for Holdings to acquire all
outstanding shares of Ground Round common stock for $1.65 net per share in cash.
Under the terms of the agreement, which has been approved by the board
of directors of Ground Round, GRR Merger Corp., a subsidiary of Holdings, will
begin a tender offer no later than September 8, 1997 for all outstanding shares
of Ground Round common stock at $1.65 net per share in cash.
The tender offer will be conditioned upon, among other things, there
being validly tendered and (not withdrawn) prior to the expiration date of the
offer, shares of Ground Round common stock representing, together with shares
currently owned by Holdings, not less than 90% of the outstanding shares,
termination or expiration of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the
receipt of certain regulatory approvals of transfers of liquor licenses held by
the company or its subsidiaries and of exemptions from certain tied-house
statutes. Holdings currently owns 554,900 shares of Ground Round common stock,
or approximately 4.9% of the outstanding shares. In addition, certain
shareholders of Ground Round have agreed to tender their shares, representing
approximately 28% of the outstanding Ground Round common stock, in the offer.
Following the consummation of the tender offer, any shares not purchased in the
tender offer will be acquired in a merger at the same $1.65 net per share in
cash.
In anticipation of the acquisition, Ground Round's existing lenders
have agreed, subject to certain conditions, to permit the company to use
certain insurance and sale proceeds, as well as certain funds that would
otherwise be required to pay amounts due under the existing credit agreement,
to satisfy Ground Round's ordinary course working capital needs until October
22, 1997. Ground Round's lenders have also made certain other concessions to
help the company consummate the merger.
In addition, Ground Round's lenders have agreed to work with the
company and Boston Ventures to amend and extend Ground Round's existing credit
agreement to provide for more operating flexibility upon consummation of the
merger.
Boston Ventures is a private investment partnership which focuses its
investments in the service sector of the economy with an emphasis on the
communications, media and leisure time markets.
Ground Round operates 121 company and franchises 41 full-service,
casual dining restaurants in the Northeast, Mid-Atlantic and Midwest regions of
the United States.
<PAGE> 1
EXHIBIT 5
Execution Copy
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (this "Agreement"), dated as of August 29,
1997, by and between GRR Holdings, LLC, a Delaware limited liability company
("Parent"), GRR Merger Corp. ("Sub"), a New York corporation and a wholly owned
subsidiary of Parent, and Christian R. Guntner and David T. DiPasquale (each a
"Seller" and collectively, the "Sellers").
WHEREAS, concurrently herewith, Parent, Sub and Ground Round
Restaurants, Inc. (the "Company"), a New York corporation, are entering into an
Agreement and Plan of Merger of even date herewith (the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement), pursuant to which Sub agrees to make a tender offer
(the "Offer") for all outstanding shares of common stock, par value $.16 2/3 per
share (the "Shares"), of the Company, at $1.65 per share, net to the seller in
cash, to be followed by a merger (the "Merger") of Sub with and into the
Company;
WHEREAS, as of the date hereof, the Sellers beneficially own an
aggregate of 3,102,100 Shares (the "Owned Shares"); and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and to make the Offer, Parent and Sub have required that
Sellers agree, and Sellers have agreed, to tender pursuant to the Offer all of
the Owned Shares, together with any Shares acquired after the date hereof and
prior to the termination of the Offer, whether upon the exercise of options,
conversion of convertible securities or otherwise (collectively, the "Tender
Shares"), on the terms and subject to the conditions provided for in this
Agreement;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration given to each party hereto, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Agreement to Tender and Vote.
1.1 Tender. Each Seller hereby agrees to validly
tender his respective Tender Shares no later than 5 business days prior to the
initial expiration of the Offer by physical delivery of the certificates for
such Tender Shares to the depositary for the Offer.
1.2 Voting. Each Seller hereby agrees that, during
the time this Agreement is in effect, at any meeting of the shareholders of the
Company, however called, he shall (a) vote his respective Tender Shares in favor
of the Merger; (b) vote his respective
<PAGE> 2
Tender Shares 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
his respective Tender Shares against any action or agreement (other than the
Merger Agreement or the transactions contemplated thereby) that would impede,
interfere with, delay, postpone or attempt to discourage the Merger or the
Offer, including, but not limited to: (i) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company; (ii) a sale or transfer of a material amount of assets of
the Company or any of its subsidiaries or a reorganization, recapitalization or
liquidation of the Company or any of its subsidiaries; (iii) any change in the
management or board of directors of the Company, except as otherwise agreed to
in writing by Parent and Sub; (iv) any material change in the present
capitalization or dividend policy of the Company; or (v) any other material
change in the Company's corporate structure or business.
2. Expiration. This Agreement and each Seller's obligation to
tender his respective Tender Shares provided herein shall terminate on the
earlier of (a) the consummation of the purchase of such Tender Shares and (b)
the termination of the Merger Agreement in accordance with its terms.
3. Representations and Warranties.
3.1 Representations and Warranties of Parent and
Sub. Parent and Sub hereby represent and warrant to Sellers as follows:
(a) Organization; Due Authorization. Parent is a
limited liability company duly organized, validly existing and
in good standing under the laws of Delaware. Parent has full
limited liability company power and authority to execute and
deliver this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by
the Managing Member of Parent, and no other limited liability
company proceedings on the part of Parent are necessary to
authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Parent and constitutes a valid and
binding agreement of Parent, enforceable against Parent in
accordance with its terms.
(b) Organization; Due Authorization. Sub is a
corporation duly organized, validly existing and in good
standing under the laws of New York. Sub has full corporate
power and authority to execute and deliver this Agreement. The
execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Sub, and no
2
<PAGE> 3
other corporate proceedings on the part of Sub are necessary
to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Sub and constitutes a valid and
binding agreement of Sub, enforceable against Sub in
accordance with its terms.
3.2 Representations and Warranties of Sellers.
Each Seller hereby represents and warrants to Parent as follows with respect to
himself:
(a) Title. Such Seller has good and valid title to
the Owned Shares owned by him, free and clear of any lien,
charge, encumbrance or claim of whatever nature and, upon the
purchase of the Tender Shares by Sub, such Seller will deliver
good and valid title to the Tender Shares owned by him, free
and clear of any lien, charge, encumbrance or claim of
whatever nature.
(b) Ownership of Shares. On the date hereof, such
Seller owns, of record or beneficially, the number of Shares
set forth next to such Seller's name on the signature page of
this Agreement. Such Seller has sole voting power and sole
power of disposition with respect to his respective Owned
Shares, with no restrictions, subject to applicable federal
securities laws, on his rights of disposition pertaining
thereto.
(c) Power; Binding Agreement. Such Seller has the
legal capacity, power and authority to enter into and perform
all of his obligations under this Agreement. The execution,
delivery and performance of this Agreement by such Seller will
not violate any other agreement to which such Seller is a
party including, without limitation, any voting agreement,
stockholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by such Seller
and constitutes a valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms.
(d) No Conflicts. Other than in connection with or
in compliance with the provisions of the NYBCL with respect to
the transactions contemplated hereby, the Exchange Act, the
securities laws of the various states and the HSR Act, no
authorization, consent or approval of, or filing with, any
court or any public body or authority is necessary for the
consummation by such Seller of the transactions contemplated
by this Agreement. The execution, delivery and performance of
this Agreement by such Seller will not constitute a breach,
violation or default (or any event which, with notice or lapse
of time or both, would constitute a default) under or, result
in the
3
<PAGE> 4
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or
result in the creation of any lien or encumbrance upon any of
the properties or assets of such Seller under, any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement
or other instrument to which such Seller is a party or by
which his respective properties or assets are bound, other
than breaches, violations, defaults, terminations,
accelerations or creation of liens and encumbrances which, in
the aggregate, would not materially impair the ability of such
Seller to perform his obligations hereunder.
4. Certain Covenants of Sellers. Each Seller hereby covenants
and agrees as follows:
4.1 Restriction on Transfer, Proxies and
Non-Interference. Such Seller hereby agrees, while this Agreement is in effect,
and except as contemplated hereby, 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 his respective Owned
Shares or Tender Shares (ii) grant any proxies, deposit any shares of capital
stock of the Company 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 Seller contained herein untrue or incorrect
or have the effect of preventing or disabling such Seller from performing his
obligations under this Agreement.
4.2 Additional Shares. Such Seller hereby agrees,
while this Agreement is in effect, to promptly notify Parent and Sub of the
number of new Shares acquired by such Seller, if any, after the date hereof.
5. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective the transactions
contemplated by Section 1 of this Agreement.
6. Stop Transfer Order. In furtherance of this Agreement,
concurrently herewith, each Seller shall and hereby does authorize the Company's
counsel to notify the Company's transfer agent that there is a stop transfer
order with respect to all of his respective Owned Shares and Tender Shares (and
that this Agreement places limits on the voting and transfer of such Shares),
other than transfers of Tender Shares to Sub in the Offer.
4
<PAGE> 5
7. Miscellaneous.
7.1 Non-Survival. The respective representations
and warranties made herein shall terminate upon the respective Seller's sale of
his Tender Shares to Sub in the Offer, other than each Seller's representation
and warranty in Section 3.2(a) which shall survive the sale of the Tender Shares
and the termination of this Agreement following such sale.
7.2 Entire Agreement; Assignment. This Agreement
(i) constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (ii) shall not be assigned by operation of law or
otherwise, provided that Parent or Sub may assign its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent or Sub of its obligations hereunder if such
assignee does not perform such obligations.
7.3 Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly received if so given) by hand
delivery, telegram, telex or telecopy, by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any courier service, such as
Federal Express, providing proof of delivery. All communications hereunder shall
be delivered to the respective parties at the following addresses:
To each seller as follows:
Mr. Christean R. Guntner
37 Valley Lane
Chappaque, NY 10515
Fax: 914-238-0243
Mr. David T. DiPasquale
456 Green Street
North Boro, MA 01532
Fax: 508-393-1987
copy to:
Daniel L. Rabinowitz, Esq.
The Law Offices of Daniel L. Rabinowitz
546 Fifth Avenue
New York, NY 10036-5003
Fax: 212-768-7664
5
<PAGE> 6
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, NY 10019-4896
Attention: Jeffrey S. Tullman, Esq.
Fax: (212) 245-3009
To Parent or Sub:
c/o Boston Ventures Management, Inc.
21 Custom Street
Boston, MA 02110
Attention: Barbara M. Ginader
Fax: (617) 737-3709
copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022
Attention: Erica H. Steinberger, Esq.
Fax: (212) 751-4864
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
7.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
7.6 Specific Performance. Each of the parties
hereto recognizes and acknowledges that a breach by it of any covenants or
agreements contained in this Agreement will cause the other party to sustain
damages for which it would not have an adequate remedy at law for money damages,
and therefore each of the parties hereby agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be entitled, at law or in
equity.
7.7 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same Agreement.
6
<PAGE> 7
7.8 Descriptive Headings. This descriptive
headings used hereby are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
7.8 Severability. Whenever possible, each
provision or portion of any provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law but if any
provision or portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will no affect any
other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
[Signatures on the following page]
7
<PAGE> 8
IN WITNESS WHEREOF, Parent, Sub and Sellers have caused this
Agreement to be duly executed as of the day and year first above written.
GRR HOLDINGS, LLC
By: Boston Ventures Limited Partnership V,
its Managing Member
By: Boston Ventures Company V, L.L.C.,
its General Partner
By: /s/Barbara M. Ginader
-----------------------------------
Name: Barbara M. Ginader
Title: Managing Director
GRR MERGER CORP.
By: /s/Barbara M. Ginader
-----------------------------------
Name: Barbara M. Ginader
Title: President
SELLERS
/s/Christian R. Guntner
-----------------------------------
Christian R. Guntner
Shares Owned: 1,902,100
/s/David T. DiPasquale
-----------------------------------
David T. DiPasquale
Shares Owned: 1,200,000
8
<PAGE> 1
EXHIBIT 6
August 29, 1997
The Ground Round Inc.
Ground of Minnesota, Inc.
35 Braintree Hill Office Park
Braintree, MA 02184-9078
LETTER AGREEMENT
Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement,
dated as of September 12, 1996, as heretofore amended (the "Credit Agreement")
among the parties hereto. Unless otherwise defined herein, all terms defined in
the Credit Agreement shall be used herein as therein defined.
The Borrowers (i) have deposited or have caused to be deposited into an
interest-bearing account (the "Account") with the Agent on or prior to the date
hereof (x) the sum of approximately $235,000 representing accrued and unpaid
interest on the Term Loans which was due and payable on July 23, 1997 and (y)
the sum of $50,000 representing the Net Cash Proceeds of the sale of the
Borrowers' liquor license for their restaurant location in Royal Oak, Michigan
and (ii) will be depositing into the Account (x) promptly upon their receipt
thereof, the proceeds of the insurance settlement relating to the Borrowers' two
fire damaged restaurant locations in Coon Rapids, Minnesota and Bridgeton,
Missouri and (y) interest on the Term Loans due and payable on or about August
23, 1997 and September 30, 1997.
By their execution hereof, each of the Borrowers, the Lenders, the Agent
and the Co-Agent agree that, notwithstanding any provision of the Credit
Agreement to the contrary, the Borrowers shall be permitted (subject to the
proviso set forth below) to withdraw funds from the Account, and the Agent shall
be permitted to disburse funds from the Account to the Borrowers, without
further consent or authorization from the Lenders, provided, that (x) on the
date of each such withdrawal (i) the Borrowers shall have demonstrated to the
Agent's satisfaction in its sole discretion that a cash deficiency exists and
that the Borrowers shall use such funds in the normal operations of their
business in the ordinary course, (ii) no Default or Event of Default shall have
occurred and be continuing (other than Events of Defaults which have occurred
prior to the date hereof and which have been disclosed in writing to the Agent)
and (iii) GRR Merger Corp. (the "Purchaser"), an indirect subsidiary of Boston
Ventures Limited Partnership V and Ground Round Restaurants, Inc. ("GRR") shall
have announced the Purchaser's tender offer for the outstanding capital stock of
GRR (the "Tender Offer") and the Purchaser or GRR shall not then have announced
that it is terminating such transaction and (y) the Borrowers shall have
retained Zolfo Cooper, LLC pursuant to the terms of the Engagement Letter
substantially in the form annexed hereto as Exhibit A, or such other firm
mutually satisfactory to the Borrowers, the Agent and the Lenders on
substantially similar terms and for a duration satisfactory to the Agent and the
Lenders. The proceeds of the Account shall (x) constitute collateral for all of
the Borrowers' and Guarantors' obligations under the Credit Agreement and the
Loan Documents and (y) be subject to the sole dominion and control of the Agent.
Upon the announcement of the Tender Offer by the Purchaser and GRR, each of
the Banks and the Agent hereby waive the Borrowers' and the Guarantors'
compliance with the provisions of Section 5.01 (q) of the Credit Agreement for
the fiscal months ending July, 1997, August, 1997 and September
This Letter Agreement shall terminate on the earlier to occur of (w) the
announcement by the Purchaser or GRR of the termination of the Tender Offer, (x)
October 22, 1997, (y) the consummation of the transactions described in the
Terms and Conditions For Amending the September 12, 1996 Amended and Restated
Credit Agreement dated August 29, 1997, and (z) the occurrence and continuation
of a Default or Event of Default (other than Events of Default which have
occurred prior to the date hereof and which have been disclosed in writing to
the Agent), it being understood that the Agent and the lenders shall act in a
<PAGE> 2
commercially reasonable manner in considering any request by the Borrowers to
waive any Default or Event of Default occurring after the date hereof.
Upon the termination of this Letter Agreement as provided above, all funds
on deposit in the Account shall be applied to the Obligations in such order as
the Agent and the Lenders may agree.
In order to induce the Agent and the Lenders to execute and deliver this
Letter Agreement, the Borrowers hereby agree that, for so long as this Letter
Agreement shall remain in effect, notwithstanding anything to the contrary set
forth in the Credit Agreement (including, without limitation, Section 2.09(e)
thereof) (i) each Eurodollar Rate Loan will automatically, on the last day of
the then existing Interest Period therefor. Convert into an Alternate Base Rate
Loan and (ii) the obligation of the Lenders to make, or to Convert Term Loans
into, Eurodollar Rate Loans shall be suspended.
The Borrowers hereby represent and warrant that their respective execution
of this letter agreement has been duly authorized, and each of the Borrowers
shall deliver herewith a copy of a resolution of their respective board of
directors authorizing the execution and performance of this letter agreement.
This Letter Agreement shall not become effective until the date on which it
shall have been executed by the Borrowers and the Lenders, and the Agent shall
have received evidence satisfactory to it of such execution.
This Letter Agreement shall be limited precisely as written and shall not
be deemed to be a consent granted pursuant to, or a waiver or modification of,
any other term or condition of the Credit Agreement or any of the instruments or
agreements referred to therein or to prejudice any right or rights which the
Agent or the Lenders may now have or may have in the future under or in
connection with the Credit Agreement or any of the instruments or agreements
referred to therein.
This Letter Agreement may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which when
taken together shall constitute but one and the same letter.
If you are in agreement with the foregoing, kindly sign the enclosed
counterpart of this Letter Agreement and deliver such signed counterpart (by
telecopy and by overnight delivery) to the Agent.
This Letter Agreement is intended to be performed in the State of New York
and shall be construed and is enforceable in accordance with, and shall be
governed by, the internal laws of the State of New York without regard to
principles of conflict of laws.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this letter agreement to
be executed by their respective officers duly authorized as the date first above
written.
THE GROUND ROUND, INC.
By:
--------------------------------------
Name:
Title:
GR OF MINN., INC.
By:
--------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
Individually and as Agent
By:
--------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Co-Agent
By:
--------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
--------------------------------------
Name:
Title:
NBD BANK
By:
--------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------------------
Name:
Title:
3
<PAGE> 4
CONSENT OF GUARANTORS
DATED AS OF AUGUST 29, 1997
The undersigned, as the Guarantors referred to in the Credit Agreement (as
defined above), each hereby consents to the execution and performance of the
Letter Agreement of even date herewith to which this consent is attached.
GRH OF NJ, INC.
By:
--------------------------------------
Name:
Title:
GROUND ROUND HOLDINGS, INC.
By:
--------------------------------------
Name:
Title:
GROUND ROUND RESTAURANTS, INC.
By:
--------------------------------------
Name:
Title:
G.R. GLENDLOC, INCORPORATED
By:
--------------------------------------
Name:
Title:
GROUND ROUND OF BALTIMORE, INC.
By:
--------------------------------------
Name:
Title:
GRXR OF FREDERICK, INC.
By:
--------------------------------------
Name:
Title:
GRXR OF HAGERSTOWN, INC.
By:
--------------------------------------
Name:
Title:
GRXR OF CHARLES COUNTY, INC.
By:
--------------------------------------
Name:
Title:
4
<PAGE> 1
EXHIBIT 7
CLARIFICATION TO EMPLOYMENT AGREEMENT AND AMENDMENT
Ground Round Restaurants, Inc. (the "Company" or "Employer"), a New
York Corporation with its principal place of business at 35 Braintree Hill
Office Park, Braintree, Massachusetts, and Daniel R. Scoggin (the "Employee"),
with a business address of 35 Braintree Hill Office Park, Braintree,
Massachusetts, hereby agree, in consideration of the promises and mutual
covenants contained herein, to clarify the terms of the Employment Agreement by
and between Employer and Employee dated July 21, 1995 (the "Agreement") and the
amendment thereto dated August 18, 1995 (the "Amendment") as follows:
II. (In lieu of Non-Compete Provision) shall be inserted after
Paragraph 8 with the following language:
8A: Upon termination of this agreement and payment pursuant to
Paragraph 5, employee agrees that he will not, for a period
of two (2) years following termination, either directly or
indirectly, as a director, officer, employee, agent,
consultant or owner, in whole or in part, engage in
competition with any restaurant owned or operated by Ground
Round or any of its subsidiaries or franchisees (each a
"Ground Round Restaurant") on the date of such termination,
if such competition takes place within the area delineated
on the attached Exhibit A. For purpose of this paragraph,
competition is activity in connection with a restaurant or
restaurants which meet all of the following criteria:
(1) restaurant size between 2,500 and 7,000 square feet; (2)
average check amount of between $8 and $11 per person; and (3)
orientation toward serving families including children in a
casual-theme setting. Employee acknowledges that the remedy at
law available to the Employer and its subsidiaries for a
breach or threatened breach would be inadequate and,
therefore, Employee agrees that in addition to any remedies at
law, in the event of any such breach or threatened breach, the
Employer and/or its subsidiaries shall be entitled to obtain
equitable relief or injunctive relief, as well as any remedy
available at law, to enforce the provisions of this paragraph.
Ownership of less than five percent (5%) of any class of
publicly-traded securities shall not be deemed a breach of
this paragraph.
Except as hereby amended, the Agreement, as amended by the
Amendment, shall continue in full force and effect.
<PAGE> 2
WHEREOF, this Agreement has been executed as a sealed instrument by
the Company, by its duly authorized representatives, and by the Employee, as of
this 29th day of August, 1997.
Ground Round Restaurants, Inc.
By:/s/Robin L. Moroz
--------------------------------
Name: Robin L. Moroz
Title: Vice President
/s/Daniel R. Scoggin
--------------------------------
Daniel R. Scoggin
2
<PAGE> 3
EXHIBIT A
[MAP OF NORTHEASTERN AND MID-WESTERN STATES OF U.S.A.
DELINEATED BY A BOUNDARY ENCOMPASSING ALL AREAS
WITHIN A 100 MILE RADIUS OF ANY GROUND ROUND RESTAURANT]
