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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 20, 1997
Ground Round Restaurants, Inc.
(Exact name of registrant as specified in its charter.)
New York 1-6192 13-5637682
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
35 Braintree Hill Office Park, Braintree Massachusetts 02184-9078
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 380-3100
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Item 1. Changes in Control of Registrant.
On August 29, 1997, Ground Round Restaurants, Inc., a New York
corporation (the "Company"), entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") with GRR Holdings, LLC ("Parent"), a Delaware
limited liability company, and GRR Merger Corp. ("Purchaser"), a New York
corporation. The Purchaser is a wholly owned subsidiary of Parent. Pursuant to
the Merger Agreement, on September 8, 1997, the Purchaser commenced a tender
offer (the "Tender Offer") for all of the Company's issued and outstanding
shares of common stock, par value $.16 2/3 per share (the "Shares"), at a price
of $1.65 per share, net to the seller in cash, without any interest thereon. A
copy of the Merger Agreement was filed as Exhibit 1 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated September 8,
1997 (the "Schedule 14D-9").
The Tender Offer expired at 6:00 p.m., New York City time, on
October 17, 1997. On October 20, 1997, Parent and the Purchaser publicly
announced, and so advised the Company, that, pursuant to the Tender Offer,
based upon a preliminary report from the depositary, the Purchaser accepted for
payment 8,769,552 Shares tendered by physical delivery and 11,761 Shares
tendered by guaranteed delivery, as to which the tendering holders had three
NASDAQ National Market trading days to submit certificates for, or to effect
book-entry transfer of, such Shares, and certificates were thereafter submitted
for, or book entry transfer was effected of, 7,700 Shares. As a result, the
Purchaser purchased and paid for a total of 8,777,252 Shares pursuant to the
Tender Offer, which Shares, together with 554,900 Shares owned by Parent,
represent approximately 83.5% of the outstanding Shares.
Parent and Purchaser have advised the Company that the
Purchaser obtained the total amount of funds required to purchase all of the
Shares pursuant to the Tender Offer from capital contributions from Parent,
which obtained such funds, together with approximately $7.5 million of
additional funds which were loaned to the Company on a subordinated basis by
October 22, 1997, as required by the Fourth Amendment and the September 29 Bank
Waiver (as both are defined as described under Item 5 below), to pay related
fees and expenses of the Tender Offer and for working capital and other
purposes, from committed capital of Boston Ventures Limited Partnership V, a
Delaware limited partnership which is the managing member of Parent.
Pursuant to the Merger Agreement, and subject to its terms and
conditions, the Purchaser will be merged with and into the Company. In
connection with the Merger, each remaining publicly held Share (other than
Shares held by holders who perfect dissenters' rights) shall be converted into
the right to receive $1.65 in cash. The Company filed preliminary proxy
materials with the Securities and Exchange Commission on October 31, 1997 with
respect to the Special Meeting of Shareholders to approve and adopt the Merger
Agreement and the Merger. The affirmative vote of the holders of 66 2/3% of the
outstanding Shares is required for approval and adoption of the Merger
Agreement and the Merger. Pursuant to the Merger Agreement, Parent and the
Purchaser have agreed to vote all Shares owned by them in favor of approval and
adoption of the Merger Agreement and the Merger.
Pursuant to the Merger Agreement, on October 20, 1997, Messrs.
Daniel R. Scoggin, Christian R. Guntner, James R. Olson and Joseph
Schollenberger resigned as directors of the Company, and Martha H.W.
Crowninshield, Barbara M. Ginader, Thomas J. Russo, and Neil A. Wallack were
elected to serve as directors of the Company until their successors are elected
and qualified. The Board of Directors thereafter elected Thomas J. Russo
Chairman, President and Chief Executive Officer of the Company.
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Following consummation of the Tender Offer, the Company entered into a
general release and separation agreement with each of Daniel R. Scoggin, former
Chairman, President and Chief Executive Officer of the Company, Stephen J. Kiel,
former Senior Vice President, Chief Financial Officer and Treasurer of the
Company, Anthony E. Bezsylko, former Senior Vice President of Operations of the
Company, and Henri R. Evans, former Vice President of Marketing of the Company,
providing for payment to each such person of amounts payable, and continuation
of certain benefits to such persons as provided, pursuant to their respective
employment agreements upon the termination of their employment following a
"change of control" of the Company, as defined therein. Consummation of the
Tender Offer constituted a change of control for purposes of such employment
agreements. Pursuant to his separation agreement, the Company paid Mr. Scoggin
$1,046,500, plus accrued vacation pay, following his resignation on October 20,
1997. Mr. Scoggin is also entitled to receive certain benefits, including
insurance, use of a Company car or a car allowance and health benefits for two
years following his resignation. Following their respective resignations on
October 31, 1997, Mr. Kiel was paid $350,000 plus accrued vacation pay, Mr.
Bezsylko was paid $150,000 plus accrued vacation pay, and is entitled to receive
$12,500 per month for one year thereafter, and Mr. Evans was paid $130,000 plus
accrued vacation pay, and is entitled to receive $10,833.33 per month for one
year thereafter, pursuant to their respective separation agreements. Each of
Messrs. Kiel, Bezsylko and Evans is also entitled to receive certain benefits,
including medical and dental insurance plans, disability and life insurance
plans and use of a Company car or a car allowance for a period of one year
following his resignation.
On October 25, 1997, the Company entered into an employment
agreement with Mark J. Lawless, pursuant to which Mr. Lawless will serve as
Senior Vice President commencing on November 1, 1997. Mr. Lawless will also
assume the position of Chief Financial Officer and Treasurer as a result of Mr.
Keil's resignation.
Item 5. Other Events.
In connection with and as a condition to Parent and the
Purchaser's execution of the Merger Agreement, the financial institutions (the
"Lenders") party to the Amended and Restated Credit Agreement (as amended, the
"Existing Credit Agreement"), dated as of September 12, 1996, among the
Company's subsidiaries The Ground Round, Inc. ("GRI"), and GR of Minn., Inc.
(together with GRI, the "Borrowers"), 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, under which the Company is a guarantor, agreed, pursuant to a
letter agreement, dated as of August 29, 1997 (the "Bank Standstill Agreement",
filed as Exhibit 6 to the Company's Schedule 14D-9), among the parties to the
Existing Credit Agreement, to waive the Borrower's and the guarantors'
compliance with the EBITDA maintenance covenant contained in the Existing Credit
Agreement for the fiscal months ended July, August and September 1997 (the
"EBITDA Waiver"). In addition, on September 29, 1997, the Lenders extended the
EBITDA Waiver through the fiscal month ending December 1997 and also waived the
Borrowers' and the guarantors' compliance with the net worth and capital
expenditures covenants contained in the Existing Credit Agreement through the
fiscal month ending December 1997 (the "September 29 Bank Waiver"). These
additional and extended waivers were made contingent upon (i) the Borrowers
receiving at least $7,500,000 of proceeds from the issuance of subordinated debt
(the "Subordinated Debt Proceeds") by no later than October 22, 1997 (all such
proceeds were received from the issuance of subordinated debt to Parent by
October 22, 1997) and (ii) there occurring and continuing no default or event of
default under the Existing Credit Agreement (other than events of default
occurring prior to the date of the September 29 Bank Waiver and disclosed in
writing to the Agent).
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Consistent with the terms of a letter of intent, dated August
29, 1997, among the parties to the Existing Credit Agreement (and related
guarantees), on October 20, 1997, each of the parties to the Existing Credit
Agreement executed a Fourth Amendment to the Existing Credit Agreement (the
"Fourth Amendment") which, upon its effectiveness, as described below, will
amend the Existing Credit Agreement (as amended by the Fourth Amendment, the
"New Credit Agreement") upon consummation of the Merger (and satisfaction of
certain other conditions, as discussed below). The Fourth Amendment was also
consented to by the Guarantors.
Pursuant to the terms of the Fourth Amendment, the term of the
New Credit Agreement will be extended to October 7, 2000, and the total
commitments under the New Credit Agreement initially will be $41,828,778.64 (the
"Total Commitment"), of which $37,138,360.22 (the "Revolving Credit Commitment")
will take the form of a revolving credit facility (the "Revolving Credit
Facility") and $4,690,418.42 (the "Letter of Credit Commitment") will be
available for letters of credit ("Letters of Credit"). Borrowings under the
Revolving Credit Facility bear interest at either (i) the Alternate Base Rate
(as defined in the New Credit Agreement) plus 0.75% or (ii) the Eurodollar Rate
(as defined in the New Credit Agreement) plus 2.65%. The Borrowers will also pay
to the Lenders the following fees in connection with the New Credit Agreement:
(i) a commitment fee equal to 0.50% of the average daily unused Total Commitment
less the face amount of all outstanding Letters of Credit, payable quarterly in
arrears; (ii) a fee equal to 1.0% of the average daily amount available to be
drawn under any outstanding Letters of Credit; and (iii) an amendment fee equal
to 1.0% of the Total Commitment, payable on the Closing Date (as defined below).
Under the New Credit Agreement, the Revolving Credit Facility
Commitment will be permanently reduced by (i) $500,000 at the end of each of the
third and fourth fiscal quarters of fiscal year 1998; (ii) $1,000,000 at the
end of each fiscal quarter of fiscal year 1999; and (iii) $1,250,000 at the end
of each fiscal quarter of fiscal year 2000. In addition, 100% of the proceeds
of asset sales and from tax refunds must be used to repay obligations under the
Revolving Credit Facility and to reduce the Revolving Credit Facility
Commitment and 50% of excess cash flow shall be applied to reduce the Total
Commitment until such amount reaches $26,000,000 (after giving effect to all
other reductions of the Total Commitment). Letters of Credit that have expired
or have been returned undrawn or have been reduced will result in a permanent
reduction of the Letter of Credit Commitment by the amount of such expired or
returned Letter of Credit or the amount of such reduction, as applicable.
The New Credit Agreement will contain covenants similar to
those in the Existing Credit Agreement, with certain changes including: (i) a
requirement that GRI use its commercially reasonable efforts to transact a
sale/leaseback for at least 20 fee properties on terms and conditions reasonably
acceptable to GRI and the Lenders (the "Sale/Leaseback Transaction"; the
sale/leaseback of thirteen properties closed on October 20, 1997 as described
below); (ii) requirements regarding maintenance of certain levels of EBITDA,
Profit After Controllables (as defined in the Existing Credit Agreement) and net
worth (all subject to adjustment for the Borrowers' benefit during the first six
months of the New Credit Agreement); (iii) limitations on capital expenditures;
and (iv) application of certain insurance proceeds received by the Borrowers
after the closing of the New Credit Agreement with respect to its two
fire-damaged properties (the "Fire Damaged Properties") to rebuild such
properties. In addition, the Borrowers will be required to have at all times
cash on hand or availability under the New Credit Facility of at least
$4,000,000.
The Fourth Amendment will become effective (the "Closing
Date") upon consummation of the Merger (which the Fourth Amendment expressly
provides will not be a default under the New Credit Agreement) and satisfaction
of certain other conditions including, among others:
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(i) payment of all accrued and unpaid interest and fees under the Existing
Credit Agreement; (ii) payment of approximately $1,300,000 to the Lenders in
satisfaction of certain convertible notes (the "Convertible Notes"); and (iii)
receipt by the Lenders of any insurance proceeds paid to the Borrowers prior to
the closing of the New Credit Agreement with respect to the Fire Damaged
Properties (the "Insurance Proceeds"). In the event that the Merger is not
consummated prior to the December 31, 1997, expiration date of the Current
Credit Facility (and, as a result, the Fourth Amendment does not become
effective), the Lenders agreed in the September 29 Bank Waiver to act in a
commercially reasonable manner in considering any request by the Borrowers to
extend the expiration date of the Existing Credit Agreement to enable the
Purchaser to consummate the Merger.
While the consummation of the Tender Offer would have
constituted an event of default under the existing Credit Agreement, in
anticipation of the execution of the Fourth Amendment, on October 3, 1997, the
Lenders agreed to waive any default or event of default resulting from the
consummation of the Tender Offer. The Lenders also agreed that the Subordinated
Debt Proceeds could be used by the Borrowers for working capital purposes and to
repay to the Lenders any amount of principal and interest under the Existing
Credit Agreement previously deferred by the Lenders (in lieu of the entire
amount of the Subordinated Debt Proceeds being used to pay down the loans, as
required by the Existing Credit Agreement). In addition, the Lenders agreed not
to convert the Convertible Notes to Shares prior to January 1, 1998, and to
accept prepayment in full of such notes at any time prior to such date.
On October 20, 1997, the Company also sold to, and leased back
from, subsidiary companies of CNL Fund Advisors, thirteen restaurants pursuant
to the terms of the Commitment Letter dated September 9, 1997. The Commitment
Letter was filed as Exhibit 8 to the Schedule 14D-9 pursuant to Amendment No. 1
thereto dated September 26, 1997. The Commitment Letter provided for the Company
to sell and leaseback a minimum of fifteen and a maximum of twenty restaurants.
The net sale proceeds in the amount of $13,403,040 from the thirteen restaurants
sold on October 20 were used to reduce bank debt under the Existing Credit
Agreement by an equal amount. CNL Fund Advisors funded certain expenses of the
seller, including legal fees, brokerage commission and certain transactional
costs, for a total gross funding of $13,824,024. The term of the Commitment
Letter requiring a minimum of fifteen restaurants to be sold has been extended
pending additional due diligence on the remaining seven restaurants.
The thirteen leases are for a term of twenty years with five
five-year extensions. Percentage rent of 6% is to be paid on gross sales over a
break point on each property and is discounted for sales increases greater than
33.33%. The Company retains a right of first refusal to purchase the properties,
and an option to purchase the properties after seven years. The restaurants are
subject to a two mile non-compete.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 31, 1997
GROUND ROUND RESTAURANTS, INC.
By: /s/ ROBIN L. MOROZ
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Name: Robin L. Moroz
Title: Vice President, General Counsel
and Secretary
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