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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
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Check the appropriate box:
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[ ] 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 Section 240.14a-11(c) or Section 240.14a-12.
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SKYLINE CHILI, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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[ ] No fee required.
[ X ] 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:
Common Stock
2) Aggregate number of securities to which transaction applies:
3,389,173 shares
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[SKYLINE CHILI, INC. LETTERHEAD]
February 27, 1998
Dear Skyline Chili, Inc. Shareholder:
You recently received a Proxy Statement dated February 13, 1998 (the
"Proxy Statement") 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")
to be held March 20, 1998, at 10:00 a.m. (local time), at the Cincinnati
Marriott, 11320 Chester Road, Sharonville, Ohio 45246, and at any adjournment or
adjournments thereof. 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 Company's Board of Directors received an unsolicited offer from
Meritage Hospitality Group, Inc. ("Meritage"), a Michigan-based hotel and
restaurant operator, 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 Proposal"). 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 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. Nonetheless, the Special Committee authorized the Company's
financial advisor, SunTrust Equitable Securities ("SunTrust Equitable"), to
respond to Meritage and to request additional information to enable the Special
Committee to thoroughly evaluate the Meritage Proposal.
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The written response from SunTrust Equitable requested detailed
information and clarification from Meritage to enable the Special Committee to
reach a definitive conclusion regarding the Meritage Proposal, especially with
regard to the 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) financial
projections for Meritage on a stand-alone basis, including the assumptions
behind such 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 proposed transaction; 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 that the Board should 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 has not had any substantive
contacts or negotiations with Meritage since that time.
SunTrust Equitable advised the Special Committee and the Board that the
most recent Meritage Proposal was identical in form and 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 Special Committee and Board, with SunTrust Equitable's advice, 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 Equitable" in the Proxy Statement. In
particular, SunTrust Equitable determined that such a transaction would provide
a lower return for shareholders due to the limited debt capacity of the Company
in the absence of new equity capital, the fact that a portion of the
consideration paid to shareholders might be taxed as dividend income, the
reduced earnings per share
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that would result from increased interest expense and the resulting lower share
price which would further impact liquidity of the Common Stock. 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 Fleet, 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 have declined 74.4% from $5.375 on
February 4, 1997 to $1.375 as of the close on February 26,
1998, giving Meritage a total equity market value of
approximately $4.4 million. In response to the latest Meritage
Proposal, the Special Committee also reviewed the recent
financial performance of Meritage and noted that in Meritage's
most recent public filing, on Form 8-K/A dated November 30,
1997, Meritage reported a consolidated pro forma net loss of
$2,589,806 or ($0.81) per share including an extraordinary
gain on disposal of assets of $1,200,702. The loss for the
most recent twelve month period exceeded the loss for the
prior year which totaled $1,925,570. The Special Committee
also noted that Meritage has produced losses for the four most
recent fiscal years totaling $6,591,640 (or $2.58 per share)
including extraordinary gains on the disposal of assets. In
addition, for the most recent period, Meritage's cash balances
declined $842,241, shareholder equity declined 98.5% to
$29,961, total debt stood at $22,655,077 and its
debt-to-equity ratio rose to 756:1. Given these facts, the
Special Committee believes that its previous decision to
dismiss any proposal including Meritage securities has been
validated by Meritage's recent financial performance and the
stock price behavior of Meritage common shares.
(iii) The transaction proposed by Meritage would have subjected the
Company to Meritage's contingent liabilities. Based on its
public filings, Meritage owns approximately 54% of the Wendy's
of West Michigan Limited Partnership, which owns and operates
certain 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 and certain limited partners of the Wendy's
Partnership seeking injunctive relief prohibiting Meritage
from participating in the management of the Wendy's
Partnership, unspecified damages for breach of contract, and
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unspecified damages for various business torts and
misrepresentation. In addition, based on its public filings,
Meritage has failed to meet certain covenants contained in
loan agreements with its primary lender, and has been forced
to obtain waivers on covenant compliance and waivers on
certain principal and interest payments.
(iv) In the past, Wendy's International, Inc. has prohibited
certain of its franchisees from becoming Skyline franchisees
for competitive reasons. 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 Fleet 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 Fleet in a timely
manner. All of the conditions to the Merger with Fleet 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 approval by the Company's shareholders
at the Special Meeting, the Merger with Fleet would close on or about April 1,
1998. THE SPECIAL COMMITTEE AND THE BOARD CONTINUE TO RECOMMEND THAT THE
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT. IF YOU HAVE NOT
ALREADY DONE SO, PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD TODAY. In the
event that you have already returned your Proxy Card and wish to change your
vote as a result of this additional information, please call D.F. King & Co.,
Inc., our proxy solicitation agent, toll-free at (800) 487-4870 or collect at
(212) 269- 5550, and you will be provided with another Proxy Card. Voting
ballots will also be available at the Special Meeting.
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