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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
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SKYLINE CHILI INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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[SKYLINE CHILI, INC. LETTERHEAD]
March 26, 1998
Dear Skyline Chili, Inc. Shareholder:
You recently received a Proxy Statement dated February 13, 1998 (the
"Proxy Statement") and a Proxy Supplement dated February 27, 1998 (the "Proxy
Supplement") in connection with the solicitation by Skyline Chili, Inc.'s
("Skyline" or the "Company") Board of Directors (the "Board") of proxies to be
used at a Special Meeting of the Company's Shareholders (the "Special Meeting")
initially convened on March 20, 1998, and at any adjournment or adjournments
thereof. The Special Meeting has been adjourned to April 13, 1998 at 10:00 a.m.
(local time), at the Cincinnati Marriott, 11320 Chester Road, Sharonville, Ohio
45246. The Special Meeting has been called to consider and vote on a proposal to
approve an Agreement and Plan of Merger dated November 26, 1997, as amended (the
"Merger Agreement"), pursuant to which Skyline Acquisition Corp. ("Acquisition
Co."), a newly-formed, private Ohio corporation, organized by certain members of
the Company's management and Fleet Venture Resources, Inc., a Rhode Island
corporation, and certain of its affiliates ("Fleet"), will be merged with and
into the Company (the "Merger"), with the Company continuing as the surviving
corporation. The Merger Agreement provides that upon effectiveness of the
Merger, each outstanding share of the Company's no par value common stock
("Common Stock") (other than shares held by Acquisition Co. and shares held by
shareholders who are entitled to and who have perfected their dissenters'
rights) will be converted automatically into the right to receive $6.75 in cash
payable to the holders thereof, without interest. The Company's Board is sending
you these additional proxy solicitation materials to advise you of certain
recent developments concerning the Company.
The Proxy Supplement described an unsolicited offer from Meritage
Hospitality Group, Inc. ("Meritage"), a Michigan-based hotel and restaurant
operator, to the Company's Board to combine the Company and Meritage in a merger
or other transaction (the "Meritage Proposal"). The Meritage Proposal was
presented to the Company's Board on February 18, 1998, after the Proxy Statement
was mailed, and was withdrawn by Meritage on February 24, 1998. Meritage
subsequently contacted the Company to communicate Meritage's belief that the
Proxy Supplement contained certain misrepresentations and omissions regarding
the withdrawn Meritage Proposal and the financial condition of Meritage. After
further review, the Company's financial advisor, SunTrust Equitable Securities
("SunTrust Equitable"), has determined that certain financial information about
Meritage supplied by SunTrust Equitable to the Company's Board for inclusion in
the Proxy Supplement was inadvertently inaccurate or was not based on the most
current public information available about Meritage. SunTrust Equitable has now
corrected or updated this financial information. The Company's Board of
Directors has reviewed this corrected and updated information and has determined
that it would not have changed in any way the Board's preliminary opposition to
the Meritage Proposal or the Board's continuing recommendation to the Company's
shareholders that they approve the Merger Agreement. In addition, SunTrust
Equitable has advised the Company's Board that this corrected and updated
information would not have changed in any
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way SunTrust Equitable's opinion that the Meritage Proposal was not a superior
alternative to the Merger. Although the Company's Board does not believe that
this corrected and updated information regarding the Meritage Proposal is
material, the Board has determined to send you these additional proxy
solicitation materials so that you may consider this information if you choose.
In connection with that determination, the Company convened and then adjourned
the Special Meeting to April 13, 1998 at 10:00 a.m. (local time) at the
Cincinnati Marriott, 11320 Chester Road, Sharonville, Ohio 45246.
The following description of the Meritage Proposal contains the
corrected and updated information.
The Company's Board of Directors received an unsolicited offer from
Meritage dated February 18, 1998, to combine Skyline and Meritage in a merger or
other transaction, in which Skyline's shareholders would purportedly have
received (i) $5.75 in cash consideration per share of Skyline's Common Stock,
plus (ii) $2.50 in Meritage common stock per share of Skyline's Common Stock.
The Meritage common stock would have been priced based on the average high and
low bid price quoted on the OTC Bulletin Board for the 10 trading days preceding
the closing. The Meritage Proposal did not describe any financing arrangements
or the proposed timetable to closing, and was specifically conditioned upon the
preparation of a definitive agreement setting forth normal and customary terms
and upon obtaining the necessary approvals of shareholders and boards of
directors. With respect to the Meritage Proposal, the Special Committee of the
Company's Board preliminarily determined that on a proforma basis, the proposed
merger of Meritage and Skyline would likely result in a combined company with
significantly lower earnings and operating cash flow, greatly increased
leverage, lower book value, reduced working capital and lower cash reserves. In
addition, the Special Committee was aware that the Company's majority
shareholders strongly prefer an all cash transaction. The Special Committee also
had significant concerns about the timing of the Meritage Proposal. The proposed
Merger transaction with Acquisition Co. was publicly announced in September
1997, but the Meritage Proposal was not submitted until after the Company had
called and noticed the Special Meeting to vote on the Merger and had mailed the
Proxy Statement. Nonetheless, the Special Committee authorized SunTrust
Equitable to respond to Meritage and to request additional information to enable
the Special Committee to thoroughly evaluate the Meritage Proposal. The Special
Committee strongly believed that Meritage should have been able to immediately
submit specific information and clarifications about the Meritage Proposal and
its financing commitments.
SunTrust Equitable had some preliminary discussions with Meritage in
which it requested specific information about Meritage's financing and financing
commitments. When that information was not received, SunTrust Equitable
requested in writing that detailed information and clarifications be immediately
provided by Meritage to enable the Special Committee to reach a definitive
conclusion regarding the Meritage Proposal, especially with regard to the
Meritage securities being offered, including: (i) details on Meritage's
financing arrangements and a copy of any financing commitment letter(s); (ii) a
timetable for the proposed transaction through closing; (iii) five year
financial projections for Meritage on a stand-alone basis, including the
assumptions behind such
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projections; (iv) details on the proposed accounting treatment for the
transaction including proforma combined financial projections for the combined
entities and the assumptions supporting these financial projections; (v)
information on Meritage's willingness and ability to provide a non-refundable
cash deposit in the amount of $1.5 million, representing the Break-Up Fee
defined in the Merger Agreement that would be payable to Acquisition Co.; (vi)
information on board representation following the closing of the Meritage
Proposal, including Meritage's willingness to cede board control to the
Company's Board, since the Meritage Proposal indicated that based on Meritage's
then current stock price, the Company's shareholders would own a majority of
Meritage's common shares; and (vii) a summary of the reasons why Meritage
believed its proposal offered a superior alternative to Skyline's shareholders.
The response from SunTrust Equitable also informed Meritage that despite
Meritage's request that its proposal be kept confidential, the Company's Board
had determined that the Company had an obligation to make complete and timely
disclosure to its shareholders regarding these developments. On February 24,
1998, Meritage responded that it had decided to withdraw its proposal. Meritage
did not provide any of the requested additional information regarding its
proposal.
Meritage made several unsolicited proposals to acquire the Company or a
controlling interest in the Company during early 1997, including proposals which
did not treat all of the Company's shareholders equally and proposals to acquire
only a limited number of shares. Several of these proposals included
consideration consisting of a combination of cash and Meritage securities. None
of the Meritage proposals indicated a source of financing or provided any
assurance of Meritage's ability to actually consummate a transaction.
Furthermore, the Special Committee determined on March 10, 1997, following a
presentation from SunTrust Equitable, that the value of Meritage securities was
uncertain and the shares were likely to remain illiquid. At that time, the
Special Committee concluded that the Meritage proposals were not in the best
interests of the Company's shareholders, and recommend that the Board pursue the
sale of the Company in an all cash, all shares transaction. See "Special Factors
- - Background of the Merger" in the Proxy Statement. Meritage withdrew its
earlier proposals in April 1997. The Company had not had any substantive
contacts or negotiations with Meritage since that time, until it received the
Meritage Proposal.
SunTrust Equitable advised the Special Committee and the Board that the
most recent Meritage Proposal was likely to be similar in substance to a
leveraged recapitalization of the Company, whereby Skyline would pay out a
dividend of $5.75 per share in cash followed by a merger of Skyline with and
into Meritage. The Board, upon the recommendation of the Special Committee and
with the advice of SunTrust Equitable, previously rejected a leveraged
recapitalization transaction as an alternative for enhancing shareholder value.
See "Special Factors Background of the Merger" and "Special Factors - Opinion of
SunTrust Equitable" in the Proxy Statement. In particular, SunTrust Equitable
determined that such a transaction would likely provide a lower return for
shareholders due to the limited debt capacity of the Company in the absence of
new cash equity capital, the fact that a portion of the consideration paid to
shareholders might be taxed as dividend income, the fact that the shareholders'
receipt of the Meritage common shares might be taxable, the reduced earnings per
share that would result from increased interest expense and the resulting lower
share price which would further impact liquidity of the Common Stock.
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More importantly, in the opinion of SunTrust Equitable, there can be no
assurance that the Company would be able to raise sufficient debt financing in
the absence of an equity infusion to pay out the special dividend of $5.75 per
share proposed by Meritage.
In expressing their preliminary opposition to the Meritage Proposal and
in continuing to recommend to the Company's shareholders that they approve the
Merger Agreement with Acquisition Co., the Board and the Special Committee
considered the following additional factors:
(i) Entering into discussions with Meritage would place the Merger
with Acquisition Co. at risk, with no assurance or evidence
that Meritage had the ability or desire to consummate an all
cash transaction.
(ii) Since the time of Meritage's first proposal to the Company on
February 4, 1997, the market closing price of the shares of
Meritage common stock has declined 69.8% from $5.375 on
February 4, 1997 to $1.625 as of the close on March 24, 1998,
giving Meritage an approximate equity market value of $8.1
million as of March 24, 1998 including the issuance of
1,772,359 shares of common stock on January 30, 1998. In
response to the latest proposal by Meritage, the Special
Committee also reviewed the recent financial performance of
Meritage as reported in its most recent public filings,
including, but not limited to, Form 10-K filed with the SEC on
February 27, 1998 (the "10-K") which presents the historical
results of Meritage for the fiscal year ended November 30,
1997 and Form 8-K/A filed with the SEC on February 11, 1998
(the "8-K/A") which presents the historical results of
Meritage for the year ended November 30, 1997 and the pro
forma adjustments as if certain defined assets had been sold
on December 1, 1996. In the 8-K/A, Meritage recorded a
consolidated pro forma net loss on common shares for the
fiscal year ended November 30, 1997 of $2,589,806 or a net
loss of $0.81 per common share. This consolidated pro forma
net loss on common shares for the most recent fiscal year
ended November 30, 1997 exceeded the net loss on common shares
for the prior fiscal year which totaled $1,925,570, as
reported in the 10-K. The Special Committee also noted that
Meritage has recorded net losses on common shares for the four
most recent fiscal years totaling $5.8 million. In addition,
according to the 10-K, on November 30, 1997 Meritage had
stockholders' equity of $29,961 and total debt of $23,940,359,
representing a debt-to-equity ratio of 799:1. Finally, based
on the 10-K, Meritage has failed to meet certain covenants
contained in loan agreements with its primary lender, and has
obtained waivers on covenant compliance and on certain
principal and interest payments. Given these facts, the
Special Committee believes that its previous decision to not
recommend prior proposals which contemplate a merger with
Meritage and the receipt of Meritage securities has been
validated by Meritage's recent financial performance and the
stock price behavior of Meritage's common shares.
(iii) The transaction proposed by Meritage would have subjected the
Company to Meritage's contingent liabilities. Meritage owns
100% of the Wendy's of West
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Michigan Limited Partnership (the "Wendy's Partnership"),
which owns and operates as a franchisee certain Wendy's Old
Fashioned Hamburger Restaurants ("Wendy's Restaurants"). Based
on its public filings, Meritage, certain of its affiliates and
its principal officers are currently defendants in a lawsuit
(Case No. 97-05360-1B, Kent County, Michigan Circuit Court)
brought by the former general partner of the Wendy's
Partnership seeking injunctive relief prohibiting the
defendants from participating in the management of the Wendy's
Partnership, unspecified damages for breach of contract, and
unspecified damages for various business torts and
misrepresentation.
(iv) In the past, Wendy's International, Inc. ("Wendy's"), the
franchisor of Wendy's Restaurants, has prohibited certain of
its franchisees from becoming Skyline franchisees for
competitive reasons. Although Wendy's position on a proposed
combination of the Company and Meritage is unknown, Meritage
did not provide the Company with definitive evidence of
consent from Wendy's for the proposed transaction.
(v) The Board was informed that the Company's management and key
employees continue to support the Merger with Fleet. The Board
was concerned that pursuing the Meritage Proposal would have a
deleterious impact on the Company's business and could have
led to the loss of members of management and other key
employees.
(vi) The Board was aware that there was a strong negative reaction
among the Company's franchisees in response to Meritage's
previous unsolicited proposals.
The Special Committee of Skyline's Board and the Board continue to
believe that the Merger with Acquisition Co. is fair to and in the best
interests of the Company's shareholders. The Special Committee and the Board
believe that there is a substantial likelihood of completing the Merger with
Acquisition Co. in a timely manner. All of the conditions to the Merger with
Acquisition Co. relating to definitive documentation, due diligence and
regulatory approval have been fulfilled. Fleet has the committed equity
resources and the Company has obtained a bank financing commitment to fund the
Merger. Subject to final approval by the Company's shareholders at the adjourned
Special Meeting on April 13, 1998, the Merger with Acquisition Co. would close
on or about April 28, 1998. THE SPECIAL COMMITTEE AND THE BOARD CONTINUE TO
RECOMMEND THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT.
Due to the decision to adjourn the Special Meeting scheduled for April
13, 1998, the Company, Acquisition Co. and certain shareholders of the Company
have entered into a Second Amendment to the Merger Agreement dated March 20,
1998 (the "Second Amendment") (i) extending the Exclusivity Termination Date
through which Acquisition Co. would be entitled to receive the $1,500,000
Break-Up Fee, from April 11 to May 8, 1998, and (ii) extending the date on
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which Acquisition Co. or the Company can terminate the Merger Agreement from
April 11 to May 8, 1998. A copy of the Second Amendment is attached to this
Proxy Supplement.
A new Proxy Card has been enclosed with this Proxy Supplement in the
event you wish to change your vote as a result of this additional information.
IF YOU HAVE ALREADY RETURNED YOUR INITIAL PROXY CARD, DO NOT RETURN THE ENCLOSED
PROXY CARD UNLESS YOU WISH TO CHANGE YOUR VOTE.
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SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER dated as of March 20,
1998 by and among SKYLINE ACQUISITION CORP., an Ohio corporation (the "Buyer"),
SKYLINE CHILI, INC., an Ohio corporation (the "Company"), and certain
stockholders of the Company executing this instrument (the "Consenting
Stockholders") amending a certain Agreement and Plan of Merger dated as of
November 26, 1997, as amended by a First Amendment to Agreement and Plan of
Merger dated as of January 9, 1998, both by and among the Buyer, the Company and
the Consenting Stockholders (as so amended, the "Agreement"). Capitalized terms
used herein which are defined in the Agreement shall have the same meanings
herein as therein unless defined otherwise herein or the context hereof requires
otherwise.
NOW THEREFORE, in consideration of the premises and the mutual promises
herein made, the Parties agree as follows:
1. EXCLUSIVITY TERMINATION DATE. The Exclusivity Termination Date shall
be May 8, 1998 and, accordingly, Section 5(i) of the Agreement is hereby amended
by replacing the date "April 11, 1998" in the first line thereof with the date
"May 8, 1998".
2. TERMINATION. Each of Section 7(a)(ii)(B) and Section 7(a)(iii)(B) of
the Agreement is hereby amended by replacing the date "April 11, 1998" therein
with the date "May 8, 1998".
3. NO OTHER AMENDMENTS. Except to the extent expressly amended hereby
the Agreement shall not be deemed amended or modified in any way and shall
remain in full force and effect.
4. Miscellaneous.
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(a) SUCCESSION AND ASSIGNMENT. This instrument shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
instrument or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties.
(b) COUNTERPARTS. This instrument may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(c) HEADINGS. The section headings contained in this
instrument are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this instrument.
(d) GOVERNING LAW. This instrument shall be governed by and construed
in accordance with the domestic laws of the State of Ohio without giving effect
to any choice or conflict of law provision or rule (whether of the State of Ohio
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Ohio.
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IN WITNESS WHEREOF, the Parties hereto have executed this instrument as
of the date first above written.
SKYLINE CHILI, INC.
By: /s/ Joseph E. Madigan
---------------------------------------
Title: Chairman of the Special Committee
/s/ Lambert N. Lambrinides
-------------------------------------------
(LAMBERT N. LAMBRINIDES)
/s/ Christie N. Lambrinides
-------------------------------------------
(CHRISTIE N. LAMBRINIDES)
/s/ William N. Lambrinides
-------------------------------------------
(WILLIAM N. LAMBRINIDES)
/s/ Kevin R. McDonnell
-------------------------------------------
(KEVIN R. McDONNELL)
SKYLINE ACQUISITION CORP.
By: /s/ Bernard V. Buonnano, III
----------------------------------------
(BERNARD V. BUONNANO, III)
Title: President
<PAGE> 10
APPENDIX A
RETURN THIS PROXY CARD ONLY IF YOU HAVE NOT
---
VOTED OR IF YOU WISH TO CHANGE YOUR PRIOR VOTE.
Skyline Chili, Inc.
4180 Thunderbird Lane
Fairfield, Ohio 45014
The undersigned hereby appoints DAVID A. KOHNEN and LAWRENCE R.
BURTSCHY, and each of them with power of substitution, the proxies of the
undersigned to represent and to vote as indicated below, all of the Common
Shares of Skyline Chili, Inc. held of record by the undersigned on January 23,
1998, at the Special Meeting of Shareholders of Skyline Chili, Inc., convened on
March 20, 1998 and at any adjournment thereof, for the following purposes:
(1) Proposal to approve an Agreement and Plan of Merger pursuant to which
Skyline Acquisition Corp. ("Acquisition Co.") will be merged with and into
Skyline Chili, Inc. (the "Company") and each shareholder of the Company
(except Acquisition Co.) will become entitled to receive $6.75 in cash for
each outstanding Company Common Share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) In their discretion, the proxies are authorized to vote on all other matters
(none known at the time of the solicitation of this Proxy) which may
properly come before the Special Meeting, or any adjournments thereof.
Either of said proxies, or substitutes, who shall be present
and shall act at the Special Meeting, shall have and may exercise all the
powers of said proxies hereunder.
PLEASE MARK YOUR PROXY, SIGN IT AND DATE IT,
AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED
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Skyline Chili, Inc.
c/o Corporate Trust Services
Mail Drop 1090FS-4129
38 Fountain Square Plaza
Cincinnati, OH 45263
fold and detach here
................................................................................
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER INDICATED BY THE
UNDERSIGNED SHAREHOLDER. UNLESS OTHERWISE INDICATED IN THE SPACES PROVIDED, THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL DESCRIBED IN
ITEM (1). The undersigned hereby acknowledges receipt of the notice of the
Special Meeting of Shareholders dated February 13, 1998, the Proxy Statement
dated February 13, 1998, and the Proxy Supplement furnished herewith. Any proxy
heretofore given to vote said shares is hereby revoked.
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Signature
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Date
