Form PREM14A BOWL AMERICA INC For: Jun 23

June 23, 2021 4:53 PM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

 

Filed by the Registrant ☒

 

Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

 

Preliminary Proxy Statement

   

Confidential, for Use of the Commission Only (as permitted by Rule 14a6(e)(2))

   

Definitive Proxy Statement

   

Definitive Additional Materials

   

Soliciting Material under §240.14a-12

 

 

BOWL AMERICA INCORPORATED

(Name of Registrant as Specified In Its Charter)

 
 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required.

   

Fee computed on table below per Exchange Act Rules 14(a)-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:
Class A common stock, par value $0.10 per share, of Bowl America Incorporated (Class A Common Stock)

 

(2)

Aggregate number of securities to which transaction applies:
5,160,971 shares of Class A Common Stock (including 1,414,517 shares of Class B common stock, par value $0.10 per share).

 

(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):
The maximum aggregate value was determined based upon 5,160,971 shares of Class A Common Stock (including 1,414,517 shares of Class B common stock, par value $0.10 per share) multiplied by $8.53 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying the maximum aggregate value calculated in the preceding sentence by .0001091.

 

(4)

Proposed maximum aggregate value of transaction:
$44,023,083

 

(5)

Total fee paid:
$4,803

   

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:
 

 

 

 

PRELIMINARY STOCKHOLDER LETTER, SUBJECT TO COMPLETION, DATED JUNE 23, 2021

 

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BOWL AMERICA INCORPORATED
6446 Edsall Road

Alexandria, Virginia 22312

 

[], 2021

 

Dear Stockholders:

 

You are cordially invited to attend a special meeting of the stockholders (the “Special Meeting”) of Bowl America Incorporated (“Bowl America” or the “Company”), which will be held at [●], Eastern Time, on [●], 2021 virtually via the Internet. In light of ongoing developments related to the novel coronavirus (“COVID-19”), after careful consideration, the Company has determined that the Special Meeting will be a virtual meeting conducted exclusively via live webcast in order to facilitate stockholder attendance and participation while safeguarding the health and safety of our stockholders, directors and management team. You will not be able to attend the Special Meeting in person. You or your proxyholder will be able to attend the virtual Special Meeting online, vote, and submit questions during the Special Meeting by visiting [●] and using a control number printed on your proxy card. To register and receive access to the virtual Special Meeting, registered stockholders and beneficial stockholders (those holding shares through a stock brokerage account or by a bank or other holder of record) will need to follow the instructions applicable to them provided in the accompanying Proxy Statement and proxy card or vote instruction form, as applicable.

 

The Special Meeting is being held for the following purposes, as more fully described in the accompanying Proxy Statement:

 

1.

To approve the merger of Potomac Merger Sub, Inc., a Maryland corporation, with and into the Company (the “merger”) with the Company surviving as an indirect wholly-owned subsidiary of Bowlero Corp., a Delaware corporation (“Parent”) pursuant to the Agreement and Plan of Merger, dated as of May 27, 2021 (as it may be amended from time to time, the “merger agreement”), by and among the Company, Parent and Merger Sub and the transactions contemplated by the merger agreement, a copy of which is attached as Annex A to the accompanying Proxy Statement;

 

2.

To approve, on an advisory (non-binding) basis, certain items of compensation that are based on or otherwise related to the merger that may become payable to the Company’s named executive officer under an existing agreement with the Company (the “merger-related executive compensation”); and

 

3.

To adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger.

 

If the merger is completed, each share of Class A common stock, par value $0.10 per share (“Class A Common Stock”), and each share of Class B common stock, par value $0.10 per share (“Class B Common Stock,” and together with the Class A Common Stock, “Common Stock”) that you own immediately prior to the effective time of the merger, other than as provided below, will be converted into the right to receive $8.53 in cash (the “per share merger consideration”), without interest and less applicable withholding taxes. The following shares of Common Stock will not be converted into the right to receive the per share merger consideration in connection with the merger: (i) shares of Common Stock held by the Company or any of its subsidiaries, (ii) shares of Common Stock held by Parent or any of its subsidiaries, and (iii) shares of Class B Common Stock whose holders delivered a written objection to the merger, have not voted in favor of adopting the merger agreement and have demanded and perfected their appraisal rights in accordance with, and have complied in all respects with, the Maryland General Corporation Law (“MGCL”).

 

Prior to the effective time of the merger, and in connection with the closing, the Company will be entitled to authorize and declare in accordance with the MGCL an extraordinary dividend of $0.60 per share of Common Stock, which will be paid at or promptly after the effective time of the merger and will be contingent in all respects on the closing. Only stockholders of record on the record date for the Extraordinary Dividend will receive it, assuming the merger is closed.

 

 

 

Approval of the merger and the transactions contemplated by the merger agreement will require the affirmative vote of at least a majority of the aggregate number of votes entitled to be cast by holders of Common Stock, voting together as a single class, as of the close of business on [●], 2021, the record date for the Special Meeting. Each of the issued and outstanding 3,746,454 shares of Class A Common Stock is entitled to one vote per share for an aggregate of 3,746,454 votes and each of the issued and outstanding 1,414,517 shares of Class B Common Stock is entitled to ten votes per share for an aggregate of 14,145,170 votes. The total number of votes represented by outstanding Class A Common Stock and Class B Common Stock as of the record date was 17,891,624. Stockholders owning a majority of the voting power of the Company’s Class B Common Stock (the “Majority Holders”), including, but not limited to Nancy Hull and Merle Fabian, members of our board of directors, have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation.

 

The board of directors, after careful consideration, voted unanimously to (i) determine that the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein are fair to, and in the best interests of, the Company and its stockholders, (ii) declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) authorized and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein, the submission of the merger and the other transactions contemplated by the merger agreement to the Companys stockholders for approval, and, subject to receipt of such stockholder approval, the consummation of the merger and the transactions contemplated by the merger agreement, and (iv) recommended that the Companys stockholders vote FOR the merger and the other transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement. In arriving at its recommendations, the board of directors carefully considered a number of factors described in the accompanying Proxy Statement.

 

The board of directors also recommends that you vote FOR the advisory (non-binding) approval of the merger-related executive compensation and FOR the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger. Approval of the merger and approval of the “merger-related executive compensation” are subject to separate votes by the Company’s stockholders, and approval of the “merger-related executive compensation” is not a condition to the completion of the merger.

 

In considering the recommendation of the board of directors, you should be aware that certain of the Company’s directors and the executive officer may have interests in the merger that are different from, or in addition to, the interests of our stockholders generally as further described in the accompanying Proxy Statement.

 

Any holder of Class B Common Stock who delivers a written objection to the merger will have the right to seek appraisal of the fair value of such holder’s shares of Class B Common Stock if the merger is completed in lieu of receiving the per share merger consideration, but only if such holder does not vote in favor of adopting the merger agreement or consent to it in writing and otherwise strictly complies with the provisions of Title 3, Subtitle 2 of the MGCL, which is the appraisal rights statute applicable to Maryland corporations. These appraisal rights are summarized in the accompanying Proxy Statement. The accompanying Proxy Statement constitutes notice from the Company of the availability of appraisal rights under the MGCL to holders of Class B Common Stock. Holders of Class A Common Stock are not entitled to exercise appraisal rights pursuant to Section 3-202(c)(1) of the MGCL, provided that the Class A Common Stock continues to be listed on the NYSE American on the record date for the Special Meeting.

 

Your vote is very important. Whether or not you plan to attend the Special Meeting, please vote as soon as possible by following the instructions in the accompanying Proxy Statement to make sure that your shares are represented at the Special Meeting. If you hold your shares in street name through a bank, broker or other nominee or through the Bowl America Incorporated 1987 Employee Stock Ownership Plan (the ESOP), you will need to follow the instructions provided to you by your bank, broker or other nominee or trustee of the ESOP, as applicable, to ensure that your shares are represented and voted at the Special Meeting. Even if you have voted by proxy, you may still vote during the Special Meeting by visiting []. To participate in the Special Meeting, you will need the 16-digit control number included on your proxy card.

 

If you submit your proxy card without indicating how you wish to vote, your proxy will be voted FOR each of the proposals listed above at the Special Meeting. If you fail to return your proxy card, and do not virtually attend the Special Meeting, the effect will be that your shares will have the same effect as a vote AGAINST the merger and will not be counted for purposes of determining whether a quorum is present at the Special Meeting. If you are a stockholder of record and you attend the Special Meeting and wish to vote during the Special Meeting, you may withdraw your proxy and vote at the Special Meeting.

 

Thank you for your continued support.

 

 

   

By Order of the Board of Directors,

     
   

/s/ Cheryl A. Dragoo

CEO, President and Director

 

 

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger, passed upon the merits or fairness of the merger agreement or the transactions contemplated thereby, including the proposed merger, or passed upon the adequacy or accuracy of the information contained in this document or the accompanying Proxy Statement. Any representation to the contrary is a criminal offense.

 

The accompanying Proxy Statement and form of proxy are dated [], 2021 and are first being mailed to the Company’s stockholders on or about [], 2021.

 

 

 

 

PRELIMINARY NOTICE OF SPECIAL MEETING OF STOCKHOLDERS, SUBJECT TO COMPLETION,
DATED JUNE 23, 2021

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BOWL AMERICA INCORPORATED

 

6446 Edsall Road

Alexandria, Virginia 22312

 

Dear Stockholders:

 

You are cordially invited to attend a special meeting of the stockholders (the “Special Meeting”) of Bowl America Incorporated (“Bowl America” or the “Company”), which will be held at [●], Eastern Time, on [●], 2021 virtually via the Internet. You will not be able to attend the Annual Meeting in person. To be admitted to the Special Meeting, you should go to [●] and enter the control number found on your proxy card or vote instruction form, as applicable. You will be deemed present and may vote at the Special Meeting by following the instructions available on the meeting website during the Special Meeting. The Special Meeting is being held for the following purposes, as more fully described in the accompanying Proxy Statement:

 

1.

To approve the merger of Potomac Merger Sub, Inc., a Maryland corporation, with and into the Company (the “merger”) with the Company surviving as an indirect wholly-owned subsidiary of Bowlero Corp., a Delaware corporation (“Parent”) pursuant to the Agreement and Plan of Merger, dated as of May 27, 2021 (as it may be amended from time to time, the “merger agreement”), by and among the Company, Parent and Merger Sub and the transactions contemplated by the merger agreement (Proposal 1), a copy of which is attached as Annex A to the accompanying Proxy Statement;

 

2.

To approve, on an advisory (non-binding) basis, certain items of compensation that are based on or otherwise related to the merger that may become payable to the Company’s named executive officer under existing agreements with the Company (Proposal 2 or the “merger-related executive compensation”); and

 

3.

To hold a vote on a proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger (Proposal 3 or the “adjournment proposal”).

 

The merger agreement and the merger, the merger-related executive compensation and adjournment proposal are more fully described in the accompanying Proxy Statement, which the Company urges you to read carefully and in its entirety. A copy of the merger agreement is attached as Appendix A to the accompanying Proxy Statement, which the Company also urges you to read carefully and in its entirety.

 

The board of directors has unanimously approved and authorized the merger agreement and recommends a vote FOR Proposal 1, FOR Proposal 2 and FOR Proposal 3. The Company does not expect a vote to be taken on any other matters at the Special Meeting or any adjournment, postponement or recess thereof. If any other matters are properly presented at the Special Meeting or any adjournment, postponement or recess thereof for consideration, however, the holders of the proxies will have discretion to vote on these matters in accordance with their best judgment.

 

Only stockholders that owned shares of Class A common stock, par value $0.10 per share (“Class A Common Stock”) and Class B common stock, par value $0.10 per share (“Class B Common Stock,” and together with the Class A Common Stock, “Common Stock”), at the close of business on [], 2021, the record date, are entitled to notice of and to vote at the Special Meeting and any adjournment, postponement or recess thereof.

 

Stockholders owning a majority of the voting power of the Company’s Class B Common Stock (the “Majority Holders”), including, but not limited to Nancy Hull and Merle Fabian, members of our board of directors, have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation.

 

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In considering the recommendations of the board of directors, you should be aware that certain of the Company’s directors and the executive officer may have interests in the merger that are different from, or in addition to, the interests of our stockholders generally, as further described in the accompanying Proxy Statement.

 

Any holder of Class B Common Stock who delivers a written objection to the merger will have the right to seek appraisal of the fair value of such holder’s shares of Class B Common Stock if the merger is completed in lieu of receiving the per share merger consideration, but only if such holder does not vote in favor of adopting the merger agreement or consent to it in writing and otherwise strictly complies with the provisions of Title 3, Subtitle 2 of the MGCL, which is the appraisal rights statute applicable to Maryland corporations. These appraisal rights are summarized in the accompanying Proxy Statement. The accompanying Proxy Statement constitutes notice from the Company of the availability of appraisal rights under the MGCL to holders of Class B Common Stock. Holders of Class A Common Stock are not entitled to exercise appraisal rights pursuant to Section 3-202(c)(1), provided that the Class A Common Stock continues to be listed on the NYSE American on the record date for the Special Meeting.

 

Your vote is very important. Whether or not you plan to attend the Special Meeting, please vote as soon as possible by following the instructions in the accompanying Proxy Statement and proxy card or vote instruction form, as applicable, to make sure that your shares are represented at the Special Meeting. If you hold your shares in street name through a bank, broker or other nominee or the Bowl America Incorporated 1987 Employee Stock Ownership Plan (the ESOP), you will need to follow the instructions provided to you by your bank, broker or other nominee or trustee of the ESOP, as applicable, to ensure that your shares are represented and voted at the Special Meeting. Even if you have voted by proxy, you may still vote during the Special Meeting by visiting []. To participate in the Special Meeting, you will need the 16-digit control number included on your proxy card or vote instruction form, as applicable.

 

If you submit your proxy card without indicating how you wish to vote, your proxy will be voted FOR Proposal 1, 2 and 3 at the Special Meeting. If you fail to return your proxy card, and do not virtually attend the Special Meeting, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting. If you are a stockholder of record and you attend the Special Meeting and wish to vote during the Special Meeting, you may withdraw your proxy and vote at the Special Meeting. 

 

The Company urges you to read the accompanying Proxy Statement and merger agreement carefully and in their entirety.

 

 

   

By Order of the Board of Directors,

     
   

/s/ Cheryl A. Dragoo

CEO, President and a Director

 

[●], 2021

 

Please do not send your Common Stock certificates to the Company at this time. If the merger is completed, you will be sent instructions regarding the surrender of your Common Stock certificates.

 

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TABLE OF CONTENTS

 

SUMMARY TERM SHEET

1

QUESTIONS AND ANSWERS ABOUT THE MERGER, THE “MERGER-RELATED EXECUTIVE COMPENSATION” AND THE SPECIAL MEETING

6

PROPOSAL 1: THE MERGER

12

Certain Effects of the Merger

12

Background of the Merger

12

Recommendation of the Board of Directors; Reasons for Recommending the Approval of the Merger

17

Opinion of Duff & Phelps

20

Interests of the Company’s Directors and the Executive Officer in the Merger

31

Extraordinary Dividend

34

Appraisal Rights

34

Material U.S. Federal Income Tax Consequences

34

Regulatory Approvals

37

Delisting and Deregistration of Class A Common Stock

37

Effective Time of Merger

37

Payment of Merger Consideration and Surrender of Stock Certificates

38

Fees and Expenses

38

FORWARD-LOOKING STATEMENTS

39

THE PARTIES TO THE MERGER

40

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

41

THE SPECIAL MEETING

42

Date, Time and Place of Special Meeting

42

Voting Power; Record Date

42

Proposals at the Special Meeting and Board Recommendation

42

Quorum and Required Vote for Proposals for the Special Meeting

43

Broker Non-Votes

43

Voting Your Shares—Stockholders of Record

44

Voting Your Shares—Beneficial Owners

44

Stock Ownership and Interests of Certain Persons

45

Expenses of Proxy Solicitation

45

Adjournments, Postponements and Recesses

45

Rights of Stockholders Who Object to the Merger

45

Other Matters

46

Questions and Additional Information

46

THE MERGER AGREEMENT

47

General

47

Explanatory Note Regarding the Merger Agreement and the Summary of the Merger Agreement

47

The Merger and Conversion of the Company’s Common Stock

47

Closing and Effective Time of the Merger

48

Articles of Incorporation; Bylaws of the Surviving Corporation

48

Directors and Executive Officers of the Surviving Corporation

48

Payment Procedures

48

Lost, Stolen or Destroyed Certificates

49

Shares of Class B Common Stock Entitled to Exercise Appraisal Rights

49

Representations and Warranties

49

Covenants of the Company

51

Covenants of Parent and/or Merger Sub

56

Certain Covenants of Each Party

57

Conditions to the Completion of the Merger

58

Termination

59

Notice of Termination; Effect of Termination

60

Termination Fees

60

Other Covenants and Agreements

61

PROPOSAL 2: ADVISORY VOTE ON “MERGER-RELATED EXECUTIVE COMPENSATION”

62

Merger-Related Executive Compensation

62

Vote Required and Board of Directors Recommendation

63

PROPOSAL 3: ADJOURNMENT OF THE SPECIAL MEETING

64

Adjournment of the Special Meeting

64

Vote Required and Board of Directors Recommendation

64

STOCKHOLDER PROPOSALS

65

HOUSEHOLDING

65

WHERE STOCKHOLDERS CAN FIND MORE INFORMATION

65
   

APPENDIX A: MERGER AGREEMENT

 

APPENDIX B: OPINION OF DUFF & PHELPS

 

APPENDIX C: TITLE 3, SUBTITLE 2 OF THE MARYLAND GENERAL CORPORATION LAW

 

 

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PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION, DATED JUNE 23, 2021

 

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BOWL AMERICA INCORPORATED

 

6446 Edsall Road

Alexandria, Virginia 22312

 

This Proxy Statement contains information related to a special meeting of stockholders (the “Special Meeting”) of Bowl America Incorporated to be held at [] Eastern Time on [], 2021, virtually via the Internet, and at any adjournments, postponements or recesses thereof. You will not be able to attend the Annual Meeting in person. To be admitted to the Special Meeting, you should go to [●] and enter the control number found on your proxy card or vote instruction form, as applicable. You will be deemed present and may vote at the Special Meeting by following the instructions available on the meeting website during the Special Meeting.

 

We are furnishing this Proxy Statement to our stockholders as part of the solicitation of proxies by our board of directors for use at the Special Meeting. At the Special Meeting you will be asked to, among other things, consider and vote on the approval of the merger (as defined immediately below) and the transactions contemplated by the merger agreement. This Proxy Statement is first being mailed to stockholders of record of the Company on or about [], 2021.

 

SUMMARY TERM SHEET

 

This following summary term sheet highlights the material information contained in this Proxy Statement and may not contain all of the information that is important to you. We urge you to read this entire Proxy Statement carefully, including the appendices, before voting. We have included section references to direct you to a more complete description of the topics described in this summary term sheet. You may obtain the information incorporated by reference into this Proxy Statement without charge by following the instructions in “Where Stockholders Can Find More Information” beginning on page 65. Unless the context requires otherwise, references in this Proxy Statement to “we,” “us,” “our,” the “Company” or “Bowl America” refer to Bowl America Incorporated, a Maryland corporation, and its subsidiaries.

 

We refer to Bowlero Corp., a Delaware corporation, as “Parent,” and Potomac Merger Sub, Inc., a Maryland corporation and indirect wholly-owned subsidiary of Parent, as “Merger Sub.”

 

We refer to our stockholders owning a majority of the voting power of the Company’s Class B common stock, par value $0.10 per share (“Class B Common Stock”) who have each entered into a voting and support agreement with Parent and the Company, including, but not limited to Nancy Hull and Merle Fabian, members of our board of directors, as the “Majority Holders.”

 

We refer to the board of directors of the Company as the “board of directors” or the “Board.”

 

 

Parties to the Merger. See “The Parties to the Merger” beginning on page 40.

 

 

Bowl America was incorporated in Maryland in 1958. The Company commenced business with one bowling center in 1958, and at the end of fiscal year 2020, the Company operated 17 bowling centers, 16 of which are owned centers. Additional information about the Company is contained in its public filings, which are incorporated by reference herein. See “Where Stockholders Can Find Additional Information,” beginning on page 65.

 

 

Parent is a Delaware corporation that is a leader in bowling entertainment, media, and events. With more than 300 bowling centers across North America, Parent serves over 28 million guests each year through a family of brands that includes Bowlero, Bowlmor Lanes, and AMF.

 

 

 

 

 

Merger Sub is a Maryland corporation and an indirect wholly-owned subsidiary of Parent. Merger Sub was formed for the sole purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, including the merger.

 

 

Purpose of Stockholders Vote. You are being asked to:

 

 

approve the merger with the Company surviving as an indirect wholly-owned subsidiary of Parent pursuant to the Agreement and Plan of Merger, dated as of May 27, 2021, by and among the Company, Parent and Merger Sub, as it may be amended from time to time (the “merger agreement”) and the transactions contemplated by the merger agreement. A copy of the merger agreement is attached as Appendix A to this Proxy Statement. Pursuant to the merger agreement, Merger Sub will be merged with and into the Company (the “merger”), and the Company will continue as the surviving corporation and become an indirect wholly-owned subsidiary of Parent;

 

 

approve, on an advisory (non-binding) basis, specified items of compensation that may be paid or become payable to the Company’s named executive officer in connection with the merger under existing agreements with the Company (which is referred to in this Proxy Statement as the “merger-related executive compensation”); and

 

 

approve a proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger.

 

 

The Per Share Merger Consideration.  If the merger is completed, each issued and outstanding share of Class A common stock, par value $0.10 per share (“Class A Common Stock”) and Class B Common Stock (and together with the Class A Common Stock, “Common Stock”), other than as provided below, will be converted into the right to receive $8.53 in cash, without interest and less applicable withholding taxes (the “per share merger consideration”). The following shares of Common Stock will not be converted into the right to receive the per share merger consideration in connection with the merger: (i) shares of Common Stock held by the Company or any of its subsidiaries, (ii) shares of Common Stock held by Parent or any of its subsidiaries, and (iii) shares of Class B Common Stock whose holders have delivered a written objection to the merger, have not voted in favor of adopting the merger agreement or consented to it in writing and have demanded and perfected their appraisal rights in accordance with, and have complied in all respects with Title 3, Subtitle 2 of the Maryland General Corporation Law (the “MGCL”), which is the appraisal rights statute applicable to Maryland corporations. See The Merger Agreement—The Merger and Conversion of the Company’s Common Stock” beginning on page 47.

 

 

Extraordinary Dividend. Prior to the effective time of the merger, and in connection with the closing, the Company will be entitled to authorize and declare in accordance with the MGCL an extraordinary dividend of $0.60 per share of Common Stock, which will be paid at or promptly after the effective time of the merger and will be contingent in all respects on the closing. Only stockholders of record on the record date for the Extraordinary Dividend will receive it, assuming the merger is closed.

 

 

Voting and Support Agreement. The Majority Holders have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation. The voting and support agreement was entered into by each Majority Holder solely in their respective capacity as a stockholder of the Company, and the voting and support agreement does not limit or affect any actions taken by any officer or director of the Company solely in his or her capacity as a director or officer of the Company. The Majority Holders’ obligations under the voting and support agreement will automatically terminate without any further action required by any person upon the earliest to occur of (i) the mutual agreement of the parties thereto to terminate the voting and support agreement; (ii) the termination of the merger agreement in accordance with its terms, and (iii) the receipt of the requisite stockholder vote. See “The Special Meeting—Stock Ownership and Interests of Certain Persons” beginning on page 45.

 

 

Board Recommendation. The board of directors, after careful consideration, voted unanimously to (i) determine that the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein are fair to, and in the best interests of, the Company and its stockholders, (ii) declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) authorized and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein, the submission of the merger and the other transactions contemplated by the merger agreement to the Company’s stockholders for approval, and, subject to receipt of such stockholder approval, the consummation of the merger and the transactions contemplated by the merger agreement, and (iv) recommended that the Company’s stockholders vote FOR the merger and the other transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement. The board of directors also recommend that you vote FOR approval of the “merger-related executive compensation” and FOR approval of the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger. See “Proposal 1: The Merger—Recommendation of the Board of Directors; Reasons for Recommending the Approval of the Merger” beginning on page 17 and see “Proposal 2: Advisory Vote on “Merger-Related Executive Compensation” beginning on page 62.

 

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Opinion of the Boards Financial Advisor. In connection with the merger, the board of directors of the Company (solely in their capacity as members of the board of directors) received a written opinion, dated May 27, 2021, from its independent financial advisor, Duff & Phelps, A Kroll Business operating as Kroll, LLC (“Duff & Phelps”), as to the fairness, from a financial point of view and as of the date of such opinion and based upon and subject to the assumptions, qualifications and limiting conditions set forth therein, to the public stockholders of the Company (other than Parent and its affiliates) of the per share merger consideration to be received by such stockholders in the merger (without giving effect to any impact of the merger on any particular stockholder other than in its capacity as a stockholder) pursuant to the merger agreement. See the full text of Duff & Phelps’ written opinion, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, attached to this Proxy Statement as Appendix B and see “Proposal 1: The Merger —Opinion of Duff & Phelps” beginning on page 20. Duff & Phelps provided its opinion for the benefit and use of the board of directors of the Company (solely in their capacity as members of the board of directors) in connection with its evaluation of the per share merger consideration from a financial point of view and does not address any other aspect of the merger or any related transaction. The Duff & Phelps opinion does not address the merits of the underlying decision by the Company to engage in the merger. The opinion does not constitute advice or a recommendation to any stockholder as to how any stockholder should act with respect to any matter relating to the merger.

 

 

Financing of the Merger. The merger is not conditioned upon receipt of financing by Parent. We understand that Parent expects to use cash on hand and other funds available to it to fund the aggregate per share merger consideration.

 

 

Interests of the Companys Directors and the Executive Officer in the Merger. In considering the recommendation of the board of directors, you should be aware that certain of the Company’s directors and the executive officer may have interests in the merger that may be different from, or in addition to, their interests as Company stockholders. The board of directors was aware of these interests during their deliberations on the merits of the merger and in making their decisions to recommend and approve, respectively, the merger and the transactions contemplated by the merger agreement. These interests are discussed in “Proposal 1: The Merger—Interests of the Company’s Directors and the Executive Officer in the Merger” beginning on page 31 and “Proposal 2: Advisory Vote on “Merger-Related Compensation” beginning on page 62.

 

 

Material U.S. Federal Income Tax Consequences of the Merger. The exchange of shares of Common Stock for cash pursuant to the merger generally will be a taxable event for U.S. federal income tax purposes. Each U.S. holder (as defined in the section entitled “Material U.S. Federal Income Tax Consequences” beginning on page 34) whose shares of Common Stock are converted into the right to receive cash in the merger will generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of the cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares of Common Stock (i.e., shares of Common Stock acquired at the same cost in a single transaction). See “Proposal 1: The Merger—Material U.S. Federal Income Tax Consequences” beginning on page 34 for a discussion of certain material U.S. federal income tax consequences of the merger to certain U.S. holders and certain non-U.S. holders. The determination of the actual tax consequences of the merger to a holder of Common Stock will depend on the holder’s specific situation. Holders are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the merger to them based on their particular circumstance, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

 

 

Material U.S. Federal Income Tax Consequences of the Extraordinary Dividend. If you are a U.S. holder (as defined in the section entitled “Material U.S. Federal Income Tax Consequences”), the receipt of the Extraordinary Dividend will be taxable as a dividend to you to the extent paid out of the Company’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, and, to the extent that the Extraordinary Dividend exceeds the Company’s current and accumulated earnings and profits, the excess will first reduce your basis in shares of Common Stock, but not below zero, and then will be treated as gain from the sale of your shares of Common Stock. If you are a non-U.S. holder (as defined below under “Material U.S. Federal Income Tax Consequences”), you generally will not be subject to U.S. federal income tax with respect to the receipt of the Extraordinary Dividend unless you have certain connections with the United States, except that the amount of the Extraordinary Dividend that is treated as a dividend for U.S. federal income tax purposes generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. You should consult your own tax advisor regarding the particular tax consequences to you of the receipt of the Extraordinary Dividend in light of your particular circumstances (including the application and effect of any state, local or non-U.S. income and other tax laws).

 

3

 

 

Conditions to the Completion of the Merger. The completion of the merger is subject to the satisfaction or waiver of certain conditions, which are described in “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 58. These conditions include, among others:

 

 

the Company has received the affirmative vote of the holders of at least a majority of the votes entitled to be cast by the Common Stock at the meeting or any adjournment or postponement thereof (the “Requisite Stockholder Approval”);

 

 

no law or order has been enacted, entered, promulgated, adopted, issued or enforced by any governmental entity that has the effect of prohibiting the consummation of the merger

 

 

since May 27, 2021 through the closing, no change, effect, occurrence, development or circumstance has not occurred that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect with respect to the Company;

 

 

the board of directors authorized and deposited with the Company’s transfer agent prior to the effective time of the merger, cash in an aggregate amount necessary for payment of an extraordinary dividend in the amount of $0.60 per share of Common Stock to the Company’s stockholders;

 

 

the Company’s, Parent’s and Merger Sub’s performance in all material respects of their agreements and covenants in the merger agreement and delivery of all required deliverables and certifications; and

 

 

the accuracy of the representations and warranties of the Company, Parent and Merger Sub (subject to certain qualifications).

 

 

Anticipated Closing of the Merger. The merger is expected to be completed after all of the conditions to the merger are satisfied or waived. The Company currently expects the merger to be completed in second half of 2021, although the Company cannot assure completion by any particular date, or if at all. See “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 58.

 

 

Limitations on Solicitations of Other Offers. The Company has agreed to immediately cease any discussion or negotiation with respect to an Acquisition Proposal (as defined in “The Merger Agreement—Covenants of the Company—Acquisition Proposals” beginning on page 53). Under the merger agreement, the Company is subject to “nonsolicitation” restrictions that prohibit the Company, its subsidiaries and their respective representatives from taking any action to facilitate or encourage, solicit or initiate any inquires, expressions of interest, requests for information, discussions, proposals or offers or submissions that constitute, or would reasonably be expected to lead to, any Acquisition Proposal. Prior to obtaining the Requisite Stockholder Approval, the board of directors may make a Change in Recommendation (as defined in “The Merger Agreement—Covenants of the Company—Acquisition Proposals” beginning on page 53) to the Company’s stockholders and/or terminate the merger agreement in order for the Company to enter into a Company Acquisition Agreement (as defined in “The Merger Agreement—Covenants of the Company—Acquisition Proposals” beginning on page 53) with respect to a Superior Proposal (as defined in “The Merger Agreement—Covenants of the Company—Acquisition Proposals” beginning on page 53). See “The Merger Agreement—Covenants of the Company—Acquisition Proposals” beginning on page 53 and “The Merger Agreement—Termination” beginning on page 59.

 

 

Termination. The merger agreement may be terminated at any time prior to the effective time of the merger, which is described in “The Merger Agreement—Termination” beginning on page 59:

 

 

by mutual written agreement of Parent and the Company;

 

 

by either Parent or the Company if:

 

 

a final and nonappealable order is in effect permanently restraining, enjoining or otherwise prohibiting the consummation of the merger;

 

 

the effective time or the merger has not occurred on or prior to December 31, 2021 (the “outside date”); or

 

 

the Requisite Stockholder Approval is not obtained at the Special Meeting.

 

4

 

 

by Company if:

 

 

a breach of one or more representations or warranties or failure to perform one or more covenants or agreements on the part of Parent or Merger Sub set forth in the merger agreement has occurred that would cause certain specified conditions to closing incapable of being satisfied and such breach or failure to perform (A) is incapable of being cured by the outside date or (B) has not been cured by Parent or Merger Sub, as applicable, within fifteen (15) days following written notice to Parent from the Company or such breach or failure to perform (but no later than the outside date);

 

 

prior to obtaining the Requisite Stockholder Approval, the Company receives a Super Proposal and terminates the merger agreement in order to enter into a Company Acquisition Agreement in compliance with the merger agreement; provided that prior to or concurrently with such termination, the Company will pay the Company Termination Fee (as defined below).

 

 

by Parent if:

 

 

a breach of one or more representations or warranties or failure to perform one or more covenants or agreements on the part of the Company set forth in the merger agreement has occurred that would cause certain specified conditions to closing incapable of being satisfied and such breach or failure to perform (A) is incapable of being cured by the outside date or (B) has not been cured by the Company within fifteen (15) days following written notice to the Company from Parent or the Merger Sub or such breach or failure to perform (but no later than the outside date);

 

 

prior to obtaining the Requisite Stockholder Approval, the board of directors effected a Change in Recommendation; or

 

 

subject to certain exceptions, prior to obtaining the Requisite Stockholder Approval, the Company breached certain of its obligations related to holding the Special Meeting or Acquisition Proposals in any material respect.

 

 

Termination Fee. The merger agreement contains certain termination rights for both the Company and Parent. The merger agreement provides that, upon termination of the merger agreement under specified circumstances, the Company would be required to pay Parent a termination fee equal to $1,645,000 plus reimburse Parent for its reasonable and documented third party expenses in an aggregate amount not to exceed $3,500,000 (including, under certain circumstances, if the Company enters into a definitive agreement with respect to an Acquisition Proposal within twelve (12) months following termination of the merger agreement). See “The Merger Agreement—Termination Fees” beginning on page 59.

 

 

Enforcement of Merger Agreement. Under certain circumstances, the Company, on the one hand, and Parent and Merger Sub, on the other hand, are entitled to an injunction or injunctions to prevent breaches or threatened breaches of the merger agreement and to enforce specifically the terms and provisions thereof, this being in addition to any other remedy at law or in equity to which they are entitled. See “The Merger Agreement—Other Covenants and Agreements—Enforcement of Merger Agreement” beginning on page 61.

 

 

Appraisal Rights. Holders of Class A Common Stock will not be entitled to exercise appraisal rights pursuant to Section 3-202(c)(1) of the MGCL, provided that shares continue to be listed on the NYSE American on the record date for the Special Meeting. However, holders of shares of Class B Common Stock will be entitled to exercise appraisal rights. In order to exercise appraisal rights, holders of Class B Common Stock must: (1) file with the Company a written objection to the Merger at or before the Special Meeting; (2) may not vote in favor of the Merger; and (3) within 20 days after the Articles of Merger effecting the merger are accepted for filing by the Maryland State Department of Assessments and Taxation, make a written demand of the Company for payment of the holder's Class B Common Stock, stating the number and class of shares for which the stockholder demands payment. Written objections should be sent to 6446 Edsall Road, Alexandria, VA 22312, Attn: Cheryl Dragoo. The Company will provide the holders of Class B Common Stock prompt written notice of the filing and acceptance for record of the Articles of Merger. In accordance with the MGCL, a holder of Class B Common Stock who fails to comply with each of the requirements of Maryland law is bound by the terms of the Merger and will not be entitled to any appraisal rights. A copy of Title 3, Subtitle 2 of the MGCL is included as Appendix C to this Proxy Statement and the procedures are summarized in this Proxy Statement. See “Proposal 1: The Merger—Appraisal Rights” beginning on page 34 and Appendix C to this Proxy Statement. Holders of Class B Common Stock also are encouraged to consult with their own legal advisor as to their appraisal rights under Maryland law. Failure to strictly comply with these procedures will result in the loss of these appraisal rights and your ability to receive cash for the fair value of your Class B Common Stock.

 

 

Additional Information. You can find more information about the Company in the periodic reports and other information the Company files with the Securities and Exchange Commission (the “SEC”). This information is available at the website maintained by the SEC at www.sec.gov and on the Company’s website at https://www.bowl-america.com/investor-relations/. For a more detailed description of the additional information available, see “Where Stockholders Can Find More Information” beginning on page 65.

 

5

 

QUESTIONS AND ANSWERS ABOUT THE MERGER,
THE MERGER-RELATED EXECUTIVE COMPENSATION AND THE SPECIAL MEETING

 

The following questions and answers, which are for your convenience only, briefly address some commonly asked questions about the merger, the “merger-related executive compensation” and the Special Meeting and are qualified in their entirety by the more detailed information contained elsewhere in this Proxy Statement. These questions and answers may not address all questions that may be important to you as a stockholder of Bowl America. You should still carefully read this entire Proxy Statement, including the attached appendices.

 

Q:

When and where is the Special Meeting?

 

A:

The Special Meeting will be held at [], Eastern Time, on [], 2021. In light of ongoing developments related to COVID-19, and the related protocols that governments have implemented, the Board determined that the Special Meeting will be a virtual meeting conducted exclusively via live webcast. The Board believes that this is the right choice for the Company and its stockholders at this time, as it permits stockholders to attend and participate in the Special Meeting while safeguarding the health and safety of the Company’s stockholders, directors and management team. You will be able to attend the Special Meeting online, vote, and submit your questions during the Special Meeting by visiting [●]. To participate in the virtual meeting, you will need a 16-digit control number printed on your proxy card. You will be deemed present and may vote at the Special Meeting by following the instructions available on the meeting website during the Special Meeting. The meeting webcast will begin promptly at [], Eastern Time. We encourage you to access the meeting prior to the start time and you should allow ample time for the check-in procedures. Because the Special Meeting will be a completely virtual meeting, stockholders will not be able to attend the Special Meeting in person.

 

Q:

What items will be voted upon at the Special Meeting?

 

A:

There are three matters scheduled for a vote at the Special Meeting:

 

1.     A vote on the approval of the merger, pursuant to which Merger Sub will merge with and into the Company and the Company will continue as the surviving corporation and become an indirect wholly-owned subsidiary of Parent;

 

2.     An advisory (non-binding) vote to approve the “merger-related executive compensation” that may become payable to the Company’s named executive officer in connection with the merger; and

 

3.     A vote on a proposal to approve the adjournment, postponement or recess of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger.

 

Q:

What will happen in the merger?

 

A:

In the merger, Merger Sub will be merged with and into the Company and the Company will continue as the surviving corporation and become a wholly-owned subsidiary of Parent. As a result of the merger, the Class A Common Stock will no longer be publicly traded, and you will no longer have any interest in the Company’s future earnings or growth. In addition, the Class A Common Stock will be delisted from the NYSE American and deregistered under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Company will no longer be required to file periodic reports with the SEC with respect to Class A Common Stock.

 

Q:

What will I receive in the merger?

 

A:

If the merger is completed, you will be entitled to receive $8.53 in cash, without interest and less any applicable withholding taxes, for each share of Common Stock that you own immediately prior to the effective time of the merger. For example, if you own 100 shares of Common Stock, you will receive $853 in cash in exchange for your shares of Common Stock, without giving effect to any applicable withholding taxes. This does not apply to (i) shares of Common Stock held by the Company or any of its subsidiaries, (ii) shares of Common Stock held by Parent or its subsidiaries, and (iii) shares of Class B Common Stock whose holders delivered a written objection to the merger and have not voted for the merger or consented to it in writing and have otherwise demanded and perfected their appraisal rights in accordance with, and have complied in all respects with, the MGCL. You will not own, directly or indirectly, any shares of the capital stock in the surviving corporation.

 

6

 

Q:

Is the merger expected to be taxable to owners of the Common Stock?

 

A:

Yes. The exchange of shares of Common Stock for cash pursuant to the merger generally will be a taxable event for U.S. federal income tax purposes. Each U.S. holder (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences” beginning on page 34) whose shares of Common Stock are converted into the right to receive cash in the merger will generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of the cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares of Common Stock (i.e., shares of Common Stock acquired at the same cost in a single transaction). See “Proposal 1: The Merger —Material U.S. Federal Income Tax Consequences” beginning on page 34 for a discussion of certain material U.S. federal income tax consequences of the merger to certain U.S. holders and certain non-U.S. holders. The determination of the actual tax consequences of the merger to a holder of Common Stock will depend on the holder’s specific situation. Holders are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the merger to them based on their particular circumstance, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

 

Q:

Is the Company expected to pay a dividend prior to the closing of the transactions contemplated by the merger agreement?

 

A:

Yes, the merger agreement contemplates the Company declaring an extraordinary dividend of $0.60 per share of Common Stock which will be paid at or promptly after the effective time of the merger and will be contingent in all respects on the closing. Accordingly, if the merger is not completed, the Company will not pay the extraordinary dividend. Only stockholders of record on the record date for the extraordinary dividend will receive it, assuming the merger is closed.

 

Q:

How will our directors and executive officer vote on the proposal to approve the merger?

 

A:

Our directors and executive officer have informed us that, as of the date of this Proxy Statement, they intend to vote all of the shares of Common Stock owned directly by them in favor of the approval of the merger. In addition, the Majority Holders have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation. The voting and support agreement was entered into by each Majority Holder solely in their respective capacity as a stockholder of the Company, and the voting and support agreement does not limit or affect any actions taken by any officer or director of the Company solely in his or her capacity as a director or officer of the Company.

 

 

As of [●], 2021, the record date for the Special Meeting, our directors and executive officer beneficially owned or controlled, in the aggregate, 1,158,332 shares of Class A Common Stock and 1,089,443 shares of Class B Common Stock entitled to vote at the Special Meeting, representing 12,052,762 votes, which is approximately 67.4% of the total voting of the Common Stock. See “Proposal 1: The Merger —Interests of the Company’s Directors and the Executive Officer in the Merger” beginning on page 31.

 

Q:

What vote is required to approve the merger?

 

A:

The merger agreement must be adopted by the affirmative vote of at least a majority of the aggregate number of votes entitled to be cast by holders of Common Stock, voting together as a single class, as of the record date for the Special Meeting. Each of the issued and outstanding 3,746,454 shares of Class A Common Stock is entitled to one vote per share for an aggregate of 3,746,454 votes and each of the issued and outstanding 1,414,517 shares of Class B Common Stock is entitled to ten votes per share for an aggregate of 14,145,170 votes. The total number of votes represented by outstanding Class A Common Stock and Class B Common Stock as of the record date was 17,891,624.

 

 

Failure to vote your shares and abstentions will have the same effect as voting AGAINST the proposals. Whether or not you plan to attend the Special Meeting, to ensure the presence of a quorum and that your shares are represented at the Special Meeting, please vote via the Internet or by telephone as instructed in the accompanying proxy materials or complete, date and sign and return a proxy card as promptly as possible.

 

 

In addition, the Majority Holders have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation. The Majority Holders’ obligations under the voting and support agreement will automatically terminate without any further action required by any person upon the earliest to occur of (i) the mutual agreement of the parties thereto to terminate the voting and support agreement; (ii) the termination of the merger agreement in accordance with its terms, and (iii) the receipt of the requisite stockholder vote.

 

7

 

Q:

What is merger-related executive compensation and why am I being asked to cast an advisory (non-binding) vote to approve merger-related executive compensation that may become payable to the Companys named executive officer in connection with the merger?

 

A:

The “merger-related executive compensation” is certain compensation that is paid or may become payable to the Company’s named executive officer under an existing agreement with the Company in connection with the merger. See “Proposal 2: Advisory Vote on “Merger-Related Executive Compensation” beginning on page 62. The SEC has adopted rules that require the Company to seek approval, on an advisory (non-binding) basis, with respect to certain compensation that will or may be payable to the Company’s named executive officer in connection with the merger.

 

Q:

What vote is required to approve on an advisory basis the merger-related executive compensation that may become payable to the Companys named executive officer in connection with the merger?

 

A:

The affirmative vote of a majority of the aggregate number votes entitled to be cast by holders of shares of Common Stock, voting together as a single class, present in person or represented by proxy and entitled to vote on the proposal is required for approval of the advisory (non-binding) proposal on “merger-related executive compensation.”

 

Q:

What will happen if stockholders do not approve the merger-related executive compensation at the Special Meeting?

 

A:

Approval of the “merger-related executive compensation” is not a condition to the completion of the merger. The vote with respect to the “merger-related executive compensation” is an advisory vote and will not be binding on the Company or Parent. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the non-binding, advisory vote, if the merger is approved by the stockholders and the merger is completed, our named executive officer will be eligible to receive the various “merger-related executive compensation” payments.

 

Q:

What is a quorum?

 

A:

A quorum will be present if holders of a majority of the aggregate voting power of all outstanding shares of Common Stock entitled to vote on a matter at the Special Meeting are present in person or represented by proxy at the Special Meeting. If a quorum is not present at the Special Meeting, the Special Meeting may be adjourned to another time and place.

 

 

If  you hold shares of Common Stock in your own name and submit a proxy but fail to indicate your vote or abstain on any of the proposals listed on the proxy card, your shares will be counted for purpose of determining whether a quorum is present at the Special Meeting. If your shares are held in “street name” by your broker, bank or other nominee or the Bowl America Incorporated 1987 Employee Stock Ownership Plan (the “ESOP”) and you do not tell the broker, bank, nominee or trustee of the ESOP (“ESOP Trustee”) how to vote your shares, your shares will not be counted for purposes of determining whether a quorum is present for the transaction of business at the Special Meeting.

 

Q:

How many votes do I have?

 

A:

Each of the issued and outstanding 3,746,454 shares of Class A Common Stock is entitled to one vote per share for an aggregate of 3,746,454 votes and each of the issued and outstanding 1,414,517 shares of Class B Common Stock is entitled to ten votes per share for an aggregate of 14,145,170 votes. The total number of votes represented by outstanding Class A Common Stock and Class B Common Stock as of the record date was 17,891,624. The Majority Holders have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation. The Majority Holders’ obligations under the voting and support agreement will automatically terminate without any further action required by any person upon the earliest to occur of (i) the mutual agreement of the parties thereto to terminate the voting and support agreement; (ii) the termination of the merger agreement in accordance with its terms, and (iii) the receipt of the requisite stockholder vote.

 

8

 

Q:

How are votes counted and what happens if I do not vote?

 

A:

Votes will be counted separately in respect of each proposal by the inspector of election appointed for the Special Meeting, who will separately count FOR and AGAINST votes as well as abstentions.

 

 

Because the affirmative vote of at least a majority of the aggregate number of votes entitled to be cast by holders of Common Stock, voting as a single class, is required to approve the merger, the failure to vote and abstentions will have the same effect as a vote AGAINST the merger proposal. Approval of the advisory (non-binding) proposal on the “merger-related executive compensation” and the proposal to adjourn the Special Meeting if there are not sufficient votes to approve the merger and the transactions contemplated by the merger agreement, each requires the affirmative vote of a majority of the aggregate number of votes cast by holders of shares of Common Stock, voting together as a single class, present in person or represented by proxy. As a result, abstentions and broker non-votes will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum. As noted above, the vote with respect to the “merger-related executive compensation” is an advisory vote and will not be binding on the Company or Parent. Accordingly, regardless of the outcome of the non-binding, advisory vote, if the merger agreement is adopted by the stockholders and completed, our named executive officer will be eligible to receive the various “merger-related executive compensation” payments.

 

 

As noted above, the Majority Holders have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation. The Majority Holders’ obligations under the voting and support agreement will automatically terminate without any further action required by any person upon the earliest to occur of (i) the mutual agreement of the parties thereto to terminate the voting and support agreement; (ii) the termination of the merger agreement in accordance with its terms, and (iii) the receipt of the requisite stockholder vote.

 

Q:

If my shares are held in street name by my broker, bank or other nominee or the ESOP, will my broker, bank or other nominee or ESOP Trustee, as applicable, vote my shares for me?

 

A:

Your broker, bank or other nominee and/or the ESOP Trustee will not vote your shares on your behalf unless you provide instructions to your broker, bank or other nominee or ESOP Trustee, as applicable, on how to vote. You should follow the directions provided by your broker, bank or other nominee or ESOP Trustee regarding how to instruct it to vote your shares. Without those instructions, your shares will not be voted, which will have no effect on any of the proposals.

 

Q:

Will my shares held in street name, in the ESOP or another form of record ownership be combined for voting purposes with shares I hold of record?

 

A:

No. Because any shares you may hold in “street name” or in the ESOP will be deemed to be held by a different record stockholder than any shares you hold of record, any shares so held will not be combined for voting purposes with shares you hold of record. Similarly, if you own shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Shares held by a corporation or business entity may be voted by the officer, agent or proxy designated by the bylaws of such corporate stockholder or, in the absence of any applicable bylaw, by such person or persons as the board of directors of the corporate stockholder may designate. In the absence of any such designation, or, in case of conflicting designation by the corporate stockholder, the chairman of the board, the president, any vice president, the secretary and the treasurer of the corporate stockholder, in that order, shall be presumed to be fully authorized to vote such shares. Shares held by an administrator, executor, guardian, personal representative, or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name or the name of his nominee. Shares held by or under the control of a receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of creditors may be voted by such person without the transfer thereof into his name. If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Company is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, then acts with respect to voting shall have the following effect: (a) if only one votes, in person or by proxy, his act binds all; (b) if more than one votes, in person or by proxy, the act of the majority so voting binds all; (c) if more than one votes, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; or (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes hereof shall be a majority or a vote evenly split in interest.

 

9

 

Q:

How do I vote?

 

A:

If you were the record holder of shares of Common Stock, as of the record date, you may submit your proxy in one of the following ways:

 

 

use the toll-free number shown on your proxy card;

 

visit the website shown on your proxy card to vote via the internet;

 

complete, sign, date and return the enclosed proxy card in the postage-paid envelope; or

 

vote at the virtual Special Meeting as described below.

 

 

Please carefully consider the information contained in this Proxy Statement and, regardless whether or not you plan to attend the Special Meeting, please vote by telephone, internet or mail so that your shares will be voted in accordance with your wishes even if you later decide not to attend the Special Meeting.

 

 

Voting at the Special Meeting

 

 

We encourage you to vote by telephone, internet or mail. If you attend the Special Meeting (which would include voting at the virtual Special Meeting), you may also submit your vote at the Special Meeting via the Special Meeting website at [●], in which case any votes that you previously submitted by mail will be superseded by the vote that you cast at the Special Meeting. You will be deemed present and may vote at the Special Meeting by following the instructions available on the meeting website during the Special Meeting. If your proxy is properly completed and submitted, and if you do not revoke it prior to or at the Special Meeting, your shares will be voted at the Special Meeting in the manner set forth in this Proxy Statement or as otherwise specified by you.

 

 

Voting of Shares Held in Street Name or in the ESOP

 

 

If your shares are held in an account at a broker, bank, or nominee (i.e., in “street name”) or in the ESOP, you must provide the record holder of your shares or the ESOP Trustee, as applicable, with instructions on how to vote the shares. Please follow the voting instructions provided by the broker, bank, or nominee or the ESOP Trustee.

 

Q:

May I change my vote after I have returned my proxy card or voting instruction form?

 

A:

Yes. If you are the stockholder of record of your shares, you may revoke your proxy in any one of three ways:

 

 

delivering a signed written notice of revocation to our Secretary at 6446 Edsall Road, Alexandria, VA 22312, bearing a date later than the date of the proxy, stating that the proxy is revoked;

 

 

timely delivering a new, valid proxy relating to the same shares and bearing a later date by submitting instructions via telephone, internet or mail as described in your proxy card; or

 

 

attending and voting at the Special Meeting and voting, although attendance at the Special Meeting will not, by itself, revoke a proxy.

 

 

If your shares are held by your broker, bank or other nominee or the ESOP, you should follow the instructions provided by your broker, bank or other nominee, or ESOP Trustee, as applicable.

 

Q:

What does it mean if I receive more than one set of proxy materials?

 

A:

This means you own shares of Common Stock that are registered under different names or are in more than one account. For example, you may own some shares directly as a stockholder of record and other shares through a broker or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must vote, sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards that you receive in order to vote all of the shares you own. Each proxy card you receive comes with its own prepaid return envelope. If you submit your proxy by mail, make sure you return each proxy card in the return envelope that accompanies that proxy card.

 

Q:

If the merger is completed, how will I receive cash for my shares?

 

A:

If the merger is approved and the merger is consummated, and if you are the record holder of your shares of Common Stock (i.e., you have a stock certificate (or affidavit of loss in lieu thereof) or you hold shares directly in book-entry), promptly, and in no event later than one business day after the effective time of the merger, you will be sent a letter of transmittal to complete and return to a paying agent to be designated by Parent, referred to herein as the “paying agent.” In order to receive the $8.53 per share merger consideration, you must send the paying agent, according to the instructions provided, your validly completed and signed letter of transmittal together with your Company stock certificates (or affidavit of loss in lieu thereof) and other required documents as instructed in the separate mailing. Once you have properly submitted these materials, you will receive cash for your shares. If your shares of Common Stock are held in “street name” by your broker, bank or other nominee or in the ESOP, you will receive instructions after the effective time of the merger from your broker, bank or other nominee or the ESOP Trustee, as applicable, as to how to effect the surrender of your “street name” shares and receive cash for those shares.

 

10

 

Q:

What happens if the merger is not completed?

 

A:

If the merger is not approved by the stockholders of the Company or if the merger is not completed for any other reason, the stockholders of the Company will not receive any payment of the merger consideration for their shares of Common Stock in connection with the merger, nor will our stockholders receive payment of the extraordinary dividend. Instead, the Company will remain a stand-alone company, the Class A Common Stock will continue to be listed and traded on the NYSE American and registered under the Exchange Act, and the Company will continue to file periodic reports with the SEC with respect to Class A Common Stock. Under specified circumstances, the Company may be required to pay to Parent a fee with respect to the termination of the merger agreement, as described under “The Merger Agreement—Termination Fees” beginning on page 60.

 

Q:

When should I send in my stock certificates?

 

A:

If the merger is approved and the merger consummated, you will receive a letter of transmittal following the consummation of the merger. You should send your stock certificates (or affidavit of loss in lieu thereof) together with the letter of transmittal in accordance with the instructions provided by the paying agent after the merger is consummated and not now.

 

Q:

I do not know where my stock certificate ishow will I get my cash?

 

A:

The materials you are sent after the completion of the merger will include the procedures that you must follow if you cannot locate your stock certificate(s). This will include an affidavit that you will need to sign attesting to the loss of your stock certificate(s). The surviving corporation may also require that you post a bond in favor of the surviving corporation in order to cover any potential loss.

 

Q:

What happens if I sell my shares of Common Stock before the Special Meeting?

 

A:

The record date for stockholders entitled to vote at the Special Meeting is earlier than the consummation of the merger. If you transfer your shares of Common Stock after the record date but before the Special Meeting you will, unless special arrangements are made, retain your right to vote at the Special Meeting, but will transfer the right to receive the per share merger consideration to the person to whom you transfer your shares.

 

Q:

What rights do I have to seek a valuation of my shares?

 

A:

Holders of Class A Common Stock are not entitled to exercise appraisal rights pursuant to Section 3-202(c)(1) of the MGCL provided that shares continue to be listed on the NYSE American on the record date for the Special Meeting. However, holders of shares of Class B Common Stock will be entitled to exercise appraisal rights. In order to exercise appraisal rights, holders of Class B Common Stock must: (1) file with the Company a written objection to the Merger at or before the Special Meeting; (2) may not vote in favor of the Merger; and (3) within 20 days after the Articles of Merger effecting the merger are accepted for filing by the Maryland State Department of Assessments and Taxation, make a written demand of the Company for payment of the holder's Class B Common Stock, stating the number and class of shares for which the stockholder demands payment. Written objections should be delivered to 6446 Edsall Road, Alexandria, VA 22312, Attention: Cheryl A. Dragoo. The Company will provide the holders of Class B Common Stock prompt written notice of the filing and acceptance for record of the Articles of Merger. In accordance with the MGCL, a holder of Class B Common Stock who fails to comply with each of the requirements of Maryland law is bound by the terms of the Merger and will not be entitled to any appraisal rights. A copy of Title 3, Subtitle 2 of the MGCL is included as Appendix C to this Proxy Statement and the procedures are summarized in this Proxy Statement. Holders of Class B Common Stock also are encouraged to consult with their own legal advisor as to their appraisal rights under Maryland law. Failure to strictly comply with these procedures will result in the loss of these appraisal rights and your ability to receive cash for the fair value of your Class B Common Stock.

 

Q:

What do I need to do now?

 

A:

You should carefully read this Proxy Statement, including the appendices, in their entirety, and consider how the merger would affect you. Whether or not you plan to attend the Special Meeting, to ensure the presence of a quorum and that your shares are represented at the Special Meeting, please vote via the Internet or by telephone as instructed in the accompanying proxy materials or complete, date, sign and return a proxy card as promptly as possible.

 

Q:

Who can help answer my questions?

 

A:

If you have questions about the Special Meeting or the merger after reading this Proxy Statement, or if you would like additional copies of this Proxy Statement or the proxy card, you should contact Bowl America Incorporated - 6446 Edsall Road, Alexandria, Virginia 22312, Attention: Cheryl A. Dragoo or call (703) 941-6300.

 

11

 

PROPOSAL 1: THE MERGER

 

The description of the merger in this section and elsewhere in this Proxy Statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Appendix A and is incorporated by reference into this Proxy Statement. This summary does not purport to be complete and may not contain all of the information about the merger that is important to you. You are encouraged to read the merger agreement carefully and in its entirety.

 

Certain Effects of the Merger

 

If the merger is approved by the Company’s stockholders and certain other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into the Company with the Company being the surviving corporation in the merger.

 

Upon the consummation of the merger, each share of Common Stock issued and outstanding immediately before the effective time of the merger, other than as provided below, will be converted into the right to receive $8.53 in cash, without interest and less applicable withholding taxes. The following shares of Common Stock will not be converted into the right to receive the per share merger consideration in connection with the merger: (i) shares of Common Stock held by the Company or any of its subsidiaries, (ii) shares of Common Stock held by Parent or any of its subsidiaries, and (iii) shares of Class B Common Stock whose holders have delivered a written objection to the merger, have not voted in favor of adopting the merger agreement and have demanded and perfected their appraisal rights in accordance with, and have complied in all respects with, MGCL.

 

The Class A Common Stock is currently registered under the Exchange Act and is quoted on the NYSE American under the symbol “BWL-A.” As a result of the merger, the Company will cease to be a publicly-traded company and will be wholly-owned by Parent. Following the consummation of the merger, the Class A Common Stock will be delisted from the NYSE American and deregistered under the Exchange Act, and the Company will no longer be required to file periodic reports with the SEC, in each case in accordance with applicable law, rules and regulations.

 

Background of the Merger

 

Edward Goldberg, Sollie Katzman, Samuel Sobkov and Samuel Higger founded Bowl America in 1958. Since such time, Bowl America has at all times been controlled, directly or indirectly, by their heirs. Nancy Hull, Merle Fabian and Ruth Macklin are heirs to the original Bowl America founders and Nancy Hull and Merle Fabian currently serve on the board of directors (Ms. Macklin recently resigned for personal health reasons). Merle Fabian, Ruth Macklin, Nancy Hull and members of the Katzman family comprise the Majority Holders.

 

Bowl America’s Board and management regularly review and evaluate its business and operations, long-term strategic goals and alternatives, and prospects for the growth and profitability of its operations. As part of that ongoing review, the Board regularly assesses trends and conditions affecting the bowling industry and its competitive market position, and considers strategic alternatives, including property acquisitions and dispositions, available to enhance stockholder value. From time to time, various parties have approached the Company regarding the sale of one or more of its bowling centers. In response to such parties’ expressions of interest in purchasing one or more of its centers, the Company’s management, in consultation with the Board, has generally engaged in discussions with such parties to assess such parties’ seriousness, ability to obtain financing and any conditions to closing. These discussions relating to one or more of its centers historically have not resulted in any sales of properties due to the insufficient price offered for a center, the amount of closing conditions, the lack of available financing and/or the Company’s desire to continue operating such property.

 

During 2018 and 2019, Leslie H. Goldberg, Bowl America’s President and CEO since 1976, began experiencing health issues. Over the decades, Mr. Goldberg’s unique leadership style and vision defined the Company and its success. As a result of Mr. Goldberg’s declining health and resulting inability to help continue the Company’s success, the Board and management considered the Company’s strategic options, including finding and training a replacement for Mr. Goldberg, reinvesting in the Company’s bowling centers as well as improved management information and computer systems, expanding operations or potentially selling the Company or certain of its properties. As part of its review of the Company’s stand-alone prospects, the Company considered operating in accordance with past history, acquiring additional centers, selling non-performing centers, making capital improvements in its centers, increasing marketing spend and adding additional executives to its management team. The Board reasoned that it would likely experience challenges seeking to grow revenue through such efforts, as the Company would need to seek financing through debt or the sale of equity, or use its cash reserves, in order to fund such efforts without any guarantee of a return on its investment. In addition, the Company would need to reduce its historical dividend in order to pay for a substantial capital improvement program. A reduction in the historical dividend paid on the Company’s Common Stock could have a negative impact on the Company’s stockholders. Continuing as a stand-alone company would also require the Company to recruit and train a successor CEO and CFO, as the Company’s current combined CEO/CFO is approaching retirement.

 

12

 

On March 19, 2019, representatives of Foley & Lardner LLP (“Foley”), outside counsel to the Company, attended the Company’s Board meeting where the Board considered the strategic options available to the Company. In advance of the Board meeting, Foley distributed to the Board a memorandum on the Board’s fiduciary duties in connection with a potential sale of the Company. Foley counseled the Board on the Board’s role in the event the Company were to explore a potential change of control transaction, including, among other things, the Board’s fiduciary duties in connection with its review and consideration of any such potential transaction and the exploration of other strategic alternatives more generally. Thereafter, after deliberations amongst the members of the Board, the Board determined that the Company should explore its strategic alternatives, including a potential change of control transaction, through an organized process. It was then decided that the Company would engage an investment banker in order to guide it during a strategic alternatives process and that Allan Sher and Cheryl Dragoo would lead any strategic alternatives process on behalf of the Board and report back to members of the Board regularly. The Board also considered the potential conflicts of interest with members of the Board that controlled significant shares of Common Stock and concluded that no such conflict existed as a result of the fact that all stockholders would receive the same per share consideration for each share of Class A and B Common Stock and that no director would have any continuing involvement with the Company following a transaction other than Ms. Dragoo who would continue solely in her capacity as CEO/CFO in accordance with the terms of her existing employment agreement.

 

On May 7, 2019, the Board engaged Duff & Phelps Securities, LLC (“D&P”) to serve as its advisor in connection with the exploration of potential strategic alternatives available to the Company, including a potential sale of the Company. As part of the engagement, the Board considered that it did not have any prior business dealings with D&P that would create a conflict of interest from its representation. From May 2019 until October 2019, D&P worked with the Company to conduct diligence, complete a quality of earnings assessment, examine alternatives and prepare marketing materials for the Company.

 

Between November 2019 and March 2020, representatives of D&P and Foley met with Mr. Sher and Ms. Dragoo regularly to review the possible strategic alternatives that might yield the highest and best value to the Company’s stockholders. D&P reported that between November 2019 and February 2020, D&P reviewed strategic alternatives and conducted an extensive sale process with a large outreach contacting over 132 parties, which included a mix of strategic companies, financial sponsors, and real estate-oriented investors. Of the 132 parties contacted, 35 parties entered into a confidentiality agreement with the Company. Four of these parties, including Parent, submitted preliminary non-binding indications of interest to D&P for the entire company, one party submitted a preliminary non-binding indication of interest to D&P for the operating assets of the Company that was deemed insufficient and one party submitted a preliminary non-binding indication of interest to D&P for the entire real estate portfolio that was also deemed insufficient. The remaining parties declined the opportunity.

 

Between January 2020 and February 2020, representatives of D&P and Foley met with Mr. Sher and Ms. Dragoo. D&P detailed the initial indications of interest received by D&P and discussed the pros and cons of each, including the price, tax implications, financing contingencies and likelihood of closing. After consultation with Mr. Sher and Ms. Dragoo, the Board agreed that D&P would approach the four parties interested in acquiring the entire company for more information regarding their interest and for more information regarding their offers. These four parties were Parent, Party X, Party Y (an affiliated entity of an existing Class A common stockholder of the Company) and Party Z.

 

During February and March 2020, representatives of D&P and Foley met regularly with Mr. Sher and Ms. Dragoo to review D&P’s ongoing discussions and any additional information received from the four parties.

 

On March 11, 2020, representatives of D&P and Foley met with Mr. Sher and Ms. Dragoo. At the meeting, D&P reported that Party Z was no longer interested in purchasing the entire company and was only interested in purchasing five of the Company’s centers. Additionally, D&P confirmed that Parent and Party X had revised their indications of interest to decrease their offering price after conducting limited due diligence. Party Y did not submit a revised indication of interest during D&P’s outreach nor did Party Y provide any update on its level of interest or conduct any material level of due diligence. D&P advised that the emerging COVID-19 outbreak was beginning to negatively impact the sale process and markets in general.

 

On March 18, 2020, the Company closed all bowling centers as required by the orders from state and federal governments, in an effort to mitigate the spread of COVID-19.

 

On March 25, 2020, representatives of D&P and Foley met with Mr. Sher and Ms. Dragoo to review the Company’s strategic alternatives. At the meeting, D&P reported that, as a result of market disruptions caused by the emerging COVID-19 outbreak, only two potential bidders for the entire Company remained, one of which was Parent. On March 30, 2020, as it became evident that the COVID-19 shutdown would be lengthy, the Company suspended its previously regularly paid quarterly cash dividend on its shares of Common Stock. In addition, the Company furloughed most of its employees and reduced expenses to the greatest extent possible in order to conserve cash.

 

On March 30, 2020, representatives from D&P and Foley attended a Board meeting regarding the strategic alternatives process to provide the full Board with another update. D&P reviewed their presentation materials with the Board, first mentioning the extensive outreach process that included contacting 132 parties, and ending with the confirmation that the Company only had two current indications of interest for the entire company (one of which was from Parent and the other from Party X). Party Z only expressed interested in five of the Company’s properties. D&P also discussed the impact of COVID-19 on the process and the consideration of potentially putting the process on hold with one potential buyer electing to drop out altogether in light of the COVID-19 outbreak. In addition, the Board discussed the general impact of COVID-19 on the Company’s operations and liquidity. Following such discussion, as Parent was the only bidder for the entire Company that did not include a financing contingency in its offer, the Board directed D&P to pursue a transaction with Parent.

 

13

 

On April 10, 2020, representatives from D&P and Foley met with Mr. Sher and Ms. Dragoo to provide an update on the negotiations with Parent and the overall process. D&P informed Mr. Sher and Ms. Dragoo that Parent had decided to not engage further in the process as it wanted to wait and determine the effect of COVID-19 on the market and the uncertainty created thereby. D&P also disclosed that Party X confirmed it could only move forward with a much lower purchase price as a result of its failure to obtain bank financing. Due to Parent’s suspension of all activities and the second party’s inability to obtain financing, as well as the Company’s closure of all of its bowling centers as a result of the COVID-19 pandemic, D&P recommended to Mr. Sher and Ms. Dragoo that the process be slowed or suspended completely to see if things improved in the future so that a sales process could continue and the bidders would re-engage.

 

On April 13, 2020, representatives from Foley attended a Board meeting regarding the update from D&P given on April 10, 2020. Following the update from Mr. Sher and Ms. Dragoo, the Board unanimously decided that it would be best to pause the strategic process for a period of time until the COVID-19 restrictions lapsed or relatively normal operations resumed.

 

Following the April 13, 2020 meeting of the Board, the Board met several times to discuss the strategic direction of the Company in light of the COVID-19 pandemic, including several potential strategic alternatives, which included selling one or more of its specific locations. During such period, the Company received offers to sell one or more of its centers. However, the Board determined that such offers involved the Company’s most profitable centers and/or were unsatisfactory in price despite the economic uncertainty given the COVID-19 pandemic.

 

From April 2020 through December 2020, D&P maintained regular contact with the parties that had previously submitted non-binding letters of interest for the Company. D&P also initiated conversations with another real estate-oriented investor interested in the real estate portfolio of the Company at the request of Ms. Dragoo.

 

During June 2020, the Company received a preliminary non-binding letter of interest from the aforementioned investor to acquire the entire real estate portfolio for $37 million in an asset transaction that would be taxable to the Company and its stockholders that was also subject to customary closing conditions for a real estate portfolio acquisition, including financing.

 

From April 2020 through November 2020, D&P kept in regular contact with Mr. Sher and Ms. Dragoo to provide them with regular updates on the status of discussions, including the indicative offer received in June for the purchase of the entire real estate portfolio. During this period of time, D&P contacted each of Parent, Party X, Party Y, Party Z at various points in time to gauge interest for the Company. Party X and Party Z never re-engaged in the process. In June 2020, D&P contacted Party Y, at which time Party Y communicated to D&P that it had not done any additional due diligence on the Company since the COVID-19 closures, but remained interested, subject to how the Company’s centers re-opened post pandemic. D&P contacted Party Y again in November 2020, at which time Party Y communicated to D&P that it remained interested in the Company, but was hesitant about COVID-19 and the path to recovery post-COVID. Party Y requested that D&P contact it again when the process restarts. D&P explained that the Company did not expect to restart the process as a structured auction process like before, but rather to focus the process on interested bidders and would go back to those parties which had looked at the Company. D&P advised Mr. Sher and Ms. Dragoo that the continued impact of the COVID-19 pandemic was limiting the overall interest of bidders to reengage.

 

In November 2020, a new Party 2, who had not been solicited, contacted Ms. Dragoo to discuss acquiring the entire Company. Ms. Dragoo directed Party 2 to engage with D&P and conduct diligence on the Company.

 

On December 15, 2020, representatives from D&P and Foley attended a Board meeting regarding the strategic alternatives and the business. D&P reported that the Company received two indications of interest for the entire company, one from Parent in the amount of $43 million in a cash and debt-free transaction that would permit the Company to dividend excess cash to its stockholders and would not be contingent on financing. The second indication of interest, from Party 2 that contacted the Company unsolicited in November 2020, offered $40 million in a cash and debt-free transaction (which purchase price would be reduced to the extent that securities or cash were distributed by the Company) that included a financing contingency. Following a thorough discussion, the Board directed D&P to proceed with exploring a potential transaction with both Parent and Party 2 in order obtain the highest possible price for all stockholders.

 

During December 2020, D&P contacted each of Parent and Party 2 and requested each party’s final and best offer.

 

On January 7, 2021, Parent increased its offer to $44 million (with all other terms remaining the same) and thereafter presented the Company with a non-binding letter of intent with a proposed 180-day period of exclusivity. Party 2 reiterated its previous offer was its best and final.

 

On January 12, 2021, and after the Board considered both the offer of Parent and Party 2, the Company signed a letter of intent with Parent that provided for a total enterprise value of $44 million and an exclusivity period of 90 days (ending on April 12, 2021).

 

14

 

Shortly thereafter, Foley sent DLA Piper LLP (US) (“DLA”), counsel to Parent, a draft merger agreement. Following distribution of the merger agreement, Parent and DLA conducted extensive due diligence on the Company.

 

On February 24, 2021, Foley received a revised draft of the merger agreement from DLA. In its revisions, Parent proposed a merger price of $44 million subject to adjustment for the Company’s indebtedness, accrued liabilities and transaction expenses, which created potential risk that the price per share in the merger could be less than $8.53 per share.

 

On March 2, 2021, after reviewing the revised merger agreement from DLA and receiving counsel from Foley, Mr. Sher and Ms. Dragoo directed D&P to re-affirm the Company’s understanding with Parent regarding its proposal in the January 12, 2021 letter of intent that the purchase price for the Company was $44 million and not subject to adjustment for the Company’s indebtedness, accrued liabilities or transaction expenses. The Company agreed to let D&P reach out to Parent for further discussions regarding price before Foley responded with substantive comments to the revised merger agreement in order to ensure a fixed per share merger price for stockholders.

 

On March 4, 2021, D&P discussed with Parent fixing the per share merger price of $8.53 ($44 million divided by total shares of Class A Common Stock and Class B Common Stock outstanding) and establishing a fixed minimum dividend payment following the liquidation of the Company’s securities portfolio of $0.50, with the ability to increase the amount of the fixed minimum dividend payment based on available cash in excess of indebtedness and other Company liabilities at closing.

 

On March 8, 2021, Parent confirmed with D&P that there would be a fixed merger price per share plus a fixed minimum dividend. On that same day, Foley and DLA corresponded regarding the material comments and issues in the revised merger agreement. As part of this correspondence, Foley identified various other issues with the merger agreement, including the lack of an inclusion of a “material adverse effect” qualifier for the Company’s representations and warranties to be made at closing, a condition requiring the Company’s Employee Stock Ownership Plan (ESOP) to retain an independent trustee and the requirement for the ESOP to obtain a fairness opinion for the transaction and other matters.

 

On March 18, 2021, attorneys from DLA and Foley participated in a conference call to discuss the issues presented in the March 8, 2021 email from Foley.

 

On March 23, 2021, the Board had a meeting with representatives of Foley regarding the draft of the merger agreement, including the proposed closing conditions included therein and other material issues. After a discussion, in order to provide as much certainty of closing of the transaction as possible to its stockholders, the Board decided that the merger agreement should contain as few closing conditions as possible and provide for a fixed per share merger price and a fixed minimum dividend payment allowed prior to the closing.

 

On March 24, 2021, Foley sent the revised merger agreement to DLA. Following distribution of the merger agreement, DLA communicated to Foley that Parent had not agreed to a fixed minimum dividend of at least $0.50 per the Company’s prior understanding. On April 5, 2021, representatives from D&P and Foley met with Mr. Sher and Ms. Dragoo to discuss the per share merger price and issues raised by Parent regarding setting a fixed contingent dividend amount. D&P was instructed to again confirm with Parent that the Company’s stockholders would receive a fixed cash merger price of $8.53, a minimum fixed dividend of $0.50 with the ability for such amount to be increased based on the Company’s available cash in excess of indebtedness and other Company liabilities at closing. On the same day, D&P communicated the same to Parent, with Parent advising it needed to conduct further due diligence regarding the Company’s cash position and liabilities.

 

During the week of April 8, 2021, Parent requested that the Company extend the exclusivity period for an additional 30 days to May 12, 2021. The Company agreed to extend exclusivity until April 30, 2021 given the relative progress with respect to the transaction.

 

On April 13, 2021, DLA and Foley had a conference call to discuss the merger agreement and material issues therewith, including the Parent’s desire to require the ESOP to have an independent trustee and its own fairness opinion with respect to the transaction, the treatment of a $1.5 million outstanding loan under the Paycheck Protection Program (which was later forgiven), various closing conditions, certain potential contingent liabilities, the treatment of employees and other material matters.

 

On April 16, 2021, DLA provided a draft of a form of voting and support agreement that it requested the Majority Holders execute concurrently with the merger agreement. On April 19, 2021, Foley provided comments to the form of voting and support agreement in order to ensure that the voting and support agreement would terminate upon any termination of the merger agreement, including in the event of a termination to enter into an agreement for a superior proposal.

 

On April 23, 2021, DLA sent a revised draft of the merger agreement to Foley.

 

On April 28, 2021, representatives from Foley met with Allan Sher and Cheryl Dragoo regarding the issues with the revised draft of the merger agreement; including the failure to provide for a minimum fixed dividend of not less than $0.50 per share; the inclusion of various fees and expenses payable by the Company that would reduce a contingent dividend; the delivery by the ESOP trustee of a certificate to Parent regarding the fairness of the transaction; the lack of an obligation to continue employment of non-managerial employees; and matters regarding the ability to terminate the merger agreement.

 

15

 

On April 29, 2021, representatives from Foley attended a meeting of the Board of Directors regarding the issues with the merger agreement previously conveyed to Mr. Sher and Ms. Dragoo on April 28, 2021. Following the discussion, the Board concluded that it would only move forward with negotiations if Parent were to provide certainty as to the amount of any dividend and if the other material issues with the merger agreement were resolved in a manner that the Board believed to be acceptable. The Board directed Mr. Sher to communicate its position to Parent through D&P regarding the conditions upon which the Company would be willing to continue negotiations and extend the period of exclusivity or, in the alternative, cease negotiations altogether.

 

On April 30, 2021, representatives from Foley and D&P met to discuss the Board’s instruction and how to approach Parent with the Board’s issues. It was decided that D&P would interface with Parent directly on a business level to resolve the open issues.

 

Between April 30 and May 17, 2021, D&P negotiated with Parent to determine any proposed adjustments and liabilities that would be deducted from the amount of the proposed dividend and the other material changes discussed in the April 28 and 29, 2021 meetings. On May 17, 2021, Parent agreed to fix the dividend at a floor of $0.50, eliminate the requirement of the Company to pay for tail insurance policies, and resolve most of the issues raised by Foley in a manner favorable to the Company.

 

On May 17, 2021, Foley sent a revised draft of the merger agreement to DLA.

 

Between May 20-21, 2021, DLA proposed to Foley that the parties consider one fixed dividend payment rather than a fixed minimum dividend with an additional dividend based on the Company’s available cash in excess of indebtedness and other Company liabilities. Following a meeting with Foley, Mr. Sher and Ms. Dragoo agreed to fix the dividend in order to provide certainty for stockholders and to eliminate the complexity of an adjustment from the transaction.

 

On May 23, 2021, DLA sent Foley a revised draft of the merger agreement. The primary substantive issue the Company had with the May 23 draft was the language in the termination section of the merger agreement regarding the ability to terminate the agreement if a party was in breach of the agreement (including through a breach over which they had no control). On May 24, 2021, Foley sent a revised draft of the merger agreement to DLA to revise the language regarding termination.

 

On May 24, 2021, DLA conveyed to Foley that it would be willing to fix the dividend at $0.60 per share, to which Parent agreed. DLA also insisted that Parent should be fully reimbursed for all of its third party expense as well as receive a termination fee in the event that, among other specified events, the Company terminated the merger for a superior proposal.

 

On May 26, 2021, DLA sent Foley a revised draft of the merger agreement with the primary changes being to revise the termination section and to establish a fixed dividend of $0.60 per share with no additional contingent dividend.

 

On May 27, 2021, the Board met to consider approval of the transaction. At the beginning of the meeting, Foley reviewed with the Board their fiduciary duty as directors when considering the potential sale of the Company as well as the material provisions in the draft merger agreement provided to the Board in advance of the meeting. Representatives of D&P presented its financial analysis of the proposed transaction and delivered its oral opinion to the Board that based upon and subject to the factors and assumptions set forth by D&P, the $8.53 in cash per share of the Class A and B Common Stock to be paid to the stockholders (other than to Parent) pursuant to the merger agreement was fair from a financial point of view to such stockholders. D&P’s financial analysis of the proposed transaction was after giving effect to the special dividend payable to existing shareholders in connection with the sale of the Company’s marketable investment securities of $0.60 per share. The presentation by D&P included the history of the sale process, a summary of the Company’s stock performance and stock market valuation, a review of the Company’s operating performance and a review of the Company’s financial performance during the past five years. In connection with D&P’s financial analysis of the transaction and the Company, the D&P representatives discussed selected public company data and selected precedent transactions. At the meeting, the Board discussed the challenges facing the Company in the event the Company continues on a stand-alone basis, including the need to recruit and train a successor CEO and CFO and expand the Company’s management, information and computer functions. The Board also discussed the desirability of undertaking a substantial capital investment program to update the Company’s bowling centers, the Company’s limited access to capital and the likely need to reduce or eliminate the Company’s historical dividend to finance such improvements and repay any debt incurred in connection therewith. The Board considered the potential negative impact on stockholders that would result from reducing or eliminating the Company’s historical dividends.

 

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Thereafter, the Board approved Parent’s proposal to acquire the Company for $8.53 per share in cash plus an extraordinary dividend of $0.60 per share for a total of $9.13 per share to each stockholder and unanimously adopted resolutions (i) determining that the merger agreement and the transactions contemplated by merger agreement, including the merger, upon the terms and subject to the conditions set forth therein are fair to, and in the best interests of, the Company and its stockholders, (ii) declaring advisable the merger and the other transactions contemplated by the merger agreement, (iii) authorizing and approving the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein, the submission of the merger and the other transactions contemplated by the merger agreement to the Company’s stockholders for approval, and, subject to receipt of such stockholder approval, the consummation of the merger and the transactions contemplated by the merger agreement, and (iv) recommending that the Company’s stockholders vote for the merger and the other transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement. The parties executed the merger agreement on May 27, 2021.

 

On June 10, 2021, Party Y filed an amendment to its Schedule 13D with the SEC and attached a letter to the Company and its Board in which it expressed disappointment in the proposed transaction and requested a copy of the fairness opinion of Duff & Phelps. The Company responded to Party Y’s letter on June 16, 2021 and advised that such opinion would be filed with the SEC. Party Y has not indicated that it currently intends to make an offer to acquire the Company.

 

Recommendation of the Board of Directors; Reasons for Recommending the Approval of the Merger

 

On May 27, 2021, the board of directors, after careful consideration, voted unanimously to (i) determine that the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein are fair to, and in the best interests of, the Company and its stockholders, (ii) declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) authorized and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein, the submission of the merger and the other transactions contemplated by the merger agreement to the Company’s stockholders for approval, and, subject to receipt of such stockholder approval, the consummation of the merger and the transactions contemplated by the merger agreement, and (iv) recommended that the Company’s stockholders vote FOR the merger and the other transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement.

 

In evaluating the merger, the board of directors consulted with the Company’s senior management and outside legal and financial advisors and, in reaching its determination, the board of directors considered a number of factors that they believed supported their decision to approve and recommend the merger agreement and the merger, including, but not limited to, the following:

 

 

the shares of Common Stock are being sold by the Company’s controlling stockholder on the same terms as the other stockholders of the Company without a control premium and the inability of the Company to repurchase such shares without incurring significant indebtedness;

 

 

the limited trading volume in the Company’s shares of Class A Common Stock;

 

 

the fact that the holders of the Class B Common Stock are not receiving any control premium for the sale of their shares over the shares of Class A Common Stock;

 

 

the fact that holders of Class A Common Stock and Class B Common Stock receive the same per share merger consideration;

 

 

the potential negative impact on the Company’s stockholders if a significant number of shares were to be sold on the open market;

 

 

the unprecedented disruption on the Company’s business as a result of the on-going COVID-19 pandemic, including the inability to operate at full capacities at a number of bowling centers and uncertainty regarding future operations;

 

 

the Company’s total revenue and net earnings were down (27.2%) and (86.8%), respectively, in fiscal year 2020 versus fiscal year 2019 and the Company’s total net revenue was down (42.7%) in the thirteen weeks ended March 28, 2021 versus the thirteen weeks ended March 29, 2020;

 

 

the merger will provide immediate cash liquidity to all of the Company's stockholders, without the brokerage and other costs typically associated with market sales and to provide for a mechanism for our stockholders whose ability, absent the merger, to sell their shares of Common Stock is adversely affected by the limited trading volume of the Class A Common Stock;

 

 

the merger is not conditioned on any financing being obtained by Parent, thus increasing the likelihood that the merger will be consummated and the per share merger consideration will be paid to the Company's stockholders;

 

 

the merger permits the Company to liquidate its securities portfolio and to pay an extraordinary dividend of $0.60 to its stockholders;

 

 

the significant tax savings associated a merger transaction, as opposed to an asset sale or sale of one or more properties that would incur corporate tax, especially in light of the low cost basis of most of the Company’s properties;

 

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the significant amount of the capital expenditures necessary to improve the Company’s bowling facilities for future operations and to improve the Company’s management, information and computer systems, the lack of the Company’s ability to finance these capital improvements without incurring significant indebtedness and the likelihood that the Company would be required to reduce or eliminate its historic dividend in order to repay such indebtedness;

 

 

the potential negative impact on stockholders if the Company permanently reduced or eliminated the Company’s historic dividend payment;

 

 

the need to recruit, train and compensate a successor CEO and CFO of the Company upon Ms. Dragoo’s retirement as well as additional office personnel to operate new information, management and computer systems;

 

 

the fact that the board of directors believed that the $8.53 per share cash merger consideration to be paid in respect of each share of Common Stock, together with the $0.60 per share of Common Stock extraordinary dividend, represented the best value reasonably available to the Company’s stockholders;

 

 

the fact that the consideration to be paid in the proposed merger is all cash, which provides certainty of value and liquidity to the stockholders and allows the stockholders not to be exposed to the risks and uncertainties relating to the prospects of the Company;

 

 

the fact that Parent’s offer resulted from an extensive sale process conducted by D&P initially involving over 132 parties representing a mix of prospective strategic companies, financial sponsors, and real estate-oriented investors intended yield the highest and best value to the Company’s stockholders, and which process concluded with Parent increasing its offer to $44 million plus a dividend and with no financing contingency, with the other remaining party reiterating its previous $40 million offer less the amount of any dividend as its best and final;

 

 

the possible alternatives to the merger, including, but not limited to, continuing as a stand-alone company, investing in the bowling centers and management, information and computer systems or revising the current operating strategy, which alternatives the board of directors evaluated and determined were likely to be less favorable to the Company’s stockholders than the merger given the potential risks and uncertainties associated with those alternatives and the Company’s limited access to capital to finance capital improvements;

 

 

that in connection with the merger, Duff & Phelps rendered its oral opinion, subsequently confirmed in writing, to the effect that, as of May 27, 2021, and based upon and subject to the assumptions, qualifications and limiting conditions set forth therein, the per share merger consideration to be received by the public shareholders of the Company (other than Parent and its affiliates) was fair, from a financial point of view, to such shareholders, as more fully described below in the section captioned “—Opinion of Duff & Phelps” and which written opinion is attached in its entirety as Annex B to this proxy statement. The summary of the opinion of Duff & Phelps herein is qualified in its entirety by reference to the full text of the Opinion, which is incorporated herein by reference;

 

 

the likelihood that the merger would be completed based on, among other things (not in any relative order of importance):

 

 

the absence of a financing condition in the merger agreement;

 

 

the likelihood and anticipated timing of completing the merger in light of the scope of the closing conditions;

 

 

the board of directors’ belief that no significant antitrust or other regulatory issue exists; and

 

 

the Company’s right to seek specific performance of Parent’s obligations under the merger agreement.

 

 

the other terms of the merger agreement and the related agreements, including:

 

 

the board of directors’ ability to withdraw, modify or amend its recommendation that the Company’s stockholders vote to adopt the merger agreement, subject to certain conditions in the merger agreement;

 

 

the board of directors’ ability to (i) respond to unsolicited, bona fide written Acquisition Proposals and (ii) terminate the merger agreement for a Superior Proposal prior to the Company obtaining the Requisite Stockholder Approval, in each case, subject to certain conditions in the merger agreement, including in the case of a termination of the merger agreement, the payment of a termination fee by the Company in an amount equal to approximately $1,645,000 plus Parent’s third party expenses not to exceed $3,500,000;

 

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the termination fee in an amount equal to approximately $1,645,000 plus Parent’s third party expenses not to exceed $3,500,000 payable by the Company to Parent under certain circumstances, including as described above, in connection with a termination of the merger agreement, which the board of directors concluded was reasonable in the context of termination fees payable in comparable transactions and considering the overall terms of the merger agreement, including the per share merger consideration of $8.53;

 

 

the fact that the Majority Holders entered into the voting and support agreements with respect to the merger and the merger agreement, which Majority Holders beneficially own, in the aggregate, 1,374,667 shares of Class A Common Stock and 1,394,830 shares of Class B Common Stock entitled to vote at the Special Meeting, representing 13,948,300 votes; and

 

 

the fact that the voting and support agreement entered into by the Majority Holders with Parent will terminate automatically if the merger agreement is terminated in accordance with its terms, including a termination of the merger agreement for a superior proposal prior to adoption of the merger agreement by the Company’s stockholders.

 

In the course of its deliberations, the board of directors also considered a variety of risks and other countervailing factors related to the merger agreement and the merger, including, but not limited to, the following:

 

 

the current trading price of the Company’s Class A Common Stock, which was $10.50 on May 27, 2021, the trading day immediately prior to the announcement of the merger, as the Board determined that the shares would sell at lower prices if the Company’s controlling stockholder would offer for sale a large number of shares on the open market due to the historically low trading volume in the Company’s Class A Common Stock;

 

 

the risk that the merger might not be completed in a timely manner or at all;

 

 

the fact that the Company’s stockholders will not have any equity in the surviving company following the merger, meaning that the Company’s stockholders will cease to participate in the Company’s future earnings or growth, or to benefit from any increases in the value of the equity in the Company;

 

 

the restrictions on the conduct of the Company’s business prior to the completion of the merger, which may delay or prevent the Company from pursuing business opportunities that may arise or taking any other action it would otherwise take with respect to its business operations;

 

 

the risk that, while the closing of the merger is pending, there could be disruptive effects on the business, customer relationships and employees of the Company;

 

 

the risk of incurring substantial expenses related to the merger, including in connection with any future litigation;

 

 

the fact that the Company could be required to pay a termination fee in an amount equal to approximately $1,645,000 plus Parent’s third party expenses not to exceed $3,500,000 if the merger agreement is terminated under certain circumstances, including, but not limited to, a termination of the merger agreement by Parent after the board of directors has withdrawn, modified or amended its recommendation in respect of the merger and the merger agreement in a manner adverse to Parent;

 

 

the absence of a “go-shop” provision in the merger agreement that would permit the Company to actively solicit a superior proposal after execution of the merger agreement;

 

 

the possibility that the termination fee of in an amount equal to approximately $1,645,000 plus Parent’s third party expenses not to exceed $3,500,000 payable by the Company upon the termination of the merger agreement under certain circumstances could discourage potential acquirors from making a competing bid to acquire the Company;

 

 

the fact that the Company will generally be required, if the proposed merger is not completed, to pay its own expenses associated with the merger agreement, the merger and the other transactions contemplated by the merger agreement;

 

 

the fact that an all cash transaction would be taxable to the Company’s stockholders that are U.S. holders for U.S. federal income tax purposes; and

 

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the fact that certain of our directors and the executive officer may have interests in the transaction that are different from, or in addition to, those of our stockholders; see the section captioned “Proposal 1: The Merger—Interests of the Company’s Directors and the Executive Officer in the Merger” beginning on page 31.

 

The foregoing discussion of the information and factors considered by the board of directors includes the material factors considered by it, but does not necessarily include all of the factors considered by the board of directors. In view of the complexity and variety of factors considered in connection with its evaluation of the merger agreement and the merger, the board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board of directors unanimously resolved to recommend that the stockholders of the Company approve the merger and the transactions contemplated by the merger agreement based upon the totality of information it considered.

 

Our Board of Directors recommends that the stockholders of the Company vote FOR the approval of the merger and the transactions contemplated by the merger agreement.

 

Opinion of Duff & Phelps

 

On May 21, 2021, the Company engaged Duff & Phelps to serve as an independent financial advisor to the board of directors (“Board of Directors”) of the Company (solely in their capacity as members of the Board of Directors) to provide an opinion as to the fairness, from a financial point of view, to the public stockholders of the Company (other than Parent and its affiliates) of the per share merger consideration to be received by such stockholders in the merger (without giving effect to any impact of the merger on any particular stockholder other than in its capacity as a stockholder) pursuant to the merger agreement.

 

The Company retained Duff & Phelps based on Duff & Phelps’ qualifications, reputation, experience in the valuation of businesses and their securities, and its experience in valuing companies in the indoor recreation industry. Duff & Phelps is a premier global valuation and corporate finance advisor that is regularly engaged to provide financial advisory services, including fairness opinions and valuation advice in connection with mergers and acquisitions, leveraged buyouts and recapitalization transactions.

 

On May 27, 2021, representatives of Duff & Phelps reviewed with the Board of Directors its financial analysis of the per share merger consideration, responded to questions from the Board of Directors and orally rendered its opinion, that as of May 27, 2021 and based upon and subject to the assumptions, qualifications and limiting conditions in preparing its oral opinion, the per share merger consideration to be received by the public stockholders of the Company (other than Parent and its affiliates) in the merger (without giving effect to any impact of the merger on any particular stockholder other than in its capacity as a stockholder) pursuant to the merger agreement was fair, from a financial point of view, to such stockholders.

 

The oral opinion of Duff & Phelps and the financial analysis were subsequently confirmed and updated by the delivery of a financial analysis and a written opinion (the “Opinion”) to the Board of Directors that, as of May 27, 2021 and based upon and subject to the assumptions, qualifications and limiting conditions contained in the Opinion, and discussed with the Board of Directors, the per share merger consideration to be received by the public stockholders of the Company (other than Parent and its affiliates) in the merger (without giving effect to any impact of the merger on any particular stockholder other than in its capacity as a stockholder) pursuant to the merger agreement was fair, from a financial point of view, to such stockholders.

 

The full text of the Opinion of Duff & Phelps dated May 27, 2021, is attached as Appendix B to this Proxy Statement and is incorporated herein by reference. The full text of the Opinion sets forth a description of the assumptions made, procedures followed, matters considered and qualifications and limitations in connection with rendering the Opinion. Duff & Phelps provided its Opinion for the benefit and use of the Board of Directors (solely in their capacity as members of the Board of Directors) in connection with its evaluation of the per share merger consideration from a financial point of view and does not address any other aspect of the merger or any related transaction. The Duff & Phelps Opinion does not address the merits of the underlying decision by the Company to engage in the merger, including in comparison to other strategies or transactions that might be available to the Company or in which the Company might engage. The Opinion does not constitute advice or a recommendation to any stockholder as to how any stockholder should act with respect to any matter related to the merger. The Company encourages you to read the Opinion carefully and in its entirety.

 

Duff & Phelps was not requested to, and it did not, recommend the specific consideration payable in the merger or that any given consideration constituted the only appropriate consideration in the merger. The type and amount of per share merger consideration payable in the merger were determined through negotiations between the Company and Parent, and the decision to enter into the merger was solely that of the Board of Directors. Duff & Phelps' Opinion and financial analyses were not the only factors considered by the Board of Directors in its evaluation of the merger.

 

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In connection with its Opinion, Duff & Phelps has made such reviews, analyses and inquiries as it deemed necessary and appropriate to render its Opinion. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of its Opinion included, but were not limited to, the items summarized below:

 

 

Reviewed the following documents:

 

The Company's annual reports and audited financial statements on Form 10-K filed with the SEC for the fiscal year ended June 28, 2020 and the Company’s unaudited interim financial statements for the quarters ended March 29, 2020 and March 28, 2021 included in the Company’s Form 10-Q filed with the SEC;

 

Unaudited segment and pro forma financial information for the Company for the three years ended on or around June 30, 2020 and the eight months ended February 28, 2021;

 

Other internal documents relating to the history, current operations, and probable future outlook of the Company provided by management of the Company;

 

Documents related to the merger, including a draft of the merger agreement dated May 17, 2021; and

 

Letters of intent as submitted by various interested parties in connection with the contemplated sale of the Company;

 

 

Discussed the information referred to above and the background and other elements of the merger with the management of the Company;

 

Reviewed the historical trading price and trading volume of the Company’s common stock and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

 

Performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including an analysis of selected public companies that Duff & Phelps deemed relevant, and an analysis of selected transactions that Duff & Phelps deemed relevant; and

 

Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

 

In performing its analyses and rendering the Opinion with respect to the merger, Duff & Phelps, with the Company's consent:

 

 

Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including Company management, and did not independently verify such information;

 

Relied upon the fact that the Board of Directors and the Company have been advised by counsel as to all legal matters with respect to the merger, including whether all procedures required by law to be taken in connection with the merger have been duly, validly and timely taken, and did not independently verify such information;

 

Assumed that any estimates, evaluations, forecasts furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps expresses no opinion with respect to such projections or the underlying assumptions;

 

Assumed that information supplied by and representations made by Company management are substantially accurate regarding the Company and the merger;

 

Assumed that the representations and warranties made in Merger Agreement are substantially accurate;

 

Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed;

 

Assumed that there has been no material change in the assets, liabilities, financial condition, results of operations, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there is no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;

 

Assumed that all of the conditions required to implement the merger will be satisfied and that the merger will be completed in accordance with the merger agreement without any material amendments thereto or any waivers of any terms or conditions thereof; and

 

Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the Company.

 

Duff & Phelps noted that to the extent that any of the foregoing assumptions or any of the facts on which its Opinion is based prove to be untrue in any material respect, its Opinion cannot and should not be relied upon. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of its Opinion, Duff & Phelps has made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the merger.

 

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Duff & Phelps delivered its oral opinion to the Board of Directors on May 27, 2021 and the Opinion to the Board of Directors on May 27, 2021. The Opinion is limited to and speaks only as of such date. The Opinion was necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of such date, and Duff & Phelps disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting the Opinion which may come or be brought to the attention of Duff & Phelps after May 27, 2021. Duff & Phelps is under no obligation to update, revise, reaffirm or withdraw the Opinion, or otherwise comment on or consider events occurring after the issuance of the Opinion.

 

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps did not express any opinion as to the market price or value of the Company’s common stock (or anything else) after the announcement or the consummation of the merger. The Opinion should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter.

 

In rendering the Opinion, Duff & Phelps did not express any opinion with respect to the amount or nature of any compensation to any of the Company's officers, directors, or employees, or any class of such persons, relative to the per share merger consideration to be received by the public stockholders of the Company in the merger pursuant to the merger agreement, or with respect to the fairness of any such compensation.

 

Duff & Phelps provided the Opinion solely for the use and benefit of the Board of Directors in connection with its consideration of the merger. The Opinion (i) did not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction; (ii) did not address any transaction related to the merger; (iii) was not a recommendation as to how the Board of Directors or any stockholders should vote or act with respect to any matters relating to the merger, or whether to proceed with the merger or any related transaction, and (iv) did not indicate that the per share merger consideration received is the best possibly attainable under any circumstances. Instead, the Opinion states whether the per share merger consideration to be received by public stockholders (other than Parent and its affiliates) of the Company in the merger is within a range suggested by certain financial analyses. The decision as to whether to proceed with the merger or any related transaction may depend on an assessment of factors unrelated to the financial analyses on which the Opinion is based.

 

Summary of Financial Analyses Performed by Duff & Phelps

 

Set forth below is a summary of the material financial analyses performed by Duff & Phelps in connection with the delivery of the Opinion to the Board of Directors, as described above. This summary is qualified in its entirety by reference to the full text of the Opinion, attached hereto as Appendix B. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the Board of Directors, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps, and the order of analyses described does not represent relative importance or weight given to those analyses by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to appropriate and relevant methods of financial analyses and the application of these methods to the particular circumstances. Therefore, neither the Opinion nor Duff & Phelps’ underlying analysis is susceptible to partial analysis or summary description. In arriving at its Opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps analyses must be considered as a whole and selecting portions of its analyses and individual factors considered by it in rendering the Opinion, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying the Opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps' own experience and judgment.

 

No company, business or transaction used in the financial analyses is identical to the Company, its business or the transaction, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the financial analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or other values of the companies or business segments analyzed. Assumptions and estimates contained in Duff & Phelps’ financial analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by its analyses. In addition, financial analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Duff & Phelps considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Duff & Phelps made its determination on the basis of its experience and professional judgment after considering the results of all of its analyses. Accordingly, the assumptions and estimates used in, and the results derived from, Duff & Phelps' financial analyses are inherently subject to substantial uncertainty. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Duff & Phelps or any other person assumes responsibility if future results are materially different from those assumed or forecast. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 27, 2021 and is not necessarily indicative of current market conditions.

 

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The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses undertaken by Duff & Phelps. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses.

 

Among other matters considered, Duff & Phelps’ analyses included a valuation analysis of the Company using the market approach, which focused on the selected public company analysis and the selected M&A transactions analysis. As part of the market approach, Duff & Phelps analyzed the Company’s historical revenue, gross profit, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and earnings before interest, taxes, depreciation, amortization, and rental costs (“EBITDAR”) and other financial metrics. The Company’s management does not regularly prepare financial projections and did not prepare financial projections in connection with the merger. Therefore, Duff & Phelps was unable to use a discounted cash flow analysis to derive a value indication.

 

The Company’s performance from FY 2016 through FY 2019 was relatively flat, with bowling sales representing around 70% of total revenue, food and non-alcoholic beverages comprising 16-19% of sales, and alcohol sales making up 8-12%. Similar to other companies in the leisure industry, the Company’s FY 2020 financial performance was negatively affected by the COVID-19 pandemic. Duff & Phelps calculated a 3-year average of the pre-COVID performance through FY 2019 as a proxy for a normalized year.

 

The below table summarizes certain of the Company’s financial metrics, with adjustments identified by Company management.

 

Historical Financial Performance

                                         

($ in thousands)

                                                               
   

Fiscal Year Ending on or around June 30,

           

Pre-COVID (2)

 
   

2015A

   

2016A

   

2017A

   

2018A

   

2019A

   

2020A

   

LTM (1)

   

3-Year Average

 
                                                                 

Revenue

  $ 23,125     $ 24,098     $ 23,933     $ 24,771     $ 24,419     $ 17,781     $ 7,977     $ 24,370  

Growth

    1.5 %     4.2 %     (0.7 %)     3.5 %     (1.4 %)     (27.2 %)     (64.9 %)        
                                                                 

Gross Profit

  $ 15,088     $ 15,948     $ 15,856     $ 16,692     $ 16,221     $ 11,103     $ 3,779     $ 16,260  

Margin

    65.2 %     66.2 %     66.3 %     67.4 %     66.4 %     62.4 %     47.4 %     66.7 %
                                                                 

EBITDA

  $ 3,164     $ 4,024     $ 4,235     $ 4,965     $ 4,199     $ 1,302     $ (2,022 )   $ 4,470  

Margin

    13.7 %     16.7 %     17.7 %     20.0 %     17.2 %     7.3 %     (25.3 %)     18.3 %

Growth

    25.5 %     27.2 %     5.2 %     17.2 %     (15.4 %)     (69.0 %)     NM       NM  
                                                                 

EBITDAR

  $ 3,480     $ 4,342     $ 4,553     $ 5,283     $ 4,517     $ 1,572     $ (1,812 )   $ 4,780  

Margin

    15.0 %     18.0 %     19.0 %     21.3 %     18.5 %     8.8 %     (22.7 %)     19.6 %

Growth

    22.6 %     24.8 %     4.9 %     16.0 %     (14.5 %)     (65.2 %)     NM       NM  
                                                                 

Adjustments (3)

 

NA

   

NA

      23       120       130    

NA

   

NA

         
                                                                 

Adjusted EBITDAR

 

NA

   

NA

    $ 4,576     $ 5,403     $ 4,647    

NA

   

NA

    $ 4,880  

Margin

                    19.1 %     21.8 %     19.0 %                     20.0 %
                                                                 

Capital Expenditures

  $ 797     $ 320     $ 326     $ 787     $ 427     $ 500     $ 180     $ 514  

as % of Revenue

    3.4 %     1.3 %     1.4 %     3.2 %     1.7 %     2.8 %     2.3 %     2.1 %
                                                                 

Net Working Capital

  $ (670 )   $ (629 )   $ (653 )   $ (663 )   $ (595 )   $ (192 )   $ (117 )   $ (637 )

as % of Revenue

    (2.9 %)     (2.6 %)     (2.7 %)     (2.7 %)     (2.4 %)     (1.1 %)     (1.5 %)     (2.6 %)

 

 

(1)

Latest twelve months ended March 28, 2021

 

(2)

Represents FY 2017 to FY 2019 period, rounded

 

(3)

Per Company management

 

 

Market Approach

 

Duff & Phelps used the market approach, which consisted of applying valuation multiples to the Company’s Pre-COVID 3-year Average Adjusted EBITDAR. The valuation multiples were derived from an analysis of selected public companies.

 

23

 

Selected Public Company Analysis. Duff & Phelps selected seven publicly traded companies that operate in the indoor recreation industry.

 

The seven selected companies were (i) AMC Entertainment Holdings, Inc., (ii) Cinemark Holdings, Inc., (iii) Cineworld Group plc, (iv) Dave & Buster's Entertainment, Inc., (v) Hollywood Bowl Group plc, (vi) Round One Corporation, and (vii) Ten Entertainment Group plc. No company considered in this analysis is identical to the Company. The selected public company analysis involves complex and subjective considerations and judgments.

 

In selecting multiples, Duff & Phelps reviewed the selected public companies, taken as a group. When selecting appropriate multiples to apply to the Company’s Pre-COVID Average Adjusted EBITDAR of $4.880 million, Duff & Phelps used a qualitative and quantitative assessment of the Company relative to the selected public companies based on historical financial performance, expected future performance, financial strength, size and markets served, among other factors.

 

Comparative Data:

 

Size – 3-Year Average Revenue

 

($ in millions)

 

graph01.jpg

 

Note: Represents averages of 2017 to 2019

 

Size – 3-Year Average EBITDAR

 

($ in millions)

 

graph02.jpg

 

Note: Represents averages of 2017 to 2019

 

24

 

Growth – 2-Year Revenue CAGR

 

graph03.jpg

 

Note: Represents CAGR from 2017 to 2019

 

Growth – 2-Year EBITDAR CAGR

 

graph04.jpg

 

Note: Represents CAGR from 2017 to 2019

 

25

 

Margin – 2019 EBITDAR Margin

 

graph005.jpg

 

Margin – 3-Year Average EBITDAR Margin

 

graph06.jpg

 

Note: Represents averages of 2017 to 2019

 

Selected Public Companies Analysis

                                           

As of May 24, 2021

 

COMPANY INFORMATION

 

REVENUE GROWTH

   

EBITDAR GROWTH

   

EBITDAR MARGIN

   

CAPEX % of

REVENUE

 

Company Name

 

2-Yr

CAGR

(17-19)

   

2019

   

2022

   

2-Yr

CAGR

(17-19)

   

2019

   

2022

   

3-Yr

Avg

(17-19)

   

2019

   

2022

   

3-Yr

Avg

(17-19)

   

2019

 
                                                                                         

AMC Entertainment Holdings, Inc.

    3.8 %     0.2 %     98.4 %     6.2 %     5.6 %     240.5 %     32.3 %     33.3 %     30.9 %     10.9 %     9.7 %

Cinemark Holdings, Inc.

    4.8       1.9       91.6       2.2       -0.5       173.8       34.4       33.6       31.2       10.9       9.2  

Cineworld Group plc

    -0.3       6.1       77.4    

NA

      NM       164.9       NM       27.7       34.7       9.0       10.4  

Dave & Buster's Entertainment, Inc.

    9.0       7.1       26.9       8.8       12.0       34.5       31.7       32.2       32.0       17.7       16.8  

Hollywood Bowl Group plc

    6.8       7.8       91.4       8.5       6.9       71.0       29.4       29.7       29.4       11.1       12.6  

Round One Corporation

    7.4       5.6       34.3       13.3       6.9       78.9       22.7       23.6       23.6       8.3       10.8  

Ten Entertainment Group plc

    8.8       10.2       79.4       8.2       13.6       225.1       26.7       26.9       41.7       8.8       10.2  
                                                                                         

Mean

    5.8 %     5.5 %     71.4 %     7.9 %     7.4 %     141.2 %     29.5 %     29.6 %     31.9 %     11.0 %     11.4 %

Median

    6.8 %     6.1 %     79.4 %     8.4 %     6.9 %     164.9 %     30.6 %     29.7 %     31.2 %     10.9 %     10.4 %
                                                                                         

Bowl America Incorporated

    1.0 %     -1.4 %  

NA

      0.5 %     -14.0 %  

NA

      20.0 %     19.0 %  

NA

      2.1 %     1.7 %

 

26

 

CAGR = Compounded Annual Growth Rate

EBITDAR = Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent Expense

Note: Cineworld Group Inc. FY 17 - 18 Growth and 2-Yr Revenue CAGR reflects 2017 pro forma revenue (acquisition of Regal Entertainment Group on 2/28/18)

 

Source: S&P Capital IQ, SEC Filings, Annual and Interim Reports.

 

The table below summarizes certain valuation metrics for the selected public companies which were analyzed by Duff & Phelps.

 

Selected Public Companies Analysis

                           

As of May 24, 2021

 

(US$ in millions, except per share data)

                                         
                                                 

COMPANY INFORMATION

 

ENTERPRISE VALUE

AS MULTIPLE OF

   

ADJUSTED ENTERPRISE

VALUE AS MULTIPLE OF (1)

 

Company Name

 

2019

Revenue

 

   

2022

Revenue

   

2019

EBITDA

   

2022

EBITDA

   

2019

EBITDAR

   

2022

EBITDAR

 
                                                 

AMC Entertainment Holdings, Inc.

 

1.99x

   

2.20x

   

14.1x

   

18.8x

   

10.6x

   

12.1x

 

Cinemark Holdings, Inc.

    1.42       1.60       6.3       7.8       6.8       7.9  

Cineworld Group plc

    2.25       2.57       12.5       10.8       10.8       9.9  

Dave & Buster's Entertainment, Inc.

    1.92       1.76       9.2       8.1       8.8       8.0  

Hollywood Bowl Group plc

    4.54       3.92       25.1       16.7       18.4       13.6  

Round One Corporation

    1.52       1.35       6.4       5.7    

NA

   

NA

 

Ten Entertainment Group plc

    4.39       4.25       34.6       15.8       20.5       13.0  
                                                 

Mean

 

2.58x

   

2.52x

   

15.5x

   

12.0x

   

12.7x

   

10.8x

 

Median

 

1.99x

   

2.20x

   

12.5x

   

10.8x

   

10.7x

   

11.0x

 

 

(1) Includes capitalized rent expense at 8x

Enterprise Value = (Market Capitalization + Management Equity + Debt + Finance Leases + Preferred Stock + Non-Controlling Interest) – (Cash & Equivalents + Long-Term Investments + Net Non-Operating Assets)

EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization

EBITDAR = Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent Expense

 

Source: S&P Capital IQ, SEC Filings, Annual and Interim Reports.

 

Selected M&A Transactions Analysis. Duff & Phelps identified seven transactions of companies that were announced since May 24, 2018 that Duff & Phelps deemed relevant and for which adequate information was available to derive valuation multiples.

 

No transaction utilized in the selected M&A transactions analysis was identical to the merger, including regarding timing or size, nor was any target company identical to the Company. An analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning the Company’s financial and operating characteristics and other factors that would affect the acquisition value of companies to which the Company was compared.

 

27

 

Duff & Phelps noted that it did not derive a valuation estimate directly from the selected M&A transactions analysis, but instead used the analysis to evaluate the selected multiples. There are numerous considerations beyond financial considerations involved in any merger or acquisition and Duff & Phelps did not have access to any non-public information regarding any of the selected transactions.

 

Selected M&A Transaction Analysis

             

($ in millions)

             
               

Target Name

Target Business Description

Acquirer Name

EV / Revenue

 

EV /

EBITDA

 
               

Tokyo Dome Corporation

Provides various amusement facilities in Japan including an amusement park, space museum, bowling alleys, and more.

Mitsui Fudosan Co., Ltd.

5.18x

    NM  

Yomiuri Land Co., Ltd.

Operates and manages facilities for horse races, auto races, and bicycle racing stadiums; golf courses; amusement parks, driving ranges, hot spring facilities, and indoor play facilities.

The Yomiuri Shimbun Group Inc.

2.68x

 

8.1x

 

Village Roadshow Limited

Operates cinemas, theme parks, and produces and distributes films.

VRG Bidco Pty Limited

1.50x

 

23.1x

 

Peak Resorts, Inc.

Owns, operates, and leases day and overnight drive ski resorts in the United States.

Vail Holdings, Inc.

2.52x

 

9.3x

 

Merlin Entertainments plc (nka:Merlin Entertainments Limited)

Operates visitor attraction places in the United Kingdom, Continental Europe, North America, and the Asia Pacific.

The Blackstone Group; Canada Pension Plan Investment Board; Kirkbi Invest A/S

3.92x

 

14.0x

 

M. Müller Ges.m.b.H.

Owns and operates a theme park in Austria.

Compagnie des Alpes SA

3.80x

 

10.7x

 

North American Midway Entertainment LLC

Operates mobile amusement parks in North America. The company provides rides, games, and food concessions to fairs and festivals.

North American Fairs, LLC

0.25x

 

2.3x

 
               
   

Mean

2.83x

 

11.2x

 
   

Median

2.68x

 

10.0x

 

 

NM = Not Meaningful

 

Source: Capital IQ and company filings

 

Application of Selected Multiples. Duff & Phelps performed its valuation analysis based on two scenarios resulting in two enterprise value indication ranges:

 

 

Investment Scenario: Assumed a near-term capital investment of $20 million to $25 million (as provided by Company management) to bring the facilities and the infrastructure up to standards that would be competitive with other openplay (vs. league play) concepts.

 

For the Investment Scenario, Duff & Phelps selected an enterprise value to Pre-COVID Average EBITDAR multiple range of 10.0x to 12.0x which is in line with the median of the multiples of the selected public companies and the selected M&A transactions. Duff & Phelps then deducted the near-term capital of $20 million to $25 million, on an after-tax basis, to derive an enterprise value range of $33.4 million to $39.3 million.

 

 

Status Quo Scenario: Assumed the Company maintains its pre-COVID business model, which would yield flat margins and zero growth. Duff & Phelps selected multiples below the median of the selected public companies and the selected M&A transactions due in part to the following factors:

 

Size: The Company was significantly smaller than all of the public companies and smaller than all but one of the targets in the selected M&A transactions analysis in terms of revenues, EBITDAR and valuation.

 

Growth: The Company’s historical revenue growth was at the bottom of the public company peer group, with the lowest growth rate for FY 2019 and second lowest on a 2-year CAGR basis from FY 2017 to FY 2019. The Company also ranked at the bottom of the public company peer group for historical EBITDAR growth. The Company was primarily focused on league play, while the bowling industry was trending away from league play to open play. This resulted in flat to declining revenue. A shift to open play would require significant capital investment and reorganization.

 

Profitability: The Company’s EBITDAR margins were also at the bottom of the overall group of public companies and its LTM EBITDA margin is below the median of the group of targets in the selected M&A transactions. The Company’s margins were significantly lower compared to other bowling center operators that focus on open play. Bowling centers focused on open play yield a higher sales mix from food & beverage, especially alcohol, and ancillary entertainment services commanding higher margins.

 

28

 

Capital Spend: The Company has historically invested less than the public company peer group and would need to make material capital expenditures to revitalize its bowling centers to be competitive in open play. Management has estimated this amount to be in the $20 million to $25 million range.

 

Management Team: The management team was very thin. The Company would need to bolster its management team to maintain the status quo operations and would need to invest a substantial amount in management talent to compete in open play bowling.

 

Conclusion: Based on the factors analyzed above, the Company’s valuation multiples would warrant a discount compared to the observed market trading multiples.

 

For the Status Quo Scenario, Duff & Phelps selected enterprise value to Pre-COVID Average EBITDAR multiple range of 6.0x to 7.0x which is below the median of the multiple range of the selected public companies and the selected M&A transactions, to derive an enterprise value range of $29.3 million to $34.2 million.

 

A summary of the analysis described above is included in the table below.

 

Selected Public Companies / M&A Transactions Analysis Summary

           

($ in thousands)

                         

Scenarios

 

Valuation Summary

 

Metric

 

Selected Multiple

Range

 

Company

Performance

 

Enterprise Value Range

 

 

 
                           

Investment Scenario

                         

Pre-COVID Average EBITDAR

 

10.0x

-

12.0x

    $4,880     $48,800 - $58,560  
                           
   

Less: Required Capital Expenditures (1)

    (15,400) - (19,250)  
                           
                    $33,400 - $39,310  
                           

Status Quo Scenario

                         

Pre-COVID Average EBITDAR

 

6.0x

-

7.0x

    $4,880     $29,280 - $34,160  

 

(1) Per Company management, range of $20 million to $25 million on an after-tax basis

Pre-COVID Normalized = 3-year average of FY 2017 to FY 2019 performance

EBITDAR = Earnings Before Interest, Taxes, Depreciation, Amortization and Rent Expense

 

The market analysis, like any other analytical technique used by Duff & Phelps, has inherent strengths and weaknesses. The range of valuation indications resulting from any particular technique, including the market analysis, should not be taken in isolation to be Duff & Phelps’ view of the valuation of the Company. Accordingly, the valuation range derived from the market analysis was not necessarily indicative of the Company’s present or future value or results.

 

Historical Stock Trading Analysis. Duff & Phelps reviewed the historical trading prices and volume of the Company’s common stock between May 25, 2020 and May 24, 2021. As part of its review, Duff & Phelps noted that the Company’s five largest stockholders held approximately 62% of the Company’s common stock. The average daily trading volume of the Company’s common stock during the latest twelve-month period was 3,295 shares, or approximately 0.15% of the Company’s floating stock, and the average daily trading of the Company’s common stock during the latest one-month period was 2,177 shares, or approximately 0.10% of the Company’s floating stock. The Company has no institutional analyst coverage.

 

Valuation Analysis Conclusions. Duff & Phelps’ valuation analysis, as summarized in the table below, resulted in two indications of the Company’s total enterprise values ranging from (i) $33.4 million to $39.3 million for the Investment Scenario, and (ii) $29.3 million to $34.2 million for the Status Quo Scenario. To those ranges, Duff & Phelps made the following adjustments as provided by Company management: (i) added the Company’s estimated cash balance as of June 30, 2021 of $1.4 million, (ii) added the Company’s estimated tax refunds to be realized by June 30, 2021 of $0.5 million, (iii) added the estimated proceeds from the sale of the Company’s marketable investment securities of $5.6 million, (iv) subtracted the estimated income taxes in connection with the aforementioned sale of the Company’s marketable investment securities of $0.2 million, (v) subtracted the estimated reserve for environmental remediation of $0.3 million, and (vi) subtracted the operating lease balance as of March 28, 2021 of $1.6 million, resulting in indications of aggregate equity value for the Company ranging from (i) $38.9 million to $44.8 million for the Investment Scenario, and (ii) $34.8 million to $39.7 million for the Status Quo Scenario.

 

29

 

Based on 3.746 million shares of Class A common stock issued and outstanding and 1.415 million shares of Class B common stock issued and outstanding, Duff & Phelps’ analysis implied ranges of per share values of (i) $7.54 to $8.69 for the Investment Scenario and (ii) $6.75 to $7.69 for the Status Quo Scenario. To those ranges, Duff & Phelps subtracted the dividend payable to existing shareholders in connection with the sale of the Company’s marketable investment securities of $0.60 per share, resulting in implied ranges of per share values (after giving effect to the special dividend) of (i) $6.94 to $8.09 for the Investment Scenario and (ii) $6.15 to $7.09 for the Status Quo Scenario, as compared with the per share merger consideration of $8.53 per share.

 

Valuation Conclusion

 

($ in thousands, except per share)

 

                           
           

Investment Scenario

   

Status Quo Scenario

 

Proposed

 
Enterprise Value          

Low

 

High

   

Low

 

High

 

Transaction

 
                                   
                                   
Enterprise Value Indication           $33,400 - $39,310     $29,280 - $34,160        
                                   
Plus: Estimated Cash as of June 30 (1)           1,356   1,356     1,356   1,356        
Plus: Estimated Tax Refunds (1)           523   523     523   523        
Plus: Estimated Proceeds from Sale of Securities (1)

 

    5,633   5,633     5,633   5,633        
Less: Estimated Income Taxes from Sale of Securities (1)

 

    (162)   (162)     (162)   (162)        
Less: Estimated Reserve for Environmental Remediation (1)

 

    (263)   (263)     (263)   (263)        
Less: Operating Lease Balance as of March 28 (2)           (1,553)   (1,553)     (1,553)   (1,553)        
                                   
Aggregate Equity Value           $38,934 - $44,844     $34,814 - $39,694        
                                   
Fully Diluted Shares Outstanding (000s) (3)           5,161   5,161     5,161   5,161        
                                   
Resulting Per Share Value           $7.54 - $8.69     $6.75 - $7.69   $ 9.13  
                                   
Less: Dividend to Existing Shareholders at Close (1)

 

    $(0.60)   (0.60)     (0.60)   (0.60)   $ (0.60 )
                                   
Resulting Per Share Value Post Dividend           $6.94 - 8.09     $6.15 - $7.09   $ 8.53  
                                   
Implied Multiples                                  
                                   
Pre-COVID Average EBITDAR   $ 4,880    

6.8x

-

8.1x

   

6.0x

-

7.0x

       
2019 Adjusted EBITDAR   $ 4,647    

7.2x

-

8.5x

   

6.3x

-

7.4x

       

 

(1) Per Company management

(2) Paycheck Protection Program loan balance of $1.5 million has been fully forgiven as of April 15, 2021.

(3) Per the Merger Agreement. Represents 3,746,454 Class A common stock shares and 1,414,517 Class B common stock shares

 

Other

 

The issuance of Duff & Phelps’ Opinion was approved by its fairness opinion review committee. An affiliate of Duff & Phelps, Duff & Phelps Securities, LLC, was engaged as the Company’s exclusive M&A advisor. During the two years preceding the date of its Opinion, Duff & Phelps performed valuation work on the Company's real estate portfolio for which it received a fee of $95,000 for its services. In addition, during the two years preceding the date of its Opinion, Duff & Phelps performed valuation work for Parent for which it received a fee of $180,000 for its services. For these engagements, Duff & Phelps received, and Duff & Phelps Securities, LLC is expected to receive, customary fees, expense reimbursement, and indemnification.

 

Fees and Expenses

 

Pursuant to the Company’s engagement letter with Duff & Phelps, the Company agreed to pay Duff & Phelps a fee of $150,000 for its services, $75,000 of which was payable upon signing the engagement letter and $75,000 became payable upon the Company’s request of the written Opinion. The Company also agreed to reimburse Duff & Phelps for its reasonable out of pocket expenses incurred in connection with its engagement and to indemnify Duff & Phelps, its affiliates, and each of their respective directors, officers, attorneys and other agents, stockholders, employees and controlling persons against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of Duff & Phelps’ engagement.

 

30

 

Financing of the Merger

 

The merger is not conditioned upon receipt of financing by the Parent. The Company understands that the Parent expects to use cash on hand and other funds available to it to fund the acquisition of the Company.

 

Interests of the Companys Directors and the Executive Officer in the Merger 

 

In considering the recommendation of the board of directors, you should be aware that certain directors and the executive officer of the Company may have interests in the merger, including those described below and as described in “Proposal 2: Advisory Vote on “Merger-Related Executive Compensation” beginning on page 62, that are different from, or in addition to, their or your interests as a stockholder. These interests may create conflicts of interest. The board of directors was aware of these interests during their deliberations on the merits of the merger and in making its decision to recommend and approve, respectively, the merger and the transactions contemplated by the merger agreement. Certain of these directors of the Company are also holders of the Class B Common Stock and are not receiving any control premium for the sale of their shares over the shares of Class A Common Stock. The holders of Class A Common Stock and Class B Common Stock receive the same per share merger consideration.

 

Certain of the directors and the executive officer of the Company participated in the negotiation of the terms of the merger agreement, and the board of directors, voted unanimously to, recommend that the Company stockholders vote in favor of (i) the merger and the transactions contemplated by the merger agreement, (ii) the “merger-related executive compensation” and (iii) the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger. These directors and the executive officer may have interests in the merger that are different from, or in addition to, those of the Company’s stockholders. These interests include severance and other benefits under employment agreements and the indemnification of members of the board of directors and officers by the surviving corporation. Company stockholders should be aware of these interests when they consider the board of directors’ recommendation that they vote in favor of (i) the merger and the transactions contemplated by the merger agreement, (ii) the “merger-related executive compensation” and (iii) the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger.

 

Indemnification of Directors and Officers; Directors and Officers Insurance

 

For a period of six (6) years from and after the effective time of the merger, Parent will (but only to the extent the surviving corporation is permitted to do so under applicable law), and shall cause the surviving corporation to (i) indemnify, defend and hold harmless, in each case to the extent (subject to applicable law) such persons are indemnified as of May 27, 2021 by the Company pursuant to the Company’s or any subsidiaries’ organizational documents, each past and present director or officer of the Company and its subsidiaries (including such persons who become directors or officers prior to the effective time of the merger), whom we refer to as “indemnified persons,” is, or is threatened to be, made a party, in whole or in part, as a result of or relating to the merger agreement or the transactions contemplated thereby or such indemnified person's status as a current or former director or officer of the Company or any of its current or former subsidiaries (which we refer to collectively as “indemnified claims”) and (ii) to the extent, and on the terms on which, the indemnified parties are entitled reimbursement pursuant to the Company’s or any subsidiaries’ organizational documents or applicable law, reimburse each indemnified party for such expenses (including reasonable fees and expenses of legal counsel) in connection with any indemnified claim; provided, that in the case of advancement of expenses, any indemnified party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such indemnified party is not entitled to indemnification; provided, further, that (A) such indemnification shall be subject to any limitation imposed from time to time under applicable law and (B) if any valid claim for indemnification is made under the merger agreement by an indemnified party prior to six (6) years after the effective time of the merger, such indemnification obligation will survive (solely with respect to such claim) until the final resolution of the matter giving rise to such claim.

 

For a period of six years after the effective time of the merger, Parent agreed that the certificate or articles of incorporation and bylaws of the surviving corporation and its subsidiaries would contain provisions with respect to indemnification, exculpation and the advancement of expenses with regard to acts occurring before the effective time of the merger that are at least as favorable as the indemnification, exculpation and advancement of expenses provisions contained in the certificate or articles of incorporation and bylaws of the Company and its subsidiaries as of May 27, 2021.

 

The Company will obtain at or prior to the effective time of the merger a six (6)-year “tail” policy under the Company’s existing directors’ and officers’ insurance policies, for a premium not to exceed 250% of the current annual premium on such policies net of a pro rata credit for remaining time on the current policies. In addition, the Company will obtain at or prior to the effective time of the merger, a three (3)-year “tail” policy under each of the Company’s two existing fiduciary liability policies and existing employment practices liability policy.

 

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Employee-Related Interests

 

Outstanding Shares Held by Directors and the Executive Officer

 

The members of the board of directors and the executive officer of the Company own Common Stock and will receive the same per share merger consideration of $8.53 on the same terms and conditions as other Company stockholders.

 

The following table shows, for each member of the board of directors and the executive officer, as applicable: (1) the number of shares of Common Stock held by such individual and (2) the value of such shares. The values in the table below have been determined assuming the per share merger consideration of $8.53, are based on applicable holdings as [●], 2021 (and without regard to any acquisitions or dispositions that may be made after such date).

 

Name

 

Shares of
Class A Common Stock (#)

   

Shares of
Class B Common Stock (#)

   

Value ($)

 

Directors

                       

Allan L. Sher

      52,500       -          $447,825  

Nancy E. Hull(1)

    197,312       194,736       $3,344,170  

Merle Fabian(2)

    879,463       872,026       $14,940,201  

Gloria M. Bragg

    -       -       -  

Executive Officer

                       

Cheryl A. Dragoo(3)

    14,010       -           $119,505  

 


(1)

Includes 24,916 shares of Class A and 13,340 shares of Class B Common Stock owned individually or jointly with her spouse. In addition, includes 181,396 shares of Class A and 181,396 shares of Class B Common Stock owned by the Irrevocable Trust for the Descendants of Howard and Pearl Katzman over which she is a co-trustee and a beneficiary. Excludes 15,047 shares of Class A and 22,681 shares of Class B Common Stock owned by trusts over which she is a co-trustee, but has no pecuniary interest in such shares.

 

(2)

Includes 381,224 shares of Class A and 872,026 shares of Class B Common Stock owned by the Merle G. Fabian Revocable Trust over which Ms. Fabian is trustee; 494,594 shares of Class A Common Stock owned by the Leslie H. Goldberg Revocable Trust over which Ms. Fabian is trustee (which she disclaims except to the extent of her pecuniary interest therein) and 3,645 shares of Class A Common Stock held individually.

 

(3)

Also a member of the board of directors.

 

Employment Arrangements with Company Executive Officer

 

Our executive officer is entitled to certain severance benefits pursuant an individual employment agreement, the terms of which are described below. The merger, if and when consummated, will constitute a change in control under Ms. Dragoo’s employment agreement.

 

Ms. Cheryl Dragoo has an employment agreement that expires on June 27, 2022. Pursuant to the employment agreement: (i) Ms. Dragoo has an annual base salary of $200,000, (ii) in the event of a change of control of the Company, Ms. Dragoo will be entitled to a lump sum cash payment equal to 2.0 times her annual base salary; and (iii) in the event Ms. Dragoo is terminated by the Company without Cause (as defined below) or she resigns for Good Reason (as defined below), she will be entitled to a cash lump sum payment equal to nine months of her annual base salary.

 

“Cause” means (a) Ms. Dragoo's failure or refusal, continuing after notice that specifically identifies the breach(es) complained of, to perform substantially her duties, responsibilities and obligations to the Company or to cooperate in the process of a change of control transaction (other than a failure resulting from Ms. Dragoo's incapacity due to physical or mental illness); (b) Ms. Dragoo's act or failure to act involving fraud, misrepresentation, theft, embezzlement, dishonesty or moral turpitude (hereinafter referred to collectively as “Fraud”); (c) Ms. Dragoo's conviction (or a plea of nolo contendere to) of an offense which is a felony, or which is a misdemeanor that involves Fraud; or (d) Ms. Dragoo's material breach of a written policy of the Company or any of its affiliates.

 

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“Good Reason” mean the occurrence of any one or more of the following events that is caused by the affirmative actions of the Company , one of its affiliates, or its Board of Directors: (i) without Ms. Dragoo’s written consent, a material reduction in her duties and/or responsibilities; (ii) a material reduction in Ms. Dragoo’s annual salary; (iii) a change in the location of Ms. Dragoo's principal place of employment with the Company to a location that is at least 50 miles away from the location of Ms. Dragoo's principal place of employment prior to such change, unless such new location is no farther from Ms. Dragoo's then-current residence than the immediately prior location; or (iv) any other material breach of this Agreement by the Company; provided that, within 30 days following the occurrence of any event described above, (x) Dragoo shall have delivered written notice to the Company of Ms. Dragoo's intention to terminate her employment for Good Reason, which notice specifies in reasonable detail the circumstances claimed to give rise to Ms. Dragoo's right to terminate her employment for Good Reason, (y) the circumstances claimed to give rise to Ms. Dragoo’s right to terminate her employment for Good Reason as set forth in such notice have not been cured by the Company within 30 days of receipt of such notice, and (z) failing such cure, Dragoo shall have terminated her employment within 20 days after the expiration of the 30-day period.

 

New Management Arrangements

 

As of the date of this Proxy Statement, Parent has not entered into any employment agreements with the Company’s executive officer (or other employees of the Company) and the Company has not amended or modified any existing employment agreements or other arrangements with its executive officer in connection with the merger. Parent or its affiliates may pursue agreements, arrangements or understandings with the Company’s executive officer, which may include cash, stock and co-investment opportunities, and Parent or its affiliates may initiate negotiations of these arrangements, arrangements and understandings regarding employment with, or the right to participate in the equity of, the surviving corporation or Parent on a going-forward basis following the completion of the merger. However, in each case, there is no present contractual obligation to do so and neither Parent nor its affiliates has initiated any such negotiation as of the date of this Proxy Statement.

 

Intent to Vote in Favor of the Merger and Voting and Support Agreements

 

Our directors and executive officer that are not a Majority Holder have informed us that, as of the date of this Proxy Statement, they intend to vote all of the shares of Common Stock owned directly by them in favor of the approval of the merger. The Majority Holders have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreement is terminated in accordance with its terms (including upon a termination of the merger agreement in accordance with its terms), the Majority Holders have agreed to, among other things, vote, or cause to be voted, all of their respective shares of Common Stock in favor of the approval of the merger and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement.

 

As of [●], 2021, the record date for the Special Meeting, our directors and executive officer beneficially owned or controlled, in the aggregate, 1,158,332 shares of Class A Common Stock and 1,089,443 shares of Class B Common Stock entitled to vote at the Special Meeting, representing 12,052,762 votes, which is approximately 67.4% of the total voting of the Common Stock. As of [●], 2021, the record date for the Special Meeting, the Majority Holders beneficially owned, in the aggregate, 1,374,667 shares of Class A Common Stock and 1,394,830 shares of Class B Common Stock entitled to vote at the Special Meeting, representing 13,948,300 votes, which is approximately 85.6% of the total voting of the Common Stock. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation.

 

Under the terms of the voting and support agreement, the Majority Holders, including Nancy Hull, a member of our board of directors, have agreed to vote, or cause to be voted, all of their respective shares of Common Stock (A) to approve and adopt the merger agreement and the transactions contemplated thereby, including the merger, at the Special Meeting, and at any adjournment, postponement or recess thereof, at which such merger agreement is submitted for the consideration and vote of the stockholders of the Company, and (B) against (i) any action or agreement that would result in a material breach of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the merger agreement or of the stockholder in the voting and support agreement; (ii) any takeover proposal or other extraordinary transaction and (iii) any other action, agreement or transaction that would impede, frustrate, prevent or nullify the voting and support agreement or the consummation of the merger or the other transactions contemplated by the merger agreement.

 

The Majority Holders further agreed in the voting and support agreement to irrevocably appoint Parent as the stockholder’s attorney-in-fact and irrevocable proxy of each Majority Holder, for and in the name, place and stead of such Majority Holder, with full power of substitution and resubstitution, to vote, grant a consent or approval in respect of, or execute and deliver a proxy to vote, the shares solely in accordance with the obligations of the Majority Holder discussed above.

 

Each Majority Holder has also agreed in the voting and support agreement not to, directly or indirectly, without the prior written consent of Parent and the Company, (i) grant any proxy or power of attorney with respect to any shares or deposit any shares into any voting trust or enter into any agreement or arrangement with respect to the voting of any shares or any agreement or arrangement that is inconsistent with the voting and support agreement; (ii) offer for sale, sell (constructively or otherwise), transfer, assign, tender in any exchange offer, pledge, encumber, hypothecate or similarly dispose of (by testamentary disposition, operation of law or otherwise) or enter into any contract, option or other arrangement with respect to the transfer of, any shares, (iii) take any action that could restrict or otherwise affect the legal power, authority and right to comply with and perform such stockholder’s covenants and obligations under the voting and support agreement.

 

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The voting and support agreement was entered into by each Majority Holder solely in their respective capacity as a stockholder of the Company, and the voting and support agreement does not limit or affect any actions taken by any officer or director of the Company solely in his or her capacity as a director or officer of the Company.

 

The Majority Holders’ obligations under the voting and support agreement will automatically terminate without any further action required by any person upon the earliest to occur of (i) the mutual agreement of the parties thereto to terminate the voting and support agreement; (ii) the termination of the merger agreement in accordance with its terms, and (iii) the receipt of the requisite stockholder vote.

 

The foregoing summary of the voting and support agreement does not purport to be complete and is qualified in its entirety by reference to the voting and support agreement. A form of the voting and support agreement is attached as exhibit 99.1 to the Company’s Form 8-K filed with the SEC on May 28, 2021 and is incorporated herein by reference.

 

Extraordinary Dividend

 

Pursuant to the merger agreement, prior to the effective time of the merger, and in connection with the closing, (a) the Company will be entitled to authorize and declare in accordance with the MGCL an extraordinary dividend of $0.60 per share of Common Stock (the “Extraordinary Dividend”), which will be paid at or promptly after the effective time of the merger and will be contingent in all respects on the closing and (b) thereafter, the Company will promptly provide to the transfer agent for the Common Stock all of the cash necessary to pay the Extraordinary Dividend (but in any event no later than the business day immediately prior to the payment date for the Extraordinary Dividend). Only stockholders of record on the record date for the Extraordinary Dividend will receive it, assuming the merger is closed.

 

Appraisal Rights  

 

Holders of Class A Common Stock are not entitled to exercise appraisal rights pursuant to Section 3-202(c)(1) of the MGCL provided that shares continue to be listed on the NYSE American on the record date for the Special Meeting. However, holders of shares of Class B Common Stock will be entitled to exercise appraisal rights. In order to exercise appraisal rights, holders of Class B Common Stock must: (1) file with the Company a written objection to the Merger at or before the Special Meeting; (2) not vote in favor of the Merger; and (3) within 20 days after the Articles of Merger effecting the merger are accepted for filing by the Maryland State Department of Assessments and Taxation, make a written demand of the Company for payment of the holder's Class B Common Stock, stating the number and class of shares for which the stockholder demands payment. Written objections should be delivered to 6446 Edsall Road, Alexandria, VA 22312, Attention: Cheryl A. Dragoo. The Company will provide the holders of Class B Common Stock prompt written notice of the filing and acceptance for record of the Articles of Merger. In accordance with the MGCL, a holder of Class B Common Stock who fails to comply with each of the requirements of Maryland law is bound by the terms of the Merger and will not be entitled to any appraisal rights. A copy of Title 3, Subtitle 2 of the MGCL is included as Appendix C to this Proxy Statement and the procedures are summarized in this Proxy Statement. Holders of Class B Common Stock also are encouraged to consult with their own legal advisor as to their appraisal rights under Maryland law. Failure to strictly comply with these procedures will result in the loss of these appraisal rights and your ability to receive cash for the fair value of your Class B Common Stock.

 

Material U.S. Federal Income Tax Consequences

 

The following is a discussion of certain material U.S. federal income tax consequences of the merger and any Extraordinary Dividend to “U.S. holders” and “non-U.S. holders” (in each case, as defined below) of Common Stock whose shares of Common Stock are converted into the right to receive the per share merger consideration in the merger. This discussion assumes that U.S. holders and non-U.S. holders hold shares of Common Stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”) (generally, property held for investment), and will not own (actually or constructively) any equity interests in the surviving corporation or Parent after the merger. The following discussion is based upon the Code, judicial decisions, administrative rulings and existing and proposed Treasury regulations, all as in effect as of the date hereof. All of the preceding authorities are subject to change, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those discussed below. The Company has not requested, and will not request, a ruling from the U.S. Internal Revenue Service (the “IRS”) with respect to any of the U.S. federal income tax consequences described below, and as a result there can be no assurance that the IRS will not disagree with or challenge any of the conclusions the Company has reached and described herein.

 

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This discussion is not a complete analysis or listing of all of the possible tax consequences of the merger and any Extraordinary Dividend and does not address all tax considerations that might be relevant to particular holders in light of their personal circumstances or to persons that are subject to special tax rules. In addition, this discussion of the material U.S. federal income tax consequences does not address the tax treatment of special classes of holders, including, without limitation: banks, insurance companies or other financial institutions; mutual funds; real estate investment trusts or regulated investment companies; tax-exempt organizations or governmental organizations; an entity or arrangement treated for U.S. federal income tax purposes as a partnership, S-corporation or other pass-through entity (or an investor in such an entity or arrangement); controlled foreign corporations, passive foreign investment companies or corporations that accumulate earnings to avoid U.S. federal income tax (or stockholders of such corporations); retirement plans, pension funds or other tax-deferred accounts; persons holding shares of Common Stock as part of a hedging, straddle, synthetic security, conversion or other integrated transaction; persons deemed to have sold their shares of Common Stock under the constructive sale provisions of the Code; persons who acquired Common Stock through the exercise or cancellation of employee stock options, through a tax qualified retirement plan or otherwise as compensation for their services; U.S. expatriates or entities covered by the U.S. anti-inversion rules; dealers, traders or brokers in stocks and securities or currencies; U.S. holders (as defined below) whose functional currency is not the U.S. dollar; traders in securities that elect mark-to-market treatment; U.S. holders (as defined below) who hold shares of Common Stock through a bank financial institution or other entity, or a branch or office thereof, that is located, organized or resident outside the United States; or persons that are required to report income no later than when such income is reported in an “applicable financial statement.” This discussion also does not address the receipt of cash in connection with the cancellation of restricted stock units or options to purchase shares of Common Stock and does not address any other matters relating to equity compensation or benefit plans.

 

This discussion does not address alternative minimum tax, the Medicare tax on net investment income, the rules regarding “qualified small business stock” within the meaning of Section 1202 of the Code, any estate and gift tax consequences, any tax consequences arising under any state, local or non-U.S. laws, or any tax consequences other than U.S. federal income tax consequences.

 

For purposes of this section, the term “U.S. holder” means a beneficial owner of Common Stock that is for U.S. federal income tax purposes: (i) an individual citizen of the United States or a resident of the United States as determined for U.S. federal income tax purposes, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust (a) if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have authority to control all substantial decisions of the trust or (b) that has a valid election in effect under applicable Treasury regulations to be treated as a domestic trust.

 

The term “non-U.S. holder” means a beneficial owner of Common Stock that is, for U.S. federal income tax purposes, a non-resident alien individual or a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under laws other than the laws of the United States or any state thereof or the District of Columbia. The term “holder” means a U.S. holder or a non-U.S. holder.

 

If an entity treated as a partnership (or other pass-through entity) for U.S. federal income tax purposes is a beneficial owner of Common Stock, the U.S. federal income tax treatment of a partner or other owner will generally depend upon the status of the partner (or other owner) and the activities of the partner (or other owner) and the entity. If you are a partner (or other owner) of a partnership or other pass-through entity for U.S. federal income tax purposes, you are urged to consult your tax advisor regarding the tax consequences of the merger.

 

The following discussion is for general information only and is not intended to be, nor should it be construed to be, legal or tax advice to any holder of Common Stock and no opinion or representation with respect to the U.S. federal income tax consequences to any such holder is made. Each holder of Common Stock is urged to consult such holders tax advisors as to the particular consequences to such holder of the merger and any Extraordinary Dividend under U.S. federal, state and local, and applicable non-U.S. tax laws.

 

U.S. Holders

 

General. The exchange of shares of Common Stock for the cash per share merger consideration in the merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder of Common Stock whose shares are converted into the right to receive cash per share merger consideration in the merger generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined prior to reduction for any applicable withholding taxes) and the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis generally will equal the price the U.S. holder paid for such shares, as adjusted to take into account stock dividends, stock splits, distributions not treated as a dividend or similar transactions. Such gain or loss will be capital gain or loss and will be treated as long-term capital gain or loss if the holding period for the shares of Common Stock exceeds one year at the effective time of the merger. If the holding period for such shares is one year or less at the effective time of the merger, any capital gain or loss generally will be treated as short-term capital gain or loss. Long-term capital gains of non-corporate U.S. holders (including individuals) are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to certain limitations. If a U.S. holder acquired different blocks of Common Stock at different times or different prices, such U.S. holder must determine its adjusted tax basis and holding period separately with respect to each block of Common Stock.

 

Information Reporting and Backup Withholding. Information reporting and backup withholding may apply to payments made in connection with the merger and to the payment of the Extraordinary Dividend. Backup withholding will not apply, however, to a U.S. holder of Common Stock that (1) furnishes a correct taxpayer identification number (“TIN”), certifies that such U.S. holder is not subject to backup withholding on the IRS Form W-9 (or appropriate successor form) included in the transmittal materials that such U.S. holder will receive, and otherwise complies with all applicable requirements of the backup withholding rules; or (2) provides proof that such U.S. holder is otherwise exempt from backup withholding. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. holder’s U.S. federal income tax liability, if any; provided, that such U.S. holder furnishes the required information to the IRS in a timely manner. The IRS may impose a penalty upon any taxpayer that fails to provide the correct TIN.

 

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Non-U.S. Holders

 

General. A non-U.S. holder’s receipt of cash per share merger consideration in exchange for shares of Common Stock pursuant to the merger generally will not be subject to U.S. federal income tax unless:

 

 

the gain, if any, on such shares is effectively connected with the conduct of a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment (or, in the case of an individual non-U.S. holder, a fixed base) maintained by the non-U.S. holder in the United States);

 

 

the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the merger, and certain other conditions are met; or

 

 

the Company is or has been a “United States real property holding corporation” as such term is defined in Section 897(c) of the Code (a “USRPHC”) for U.S. federal income tax purposes and certain other conditions are met.

 

A non-U.S. holder described in the first bullet point immediately above will generally be subject to tax on any gain derived from the merger in the same manner as if it were a U.S. holder. In addition, such a non-U.S. holder that is a corporation may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits or such lower rate as may be specified by an applicable income tax treaty. A non-U.S. holder described in the second bullet point immediately above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on any gain realized as a result of the merger, which may be offset by certain U.S. source capital losses recognized in the same year.

 

If the Company is or has been a USRPHC at any time within the shorter of the five-year period preceding the effective time of the merger or a non-U.S. holder’s holding period with respect to the applicable shares of Common Stock, the exchange of Common Stock for cash in the merger by such non-U.S. holder will be subject to U.S. federal income tax at rates generally applicable to U.S. holders, except that the branch profits tax will not apply; provided, that, so long as Common Stock is regularly traded on an established securities market, the Company’s treatment as a USRPHC would cause only a non-U.S. holder who holds or held, directly or indirectly under certain ownership rules of the Code, more than 5% of Common Stock (at any time during the shorter of the five-year period preceding the merger or the period that the non-U.S. holder held Common Stock), and is not eligible for a treaty exemption. The Company believes that it is not, and has not been, a USRPHC at any time during the five-year period preceding the offer.

 

Information Reporting and Backup Withholding. Information reporting and backup withholding will generally apply to payments made pursuant to the merger and any Extraordinary Dividend paid to a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder properly and correctly on an appropriate version of IRS Form W-8 and satisfies certain other requirements, or otherwise establishes an exemption. Copies of applicable information returns reporting such payments and any withholding may also be made available to the tax authorities in the non-U.S. holder’s country in which such holder resides under the provisions of an applicable treaty or agreement. Payments of disposition proceeds or any Extraordinary Dividend to a non-U.S. holder where the transaction is effected through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting. However, if such broker is for U.S. federal income tax purposes: a U.S. person; a controlled foreign corporation; a non-U.S. person 50% or more of whose gross income is effectively connected with a U.S. trade or business for a specified three-year period; or a non-U.S. partnership with certain connections to the United States, then information reporting will be required unless the broker has in its records documentary evidence that the beneficial owner is not a U.S. person and certain other conditions are met or the beneficial owner otherwise establishes an exemption. Backup withholding may apply to any payment that such broker is required to report if the broker has actual knowledge or reason to know that the beneficial owner is a U.S. person. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability (if any) provided, that an appropriate claim is timely filed with the IRS.

 

FATCA. Pursuant to Sections 1471 through 1474 of the Code and the U.S. Treasury Regulations and administrative guidance promulgated thereunder, commonly known as “FATCA”, “foreign financial institutions” (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities must comply with information reporting rules with respect to their U.S. account holders and investors or be subject to a withholding tax on U.S.-source payments made to them, unless an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Recently promulgated proposed U.S. Treasury Regulations eliminate withholding on payments of gross proceeds of dispositions of shares of Common Stock, and taxpayers may generally rely on the proposed U.S. Treasury Regulations until final U.S. Treasury Regulations are issued. If FATCA withholding is imposed, a beneficial owner that is not a foreign financial institution generally may obtain a refund of any amounts withheld by filing a U.S. federal income tax return. You should consult your tax advisor regarding the effects of FATCA on your receipt of the Extraordinary Dividend and the merger consideration.

 

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Extraordinary Dividend

 

If you are a U.S. holder the receipt of the Extraordinary Dividend will be taxable as a dividend to you to the extent paid out of the Company’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Such dividends are generally taxed at ordinary income tax rates; provided, however, that for a non-corporate U.S. holder, the amount of the Extraordinary Dividend that is treated as a dividend for U.S. federal income tax purposes generally will be eligible under current law for a reduced rate of taxation applicable to “qualified dividends,” so long as certain holding period and other requirements are satisfied. To the extent that the Extraordinary Dividend qualifies for such reduced rate of taxation and constitutes an “extraordinary dividend” (generally, where the amount of the dividend exceeds 10% of a holder’s tax basis in its stock), any loss on the sale or exchange of such stock by a non-corporate U.S. holder, to the extent of such extraordinary dividend, will be treated as long-term capital loss.

 

For a corporate U.S. holder, the amount of the Extraordinary Dividend that is treated as a dividend for U.S. federal income tax purposes will be eligible for the dividends-received deduction if such holder meets certain holding period and other applicable requirements. In addition, if (i) a corporate U.S. holder is allowed a dividends-received deduction with respect to the Extraordinary Dividend, (ii) such corporate U.S. holder held its shares of Common Stock for two years or less, and (iii) such Extraordinary Dividend constitutes an extraordinary dividend, then such corporate U.S. holder’s tax basis in its shares of Common Stock will be reduced (but not below zero) by the nontaxed portion of the Extraordinary Dividend and, if the nontaxed portion of such dividend exceeds such tax basis, such excess will be treated as gain from the sale or exchange of such holder’s shares of Common Stock.

 

To the extent that the Extraordinary Dividend exceeds the Company’s current and accumulated earnings and profits, the excess will first reduce the U.S. holder’s basis in shares of Common Stock (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by a U.S. holder on a subsequent disposition of our Common Stock), but not below zero, and then will be treated as gain from the sale of the U.S. holder’s Common Stock.

 

If you are a non-U.S. holder, you generally will not be subject to U.S. federal income tax with respect to the receipt of the Extraordinary Dividend unless you have certain connections with the United States, except that the amount of the Extraordinary Dividend that is treated as a dividend for U.S. federal income tax purposes generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. You should consult your own tax advisor regarding the particular tax consequences to you of the receipt of the Extraordinary Dividend in light of your particular circumstances (including the application and effect of any state, local or non-U.S. income and other tax laws).

 

Regulatory Approvals  

 

In connection with the merger, the Company is required to make certain filings with, and comply with certain laws of, various federal and state governmental agencies, including:

 

 

filing the articles of merger with the Maryland State Department of Assessments and Taxation in accordance with MGCL at the closing of the merger; and

 

 

complying with U.S. federal securities laws.

 

No filings or approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 are required in connection with the merger.

 

Delisting and Deregistration of Class A Common Stock  

 

If the merger is completed, the shares of Class A Common Stock will no longer be publicly traded on the NYSE American. In addition, Class A Common Stock will be delisted from the NYSE American and deregistered under the Exchange Act, and the Company will no longer be required to file periodic reports with the SEC with respect to Class A Common Stock.

 

Effective Time of Merger  

 

The merger will be completed and become effective at the time the articles of merger is filed with the Maryland State Department of Assessments and Taxation or any later time as the Company and Parent agree upon and specify in the articles of merger. The parties intend to complete the merger as soon as practicable following the approval of the merger by the Company’s stockholders and satisfaction or waiver of the conditions to closing of the merger set forth in the merger agreement.

 

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The parties to the merger agreement currently expect to complete the merger in the second half of 2021. Because the merger is subject to a number of conditions, the exact timing of the merger cannot be determined, or if it is completed at all.

 

Payment of Merger Consideration and Surrender of Stock Certificates  

 

Prior to the effective time of the merger, Parent will designate a paying agent to handle the exchange of shares of Common Stock for the per share merger consideration to and will cause cash sufficient to pay the aggregate per share merger consideration to be deposited with the paying agent, in trust for the benefit of the holders of shares of Common Stock (other than the excluded shares).

 

Promptly, and in any event, within one business day after the effective time of the merger, Parent will cause the paying agent to mail a letter of transmittal in the paying agent’s standard form (and reasonably satisfactory to the Company) and instructions to each holder of record of Common Stock. The letter of transmittal and instructions will (i) tell such holder that delivery is effected, and risk of loss and title to such holder’s shares will pass, only upon delivery of such holder’s stock certificates (or affidavit of loss in lieu thereof) to the paying agent or, in the case of book-entry shares, upon adherence to the procedures set forth in the letter of transmittal and (ii) provide instructions to such holder for surrendering such certificates or book-entry shares (if the holder’s shares are not certificated) in exchange for the per share merger consideration. You will not be entitled to receive the per share merger consideration until you surrender your stock certificate or certificates (if your shares are certificated) (or affidavit of loss in lieu thereof) to the paying agent, together with a duly completed and executed letter of transmittal and any other documents reasonably required by the paying agent.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

 

The per share merger consideration may be paid to a person other than the person in whose name the corresponding surrendered stock certificate or book-entry share is registered if (i) the surrendered stock certificate or book-entry share (or affidavit of loss in lieu thereof) is accompanied by all documents required by Parent to evidence and effect that transfer and (ii) the person requesting such payment pays any applicable transfer taxes or other taxes required by reason of payment of the per share merger consideration to a person other than the registered holder or establishes to the satisfaction of Parent and the paying agent that such tax has been paid or is not applicable.

 

No interest will be paid or will accrue on the cash payable upon surrender of the stock certificates or book-entry share. Parent, the surviving corporation and the paying agent will be entitled to deduct and withhold from any consideration otherwise payable under the merger agreement as may be required to deduct and withhold with respect to the payment of such consideration under the Code, or any applicable state, local or foreign tax law. To the extent that any amounts are so deducted and withheld and paid to the appropriate taxing authorities, those amounts will be treated as having been paid to the person in respect of whom such deduction or withholding was made for all purposes under the merger agreement.

 

Any portion of the aggregate per share merger consideration which remains unclaimed by former stockholders of the Company twelve months after the effective time of the merger will be delivered by the paying agent to Parent upon demand, and any former stockholders who have not surrendered their shares in exchange for the per share merger consideration will thereafter look only to Parent for payment of the per share merger consideration.

 

If any certificate representing Common Stock has been lost, stolen or destroyed, then upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed and, to the extent required by the surviving corporation, the paying agent or the transfer agent for the Common Stock, the posting by such person of a bond in such reasonable amount as such person may direct as indemnity against any claim that may be made against it with respect to such certificate, the paying agent will deliver in exchange for such lost, stolen or destroyed certificate the per share merger consideration that would be payable in respect thereof.

 

Fees and Expenses  

 

All fees, expenses and costs incurred in connection with the merger agreement, including legal, accounting, investment banking and other fees, expenses and costs, will be paid by the party incurring such fees, expenses and costs, whether or not the merger is consummated.

 

Estimated fees and expenses to be incurred by the Company in connection with the merger are as follows:

 

Description

 

Amount

 

Financial advisors fees and expenses

  $ 1,150,000  

Legal fees and expenses

  $ 500,000  

Accounting fees and expenses

  $ 15,000  

SEC filing fee

  $ 4,803  

Printing, proxy solicitation, filing fees and mailing costs

  $ 20,000  

Miscellaneous

  $ 10,197  

Total fees and expenses

  $ 1,700,000  

 

These fees and expenses will not reduce the per share merger consideration to be received by our stockholders.

 

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FORWARD-LOOKING STATEMENTS

 

This Proxy Statement contains, and oral statements made by our representatives from time to time may contain, forward-looking statements (statements which are not historical facts). Forward-looking statements are based on current expectations rather than historical facts and they are indicated by words or phrases such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “project,” “seek,” “should,” “target,” or “will” or the negative thereof or other variations thereon and similar words or phrases or comparable terminology.

 

We have based such forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, many of which are beyond our control. More recent risks and uncertainties include the ongoing effects of the business disruption related to the current COVID-19 pandemic on revenues, operating income, the ability to reopen locations, governmental regulations to limit the spread of COVID-19 such as social distancing and enhanced safety measures, times of operation and reaction should the virus rise again.

 

Forward-looking statements also may include information concerning the proposed merger transaction, including unexpected costs or liabilities, delays, failure to timely satisfy or have waived certain closing conditions, the commencement of litigation relating to the merger, whether or when the proposed merger will close and changes in general and business conditions. Investors are cautioned that all forward-looking statements involve risks and uncertainties and factors relating to the proposed transaction, all of which are difficult to predict and many of which are beyond its control. You are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date they were made. We undertake no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of unanticipated events or otherwise, except as required by law.

 

Additionally, important factors concerning the merger could cause the Company’s actual results, performance and achievements to differ materially from such forward-looking statements. Such risks, uncertainties and other important factors include, among others:

 

 

the failure of the Company’s stockholders to approve the merger or the risk that the other conditions to the completion of the merger will not be satisfied;

 

 

the risk of the occurrence of an event, change or circumstance that could give rise to the payment of a termination fee to Parent pursuant to the terms of the merger agreement;

 

 

the risk of an adverse outcome of any legal proceedings that have been or may be instituted against the Company and others relating to the transactions contemplated by the merger agreement;

 

 

the risk of the failure to consummate the merger for any reason;

 

 

the restrictions imposed on the Company’s business, properties and operations pursuant to the affirmative and negative covenants set forth in the merger agreement and the potential impact of such covenants on our business;

 

 

the risk that the proposed transaction will divert management’s attention resulting in a potential disruption of the Company’s current business plan;

 

 

the effect of the announcement of the merger on our business relationships, operating results and business generally;

 

 

the amount of fees, expenses and charges incurred by the Company in connection with the merger; and

 

 

failure of the merger to close, or a delay in its closing, may have a negative impact on the Company’s ability to pursue alternative strategic transactions or ability to implement alternative business plans.

 

All information contained in this Proxy Statement concerning Parent and Merger Sub has been supplied by Parent and Merger Sub and has not been independently verified by the Company.

 

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THE PARTIES TO THE MERGER

 

Bowl America Incorporated

 

Bowl America Incorporated was incorporated in Maryland in 1958. The Company commenced business with one bowling center in 1958, and at the end of fiscal year 2020, the Company and its wholly-owned subsidiaries operated 17 bowling centers, 16 of which are owned centers.

 

The principal business address and phone number of the Company are:

 

Bowl America Incorporated
6446 Edsall Road

Alexandria, Virginia 22312
Telephone: (703) 941-6300

 

Bowlero Corp.

 

Parent is a Delaware corporation that is a leader in bowling entertainment, media, and events. With more than 300 bowling centers across North America, Parent serves over 28 million guests each year through a family of brands that includes Bowlero, Bowlmor Lanes, and AMF.

 

The principal business address and phone number of Parent are:

 

Bowlero Corp.

222 West 44th Street

New York, NY 10036

Telephone: 1-800-342-5263

 

Potomac Merger Sub, Inc.

 

Merger Sub is a Maryland corporation formed solely for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger. Merger Sub is an indirect wholly-owned subsidiary of Parent. Subject to the terms and conditions of the merger agreement, at the effective time of the merger, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation. Merger Sub currently has de minimis assets and has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

 

The principal business address and phone number of Merger Sub are:

 

c/o Bowlero Corp.

222 West 44th Street

New York, NY 10036

Telephone: 1-800-342-5263

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information known to the Company regarding the beneficial ownership of Common Stock as of [●], 2021 (unless otherwise indicated), the most recent practicable date by (i) each of the Company’s “named executive officers” as determined pursuant to SEC rules, (ii) each director, (iii) all of the Company’s directors and executive officers as a group and (iv) each person who is known by the Company to be the beneficial owner of more than 5% of any class or series of the Company’s capital stock.

 

The amounts and percentages of Common Stock beneficially owned are reported on the basis of the regulations of the SEC governing the determination of beneficial ownership of securities. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities. Except as otherwise indicated, the named persons below have sole voting and investment power, or share voting and investment power with their spouses, with respect to beneficially owned shares listed below.

 

The percentages included in the table below are based on 3,746,454 outstanding shares of Class A Common Stock and 1,414,517 outstanding shares of Class B Common Stock as of [●], 2021. Unless otherwise indicated, the address for all persons listed below is c/o Bowl America Incorporated, 446 Edsall Road, Alexandria, Virginia 22312.

 

Name

 

Shares of

Class A Common Stock

Beneficially Owned

   

Percent of Class A

Common Stock

Beneficially Owned

   

Shares of

Class B Common Stock

Beneficially Owned

   

Percent of Class B

Common Stock

Beneficially Owned

 

Officers and Directors

                               

Allan L. Sher

    52,500       1.4%       -       -  

Nancy E. Hull(1)

    212,359       5.7%       217,417       15.4%  

Merle Fabian(2)

    879,463       23.5%       872,026       61.6%  

Cheryl A. Dragoo

    14,010       *       -       -  

Gloria M. Bragg

    -       -       -       -  

All directors and executive officers as a group (5 persons)

    1,158,332       30.9%       1,089,443       77.0%  

5% Stockholders

                               

Ruth E. Macklin(3)

    184,585       4.9%       183,407       13.0%  

Royce & Associates, LP(4)

    428,477       11.4%       -       -  

Anita G. Zucker As Trustee of The Article 6 Marital Trust(5)

    278,222       7.4%       -       -  

 

*Less than 1%.

 

(1) Includes 24,916 shares of Class A and 13,340 shares of Class B Common Stock owned individually or jointly with her spouse. In addition, includes 181,396 shares of Class A and 181,396 shares of Class B Common Stock owned by the Irrevocable Trust for the Descendants of Howard and Pearl Katzman over which she is a co-trustee and a beneficiary. Also includes 15,047 shares of Class A and 22,681 shares of Class B Common Stock owned by trusts over which she is a co-trustee, but has no pecuniary interest in such shares.

 

(2) Includes 381,224 shares of Class A and 872,026 shares of Class B Common Stock owned by the Merle G. Fabian Revocable Trust over which Ms. Fabian is trustee; 494,594 shares of Class A Common Stock owned by the Leslie H. Goldberg Revocable Trust over which Ms. Fabian is trustee (which she disclaims except to the extent of her pecuniary interest therein) and 3,645 shares of Class A Common Stock held individually.

 

(3) Includes 71,923 shares of Class A and 70,784 shares of Class B Common Stock held by the Ruth E. Macklin Trust. Mr. Alban Salaman is co-trustee of the Ruth E. Macklin Trust and was appointed as the power of attorney over Ms. Macklin’s securities and accordingly, Mr. Salaman has voting and investment control over such shares. Mr. Salaman has no pecuniary interest in such shares.

 

(4) Information based on Schedule 13G/A filed on January 21, 2021. The shares are beneficially owned by one or more registered investment companies or other managed accounts that are investment management clients of Royce & Associates, LP (“RALP”), an indirect majority owned subsidiary of Franklin Resources, Inc.(“FRI”). When an investment management contract (including a sub advisory agreement) delegates to RALP investment discretion or voting power over the securities held in the investment advisory accounts that are subject to that agreement, FRI treats RALP as having sole investment discretion or voting authority, as the case may be, unless the agreement specifies. The business address of RALP is 745 Fifth Avenue, New York, NY 10151.

 

(5) Information based on Schedule 13D/A filed on May 16, 2019. Mrs. Zucker, individually and as trustee of the Article 6 Marital Trust, has sole voting, investment and dispositive power with respect to those shares. The business address is c/o The InterTech Group, Inc., 4838 Jenkins Avenue, North Charleston, SC 29405.

 

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THE SPECIAL MEETING

 

This Proxy Statement is being provided to our stockholders as part of a solicitation of proxies by the Board for use at the Special Meeting of our stockholders to be held on [●], 2021, and at any adjournment or postponement thereof. This Proxy Statement contains important information regarding the Special Meeting, the proposals on which you are being asked to vote and information you may find useful in determining how to vote and voting procedures.

 

This Proxy Statement is being first mailed on or about [●], 2021 to all stockholders of record of the Company as of [●], 2021, the record date for the Special Meeting. Stockholders of record who owned Common stock at the close of business on the record date are entitled to receive notice of, attend and vote at the Special Meeting. On the record date, there were 3,746,454 shares of Class A Common Stock issued and outstanding and 1,414,517 shares of Class B Common Stock issued and outstanding. No representative from MN Blum, LLC will be present at the Special Meeting, so there will be no statement made by the Company’s auditors and no opportunity to ask questions of the Company’s auditors.

 

Date, Time and Place of Special Meeting

 

The Special Meeting will be a virtual meeting conducted exclusively via live webcast starting at [●], Eastern time, on [●], 2021, or at such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the proposals. Stockholders may attend the Special Meeting online, vote, and submit your questions during the Special Meeting by visiting [●] and entering the 16-digit control number included on the proxy card you received. You will be deemed present and may vote at the Special Meeting by following the instructions available on the meeting website during the Special Meeting. Because the Special Meeting is completely virtual and being conducted via live webcast, stockholders will not be able to attend the meeting in person.

 

Voting Power; Record Date

 

As a stockholder of the Company, you have a right to vote on certain matters affecting the Company. The proposals that will be presented at the Special Meeting and upon which you are being asked to vote are summarized below and fully set forth in this Proxy Statement. You will be entitled to vote or direct votes to be cast at the Special Meeting if you owned shares of Common Stock at the close of business on [●], 2021, which is the record date for the Special Meeting. Each of the issued and outstanding 3,746,454 shares of Class A Common Stock is entitled to one vote per share for an aggregate of 3,746,454 votes and each of the issued and outstanding 1,414,517 shares of Class B Common Stock is entitled to ten votes per share for an aggregate of 14,145,170 votes. The total number of votes represented by outstanding Class A Common Stock and Class B Common Stock as of the record date was 17,891,624.

 

If your shares are held in “street name,” are in a margin or similar account or in the ESOP, you should contact your broker, bank or other nominee or the ESOP Trustee, as applicable, to ensure that votes related to the shares you beneficially own are properly counted.

 

Proposals at the Special Meeting and Board Recommendation

 

At the Special Meeting, our stockholders will vote on the following proposals:

 

1.         A vote on the approval of the merger, pursuant to which Merger Sub will merge with and into the Company and the Company will continue as the surviving corporation and become a wholly-owned subsidiary of Parent;

 

2.         An advisory (non-binding) vote to approve the “merger-related executive compensation” that may become payable to the Company’s named executive officer in connection with the merger; and

 

3.         A vote on a proposal to approve the adjournment, postponement or recess of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the merger.

 

The board of directors, after careful consideration, voted unanimously to (i) determine that the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein are fair to, and in the best interests of, the Company and its stockholders, (ii) declared advisable the merger and the other transactions contemplated by the merger agreement, (iii) authorized and approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, upon the terms and subject to the conditions set forth therein, the submission of the merger and the other transactions contemplated by the merger agreement to the Companys stockholders for approval, and, subject to receipt of such stockholder approval, the consummation of the merger and the transactions contemplated by the merger agreement, and (iv) recommended that the Companys stockholders vote FOR the merger and the other transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement. In arriving at its recommendations, the board of directors carefully considered a number of factors described in this Proxy Statement. For a discussion of the material factors considered by the board of directors in reaching its conclusions, see “Proposal 1: The Merger—Recommendation of Our Board of Directors; Reasons for Recommending the Approval of the Merger” beginning on page 17.

 

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The board of directors recommends that you vote FOR the proposal to approve the merger, FOR the proposal to approve the merger-related executive compensation and FOR the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies.

 

Quorum and Required Vote for Proposals for the Special Meeting

 

A quorum of stockholders is necessary to hold a valid meeting. The presence at the meeting, in person or by proxy, of the holders of a majority of the aggregate voting power of the Common Stock outstanding on the record date and entitled to vote will constitute a quorum, permitting the conduct of business at the meeting. Proxies received but marked as abstentions will be included in the calculation of the number of votes considered to be present at the meeting for the purposes of a quorum. Only stockholders of record at the close of business on the record date, [●], 2021, are entitled to receive notice of and to vote at the Special Meeting or any adjournment, postponement or recess thereof. As of the close of business on [●], 2021, the record date, there were outstanding 3,746,454 shares of Class A Common Stock is entitled to one vote per share for an aggregate of 3,746,454 votes and each of the issued and outstanding 1,414,517 shares of Class B Common Stock is entitled to ten votes per share for an aggregate of 14,145,170 votes. The total number of votes represented by outstanding Class A Common Stock and Class B Common Stock as of the record date was 17,891,624.

 

Your shares will be counted towards the quorum only if you vote in person at the Special Meeting or if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other agent).

 

Votes will be counted by the inspector of election appointed for the Special Meeting, who will separately count FOR and AGAINST votes and abstentions and separately count votes in respect of each proposal.

 

Because the affirmative vote of at least a majority of the aggregate number of votes entitled to be cast by holders of Common Stock, voting as a single class, is required to approve the merger, the failure to vote and abstentions (including failure to provide voting instructions if you hold through a broker, bank or other nominee) will have the same effect as a vote AGAINST the merger proposal. Approval of the advisory (non-binding) proposal on the “merger-related executive compensation” and the proposal to adjourn the Special Meeting if there are not sufficient votes to approve the merger and the transactions contemplated by the merger agreement, each requires the affirmative vote of a majority of the aggregate number of votes cast by holders of shares of Common Stock, voting together as a single class, present in person or represented by proxy. As a result, abstentions and broker non-votes will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum. As noted above, the vote with respect to the “merger-related executive compensation” is an advisory vote and will not be binding on the Company or Parent. Accordingly, regardless of the outcome of the non-binding, advisory vote, if the merger agreement is adopted by the stockholders and completed, our named executive officer will be eligible to receive the various “merger-related executive compensation” payments.

 

If a stockholder’s shares are held of record by a broker, bank or other nominee or in the ESOP and the stockholder wishes to vote at the Special Meeting, the stockholder must obtain from the record holder or ESOP Trusee a proxy issued in the stockholder’s name. Brokers, banks or other nominees who hold shares in “street name” for clients typically have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. Absent specific instructions from the beneficial owner of the shares, however, none of the brokers, banks or other nominees or the ESOP Trustee, as applicable, will be allowed to exercise voting discretion with respect to the approval of non-routine matters, such as the merger and the transactions contemplated by the merger agreement. Abstentions are counted for purposes of determining whether a quorum exists at the Special Meeting.

 

As noted above, the Majority Holders have each entered into a voting and support agreement that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation.

 

Broker Non-Votes

 

In general, if your shares are held in “street name” or in the ESOP and you do not instruct your broker, bank or other nominee or the ESOP Trustee, as applicable, on a timely basis on how to vote your shares, your broker, bank or other nominee, in its sole discretion, may either leave your shares unvoted or vote your shares on routine matters, but not on any non-routine matters. A broker non-vote will have no effect on the outcome of any of the proposals. All of the proposals at the Special Meeting are non-routine matters. As such, without your voting instructions, none of your bank, broker or other nominee or the ESOP Trustee, as applicable, can vote your shares on any proposal to be voted on at the Special Meeting.

 

43

 

Voting Your SharesStockholders of Record

 

If you are a stockholder of record, you may vote by proxy or at the Special Meeting. Each share of our Common stock that you own in your name entitles you to one vote for each share of Class A Common Stock and ten votes for each share of Class B Common Stock on each of the proposals on which you are entitled to vote at the Special Meeting. Your one or more proxy cards show the number of shares of Common stock that you own.

 

Voting by Proxy.    If you are a holder of record, a proxy card is enclosed for your use. The Company requests that you submit a proxy via internet by logging onto [●] and following the instructions on your proxy card or by telephone by dialing [●] and listening for further directions or by signing the proxy and returning it promptly in the enclosed postage-paid envelope. By submitting a proxy card, you are authorizing the individuals named on the proxy card to vote your shares at the Special Meeting in the manner you indicate. We encourage you to submit a proxy card even if you plan to attend the Special Meeting so that your shares will be voted if you are unable to attend the Special Meeting. If you receive more than one proxy card, it is an indication that your shares are held in multiple accounts. Please submit all proxy cards to ensure that all of your shares are voted. If you submit a proxy card but do not give instructions on how to vote your shares, your shares of Common Stock will be voted as recommended by our Board.

 

Voting at the Special Meeting.    If you attend the Special Meeting, you may also submit your vote at the Special Meeting via the Special Meeting website at [●] in which case any votes that you previously submitted by mail will be superseded by the vote that you cast at the Special Meeting. To participate in the virtual meeting, you will need a 16-digit control number printed on your proxy card. The meeting webcast will begin promptly at [●], Eastern Time. You will be deemed present and may vote at the Special Meeting by following the instructions available on the meeting website during the Special Meeting. We encourage you to access the meeting prior to the start time and you should allow ample time for the check-in procedures. Because the Special Meeting will be a completely virtual meeting, stockholders will not be able to attend the Special Meeting in person.

 

Voting Your SharesBeneficial Owners

 

If your shares are held in an account at a broker, bank, or nominee (i.e., in “street name”) or in the ESOP, you must provide the record holder of your shares and/or the ESOP Trustee with instructions on how to vote the shares. Please follow the voting instructions provided by the broker, bank, or nominee or ESOP Trustee, as applicable.

 

What If I Request and Return a Proxy Card But Do Not Make Specific Choices?

 

If you request a proxy card and return the proxy card signed and dated without marking any voting selections, all of your shares of Common Stock will be voted FOR the approval of the merger, FOR the approval of the “merger-related executive compensation” and FOR the approval of the proposal to adjourn the Special Meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal to approve the merger. You should return a proxy even if you plan to attend the Special Meeting.

 

Revoking Your Proxy

 

If you give a proxy, you may revoke it at any time before the Special Meeting or at the Special Meeting by doing any one of the following:

 

 

delivering a signed written notice of revocation to our Secretary at our principal executive offices, bearing a date later than the date of the proxy, stating that the proxy is revoked;

 

 

timely delivering a new, valid proxy relating to the same shares and bearing a later date by submitting instructions via telephone, internet or mail as described in your proxy card; or

 

 

attending and voting at the Special Meeting and voting, although attendance at the Special Meeting will not, by itself, revoke a proxy.

 

If you are a beneficial owner of Common Stock as of the close of business on the record date, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.

 

What Should I Do With My Stock Certificates at this Time?  

 

Please do not send in stock certificates at this time. If the merger is completed, you will be sent a letter of transmittal regarding the procedures for exchanging the existing Company’s stock certificates for the payment of $8.53 per share in cash, without interest and less any applicable withholding taxes.

 

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Stock Ownership and Interests of Certain Persons  

 

Our directors and executive officer that are not a Majority Holder have informed us that, as of the date of this Proxy Statement, they intend to vote all of the shares of Common Stock owned directly by them in favor of the approval of the merger. The Majority Holders have each entered into a voting and support agreement with Parent and the Company that covers in excess of a majority of the outstanding voting power of Common Stock, pursuant to which, unless the voting and support agreements are terminated in accordance with their terms (including upon a termination of the merger agreement), the Majority Holders have agreed to, among other things, (i) vote, or cause to be voted, all of their respective shares of Common Stock in favor of the adoption of the merger agreement and approval of any related proposal in furtherance of the merger and the transactions contemplated by the merger agreement, (ii) not transfer any such shares, with certain limited exceptions, and (iii) not solicit an alternative transaction or engage in negotiations with respect to or otherwise facilitate an alternative transaction. The voting and support agreement was entered into by each Majority Holder solely in their respective capacity as a stockholder of the Company, and the voting and support agreement does not limit or affect any actions taken by any officer or director of the Company solely in his or her capacity as a director or officer of the Company. The Majority Holders’ obligations under the voting and support agreement will automatically terminate without any further action required by any person upon the earliest to occur of (i) the mutual agreement of the parties thereto to terminate the voting and support agreement; (ii) the termination of the merger agreement in accordance with its terms, and (iii) the receipt of the requisite stockholder vote.

 

As of [●], 2021, the record date for the Special Meeting, our directors and executive officer beneficially owned or controlled, in the aggregate, 1,158,332 shares of Class A Common Stock and 1,089,443 shares of Class B Common Stock entitled to vote at the Special Meeting, representing 12,052,762 votes, which is approximately 67.4% of the total voting of the Common Stock. As of [●], 2021, the record date for the Special Meeting, the Majority Holders beneficially owned, in the aggregate, 1,374,667 shares of Class A Common Stock and 1,394,830 shares of Class B Common Stock entitled to vote at the Special Meeting, representing 13,948,300 votes, which is approximately 85.6% of the total voting of the Common Stock. The vote of the Majority Holders is sufficient to approve the merger and the advisory vote on merger-related executive compensation. Certain of our directors and the executive officer have interests that may be different from, or in addition to, those of the Company’s stockholders generally. For more information, please see “Proposal 1: The Merger—Interests of the Company’s Directors and the Executive Officer in the Merger” beginning on page 31.

 

Expenses of Proxy Solicitation  

 

The Company will pay for the entire cost of soliciting proxies. In addition to the costs of mailing the proxy materials and posting the proxy materials on the Internet, the Company’s directors, executive officer and employees also may solicit proxies in person, by telephone or by other means of communication. Directors, the executive officer and employees will not be paid any additional compensation for soliciting proxies. The Company also may reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

 

Adjournments, Postponements and Recesses  

 

Although the Company does not expect to do so, if the Company has not received sufficient proxies to constitute a quorum or sufficient votes for the approval of the merger, the Special Meeting may be adjourned, postponed or recessed for the purpose of soliciting additional proxies. The proposal to approve the adjournment, postponement or recess of the Special Meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of a majority of the aggregate number votes entitled to be cast by holders of shares of Common Stock, voting together as a single class, present or represented by proxy at the Special Meeting. Any signed proxies received by the Company that approve the proposal to adjourn, postpone or recess the Special Meeting will be voted in favor of an adjournment or postponement in these circumstances. Any adjournment, postponement or recess of the Special Meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use.

 

Rights of Stockholders Who Object to the Merger  

 

Holders of Class A Common Stock will not be entitled to exercise appraisal rights provided that shares continue to be listed on the NYSE American on the record date for the Special Meeting. However, holders of shares of Class B Common Stock will be entitled to exercise appraisal rights. In order to exercise appraisal rights, holders of Class B Common Stock must: (1) file with the Company a written objection to the Merger at or before the Special Meeting; (2) may not vote in favor of the Merger; and (3) within 20 days after the Articles of Merger effecting the merger are accepted for filing by the Maryland State Department of Assessments and Taxation, make a written demand of the Company for payment of the holder's Class B Common Stock, stating the number and class of shares for which the stockholder demands payment. Written objections should be delivered to 6446 Edsall Road, Alexandria, Virginia 22312, Attention: Cheryl A. Dragoo. The Company will provide the holders of Class B Common Stock prompt written notice of the filing and acceptance for record of the Articles of Merger. In accordance with the MGCL, a holder of Class B Common Stock who fails to comply with each of the requirements of Maryland law is bound by the terms of the Merger and will not be entitled to any appraisal rights. A copy of Title 3, Subtitle 2 of the MGCL is included as Appendix C to this Proxy Statement and the procedures are summarized in this Proxy Statement. See “Appendix C to this Proxy Statement. Holders of Class B Common Stock also are encouraged to consult with their own legal advisor as to their appraisal rights under Maryland law. Failure to strictly comply with these procedures will result in the loss of these appraisal rights and your ability to receive cash for the fair value of your Class B Common Stock.

 

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Other Matters  

 

The board of directors is not aware of any business to be brought before the Special Meeting other than that described in this Proxy Statement. If, however, other matters are properly presented at the Special Meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

 

Questions and Additional Information  

 

If you have questions about the Special Meeting or the merger after reading this Proxy Statement, or if you would like additional copies of this Proxy Statement or the proxy card, you should contact Bowl America Incorporated - 6446 Edsall Road, Alexandria, Virginia 22312, Attention: Cheryl A. Dragoo or call (703) 941-6300.

 

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THE MERGER AGREEMENT

 

General

 

This section of the Proxy Statement summarizes certain material provisions of the merger agreement, but is not intended to be an exhaustive discussion of the merger agreement. We encourage you to read carefully this Proxy Statement, including the full text of the merger agreement attached to this Proxy Statement as Appendix A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the full text of the merger agreement which is incorporated by reference into this Proxy Statement. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not the summary set forth in this section or any other information contained in this Proxy Statement.

 

Explanatory Note Regarding the Merger Agreement and the Summary of the Merger Agreement

 

The summary of the merger agreement in this Proxy Statement is included to provide you with information regarding certain of its material provisions. Factual disclosures about the Company contained in this Proxy Statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the merger agreement and described in this summary. The merger agreement contains representations and warranties made by and to the parties thereto as of specific dates. The statements embodied in those representations and warranties were made for purposes of that contract between the parties and are subject to qualifications and limitations agreed by the parties in connection with negotiating the terms of that contract. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. Furthermore, some of those representations and warranties may not be accurate or complete as of any particular date because they are subject to a contractual standard of materiality different from that generally applicable to public disclosures to stockholders and reports and documents filed with the SEC and in some cases were qualified by disclosures that were made by each party to the other, which disclosures are not reflected in the merger agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this Proxy Statement, may have changed since May 27, 2021 and subsequent developments or new information qualifying a representation or warranty may have been included in this Proxy Statement. The merger agreement is described in, and included as Appendix A to, this Proxy Statement only to provide you with information regarding its terms and conditions and not to provide any factual information regarding the Company, Parent or the Company’s or Parent’s respective businesses. The representations and warranties in the merger agreement and the description of them in this document should not be read alone, but instead should be read in conjunction with the other information contained in the reports, statements and filings the Company publicly files with the SEC.

 

The Merger and Conversion of the Companys Common Stock

 

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, set forth in the merger agreement and in accordance with the MGCL. After the completion of the merger, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under the MGCL as the surviving corporation in the merger and will become an indirect wholly-owned subsidiary of Parent.

 

At the effective time of the merger, subject to the terms and conditions set forth in the merger agreement:

 

 

each issued and outstanding share of Common Stock (including any shares of Class B Common Stock held by a holder who has properly exercised his, her or its appraisal rights in accordance with the MGCL (collectively, the “Dissenting Shares”)), other than (i) shares owned by Parent or any direct or indirect wholly owned subsidiary of Parent (including Merger Sub) or (ii) the Company (all of which will be automatically canceled and shall cease to exist) ((i) and (ii) collectively, the “excluded shares”), will be converted into the right to receive cash in the amount of $8.53, without interest and less any applicable withholding taxes plus any unpaid Extraordinary Dividend (as defined below) authorized and declared on or prior to the effective time of the merger; and, solely with respect to any Dissenting Shares, any payment of the fair value of such Dissenting Shares in accordance with the MGCL, and all such shares will cease to exist; and

 

 

each share of Merger Sub common stock that is issued and outstanding immediately prior to the effective time of the merger, will be converted into one share of common stock of the Company, as the surviving corporation in the merger.

 

If the merger is completed, the shares of Class A Common Stock will be delisted from the NYSE American, will be deregistered under the Exchange Act and will no longer be publicly traded, and the Company will no longer be required to file periodic reports with the SEC with respect to the Class A Common Stock. The Company will be a privately held corporation and the Company’s current stockholders will cease to have any right to dividends declared after the effective time of the merger.