<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996
333-04261
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
AMERIKING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5812 36-3970707
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
AMERIKING, INC.
2215 ENTERPRISE DRIVE, SUITE 1502
WESTCHESTER, ILLINOIS 60154
(708) 947-2150
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
- -----------------------------------------------------------------------------
LAWRENCE E. JARO
AMERIKING, INC.
2215 ENTERPRISE DRIVE, SUITE 1502
WESTCHESTER, ILLINOIS 60154
(708) 947-2150
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
- -----------------------------------------------------------------------------
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
James B. Carlson, Esq. Philip E. Coviello, Esq.
Mayer, Brown & Platt Latham & Watkins
1675 Broadway 885 Third Avenue
New York, New York 10019 New York, New York 10022
(212) 506-2500 (212) 906-1200
</TABLE>
- -----------------------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering of Senior Notes due
2006 of AmeriKing, Inc. (the "Senior Note Prospectus") and one to be used in
a concurrent underwritten public offering of Units consisting of Senior
Exchangeable Preferred Stock due 2008 and Common Stock of AmeriKing, Inc.
(the "Preferred Stock Prospectus"). The Senior Note Prospectus and the
Preferred Stock Prospectus are identical except for the front, inside front
and back cover pages and the sections entitled "Summary--The Offering,"
"Summary--Concurrent Offering," "Certain Federal Income Tax Considerations"
and "Underwriting." The form of Senior Note Prospectus is included herein and
is followed by the alternate pages to be used in the Preferred Stock
Prospectus. The alternate pages for the Preferred Stock Prospectus included
herein are labeled "Alternate Page For Preferred Stock Prospectus." Final
forms of each prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b) under the Securities Act of 1933, as amended.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy, nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 25, 1996
PROSPECTUS
, 1996
##################################################
GRAPHIC OMITTED
IGT: "AMERKI"
##################################################
$100,000,000
% SENIOR NOTES DUE 2006
AmeriKing, Inc., a Delaware corporation ("the Company"), is offering (the
"Notes Offering") $100,000,000 aggregate principal amount of its % Senior
Notes due 2006 (the "Senior Notes"). OTHER THAN THE OUTSTANDING BBI NOTES IN
AN AGGREGATE PRINCIPAL AMOUNT OF $600,000, THE COMPANY HAS NOT ISSUED, AND
DOES NOT CURRENTLY HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT INDEBTEDNESS TO WHICH THE SENIOR NOTES WOULD BE SENIOR. In
addition, the Senior Notes will be effectively subordinate to all of the
outstanding indebtedness of the Company, other than the BBI Notes, and all of
the outstanding and future indebtedness of the Company's subsidiaries.
Interest on the Senior Notes is payable semi-annually in cash in arrears on
June 1 and December 1 of each year, commencing on June 1, 1997. The Senior
Notes will mature on December 1, 2006. The Senior Notes will be redeemable at
the option of the Company, in whole or in part, at any time on or after
December 1, 2001 at the redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. Notwithstanding the foregoing, at
any time prior to December 1, 1999, the Company may redeem up to 35% of the
original aggregate principal amount of the Senior Notes with the net proceeds
of one or more Equity Offerings at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption. Upon the occurrence of a Change of Control, the Company will be
required, subject to certain conditions, to make an offer to purchase the
Senior Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase. In the event of a Change
of Control, there can be no assurance that the Company will have, or will
have access to, sufficient funds to repurchase the Senior Notes or to pay the
holders of the Senior Notes. See "Risk Factors--Change of Control Provisions;
Limitations on Rights of Repayment," "Description of Securities--Certain
Covenants," "--Certain Definitions" and "Mandatory Offers to Purchase Senior
Notes--Change of Control."
The Senior Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with all other Senior Indebtedness
of the Company and senior to all Subordinated Indebtedness of the Company,
and will effectively rank junior to all secured Indebtedness of the Company
and to all Indebtedness of the Company's subsidiaries, including borrowings
under the Credit Agreement. In the event of insolvency, liquidation,
reorganization, dissolution or other winding-up of the subsidiaries, the
Company will not receive funds available to pay to the holders of the Senior
Notes in respect of the Senior Notes until after the payment in full of all
the claims of the creditors of such subsidiaries. On a pro forma basis, as of
September 30, 1996, after giving effect to the Offerings and the application
of the net proceeds therefrom, the aggregate principal amount of outstanding
secured Indebtedness of the Company and Indebtedness of the Company's
subsidiaries to which the Senior Notes would have effectively ranked junior
would have been approximately $8.0 million. In addition, the Company's
obligations under the Senior Notes are subject to the terms of the BKC
Intercreditor Agreement. The Indenture will permit the Company and its
subsidiaries to incur additional Indebtedness, including secured
Indebtedness, subject to certain limitations. See "Risk
Factors--Subordination as a result of BKC Intercreditor Agreement" and
"Description of Securities."
Concurrent with the Notes Offering, the Company is offering 30,000 Units
(the "Units"), each consisting of 40 shares of % Senior Exchangeable
Preferred Stock due 2008 (the "Senior Preferred Stock") of the Company and
1.561 shares of Common Stock, $0.01 par value per share (the "Common Stock"),
of the Company (the "Units Offering" and, together with the Notes Offering,
the "Offerings"), to the public. The Notes Offering is contingent upon the
consummation of the Units Offering, and there can be no assurance that the
Units Offering will be consummated. See "Summary--Concurrent Offering." The
Senior Notes, the Units, the Senior Preferred Stock, the Exchange Debentures
and the Common Stock are sometimes referred to herein as the "Securities."
THE COMPANY DOES NOT INTEND TO APPLY FOR LISTING OF THE SENIOR NOTES ON
ANY SECURITIES EXCHANGE OR FOR QUOTATION THROUGH THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS AUTOMATED QUOTATION SYSTEM. ALTHOUGH THE UNDERWRITERS HAVE
ADVISED THE COMPANY THAT THEY CURRENTLY INTEND TO MAKE A MARKET IN THE SENIOR
NOTES, THEY ARE NOT OBLIGATED TO DO SO AND MAY DISCONTINUE SUCH MARKET MAKING
AT ANY TIME WITHOUT NOTICE. SEE "RISK FACTORS--ABSENCE OF PUBLIC MARKET FOR
THE SECURITIES."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN
INVESTMENT IN THE SENIOR NOTES.
THE SENIOR NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO THE UNDERWRITING DISCOUNTS PROCEEDS TO THE
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Senior Note .... % % %
Total ............... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters (as defined)
<PAGE>
against, and to provide contribution with respect to, certain
liabilities under the Securities Act. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at
$2,200,000.
The Senior Notes are being offered by Donaldson, Lufkin & Jenrette
Securities Corporation and Jefferies & Company, Inc. (together, the
"Underwriters"), subject to prior sale and various prior conditions,
including the Underwriters' right to reject orders in whole or in part. It is
expected that delivery of the Senior Notes will be made in New York, New York
on or about , 1996 against payment therefor in immediately available
funds.
DONALDSON, LUFKIN & JENRETTE
JEFFERIES & COMPANY, INC.
SECURITIES CORPORATION
<PAGE>
#############################################################################
GRAPHIC OMITTED
IGT: "BURGER"
#############################################################################
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
BURGER KING(REGISTERED TRADEMARK) IS A REGISTERED TRADEMARK AND SERVICE
MARK, WHOPPER(REGISTERED TRADEMARK) AND "HAVE IT YOUR WAY(REGISTERED
TRADEMARK)" ARE REGISTERED TRADEMARKS, AND "GET YOUR BURGER'S
WORTH(TRADEMARK)" IS A TRADEMARK OF BURGER KING BRANDS, INC., A WHOLLY OWNED
SUBSIDIARY OF BURGER KING CORPORATION. BURGER KING CORPORATION IS WHOLLY
OWNED BY GRAND METROPOLITAN PLC. NEITHER BURGER KING CORPORATION NOR ANY OF
ITS SUBSIDIARIES OR AFFILIATES IS IN ANY WAY PARTICIPATING IN OR APPROVING
THE OFFERINGS. FOR A FULL DISCUSSION OF THE BURGER KING CORPORATION
DISCLAIMER, SEE PAGE 107.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and
financial statements, including the notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this
Prospectus gives effect to the recapitalization of the Company's capital
stock, including the 1,000-for-1 stock split that will occur in connection
with the Offerings (the "Recapitalization"). See "Description of Capital
Stock--The Recap italization." References to a fiscal year refer in each case
to the year ended December 31, except that references to fiscal 1995 refer to
the fiscal year ended January 1, 1996. Unless the context indicates or
requires otherwise, references in this Prospectus to the "Company" or
"AmeriKing" are to AmeriKing, Inc. and its subsidiaries.
THE COMPANY
AmeriKing is the second largest independent Burger King franchisee in the
United States with 183 restaurants located primarily in eleven Midwestern and
Southern states. The Company's strategy is to capitalize on its significant
presence in targeted markets, the predictable operating performance of Burger
King restaurants and management's extensive experience to (i) make fill-in
acquisitions and develop new restaurants in existing markets to enhance its
operating leverage and (ii) make acquisitions in new markets that offer
significant potential and provide the critical mass necessary to achieve
operating efficiencies. For the twelve months ended September 30, 1996, the
Company generated pro forma restaurant sales and EBITDA (as defined) of
$201.7 million and $23.3 million, respectively.
The Company believes it is well positioned to capitalize on attractive
acquisition opportunities within the growing, highly fragmented Burger King
system. According to information publicly filed by Grand Metropolitan PLC
("Grand Met"), the parent corporation of Burger King Corporation ("BKC"), BKC
is the second largest restaurant franchisor in the world, with system-wide
restaurant sales of $8.4 billion for its fiscal year ended September 30,
1995. There are more than 8,000 Burger King restaurants worldwide, of which
over 90% are operated by approximately 1,500 independent franchise groups.
Management believes that, based upon publicly available information, the five
largest franchisees in the Burger King system operate less than 12% of all
domestic Burger King restaurants. The Burger King system has experienced
considerable success in recent years, as evidenced by the 30% growth in the
number of Burger King restaurants from 1991 to 1995. In addition, Burger
King's share of the quick-service hamburger restaurant market grew from 16%
in 1993 to 18% in 1995. Furthermore, according to market surveys conducted
for BKC by National Adult Tracking in 1996, consumers preferred Burger King
to all other quick-service hamburger brands.
The Company believes its successful operating strategy, combined with the
attractive economics of Burger King restaurants, minimizes the risks of new
restaurant development and future acquisitions. Management believes the
operating cash flow of its Burger King restaurants is highly predictable and
consistent due to the proven success of the Burger King concept and the
stringent evaluation criteria adhered to by the Company in assessing new
development opportunities and acquisitions. On a pro forma basis, the
Company's comparable restaurant sales have increased each fiscal year since
1992. For the twelve months ended September 30, 1996 on a pro forma basis,
the Company generated average restaurant sales of $1,132,000 and average
restaurant operating cash flow of $174,000 (15.4% margin). For the same
period, approximately 98% of the Company's restaurants generated positive
operating cash flow. The Company believes that each of its currently owned
restaurants will generate positive operating cash flow in fiscal 1997.
Furthermore, the Company currently leases each of its properties, minimizing
its cost to develop restaurants. The Company has budgeted approximately
$355,000 to develop each new Burger King restaurant in fiscal 1997. Based on
the results of restaurants developed by the Company, management expects its
newly developed restaurants to generate cash-on-cash returns in excess of 35%
in the first year of operations.
Since the introduction of quick-service restaurants in the mid-1950s, the
percentage of the average family's food budget spent on meals consumed "away
from home" has grown significantly, from approximately 25% of the food budget
in 1955 to approximately 44% in 1995, according to the National Restaurant
Association. The National Restaurant Association estimates that sales at
quick-service restaurants will reach approximately $100 billion in 1996,
representing an inflation-adjusted growth rate of 4.5% over 1995, more than
double the 2.0% projected growth rate of full-service restaurants. According
3
<PAGE>
to Technomic Information Services, an independent research organization,
domestic revenues from quick-service hamburger restaurants were approximately
$37.6 billion in 1995, representing the biggest share of the quick-service
restaurant industry and a 5.1% compounded annual growth rate since 1990. The
Burger King system accounted for approximately 18% of 1995 quick-service
hamburger restaurant sales, as compared to 42% for McDonald's, 11% for
Wendy's and 8% for Hardees.
AmeriKing was formed in 1994 by a group consisting of Burger King
franchisees, former BKC executives and The Jordan Company to take advantage
of significant acquisition and related new restaurant development
opportunities. Since inception, the Company has acquired 175 Burger King
restaurants and developed eight new Burger King restaurants. The Company's
senior management, which owns on a fully diluted basis over 30% of the
Company's Common Stock (prior to giving effect to the Offerings), has
extensive experience in the Burger King system as either former executives of
BKC or as independent Burger King franchisees. Each of the top four members
of the Company's senior management has over 10 years of experience within the
Burger King system operating, developing and acquiring restaurants. In
addition, most of the Company's regional managing directors, district
managers and restaurant managers have substantial experience within the
Burger King system and/or the quick-service restaurant industry.
BUSINESS STRATEGY
AmeriKing's business strategy is to continue to increase revenues,
restaurant contribution and EBITDA. The Company's strategy is based on the
following elements:
o Develop New Burger King Restaurants in Existing Markets. The Company
seeks to develop new Burger King restaurants in existing markets where
it has established a significant presence, enabling the Company to
enhance its operating leverage and increase overall margins and
profitability. Management believes that the underpenetration of the
Burger King system relative to other quick-service hamburger concepts
provides the Company with significant new development opportunities.
Furthermore, management believes the Company's new restaurant
development risk is substantially reduced due to: (i) the proven
success of the Burger King concept; (ii) the predictability of
development costs and restaurant profitability compared to that of
newer restaurant concepts; and (iii) management's extensive experience
within the Burger King system. The Company currently leases each of its
properties, minimizing its cost to develop new restaurants.
o Pursue Strategic Acquisitions of Burger King Restaurants. The Company
intends to selectively pursue strategic acquisitions in the highly
fragmented, growing Burger King system. Since 1994, the Company has
successfully completed 175 restaurant acquisitions for an aggregate
purchase price of approximately $138 million. The Company evaluates
each prospective acquisition using a set of stringent criteria,
including the potential for future fill-in acquisitions and new
restaurant development in targeted markets and the overall
attractiveness of market demographics. The Company seeks to enter new
geographic markets through acquisitions that provide the critical mass
necessary to realize operating efficiencies. Six of the Company's nine
acquisitions to date have been of large, regional operations, each
consisting of more than 10 restaurants. AmeriKing seeks to augment new
market acquisitions with fill-in acquisitions, which enable the Company
to: (i) achieve greater restaurant penetration within existing markets;
(ii) capitalize on its significant operating leverage; and (iii)
increase operating margins and profitability. The Company continually
engages in discussions with Burger King franchisees, including with
respect to the potential acquisition of the business or assets of such
franchisees. The Company is not currently engaged in any negotiations
with respect to acquisitions, and the Company has no current or pending
contracts or commitments with respect to acquisitions.
o Achieve Operating Efficiencies. The Company's large number of
restaurants, centralized management structure and advanced management
information systems enable the Company to: (i) tightly control
restaurant and corporate level costs; (ii) capture economies of scale
by leveraging its existing corporate overhead structure; and (iii)
continuously monitor point-of-sale data to more efficiently manage its
restaurant operations. The Company has experienced both
restaurant-level and corporate-level savings as a result of its size
and related bargaining power, particularly with respect to food and
paper purchasing and distribution, restaurant maintenance services and
4
CAPITAL PRINTING SYSTEMS]
<PAGE>
general liability insurance. For example, the Company achieved
significant operating improvements in the 68 restaurants it acquired
from BKC in September 1994. From the twelve month period ended July 31,
1994, prior to the close of the acquisition, to the twelve month period
ended September 30, 1996, restaurant operating cash flow for these
restaurants increased 48% from $7.4 million to $11.1 million, or from
10.4% of sales to 15.1% of sales.
o Capitalize on Strong Support from Burger King Corporation. The Company
believes that it realizes significant benefits from its affiliation
with BKC as a result of: (i) the widespread recognition of the Burger
King name and products; (ii) BKC's management of the proven, successful
Burger King concept, including new product development, quality
assurance and strategic planning; (iii) the size and market penetration
of BKC's current $200 million annual media budget; and (iv) the
expected continued growth of the Burger King system. During BKC's
fiscal year ended September 30, 1995, a record number of 657 new
restaurants were added to the Burger King system.
o Leverage Sophisticated Management Information System. The Company's
customized integrated management information system, REMACs, typically
not affordable by smaller Burger King franchisees and other smaller
quick-service restaurant chains, provides management with the ability
to identify and quickly capitalize on restaurant sales enhancement and
profit opportunities. The Company utilizes its management information
system to: (i) minimize shrinkage and control labor costs; (ii)
efficiently schedule labor; (iii) effectively manage inventory; (iv)
analyze product mix and various promotional programs using
point-of-sale information; and (v) quickly integrate accounting systems
following acquisitions.
o Consistently Provide High Quality Products and Superior Customer
Service. As the number of restaurants that the Company owns in a
particular market increases, the Company has a greater ability to (i)
ensure overall customer satisfaction in that market through consistency
in food quality, service and restaurant appearance and (ii) coordinate
and influence local Burger King advertising and promotional programs
and pricing policies. In addition, the large number of restaurants that
the Company owns and the corresponding professional development
opportunities permit the Company to attract and retain strong regional,
district and individual restaurant management. Most of these managers
receive significant incentive compensation based on compliance with
Burger King's restaurant operating guidelines and restaurant
profitability.
RECENT RESULTS
Based on preliminary unaudited results, for the four-week period and the
twelve-month period ended October 28, 1996, the Company's comparable
restaurant sales increased by 10.7% and 0.5%, respectively, over the same
period for the prior fiscal year on a pro forma basis, based upon the sales
of the Company's restaurants including the periods in 1995 during which
certain of those restaurants where operated by their prior owners.
THE NOTES OFFERING
Securities Offered ..... $100.0 million aggregate principal amount of
% Senior Notes due 2006.
Maturity ............... December 1, 2006.
Interest ............... The Senior Notes will bear interest at a
rate of % per annum, payable semi-annually
in cash in arrears on each June 1 and
December 1, commencing on December 1, 1997.
Optional Redemption .... On or after , 2001, the Senior
Notes will be redeemable at the option of
the Company, in whole or in part, at the
redemption prices set forth herein, plus
accrued and unpaid interest to the date of
redemption. Notwithstanding the forego-
5
<PAGE>
ing, at any time prior to December 1, 1999,
the Company may redeem up to 35% of the
original aggregate principal amount of the
Senior Notes with the net proceeds of one or
more Equity Offerings (as defined) at a
redemption price equal to % of the
principal amount thereof, plus accrued and
unpaid interest to the date of redemption.
See "Description of Securities--Senior
Notes--Redemption of Senior Notes--Optional
Redemption."
Change of Control ...... Upon the occurrence of a Change of Control
(as defined), each holder of Senior Notes
will have the right to require the Company
to purchase such holder's Senior Notes
pursuant to an Offer (as defined) at a
purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest to the date of
purchase. Certain transactions with
affiliates of the Company may not be deemed
to be a Change of Control. Except as
described under "Description of
Securities--Senior Notes--Mandatory Offers
to Purchase Senior Notes--Change of
Control," the indenture pursuant to which
the Senior Notes will be issued (the
"Indenture") does not contain provisions
that permit the holder of Senior Notes to
require the Company to purchase or redeem
the Senior Notes in the event of a takeover,
recapitalization or similar restructuring,
including an issuer recapitalization or
similar transaction with management.
Consequently, the Change of Control
provisions will not afford any protection in
a highly leveraged transaction, including
such a transaction initiated by the Company,
management of the Company or an affiliate of
the Company, if such transaction does not
result in a Change of Control. See
"Description of Securities--Senior
Notes--Mandatory Offers to Purchase Senior
Notes--Change of Control" and "--Senior
Notes--Certain Definitions."
Ranking ................ The Senior Notes will be senior unsecured
obligations of the Company, ranking pari
passu in right of payment with all other
Senior Indebtedness (as defined) of the
Company and senior to all Subordinated
Indebtedness (as defined) of the Company,
and will effectively rank junior to any
secured Indebtedness (as defined) of the
Company and to all Indebtedness of the
Company's subsidiaries, including
Indebtedness incurred under the Credit
Agreement (as defined). As of September 30,
1996, on a pro forma basis after giving
effect to the Offerings and the application
of the net proceeds therefrom, the aggregate
principal amount of outstanding secured
Indebtedness of the Company and Indebtedness
of the Company's subsidiaries to which the
Senior Notes would have been effectively
ranked junior would have been approximately
$8.0 million. In addition, the Company's
obligations under the Senior Notes are
subject to the terms of the BKC
Intercreditor Agreement (as defined). The
Indenture will permit the Company and its
subsidiaries to incur additional
Indebtedness, including secured
Indebtedness, subject to certain
limitations. See "Risk
Factors--Subordination as a Result of BKC
Intercreditor Agreement," "Business--
6
<PAGE>
Obligations to Burger King Corporation" and
"Description of Securities--Senior
Notes--BKC Intercreditor Agreement,"
"--Certain Covenants" and "Description of
Certain Indebtedness."
Certain Covenants ...... The Indenture will contain certain covenants
that, among other things, limit the ability
of the Company and its Restricted
Subsidiaries (as defined) to pay dividends
or make certain other Restricted Payments
(as defined), including Restricted
Investments (as defined), to incur
additional Indebtedness, to encumber or sell
assets, to enter into transactions with
affiliates, to enter into certain guarantees
of Indebtedness, to merge or consolidate
with any other entity and to transfer or
lease all or substantially all of their
assets. In addition, under certain
circumstances, the Company will be required
to offer to purchase Senior Notes at a price
equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to
the date of purchase, with the proceeds of
certain Asset Sales (as defined). See
"Description of Securities--Senior
Notes--Certain Covenants" and "--Senior
Notes--Mandatory Offers to Purchase Senior
Notes--Asset Sales."
Use of Proceeds ........ The proceeds from the Offerings will be used
to repay borrowings under the Credit
Agreement, to repay outstanding Subordinated
Debt (as defined) (including a prepayment
penalty and a warrant redemption payment),
to repay certain senior debt, to pay the
fees and expenses of the Offerings and for
general corporate purposes. See "Use of
Proceeds" and "Description of Certain
Indebtedness."
For a discussion of the terms of the Senior Notes, see "Description of
Securities--Senior Notes" and for a discussion of certain matters that should
be considered by prospective purchasers in connection with an investment in
the Senior Notes, see "Risk Factors."
CONCURRENT OFFERING
Concurrent with the Notes Offering, the Company is offering $30,000,000 of
Units, consisting of Senior Preferred Stock and Common Stock, to the public.
The Senior Preferred Stock will be exchangeable, at the option of the
Company, into the Company's % Subordinated Exchange Debentures due 2008
(the "Exchange Debentures"), subject to the ability of the Company to incur
such indebtedness under the Credit Agreement and the Indenture. The Notes
Offering is contingent upon the consummation of the Units Offering, and there
can be no assurance that the Units Offering will be consummated.
The Company was incorporated in the State of Delaware on August 17, 1994
as NRE Holdings, Inc. On May 10, 1996, the Company changed its name to
"AmeriKing, Inc." Its principal executive offices are located at 2215
Enterprise Drive, Suite 1502, Westchester, Illinois 60154, and its telephone
number is (708) 947-2150.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain unaudited actual and pro forma
financial and operating data for the Company as of the dates and for the
periods indicated. The pro forma data (other than the balance sheet data)
gives effect to the following transactions as if each had occurred on January
1, 1995: (i) the Offerings and the application of the estimated net proceeds
therefrom as set forth in "Use of Proceeds" and (ii) the acquisition of each
of the 54 Burger King restaurants acquired by the Company subsequent to
January 1, 1995. The pro forma balance sheet data has been adjusted to
reflect the Offerings and the application of the net proceeds therefrom as
set forth in "Use of Proceeds," as if each had occurred on September 30,
1996. The pro forma data does not purport to represent what the consolidated
results of operations or financial position of the Company would actually
have been had such transactions actually occurred on such dates. The
following information should be read in conjunction with the "Pro Forma
Consolidated Financial Statements," "Selected Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and the notes thereto and the Historical Schedules of Restaurant
Contribution and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------------------------
NINE MONTHS ENDED
----------------------------- TWELVE MONTHS
FISCAL OCTOBER 2, SEPTEMBER 30, ENDED SEPTEMBER
1995 1995 1996 30, 1996
---------- ------------ --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales .................................... $195,692 $147,399 $153,427 $201,720
Restaurant operating expenses ....................... 172,053 129,606 135,618 178,065
---------- ------------ --------------- ---------------
Restaurant contribution ............................. 23,639 17,793 17,809 23,655
General and administrative expenses ................. 7,492 5,448 6,021 8,065
---------- ------------ --------------- ---------------
Operating income .................................... $ 16,147 $ 12,345 $ 11,788 $ 15,590
========== ============ =============== ===============
OTHER DATA:
EBITDA (1) .......................................... $ 23,411 $ 17,814 $ 17,713 $ 23,310
Adjusted EBITDA (2) ................................. 24,817 18,749 19,115 25,183
Capital expenditures:
Existing restaurants ............................... 2,065 1,812 1,007 1,260
New restaurant development ......................... 696 561 3,219 3,354
Other .............................................. 1,609 1,251 837 1,195
---------- ------------ --------------- ---------------
Total capital expenditures ....................... 4,370 3,624 5,063 5,809
RESTAURANT DATA:
Restaurants open at end of period ................... 176 176 183 183
Percentage change in comparable restaurant sales
(3). ................................................ 2.1% 3.7% 0.4% (0.3)%
Average sales per restaurant (4) .................... $ 1,113 $ 856 $ 858 $ 1,132
PRO FORMA RATIOS:
EBITDA/cash interest expense (5) .................... 2.1x
Net debt/EBITDA (6) ................................. 4.4
Adjusted EBITDA/cash interest expense (5) .......... 2.3
Net debt/Adjusted EBITDA (6) ........................ 4.1
ACTUAL
Cash flow from operating activities ................. $ 4,173 $ 2,898 $ 10,931 $ 12,206
Cash flow from investing activities ................. (15,092) (5,394) (43,623) (53,321)
Cash flow from financing activities ................. 5,156 (2,625) 33,510 41,291
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
----------------------
ACTUAL PRO FORMA
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 2,705 $ 5,055
Total assets ....................... 148,481 153,207
Total debt and capitalized leases . 126,363 108,613
Senior Exchangeable Preferred Stock -- 28,281
Total stockholders' equity ......... 8,105 3,089
</TABLE>
- ------------
(1) EBITDA, on a pro forma basis, represents operating income plus
depreciation and amortization. While EBITDA should not be construed as
a substitute for operating income or a better indicator of liquidity
than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles, EBITDA is
included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital
expenditure and working capital requirements. In addition, management
believes that certain investors find EBITDA to be a useful tool for
measuring the ability of the Company to service its debt. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
See the Consolidated Statements of Cash Flows of the Company and the
related notes to the Consolidated Financial Statements thereto included
herein.
(2) Adjusted EBITDA, on a pro forma basis, represents EBITDA plus
management and director's fees and certain non-recurring items. For a
description of management and director's fees, see "Certain
Transactions--The Jordan Company." The non-recurring items consist of:
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------
NINE MONTHS ENDED
----------------------------- TWELVE MONTHS
FISCAL OCTOBER 2, SEPTEMBER 30, ENDED SEPTEMBER
1995 1995 1996 30, 1996
-------- ------------ --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Change in estimate of disputed invoices ................ $(60) $(110) $144 $ 194
Reduction of insurance premiums and long distance costs 420 314 377 483
Headcount reduction due to consolidated territories ... 396 243 393 546
-------- ------------ --------------- ---------------
Total addition to EBITDA ............................. $756 $ 447 $914 $1,223
======== ============ =============== ===============
</TABLE>
Adjusted EBITDA is included because the Cash Flow Coverage Ratio, when
calculated on a Pro Forma Basis (each as defined in the Indenture and
the Exchange Debenture Indenture), is calculated on a similar basis.
Adjusted EBITDA may not be comparable to EBITDA measures reported by
other companies.
(3) The Company includes in comparable restaurant sales only those
restaurants that have been in operation for a minimum of thirteen
months. The percentage change in comparable restaurant sales is
calculated as the percentage change from the comparable restaurant
sales in the previous period. For the twelve months ended October 28,
1996, the percentage increase in comparable restaurant sales was 0.5%.
(4) Reflects the results of only those restaurants operating for the entire
period.
(5) Cash interest expense represents total interest expense less
amortization of deferred financing costs and other non-cash interest
charges. The calculation of cash interest expense on a pro forma basis
assumes an interest rate of 10.5% on the Senior Notes. A one-eighth
percent change in the interest rate applicable to the Senior Notes
would result in a $125,000 change in cash interest expense on a pro
forma basis. The ratios of EBITDA and Adjusted EBITDA to cash interest
expense are included because the Company believes that prospective
investors find the ratios helpful in evaluating the ability of the
Company to service its indebtedness, including indebtedness under the
Senior Notes. The information does not purport to represent what the
Company's ratios are or would have been had the Senior Notes and the
Senior Preferred Stock been outstanding during the periods presented.
(6) Net debt represents total debt and capitalized leases less cash and
cash equivalents. The pro forma ratios of net debt to EBITDA and net
debt to Adjusted EBITDA were calculated based on pro forma net debt as
of September 30, 1996 of $103.6 million. The ratios of net debt to
EBITDA and to Adjusted EBITDA are included because the Company believes
that prospective investors find the ratios helpful in evaluating the
ability of the Company to incur additional indebtedness, including
indebtedness that could be incurred to repay or otherwise refinance the
Senior Notes and the Senior Preferred Stock. The information does not
purport to represent what the Company's ratios are or would have been
had the Senior Notes and the Senior Preferred Stock been outstanding
during the periods presented.
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Securities offered hereby should consider
carefully the following risk factors, in addition to the other information
set forth in this Prospectus, before purchasing any Securities. This
Prospectus contains certain forward-looking statements, including statements
containing the words "believes," "anticipates," "expects" and words of
similar import. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: adverse changes in national or local
economic conditions, competition from quick-service and other restaurants,
changes in the availability, cost and terms of financing, changes in
operating expenses and other factors referenced in this Prospectus. Certain
of these factors are discussed in more detail elsewhere in this Prospectus,
including without limitation under the captions "Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such foward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce
the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or development.
SUBSTANTIAL CURRENT LEVERAGE; AND LIMITATIONS ON ABILITY TO SERVICE
INDEBTEDNESS
Upon consummation of the Offerings, the Company will have substantial
indebtedness and debt service obligations. At September 30, 1996, the
Company's total indebtedness and capital lease obligations, including current
portion, would have been approximately $108.6 million, outstanding Senior
Preferred Stock would have been $28.3 million and its total stockholders'
equity would have been $3.1 million, in each case on a pro forma basis after
giving effect to the Offerings and the application of the net proceeds
therefrom. In addition, subject to the restrictions under the Credit
Agreement and the Indenture, the Company and its subsidiaries may incur
additional indebtedness (including additional secured indebtedness and senior
indebtedness) from time to time. See "Use of Proceeds," "Capitalization" and
"Description of Securities."
The level of the Company's indebtedness could have important consequences
to holders of the Securities, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and
will not be available for other purposes; (ii) the Company's ability to
obtain additional debt financing in the future for working capital, capital
expenditures, research and development or acquisitions may be limited; and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to changes in its operating environment and economic conditions
generally.
The Company's ability to pay principal and interest on the Senior Notes
and, if issued, the Exchange Debentures, to satisfy its other debt
obligations, and to pay cash dividends on the Senior Preferred Stock will
depend upon its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond its control, as well as the availability of
revolving credit borrowings under the Credit Agreement. The Company
anticipates that its operating cash flow will be sufficient to meet its
operating expenses, to service its debt requirements as they become due and
to pay cash dividends on the Senior Preferred Stock to the extent required by
the Certificate of Designation related thereto. However, the Company may be
required to refinance a portion of the principal of the Senior Notes and, if
issued, the Exchange Debentures prior to their maturity and, if the Company
is unable to service its indebtedness, it will be forced to take actions such
as reducing or delaying capital expenditures, selling assets, restructuring
or refinancing its indebtedness, or seeking additional equity capital. There
can be no assurance that any of these remedies can be effected on
satisfactory terms, if at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Securities."
SUBORDINATION OF SENIOR NOTES, SENIOR PREFERRED STOCK AND EXCHANGE DEBENTURES
TO CURRENT AND FUTURE OBLIGATIONS
The Senior Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with all Senior Indebtedness of the
Company. The Senior Notes will effectively rank junior to any secured
Indebtedness of the Company and to any Indebtedness of the Company's
subsidiaries, including Indebtedness incurred under the Credit Agreement. In
addition, the Senior Preferred Stock will rank junior to all Indebtedness and
other obligations of the Company and its subsidiaries. The Exchange
Debentures will be unsecured obligations of the Company and will be
10
<PAGE>
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. As of September 30, 1996, on a pro forma basis
after giving effect to the Offerings and the application of the net proceeds
therefrom, the aggregate principal amount of outstanding Indebtedness of the
Company and its subsidiaries to which the Senior Notes would have been
effectively junior would have been approximately $8.0 million, the aggregate
principal amount of outstanding Indebtedness of the Company and its
subsidiaries to which the Senior Preferred Stock would have been junior would
have been approximately $108.6 million and the aggregate principal amount of
outstanding Indebtedness of the Company and its subsidiaries to which the
Exchange Debentures would have been effectively junior would have been
approximately $108.0 million. The Indenture will permit the Company and its
subsidiaries to incur additional indebtedness, including secured indebtedness
and indebtedness of its subsidiaries, subject to certain limitations. See
"Description of Securities" and "Description of Certain Indebtedness."
SUBORDINATION AS A RESULT OF BKC INTERCREDITOR AGREEMENT
Pursuant to the BKC Intercreditor Agreement, the Company's obligations
under the Senior Notes, the Senior Preferred Stock and, if issued, the
Exchange Debentures are subject to the prior payment in full of all
indebtedness, liabilities and other obligations of the Company and its
subsidiaries to BKC under the BKC franchise agreements, BKC leases and any
other indebtedness of the Company and its subsidiaries to BKC, whenever and
however arising, whether primary or secondary, absolute or contingent, and
including charges and costs of collection. In the event that the Company
defaults in any such obligation to BKC, the Company will be prohibited from
making any payments in respect of the Senior Notes, the Senior Preferred
Stock and the Exchange Debentures. See "Business--Obligations to Burger King
Corporation."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARIES; LIMITATIONS ON ACCESS
TO CASH FLOW OF THE SUBSIDIARIES
The Company is structured as a holding company which owns all of the stock
of the Company's operating subsidiaries. The Company's operations are
conducted exclusively through its subsidiaries, and the Company's only
significant assets are the capital stock of its subsidiaries. As a holding
company, the Company is dependent on dividends or other intercompany
transfers of funds from its subsidiaries to meet the Company's debt service
and other obligations, including its obligations under the Senior Notes, the
Senior Preferred Stock and the Exchange Debentures. Under the terms of the
Indenture, the Company's subsidiaries may incur certain indebtedness pursuant
to agreements that may restrict the ability of such subsidiaries to make such
dividends or other intercompany transfers necessary to service the Company's
obligations, including its obligations under the Senior Notes, the Senior
Preferred Stock and the Exchange Debentures. Any failure by the Company to
satisfy its obligations with respect to the Senior Notes or the Exchange
Debentures at maturity (with respect to payments of principal) or prior
thereto (with respect to payments of interest or required repurchases) would
constitute a default under the Indenture or the Exchange Debenture Indenture,
as the case may be, and the Credit Agreement and could cause a default under
agreements governing other indebtedness of the Company and its subsidiaries.
Any failure by the Company to satisfy its obligations under the Senior
Preferred Stock would permit the holders thereof only to elect certain
directors to the Company's Board of Directors. The Senior Notes and the
Exchange Debentures will be obligations exclusively of the Company and will
not be guaranteed by any of the Company's subsidiaries. In addition, because
the Company conducts its business through its subsidiaries, all existing and
future liabilities and obligations of the Company's subsidiaries will be
effectively senior to the Senior Notes, and all indebtedness and other
obligations of the Company and its subsidiaries (including the Credit
Agreement) will be effectively senior to the Senior Preferred Stock and the
Exchange Debentures. Consequently, the Company's cash flow and ability to
service its debt, including the Senior Notes and the Exchange Debentures, and
to pay cash dividends on the Senior Preferred Stock are dependent upon the
earnings of its subsidiaries and the distribution of those earnings to the
Company, or upon loans, advances or other payments made by its subsidiaries
to the Company. See "Description of Securities."
RESTRICTIVE COVENANTS LIMITING THE COMPANY'S ABILITY TO REPAY THE SENIOR
NOTES AND SENIOR PREFERRED STOCK
The Indenture will restrict, among other things, the Company's and its
Restricted Subsidiaries' ability to pay dividends or make certain other
Restricted Payments, including the payment of cash dividends on or the
redemption of the Senior Preferred Stock, to incur additional indebtedness,
to encumber or sell assets, to enter into transactions with affiliates, to
enter into certain guarantees of indebtedness, to make
11
PAGE>
Restricted Investments, to merge or consolidate with any other entity and to
transfer or lease all or substantially all of their assets. In addition, the
Credit Agreement contains other and more restrictive covenants and prohibits
the Company and its subsidiaries from prepaying other indebtedness, including
the Senior Notes and the Exchange Debentures. The Credit Agreement also
requires the Company to maintain specified financial ratios and satisfy
certain financial condition tests. The Company's ability to meet those
financial ratios and tests can be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. A breach of
any of these covenants could result in a default under the Credit Agreement,
the Indenture and/or the Exchange Debenture Indenture. Upon the occurrence of
an event of default under the Credit Agreement, the lenders thereunder could
elect to declare all amounts outstanding under the Credit Agreement, together
with accrued interest, to be immediately due and payable. If the Company were
unable to repay those amounts, such lenders could proceed against the
collateral granted to them to secure that indebtedness. If the Senior
Indebtedness were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full all Senior
Indebtedness, including the Senior Notes, or to redeem the Senior Preferred
Stock or repay the Exchange Debentures. Substantially all of the assets of
the Company's subsidiaries will be pledged as security under the Credit
Agreement. See "Description of Securities" and "Description of Certain
Indebtedness--Credit Agreement."
CHANGE OF CONTROL PROVISIONS; LIMITATIONS ON RIGHTS OF REPAYMENT
Upon the occurrence of a Change of Control, each holder of Senior Notes,
Senior Preferred Stock and, if issued, Exchange Debentures, will have the
right to require the Company to purchase all or part of such holder's Senior
Notes, Senior Preferred Stock or Exchange Debentures, as the case may be, at
a repurchase price equal to 101% of the aggregate principal amount or the
liquidation preference, as the case may be, plus accrued and unpaid interest
or dividends, as the case may be. The Company expects that the prepayment of
the Senior Notes, Senior Preferred Stock or, if issued, the Exchange
Debentures pursuant to a Change of Control would constitute a default under
the Credit Agreement. See "Description of Securities" and "Description of
Certain Indebtedness."
The holders of Senior Notes, the Senior Preferred Stock and the Exchange
Debentures have limited rights to require the Company to purchase or redeem
the Senior Notes, the Senior Preferred Stock and the Exchange Debentures in
the event of a takeover, recapitalization or similar restructuring, including
an issuer recapitalization or similar transaction with management.
Consequently, the Change of Control provisions will not afford any protection
in a highly leveraged transaction, including such a transaction initiated by
the Company, management of the Company or an affiliate of the Company, if
such transaction does not result in a Change of Control. In addition, because
the obligations of the Company with respect to the Senior Notes, the Senior
Preferred Stock and the Exchange Debentures are effectively subordinated to
all secured indebtedness of the Company and all obligations of the Company's
subsidiaries, existing or future secured indebtedness of the Company or
obligations of the Company's subsidiaries may prohibit the Company from
repurchasing or redeeming any of the Senior Notes, the Senior Preferred Stock
and the Exchange Debentures upon a Change of Control. Moreover, the ability
of the Company to repurchase or redeem the Senior Notes, the Senior Preferred
Stock and the Exchange Debentures following a Change of Control will be
limited by the Company's then-available resources. Accordingly, the Change of
Control provision is likely to be of limited usefulness in such situations.
The Change of Control provisions may not be waived by the Board of Directors
of the Company or the Trustee without the consent of holders of at least a
majority in principal amount of the Senior Notes, the Senior Preferred Stock
or the Exchange Debentures, as applicable. See "Description of
Securities--Senior Notes--Mandatory Offers to Purchase Senior Notes--Change
of Control," "--Exchange Debentures--Mandatory Offers to Purchase Exchange
Debentures--Change of Control" and "--Amendment, Supplement and Waiver."
The Change of Control purchase feature of the Senior Notes, the Senior
Preferred Stock and the Exchange Debentures may in certain circumstances
discourage or make more difficult a sale or takeover of the Company and,
thus, the removal of incumbent management.
The Company's other indebtedness may contain prohibitions of certain
events which would constitute a Change of Control. In addition, the exercise
by the holders of the Senior Notes, the Senior Preferred Stock or the
Exchange Debentures of their right to require the Company to repurchase the
Senior Notes, the Senior Preferred Stock or the Exchange Debentures could
cause a default under such other indebtedness, even if the Change of Control
itself does not. Finally, the Company's ability to pay cash to the holders of
the Senior Notes, the Senior Preferred Stock and the Exchange Debentures upon
a repurchase may be limited by the Company's then existing financing
resources.
12
<PAGE>
TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE SENIOR PREFERRED STOCK
AND EXCHANGE DEBENTURES; POTENTIAL FOR UNPLANNED DEEMED DIVIDEND INCOME
If the redemption price of the Senior Preferred Stock exceeds its issue
price by more than a de minimis amount, such excess may be treated as a
constructive distribution with respect to the Senior Preferred Stock of
additional stock over the term of the Senior Preferred Stock using a constant
interest rate method similar to that used for accruing original issue
discount. As a result of the allocation of a portion of the purchase price of
the Units to the Common Stock, the Senior Preferred Stock initially purchased
by holders may have a redemption price that exceeds its issue price by more
than a de minimis amount, resulting in such constructive distributions. In
addition, because the issue price of the Senior Preferred Stock distributed
in lieu of payments of cash dividends will be equal to the fair market value
of the Senior Preferred Stock at the time of distribution, it is possible,
depending on its fair market value at that time, that such Senior Preferred
Stock will be issued with a redemption premium large enough to be considered
a dividend as described above. In such event holders would be required to
include such premium in income as a distribution over some period in advance
of receiving the cash attributable to such income, and such Senior Preferred
Stock might trade separately, which might adversely affect the liquidity of
the Senior Preferred Stock.
The Company may, at its option and under certain circumstances, exchange
Exchange Debentures for the Senior Preferred Stock. Any such exchange will be
a taxable event to holders of the Senior Preferred Stock. Furthermore, the
Exchange Debentures may in certain circumstances be treated as having been
issued with original issue discount ("OID") for federal income tax purposes.
In such event, holders of Exchange Debentures will be required to include
such OID (as ordinary income) in income over the life of the Exchange
Debentures, in advance of the receipt of the cash attributable to such
income.
BKC FRANCHISE AGREEMENT RESTRICTIONS; CONSENT TO RESTAURANT ACQUISITION AND
DEVELOPMENT AND FRANCHISE RENEWAL; RIGHT OF FIRST REFUSAL
The Company operates Burger King restaurants through its wholly owned
subsidiaries, each of which is party to a BKC franchise agreement. In
addition to the contractual restrictions imposed on the Company's
subsidiaries in the BKC franchise agreements, the Company and its
subsidiaries are subject to certain restrictions imposed by BKC policies and
procedures as in effect from time to time. These restrictions may have the
effect of limiting the Company's ability to pursue its business strategy.
Part of the Company's business strategy is to expand its operations
through both the acquisition and development of Burger King restaurants.
Pursuant to current BKC policies and procedures applicable to the Company,
BKC's approval is required for the acquisition of Burger King restaurants by
the Company from other Burger King franchisees and the development of new
Burger King restaurants by the Company. Pursuant to BKC's franchise
agreements, BKC's approval is also required for the renewal of existing
franchise agreements. BKC's consent to such renewals, acquisitions or
development may be withheld in BKC's sole discretion. Within five years of
September 30, 1996, 27 of the Company's current 183 franchise agreements with
BKC, which generated $28.3 million in total restaurant sales in the nine
months ended September 30, 1996, are scheduled to expire. BKC may also
condition its consent to any such renewal, acquisition or development on the
Company's agreement to take certain actions, such as making capital
expenditures on acquired restaurants, providing information to BKC's
management information systems, disposing of certain acquired restaurants and
maintaining specified financial ratios. For example, in connection with one
of the Company's acquisitions in 1995, the Company renewed its commitment to
sell up to 10 specified Burger King restaurants in the Chicago market to a
BKC designee. The Company believes that the sale of the 10 specified Burger
King restaurants will not have a material adverse effect on the Company's
financial condition or results of operations. In addition, BKC's franchise
agreements provide BKC with a right of first refusal to purchase all Burger
King restaurants that franchisees wish to sell. Accordingly, no assurances
can be made that BKC will (i) grant successor franchise agreements to the
Company with respect to the Company's existing Burger King restaurants, (ii)
consent to the Company's development of additional Burger King restaurants,
in each case without requiring the Company to incur substantial costs or
undertake certain other actions, or (iii) not exercise its right of first
refusal with respect to the sale of Burger King restaurants that the Company
seeks to acquire. See "Business--Franchise Agreements" and "Certain
Transactions."
BKC CONSENT TO CERTAIN CHANGES IN CAPITAL STRUCTURE AND CORPORATE GOVERNANCE
Current BKC policies and procedures require the Company and each of its
subsidiaries which is a franchisee to seek BKC's consent prior to making
certain changes to their capital structure and
13
<PAGE>
modifications to their corporate governance documents, including changing the
description of the Company or the relevant subsidiary franchisee's purpose or
authorized activities, the designation of, or the procedures for designating,
the managing owner (the individual primarily in charge of implementing BKC's
policies and procedures) or the authority granted to the managing owner.
BKC RESTRICTIONS ON MANAGEMENT STRUCTURE; OWNER TRANSFER OF SECURITIES
Current BKC policies and procedures place certain restrictions on the
management structure of Burger King franchisees. For example, in the event
Mr. Jaro, the Company's Chairman, Chief Executive Officer and managing owner,
were to terminate his relationship with the Company, the Company would be
required to seek BKC's approval to appoint a new managing owner, who would,
absent the consent of BKC, be subject to approval by BKC and be required to
hold a 5% voting equity interest in the Company and to personally guarantee
the Company's obligations to BKC. Absent BKC's waiver of the 5% equity
ownership and guarantee requirements, there can be no assurance that the
Company will be able to obtain a successor managing owner, which would cause
the Company's subsidiaries to be in default of their franchise agreements
with BKC. Furthermore, pursuant to the terms of BKC's franchise agreements,
Messrs. Jaro, Osborn and Hubert, who are named as owners under the franchisee
agreements, may not sell, encumber or otherwise transfer any portion of their
equity interests in the Company without first obtaining the consent of BKC.
Should the Company, the managing owner, or the owners fail to comply, as
applicable, with current BKC policies and procedures or any provision of
BKC's franchise agreements, BKC could, among other remedies, terminate its
franchise agreements with the Company's subsidiaries. In addition, BKC has
the right to terminate its franchise agreements with a franchisee if the
franchisee or the managing owner is convicted of a crime punishable by a term
of imprisonment in excess of one year or the franchisee or the managing owner
or any managing director engages in conduct that reflects unfavorably on the
franchisee or the Burger King system generally. Although not required under
their franchise agreements with BKC, the Company's subsidiaries may also, as
a practical matter, be required to adopt price discount programs instituted
by BKC which could have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Franchise Agreements."
BKC CONSENT TO ISSUANCE OF SECURITIES AND TO PAYMENT OF DIVIDENDS; CHANGE OF
CONTROL; OTHER AGREEMENTS WITH BKC
Pursuant to BKC's franchise agreements, BKC's consent is required for
certain transfers or issuances by the Company of its equity securities or the
transfer or issuance to third parties of the equity securities of its
subsidiary franchises. In addition, transfers that result in a change of
control of the Company in connection with a public tender offer may require
BKC's consent. If BKC's required consent is not obtained in connection with
any such issuance or transfer of the Company's or its subsidiary franchisee's
equity securities, including in connection with a public tender offer, BKC
could terminate its franchise agreements with the Company's subsidiaries,
which would have a material adverse effect on the Company's financial
condition and results of operations. In addition, the Company's financial
flexibility and ability to issue equity securities in connection with
acquiring future Burger King restaurants could be limited by BKC. Any such
limitation would affect the Company's growth strategy and could have a
material adverse effect on the Company's financial condition and results of
operations. See "Description of Capital Stock--Anti-Takeover Effects of BKC
Franchise Agreements."
In connection with the Offerings, the Company will be required to enter
into an agreement with BKC pursuant to which the Company will (i) indemnify
BKC for any claims against BKC arising out of the Offerings, (ii) guarantee
the payment and performance obligations under each of the franchise and lease
agreements between BKC and its subsidiary franchisees and (iii) be
prohibited, absent BKC's consent, from appointing certain classes of persons,
including officers of competing quick-service hamburger restaurant concepts
and BKC employees and suppliers, from serving on the boards of directors of
the Company or its subsidiaries. See "Certain Transactions."
In connection with the Offerings, the Company has committed to BKC that,
without BKC's prior written consent, (i) it will not pay cash dividends on
the Senior Preferred Stock on or prior to December 1, 2001 and (ii) it will
not pay cash dividends to Holders of Common Stock until the Senior Notes are
repaid in full and the Senior Preferred Stock is redeemed or otherwise
retired.
DEPENDENCE UPON BURGER KING CORPORATION
The Company's financial performance is directly related to the success of
the Burger King restaurant system, including the management and financial
condition of BKC as well as restaurants operated by other Burger King
franchisees. The inability of Burger King restaurants to compete effectively
with other
14
<PAGE>
quick-service restaurants would have a material adverse effect on the
Company's operations. The success of Burger King restaurants depends in part
on the effectiveness of BKC's marketing efforts, new product development
programs, quality assurance and other operational systems over which the
Company has no control. For example, adverse publicity involving BKC or one
or more Burger King franchisees could have an adverse effect on all Burger
King franchisees, including the Company. See "Business--Burger King
Corporation" and "--Competition."
RISKS OF EXPANSION AND DEVELOPMENT
The Company intends to expand rapidly in the future through the
development and acquisition of additional Burger King restaurants. This
expansion could significantly increase the number of restaurants operated by
the Company. To date, the Company has had limited experience in the
development of Burger King restaurants and BKC exercises sole and absolute
discretion with respect to any development by its franchisees. The Company's
ability to achieve its expansion goals will depend on a number of factors,
including (i) the availability of existing franchises for sale and suitable
sites for new restaurant development, (ii) the availability of funds for
expansion, (iii) the consent of BKC, (iv) BKC not exercising its right of
first refusal on the sale of any franchise that the Company seeks to acquire,
(v) the hiring, training and retention of skilled management and other
restaurant personnel and (vi) the ability to obtain the necessary
governmental permits and approvals. No assurances can be made that the
Company's expansion plans will be achieved, that a new restaurant will be
operated profitably, that new restaurants (particularly acquired restaurants)
will be smoothly integrated into the Company's operations, or that such
expansion will not cannibalize sales at existing Company restaurants located
near newly opened restaurants. A substantial portion of the Company's capital
resources will be used for development and acquisitions of Burger King
restaurants. Consequently, the Company may require additional debt or equity
financing for future development and acquisitions, which additional financing
may not be available or, if available, may not be on terms that are
acceptable to the Company. In addition, the Credit Agreement contains
restrictions on, among other things, new acquisitions, capital expenditures
and the incurrence of additional indebtedness. Moreover, BKC may require
that, as a condition to approving a proposed restaurant development
opportunity or acquisition, the Company limit the amount of its proposed or
future debt financing. The failure to continue its expansion by the
development or acquisition of restaurants could have a material adverse
effect on the Company's performance. See "Business--Business Strategy."
LIMITED OPERATING HISTORY
The Company was formed on August 17, 1994 and has a limited operating
history. The board of directors of the Company (the "Board of Directors") and
its executive officers have overall responsibility for the management of the
Company. Although certain of the Company's executive officers and directors
have extensive experience in the acquisition, development, operation and
financing of Burger King restaurants prior to the commencement of the
Company's operations, no executive officer of the Company had significant
experience in operating a business of the size and geographic diversity of
the Company.
REGIONAL CONCENTRATION OF OPERATIONS
A substantial majority of the Company's Burger King restaurants are
located in the midwestern United States. Of the Company's 183 restaurants,
113 or 61.7% are located in the Chicago, Illinois area, thereby exposing the
Company to adverse developments in the Chicago region's economy, weather
conditions and demographic and population changes. While the Company intends
to expand into other regions of the United States, no assurances can be made
that the current geographic concentration of the Company's business will not
have a material adverse effect on the Company's financial condition and
results of operations.
COMPETITION
The quick-service restaurant industry is intensely competitive with
respect to price, product quality, variety and taste, speed of service,
convenience of location and restaurant cleanliness and upkeep. In each of its
markets, the Company's Burger King restaurants compete with large national
quick-service chains, some of which have greater financial and other
resources than the Company. McDonald's, Wendy's and Hardees are the Company's
principal competitors, and the Company's Burger King restaurants also compete
against locally-owned restaurants offering low-priced menus and
quick-service. To a lesser degree, the Company competes against quick-service
chains offering alternative menus such as Taco Bell,
15
<PAGE>
Pizza Hut and Kentucky Fried Chicken as well as convenience stores and
grocery stores that offer menu items comparable to that of Burger King
restaurants. To the extent that a competitor of the Company offers items that
are better priced or more appealing to consumer tastes or if such competitor
increases the number of restaurants it operates in one of the Company's
targeted markets, such events could have a material adverse effect on the
Company's financial condition and results of operations. See
"Business--Competition."
In addition, the Company faces competition in its expansion plans. The
Company's potential competitors in developing and acquiring Burger King
restaurants include BKC, which (i) controls the areas in which new Burger
King restaurant sites can be developed, (ii) has exercised its right of first
refusal with respect to previously proposed restaurant sales and (iii) may
impose, as a condition to its consent to any proposed development opportunity
or acquisition, conditions, limitations or other restrictions on the Company
and its activities. BKC has substantially greater financial resources than
the Company to fund restaurant development and acquisitions. There can be no
assurance that BKC will not (i) limit the areas in which the Company may
develop restaurants, (ii) exercise its right of first refusal with respect to
future restaurant acquisitions by the Company or (iii) impose significant or
unacceptable conditions, limitations or other restrictions on the Company and
its activities. Other potential competitors in acquiring and developing
Burger King restaurants include other investors and existing Burger King
franchisees. The Company also competes with other quick-service restaurant
operators and developers for the most desirable site locations. Many of the
Company's competitors have greater financial resources than the Company to
finance development and acquisition opportunities or may be willing to pay
higher prices for the same opportunities. See "Business--Competition."
DEPENDENCE UPON SENIOR MANAGEMENT
The Company is dependent on the personal efforts, relationships and
abilities of its senior management team. The loss of services of any of these
individuals would have a material adverse effect on the future performance of
the Company. In addition, pursuant to the terms of BKC's franchise
agreements, the Company must receive BKC's consent prior to replacing Mr.
Jaro as its managing owner. In addition, Messrs. Jaro, Osborn and Hubert are
personally liable to BKC for the Company's obligations under each of its
subsidiaries' franchise agreements and each of its leases where BKC is the
lessor. Following the completion of the Offerings, the Company intends to
seek the release of Messrs. Jaro, Osborn and Hubert from these personal
guarantees. To the extent BKC requires the Company's senior management to
continue to guarantee such obligations, it may be more difficult for the
Company to retain such executives or replace these executives in the future
with other qualified individuals. The Company believes that its success is
dependent on its ability to attract and retain additional qualified
employees, and the failure to recruit such other skilled personnel could have
a material adverse effect on the Company's financial condition and results of
operations. See "Business--Franchise Agreements," "--Employees" and
"Management--Employment Agreements."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon consummation of the Offerings, the Company's executive officers and
directors (and their respective affiliates, including The Jordan Company)
will own an aggregate of 48.3% of the Company's outstanding shares of Common
Stock (assuming the issuance of 46,817 shares of Common Stock in the Units
Offering) . Such stockholders, if voting together, will have sufficient
voting power to elect the entire Board of Directors, exercise control over
the business, policies and affairs of the Company and, in general, determine
the outcome of any corporate transaction or other matters submitted to the
stockholders for approval such as any amendment to the amended and restated
certificate of incorporation of the Company (the "Certificate of
Incorporation"), the authorization of additional shares of capital stock, and
any merger, consolidation, sale of all or substantially all of the assets of
the Company and could prevent or cause a change of control of the Company,
all of which may adversely affect the Company and its stockholders. In
addition, pursuant to the Stockholders Agreement (as defined), all of the
holders of Common Stock of the Company prior to the Offerings (the "Current
Holders"), have agreed to vote all of their shares of Common Stock for the
election of directors designated by certain stockholders. Further, the
Stockholders Agreement contains prohibitions and restrictions on the transfer
by the Current Holders of Common Stock of the Company including certain
co-sale rights and rights of first refusal for the Company and each Current
Holder to purchase the shares of Common Stock prior to transfer by any other
Current Holder, which could prevent or cause a change of control of the
Company. See "Principal Stockholders" and "Description of Capital
Stock--Stockholders Agreement."
16
<PAGE>
GOVERNMENT REGULATION
The restaurant business is subject to extensive laws and regulations
relating to the development and operation of restaurants, including zoning,
the preparation and sale of food and employer/employee relationships. Any
substantial increases in the minimum wage (including those recently enacted
by the U.S. Government) or mandatory health care coverage could adversely
affect the Company's financial condition and results of operations.
Violations of zoning or building codes or regulations could delay new
restaurant openings or the acquisition of existing restaurants. See
"Business--Government Regulation."
FACTORS AFFECTING OPERATIONS
A number of factors beyond the control of the Company may affect sales and
profitability of the Company, including, among other things, the strength of
regional economies where the Company operates, weather, gas prices and public
health concerns regarding certain foods served at quick-service restaurants.
Severe weather conditions in some of the Company's principal markets, such as
Chicago, Illinois, may have a negative impact on customer traffic, sales and
restaurant contribution. An economic downturn in any of the Company's
regional markets may also have a similar effect.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Securities constitute new issues of securities and do not have
established trading markets. If trading markets do not develop or are not
maintained, holders of the Securities may experience difficulty in reselling
the Securities or may be unable to sell them at all. If a market for the
Securities develops, any such market may be discontinued at any time. The
Company does not intend to apply for listing of any of the Securities on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. Although the Underwriters have
advised the Company that they currently intend to make a market in the
Securities, they are not obligated to do so and may discontinue such market
making at any time without notice. In addition, such market making activity
will be subject to the limits imposed by the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Accordingly, there can be no assurance as to the development or liquidity of
any market for the Securities. See "Description of Securities."
FRAUDULENT TRANSFER CONSIDERATIONS
Under fraudulent transfer law, if a court were to find in a lawsuit by an
unpaid creditor or representative of creditors of the Company, that the
Company received less than fair consideration or reasonable equivalent value
for incurring the indebtedness represented by the Senior Notes and, if
issued, the Exchange Debentures, and, at the time of such incurrence, the
Company (i) was insolvent or was rendered insolvent by reason of such
incurrence, (ii) was engaged or about to engage in a business or transaction
for which its remaining property constituted unreasonably small capital or
(iii) intended to incur, or believed it would incur, debts beyond it ability
to pay as such debts mature, such court could, among other things, (a) void
all or a portion of the Company's obligations to the holders of Senior Notes
and, if issued, the Exchange Debentures and/or (b) subordinate the Company's
obligations to the holders of the Senior Notes and, if issued, the Exchange
Debentures to other existing and future indebtedness of the Company, the
effect of which would be to entitle such other creditors to be paid in full
before any payment could be made on the Senior Notes and, if issued, the
Exchange Debentures. The measure of insolvency for purposes of determining
whether a transfer is avoidable as a fraudulent transfer varies depending
upon the law of the jurisdiction which is being applied. Generally, however,
a debtor would be considered insolvent if the sum of all of its liabilities
were greater than the value of all of its property at a fair valuation, or if
the present fair salable value of the debtor's assets were less than the
amount required to repay its probable liability on its debts as they become
absolute and mature. There can be no assurance as to what standard a court
would apply in order to determine solvency. To the extent that proceeds from
the sale of the Senior Notes are used to repay indebtedness under the Credit
Agreement and the Subordinated Debt, a court may find that the Company did
not receive fair consideration or reasonably equivalent value for the
incurrence of the indebtedness represented thereby.
On the basis of its historical financial information, its recent operating
history and other factors, the Company believes that it is and will be
solvent, has and will have sufficient capital for the business in which it is
engaged and has not and will not have incurred debts beyond its ability to
pay such debts as they mature. There can be no assurance, however, that a
court would necessarily agree with these conclusions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
17
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the Offerings are estimated to be
approximately $130.0 million before deducting estimated commissions and
expenses of the Offerings. The proceeds from the Offerings will be used to
repay borrowings under the Credit Agreement, to prepay the Senior
Subordinated Notes (including a prepayment penalty of approximately $3.4
million), the Subordinated Notes and the Seller Notes (each as hereinafter
defined and collectively referred to herein as the "Subordinated Debt"), to
repay certain senior debt, to pay the fees and expenses of the Offerings and
for general corporate purposes. Reborrowings under the Credit Agreement, if
any, will be used for general corporate purposes. The Company is currently
negotiating with several lenders for a new bank credit agreement to replace
the Credit Agreement under which the Company expects to be able to borrow
approximately $75 million to fund acquisitions and provide working capital
and for other general purposes. Affiliates of the Company will receive a
portion of the net proceeds from the Offerings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Business," "Description of Certain Indebtedness" and
"Certain Transactions."
The following table sets forth the estimated sources and uses of funds,
assuming the Offerings were consummated on September 30, 1996 (in millions).
<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS:
Senior Notes due 2006 ................ $100.0
Units (1)............................. 30.0
--------
Total sources ...................... $130.0
========
USES OF FUNDS:
Repay Credit Agreement borrowings (2) $ 86.6
Repay other senior debt .............. 0.8
Prepay Subordinated Debt (3) ......... 33.9
Fees and expenses (4) ................ 6.4
Excess cash .......................... 2.3
--------
Total uses ......................... $130.0
========
</TABLE>
(1) In connection with the Units Offering, the Company is offering 30,000
Units, each consisting of 40 shares of Senior Preferred Stock with a
liquidation preference of $25.00 per share and 1.561 shares of Common
Stock. Accordingly, it is anticipated that 1,200,000 shares of Senior
Preferred Stock and 46,817 shares of Common Stock will be sold in the
Units Offering.
(2) Credit Agreement borrowings consist of (i) $44.3 million principal
amount of term loans that mature on January 31, 2002, and $39.8 million
principal amount of term loans that mature on January 31, 2004, and
(ii) $2.5 million principal amount of revolving credit loans that
mature on January 31, 2002. As of September 30, 1996, the weighted
average interest rate with respect to all Credit Agreement borrowings
was 8.60%.
(3) Subordinated Debt consists of: (i) $15.0 million principal amount of
Senior Subordinated Notes bearing interest at a rate of 12.5% per annum
with a scheduled maturity of January 31, 2005; (ii) $11.0 million
principal amount of Subordinated Notes bearing interest at a rate of
12.75% per annum with a scheduled maturity of August 31, 2005; (iii)
$4.4 million principal amount of Seller Notes bearing interest at a
rate of 12.75% per annum with a scheduled maturity of August 31, 2005;
and (iv) a prepayment penalty of approximately $3.4 million in
connection with the prepayment of the Senior Subordinated Notes. See
"Certain Transactions."
(4) Includes estimated discounts and commissions and expenses to be
incurred in connection with the Offerings and the application of the
net proceeds therefrom, and fees payable to The Jordan Company. See
"Certain Transactions."
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1996, (i) the
consolidated capitalization of the Company and (ii) the pro forma
consolidated capitalization of the Company after giving effect to the
Offerings and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds." This table should be read in conjunction with
the Pro Forma Financial Statements and the notes thereto and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------
ACTUAL PRO FORMA
-------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents ...................... $ 2.7 $ 5.1
======== ===========
Long-term debt (including current portion):
Borrowings under the Credit Agreement ....... $ 86.6 --
% Senior Notes due 2006 ...................... -- $100.0
Subordinated Debt ............................ 31.0 0.6
Capital lease obligations .................... 0.2 0.2
Other long-term debt ......................... 8.6 7.8
-------- -----------
Total long-term debt ....................... 126.4 108.6
% Senior Exchangeable Preferred Stock due 2008 -- 28.3
Total stockholders' equity ..................... 8.1 3.1
-------- -----------
Total capitalization ..................... $134.5 $140.0
======== ===========
</TABLE>
DIVIDEND POLICY
The Company is not required to pay cash dividends on the Senior Preferred
Stock until after December 1, 2001. The Company intends to retain future
earnings, if any, for use in its business and does not anticipate paying any
cash dividends on the Senior Preferred Stock for any period ending on or
prior to December 1, 2001 or on the Common Stock. In addition, the terms of
the Indenture and the Credit Agreement limit the amount of cash dividends the
Company may pay with respect to the Senior Preferred Stock, the Common Stock
and other equity securities both before and after that date. See "Description
of Securities--Senior Notes--Certain Covenants," "--Senior Preferred
Stock--Dividends" and "Description of Certain Indebtedness."
In connection with the Offerings, the Company has committed to BKC that,
without BKC's prior written consent, (i) it will not pay cash dividends on
the Senior Preferred Stock on or prior to December 1, 2001 and (ii) it will
not pay cash dividends to holders of Common Stock until the Senior Notes are
repaid in full and the Senior Preferred Stock is redeemed or otherwise
retired. See "Risk Factors--BKC Consent to Issuance of Securities and to
Payment of Dividends."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain historical financial and operating
data for the Company and restaurants formerly owned and operated by BKC (the
"BKC Restaurants") and entities controlled by certain members of the
Company's current management (the "Management Restaurants") (collectively,
the "Initial Acquisitions") and certain pro forma financial and operating
data for the Company as of the dates and for the periods indicated. Prior to
their acquisition by the Company on September 2, 1994, the BKC Restaurants
and the Management Restaurants were not under common control or management.
In addition, restaurant contribution for the BKC Restaurants and the
Management Restaurants, which reflects restaurant sales net of restaurant
operating expenses, does not reflect all costs of operating the BKC
Restaurants and Management Restaurants. Accordingly, restaurant sales,
restaurant operating expenses and restaurant contribution may not be
comparable to or indicative of post-acquisition results. The data presented
for the Company as of December 31, 1994 and for the period from September 2,
1994 through December 31, 1994, and for the 1995 fiscal year (actual) are
derived from the Company's audited financial statements appearing elsewhere
herein. The data presented for the Company for the nine months ended October
2, 1995 and September 30, 1996 and for the twelve months ended September 30,
1996, are derived from the unaudited financial statements of the Company,
appearing elsewhere herein, and in the opinion of management include all
adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for a fair presentation of the Company's results
of operations and financial condition for those periods. The data for the
nine and twelve months ended September 30, 1996 are not necessarily
indicative of results that may be expected for any other interim period or
for the fiscal year ending December 30, 1996. The Selected Consolidated
Financial Information should be read in conjunction with (i) "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
(ii) the audited Historical Schedules of Restaurant Contribution and the
notes thereto, (iii) the audited Consolidated Financial Statements for the
Company and the notes thereto and (iv) the Pro Forma Consolidated Financial
Statements, each included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE INITIAL
ACQUISITIONS(1)(2) THE COMPANY
-------------------------- ----------------------------------------
FISCAL 1995
--------------------
SEPTEMBER 2, 1994
JANUARY 1, 1994 THROUGH
FISCAL THROUGH DECEMBER 31, PRO
1993 SEPTEMBER 1, 1994 1994(3) ACTUAL FORMA(4)
------- ----------------- ------------------ -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales ........... $82,895 $56,720 $33,931 $139,572 $195,692
Restaurant operating
expenses:
Cost of sales .............. 25,832 18,602 10,807 44,798 62,760
Restaurant labor and
related costs ............ 21,998 15,529 8,647 34,526 48,818
Depreciation and
amortization ............. 2,062 1,366 1,193 4,927 7,065
Occupancy and other
operating expenses ....... 26,405 17,854 9,229 38,930 53,410
------- ----------------- ------------------ -------- ----------
Total restaurant
operating expenses ...... 76,297 53,351 29,876 123,181 172,053
------- ----------------- ------------------ -------- ----------
Restaurant contribution .... $ 6,598 $ 3,369 4,055 16,391 23,639
======= =================
General and administrative
expenses .................. 1,374 5,904 7,492
------------------ -------- ----------
Operating income ........... 2,681 10,487 16,147
Other income (expense):
Interest expense .......... (1,925) (8,323) (11,402)
Other income (expense),
net ...................... (324) (437) (470)
------------------ -------- ----------
Total other income
(expense) ............... (2,249) (8,760) (11,872)
------------------ -------- ----------
Income (loss) before income
taxes ...................... 432 1,727 4,275
Provision (benefit) for
income taxes .............. 191 825 1,870
------------------ -------- ----------
Net income (loss) .......... $ 241 $ 902 $ 2,405
Preferred stock
dividends(5) .............. 4,200
Weighted average number of
shares outstanding (in
thousands)(6) .............. 1,124 1,124 1,047
Net income per share(7) .... $ 0.11 $ 0.40 $ (1.71)
OTHER DATA:
EBITDA(8) .................. $ 3,889 $ 15,613 $ 23,411
Adjusted EBITDA(9) ......... 24,817
Capital expenditures:
Existing restaurants ....... 1,476 2,065
New restaurant
development .............. 696 696
Other ..................... 1,609 1,609
-------- ----------
Total capital
expenditures ........... 3,781 4,370
PRO FORMA RATIOS:
EBITDA/cash interest
expense(10) ...............
Net debt/EBITDA(11) ........
Adjusted EBITDA/cash
interest expense(10) ......
Net debt/Adjusted
EBITDA(11) ................
</TABLE>
20
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------ TWELVE MONTHS ENDED
OCTOBER 2, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
-------------------- -------------------- --------
PRO PRO PRO
ACTUAL FORMA(4) ACTUAL FORMA(4) ACTUAL FORMA(4)
-------- ---------- -------- ---------- -------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
RESTAURANT SALES ........... $103,446 $147,399 $149,973 $153,427 $186,099 $201,720
Restaurant operating
expenses:
Cost of sales .............. 33,226 47,340 48,476 49,597 60,048 65,017
Restaurant labor and
related costs ............ 25,818 36,939 37,406 38,344 46,114 50,223
Depreciation and
amortization ............. 3,646 5,322 5,431 5,603 6,712 7,346
Occupancy and other
operating expenses ....... 28,650 40,005 41,050 42,074 51,330 55,479
-------- ---------- -------- ---------- -------- ----------
Total restaurant
operating expenses ...... 91,340 129,606 132,363 135,618 164,204 178,065
-------- ---------- -------- ---------- -------- ----------
Restaurant contribution .... 12,106 17,793 17,610 17,809 21,895 23,655
General and administrative
expenses .................. 4,202 5,448 5,907 6,021 7,609 8,065
-------- ---------- -------- ---------- -------- ----------
Operating income ........... 7,904 12,345 11,703 11,788 14,286 15,590
Other income (expense):
Interest expense .......... (6,222) (8,570) (8,880) (8,509) (10,981) (11,341)
Other income (expense),
net ...................... (300) (330) (3,887) (3,559) (4,024) (3,699)
-------- ---------- -------- ---------- -------- ----------
Total other income
(expense) ............... (6,522) (8,900) (12,767) (12,068) (15,005) (15,040)
-------- ---------- -------- ---------- -------- ----------
Income (loss) before income
taxes ...................... 1,382 3,445 (1,064) (280) (719) 550
Provision (benefit) for
income taxes .............. 661 1,507 (426) (104) (262) 259
-------- ---------- -------- ---------- -------- ----------
Net income (loss) .......... $ 721 $ 1,938 $ (638) $ (176) $ (457) $ 291
Preferred stock
dividends(5) .............. 3,150 3,150 4,200
Weighted average number of
shares outstanding (in
thousands)(6) .............. 1,124 1,047 1,000 1,047 1,000 1,047
Net income per share(7) .... $ 0.34 $ (1.16) $ (0.98) $ (3.18) $ (0.91) $ (3.73)
OTHER DATA:
EBITDA(8) .................. $ 11,697 $ 17,814 $ 17,456 $ 17,713 $ 21,372 $ 23,310
Adjusted EBITDA(9) ......... 18,749 19,115 25,183
Capital expenditures:
Existing restaurants ....... 1,274 1,812 962 1,007 1,164 1,260
New restaurant
development .............. 561 561 3,219 3,219 3,354 3,354
Other ..................... 1,251 1,251 837 837 1,195 1,195
-------- ---------- -------- ---------- -------- ----------
Total capital
expenditures ........... 3,086 3,624 5,018 5,063 5,713 5,809
PRO FORMA RATIOS:
EBITDA/cash interest
expense(10) ............... 2.1x
Net debt/EBITDA(11) ........ 4.4
Adjusted EBITDA/cash
interest expense(10) ...... 2.3
Net debt/Adjusted
EBITDA(11) ................ 4.1
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
THE INITIAL
ACQUISITIONS(1)(2) THE COMPANY
------------------------- --------------------------------------
FISCAL 1995
------------------
SEPTEMBER 2, 1994
JANUARY 1, 1994 THROUGH
FISCAL THROUGH DECEMBER 31, PRO
1993 SEPTEMBER 1, 1994 1994(3) ACTUAL FORMA(4)
------ ----------------- ------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
SELECTED OPERATING DATA:
Restaurants open at end of
period .................. 82 82 121 140 176
Percentage change in
comparable restaurant
sales(12) ............... (0.1)% 2.1%
Average sales per
restaurant(13) ..........$ 1,011 $1,125 $1,113
Ratio of earnings to fixed
charges(14) ............. 1.1x 1.3x
Ratio of earnings to fixed
charges and preferred
stock dividends(14) ...... 1.1 1.2
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS
-------------------------------------- ENDED
OCTOBER 2, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------ ------------------
PRO PRO PRO
ACTUAL FORMA(4) ACTUAL FORMA(4) ACTUAL FORMA(4)
------ ---------- ------ ---------- ------ ----------
SELECTED OPERATING DATA:
RESTAURANTS OPEN AT END OF
PERIOD 127 176 183 183 183 183
<S> <C> <C> <C> <C> <C> <C>
Percentage change in
comparable restaurant
sales(12) ............... 1.4% 3.7% 1.8% 0.4% 0.6% (0.3)%
Average sales per
restaurant(13) .......... $852 $856 $862 $858 $1,135 $1,132
Ratio of earnings to fixed
charges(14) ............. 1.2x 1.3x 0.9x 1.0x 1.0x 1.0x
Ratio of earnings to fixed
charges and preferred
stock dividends(14) ...... 1.2 1.2 0.9 1.0 1.0 1.0
</TABLE>
<TABLE>
<CAPTION>
THE INITIAL ACQUISITIONS
-------------------------
JANUARY 1,
1994 THROUGH
FISCAL SEPTEMBER 1,
1993 1994
--------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SUPPLEMENTAL DATA(15)(16):
RESTAURANT SALES:
BKC Restaurants ............... $70,667 $47,762
Management Restaurants:
Jaro restaurants ............. 10,115 7,400
Osborn restaurants ........... 2,113 1,558
--------- --------------
Total for Initial
Acquisitions ............... $82,895 $56,720
========= ==============
RESTAURANT OPERATING EXPENSES:
BKC Restaurants ............... $65,263 $45,257
Management Restaurants:
Jaro restaurants ............. 9,166 6,718
Osborn restaurants ........... 1,868 1,376
--------- --------------
Total for Initial
Acquisitions ............... $76,297 $53,351
========= ==============
RESTAURANT CONTRIBUTION:
BKC Restaurants .............. $ 5,404 $ 2,505
Management Restaurants:
Jaro restaurants ............ 949 682
Osborn restaurants .......... 245 182
--------- --------------
Total for Initial
Acquisitions ............... $ 6,598 $ 3,369
========= ==============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
PRO
ACTUAL FORMA(17)
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ......... $ 2,705 $ 5,055
Total assets ...................... 148,481 153,207
Total debt and capitalized leases 126,363 108,613
Senior Exchangeable Preferred
Stock ............................ -- 28,281
Total stockholders' equity ....... 8,105 3,089
</TABLE>
- ------------
(1) The Initial Acquisitions consist of the 68 BKC Restaurants and the 14
Management Restaurants acquired by the Company on September 2, 1994
from BKC and from entities formerly controlled by certain members of
the Company's current management. The information set forth under
"Initial Acquisitions" reflects the combined historical financial
results of the BKC Restaurants and Management Restaurants for the
indicated period during which time the restaurants were owned and
operated by BKC and management-controlled entities. The results of
the Initial Acquisitions for fiscal 1993 and the period from January
1, 1994 through September 1, 1994 may not be reflective of the
ongoing operations of the Company under its current ownership
structure.
(2) Due to the inability of the Company to determine certain expenses for
the Initial Acquisitions prior to their acquisition by the Company on
a meaningful and consistent basis, net income is not comparable and
is not presented for the Initial Acquisitions.
21
<PAGE>
(3) Reflects the historical results of the Company, including the Initial
Acquisitions subsequent to their acquisition by the Company on
September 2, 1994. Also includes limited expenses of the Company
during the period August 17, 1994 (date of incorporation) to
September 2, 1994, during which period the Company had no operations.
(4) Pro forma to give effect to the following transactions as if each had
occurred on January 1, 1995: (i) the transactions contemplated by the
Offerings and the application of the net proceeds therefrom as set
forth in "Use of Proceeds" and (ii) the acquisition of each of the 54
Burger King restaurants acquired by the Company subsequent to January
1, 1995. See "Use of Proceeds" and "Pro Forma Consolidated Financial
Statements." The pro forma statements of operations do not give
effect to an extraordinary pre-tax charge that the Company expects to
incur immediately following the closing of the Offerings. If such
pre-tax charge were taken at the beginning of fiscal 1995, such
charge would have been approximately $10.0 million (approximately
$5.9 million on an after-tax basis), consisting of (i) an approximate
$6.6 million (approximately $3.9 million on an after-tax basis)
write-off of deferred financing costs related to the repayment of the
Subordinated Debt and indebtedness under the Credit Agreement and
(ii) an approximate $3.4 million (approximately $2.0 million or on
after-tax basis) prepayment penalty incurred in connection with the
prepayment of the Senior Subordinated Notes.
(5) Preferred stock dividends include dividends on the existing 6%
preferred stock of the Company and dividends on the Senior Preferred
Stock at an assumed rate of 12.5%. See "Description of Capital
Stock--Preferred Stock" and "Description of Securities--Senior
Preferred Stock--Dividends."
21
<PAGE>
(6) The weighted average number of shares outstanding assumes the following
changes to the historical number of shares outstanding: (i) the
1,000-for-1 stock split of Common Stock pursuant to the
Recapitalization, (ii) for the pro forma periods only, the issuance
of 46,817 shares of Common Stock in the Units Offering in connection
with the consummation of the Offerings and (iii) for all periods in
which there is positive earnings available for the holders of Common
Stock, the conversion of immediately exercisable warrants and options
to purchase 123,600 shares of Common Stock. See "Description of
Capital Stock--The Recapitalization."
(7) Net income per share was computed by deducting in all periods
dividends payable to the holders of Original Preferred Stock (as
defined) and deducting in the pro forma periods dividends payable to
the holders of Senior Preferred Stock and using the weighted average
number of shares of Common Stock outstanding.
(8) EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating
income or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, EBITDA is included herein to provide additional
information with respect to the ability of the Company to meet its
future debt service, capital expenditure and working capital
requirements. In addition, management believes that certain investors
find EBITDA to be a useful tool for measuring the ability of the Company
to service its debt. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs. See the Consolidated
Statements of Cash Flows of the Company and the related notes to the
Consolidated Financial Statements thereto included herein.
(9) Adjusted EBITDA, on a pro forma basis, represents EBITDA plus
management and director's fees and certain non-recurring items. For a
description of management and director's fees, see "Certain
Transactions--The Jordan Company." The certain non-recurring items
consist of:
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------
TWELVE MONTHS
NINE MONTHS ENDED ENDED
----------------------------- ---------------
FISCAL OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996 1996
-------- ------------ --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in estimate of disputed invoices ................ $(60) $(110) $144 $ 194
Reduction of insurance premiums and long distance costs 420 314 377 483
Headcount reduction due to consolidated territories ... 396 243 393 546
-------- ------------ --------------- ---------------
Total addition to EBITDA ............................. $756 $ 447 $914 $1,223
======== ============ =============== ===============
</TABLE>
Adjusted EBITDA is included because the Cash Flow Coverage Ratio, when
calculated on a Pro Forma Basis (each as defined in the Indenture and the
Exchange Debenture Indenture), is calculated on a similar basis. Adjusted
EBITDA may not be comparable to EBITDA measures reported by other
companies.
(10) Cash interest expense represents total interest expense less
amortization of deferred financing costs and other non-cash interest
charges. The calculation of cash interest expense assumes on a pro
forma basis an interest rate of 10.5% on the Senior Notes. A one
eighth percent change in the interest rate applicable to the Senior
Notes would result in a $125,000 change in cash interest expense on a
pro forma basis. The ratios of EBITDA and Adjusted EBITDA to cash
interest expense are included because the Company believes that
prospective investors find the ratios helpful in evaluating the
ability of the Company to service its indebtedness, including
indebtedness under the Senior Notes. The information does not purport
to represent what the Company's ratios are or would have been had the
Senior Notes and the Senior Preferred Stock been outstanding during
the periods presented.
(11) Net debt represents total debt and capitalized leases less cash and
cash equivalents. The pro forma ratios of net debt to EBITDA and net
debt to Adjusted EBITDA were calculated based on pro forma net debt
as of September 30, 1996 of $103.6 million. The ratios of net debt to
EBITDA and to Adjusted EBITDA are included because the Company
believes that prospective investors find the ratios helpful in
evaluating the ability of the Company to incur additional
indebtedness, including indebtedness that could be incurred to repay
or otherwise refinance the Senior Notes and the Senior Preferred
Stock. The information does not purport to represent what the
Company's ratios are or would have been had the Senior Notes and the
Senior Preferred Stock been outstanding during the periods presented.
(12) The Company includes in comparable restaurant sales only those
restaurants that have been in operation for a minimum of thirteen
months. The percentage change in comparable restaurant sales is
calculated as the percentage change from the comparable restaurant
sales in the previous period. For the twelve months ended October 28,
1996 the percentage increase in comparable restaurant sales was 0.5%.
(13) Reflects the results of only those restaurants operating for the
entire period.
(14) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed
charges. Fixed charges consist of interest expense on all
indebtedness and capitalized interest, amortization of deferred
financing costs and rental expense on operating leases, representing
that portion of rental expense deemed by the Company to be
attributable to interest. For the nine months ended September 30,
1996, earnings were insufficient to cover fixed charges by
approximately $1.1 million. For the nine and twelve months ended
September 30, 1996, earnings were insufficient to cover fixed charges
and preferred stock dividends by approximately $1.1 million and
approximately $0.7 million, respectively.
(15) Sets forth for the Initial Acquisitions the components constituting
aggregate restaurant sales, restaurant operating expenses and
restaurant contributions for the indicated periods. See the
Historical Schedules of Restaurant Contribution and the notes thereto
with respect to the Initial Acquisitions.
(16) Jaro restaurants consist of the 11 Management Restaurants acquired
from entities owned or controlled by Lawrence Jaro, the Company's
current Chief Executive Officer and Chairman of the Company's Board
of Directors. Osborn restaurants consist of the three Management
<PAGE>
Restaurants acquired from entities owned or controlled by William
Osborn, the current Vice Chairman of the Company's Board of
Directors.
(17) Pro forma to give effect to the Offerings and the application of the
net proceeds therefrom as set forth in "Use of Proceeds" and
adjustments of $5.1 million ($3.0 million net of applicable taxes)
for the write-off of the unamortized balance of deferred financing
costs relating to repayment of certain indebtedness under the Credit
Agreement and all of the Subordinated Debt (as defined) and the
write-off of approximately $3.4 million ($2.0 million net of
applicable taxes) related to a prepayment penalty in connection with
the prepayment of Senior Subordinated Notes.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is the second largest independent Burger King franchisee in
the United States with 183 restaurants located primarily in eleven Midwestern
and Southern states. The Company has acquired 175 Burger King restaurants
since its incorporation, including the acquisition of the 68 BKC Restaurants
and the 14 Management Restaurants in 1994, 39 additional restaurants in 1994,
18 restaurants in 1995 and 36 restaurants in 1996. In addition, the Company
has developed eight Burger King restaurants. For the twelve months ended
September 30, 1996, the Company generated pro forma restaurant sales and
EBITDA (as defined) of $201.7 million and $23.3 million, respectively.
The Company operates Burger King restaurants through its wholly owned
subsidiaries, each of which is a party to a BKC franchise agreement. BKC
franchise agreements require a one-time franchise fee (currently $40,000), a
monthly royalty fee of 3.5% of each restaurant's gross sales and a monthly
advertising contribution of 4.0% of gross sales. Most franchise agreements
provide for a term of 20 years, and, at the option of the franchise and BKC,
a renewal franchise agreement may be granted by BKC upon payment of the then
current franchise fee provided that the restaurant meets BKC's operating
standards applicable at that time and the franchisee is not in default under
the relevant franchise agreement.
As the Company acquires additional Burger King restaurants, it capitalizes
the value of franchise agreements based on the number of years remaining on
the terms of the agreement and the franchise fee in effect at the time of
acquisition (currently, $40,000 over a 20 year term or $2,000 per year) and
it capitalizes excess cost over fair value of the other net assets acquired
and amortizes for financial statement purposes the goodwill expense over a
35-year period. The Company generally purchases assets and is able to deduct
goodwill amortization expense for tax purposes over a 15-year period.
Restaurant sales include food sales and merchandise sales. Merchandise
sales include convenience store sales at the Company's dual-use facilities
(of which the Company currently has five), as well as sales of promotional
products at the Company's restaurants. Historically, merchandise sales have
contributed less than 2.5% to restaurant sales. Promotional products, which
account for the majority of merchandise sales, are generally sold at or near
the Company's costs.
Restaurant contribution is defined as restaurant sales less restaurant
operating expenses other than general and administrative expenses such as
office overhead and non-restaurant supervisory management. As a result,
restaurant contribution does not include all of the Company's costs of doing
business.
EBITDA represents operating income plus depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income or
a better indicator of liquidity than cash flow from operating activities,
which are determined in accordance with generally accepted accounting
principles, EBITDA is included to provide additional information with respect
to the ability of the Company to meet its future debt service, capital
expenditure and working capital requirements. In addition, management
believes that certain investors find EBITDA to be a useful tool for measuring
the ability of the Company to service its debt. EBITDA is not necessarily a
measure of the Company's ability to fund its cash needs. See the Consolidated
Statements of Cash Flows of the Company and the related notes to the
Consolidated Financial Statements included herein.
The Company includes in the comparable restaurant sales analysis discussed
below only those restaurants that have been in operation for a minimum of
thirteen months. For a restaurant not operating for the entire prior annual
period, the sales for the interim period in the prior year are compared to
that for the comparable interim period in the indicated year.
On August 1, 1995, the Company converted its fiscal year to a 52/53 week
fiscal year. Due to the conversion, the 1995 fiscal year ended January 1,
1996 and included 366 days of operating activity. All fiscal years discussed
herein had a length of approximately 52 weeks.
RECENT DEVELOPMENTS
Based on preliminary unaudited results, for the four-week period, and the
twelve month period ended October 28, 1996, the Company's comparable
restaurant sales increased by 10.7% and 0.5%, respectively, over the same
period for the prior fiscal year on a pro forma basis, based upon the sales
of the Company's restaurants including the periods in 1995 during which
certain of those restaurants were operated by their prior owners.
23
<PAGE>
RESULTS OF OPERATIONS
Prior to their acquisition by the Company on September 2, 1994, the 68 BKC
Restaurants and the 14 Management Restaurants (which constitute the Initial
Acquisitions) were not under common control or management. The table set
forth below combines the results of operations for the BKC Restaurants and
the Management Restaurants for the period from January 1, 1994 through
September 1, 1994 with the results of operations of the Company from
September 2, 1994 through December 31, 1994. The results of operations for
the Company also include limited expenses of the Company during the period
August 17, 1994 (date of incorporation) to September 2, 1994, during which
period the Company had no operations. Prior to September 1, 1994, the BKC
Restaurants and the Management Restaurants were operated under a different
management and capitalization structure than that of the Company.
Accordingly, the information set forth below with respect to the Initial
Acquisitions and the "Combined" results for the Initial Acquisitions and the
Company for fiscal 1994 is provided for the purposes of analysis only and may
not be comparable to or indicative of post-acquisition results. In addition,
the results with respect to the Initial Acquisitions and the "Combined"
results may not be representative of what the Company's results of operations
would have been if the Company had owned the BKC Restaurants and Management
Restaurants for all of fiscal 1993 and fiscal 1994.
<TABLE>
<CAPTION>
INITIAL INITIAL
ACQUISITIONS ACQUISITIONS THE COMPANY
-------------- ----------------- -----------------
JANUARY 1, 1994 SEPTEMBER 2, 1994
THROUGH THROUGH
FISCAL 1993 SEPTEMBER 1, 1994 DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales ....................... $82,895 $56,720 $33,931
Restaurant operating expenses:
Cost of sales ......................... 25,832 18,602 10,807
Restaurant labor and related costs ... 21,998 15,529 8,647
Depreciation and amortization ......... 2,062 1,366 1,193
Occupancy and other operating expenses 26,405 17,854 9,229
-------------- ----------------- -----------------
Total restaurant operating expenses .. 76,297 53,351 29,876
-------------- ----------------- -----------------
Restaurant contribution ................ $ 6,598 $ 3,369 $ 4,055
============== ================= =================
General and administrative expenses ... -- -- 1,374
Operating income ....................... -- -- 2,681
EBITDA ................................. $ -- $ -- $ 3,889
============== ================= =================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
COMBINED THE COMPANY
---------- -----------------------------------------
NINE MONTHS ENDED
-----------------------------
FISCAL FISCAL OCTOBER 2, SEPTEMBER 30,
1994 1995 1995 1996
---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales ....................... $90,651 $139,572 $103,446 $149,973
Restaurant operating expenses:
Cost of sales ......................... 29,409 44,798 33,226 48,476
Restaurant labor and related costs ... 24,176 34,526 25,818 37,406
Depreciation and amortization ......... 2,559 4,927 3,646 5,431
Occupancy and other operating expenses 27,083 38,930 28,650 41,050
---------- ---------- ------------ ---------------
Total restaurant operating expenses .. 83,227 123,181 91,340 132,363
---------- ---------- ------------ ---------------
Restaurant contribution ................ $ 7,424 $ 16,391 $ 12,106 $ 17,610
========== ========== ============ ===============
General and administrative expenses ... -- 5,904 4,202 5,907
Operating income ....................... -- 10,487 7,904 11,703
EBITDA ................................. $ -- $ 15,613 $ 11,697 $ 17,456
========== ========== ============ ===============
</TABLE>
24
<PAGE>
The following table sets forth, for the periods indicated, operating
results as a percentage of restaurant sales.
<TABLE>
<CAPTION>
INITIAL INITIAL
ACQUISITIONS ACQUISITIONS THE COMPANY COMBINED THE COMPANY
-------------- ----------------- ----------------- ---------- --------------------------------------
NINE MONTHS ENDED
JANUARY 1, 1994 SEPTEMBER 2, 1994 -----------------------------
THROUGH THROUGH FISCAL FISCAL OCTOBER 2, SEPTEMBER 30,
FISCAL 1993 SEPTEMBER 1, 1994 DECEMBER 31, 1994 1994 1995 1995 1996
-------------- ----------------- ----------------- ---------- -------- ------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Restaurant sales ..... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Restaurant operating
expenses:
Cost of sales ....... 31.2 32.8 31.8 32.4 32.1 32.1 32.3
Restaurant labor and
related costs ....... 26.5 27.4 25.5 26.7 24.7 25.0 24.9
Depreciation and
amortization ........ 2.5 2.4 3.5 2.8 3.6 3.5 3.6
Occupancy and other
operating expenses .. 31.9 31.5 27.2 29.9 27.9 27.7 27.5
-------------- ----------------- ----------------- ---------- -------- ------------ ---------------
Total restaurant
operating expenses .. 92.1 94.1 88.0 91.8 88.3 88.3 88.3
-------------- ----------------- ----------------- ---------- -------- ------------ ---------------
Restaurant
contribution ........ 7.9% 5.9% 12.0% 8.2% 11.7% 11.7% 11.7%
============== ================= ================= ========== ======== ============ ===============
General and
administrative
expenses ............ -- -- 3.6% -- 3.7% 3.5% 3.4%
Operating income ..... -- -- 7.9% -- 7.5% 7.6% 7.8%
EBITDA ............... -- -- 11.5% -- 11.2% 11.3% 11.6%
============== ================= ================= ========== ======== ============ ===============
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED OCTOBER 2,
1995
Restaurant Sales. Restaurant sales increased $46.5 million or 45.0% during
the nine months ended September 30, 1996, to $149.9 million from $103.4
million in the nine months ended October 2, 1995, due primarily to the
inclusion of the 18 restaurants purchased in 1995 and the 36 restaurants
purchased in 1996. In addition, the Company developed one new restaurant in
1995 and seven new restaurants in 1996. The inclusion of the newly acquired
restaurants accounted for $42.8 million of the total increase in restaurant
sales, while new restaurant development accounted for $3.2 million of the
increase in sales. Sales at the 121 comparable restaurants owned by the
Company at September 30, 1996 increased 0.6%. Restaurant menu prices remained
stable during the period.
Restaurant Operating Expenses. Total restaurant operating expenses
increased $41.0 million, or 44.8% during the nine months ended September 30,
1996, to $132.3 million from $91.3 million in the nine months ended October
2, 1995. As a percentage of restaurant sales, restaurant operating expenses
in the nine months ended September 30, 1996 and in the nine months ended
October 2, 1995 remained constant at 88.3%.
Cost of sales increased $15.2 million during the nine months ended
September 30, 1996, and increased 0.2% as a percentage of restaurant sales to
32.3% in the nine months ended September 30, 1996 from 32.1% in the nine
months ended October 2, 1995.
Restaurant labor and related expenses increased $11.6 million during the
nine months ended September 30, 1996, but decreased 0.1% as a percentage of
restaurant sales to 24.9% in the nine months ended September 30, 1996 from
25.0% in the nine months ended October 2, 1995.
Depreciation and amortization increased $1.8 million during the nine
months ended September 30, 1996, to $5.4 million from $3.6 million in the
nine months ended October 2, 1995. As a percentage of restaurant sales,
depreciation and amortization expense increased 0.1% to 3.6% in the nine
months ended September 30, 1996 from 3.5% in the nine months ended October 2,
1995. The increase was due primarily to the increase in goodwill amortization
resulting from the purchase method of accounting for newly acquired
restaurants.
Occupancy and other expenses increased $12.4 million during the nine
months ended September 30, 1996, but decreased 0.2% as a percentage of
restaurant sales to 27.5% in the nine months ended September 30, 1996 from
27.7% in the nine months ended October 2, 1995. Occupancy expense increased
$4.4 million but decreased 0.5% as a percentage of sales to 10.6% in the nine
months ended September 30, 1996 from 11.1% in the nine months ended October
2, 1995, due primarily to lower effective rental rates as a result of higher
restaurants sales and lower property taxes as a percentage of sales for newly
acquired
25
<PAGE>
restaurants. Other operating expenses increased $7.9 million during the nine
months ended 1996, or 0.1% as a percentage of restaurant sales to 16.7% in
the nine months ended September 30, 1996 from 16.6% in the nine months ended
October 2, 1995. This decrease is due primarily to a reduction in operating
supplies as a result of improved budget controls, offset by a 0.5% increase
in local advertising expense.
Restaurant Contribution. Restaurant contribution increased $5.5 million or
46.2% to $17.6 million in the nine months ended September 30, 1996 from $12.1
million in the nine months ended October 2, 1995. As a percentage of
restaurant sales, restaurant contribution was 11.7% in the nine months ended
September 30, 1996 and in the nine months ended of October 2, 1995.
EBITDA. EBITDA increased $5.8 million or 49.2%, to $17.5 million in the
nine months September 30, 1996 from $11.7 million in the nine months ended
October 2, 1995. As a percentage of restaurant sales, EBITDA increased 0.3%,
to 11.6% in the nine months ended September 30, 1996 from 11.3% for the nine
months ended October 2, 1995.
Operating Income. Operating income increased $3.8 or 48.1% to $11.7
million for the nine months ended September 30, 1996 from $7.9 million for
the nine months ended October 2, 1995. As a percentage of restaurant sales,
operating income increased 0.2%, to 7.8% in the nine months ended September
30, 1996 from 7.6% for the nine months ended October 2, 1995. This increase
was primarily due to a decrease in general and administrative expense as a
percentage of sales of 0.1% to 3.4% in the nine months ended September 30,
1996 from 3.5% for the nine months ended October 2, 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Restaurant Sales. Restaurant sales increased $48.9 million or 54.0% during
fiscal 1995, to $139.6 million from $90.7 million in fiscal 1994, due
primarily to the inclusion of a full year of operations for the 39
restaurants purchased in December 1994, and a partial year of operations for
the five restaurants purchased in September 1995, the two restaurants
purchased in October 1995 and the 11 restaurants purchased in November 1995.
The inclusion of these newly acquired restaurants accounted for $46.4 million
of the total increase in restaurant sales. In addition, the Company developed
one new restaurant in August 1995. Sales at comparable restaurants for all
139 restaurants owned by the Company at the end of fiscal 1995 declined 0.1%,
primarily as a result of the discontinuation of extensive promotional
couponing at the 39 restaurants acquired in December 1994. Comparable
restaurant sales for the 82 restaurants owned by the Company since its
inception increased 1.7%. Restaurant menu prices remained stable during the
year.
Restaurant Operating Expenses. Total restaurant operating expenses
increased $40.0 million or 48.0% during fiscal 1995, to $123.2 million from
$83.2 million in fiscal 1994. As a percentage of restaurant sales, restaurant
operating expenses declined 3.5% to 88.3% in fiscal 1995 from 91.8% in fiscal
1994.
Cost of sales increased $15.4 million during fiscal 1995, but decreased
0.3% as a percentage of restaurant sales to 32.1% in fiscal 1995 from 32.4%
in fiscal 1994 due primarily to a 1.0% decline in food and paper costs as a
percentage of restaurant sales created by improved distribution efficiencies
from restaurant acquisitions. This decline was partially offset by a 0.7%
increase in the cost of promotional merchandise.
Restaurant labor and related expenses increased $10.4 million during
fiscal 1995, but decreased 2.0% as a percentage of restaurant sales to 24.7%
in fiscal 1995 from 26.7% in fiscal 1994, due primarily to improvements in
group insurance costs being applied over the larger restaurant base. In
addition, the successful application of the Company's information systems
technology within the restaurant base increased scheduling efficiency and
further reduced labor costs as a percentage of restaurant sales.
Depreciation and amortization increased $2.4 million during fiscal 1995,
to $4.9 million in fiscal 1995 from $2.5 million in fiscal 1994. As a
percentage of restaurant sales, depreciation and amortization expense
increased 0.8% to 3.6% in fiscal 1995 from 2.8% in fiscal 1994, due primarily
to the increase in goodwill amortization resulting from the purchase method
of accounting for the newly acquired restaurants.
26
<PAGE>
Occupancy and other expenses increased $11.8 million during fiscal 1995,
but decreased 2.0% as a percentage of restaurant sales to 27.9% in fiscal
1995 from 29.9% in fiscal 1994. Occupancy expense increased $4.5 million, but
decreased 1.0% as a percentage of sales to 11.1% in fiscal 1995 from 12.1% in
fiscal 1994, due primarily to the negotiation of more favorable lease terms
under the Company's existing lease agreements. Other operating expenses
increased $7.3 million during fiscal 1995, but decreased 1.0% as a percentage
of restaurant sales to 16.8% in fiscal 1995 from 17.8% in fiscal 1994, due
primarily to the result of more favorable terms negotiated for general
liability insurance policies covering the Company's larger restaurant base.
Restaurant Contribution. Restaurant contribution increased $9.0 million or
120.8% to $16.4 million in fiscal 1995 from $7.4 million in fiscal 1994. As a
percentage of restaurant sales, restaurant contribution increased 3.5%, to
11.7% in fiscal 1995 from 8.2% in fiscal 1994, due primarily to the
improvements as described above.
FISCAL 1994 COMPARED TO FISCAL 1993
Restaurant Sales. Restaurant sales increased $7.8 million or 9.4% during
fiscal 1994 to $90.7 million from $82.9 million in fiscal 1993. This increase
was due in part to the acquisition of the 39 restaurants purchased in
December 1994 which accounted for 50% of the increase in total sales. In
addition, sales at comparable restaurants for all 121 restaurants owned by
the Company at the end of fiscal 1994 increased 4.4% as a result of the
impact of the introduction of Value Meals(Registered Trademark) in the
Company's restaurants.
Restaurant Operating Expenses. Total restaurant operating expenses
increased $6.9 million, or 9.1%, during fiscal 1994, to $83.2 million from
$76.3 million in fiscal 1993. As a percentage of restaurant sales, restaurant
operating expenses declined 0.2% to 91.8% in fiscal 1994 from 92.0% in fiscal
1993.
Cost of sales increased $3.6 million during fiscal 1994 and increased 1.2%
as a percentage of restaurant sales to 32.4% from 31.2% in fiscal 1993, due
primarily to a 0.9% increase in food and paper costs as a percentage of
restaurant sales, created by the introduction of Value Meals(Registered
Trademark) in the Company's restaurants. In addition, merchandise costs
increased 0.3% as a percentage of restaurant sales due to the increase in
promotional activities by the Company.
Restaurant labor and related expenses increased $2.2 million during fiscal
1994 and increased 0.2% as a percentage of restaurant sales to 26.7% from
26.5% in fiscal 1993, due primarily to an increase in direct labor costs.
This increase was partially offset by improvements in group insurance costs
being applied over the newly acquired restaurant base.
Depreciation and amortization increased $0.5 million during fiscal 1994 to
$2.6 million from $2.1 million in fiscal 1993. As a percentage of restaurant
sales, depreciation and amortization expense increased 0.3% to 2.8% in fiscal
1994 from 2.5% in fiscal 1993, due primarily to the increase in goodwill
amortization resulting from the purchase method of accounting for the newly
acquired restaurants.
Occupancy and other expenses increased $0.7 million during fiscal 1994,
but decreased 1.9% as a percentage of restaurant sales to 29.9% from 31.8% in
fiscal 1993. Occupancy expense decreased 0.6% as a percentage of sales and
other expenses decreased 1.3% as a percentage of restaurant sales, due
primarily to increased sales at comparable restaurants and increased sales
leverage over a larger restaurant base.
Restaurant Contribution. Restaurant contribution increased $0.8 million or
12.5% to $7.4 million in fiscal 1994 from $6.6 million in fiscal 1993. As a
percentage of restaurant sales, restaurant contribution increased 0.2%, to
8.2% from 8.0% in fiscal 1993, due primarily to the improvements described
above.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have significant receivables or inventory and
receives trade credit based upon negotiated terms in purchasing food products
and other supplies. Therefore, the Company's business has not required
significant working capital to meet its operating requirements. The Company
requires capital primarily for the acquisition and development of Burger King
restaurants and has historically financed these activities from capital
contributions by its stockholders, loans made under the Credit Agreement and
cash generated from operations. During fiscal 1995, the Company's operations
generated approximately $4.2 million in cash, compared with approximately
$7.7 million in the September 2, 1994 through December 31, 1994 period. The
Company had capital expenditures, associated primarily with new restaurant
development and acquisitions, during fiscal 1995 and the September 2, 1994
through December 31, 1994 period of approximately $15.1 million and
approximately $82.6 million, respectively.
During the first nine months of 1996, the Company's operations generated
approximately $10.9 million in cash, compared with approximately $2.9 million
during the first nine months of 1995. The increase in cash generated is
related to the impact of the acquisition of 36 restaurants during 1996. The
Company had capital expenditures, associated primarily with new restaurant
development and acquisitions, during the first nine months of 1996 and first
nine months of 1995 of approximately $43.6 million and $5.4 million,
respectively.
At January 1, 1996, the Company had $1.9 million in cash and cash
equivalent balances, compared to $7.7 million at December 31, 1994. At
September 30, 1996, the Company had $2.7 million in cash and cash equivalent
balances compared to $2.9 million at October 2, 1995. The Credit Agreement
requires that a specified percentage of the Company's excess cash flow be
applied to repay amounts outstanding under its outstanding term loans within
100 days of the end of the immediately preceding fiscal year.
The Company's Credit Agreement currently provides for up to $100 million
of senior secured debt, consisting of (i) a $45 million term loan, (ii) a $40
million term loan, and (iii) a $15 million revolving credit facility. On
September 30, 1996, the outstanding principal balance under the revolving
credit facility was $2.5 million, leaving $12.5 million of revolving credit
availability. The interest rate on each of the three facilities under the
Credit Agreement is variable, and as of September 30, 1996 the weighted
average interest rate of all three facilities was approximately 8.60%. The
Company has entered into an interest rate protection agreement in connection
with the Credit Agreement which currently covers up to $25.6 million in
borrowings. Amounts outstanding under the revolving credit facility are
payable in full by January 31, 2002. The Company is currently negotiating
with several lenders for a new bank credit agreement to replace the Credit
Agreement pursuant to which the Company expects to be able to borrow up to
approximately $75 million under a revolving line of credit to fund
acquisitions and provide working capital and for other general corporate
purposes. The Company expects that the new credit agreement will be for a
term of six years and that the agreement will be secured by a first priority
security interest on substantially all of the Company's assets, including a
pledge of all of the stock of the Company's subsidiaries. Closing of the
Offerings is not conditioned upon the closing of the new credit agreement.
The Company's primary cash requirements following the Offerings will be to
finance additional acquisitions, capital expenditures in connection with the
development of new restaurants, upgrades of acquired and existing restaurants
and general working capital needs. The Company has budgeted approximately
$355,000 for the development of each of its new restaurants. The Company
anticipates it will spend approximately an additional $3.0 to $5.0 million
annually for other capital expenditures. In connection with certain of its
previous acquisitions of Burger King restaurants, the Company committed to
expend up to $2.25 million by September 1, 1997 to upgrade the initial 68
Burger King restaurants it acquired. The Company has met this commitment. In
addition, the Company has committed to BKC that it will make capital
expenditures at its Chattanooga, Tennessee restaurants of approximately $1.5
million on or before September 7, 1997, of which $300,000 had been made as
of September 30, 1996. In addition, the Company has committed to BKC that (i)
it will make capital expenditures on its existing restaurants equal to 1% of
its gross sales for the foreseeable future. The Company has also committed to
BKC that it will develop 17 restaurants in fiscal 1997. In the event the
Company fails to develop at least 14 restaurants in fiscal 1997, the Company
will pay BKC $150,000. In addition, to the extent the Company develops 13 or
fewer restaurants in fiscal 1997, the Company will be obligated to pay BKC
$75,000 for each restaurant less than 14 it fails to develop. The actual amount
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<PAGE>
of the Company's cash requirements for capital expenditures depends on, among
other things, the number of new restaurants opened or acquired and the costs
associated with such restaurants and the number of franchises subject to
renewal and the costs associated with bringing the related restaurants up to
BKC's then-current design specifications in connection with these franchise
renewals. See "Business--Business Strategy."
The cost of developing a restaurant (exclusive of land acquisition and
building costs, as the Company leases each of its properties) is
approximately $355,000 (including the $40,000 franchise fee). In order to
increase the number of restaurants to be developed or to fund additional
acquisitions, the Company may require additional debt or equity financing,
which may not be available to the Company or, if available, may not be on
terms acceptable to the Company. Any such equity financing will also be
subject to BKC's consent. See "Risk Factors--BKC Franchise Agreement
Restrictions; Consent to Restaurant Acquisition and Development and Franchise
Renewal; Right of First Refusal."
The Company is structured as a holding company with no independent
operations, as the Company's operations are conducted exclusively through its
wholly-owned subsidiaries. The Company's only significant assets are the
capital stock of its subsidiaries. As a holding company, the Company's cash
flow, its ability to meet is debt service requirements and its ability to pay
cash dividends on the Senior Preferred Stock are dependent upon the earnings
of its subsidiaries and their ability to declare dividends or make other
intercompany transfers to the Company. Under the terms of the Indenture, the
Company's subsidiaries may incur certain indebtedness pursuant to agreements
that may restrict the ability of such subsidiaries to make such dividends or
other intercompany transfers necessary to service the Company's obligations,
including its obligations under the Senior Notes, the Senior Preferred Stock
and the Exchange Debentures. The Indenture will restrict, among other things,
the Company's and its Restricted Subsidiaries' ability to pay dividends or
make certain other restricted payments, including the payment of cash
dividends on or the redemption of the Senior Preferred Stock, to incur
additional indebtedness, to encumber or sell assets, to enter into
transactions with affiliates, to enter into certain guarantees of
indebtedness, to make restricted investments, to merge or consolidate with
any other entity and to transfer or lease all or substantially all of their
assets. In addition, the Credit Agreement contains other and more restrictive
covenants and prohibits the Company's subsidiaries from declaring dividends
or making other intercompany transfers to the Company in certain
circumstances. See "Description of Securities" and "Description of Certain
Indebtedness--Credit Agreement."
The Company believes that the proceeds from the Offerings, together with
borrowings under the Credit Agreement and the Company's cash on hand, will be
sufficient to cover its working capital, capital expenditures, planned
development and debt service requirements for the foreseeable future. The
Company expects that additional financing will be required in connection with
any significant acquisitions in the future.
INCOME TAXES
The Company completed fiscal 1995 with a net operating loss carry-forward
for tax purposes of approximately $8.7 million. Substantially all of the
Company's acquisitions completed to date have been structured as asset
purchases. As a result, the Company is able to deduct goodwill amortization
expense for income tax purposes over a 15 year period. The Company has not
been a cash taxpayer since its inception.
INFLATION
While inflation can have a significant impact on food, paper, labor and
other operating costs, the Company has historically been able to minimize the
effect of inflation through periodic price increases, and believes it will be
able to offset future inflation with price increases, if necessary.
RECENT ACCOUNTING PRONOUNCEMENTS
New accounting standards have been issued by the Financial Accounting
Standards Board that will apply to the Company in fiscal 1996. Statement of
Financial Accounting Standards No. 121, "Accounting
29
<PAGE>
for the Impairment of Long-Lived Assets," requires a review of long term
tangible and intangible assets (such as property, plant and equipment and
goodwill) for impairment of recorded value and resulting write downs if value
is impaired.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes accounting and disclosure
requirements using a fair value based method of accounting for stock-based
employee compensation plans. Under SFAS 123, the Company may either adopt the
new fair value based method or provide pro forma disclosure of net income
(loss) as if the accounting provisions of SFAS 123 had been adopted. The
Company intends to elect the intrinsic method of accounting for stock-based
employee compensation plans and provide the required pro forma disclosure.
These statements are not expected to have a material effect on the
Company's financial position or results of operations.
EXTRAORDINARY LOSS
Upon the prepayment of the Subordinated Debt and repayment of borrowings
under the Credit Agreement, concurrent with the Offerings, the Company will
record an extraordinary loss of approximately $5.9 million, net of taxes,
reflecting a prepayment penalty, as well as the write-off of deferred
financing costs.
SEASONAL AND QUARTERLY COMPARISONS
The Company's operating results may fluctuate from period to period, as a
result of, among other things, sales associated with each new restaurant, the
costs associated with opening new restaurants, the timing of new restaurant
openings and acquisitions and the timing of new product introduction by BKC
and promotional programs sponsored by the Company. In addition, the Company's
business typically varies with general seasonal trends that are
characteristic of the quick-service restaurant industry. The Company has
historically experienced its strongest operating results during the summer
months (the second and third quarter of its fiscal year), while operating
results are somewhat lower during the winter months (the first and fourth
quarters of its fiscal year). As the Company continues to make acquisitions
and develop new restaurants, quarterly results may fluctuate more
significantly. The following table sets forth by fiscal quarter the Company's
income statement data for fiscal 1995 and the first three quarters of fiscal
1996.
<TABLE>
<CAPTION>
1995
-------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
--------- --------- ---------
(90 DAYS) (91 DAYS) (94 DAYS)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Restaurant sales ... $30,967 $35,375 $37,104
Restaurant operating
expenses ........... 28,338 30,989 32,012
Restaurant
contribution ....... 2,629 4,386 5,092
General and
administrative
expenses ........... 1,203 1,359 1,641
--------- --------- ---------
Operating income ... $ 1,426 $ 3,027 $ 3,451
========= ========= =========
EBITDA .............. $ 2,656 $ 4,283 $ 4,758
========= ========= =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
1996
-------------------------------
FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(91 DAYS) (91 DAYS) (91 DAYS) (91 DAYS)
<S> <C> <C> <C> <C>
Restaurant sales ... $36,126 $43,103 $53,543 $53,327
Restaurant operating
expenses ........... 31,842 38,862 46,774 46,640
Restaurant
contribution ....... 4,284 4,241 6,769 6,687
General and
administrative
expenses ........... 1,701 1,932 2,152 1,910
--------- --------- --------- ---------
Operating income ... $ 2,583 $ 2,309 $ 4,617 $ 4,777
========= ========= ========= =========
EBITDA .............. $ 3,916 $ 4,071 $ 6,586 $ 6,799
========= ========= ========= =========
</TABLE>
30
<PAGE>
BUSINESS
GENERAL
AmeriKing is the second largest independent Burger King franchisee in the
United States with 183 restaurants located primarily in eleven Midwestern and
Southern states. The Company's strategy is to capitalize on its significant
presence in targeted markets, the predictable operating performance of Burger
King restaurants and management's extensive experience to (i) make fill-in
acquisitions and develop new restaurants in existing markets to enhance its
operating leverage and (ii) make acquisitions in new markets that offer
significant potential and provide the critical mass necessary to achieve
operating efficiencies. For the twelve months ended September 30, 1996, the
Company generated pro forma restaurant sales and EBITDA (as defined) of
$201.7 million and $23.3 million, respectively.
The Company believes its successful operating strategy, combined with the
attractive economics of Burger King restaurants, minimizes the risks of new
restaurant development and future acquisitions. Management believes the
operating cash flow of its Burger King restaurants is highly predictable and
consistent due to the proven success of the Burger King concept and the
stringent evaluation criteria adhered to by the Company in assessing new
development opportunities and acquisitions. On a pro forma basis, the
Company's comparable restaurant sales have increased each fiscal year since
1992. For the twelve months ended September 30, 1996 on a pro forma basis,
the Company generated average restaurant sales of $1,132,000 and average
restaurant operating cash flow of $174,000 (15.4% margin). For the same
period, approximately 98% of the Company's restaurants generated on a pro
forma basis positive operating cash flow. The Company believes that each of
its currently owned restaurants will generate positive operating cash flow in
fiscal 1997. Furthermore, the Company currently leases each of its
properties, minimizing its cost to develop restaurants. The Company has
budgeted approximately $355,000 to develop each new Burger King restaurant in
fiscal 1997. Based on the results of the restaurants developed by the
Company, management expects its newly developed restaurants to generate
cash-on-cash-returns in excess of 35% in the first year of operations.
AmeriKing was formed in 1994 by a group consisting of Burger King
franchisees, former BKC executives and The Jordan Company to take advantage
of significant acquisition and related new restaurant development
opportunities. Since inception, the Company has acquired 175 Burger King
restaurants and developed eight new Burger King restaurants. The Company's
senior management, which owns on a fully diluted basis over 30% of the
Company's Common Stock (prior to giving effect to the Offerings), has
extensive experience in the Burger King system as either former executives of
BKC or as independent Burger King franchisees. Each of the top four members
of the Company's senior management has over 10 years of experience within the
Burger King system operating, developing and acquiring restaurants. In
addition, most of the Company's regional managing directors, district
managers and restaurant managers have substantial experience within the
Burger King system and/or the quick-service restaurant industry.
BUSINESS STRATEGY
AmeriKing's business strategy is to continue to increase revenues,
restaurant contribution and EBITDA. The Company's strategy is based on the
following elements:
Develop New Burger King Restaurants in Existing Markets. The Company seeks
to develop new Burger King restaurants in existing markets where it has
established a significant presence, enabling the Company to enhance its
operating leverage and increase overall margins and profitability. Management
believes that the underpenetration of the Burger King system relative to
other quick-service hamburger concepts provides the Company with significant
new development opportunities. Furthermore, management believes the Company's
new restaurant development risk is substantially reduced due to: (i) the
proven success of the Burger King concept; (ii) the predictability of
development costs and restaurant profitability compared to that of newer
restaurant concepts; and (iii) management's extensive experience within the
Burger King system. The Company currently leases each of its properties,
minimizing its cost to develop new restaurants.
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<PAGE>
To date, the Company has developed eight new restaurants. Prior to
developing a new restaurant, the Company's senior management conducts an
extensive site selection process with significant input from BKC's
development field personnel, including an analysis of projected development
costs and anticipated profitability on a per location basis. The Company also
uses regional and local developers, as well as former Burger King restaurant
owners with significant knowledge of local markets, to assist in site
selection and in reviewing zoning requirements and other regulatory matters
related to the construction of new Burger King restaurants.
Pursue Strategic Acquisitions of Burger King Restaurants. The Company
intends to selectively pursue strategic acquisitions in the highly
fragmented, growing Burger King system. Since 1994, the Company has
successfully completed 175 restaurant acquisitions for an aggregate purchase
price of approximately $138 million. The Company evaluates each prospective
acquisition using a set of stringent criteria, including the potential for
future fill-in acquisitions and new restaurant development in targeted
markets and the overall attractiveness of market demographics. The Company
seeks to enter new geographic markets through acquisitions that provide the
critical mass necessary to realize operating efficiencies. Six of the
Company's nine acquisitions to date have been of large, regional operations,
each consisting of more than 10 restaurants. AmeriKing seeks to augment new
market acquisitions with fill-in acquisitions, which enable the Company to:
(i) achieve greater restaurant penetration within existing markets; (ii)
capitalize on its significant operating leverage; and (iii) increase
operating margins and profitability. The Company continually engages in
discussions with Burger King franchisees, including with respect to the
potential acquisition of the business or assets of such franchisees. The
Company is not currently engaged in any negotiations with respect to
acquisitions, and the Company has no current or pending contracts or
commitments with respect to acquisitions.
The Company's key criteria when evaluating new market acquisitions are the
future opportunities for fill-in acquisitions, potential for new restaurant
development in the area, the overall attractiveness of the market from a
demographic perspective and the acquisition price relative to historical and
expected financial performance of these restaurants. Typically, key operating
personnel of acquired restaurants are retained to oversee the operation with
the added benefit of the Company's sophisticated management information
systems and other corporate resources.
The Company's fill-in acquisitions typically involve smaller, local
operations in areas in, or contiguous to, the Company's existing operations.
An example of a typical fill-in acquisition is the Company's acquisition in
September 1995 of five additional restaurants in Denver, Colorado. An example
of a larger fill-in acquisition is the Company's acquisition in November 1994
of 39 additional restaurants in the Chicago market.
The table below summarizes each of the Company's acquisitions,
representing 175 restaurants, since its inception.
<TABLE>
<CAPTION>
NUMBER OF RESTAURANTS
ACQUISITION DATE STATE ACQUIRED TYPE OF SELLER
- -------------------- --------------------------- ------------------------- --------------
<S> <C> <C> <C>
September 1994 Illinois/Indiana 68 BKC
September 1994 Texas/Colorado 11 Management
September 1994 Colorado 3 Management
November 1994 Illinois/Wisconsin 39 Franchisee
September 1995 Colorado 5 Franchisee
October 1995 Illinois 2 BKC
November 1995 Tennessee/Georgia 11 Franchisee
February 1996 Virginia/North Carolina 24 Franchisee
February 1996 Kentucky/Ohio/Indiana 12 Franchisee
</TABLE>
Achieve Operating Efficiencies. The Company's large number of restaurants,
centralized management structure and advanced management information systems
enable the Company to: (i) tightly control restaurant and corporate level
costs; (ii) capture economies of scale by leveraging its existing corporate
overhead structure; and (iii) continuously monitor point-of-sale data to more
efficiently manage its restaurant operations. The Company has experienced
both restaurant-level and corporate-level savings as
32
<PAGE>
a result of its size and related bargaining power, particularly with respect
to food and paper purchasing and distribution, restaurant maintenance
services and general liability insurance. For example, the Company achieved
significant operating improvements in the 68 restaurants it acquired from BKC
in September 1994. From the twelve month period ended July 31, 1994, prior to
the close of the acquisition, to the twelve month period ended September 30,
1996, restaurant operating cash flow for these restaurants increased 48% from
$7.4 million to $11.1 million, or from 10.4% of sales to 15.1% of sales.
Capitalize on Strong Support from Burger King Corporation. The Company
believes that it realizes significant benefits from its affiliation with BKC
as a result of: (i) the widespread recognition of the Burger King name and
products; (ii) BKC's management of the proven, successful Burger King
concept, including new product development, quality assurance and strategic
planning; (iii) the size and market penetration of BKC's current $200 million
annual media budget; and (iv) the expected continued growth of the Burger
King system. During BKC's fiscal year ended September 30, 1995, a record
number of 657 new restaurants were added to the Burger King system.
Leverage Sophisticated Management Information System. The Company's
customized integrated management information system, REMACs, typically not
affordable by smaller Burger King franchisees and other smaller quick-service
restaurant chains, provides management with the ability to identify and
quickly capitalize on restaurant sales enhancement and profit opportunities.
The Company utilizes its management information system to: (i) minimize
shrinkage and control labor costs; (ii) efficiently schedule labor; (iii)
effectively manage inventory; (iv) analyze product mix and various
promotional programs using point-of-sale information; and (v) quickly
integrate accounting systems following acquisitions.
Consistently Provide High Quality Products and Superior Customer Service.
As the number of restaurants that the Company owns in a particular market
increases, the Company has a greater ability to (i) ensure overall customer
satisfaction in that market through consistency in food quality, service and
restaurant appearance and (ii) coordinate and influence local Burger King
advertising and promotional programs and pricing policies. In addition, the
large number of restaurants that the Company owns and the corresponding
professional development opportunities permit the Company to attract and
retain strong regional, district and individual restaurant management. Most
of these managers receive significant incentive compensation based on
compliance with Burger King's restaurant operating guidelines and restaurant
profitability.
BURGER KING CORPORATION
Overview. The Company believes that it realizes significant benefits from
its affiliation with BKC as a result of, among other things, the widespread
recognition of the Burger King name and products, the size and market
penetration of BKC's media budget (which was approximately $200 million for
its fiscal year ended September 30, 1995, according to LNA/Arbitron
Multi-Media Service), BKC's overall management of the Burger King concept,
including new product development, quality assurance and strategic planning,
and the continuing growth of the Burger King system. According to information
publicly filed by Grand Met, the parent corporation of BKC, BKC is the second
largest restaurant franchisor in the world, with system-wide restaurant sales
of $8.4 billion for its fiscal year ended September 30, 1995. There are more
than 8,000 Burger King restaurants worldwide, of which over 90% are operated
by approximately 1,500 independent franchise groups. Management believes
that, based upon publicly available information, the five largest franchisees
in the Burger King system operate less than 12% of all domestic Burger King
restaurants. The Burger King system has experienced considerable success in
recent years, as evidenced by the 30% growth in the number of Burger King
restaurants from 1991 to 1995. In addition, Burger King's share of the
quick-service hamburger restaurant market grew from 16% in 1993 to 18% in
1995. Furthermore, according to market surveys conducted for BKC by National
Adult Tracking in 1996, consumers preferred Burger King to all other
quick-service hamburger brands. As is the case for all Burger King
franchisees, the Company is required to comply with BKC guidelines as to menu
and operations, restaurant configurations and marketing and promotion.
Menu and Operations. The Burger King system philosophy is characterized by
its "Have It Your Way" service, flame-broiling, generous portions and
competitive prices. Each of the Company's Burger
33
<PAGE>
King restaurants offers a standard menu containing a variety of traditional
and innovative food items. Burger King restaurants feature flame-broiled
hamburgers, the most popular of which is The Whopper(Registered Trademark)
sandwich. The Whopper is a large, flame-broiled hamburger on a toasted bun
garnished with combinations of lettuce, onions, pickles, tomatoes and
mayonnaise. At present, the standard menu of all Burger King restaurants
consists primarily of hamburgers, cheeseburgers, chicken sandwiches, fish
sandwiches, breakfast items, french fried potatoes, salads, shakes, desserts,
soft drinks, milk and coffee. In addition, promotional menu items are
introduced periodically for limited times.
The Company's Burger King restaurants are typically open seven days per
week with minimum operating hours from 7:00 AM to 11:00 PM. Burger King
restaurants are of distinctive design and are generally located in
high-traffic areas throughout the United States. The Company believes that
convenience of location, speed of service, quality of food and price/value of
food served are the primary competitive advantages of Burger King
restaurants. The Company believes that it will continue to realize
significant benefits from its affiliation with BKC as a result of the
widespread recognition of the Burger King brand, the effectiveness of BKC's
national marketing programs and the overall management of the Burger King
system, including product development, quality assurance and strategic
planning.
The Company participates in a variety of Burger King programs designed to
increase restaurant revenues and profitability. In October 1993, BKC
implemented the first stages of a nationwide Value Menu Program. The program
consisted of discounted combination meals and menu items designed to give the
consumer greater value while increasing customer traffic and profitability.
BKC has also focused its efforts on a back-to-basics marketing strategy by
eliminating over 30 items from its menu and emphasizing its core hamburgers,
french fries and soft drinks. In addition, as part of its "Bigger, Better
Burgers" campaign, BKC increased its standard hamburger patty size to 2.8
ounces, which is 75% larger than McDonald's current standard size of 1.6
ounces.
Restaurant Configurations. The Company's Burger King restaurants consist
of one of several building types with various layouts, seating capacities and
engineering specifications. BKC's traditional restaurant contains
approximately 2,500 square feet, seats 86 customers and offers interior
design flexibility. BKC also features alternative restaurant formats ranging
in size from 500 to 4,000 square feet and seating capacities ranging up to
over 100 customers. BKC has developed a number of standard and
non-traditional restaurant formats which enable maximum seating capacities
from available square footage in such facilities as airports, hospitals,
college campuses, gas stations and retail shopping centers. Substantially all
of the Company's restaurants are traditional free-standing restaurants with
seating capacities of at least 50 and which contain drive-thru windows.
According to BKC, over 50% of all restaurant sales in the Burger King system
are generated from drive-thru windows.
National Marketing and Promotion. The Burger King brand has been in
existence for over 40 years. BKC currently has an annual advertising and
promotional budget of over $200 million to heighten brand awareness. BKC's
advertising campaigns are generally carried on television, radio and in mass
circulation print media (national and regional newspapers and magazines). BKC
franchisees are required to contribute 4.0% of monthly gross sales from
restaurant operations to a BKC advertising fund, which contributions are
generally utilized by BKC for its advertising and promotional programs and
public relations activities. BKC has also entered into selective partnership
arrangements to help promote its products. Recently, BKC's national
promotional partners have included the NCAA and the Coca-Cola Company.
QUICK-SERVICE RESTAURANT INDUSTRY
Since the introduction of quick-service restaurants in the mid-1950s, the
percentage of the average family's food budget spent on meals consumed "away
from home" has grown significantly from approximately 25% of the food budget
in 1955 to approximately 44% in 1995, according to the National Restaurant
Association. Concurrently, the quick-service restaurant industry has expanded
to include hamburger, pizza, chicken, Mexican food, ice cream/yogurt, donuts
and various types of sandwiches. The National Restaurant Association
estimates that sales at these quick-service restaurants will reach
approximately $100 billion in 1996, representing an inflation-adjusted growth
rate of 4.5% over 1995, more than double the 2.0% projected growth rate of
full-service restaurants. According to Technomic
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<PAGE>
Information Services, an independent research organization, domestic revenues
from quick-service hamburger restaurants were approximately $37.6 billion in
1995, representing the biggest share of the quick-service restaurant industry
and a 5.1% compounded annual growth rate since 1990.
The recent growth in the quick-service restaurant segment is attributable
to consumers' desire for value and convenience, such as bundled value meals,
drive-thru windows, carry-out and delivery. In 1995, off-premise services
generated by drive-thru windows, pickup and home delivery comprised 64% of
the quick-service traffic, according to the National Restaurant Association.
COMPANY OPERATIONS
Management Structure. All executive management, finance, marketing and
operations support functions are conducted centrally at the Company's
Westchester, Illinois headquarters. In each of its six regions (Chicago,
Virginia, Colorado, Texas, Tennessee and Cincinnati), the Company has a
regional managing director who is responsible for the operations of all
Company Burger King restaurants within the assigned region. Each of these
managing directors must be approved by BKC. Supporting the managing director
in Chicago are two directors of operations (who each oversee an average of 58
restaurants), who supervise 17 district managers (who directly supervise five
to nine restaurants each). The five other managing directors are also
supported by district managers. The district managers are responsible for
direct oversight of the day-to-day operations of the Company's Burger King
restaurants. Typically, district managers have previously served as
restaurant managers within the Burger King system. A typical Company
restaurant is staffed with a full-time manager, one to three assistant
managers and full-and part-time hourly employees.
Management Incentives and Retention. Managing directors, directors of
operations, district managers and most restaurant managers are compensated
with a fixed salary plus a bonus based upon the performance of the
restaurants under their supervision. Evaluation criteria include compliance
with Burger King's restaurant operating guidelines and restaurant
profitability. Senior management believes that the Company's larger size and
regional focus provide significant professional development opportunities for
the Company's management and operating personnel not available to smaller
franchisees. The Company believes that its compensation structure and
professional development opportunities are significant advantages in
attracting and retaining qualified management personnel.
Training. The Company maintains a comprehensive training and development
program for all of its personnel. This program emphasizes the Burger King
system-wide operating procedures, food preparation methods and customer
service standards. The management training program features an intensive five
week hands-on restaurant training period, followed by two weeks of classroom
instruction (one week of simulated restaurant management activities and one
week of food sanitation). Special emphasis is placed on quality food
preparation, service standards and total customer satisfaction. Upon
certification, new managers work closely with experienced managers to
solidify their skills and expertise. The Company's existing restaurant
managers regularly participate in the Company's ongoing training efforts,
including classroom programs and in-restaurant programs. In addition, BKC's
training and development programs are also available to the Company.
MANAGEMENT INFORMATION SYSTEM
The Company's customized management information system, REMACs, provides
daily tracking and reporting of customer traffic counts, sales, average check
values, menu item sales, inventory variances, key labor measures and other
detailed information in comparative form, by individual restaurant and for
the Company as a whole. The Company's integrated management information
system, typically installed in its restaurants within 60 to 90 days of
acquisition, transmits data on a daily basis to Company headquarters. This
information is available by 6:00 AM the following day and can be accessed by
district managers on a remote basis using a laptop computer. The Company's
sophisticated management information system, typically not affordable by
smaller Burger King franchisees and other smaller quick-service restaurant
chains, provides management with the ability to identify and quickly
capitalize on restaurant sales enhancement and profit opportunities. The
Company utilizes its management information system to: (i)
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minimize shrinkage and control labor costs; (ii) monitor point-of-sale order
taking; (iii) effectively manage inventory; and (iv) quickly integrate
accounting systems following acquisitions. Customized exception reporting is
used to focus operations on high priority issues and opportunities. The
Company also utilizes the system to increase sales revenues by assisting
restaurant managers in optimally scheduling the restaurant work force during
any particular shift at the restaurant work stations for which they are best
qualified. In addition, the system enables the Company to analyze various
promotional programs using product mix information.
FRANCHISE AGREEMENTS
The Company operates Burger King restaurants through its wholly owned
subsidiaries, each of which is a party to a BKC franchise agreement. The BKC
franchise agreements do not grant any franchisee exclusive rights to a
defined territory; however, the Company, based upon its review of BKC's
Uniform Franchise Offering Circular and its experience with BKC, believes
that BKC generally seeks to ensure that newly granted franchises do not
materially affect the operations of existing Burger King restaurants.
Acceptance as a franchisee is based upon several factors including management
experience, qualifications, financial status and net worth. The franchise
agreements require, among other things, that all restaurants be of
standardized design and operated in a prescribed manner, including
utilization of the standard Burger King menu. Most franchise agreements
provide for a term of 20 years, and, at the option of the franchisee and BKC,
a renewal (successor) franchise agreement may be granted by BKC provided that
the restaurant meets BKC's operating standards applicable at that time and
the franchisee is not in default under the relevant franchise agreement. The
BKC franchise agreements are noncancelable except for failure to abide by the
terms thereof and in certain other limited circumstances.
BKC franchise agreements generally are renewable for an additional term
based upon the form of franchise agreement applicable at that time, provided
that the franchisee (i) pays a successor franchise fee equal to the franchise
fee applicable at that time, (ii) has demonstrated an ability to operate the
business consistent with the standards set forth in the franchise agreement,
(iii) agrees to make capital improvements to the subject restaurant to bring
the restaurant up to BKC's image standards applicable at that time and (iv)
is not then currently in default with respect to any other obligations to
BKC, including pursuant to other franchise agreements. The Company, through
its district managers, closely supervises the operation of all of its
restaurants to ensure that operating policies are followed and that the
requirements of the franchise agreements are met. The amount of capital
expenditures that may be required to bring a restaurant up to BKC's current
standards at any given time varies widely depending upon the magnitude of the
required changes and the degree to which the franchisee has made interim
changes to the restaurant. Within five years of September 30, 1996, 27 of the
Company's subsidiaries' current 183 franchise agreements with BKC, which
contributed $28.3 million in restaurant sales in fiscal 1995, are scheduled
to expire. The Company believes that it will satisfy BKC's requirements for
renewal of franchise agreements and, accordingly, that successor franchise
agreements will be granted in due course by BKC upon the expiration of the
franchise agreements.
The Company intends to expand its operations of Burger King restaurants
through both new restaurant development and acquisitions. Pursuant to the BKC
franchise agreements, BKC's approval is required for the renewal of the
Company's subsidiaries' existing franchise agreements. Pursuant to current
BKC policies and procedures applicable to the Company, BKC's approval is
required for the development of new Burger King restaurants by the Company
and the acquisition of Burger King restaurants by the Company from other
Burger King franchisees. BKC's consent to such renewals, acquisitions or
development may be withheld in BKC's sole discretion. See "Risk Factors--BKC
Franchise Agreement Restrictions; Consent to Restaurant Acquisition and
Development and Franchise Renewal; Right of First Refusal" and "Certain
Transactions."
Current BKC policies and procedures also place certain restrictions on the
management structure of the Company and its subsidiary franchisees. For
example, a managing owner and an owner must be named in each franchise
agreement. Under the franchise agreements, as amended in connection with the
Offerings, Mr. Jaro is named as managing owner and Messrs. Jaro, Osborn and
Hubert are named as owners. The managing owner has the authority to bind the
franchisee in its dealings with BKC and to
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direct any action necessary to ensure compliance with the franchise
agreements and related documents, including leases with BKC. In addition, the
managing owner is personally liable to BKC for the franchisee's obligations
under such agreements. Also, each franchise agreement requires that a
managing director be designated to ensure that the day-to-day operation of
the relevant franchised restaurant complies with BKC's standards. BKC has the
right to terminate its franchise agreement with a franchisee if (i) the
franchisee or the managing owner is convicted of a crime punishable by a term
of imprisonment in excess of one year or (ii) the franchisee, the managing
owner or a managing director engages in conduct which reflects unfavorably on
the franchisee or Burger King system generally. Managing owners cannot be
replaced without receiving the consent of BKC. In addition, absent BKC's
prior written consent, managing owners are required to hold a 5% voting
interest in a corporate franchise and to personally guarantee the
franchisee's obligations to BKC. Furthermore, no managing owner or owner may
sell, encumber or otherwise transfer any portion of his equity interest in
the Company without first obtaining the consent of BKC. After the transfer of
its equity interest, managing owners remain personally obligated to BKC under
the franchise agreements and any other agreements between the franchisee and
BKC, unless such obligation has been fully satisfied or waived by BKC.
Pursuant to the BKC franchise agreements, BKC may terminate all the
franchise agreements with the Company's subsidiary franchisees or the
applicable subsidiary franchisee if, as applicable, any person serving on the
board of directors of the Company or the applicable subsidiary franchisee is
(i) an employee of BKC, (ii) an owner (subject to certain exceptions), board
member or principal or employee of any business that is then approved by BKC
as a supplier to the Burger King system or (iii) an owner (subject to certain
exceptions), board member or principal or employee of any hamburger
restaurant business other than the Burger King restaurant business.
OBLIGATIONS TO BURGER KING CORPORATION
BKC franchise agreements provide for a one-time franchise fee (currently
$40,000), a monthly royalty fee of 3.5% of each restaurant's gross sales and
a monthly advertising contribution of 4.0% of gross sales. During fiscal
1995, the Company paid BKC an aggregate of $4.8 million in royalty fees and
$5.7 million in advertising contributions. In connection with obtaining BKC's
consent to the Offerings, the Company has agreed to guarantee the payment and
performance obligations under each of the franchise agreements between BKC
and its subsidiary franchisees.
BKC is the lessor on approximately 60% of the Company's currently leased
properties, primarily as a result of the Company's initial acquisition of
Burger King restaurants from BKC. The Company guarantees all of the
obligations of its subsidiaries under these leases. Under certain lease
agreements with BKC affiliates, the Company's subsidiaries made rent payments
aggregating $9.7 million during fiscal 1995. In connection with the execution
of the lease agreements, the Company guaranteed the payment and performance
obligations of each of its subsidiaries.
As required by BKC regulations, the Company's obligations under the Senior
Notes, the Senior Preferred Stock and, if issued, the Exchange Debentures
will be subject to the BKC Intercreditor Agreement pursuant to which the
Company's obligations in respect of such securities are subject to the prior
payment in full of all indebtedness, liabilities and other obligations of the
Company and its subsidiaries to BKC under the BKC franchise agreements, BKC
leases and any other indebtedness of the Company and its subsidiaries to BKC,
whenever and however arising, whether primary or secondary, absolute or
contingent, and including charges and costs of collection. See "Risk
Factors--Subordination as a Result of BKC Intercreditor Agreement,"
"Description of Securities--Senior Notes--BKC Intercreditor Agreement,"
"--Senior Preferred Stock--BKC Intercreditor Agreement" and "--Exchange
Debentures--BKC Intercreditor Agreement."
In connection with the Offerings, the Company has committed to BKC that,
without BKC's prior written consent, (i) it will not pay cash dividends on
the Senior Preferred Stock on or prior to December 1, 2001 and (ii) it will
not pay cash dividends to holders of Common Stock until the Senior Notes are
repaid in full and the Senior Preferred Stock is redeemed or otherwise
retired. See "Risk Factors--BKC Consent to Issuance of Securities and to
Payment of Dividends."
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ADVERTISING AND PROMOTION
The Company believes that one of the major advantages of being a Burger
King franchisee is the marketing support and brand promotion it realizes from
the marketing activities of BKC. In addition to the benefits derived by the
Company from BKC's current $200 million annual advertising budget, the
Company supplements BKC's advertising and promotional activities with local
advertising and promotions, including purchasing additional television, radio
and print advertising and running promotional programs that support national
programs with local tie-ins to other consumer brands. These local tie-ins
have included cross promotions with the Colorado Rockies, Fannie May Candies
and Northwestern University, among others. Other promotional programs include
coupons and price discounts, which are tailored by the Company to appeal to
its customer base depending on demographics and other factors, thereby
creating flexible and directed marketing programs. For fiscal 1995, the
Company spent approximately $600,000 on supplemental local advertising and
promotions, and plans to continue its local advertising and promotional
programs at comparable levels in the future.
SUPPLIES AND DISTRIBUTION
The Company is a member of a national purchasing cooperative created by
and for the Burger King system known as Restaurant Services, Inc. ("RSI").
RSI is an independent, member-owned, non-profit cooperative which provides
services on behalf of, and for the benefit of, Burger King restaurant
operators. RSI negotiates the lowest cost for the Burger King system while
improving quality, enhancing competitiveness and ensuring the best possible
value. RSI has the sole and exclusive responsibility for negotiating
purchasing arrangements for the Burger King system with respect to certain
paper goods, restaurant supplies, food and drink products, certain equipment
and many other items mutually agreed to by Burger King franchisees for use in
the Burger King system. The Company uses its purchasing power to negotiate
directly with certain other vendors, as well as each of its distributors, to
obtain favorable pricing and terms for the distribution of its products.
Currently, the Company's primary distributor of foodstuffs and supplies is
ProSource Distribution Services, Inc. ("ProSource").
All BKC-approved suppliers are required by BKC to purchase all foodstuffs
and supplies from BKC-approved manufacturers and purveyors. BKC is
responsible for quality control and supervision of these manufacturers and
purveyors, and BKC monitors all BKC-approved manufacturers and purveyors of
its foodstuffs. BKC regularly visits these manufacturers and purveyors to
observe the preparation of the foodstuffs and conducts various tests to
ensure that only high quality foodstuffs are sold to BKC-approved suppliers,
distributors and franchisees. In addition, BKC coordinates and supervises
audits of approved suppliers and distributors to determine continuing product
specification compliance and to ensure that manufacturing plant and
distribution center standards are met.
The Company believes that reliable alternative sources for virtually all
restaurant supplies are readily available at competitive prices should the
arrangements with ProSource or any other existing supplier or distributor
change.
QUALITY ASSURANCE
The Company's operations are focused on achieving a high level of customer
satisfaction, with speed, accuracy and quality of service closely monitored.
The Company's senior management and restaurant management staff are
principally responsible for ensuring compliance with the Company's and BKC's
operating procedures. The Company and BKC have uniform operating standards
and specifications relating to the quality, preparation and selection of menu
items, maintenance and cleanliness of the premises and employee conduct.
Detailed reports from the Company's own management information system and
surveys conducted by the Company or BKC are tabulated and distributed to
management on a regular basis to help maintain compliance. In addition to
customer satisfaction, these reports track comparable sales and customer
counts, labor and food costs, inventory levels, waste losses and cash
balances.
All Burger King franchisees operate subject to a comprehensive regimen of
quality assurance standards set by BKC, as well as standards set by Federal,
state and local governmental laws and
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regulations. These standards include food preparation rules regarding, among
other things, minimum cooking times and temperatures, sanitation and
cleanliness. In addition, BKC has set maximum time standards for holding
unsold prepared food. For example, sandwiches and french fries are required
to be discarded after ten minutes and seven minutes following preparation,
respectively. The "conveyor belt" cooking system utilized in all Burger King
restaurants, which is calibrated to carry hamburgers through the flame
broiler at regulated speeds, is one of the safest cooking systems among major
quick-service restaurants and helps to ensure that the standardized minimum
times and temperatures for cooking are met.
The Company closely supervises the operation of all of its restaurants to
help ensure that standards and policies are followed and that product
quality, customer service and cleanliness of the restaurants are maintained.
In addition, BKC may conduct unscheduled inspections of Burger King
restaurants throughout the nationwide system.
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location and food quality. The industry is mature and competition
can be expected to increase. The Company's Burger King restaurants compete
with a large number of national and regional restaurant chains, as well as
locally-owned restaurants offering low-priced and medium-priced food.
Convenience stores, grocery stores, delicatessens, food counters, cafeterias
and other purveyors of moderately priced and quickly prepared foods also
compete with the Company. In the Company's markets, McDonald's, Wendy's and
Hardees provide the most significant competition.
McDonald's operates more restaurants than the Company in all but one of
the Company's current markets and is the Company's largest competitor.
According to publicly available information, as of December 31, 1995, the
McDonald's system comprised 18,380 restaurants and total system-wide revenues
for McDonald's for the year ended December 31, 1995 were $29.9 billion. The
Company believes that product quality and taste, name recognition,
convenience of location, speed of service, menu variety, price, and ambiance
are the most important competitive factors in the quick-service restaurant
industry and that its Burger King restaurants effectively compete in each
category.
The Company faces competition in its expansion plans. Potential Burger
King development and acquisition competitors include BKC, which has exercised
its right of first refusal with respect to previously proposed restaurant
sales, controls the areas in which new Burger King restaurant sites can be
developed and may impose, as a condition to its consent to any proposed
acquisition or development opportunity, conditions, limitations or other
restrictions on the Company and its activities. Other potential competitors
in acquiring and developing Burger King restaurants include other investors
and existing Burger King franchisees. The Company also competes with other
quick-service restaurant operators and developers for the most desirable site
locations. See "--Business Strategy."
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws affecting
its business, including various health, sanitation, fire and safety
standards. Newly constructed or remodeled restaurants are subject to state
and local building code and zoning requirements. In connection with the
remodeling and alteration of the Company's Burger King restaurants, the
Company may be required to expend funds to meet certain Federal, state and
local regulations, including regulations requiring that remodeled or altered
restaurants be accessible to persons with disabilities. The Company is also
subject to Federal and state environmental regulations, although such
regulations have not had a material effect on the Company's operations taken
as a whole. Difficulties or failures in obtaining the required licenses or
approvals could delay or prevent the opening of a new restaurant in a
particular area.
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number
of the Company's food service personnel are paid at rates related to the
Federal minimum wage and increases in the minimum wage, including those
recently enacted by the U.S. Government, would increase the Company's labor
costs.
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The Company is also subject to various local, state and Federal laws
regulating the discharge of pollutants into the environment. The Company
believes that it conducts its operations in substantial compliance with
applicable environmental laws and regulations. In an effort to prevent and,
if necessary, to correct environment problems, the Company conducts
environmental audits of proposed restaurant sites in order to determine
whether there is any evidence of contamination prior to purchasing or
entering into a lease with respect to such restaurant.
The Company believes that it conducts its operations in substantial
compliance with applicable laws and regulations governing its operations.
PROPERTIES
As of the date of this Prospectus, the Company operated all of its
restaurants on locations where it leases the land and the buildings. BKC is
the lessor on approximately 60% of such properties, primarily as a result of
the Company's initial acquisition of Burger King restaurants from BKC. Most
of the Company's leases are coterminous with the related franchise agreements
and require the Company to pay property taxes, insurance, maintenance and
other operating costs of the properties. Generally, the terms of the leases
require lease payments equal to the greater of a fixed minimum annual rent or
8.5% of annual gross sales. The Company believes that it generally will be
able to renew all of its restaurant leases at commercially reasonable rates
as they expire.
Within five years of September 30, 1996, 27 of the Company's 183 current
restaurant leases are due to expire. The Company believes that it will be
able to renew expiring leases at reasonable rates in the future. During
fiscal 1995, the Company renewed each of its three leases expiring during
such fiscal year on terms generally consistent with those of the expiring
leases.
The Company's headquarters are located in an approximately 16,000 square
foot leased office space in Westchester, Illinois. The term of the present
lease expires on September 30, 1998. The Company believes that its existing
central office provides sufficient space to support its expected expansion
over the next several years.
EMPLOYEES
As of September 30, 1996, the Company employed 571 full-time salaried
employees and approximately 5,500 full-time and part-time hourly employees.
Of the Company's full-time employees, 35 are involved in overseeing
restaurant operations, 474 are involved in the management of individual
restaurants, and the remainder are responsible for corporate administration.
None of the Company's employees are covered by a collective bargaining
agreement. The Company believes that the dedication of its employees is
critical to its success, and that its relations with its employees are good.
LITIGATION
The Company is not a party to any pending legal proceeding the resolution
of which, the management of the Company believes, would have a material
adverse effect on the Company's results of operations or financial condition,
nor to any other pending legal proceedings other than ordinary, routine
litigation incidental to its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the Company's directors and
executive officers and the positions they will hold upon the consummation of
the Offerings:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------- ----- ---------------------------------------------------
<S> <C> <C>
Lawrence E. Jaro ....... 53 Managing Owner, Chairman and Chief Executive Officer
William C. Osborn ...... 48 Vice Chairman and Director
Gary W. Hubert ......... 44 Chief Operating Officer and Director
Joel D. Aaseby ......... 38 Chief Financial Officer and Corporate Secretary
Scott E. Vasatka ....... 43 Vice President-Human Resources
A. Richard Caputo, Jr. 30 Vice President and Director
Thomas H. Quinn ........ 49 Director
John W. Jordan, II .... 49 Director
David W. Zalaznick .... 42 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
MR. JARO has served as the Company's Managing Owner, Chief Executive
Officer and as a Director since the Company's inception, and currently serves
as its Chairman. Mr. Jaro has over 15 years of experience as a Burger King
restaurant franchisee. Prior to joining the Company, Mr. Jaro was the
President and Chief Executive Officer of Jaro Enterprises, Inc., an operator
of 12 Burger King restaurants in Colorado and Texas.
MR. OSBORN has previously served as one of the Company's Managing Owners
and currently serves as a Director. Mr. Osborn also served as the Company's
President until May 10, 1996 at which time he was appointed the Company's
Vice Chairman. Mr. Osborn has over 10 years of experience as a Burger King
restaurant franchisee as well as a franchisee of other restaurant concepts.
Prior to joining the Company, Mr. Osborn owned and operated three Burger King
restaurants in Colorado.
MR. HUBERT has served as the Company's Senior Vice President and as a
Director since the Company's inception, and currently serves as Chief
Operating Officer. Mr. Hubert has over 20 years of experience with BKC in
restaurant operations and franchise management. Prior to joining the Company,
Mr. Hubert was a Vice President with BKC in both the Franchise and Corporate
Operations divisions and served as the Area Operations Manager for BKC's
Chicago region from 1985 to 1989.
MR. AASEBY has served as the Company's Vice President--Finance and
Corporate Secretary since the Company's inception, and currently serves as
Chief Financial Officer. Mr. Aaseby has over 21 years of experience with BKC
in various finance, accounting and operations positions, including Midwest
Sector Controller from 1989 to 1994.
MR. VASATKA has served as the Company's Vice President-Human Resources
since the Company's inception. Mr. Vasatka has over 26 years of experience in
the restaurant industry. Prior to joining the Company, Mr. Vasatka was
employed by Davgar Restaurants from 1969 until 1994, and held various senior
management positions including District Manager, Director of Training and
Division President.
MR. CAPUTO has served as a Vice President and Director of the Company
since its inception. Mr. Caputo is a partner of The Jordan Company, which he
has been associated with since 1990. Mr. Caputo is also a director of Jackson
Products, Inc. as well as other privately held companies.
MR. QUINN has served as a Director of the Company since its inception.
Since 1988, Mr. Quinn has been President, Chief Operating Officer and a
director of Jordan Industries, Inc., a diversified industrial holding
company. Mr. Quinn is also the Chairman of the Board and Chief Executive
Officer of American Safety Razor Company and Welcome Home, Inc. as well as
other privately held companies.
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MR. JORDAN has served as a Director of the Company since its inception.
Mr. Jordan is a managing partner of The Jordan Company, a private merchant
banking firm which he founded in 1982. Mr. Jordan is also a director of
Jordan Industries, Inc., American Safety Razor Company, Jackson Products,
Inc., Carmike Cinemas, Inc., Welcome Home, Inc. and Apparel Ventures, Inc. as
well as other privately held companies.
MR. ZALAZNICK has served as a Director of the Company since its inception.
Since 1982, Mr. Zalaznick has been a managing partner of The Jordan Company.
Mr. Zalaznick is also a director of Jordan Industries, Inc., Carmike Cinemas,
Inc., American Safety Razor Company, Jackson Products, Inc., Marisa
Christina, Inc. and Apparel Ventures, Inc. as well as other privately held
companies.
Each of the Company's directors was nominated to the Board of Directors
pursuant to the Stockholders Agreement, which required the stockholders named
therein to vote for such nominees.
In 1983, Mr. Jaro, along with his former employers, E.F. Hutton & Company,
Inc. and Bache Halsey Stuart, Shields Incorporated, were defendants in an
action alleging various claims involving the improper handling of an
individual's securities account from 1978 to 1981. In 1986, an arbitration
panel found in favor of the defendants on all counts; however, for procedural
reasons, the arbitration decision was vacated and the plaintiff was granted a
jury trial in state court. In 1991, a jury awarded the plaintiff an aggregate
of $266,500 (of which $121,800 was allocated to Mr. Jaro) plus pre-judgment
interest and costs. The Company understands that although Mr. Jaro and the
employer co-defendants believed that they had a strong legal basis to appeal
the judgment, they chose not to appeal due to the relatively small amount of
the damages awarded and the substantial time and expense that would result
from continued appeals and litigation.
BOARD OF DIRECTORS
Liability Limitation. The Certificate of Incorporation provides that a
director of the Company shall not be personally liable to it or its
stockholders for monetary damages to the fullest extent permitted by Delaware
Corporation Law. In accordance with Delaware Corporation Law, the Certificate
of Incorporation does not eliminate or limit the liability of a director for
acts or omissions that involve intentional misconduct by a director or a
knowing violation of law by a director for voting or assenting to an unlawful
distribution, or for any transaction from which the director will personally
receive a benefit in money, property, or services to which the director is
not legally entitled. Delaware Corporation Law does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. Any amendment to these
provisions of the Delaware Corporation Law will automatically be incorporated
by reference into the Certificate of Incorporation and the Bylaws, without
any vote on the part of its stockholders, unless otherwise required.
Indemnification Agreements. Simultaneously with the consummation of the
Offerings, the Company and each of its directors will enter into
indemnification agreements. The indemnification agreements will provide that
the Company will indemnify the directors against certain liabilities
(including settlements) and expenses actually and reasonably incurred by them
in connection with any threatened or pending legal action, proceeding or
investigation (other than actions brought by or in the right of the Company)
to which any of them is, or is threatened to be, made a party by reason of
their status as a director, officer or agent of the Company, or serving at
the request of the Company in any other capacity for or on behalf of the
Company; provided that (i) such director acted in good faith and in a manner
not opposed to the best interest of the Company, (ii) with respect to any
criminal proceedings, such director had no reasonable cause to believe his or
her conduct was unlawful, (iii) such director is not finally adjudged to be
liable for negligence or misconduct in the performance of his or her duty to
the Company, unless the court views in light of the circumstances the
director is nevertheless entitled to indemnification, and (iv) the
indemnification does not relate to any liability arising under Section 16(b)
of the Exchange Act or the rules or regulations promulgated thereunder. With
respect to any action brought by or in the right of the Company, directors
may also be indemnified, to the extent not prohibited by applicable laws or
as determined by a court of competent jurisdiction, against costs and
expenses actually and reasonably incurred by them in connection with such
action if they acted in good faith and in the best interests of the Company.
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Director Compensation. Directors who are not employees of the Company
receive $12,500 per year for serving as a director of the Company. In
addition, the Company reimburses directors for their travel and other
expenses incurred in connection with attending meetings of the Board of
Directors.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Board of Directors does not maintain a Compensation Committee. During
fiscal 1995, however, Messrs. Caputo, Jaro, Jordan and Quinn participated in
deliberations of the Board of Directors concerning executive officer
compensation. See "Certain Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of certain information regarding
compensation paid or accrued by the Company during fiscal 1995 to each of the
Company's chief executive officer and other executive officers whose total
annual salary and bonus exceeded $100,000 during such period (collectively,
the "Named Executives").
FISCAL 1995 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------------
FISCAL OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION
- ----------------------------- -------- ---------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Lawrence E. Jaro
Managing Owner and Chief
Executive Officer ........... 1995 $215,000 $64,500 $0 $0
William C. Osborn
Managing Owner and President 1995 215,000 64,500 0 10,000(3)
Gary W. Hubert
Chief Operating Officer and
Senior Vice President ....... 1995 215,000 64,500 0 0
Joel D. Aaseby
Chief Financial Officer and
Corporate Secretary ......... 1995 110,000 32,000 0 0
Scott E. Vasatka
Vice President--
Human Resources ............. 1995 105,000 31,000 0 0
</TABLE>
(1) The Company provides bonus compensation based on an individual's
achievement of certain specified objectives, including achieving the
Company's stated earnings before interest, taxes, depreciation and
amortization. Employees are eligible to receive from 10% to 60% of their
annual compensation as a bonus.
(2) No executive named in the table above received any Other Annual
Compensation in an amount in excess of either $50,000 or 10% of Salary
and Bonus reported for him in the two preceding columns.
(3) Represents the amount of life insurance premiums paid by the Company on
the life of Mr. Osborn with death benefits designated by Mr. Osborn.
Option Exercises in Fiscal 1995 and Fiscal Year-end Values
The following table shows stock options exercised by each of the Named
Executives during fiscal 1995, including the aggregate value of gains on the
date of exercise. In addition, this table includes the number of shares
covered by both exercisable and non-exercisable stock options as of fiscal
year-end, and the values for unexercised options. Except as listed in the
table, no other Named Executive exercised any Company stock options or
beneficially owned unexercised Company stock options.
43
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS
JANUARY 1, 1996 AT JANUARY 1, 1996(1)
------------------------------ ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
SCOTT E. VASATKA 2,810 2,810 $0 $0
</TABLE>
(1) Based upon the difference between the estimated fair market value of the
Company's Common Stock on January 1, 1996 (as determined by the Board of
Directors) of $0.10 per share and the option exercise price of $0.10 per
share. The above valuation may not reflect the actual value of
unexercised options as the value of unexercised options will fluctuate
over time.
RETIREMENT AND 401(K) PLANS
The Company offers all of its employees the option to participate in a
401(k) plan, upon fulfillment of certain requirements. The Company has the
option, but not the obligation, to match contributions made by its employees
under the 401(k) plan. In addition, the Company provides disability insurance
to certain key executives. The insurance covers all salary payments to the
executives during the entire period of disability.
EMPLOYMENT AGREEMENTS
Effective September 1, 1994, Enterprises entered into an employment
agreement with Lawrence E. Jaro (the "Jaro Employment Agreement"). Pursuant
to the terms of the Jaro Employment Agreement, Mr. Jaro agreed to serve as
Chief Executive Officer and Co-Managing Owner of the Company and Enterprises
for a five-year period ending on August 31, 1999 with automatic one-year
renewals thereafter, provided that neither Mr. Jaro nor Enterprises has
provided the other with a notice of termination 120 days prior to the
expiration date of the Jaro Employment Agreement. Mr. Jaro also agreed not to
compete against Enterprises throughout the term of his employment and for one
year thereafter, and not to disclose any confidential information during and
after the term of his employment. In exchange for his services and covenants,
Enterprises agreed to compensate Mr. Jaro with a base salary of $215,000 per
annum (subject to an annual cost of living adjustment), an automobile
allowance of $800 per month and reimbursement of up to $6,000 per annum for
automobile-related costs. In the event Mr. Jaro no longer provides services
to Enterprises due to (i) his death or physical or mental disability or (ii)
his dismissal without Cause (as defined in the Jaro Employment Agreement) or
as a result of a material reduction in his authority, then Mr. Jaro is
entitled to receive his base compensation from the date of his termination
through the first anniversary of such termination or through the remaining
term of his employment agreement, respectively.
Effective September 1, 1994, Enterprises entered into an employment
agreement with William C. Osborn (the "Osborn Employment Agreement").
Pursuant to the terms of the Osborn Employment Agreement, Mr. Osborn agreed
to serve as President and Co-Managing Owner of the Company and Enterprises
for a five-year period ending on August 31, 1999 with automatic one-year
renewals thereafter, provided that neither Mr. Osborn nor Enterprises has
provided the other with a notice of termination 120 days prior to the
expiration date of the Osborn Employment Agreement. Mr. Osborn also agreed
not to compete against Enterprises throughout the term of his employment and
for one year thereafter, and not to disclose any confidential information
during and after the term of his employment. In exchange for his services and
covenants, Enterprises agreed to compensate Mr. Osborn with a base salary of
$215,000 per annum (subject to an annual cost of living adjustment), an
automobile allowance of $800 per month and reimbursement of up to $6,000 per
annum for automobile-related costs. In the event Mr. Osborn no longer
provides services to Enterprises due to (i) his death or physical or mental
disability or (ii) his dismissal without Cause (as defined in the Osborn
Employment Agreement) or as a result of a material reduction in his
authority, then Mr. Osborn is entitled to receive his base compensation from
the date of his termination through the first anniversary of such termination
or through the remaining term of his
44
<PAGE>
employment agreement, respectively. Effective May 10, 1996, the Company and
Mr. Osborn agreed that Mr. Osborn would resign as President to become Vice
Chairman of the Company.
Effective September 1, 1994, Enterprises entered into an employment
agreement with Gary W. Hubert (the "Hubert Employment Agreement"). Pursuant
to the terms of the Hubert Employment Agreement, Mr. Hubert agreed to serve
as Senior Vice President and Managing Director of the Company and Enterprises
for a five-year period ending on August 31, 1999 with automatic one-year
renewals thereafter, provided that neither Mr. Hubert nor Enterprises has
provided the other with notice of termination 120 days prior to the
expiration of the Hubert Employment Agreement. Mr. Hubert also agreed not to
compete against Enterprises throughout the term of his employment and for one
year thereafter, and not to disclose any confidential information during and
after the term of his employment. In exchange for his services and covenants,
Enterprises agreed to compensate Mr. Hubert with a base salary of $215,000
per annum (subject to an annual cost of living adjustment), an automobile
allowance of $800 per month and reimbursement of up to $6,000 per annum for
automobile-related costs. In the event Mr. Hubert no longer provides services
to Enterprises due to (i) his death or physical or mental disability or (ii)
his dismissal without Cause (as defined in the Hubert Employment Agreement)
or as a result of a material reduction in his authority, then Mr. Hubert is
entitled to receive his base compensation from the date of his termination
through the first anniversary of such termination or through the remaining
term of his employment agreement, respectively.
Effective September 1, 1994, Enterprises entered into an employment
agreement with Joel D. Aaseby (the "Aaseby Employment Agreement"). Pursuant
to the terms of the Aaseby Employment Agreement, Mr. Aaseby agreed to serve
as Vice President--Finance of Enterprises for a five-year period ending on
August 31, 1999 with automatic one-year renewals thereafter, provided that
neither Mr. Aaseby nor Enterprises has provided the other with notice of
termination 120 days prior to the expiration of the Aaseby Employment
Agreement. Mr. Aaseby also agreed not to compete with Enterprises throughout
the term of his employment and for one year thereafter, and not to disclose
any confidential information during and after the term of his employment. In
exchange for his services and covenants, Enterprises agreed to compensate Mr.
Aaseby with a base salary of $110,000 per annum (subject to an annual cost of
living adjustment), an automobile allowance of $500 per month and
reimbursement of up to $6,000 per annum for automobile-related costs. In the
event Mr. Aaseby no longer provides services to Enterprises due to (i) his
death or physical or mental disability or (ii) his dismissal without Cause
(as defined in the Aaseby Employment Agreement) or as a result of a material
reduction in his authority, then Mr. Aaseby is entitled to receive his base
compensation from the date of his termination through the first anniversary
of such termination or through the remaining term of his employment
agreement, respectively.
Effective September 1, 1994, Enterprises entered into an employment
agreement with Scott E. Vasatka (the "Vasatka Employment Agreement").
Pursuant to the terms of the Vasatka Employment Agreement, Mr. Vasatka agreed
to serve as Vice President--Human Resources of Enterprises for a five-year
period ending on August 31, 1999 with automatic one-year renewals thereafter,
provided that neither Mr. Vasatka nor Enterprises has provided the other with
notice of termination 120 days prior to the expiration of the Vasatka
Employment Agreement. Mr. Vasatka also agreed not to compete against
Enterprises throughout the term of his employment and for one year
thereafter, and not to disclose any confidential information during and after
the term of his employment. In exchange for his services and covenants,
Enterprises agreed to compensate Mr. Vasatka with a base salary of $105,000
per annum (subject to an annual cost of living adjustment), an automobile
allowance of $500 per month and reimbursement of up to $6,000 per annum for
automobile-related costs. In the event Mr. Vasatka no longer provides
services to Enterprises due to (i) his death or physical or mental disability
or (ii) his dismissal without Cause (as defined in the Vasatka Employment
Agreement) or as a result of a material reduction in his authority, then Mr.
Vasatka is entitled to receive his base compensation from the date of his
termination through the first anniversary of such termination or through the
remaining term of his employment agreement, respectively.
Effective simultaneously with the closing of the Offerings, the Company
intends to enter into a new employment agreement with Mr. Osborn (the "New
Osborn Employment Agreement"). Pursuant to the terms of the New Osborn
Employment Agreement, Mr. Osborn will (i) continue to serve as Vice
45
<PAGE>
Chairman of the Company, (ii) be entitled to annual compensation of $225,000
and (iii) be subject to non-competition and confidentiality provisions
similar to Mr. Osborn's existing employment agreement. The term of the New
Osborn Employment Agreement will expire on September 1, 1999.
STOCK OPTIONS
The Company has granted two employees options to purchase an aggregate of
11,240 shares of Common Stock at an exercise price of $0.10 per share. These
options vested at a rate of 50% per year, are currently fully exercisable and
expire at the earlier of December 31, 2004 or 90 days after termination of
employment with the Company.
PRINCIPAL STOCKHOLDERS
The table below sets forth as of September 30, 1996, certain information
regarding beneficial ownership of Common Stock held by (i) each director and
each of the Named Executives who own shares of the Company's equity
securities, (ii) all directors and executive officers of the Company as a
group, and (iii) each person known by the Company to own beneficially more
than 5% of the Company's Common Stock. Each individual or entity named has
sole investment and voting power with respect to shares of Common Stock
indicated as beneficially owned by them, except where otherwise noted.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THE
OFFERINGS(1)
-----------------------
PERCENTAGE OF
BENEFICIAL OWNERSHIP
AFTER THE
NUMBER PERCENTAGE OFFERINGS(1)
--------- ------------ --------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Lawrence E. Jaro (2) ............................. 227,098 22.7% 21.7%
William C. Osborn (3) ............................ 93,949 9.4 9.0
Gary W. Hubert ................................... 33,710 3.4 3.2
Joel D. Aaseby ................................... 11,240 1.1 1.1
Thomas H. Quinn (4) .............................. 33,705 3.4 3.2
John W. Jordan, II (5) ........................... 44,348 4.4 4.2
A. Richard Caputo, Jr. (6) ....................... 14,606 1.5 1.4
David W. Zalaznick (7) ........................... 44,348 4.4 4.2
Scott E. Vasatka ................................. 5,620 0.6 0.5
All directors and executive officers as a group
(9 persons) (8) ................................. 508,624 50.9 48.3
OTHER PRINCIPAL STOCKHOLDERS:
MCIT PLC ("MCIT") (9) ............................ 285,310 28.5% 27.3%
Leucadia Investors, Inc. (10) .................... 71,327 7.1 6.8
BancBoston Investments Inc. ("BancBoston") (11) . 112,360 10.1 9.7
PMI Mezzanine Fund, L.P. ("PMI") (12) ............ 71,720 6.7 0.0
</TABLE>
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. In
connection with the Offerings, the Company intends to cancel the warrants
held by PMI to purchase 71,720 shares of Common Stock. As of September
30, 1996, the Company had 1,000,010 shares of Common Stock issued and
outstanding. The table gives effect to the Recapitalization and assumes
that 46,817 shares of Common Stock will be issued in connection with the
Units Offering. See "Description of Capital Stock--The Recapitalization"
and "--Non-Voting Common Stock."
46
PAGE>
(2) Includes 193,388 shares of Common Stock beneficially owned by various
affiliates of Mr. Jaro. Mr. Jaro and his affiliates also own 915 shares
of Class A(2 Preferred Stock and 305 shares of Class B Preferred Stock.
Mr. Jaro's address is c/o the Company, 2215 Enterprise Drive, Suite 1502,
Westchester, Illinois 60154.
(3) Includes 60,239 shares of Common Stock beneficially owned by various
affiliates of Mr. Osborn. Mr. Osborn and his affiliates also own 285
shares of Class A(2 Preferred Stock and 95 shares of Class B Preferred
Stock. Mr. Osborn's address is c/o the Company, 2215 Enterprise Drive,
Suite 1502, Westchester, Illinois 60154.
(4) Mr. Quinn is President and Chief Operating Officer of Jordan Industries,
Inc., a company affiliated with The Jordan Company, an entity with which
Messrs. Caputo, Jordan and Zalaznick are also affiliated.
(5) Includes 44,348 shares of Common Stock held by John W. Jordan II
Revocable Trust, of which Mr. Jordan is trustee. Mr. Jordan also owns
96.25 shares of non-voting Class B Preferred Stock. Mr. Jordan's address
is c/o The Jordan Company, 9 West 57th Street, New York, New York 10019.
See "Description of Capital Stock--Preferred Stock."
(6) Mr. Caputo is a partner of The Jordan Company, an entity with which
Messrs. Jordan and Zalaznick are also affiliated.
(7) Mr. Zalaznick also owns 96.25 shares of Class B Preferred Stock. Mr.
Zalaznick's address is c/o The Jordan Company, 9 West 57th Street, New
York, New York 10019. See "Description of Capital Stock--Preferred
Stock."
(8) Includes all shares owned directly or beneficially by directors and
executive officers, including shares beneficially owned by affiliates of
Messrs. Jaro and Osborn.
(9) MCIT also owns 3,000 shares of Class A(1 Preferred Stock and 500 shares
of Class B Preferred Stock. The principal address of MCIT is c/o The
Jordan Company, 9 West 57th Street, New York, New York 10019. See
"Description of Capital Stock--Preferred Stock."
(10) Leucadia also owns 125 shares of Class B Preferred Stock. The principal
address of Leucadia is 315 Park Avenue South, New York, New York 10010.
See "Description of Capital Stock--Preferred Stock."
(11) Represents immediately exercisable warrants to purchase 112,360 shares
of Non-Voting Common Stock (as defined). BancBoston also owns 1,425
shares of Class A(1 Preferred Stock and 475 shares of Class B Preferred
Stock. The principal address of BancBoston is 100 Federal Street,
Boston, Massachusetts 02110. See "Description of Capital
Stock--Non-Voting Common Stock" and "--Preferred Stock."
(12) Represents immediately exercisable warrants to purchase 71,720 shares of
Common Stock. The address of PMI is 610 Newport Center Drive, Suite
1100, Newport Beach, California 92660. The Company intends to cancel
these warrants upon the consummation of the Offerings. See "Use of
Proceeds" and "Certain Transactions."
47
<PAGE>
DESCRIPTION OF SECURITIES
SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to the Indenture between the
Company and Fleet National Bank, as trustee (the "Trustee"). The terms of the
Senior Notes include those stated in the Indenture, the form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part, and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as
in effect on the date of original issuance of the Senior Notes. The Senior
Notes are subject to all such terms, and holders of the Senior Notes are
referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Indenture, including the definitions therein of certain terms used
below.
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate each of its existing Subsidiaries, Subsidiaries
formed by the Company or Subsidiaries acquired by the Company after the
original issuance of the Senior Notes as Non-Restricted Subsidiaries.
Non-Restricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
The Senior Notes will be limited to $100,000,000 in aggregate principal
amount and will mature on December 1, 2006. The Senior Notes will bear
interest at the rate set forth on the front cover of this Prospectus.
Interest on the Senior Notes is payable semi-annually in cash in arrears on
June 1 and December 1 in each year, commencing June 1, 1997, to holders of
record of Senior Notes at the close of business on the May 15 or November 15
immediately preceding such interest payment date. Interest on the Senior
Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Senior Notes will be issued in denominations of $1,000 and
integral multiples thereof.
Principal of, premium, if any, and interest on the Senior Notes will be
payable, and the Senior Notes may be presented for registration of transfer
or exchange, at the office of the Paying Agent and Registrar in New York, New
York. Holders of Senior Notes must surrender their Senior Notes to the Paying
Agent to collect principal payments, and the Company may pay principal and
interest by check and may mail checks to a holder's registered address;
provided that all payments with respect to Global Senior Notes and
Certificated Senior Notes, the holders of which have given wire transfer
instructions to the Company, will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
The Registrar may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection with certain
transfers or exchanges. See "--Transfer and Exchange." The Trustee will
initially act as Paying Agent and Registrar. The Company may change the
Paying Agent or Registrar without prior notice to holders of Senior Notes,
and the Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
The Senior Notes will be senior unsecured obligations of the Company, will
rank senior in right of payment to all Subordinated Indebtedness of the
Company, and will rank pari passu in right of payment with all Senior
Indebtedness of the Company. The Senior Notes will effectively rank junior to
all secured Indebtedness of the Company and to any Indebtedness of the
Company's subsidiaries, including borrowings under the Credit Agreement. As
of September 30, 1996, on a pro forma basis after giving effect to the
Offerings and the application of the net proceeds therefrom, the aggregate
principal amount of outstanding secured Indebtedness of the Company and
Indebtedness of the Company's subsidiaries to which the Senior Notes would
have been effectively junior would have been approximately $8.0 million. In
addition, the Company's obligations under the Senior Notes will be subject to
the BKC Intercreditor Agreement. See "--BKC Intercreditor Agreement." The
Indenture will permit the Company and its Subsidiaries to incur additional
Indebtedness, including secured Indebtedness, subject to certain limitations.
In addition, under the terms of the Indenture, the Company's Subsidiaries may
incur certain
48
<PAGE>
Indebtedness pursuant to agreements that may restrict the ability of such
Subsidiaries to make dividends or other intercompany transfers to the Company
necessary to service the Company's obligations, including its obligations
under the Senior Notes. The Indenture also will not limit the Company's
incurrence of new obligations under franchise, royalty and lease obligations
with BKC. Any failure by the Company to satisfy its obligations with respect
to the Senior Notes at maturity (with respect to payments of principal) or
prior thereto (with respect to payments of interest or required repurchases)
would constitute a default under the Indenture and the Credit Agreement and
could cause a default under agreements governing other indebtedness of the
Company and its Subsidiaries. See "Risk Factors--Holding Company Structure;
Dependence on Subsidiaries; Limitations on Access to Cash Flow of the
Subsidiaries," "--Certain Covenants" and "Description of Certain
Indebtedness." The maximum principal amount of indebtedness permitted by the
Indenture which the Company's subsidiaries may incur under the Credit
Agreement as in effect on the date of the original issuance of the Senior
Notes is $75,000,000. See "Risk Factors--Subordination of Senior Notes,
Senior Preferred Stock and Exchange Debentures to Current and Future
Obligations" and "Description of Certain Indebtedness."
BKC INTERCREDITOR AGREEMENT
Pursuant to the BKC Intercreditor Agreement, the Company's obligations
under the Senior Notes are subject to the prior payment in full of all
indebtedness, liabilities and other obligations of the Company and its
Subsidiaries to BKC under the BKC franchise agreements, BKC leases and any
other indebtedness of the Company and its Subsidiaries to BKC, whenever and
however arising, whether primary or secondary, absolute or contingent, and
including charges and costs of collection. In the event the Company defaults
in any such obligation to BKC, the Company will be prohibited from making any
payments in respect of the Senior Notes. See "Risk Factors--Holding Company
Structure; Dependence on Subsidiaries; Limitations on Access to Cash Flow of
the Subsidiaries" and "--Subordination as a Result of BKC Intercreditor
Agreement."
REDEMPTION OF SENIOR NOTES
Optional Redemption. The Senior Notes may not be redeemed at the option of
the Company prior to December 1, 2001 other than out of the net proceeds of
one or more Equity Offerings, as and to the extent described below. During
the 12-month period beginning on December 1 of the years indicated below, the
Senior Notes will be redeemable, at the option of the Company, in whole or in
part, on at least 30 but not more than 60 days' notice to each holder of
Senior Notes to be redeemed, at the redemption prices (expressed as
percentages of the principal amount) set forth below, plus any accrued and
unpaid interest to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001 .................... %
2002 .................... %
2003 .................... %
2004 and thereafter .... 100%
</TABLE>
Notwithstanding the foregoing, prior to December 1, 1999, the Company may
(but shall not have the obligation to) redeem up to 35% of the original
aggregate principal amount of the Senior Notes at a redemption price of %
of the principal amount thereof, plus accrued and unpaid interest to the
redemption date, with the net proceeds of one or more Equity Offerings;
provided that at least 65% of the aggregate principal amount of Senior Notes
originally issued remain outstanding immediately after the occurrence of any
such redemption; and provided, further, that any such redemption shall occur
within 60 days of the date of the closing of any such Equity Offering. The
restrictions on optional redemptions contained in the Indenture do not limit
the Company's right to separately make open market, privately negotiated or
other purchases of Senior Notes from time to time.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers
to Purchase Senior Notes--Change of Control" and "--Asset Sales," the Company
is not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the Senior Notes.
49
<PAGE>
MANDATORY OFFERS TO PURCHASE SENIOR NOTES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of Senior Notes
shall have the right to require the Company to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's Senior
Notes pursuant to an Offer (as defined) at a purchase price in cash equal to
101% of the aggregate principal amount thereof, plus any accrued and unpaid
interest to the date of purchase. The Company shall furnish to the Trustee,
at least two Business Days before notice of an Offer is mailed to all holders
of Senior Notes pursuant to the procedures described below under
"--Procedures for Offers," notice that the Offer is being made. Transactions
constituting a Change of Control are not limited to hostile takeover
transactions not approved by the current management of the Company. Except as
described under "--Change of Control," the Indenture does not contain
provisions that permit the holders of Senior Notes to require the Company to
purchase or redeem the Senior Notes in the event of a takeover,
recapitalization or similar restructuring, including an issuer
recapitalization or similar transaction with management. Consequently, the
Change of Control provisions will not afford any protection in a highly
leveraged transaction, including such a transaction initiated by the Company,
management of the Company or an affiliate of the Company, if such transaction
does not result in a Change of Control. In addition, because the obligations
of the Company with respect to the Senior Notes are effectively subordinated
to all secured indebtedness of the Company and all obligations of the
Company's subsidiaries, existing or future secured indebtedness of the
Company or obligations of the Company's subsidiaries may prohibit the Company
from repurchasing the Senior Notes upon a Change of Control. Moreover, the
ability of the Company to repurchase Senior Notes following a Change of
Control will be limited by the Company's then-available resources. The Change
of Control provisions may not be waived by the Board of Directors of the
Company or the Trustee without the consent of holders of at least a majority
in principal amount of the Senior Notes. See "--Amendment, Supplement and
Waiver."
The Company expects that prepayment of the Senior Notes following a Change
of Control would, and the exercise by holders of Senior Notes of the right to
require the Company to purchase Senior Notes may, constitute a default under
the Credit Agreement or other indebtedness of the Company. The Indenture will
provide that, prior to the mailing of the notice referred to below, but in
any event within 30 days following any Change of Control Trigger Date, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Indebtedness the
terms of which require repayment upon a Change of Control or offer to repay
in full and terminate all commitments under all Indebtedness under the Credit
Agreement and all other such Senior Indebtedness and to repay the
Indebtedness owed to each lender which has accepted such offer or (ii) obtain
the requisite consents under the Credit Agreement and all such other Senior
Indebtedness to permit the repurchase of the Senior Notes as provided below.
The Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Senior Notes pursuant to
the provisions described below. The Company's failure to comply with this
covenant shall constitute an Event of Default described in clause (c) and not
in clause (b) under "--Events of Default and Remedies" below. In the event a
Change of Control occurs, the Company will likely be required to refinance
the Indebtedness outstanding under the Credit Agreement and the Senior Notes.
If there is a Change of Control, any Indebtedness under the Credit Agreement
could be accelerated. There is no limitation in the Indenture which prohibits
the Company from using the proceeds from the offering of the Senior Notes to
finance mandatory purchases of Senior Notes upon a Change of Control.
Moreover, there can be no assurance that sufficient funds will be available
at the time of any Change of Control to make any required repurchases of the
Senior Notes given the Company's high leverage. The financing of the
purchases of Senior Notes could additionally result in a default under the
Credit Agreement or other indebtedness of the Company. The occurrence of a
Change of Control may also have an adverse impact on the ability of the
Company to obtain additional financing in the future. The ability of holders
of Senior Notes to require that the Company purchase Senior Notes upon a
Change of Control may deter persons from effecting a takeover of the Company.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of Senior Notes to
require that the Company purchase or redeem the Senior Notes in the event of
a takeover, recapitalization or similar restructuring. See "Risk
Factors--Substantial Current Leverage; Limitations on Ability to Service
Indebtedness" and "--Holding Company Structure; Dependence on Subsidiaries;
Limitations on Access to Cash Flow of the Subsidiaries."
50
<PAGE>
Asset Sales. The Indenture provides that the Company may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale (including the sale of any of the Capital Stock of any Restricted
Subsidiary) providing for Net Proceeds in excess of $2,500,000 unless at
least 75% of the Net Proceeds from such Asset Sale are applied (in any manner
otherwise permitted by the Indenture) to one or more of the following
purposes in such combination as the Company shall elect: (a) an investment in
another asset or business in the same line of business as, or a line of
business similar to that of, the line of business of the Company and its
Restricted Subsidiaries at the time of the Asset Sale; provided that such
investment occurs on or prior to the 365th day following the date of such
Asset Sale (the "Asset Sale Disposition Date"), (b) to reimburse the Company
or its Subsidiaries for expenditures made, and costs incurred, to repair,
rebuild, replace or restore property subject to loss, damage or taking to the
extent that the Net Proceeds consist of insurance proceeds received on
account of such loss, damage or taking, (c) the purchase, redemption or other
prepayment or repayment of outstanding Senior Indebtedness of the Company or
Indebtedness of the Company's Restricted Subsidiaries on or prior to the
365th day following the Asset Sale Disposition Date or (d) an Offer expiring
on or prior to the Purchase Date (as defined herein). The Indenture also
provides that the Company may not, and may not permit any Restricted
Subsidiary to, directly or indirectly, consummate an Asset Sale unless at
least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash, cash equivalents or marketable
securities; provided that, solely for purposes of calculating such 75% of the
consideration, the amount of (x) any liabilities (as shown on the Company's
or such Restricted Subsidiary's most recent balance sheet or in the notes
thereto, excluding contingent liabilities and trade payables) of the Company
or any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Senior Notes) that are assumed by the transferee of any
such assets and (y) any notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are promptly, but in
no event more than 30 days after receipt, converted by the Company or such
Restricted Subsidiary into cash (to the extent of the cash received), shall
be deemed to be cash and cash equivalents for purposes of this provision. Any
Net Proceeds from any Asset Sale that are not applied or invested as provided
in the first sentence of this paragraph shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5,000,000 (such date
being an "Asset Sale Trigger Date"), the Company shall make an Offer to all
holders of Senior Notes to purchase the maximum principal amount of the
Senior Notes then outstanding that may be purchased out of Excess Proceeds,
at an offer price in cash in an amount equal to 100% of principal amount
thereof plus any accrued and unpaid interest to the Purchase Date in
accordance with the procedures set forth in the Indenture. Notwithstanding
the foregoing, to the extent that any or all of the Net Proceeds of an Asset
Sale is prohibited or delayed by applicable local law from being repatriated
to the United States, the portion of such Net Proceeds so affected will not
be required to be applied as described in this or the preceding paragraph,
but may be retained for so long, but only for so long, as the applicable
local law prohibits repatriation to the United States.
To the extent that any Excess Proceeds remain after completion of an
Offer, the Company may use such remaining amount for general corporate
purposes. If the aggregate principal amount of Senior Notes surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Senior Notes to be purchased on a pro rata basis. Upon completion
of an Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Although the Credit Agreement will permit dividends from the Company's
Subsidiaries to the Company for the purpose of paying interest on the Senior
Notes, dividends for other purposes, such as repurchases of Senior Notes by
the Company upon an Asset Sale, will not be permitted under the terms of the
Credit Agreement. Accordingly, the Company would need to seek the consent of
its lenders under the Credit Agreement in order to repurchase Senior Notes
with the Net Proceeds of an Asset Sale. See "Risk Factors--Holding Company
Structure; Dependence on Subsidiaries; Limitation on Access to Cash Flow of
the Subsidiaries."
Procedures for Offers. Within 30 days following any Change of Control
Trigger Date or Asset Sale Trigger Date, subject to the provisions of the
Indenture, the Company shall mail a notice to each holder of Senior Notes at
such holder's registered address a notice stating: (a) that an offer (an
"Offer") is being
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made pursuant to a Change of Control or an Asset Sale Trigger Date, as the
case may be, the length of time the Offer shall remain open and the maximum
principal amount of Senior Notes that will be accepted for payment pursuant
to such Offer, (b) the purchase price, the amount of accrued and unpaid
interest as of the purchase date, and the purchase date (which shall be no
earlier than 30 days and no later than 40 days from the date such notice is
mailed (the "Purchase Date")), and (c) such other information required by the
Indenture and applicable law and regulations.
On the Purchase Date for any Offer, the Company will, to the extent
required by the Indenture and such Offer, (1) in the case of an Offer
resulting from a Change of Control, accept for payment all Senior Notes or
portions thereof tendered pursuant to such Offer and, in the case of an Offer
resulting from an Asset Sale Trigger Date, accept for payment the maximum
principal amount of Senior Notes or portions thereof tendered pursuant to
such Offer that can be purchased out of Excess Proceeds, (2) deposit with the
Paying Agent the aggregate purchase price of all Senior Notes or portions
thereof accepted for payment and any accrued and unpaid interest on such
Senior Notes as of the Purchase Date, and (3) deliver or cause to be
delivered to the Trustee all Senior Notes tendered pursuant to the Offer. The
Paying Agent shall promptly mail to each holder of Senior Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Senior Notes plus any accrued and unpaid interest thereon, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by
book-entry) to such holder of Senior Notes accepted for payment in part a new
Senior Note equal in principal amount to any unpurchased portion of the
Senior Notes and any Senior Note not accepted for payment in whole or in part
shall be promptly returned to the holder thereof. The Company will publicly
announce the results of the Offer on or as soon as practicable after the
Purchase Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by the Company to repurchase the Senior Notes as a
result of a Change of Control or an Asset Sale Trigger Date. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Indenture by virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less
than all of the Senior Notes, the Senior Notes to be redeemed or purchased
will be chosen by the Trustee pro rata, by lot or by any other method that
the Trustee considers fair and appropriate and, if the Senior Notes are
listed on any securities exchange, by a method that complies with the
requirements of such exchange; provided that, if less than all of a holder's
Senior Notes are to be redeemed or accepted for payment, only principal
amounts of $1,000 or multiples thereof may be selected for redemption or
accepted for payment. On and after any redemption or purchase date, interest
shall cease to accrue on the Senior Notes or portions thereof called for
redemption or accepted for payment. Notice of any redemption or offer to
purchase will be mailed at least 30 days but not more than 60 days before the
redemption or purchase date to each holder of Senior Notes to be redeemed or
purchased at such holder's registered address.
CERTAIN COVENANTS
The Indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
account of the Company's or such Restricted Subsidiary's Capital Stock or
other Equity Interests (other than dividends or distributions payable in
Capital Stock or other Equity Interests (other than Disqualified Stock) of
the Company and dividends or distributions payable by a Restricted Subsidiary
to a Restricted Subsidiary or to the Company); (ii) purchase, redeem or
otherwise acquire or retire for value any Capital Stock or other Equity
Interests of the Company or any of its Restricted Subsidiaries (other than
any such Equity Interest purchased from the Company or any Restricted
Subsidiary for fair market value (as determined by the Board of Directors in
good faith)); (iii) voluntarily prepay any Subordinated Indebtedness of the
Company, whether any such Subordinated Indebtedness is outstanding on, or
issued after, the date of original issuance of the Senior Notes except as
specifically permitted by the covenants of the Indenture as described herein;
or (iv) make any Restricted Investment
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(all such dividends, distributions, purchases, redemptions, acquisitions,
retirements, prepayments and Restricted Investments being collectively
referred to as "Restricted Payments"), if, at the time of such Restricted
Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the Senior
Notes, without duplication, exceeds the sum of: (1) 50% of the aggregate
Consolidated Net Income (including, for this purpose, gains from Asset
Sales and, to the extent not included in Consolidated Net Income, any gain
from a sale or disposition of a Restricted Investment) of the Company (or,
in case such aggregate is a loss, 100% of such loss) for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing immediately after the date of original issuance of the Senior
Notes and ended as of the Company's most recently ended fiscal quarter at
the time of such Restricted Payment; plus (2) 100% of the aggregate net
cash proceeds and the fair market value of any property or securities (as
determined by the Board of Directors in good faith) received by the
Company from the issue or sale of Capital Stock or other Equity Interests
of the Company subsequent to the date of original issuance of the Senior
Notes (other than (x) Capital Stock or other Equity Interests issued or
sold to a Restricted Subsidiary and (y) the issuance or sale of
Disqualified Stock); plus (3) $5,000,000; plus (4) the amount by which the
principal amount of and any accrued interest on either (A) Senior
Indebtedness of the Company or (B) any Indebtedness of any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet upon the
conversion or exchange other than by a Restricted Subsidiary subsequent to
the date of original issuance of the Senior Notes of any Indebtedness of
the Company or any Restricted Subsidiary (not held by the Company or any
Restricted Subsidiary) for Capital Stock or other Equity Interests (other
than Disqualified Stock) of the Company (less the amount of any cash, or
the fair market value of any other property or securities (as determined
by the Board of Directors in good faith), distributed by the Company or
any Restricted Subsidiary (to persons other than the Company or any other
Restricted Subsidiary) upon such conversion or exchange); plus (5) if any
Non-Restricted Subsidiary is redesignated as a Restricted Subsidiary, the
value of the Restricted Payment that would result if such Subsidiary were
redesignated as a Non-Restricted Subsidiary at such time, as determined in
accordance with the second sentence of the "Designation of Restricted and
Non-Restricted Subsidiaries" covenant; provided, however, that for
purposes of this clause (5), the value of any redesignated Non-Restricted
Subsidiary shall be reduced by the amount that any such redesignation
replenishes or increases the amount of Restricted Investments permitted to
be made pursuant to clause (ii) of the next sentence.
Notwithstanding the foregoing, the Indenture shall not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of such Indenture (including, but not limited to,
the "Limitation on Restricted Payments" covenant);
(ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $10,000,000 after the date of original
issuance of the Senior Notes (it being understood that if any Restricted
Investment after the date of original issuance of the Senior Notes pursuant
to this clause (ii) is sold, transferred or otherwise conveyed to any person
other than the Company or a Restricted Subsidiary, the portion of the net
cash proceeds or fair market value of securities or properties paid or
transferred to the Company and its Restricted Subsidiaries in connection with
such sale, transfer or conveyance that relates or corresponds to the
repayment or return of the original cost of such a Restricted Investment will
replenish or increase the amount of Restricted Investments permitted to be
made pursuant to this clause (ii), so that up to $10,000,000 of Restricted
Investments may be outstanding under this clause (ii) at any given time);
provided that, without otherwise limiting this clause (ii), any Restricted
Investment in a Subsidiary made pursuant to this clause (ii) is made for fair
market value (as determined by the Board of Directors in good faith);
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(iii) the repurchase, redemption, retirement or acquisition of the
Company's stock from the executives, management, employees or consultants of
the Company or its Subsidiaries pursuant to the terms of any subscription,
stockholder or other agreement or plan, up to an aggregate amount not to
exceed $5,000,000;
(iv) any loans, advances, distributions or payments from the Company to
its Restricted Subsidiaries, or any loans, advances, distributions or
payments by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, in each case pursuant to intercompany Indebtedness, intercompany
management agreements and other intercompany agreements and obligations;
(v) the purchase, redemption, retirement or other acquisition of (a) any
Senior Indebtedness of the Company or any Indebtedness of a Restricted
Subsidiaries required by its terms to be purchased, redeemed, retired or
acquired with the net proceeds from asset sales (as defined in the instrument
evidencing such Senior Indebtedness or Indebtedness) or upon a change of
control (as defined in the instrument evidencing such Senior Indebtedness or
Indebtedness) and (b) the Senior Notes pursuant to the "--Change of Control"
or "--Asset Sales" provisions of the Indenture;
(vi) the payment of (a) consulting, financial and investment banking fees
under the TJC Agreement, provided, that no Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence thereof, and
the Company's Obligations to pay such fees under the TJC Agreement shall be
subordinated expressly to the Company's Obligations in respect of the Senior
Notes, and (b) indemnities, expenses and other amounts under the TJC
Agreement;
(vii) the redemption, repurchase, retirement or other acquisition of any
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Capital
Stock or other Equity Interests of the Company (other than any Disqualified
Stock) or the redemption, repurchase, retirement or other acquisition of any
Capital Stock or other Equity Interests of any Restricted Subsidiary in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to the Company or a Subsidiary of the Company) of other Capital
Stock or other Equity Interests of such Restricted Subsidiary; provided that,
in each case, any net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition, and any Net Income
resulting therefrom, shall be excluded from clauses (c)(1) and (c)(2) of the
preceding paragraph;
(viii) the defeasance, redemption or repurchase of pari passu or
Subordinated Indebtedness with the net cash proceeds from an issuance of
permitted Refinancing Indebtedness or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock or other Equity
Interests of the Company (other than Disqualified Stock); provided that any
net cash proceeds that are utilized for any such defeasance, redemption or
repurchase, and any Net Income resulting therefrom, shall be excluded from
clauses (c)(1) and (c)(2) of the preceding paragraph;
(ix) Restricted Investments made or received in connection with the sale,
transfer or disposition of any business, properties or assets of the Company
or any Restricted Subsidiary, provided, that if such sale, transfer or
disposition constitutes an Asset Sale, the Company complies with the "Asset
Sale" provisions of the Indenture;
(x) any Restricted Investment constituting securities or instruments of a
person issued in exchange for trade or other claims against such person in
connection with a financial reorganization or restructuring of such person;
(xi) payments in connection with the application of the net proceeds of
the Offerings as described under "Use of Proceeds";
(xii) in the event that the Company elects to issue the Exchange
Debentures in exchange for the Senior Preferred Stock, any cash payments made
in lieu of the issuance of Exchange Debentures having a face amount of less
than $1,000 and any cash payments representing accrued and unpaid dividends
on the Preferred Stock at the time of the exchange;
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(xiii) redemption or repurchase of the Senior Preferred Stock or the
Exchange Debentures in connection with an offer following a Change of
Control;
(xiv) payments of fees, expenses and indemnities to the directors of the
Company and its Restricted Subsidiaries; and
(xv) the issuance of the Exchange Debentures in exchange for the Company's
Senior Preferred Stock in accordance with its terms, provided that the
Company is then permitted to incur the Indebtedness represented by the
Exchange Debentures. See "--Senior Preferred Stock--Exchange."
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, issue any
Indebtedness (other than the Indebtedness represented by the Senior Notes)
unless the Company's Cash Flow Coverage Ratio for its four full fiscal
quarters next preceding the date such additional Indebtedness is issued would
have been at least 2.0 to 1 determined on a Pro Forma Basis (including, for
this purpose, any other Indebtedness incurred since the end of the applicable
four quarter period) as if such additional Indebtedness and any other
Indebtedness issued since the end of such four quarter period had been issued
at the beginning of such four-quarter period.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries as
measured on such date of issuance in an aggregate principal amount
outstanding on any such date of issuance not exceeding $75,000,000
aggregate principal amount under the Credit Agreement; provided that the
aggregate principal amount of Indebtedness outstanding under this clause
(i) together with the aggregate principal amount of Indebtedness
outstanding under clause (iii) below shall not exceed $80,000,000 in
aggregate principal amount at any one time outstanding;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase
money obligations, capital expenditures or similar financing transactions
relating to: (A) their properties, assets and rights as of the date of
original issuance of the Senior Notes up to $5,000,000 in aggregate
principal amount, or (B) their properties, assets and rights acquired
after the date of original issuance of the Senior Notes, provided that the
aggregate principal amount of such Indebtedness under this clause (ii)(B)
does not exceed 100% of the cost of such properties, assets and rights;
(iii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25,000,000 (all or
any portion of which may be issued as additional Indebtedness under the
Credit Agreement); provided that the aggregate principal amount of
Indebtedness outstanding under this clause (iii) together with the
aggregate principal amount of Indebtedness outstanding under clause (i)
above shall not exceed $80,000,000 in aggregate principal amount at any
one time outstanding; and
(iv) Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of the Company except for
guarantees issued by Restricted Subsidiaries pursuant to the "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant,
provided, however, that the foregoing will not limit or restrict guarantees
issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
Limitation on Liens. The Indenture provides that the Company shall not,
and shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any property or asset now owned or hereafter acquired
by them, or any income or profits therefrom, or assign or convey any right to
receive income therefrom; provided, however, that in addition to creating
Permitted Liens on its properties or assets, the Company and any of its
Restricted Subsidiaries may create any Lien upon any of their properties or
assets (including, but not limited to, any Capital Stock of its Subsidiaries)
if the Senior Notes are equally and ratably secured.
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Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Indenture provides that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective,
any encumbrance or restriction on the ability of any Restricted Subsidiary
to: (a) pay dividends or make any other distributions on its Capital Stock or
any other interest or participation in, or measured by, its profits, owned by
the Company or any Restricted Subsidiary, or pay any Indebtedness owed to,
the Company or any Restricted Subsidiary, (b) make loans or advances to the
Company, or (c) transfer any of its properties or assets to the Company,
except for such encumbrances or restrictions existing under or by reason of:
(i) applicable law,
(ii) Indebtedness permitted (A) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant, (B)
under clauses (i) or (iii) of the second paragraph of the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v), (vi), (vii),
(ix), (x) or (xi) of the definition of Other Permitted Indebtedness, or
(C) by agreements and transactions permitted under the "Limitation on
Restricted Payments" covenant,
(iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary,
(iv) (A) the terms of the BKC Intercreditor Agreement and any other BKC
Agreements, and (B) customary provisions of any other franchise,
distribution or similar agreement,
(v) any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by the Company or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets
of any person, other than the person, or the property or assets of the
person, so acquired,
(vi) Indebtedness or other agreements existing on the date of original
issuance of the Senior Notes,
(vii) any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v), (vi), (vii),
(ix), (x) or (xi) of the definition of Other Permitted Indebtedness;
provided that the encumbrances and restrictions created in connection with
such Refinancing Indebtedness are no more restrictive in any material
respect with regard to the interests of the holders of Senior Notes than
the encumbrances and restrictions in the refinanced Indebtedness,
(viii) any restrictions, with respect to a Restricted Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such
Restricted Subsidiary,
(ix) the terms of any Indebtedness of the Company incurred in connection
with the "Limitation on Incurrence of Indebtedness" covenant, provided
that the terms of such Indebtedness constitute no greater encumbrance or
restriction on the ability of any Restricted Subsidiary to pay dividends
or make distributions, make loans or advances or transfer properties or
assets than is otherwise permitted by this covenant, or
(x) the terms of purchase money obligations, but only to the extent such
purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens or restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
Limitation on Transactions With Affiliates. The Indenture provides that
neither the Company nor any of its Restricted Subsidiaries may make any loan,
advance, guarantee or capital contribution to, or for the benefit of, or
sell, lease, transfer or dispose of any properties or assets to, or for the
benefit of, or purchase or lease any property or assets from, or enter into
any or amend any contract, agreement or understanding with, or for the
benefit of, an Affiliate (each such transaction or series of related
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transactions that are part of a common plan are referred to as an "Affiliate
Transaction"), except in good faith and on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction on an arm's length basis from
an unrelated person.
The Indenture further provides that the Company will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transaction
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $2,500,000 (including cash and non-cash
payments and benefits valued at their fair market value by the Board of
Directors of the Company in good faith) unless the Company delivers to the
Trustee:
(i) a resolution of the Board of Directors of the Company stating that
the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of the Indenture, and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) and
(B) above, a written certification from a nationally recognized
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to the Company or such Restricted Subsidiary, as the case may be,
from a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will
not apply to:
(i) transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries;
(ii) payments under the TJC Agreement;
(iii) any other payments or transactions permitted pursuant to the
"Limitation on Restricted Payments" covenant;
(iv) (A) payments and transactions under the Executive Employment
Agreements and (B) reasonable compensation paid to officers, employees or
consultants of the Company or any Subsidiary as determined in good faith
by the Company's Board of Directors or executives;
(v) payments and transactions under the Jaro Leases;
(vi) payments and transactions involving First National Bank of Boston
and its subsidiaries and affiliates in connection with the BBI Note, the
Credit Agreement and any other Indebtedness permitted by the "Limitation
on Incurrence of Indebtedness" covenant; or
(vii) payments and transactions in connection with the Offerings and the
application of the net proceeds therefrom as described under "Use of
Proceeds."
Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly
or indirectly, to guarantee any Indebtedness of the Company other than the
Senior Notes (the "Other Company Indebtedness") unless (A) such Restricted
Subsidiary contemporaneously executes and delivers a supplemental indenture
to the Indenture providing for a guarantee of payment of the Senior Notes
then outstanding by such Restricted Subsidiary to the same extent as the
guarantee of payment (the "Other Company Indebtedness Guarantee") of the
Other Company Indebtedness (including waiver of subrogation, if any) and (B)
if the Other Company Indebtedness guaranteed by such Restricted Subsidiary is
(1) Senior Indebtedness, the guarantee for the Senior Notes shall be pari
passu in right of payment with the Other Company Indebtedness Guarantee
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and (2) Subordinated Indebtedness, the guarantee for the Senior Notes shall
be senior in right of payment to the Other Company Indebtedness Guarantee;
provided that the foregoing will not limit or restrict guarantees issued by
Restricted Subsidiaries in respect of Indebtedness of other Restricted
Subsidiaries.
Each guarantee of the Senior Notes created by a Restricted Subsidiary
pursuant to the provisions described in the foregoing paragraph shall be in
form and substance satisfactory to the Trustee and shall provide, among other
things, that it will be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer permitted by the Indenture
of (a) all of the Company's Capital Stock in such Restricted Subsidiary or
(b) the sale of all or substantially all of the assets of the Restricted
Subsidiary and upon the application of the Net Proceeds from such sale in
accordance with the requirements of the "Asset Sales" provisions described
herein or (ii) the release or discharge of the Other Company Indebtedness
Guarantee that resulted in the creation of such guarantee of the Senior
Notes, except a discharge or release by or as a result of direct payment
under such Other Company Indebtedness Guarantee.
Designation of Restricted and Non-Restricted Subsidiaries. The Indenture
provides that, subject to the exceptions described below, from and after the
date of original issuance of the Senior Notes, the Company may designate any
existing or newly formed or acquired Subsidiary as a Non-Restricted
Subsidiary; provided that (i) either (A) the Subsidiary to be so designated
has total assets of $1,000,000 or less or (B) immediately before and after
giving effect to such designation on a Pro Forma Basis: (1) the Company could
incur $1.00 of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant determined on a Pro Forma
Basis; and (2) no Default or Event of Default shall have occurred and be
continuing, and (ii) all transactions between the Subsidiary to be so
designated and its Affiliates remaining in effect are permitted pursuant to
the "Limitation on Transactions with Affiliates" covenant. Any Investment
made by the Company or any Restricted Subsidiary which is redesignated from a
Restricted Subsidiary to a Non-Restricted Subsidiary shall thereafter be
considered as having been a Restricted Payment (to the extent not previously
included as a Restricted Payment) made on the day such Subsidiary is
designated a Non-Restricted Subsidiary in the amount of the greater of (i)
the fair market value (as determined by the Board of Directors of the Company
in good faith) of the Equity Interests of such Subsidiary held by the Company
and its Restricted Subsidiaries on such date, and (ii) the amount of the
Investments determined in accordance with GAAP made by the Company and any of
its Restricted Subsidiaries in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted
Subsidiary. The Company may not, and may not permit any Restricted Subsidiary
to, take any action or enter into any transaction or series of transactions
that would result in a Person becoming a Restricted Subsidiary (whether
through an acquisition, the redesignation of a Non-Restricted Subsidiary or
otherwise, but not including through the creation of a new Restricted
Subsidiary) unless, immediately before and after giving effect to such
action, transaction or series of transactions on a Pro Forma Basis, (a) the
Company could incur at least $1.00 of additional Indebtedness pursuant to the
first sentence of "Limitation on Incurrence of Indebtedness" and (b) no
Default or Event of Default shall have occurred and be continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal
of such designation is required to be made by a resolution adopted by a
majority of the Board of Directors of the Company stating that the Board of
Directors has made such designation in accordance with the Indenture, and the
Company is required to deliver to the Trustee such resolution together with
an Officers' Certificate certifying that the designation complies with the
Indenture. Such designation will be effective as of the date specified in the
applicable resolution, which may not be before the date the applicable
Officers' Certificate is delivered to the Trustee.
MERGER OR CONSOLIDATION
The Indenture provides that the Company shall not consolidate or merge
with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to, any person (any such consolidation,
merger or sale being a "Disposition") unless: (a) the successor corporation
of such Disposition or the corporation to which such Disposition shall have
been made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (b) the successor
corporation
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of such Disposition or the corporation to which such Disposition shall have
been made expressly assumes the Obligations of the Company, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee,
under the Indenture and the Senior Notes; (c) immediately after such
Disposition, no Default or Event of Default shall exist; and (d) the
corporation formed by or surviving any such Disposition, or the corporation
to which such Disposition shall have been made, shall (i) have Consolidated
Net Worth (immediately after the Disposition but prior to giving any pro
forma effect to purchase accounting adjustments or Restructuring Charges
resulting from the Disposition) equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the Disposition, (ii) be permitted
immediately after the Disposition by the terms of the Indenture to issue at
least $1.00 of additional Indebtedness determined on a Pro Forma Basis, and
(iii) have a Cash Flow Coverage Ratio, for the four fiscal quarters
immediately preceding the applicable Disposition, and determined on a Pro
Forma Basis, equal to or greater than the actual Cash Flow Coverage Ratio of
the Company for such four quarter period. The limitations in the Indenture on
the Company's ability to make a Disposition described in this paragraph do
not restrict the Company's ability to sell less than all or substantially all
of its assets, such sales being governed by the "Asset Sales" provisions of
the Indenture as described herein.
Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustee an Officers' Certificate to the foregoing effect and
an opinion of counsel stating that the proposed Disposition and such
supplemental indenture comply with the Indenture.
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF SENIOR NOTES
So long as the Senior Notes are outstanding, whether or not the Company is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall submit for filing with the Commission the annual
reports, quarterly reports and other documents relating to the Company and
its Restricted Subsidiaries that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) if the Company were
subject to such reporting requirements. The Company will also provide to all
holders of Senior Notes and file with the Trustee copies of such annual
reports, quarterly reports and other documents required to be furnished to
stockholders generally under the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that an Event of Default is: (a) a default for 30
days in payment of interest on the Senior Notes; (b) a default in payment
when due of principal or premium, if any, with respect to the Senior Notes;
(c) the failure of the Company to comply with any of its other agreements or
covenants in, or provisions of, such Indenture or the Senior Notes
outstanding under such Indenture and the Default continues for the period, if
applicable, and after the notice specified in the next paragraph; (d) a
default by the Company or any Restricted Subsidiary under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any Restricted Subsidiary (or the payment of which is guaranteed by the
Company or any Restricted Subsidiary), whether such Indebtedness or guarantee
now exists or shall be created hereafter, if (1) either (A) such default
results from the failure to pay principal of or interest on any such
Indebtedness (after giving effect to any extensions thereof) or (B) as a
result of such default the maturity of such Indebtedness has been accelerated
prior to its expressed maturity, and (2) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal or interest thereon, or,
because of the acceleration of the maturity thereof, aggregates in excess of
$5,000,000; (e) a failure by the Company or any Restricted Subsidiary to pay
final judgments (not covered by insurance) aggregating in excess of
$5,000,000 which judgments a court of competent jurisdiction does not
rescind, annul or stay within 45 days after their entry; and (f) certain
events of bankruptcy or insolvency involving the Company or any Significant
Subsidiary. In the case of any Event of Default pursuant to clause (a) or (b)
above occurring by reason of any willful action (or inactions) taken (or not
taken) by or on behalf of the Company with the intention of avoiding payment
of the premium that the Company would have to pay pursuant to a redemption of
Senior Notes as described under "--Redemption of Senior Notes--Optional
Redemption," an equivalent premium shall also become and be immediately, due
and payable to the extent permitted by law.
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A Default or Event of Default under clause (c) (other than an Event of
Default arising under the "Merger or Consolidation" covenant which shall be
an Event of Default with the notice but without the passage of time specified
in this paragraph) is not an Event of Default under the Indenture until the
Trustee or the holders of at least 25% in principal amount of the Senior
Notes then outstanding notify the Company of the Default and the Company does
not cure the Default within 30 days after receipt of the notice. A Default or
Event of Default under clause (f) of the preceding paragraph will result in
the Senior Notes automatically becoming due and payable without further
action or notice.
Upon the occurrence of an Event of Default, the Trustee or the holders of
at least 25% in principal amount of the then outstanding Senior Notes may
declare all Senior Notes to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that
it is a "notice of acceleration" (the "Acceleration Notice") and the same
shall become immediately due and payable. The holders of a majority in
principal amount of the Senior Notes then outstanding under the Indenture, by
notice to the Trustee, may rescind any declaration of acceleration of such
Senior Notes and its consequences (if the rescission would not conflict with
any judgment or decree) if all existing Events of Default (other than the
nonpayment of principal of or interest on such Senior Notes that shall have
become due by such declaration) shall have been cured or waived. Subject to
certain limitations, holders of a majority in principal amount of the Senior
Notes then outstanding under the Indenture may direct the Trustee in its
exercise of any trust or power. Holders of the Senior Notes may not enforce
the Indenture, except as provided therein. The Trustee may withhold from
holders of Senior Notes notice of any continuing Default or Event of Default
(except a Default or an Event of Default in payment of principal, premium, if
any, or interest) if the Trustee determines that withholding notice is in
their interest.
The holders of a majority in aggregate principal amount of the Senior
Notes then outstanding may on behalf of all holders of such Senior Notes
waive any existing Default or Event of Default under the Indenture and its
consequences, except a continuing Default in the payment of the principal of,
or premium, if any, or interest on, such Senior Notes, which may only be
waived with the consent of each holder of the Senior Notes affected.
Upon any payment or distribution of assets of the Company and its
subsidiaries in a total or partial liquidation, dissolution, reorganization
or similar proceeding, including a Default under clause (f) above involving
certain events of bankruptcy or insolvency of the Company or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the
claims of any Holders of Senior Notes given the effective structural
subordination of the Senior Notes to the obligations of the Company under the
Credit Agreement and the BKC Intercreditor Agreement and to the obligations
of the Subsidiaries of the Company.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon an officer of the Company
becoming aware of any Default or Event of Default, a statement specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS AND
SUBSIDIARIES
No officer, employee, director, stockholder or Subsidiary of the Company
shall have any liability for any Obligations of the Company under the Senior
Notes or the Indenture, or for any claim based on, in respect of, or by
reason of, such Obligations or the creation of any such Obligation, except,
in the case of a Subsidiary, for an express guarantee or an express creation
of any Lien by such Subsidiary of the Company's Obligations under the Senior
Notes issued in accordance with the Indenture. Each holder of the Senior
Notes by accepting a Senior Note waives and releases all such liability, and
such waiver and release is part of the consideration for issuance of the
Senior Notes. The foregoing waiver may not be effective to waive liabilities
under the Federal securities laws and the Commission is of the view that such
a waiver is against public policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company at any time may terminate all its obligations under the Senior
Notes and the Indenture ("legal defeasance option"), except for certain
obligations (including those with respect to the defeasance
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trust (as defined herein) and obligations to register the transfer or
exchange of the Senior Notes, to replace mutilated, destroyed, lost or stolen
Notes and to maintain a registrar and paying agent in respect of the Senior
Notes). The Company at any time may terminate (1) its obligations under the
"Change of Control" and "Asset Sales" provisions described herein and the
covenants described under "Certain Covenants" and certain other covenants in
the Indenture, (2) the operation of clauses (c), (d), (e), and (f) contained
in the first paragraph of the "Events of Default and Remedies" provisions
described herein and (3) the limitations contained in clauses (c) and (d)
under the "Merger or Consolidation" provisions described herein
(collectively, a "covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Senior Notes may not be
accelerated because of an Event of Default with respect thereto. If the
Company exercises its covenant defeasance option, payment of the Senior Notes
shall not be accelerated because of an Event of Default specified in clauses
(c), (d), (e) or (f) in the first paragraph under the "Events of Default and
Remedies" provisions described herein or because of the Company's failure to
comply with clauses (c) and (d) under the "Merger or Consolidation"
provisions described herein.
To exercise either defeasance option with respect to the Senior Notes
outstanding, the Company must irrevocably deposit in trust (the "defeasance
trust") with the Trustee money or U.S. Government Obligations (as defined in
the Indenture) for the payment of principal of, premium, if any, and unpaid
interest on the Senior Notes then outstanding to redemption or maturity, as
the case may be, and must comply with certain other conditions, including the
passage of 91 days and the delivery to the Trustee of an opinion of counsel
to the effect that holders of such Senior Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Senior Notes may transfer or exchange their Senior Notes in
accordance with the Indenture, but the Registrar may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and
to pay any taxes and fees required by law or permitted by the Indenture, in
connection with any such transfer or exchange. Neither the Company nor the
Registrar is required to issue, register the transfer of, or exchange (i) any
Senior Note selected for redemption or tendered pursuant to an Offer, or (ii)
any Senior Note during the period between (a) the date the Trustee receives
notice of a redemption from the Company and the date the Senior Notes to be
redeemed are selected by the Trustee or (b) a record date and the next
succeeding interest payment date. The registered holder of a Senior Note will
be treated as its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of the Senior Notes then outstanding under such Indenture,
and any existing Default or Event of Default (other than a payment default)
or compliance with any provision may be waived with the consent of the
holders of a majority in principal amount of the Senior Notes then
outstanding under the Indenture. Without the consent of any holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture or
the Senior Notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Senior Notes in addition to or in place of certificated
Senior Notes, to provide for the assumption by a successor corporation of the
Company's obligations to the holders of Senior Notes in the case of a
Disposition, to comply with the Trust Indenture Act, or to make any change
that does not materially adversely affect the legal rights of any holder of
Senior Notes.
Without the consent of each holder of Senior Notes affected, the Company
may not (i) reduce the principal amount of Senior Notes whose holders must
consent to an amendment to the Indenture or a
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waiver under the Indenture; (ii) reduce the rate of or change the interest
payment time of the Senior Notes, or alter the redemption provisions with
respect thereto (other than the provisions relating to the covenants
described above under the caption "--Mandatory Offers to Purchase Senior
Notes--Change of Control" and "--Asset Sales") or the price at which the
Company is required to offer to purchase the Senior Notes; (iii) reduce the
principal of or change the fixed maturity of the Senior Notes; (iv) make the
Senior Notes payable in money other than stated in the Senior Notes; (v) make
any change in the provisions concerning waiver of Defaults or Events of
Default by holders of the Senior Notes, or rights of holders of the Senior
Notes to receive payment of principal or interest; or (vi) waive any default
in the payment of principal of, premium, if any, or unpaid interest on, and
Liquidated Damages, if any, with respect to the Senior Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
if it becomes a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest (as
defined in the Trust Indenture Act) it must eliminate such conflict or
resign.
The holders of a majority in principal amount of the Senior Notes then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that if an Event of
Default occurs (and has not been cured), the Trustee will be required, in the
exercise of its power, to use the degree of care and skill of a prudent
person in similar circumstances in the conduct of its own affairs. Subject to
the provisions of the Indenture, the Trustee will be under no obligation to
exercise any of its rights or powers under its Indenture at the request of
any of the holders of the Senior Notes, unless such holders shall have
offered to the Trustee security and indemnity satisfactory to it.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Senior Notes to be resold
as set forth herein will initially be issued in the form of one Global Senior
Note (the "Global Senior Note"). The Global Senior Note will be deposited on
the date of the closing of the sale of the Senior Notes offered hereby (the
"Closing Date") with, or on behalf of, the Depositary and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred
to herein as the "Global Senior Note Holder").
Senior Notes that are issued as described below under "--Certificated
Senior Notes" will be issued in the form of registered definitive
certificates (the "Certificated Senior Notes"). Such Certificated Senior
Notes may, unless the Global Senior Note has previously been exchanged for
Certificated Senior Notes, be exchanged for an interest in the Global Senior
Note representing the principal amount of Senior Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Underwriters), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's
system is also available to other entities such as banks, brokers, dealers
and trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or
on behalf of the Depositary only through the Depositary's Participants or the
Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Senior Note, the Depositary will
credit the accounts of Participants designated by the Underwriters with
portions of principal amount of the Global Senior Note and (ii) ownership of
the
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Senior Notes evidenced by the Global Senior Note will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the
Depositary's Indirect Participants. Prospective purchasers are advised that
the laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer Senior Notes evidenced by the Global Senior Note will be limited to
such extent.
So long as the Global Senior Note Holder is the registered owner of any
Senior Notes, the Global Senior Note Holder will be considered the sole
holder under the Indenture of any Senior Notes evidenced by the Global Senior
Note. Beneficial owners of Senior Notes evidenced by the Global Senior Note
will not be considered the owners or holders thereof under the Indenture for
any purpose, including with respect to the giving of any directions,
instructions or approvals to the Trustee thereunder. Neither the Company nor
the Trustee will have any responsibility or liability for any aspect of the
records of the Depositary or for maintaining, supervising or reviewing any
records of the Depositary relating to the Senior Notes.
Payments in respect of the principal of, premium, if any, and interest on
Senior Notes registered in the name of the Global Senior Note Holder on the
applicable record date will be payable by the Trustee to or at the direction
of the Global Senior Note Holder in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names Senior Notes, including the
Global Senior Note, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Senior Notes. The Company believes, however,
that it is currently the policy of the Depositary to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Senior Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
CERTIFICATED SENIOR NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global Senior Note may, upon request to the Trustee, exchange such
beneficial interest for Senior Notes in the form of Certificated Senior
Notes. Upon any such issuance, the Trustee is required to register such
Certificated Senior Notes in the name of, and cause the same to be delivered
to, such person or persons (or the nominee of any thereof). In addition, if
(i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Senior Notes in the form of Certificated Senior Notes under the Indenture,
then, upon surrender by the Global Senior Note Holder of its Global Senior
Note, Senior Notes in such form will be issued to each person that the Global
Senior Note Holder and the Depositary identify as being the beneficial owner
of the related Senior Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Senior Note Holder or the Depositary in identifying the beneficial
owners of Senior Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Senior
Note Holder or the Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Senior Notes
represented by the Global Senior Note (including principal, premium, if any,
and interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Senior Note Holder. With respect to
Certificated Senior Notes, the Company will make all payments of principal,
premium, if any, and interest by wire transfer of immediately available funds
to the accounts specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address.
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CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture.
Reference is made to the Indenture for the definition of all other terms used
in the Indenture.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, (ii) any spouse, immediate family member or other
relative who has the same principal residence as any person described in
clause (i) above, (iii) any trust in which any such persons described in
clause (i) or (ii) above has a beneficial interest, and (iv) any corporation
or other organization of which any such persons described above collectively
own 50% or more of the equity of such entity.
"Asset Sale" means the sale, lease, conveyance or other disposition by the
Company or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Senior Notes or thereafter acquired, in a
single transaction or in a series of related transactions; provided that
Asset Sales will not include such sales, leases, conveyances or dispositions
in connection with (i) the sale or disposition of any Restricted Investment,
(ii) any Equity Offering by (a) the Company or (b) any Restricted Subsidiary
if the proceeds therefrom are used to make mandatory prepayments of
Indebtedness under the Credit Agreement or Indebtedness of the Restricted
Subsidiaries or redeem Senior Notes as described above in "Optional
Redemption," (iii) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of any
kind, (iv) the sale of inventory in the ordinary course of business, (v) a
sale-leaseback of assets within one year following the acquisition of such
assets, (vi) the grant of any license of patents, trademarks, registration
therefor and other similar intellectual property, (vii) a transfer of assets
by the Company or a Restricted Subsidiary to the Company or a Restricted
Subsidiary, (viii) the designation of a Restricted Subsidiary as a
Non-Restricted Subsidiary pursuant to the "Designation of Restricted and
Non-Restricted Subsidiaries" covenant, (ix) the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company as
permitted under "--Merger or Consolidation," (x) the sale or disposition of
obsolete equipment or other obsolete assets, (xi) Restricted Payments
permitted by the "Limitations on Restricted Payments" covenant, (xii) the BKC
Designated Transfer, or (xiii) the exchange of assets for other non-cash
assets that (a) are useful in the business of the Company and its Restricted
Subsidiaries and (b) have a fair market value at least equal to the fair
market value of the assets being exchanged (as determined by the Board of
Directors in good faith).
"BKC" means Burger King Corporation and its successors and assigns.
"BKC Agreements" means the franchise, trademark, royalty, lease, sublease
and other agreements, obligations and liabilities of the Company and its
Subsidiaries with or to BKC.
"BKC Designated Transfer" means the sale by the Company of up to 10 Burger
King restaurants to a franchisee to be designated by BKC.
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including any
preferred stock.
"Cash Flow" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Restricted Subsidiaries, to the
extent not included in calculating Consolidated Net Income, plus (b) any
provision for taxes based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income, plus (c)
Consolidated Interest Expense, to the extent deducted in computing
Consolidated Net Income, plus (d) the amortization of all intangible assets,
to the extent such amortization was deducted in computing Consolidated Net
Income (including, but not limited to, inventory write-ups, goodwill, debt
and financing costs, and Incentive Arrangements), plus (e) any
non-capitalized transaction costs incurred in connection with actual or
proposed financings, acquisitions or divestitures (including, but not limited
to, financing and refinancing fees, including those in connection with the
Offerings), to the extent deducted in computing Consolidated Net Income, plus
(f) all
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depreciation and all other non-cash charges (including, without limitation,
those charges relating to purchase accounting adjustments and LIFO
adjustments), to the extent deducted in computing Consolidated Net Income,
plus (g) any interest income, to the extent such income was not included in
computing Consolidated Net Income, plus (h) all dividend payments on
preferred stock (whether or not paid in cash) to the extent deducted in
computing Consolidated Net Income, plus (i) any extraordinary or
non-recurring charge or expense arising out of the implementation of SFAS 106
or SFAS 109 to the extent deducted in computing Consolidated Net Income, plus
(j) to the extent not covered in clause (e) above, fees paid or payable in
respect of the TJC Agreement to the extent deducted in computing Consolidated
Net Income, plus (k) the net loss of any person, other than those of a
Restricted Subsidiary, to the extent deducted in computing Consolidated Net
Income, plus (l) net losses in respect of any discontinued operations as
determined in accordance with GAAP, to the extent deducted in computing
Consolidated Net Income; provided, however, that if any such calculation
includes any period during which an acquisition or sale of a person or the
incurrence or repayment of Indebtedness occurred, then such calculation for
such period shall be made on a Pro Forma Basis.
"Cash Flow Coverage Ratio" means, for any given period and person, the
ratio of: (i) Cash Flow, divided by (ii) the sum of Consolidated Interest
Expense and all dividend payments on any series of preferred stock of such
person (except dividends paid or payable in additional shares of Capital
Stock (other than Disqualified Stock) and except for accrued and unpaid
dividends with respect to preferred stock outstanding on the date of original
issuance of the Senior Notes), in each case, without duplication; provided,
however, that if any such calculation includes any period during which an
acquisition or sale of a person or the incurrence or repayment of
Indebtedness occurred, then such calculation for such period shall be made on
a Pro Forma Basis.
"Change of Control" means the occurrence of each of the following: (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), excluding the Existing Stockholders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; and
(ii) the Company consolidates with, or merges with or into, another person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is
converted into or exchanged for (1) Voting Stock (other than Disqualified
Stock) of the surviving or transferee corporation or (2) cash, securities and
other property in an amount which could be paid by the Company as a
Restricted Payment under the Indenture and (B) immediately after such
transaction no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), excluding the Existing Stockholders, is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation; and (iii) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders
of the Company was approved by a vote of a majority of the directors then
still in office who are entitled to vote to elect such new director and were
either directors at the beginning of such period or persons whose election as
directors or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Company
then in office.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the Company's assets. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the
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phrase under applicable law. Accordingly, the ability of a holder of Senior
Notes to require the Company to repurchase such Senior Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries to another person may be
uncertain.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person,
the aggregate of the interest expense in respect of all Indebtedness of such
person and its Restricted Subsidiaries for such period, on a consolidated
basis, determined in accordance with GAAP (including amortization of original
issue discount on any such Indebtedness, all non-cash interest payments, the
interest portion of any deferred payment obligation and the interest
component of capital lease obligations, but excluding amortization of
deferred financing fees if such amortization would otherwise be included in
interest expense); provided, however, that for the purpose of the Cash Flow
Coverage Ratio, Consolidated Interest Expense shall be calculated on a Pro
Forma Basis; provided further that any premiums, fees and expenses (including
the amortization thereof) payable in connection with the Offerings and the
application of the net proceeds therefrom or any other refinancing of
Indebtedness will be excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that: (i) the Net Income of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, and (ii) Consolidated Net Income of any person
will not include, without duplication, any deduction for: (A) any increased
amortization or depreciation resulting from the write-up of assets pursuant
to Accounting Principles Board Opinion Nos. 16 and 17, as amended or
supplemented from time to time, (B) the amortization of all intangible assets
(including amortization attributable to inventory write-ups, goodwill, debt
and financing costs, and Incentive Arrangements), (C) any non-capitalized
transaction costs incurred in connection with actual or proposed financings,
acquisitions or divestitures (including, but not limited to, financing and
refinancing fees), (D) any extraordinary or nonrecurring charges relating to
any premium or penalty paid, write-off or deferred financing costs or other
financial recapitalization charges in connection with redeeming or retiring
any Indebtedness prior to its stated maturity, and (E) any Restructuring
Charges; provided, however, that for purposes of determining the Cash Flow
Coverage Ratio, Consolidated Net Income shall be calculated on a Pro Forma
Basis.
"Consolidated Net Worth" with respect to any person means, as of any date,
the consolidated equity of the common stockholders of such person (excluding
the cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in
respect of the payment of dividends on any series of such person's preferred
stock if such dividends are paid in additional shares of Capital Stock (other
than Disqualified Stock); provided, however, that Consolidated Net Worth
shall also include, without duplication: (a) the amortization of all
write-ups of inventory, (b) the amortization of all intangible assets
(including amortization of goodwill, debt and financing costs, and Incentive
Arrangements), (c) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees), (d) any
increased amortization or depreciation resulting from the write-up of assets
pursuant to Accounting Principles Board Opinion Nos. 16 and 17, as amended
and supplemented from time to time, (e) any extraordinary or nonrecurring
charges or expenses relating to any premium or penalty paid, write-off or
deferred financing costs or other financial recapitalization charges incurred
in connection with redeeming or retiring any Indebtedness prior to its stated
maturity, (f) any Restructuring Charges, and (g) any extraordinary or
non-recurring charge arising out of the implementation of SFAS 106 or SFAS
109; provided, however, that Consolidated Net Worth shall be calculated on a
Pro Forma Basis.
"Credit Agreement" means the Second Amended and Restated Term Loan and
Revolving Credit Agreement, dated February 7, 1996, among the Company,
certain of its Subsidiaries and the lenders party thereto in their capacities
as lenders thereunder and The First National Bank of Boston, as agent,
together with all loan documents and instruments thereunder (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any
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amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including, without limitation,
increasing the amount of available borrowings thereunder, and all Obligations
with respect thereto, in each case, to the extent permitted by the
"Limitation on Incurrence of Indebtedness" covenant, or adding Subsidiaries
of the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, the maturity date of the Senior Notes.
"Equity Interests" means Capital Stock or partnership interests or
warrants, options or other rights to acquire Capital Stock or partnership
interests (but excluding (i) any debt security that is convertible into, or
exchangeable for, Capital Stock or partnership interests, and (ii) any other
Indebtedness or Obligation) provided, however, that Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company for
cash of Capital Stock or other Equity Interests and all warrants, options or
other rights to acquire Capital Stock, other than (i) an offering of
Disqualified Stock or (ii) Incentive Arrangements or obligations or payments
thereunder.
"Exchange Debenture Issue Date" means the date on which the Exchange
Debentures are originally issued under the Exchange Debenture Indenture.
"Executive Employment Agreements" means the Employment Agreements,
effective as of September 1, 1994 (and in the case of Mr. Osborn, as of the
date of issuance of the Senior Notes), between the Company, on the one hand,
and Lawrence E. Jaro, William C. Osborn, Gary W. Hubert, Joel D. Aaseby and
Scott E. Vasatka, on the other hand, as in effect at the date of issuance of
the Senior Notes.
"Existing Stockholders" means (a) The Jordan Company and Jordan/Zalaznick
Capital Corporation and their respective affiliates, principals, partners and
employees, family members of any of the foregoing and trusts for the benefit
of any of the foregoing, including, without limitation, MCIT PLC, Leucadia
National Corporation and Jordan Industries, Inc., and their respective
Subsidiaries and (b) the officers and directors of the Company on the date of
issuance of the Senior Notes and their respective Affiliates and family
members and trusts for the benefit of any of the foregoing.
"GAAP" means generally accepted accounting principles, consistently
applied, as of the date of original issuance of the Senior Notes. All
financial and accounting determinations and calculations under the Indenture
will be made in accordance with GAAP.
"Hedging Obligations" means, with respect to any person, the Obligations
of such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such person against
fluctuations, or otherwise to establish financial hedges in respect of,
exchange rates, currency rates or interest rates.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans and similar arrangements made in connection with acquisitions of
persons or businesses by the Company or the Restricted Subsidiaries or the
retention of executives, officers or employees by the Company or the
Restricted Subsidiaries.
"Indebtedness" means, with respect to any person, any indebtedness,
whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of
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credit (or reimbursement agreements in respect thereof) or representing the
deferred and unpaid balance of the purchase price of any property (including
pursuant to capital leases), except any such balance that constitutes an
accrued expense or a trade payable, and any Hedging Obligations, if and to
the extent such indebtedness (other than a Hedging Obligation) would appear
as a liability upon a balance sheet of such person prepared on a consolidated
basis in accordance with GAAP, and also includes, to the extent not otherwise
included, the guarantee of items that would be included within this
definition; provided, however, that "Indebtedness" will not include (i) any
Incentive Arrangements or obligations or payments thereunder, or (ii) any BKC
Agreement, except for any indebtedness in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or representing
the deferred and unpaid balance of the purchase price of any property
(including pursuant to capital leases).
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization,
receivership, liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, or (ii) any assignment for the benefit of creditors
or any other marshalling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided, however, that any Indebtedness or Capital Stock of a
person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed
to be issued by such Restricted Subsidiary at the time it becomes a
Restricted Subsidiary. For this definition, the terms "issuing," "issuer,"
"issuance" and "issued" have meanings correlative to the foregoing.
"Jaro Leases" means the leases between the Company's Subsidiaries and
Lawrence E. Jaro relating to two Burger King restaurants as in effect at the
date of original issuance of the Senior Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes, realized in
connection with any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale,
other than the portion of such deferred payment constituting interest, and
including any amounts received as disbursements or withdrawals from any
escrow or similar account established in connection with any such Asset Sale,
but, in either such case, only as and when so received) received by the
Company or any of its Restricted Subsidiaries in respect of such Asset Sale,
net of: (i) the cash expenses of such Asset Sale (including, without
limitation, the payment of principal of, and premium, if any, and interest
on, Indebtedness required to be paid as a result of such Asset Sale (other
than the Senior Notes) and legal, accounting, management and advisory and
investment banking fees and sales commissions), (ii) taxes paid or payable as
a result thereof, (iii) any portion of cash proceeds that the Company
determines in good faith should be reserved for post-closing adjustments, it
being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post-closing
adjustments payable by the Company or any of its Restricted Subsidiaries
shall constitute Net Proceeds on such date, (iv) any relocation expenses and
pension, severance and shutdown costs incurred as a result thereof, and (v)
any deduction or appropriate amounts to be provided by the Company or any of
its Restricted Subsidiaries as a reserve in accordance with GAAP against any
liabilities associated with the
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asset disposed of in such transaction and retained by the Company or such
Restricted Subsidiary after such sale or other disposition thereof,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with such transaction.
"Non-Restricted Subsidiary" means any Subsidiary of the Company other than
a Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest, premiums, penalties, fees, indemnities, expenses (including legal
fees and expenses), reimbursement obligations and other liabilities payable
to the holder of such Indebtedness under the documentation governing such
Indebtedness, and any other claims of such holder arising in respect of such
Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of the Company and its Restricted Subsidiaries existing
as of the date of original issuance of the Senior Notes and all related
Obligations as in effect on such date;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of bankers acceptances and letters of credit (including, without
limitation, letters of credit in respect of workers' compensation claims)
issued in the ordinary course of business, or other Indebtedness in
respect of reimbursement-type obligations regarding workers' compensation
claims;
(iii) Refinancing Indebtedness, provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding
principal amount of Indebtedness (including unused commitments) extended,
refinanced, renewed, replaced, substituted or refunded plus any amounts
incurred to pay premiums, fees and expenses in connection therewith, (B)
the Refinancing Indebtedness shall have a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of
the Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded; provided, however, that this limitation in this
clause (B) does not apply to Refinancing Indebtedness of Senior
Indebtedness, and (C) in the case of Refinancing Indebtedness of
Subordinated Indebtedness, such Refinancing Indebtedness shall be
subordinated to the Senior Notes at least to the same extent as the
Subordinated Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded;
(iv) intercompany Indebtedness of and among the Company and its
Restricted Subsidiaries (excluding guarantees by Restricted Subsidiaries
of Indebtedness of the Company not issued in compliance with the
"Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries" covenant);
(v) Indebtedness of the Company and its Restricted Subsidiaries incurred
in connection with making permitted Restricted Payments under clauses
(iii), (iv) (but only to the extent that such Indebtedness is provided by
the Company or a Restricted Subsidiary) or (x) of the second sentence of
the "Limitation on Restricted Payments" covenant;
(vi) Indebtedness of any Non-Restricted Subsidiary created after the date
of original issuance of the Senior Notes, provided that such Indebtedness
is nonrecourse to the Company and its Restricted Subsidiaries and the
Company and its Restricted Subsidiaries have no Obligations with respect
to such Indebtedness;
(vii) Indebtedness of the Company and its Restricted Subsidiaries under
Hedging Obligations;
(viii) Indebtedness of the Company and its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts, which will not be, and will not be deemed to be,
inadvertent) drawn against insufficient funds in the ordinary course of
business;
(ix) Indebtedness of any person at the time it is acquired as a
Restricted Subsidiary, provided that such Indebtedness was not issued by
such person in connection with or in anticipation of such acquisition;
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(x) guarantees by Restricted Subsidiaries of Indebtedness of any
Restricted Subsidiary if such Indebtedness so guaranteed is permitted
under the Indenture;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the Company
if the Indebtedness so guaranteed is permitted under the Indenture and the
Senior Notes are guaranteed by such Restricted Subsidiary to the extent
required by the "Limitation on Guaranties of Company Indebtedness by
Restricted Subsidiaries" covenant;
(xii) guarantees by the Company of Indebtedness of any Restricted
Subsidiary if the Indebtedness so guaranteed is permitted under the
Indenture;
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business;
(xiv) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets; and
(xv) If the Company issues Exchange Debentures in exchange for the Senior
Preferred Stock, the issuance of additional Exchange Debentures in lieu of
cash interest with respect to all interest payments payable on or prior to
December 1, 2001 in accordance with the Exchange Debenture Indenture.
"Permitted Liens" means: (a) with respect to the Company and its
Restricted Subsidiaries,
(1) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(2) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made therefor;
(3) Liens incurred on deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred on deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance and return of money bonds and other obligations of
a like nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money);
(5) easements, rights-of-way, zoning or other restrictions, minor defects
or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or
any of its Restricted Subsidiaries incurred in the ordinary course of
business;
(6) Liens (including extensions, renewals and replacements thereof) upon
property acquired (the "Acquired Property") after the date of original
issuance of the Senior Notes, provided that: (A) any such Lien is created
solely for the purpose of securing Indebtedness representing, or issued to
finance, refinance or refund, the cost (including the cost of
construction) of the Acquired Property, (B) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of the cost of the
Acquired Property, (C) such Lien does not extend to or cover any property
other than the Acquired Property and any improvements on such Acquired
Property, and (D) the issuance of the Indebtedness to purchase the
Acquired Property is permitted by the "Limitation on Incurrence of
Indebtedness" covenant;
(7) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
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(8) judgment and attachment Liens not giving rise to an Event of Default;
(9) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any of its Restricted
Subsidiaries;
(10) Liens securing Indebtedness under Hedging Obligations;
(11) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(12) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Company or its Restricted Subsidiaries
in the ordinary course of business;
(13) any interest or title of a lessor in property subject to any capital
lease obligation or operating lease;
(14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(15) Liens existing on the date of original issuance of the Senior Notes
and any extensions, refinancings, renewals, replacements, substitutions or
refundings thereof;
(16) any Lien granted to the Trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any indenture for
Senior Indebtedness permitted by the terms of the Indenture;
(17) Liens in respect of (A) the BKC Intercreditor Agreement or (B) other
BKC Agreements that do not constitute Indebtedness; and
(18) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not exceed
$5,000,000 (the fair market value to be determined on the date such Lien
is granted on such properties or assets);
(b) with respect to the Restricted Subsidiaries,
(1) Liens securing Restricted Subsidiaries' reimbursement Obligations
with respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof;
(2) Liens securing Indebtedness issued by Restricted Subsidiaries if such
Indebtedness is (A) under the Credit Agreement, or (B) permitted by the
first sentence of the "Limitation on Incurrence of Indebtedness" covenant,
clauses (i), (ii) or (iii) of the second sentence of the "Limitation on
Incurrence of Indebtedness" covenant, or clauses (i), (iii) (to the extent
the Indebtedness subject to such Refinancing Indebtedness was subject to
Liens), (vi), (vii), (ix) or (x) of the definition of Other Permitted
Indebtedness;
(3) Liens securing intercompany Indebtedness issued by any Restricted
Subsidiary to the Company or another Restricted Subsidiary; and
(4) Liens securing guarantees by Restricted Subsidiaries of Indebtedness
issued by the Company if such guarantees permitted by clause (xi) (but
only in respect of the property, rights and assets of the Restricted
Subsidiaries issuing such guarantees) of the definition of Other Permitted
Indebtedness;
(c) with respect to the Company,
(1) Liens securing Indebtedness issued by the Company if such
Indebtedness is (A) under the Credit Agreement, or (B) if such
Indebtedness is permitted by the "Limitation on Incurrence of
Indebtedness" covenant (including, but not limited to, Indebtedness issued
by the Company under the Credit Agreement pursuant to clause (i) and/or
clause (iii) of the second sentence of "Limitation on Incurrence of
Indebtedness" covenant);
(2) Liens securing Indebtedness of the Company if such Indebtedness is
permitted by clauses (i), (iii) (to the extent the Indebtedness subject to
such Refinancing Indebtedness was subject to Liens) or (vii) of the
definition of Other Permitted Indebtedness;
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(3) Liens securing guarantees by the Company of Indebtedness issued by
Restricted Subsidiaries if such Indebtedness is permitted by the
"Limitation on Incurrence of Indebtedness" covenant (including, but not
limited to, Indebtedness issued by Restricted Subsidiaries under the
Credit Agreement pursuant to clause (i) and/or clause (iii) of the second
sentence of the "Limitation on Incurrence of Indebtedness" covenant) and
if such guarantees are permitted by clause (xii) (but only in respect of
Indebtedness issued by the Restricted Subsidiaries under the Credit
Agreement pursuant to the "Limitation on Incurrence of Indebtedness"
covenant) of the definition of Other Permitted Indebtedness; and
(4) Liens securing the Company's reimbursement obligations with respect
to letters of credit that encumber documents and other property relating
to such letters of credit and the products and proceeds thereof
provided, however, that, notwithstanding any of the foregoing, the Permitted
Liens referred to in clause (c) of this definition shall not include any Lien
on Capital Stock of Restricted Subsidiaries held directly by the Company (as
distinguished from Liens on Capital Stock of Restricted Subsidiaries held by
other Restricted Subsidiaries) other than Liens securing (A) Indebtedness of
the Company issued under the Credit Agreement pursuant to the "Limitation on
Incurrence of Indebtedness" covenant and any permitted Refinancing
Indebtedness of such Indebtedness, (B) Liens in respect of (1) the BKC
Intercreditor Agreement and (2) other BKC Agreements that do not constitute
Indebtedness and (C) guarantees by the Company of Indebtedness issued by
Restricted Subsidiaries under the Credit Agreement pursuant to the
"Limitation on Incurrence of Indebtedness" covenant and any permitted
Refinancing Indebtedness of such Indebtedness.
"Pro Forma Basis" means, for purposes of determining Consolidated Net
Income in connection with the Cash Flow Coverage Ratio (including in
connection with the "Limitation on Restricted Payments" covenant, the
"Designation of Restricted and Non-Restricted Subsidiaries" covenant, the
"Merger or Consolidation" covenant, the incurrence of Indebtedness pursuant
to the first sentence of the "Limitation on Incurrence of Indebtedness"
covenant and Consolidated Net Worth for purposes of the "Merger or
Consolidation" covenant, giving pro forma effect to (x) any acquisition or
sale of a person, business or asset, related incurrence, repayment or
refinancing of Indebtedness or other related transactions, including any
Restructuring Charges which would otherwise be accounted for as an adjustment
permitted by Regulation S-X under the Securities Act or on a pro forma basis
under GAAP, or (y) any incurrence, repayment or refinancing of any
Indebtedness and the application of the proceeds therefrom, in each case, as
if such acquisition or sale and related transactions, restructurings,
consolidations, cost savings, reductions, incurrence, repayment or
refinancing were realized on the first day of the relevant period permitted
by Regulation S-X under the Securities Act or on a pro forma basis under
GAAP. Furthermore, in calculating the Cash Flow Coverage Ratio, (1) interest
on outstanding Indebtedness determined on a fluctuating basis as of the
determination date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate
of interest on such Indebtedness in effect on the determination date; (2) if
interest on any Indebtedness actually incurred on the determination date may
optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rates, then
the interest rate in effect on the determination date will be deemed to have
been in effect during the relevant period; and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest rate swaps
or similar interest rate protection Hedging Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Redeemable Preferred Stock" means preferred stock that by its terms or
otherwise is required to be redeemed or is redeemable at the option of the
holder thereof on, or prior to, the maturity date of the Senior Notes.
"Refinancing Indebtedness" means (i) Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund
any Indebtedness permitted under this Indenture or any Indebtedness issued to
so
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extend, refinance, renew, replace, substitute or refund such Indebtedness,
(ii) any refinancings of Indebtedness issued under the Credit Agreement, and
(iii) any additional Indebtedness issued to pay premiums and fees in
connection with clauses (i) and (ii).
"Restricted Investment" means any Investment in any person; provided that
Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments permitted by the Indenture; (ii)
any Incentive Arrangements; (iii) Investments in the Company; or (iv)
Investments in any Restricted Subsidiary (provided that any Investment in a
Restricted Subsidiary was made for fair market value (as determined by the
Board of Directors in good faith)). The amount of any Restricted Investment
shall be the amount of cash and the fair market value at the time of transfer
of all other property (as determined by the Board of Directors in good faith)
initially invested or paid for such Restricted Investment, plus all additions
thereto, without any adjustments for increases or decreases in value of or
write-ups, write-downs or write-offs with respect to, such Restricted
Investment.
"Restricted Subsidiary" means: (i) any Subsidiary of the Company existing
on the date of original issuance of the Senior Notes, and (ii) any other
Subsidiary of the Company formed, acquired or existing after the date of
original issuance of the Senior Notes that is designated as a "Restricted
Subsidiary" by the Company pursuant to a resolution approved a majority of
the Board of Directors, provided, however, that the term Restricted
Subsidiary shall not include any Subsidiary of the Company that has been
redesignated by the Company pursuant to a resolution approved by a majority
of the Board of Directors as a Non-Restricted Subsidiary in accordance with
the "Designation of Restricted and Non-Restricted Subsidiaries" covenant
unless such Subsidiary shall have subsequently been redesignated a Restricted
Subsidiary in accordance with clause (ii) of this definition.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any
persons or businesses either alone or together with the Company or any
Restricted Subsidiary, as permitted by GAAP or Regulation S-X under the
Securities Act.
"Senior Indebtedness" means: (i) all Obligations (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of the
Company, whether outstanding on the date of issuance of the Senior Notes or
thereafter created, incurred or assumed, of the following types: (A) all
Indebtedness of the Company (including without limitation the Senior Notes)
for money borrowed, and (B) all Indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which the Company is
responsible or liable; (ii) all capitalized lease obligations of the Company;
(iii) all Obligations of the Company: (A) for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (B) constituting Hedging Obligations, or (C) issued as the
deferred purchase price of property and all conditional sale Obligations of
the Company and all Obligations of the Company under any title retention
agreement; (iv) all guarantees of the Company with respect to Obligations of
other persons of the type referred to in clauses (ii) and (iii) and with
respect to the payment of dividends of other persons; and (v) all Obligations
of the Company consisting of modifications, renewals, extensions,
replacements and refundings of any Obligations described in clauses (i),
(ii), (iii) or (iv) unless, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is expressly provided that
such Obligations are subordinated or junior in right of payment to the Senior
Notes; provided, however, that Senior Indebtedness shall not be deemed to
include: (1) any Obligation of the Company to any Subsidiary, (2) any
liability for federal, state, local or other taxes owed or owing by the
Company, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities), (4) any Indebtedness, guarantee or
Obligation of the Company that is contractually subordinated or junior in any
respect to any other Indebtedness, guarantee or Obligation of the Company, or
(5) any Indebtedness to the extent the same is incurred in violation of the
Indenture. Senior Indebtedness shall include all Obligations in respect of
the Senior Notes and the Indenture.
To the extent any payment on the Senior Notes, whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise, is declared to be fraudulent or preferential,
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set aside or required to be paid to a trustee, receiver or other similar
party under any bankruptcy, insolvency, receivership or similar law, then if
such payment is recovered by, or paid over to, such trustee, receiver or
other similar party, the Senior Notes or part thereof originally intended to
be satisfied by such payment shall be deemed to be reinstated and outstanding
as if such payment had not occurred.
"Senior Preferred Stock Issue Date" means the date on which the Senior
Preferred Stock is originally issued under the Certificate of Designation.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that would be a "significant subsidiary" as defined in clause (2) of the
definition of such term in Rule 1-02 of Regulation S-X under the Securities
Act and the Exchange Act.
"Subordinated Indebtedness" means all Obligations of the type referred to
in clauses (i) through (v) of the definition of Senior Indebtedness, if the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, designates such Obligations as subordinated or junior in right
of payment to Senior Indebtedness.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors
or other governing body of such entity are owned by such person (regardless
of whether such Equity Interests are owned directly by such person or through
one or more Subsidiaries).
"TJC Agreement" means the Management Consulting Agreement, dated September
1, 1994, between the Company and TJC Management Corporation, as in effect on
the date of original issuance of the Senior Notes.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
then outstanding principal amount of such Indebtedness into (ii) the sum of
the product(s) obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other requirement payment of
principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
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UNITS
Each Unit offered hereby consists of $1,000 aggregate liquidation
preference of Senior Preferred Stock and 1.561 shares of Common Stock of the
Company. The Senior Preferred Stock and the Common Stock comprising each Unit
will not be separately tradable until the earliest to occur of (i) December
1, 1997, (ii) such earlier date as may be determined by the Underwriter,
(iii) in the event of a Change of Control, the date on which the Company
mails notice thereof to holders of the Senior Preferred Stock, (iv) in the
event that the Company elects to exchange the Senior Preferred Stock for
Exchange Debentures, the date on which the Company mails notice thereof to
holders of the Senior Preferred Stock, (v) in the event that the Company
elects to redeem the Senior Preferred Stock pursuant to the second paragraph
set forth under "--Redemption of Senior Preferred Stock," the date on which
the Company mails notice thereof to holders of the Senior Preferred Stock,
and (vi) the date on which the Company consummates a public offering of
Common Stock (such earliest date being the "Separation Date").
SENIOR PREFERRED STOCK
The Senior Preferred Stock will be issued pursuant to a Certificate of
Designation. The summary contained herein of certain provisions of the Senior
Preferred Stock does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Certificate of Designation,
the form of which has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. The definitions of certain terms used in
the Certificate of Designation and in the following summary are substantially
the same as those used in the Indenture. See "--Senior Notes--Certain
Definitions."
GENERAL
The Board of Directors has adopted resolutions creating a maximum of
2,500,000 shares of Senior Preferred Stock and will file a Certificate of
Designation with respect thereto with the Secretary of State of the State of
Delaware as required by Delaware law. Subject to certain conditions, the
Senior Preferred Stock is exchangeable for Exchange Debentures at the option
of the Company on any dividend payment date. The Senior Preferred Stock, when
issued and paid for by the Underwriter in accordance with the terms of the
Underwriting Agreement (as defined herein), will be fully paid and
non-assessable, and the holders thereof will not have any subscription or
preemptive rights related thereto. Fleet National Bank will be transfer agent
and registrar for the Senior Preferred Stock.
RANK
The Senior Preferred Stock will, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the
Company, rank (i) senior to all classes of Common Stock of the Company and to
each series of Preferred Stock existing on the date of this Prospectus and
each other class of capital stock or series of Preferred Stock established
after the date of this Prospectus by the Board of Directors the terms of
which do not expressly provide that it ranks senior to or on a parity with
the Senior Preferred Stock as to dividend distributions and distributions
upon the liquidation, winding-up and dissolution of the Company (collectively
referred to with the Common Stock of the Company as "Junior Securities");
(ii) subject to certain conditions, on a parity with any class of capital
stock or series of Preferred Stock issued by the Company established after
the date of this Prospectus by the Board of Directors, the terms of which
expressly provide that such class or series will rank on a parity with the
Senior Preferred Stock as to dividend distributions and distributions upon
the liquidation, winding-up and dissolution of the Company (collectively
referred to as "Parity Securities"); and (iii) subject to certain conditions,
junior to each class of capital stock or series of Preferred Stock issued by
the Company established after the date of this Prospectus by the Board of
Directors the terms of which expressly provide that such class or series will
rank senior to the Senior Preferred Stock as to dividend distributions and
distributions upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Securities"). In addition, creditors and
stockholders of the Company's Subsidiaries will have priority over the Senior
Preferred Stock with respect to claims on the assets of such Subsidiaries.
The Company's obligations under the Senior Preferred Stock will also be
subject to the BKC Intercreditor
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Agreement. See "--Subordination as a Result of BKC Intercreditor Agreement."
The Senior Preferred Stock will be subject to the issuance of series of
Junior Securities, Parity Securities and Senior Securities, provided that the
Company may not issue any new class of Parity Securities or Senior Securities
without the approval of the holders of at least 50% of the shares of Senior
Preferred Stock then outstanding, voting or consenting, as the case may be,
together as one class, except that without the approval of the holders of
Senior Preferred Stock, the Company may issue and have outstanding shares of
Parity Securities issued from time to time in exchange for, or the proceeds
of which are used to redeem or repurchase, any or all of the shares of Senior
Preferred Stock or other Parity Securities.
BKC INTERCREDITOR AGREEMENT
Pursuant to the BKC Intercreditor Agreement, the Company's obligations
under the Senior Preferred Stock are subject to the prior payment in full of
all indebtedness, liabilities and other obligations of the Company and its
subsidiaries to BKC under the BKC franchise agreements, BKC leases and any
other indebtedness of the Company and its subsidiaries to BKC, whenever and
however arising, whether primary or secondary, absolute or contingent, and
including charges and costs of collection. In the event that the Company
defaults in any such obligations to BKC, the Company will be prohibited from
making any payments in respect of the Senior Preferred Stock. See "Risk
Factors--BKC Intercreditor Agreement" and "Business--Obligations to Burger
King Corporation."
DIVIDENDS
Holders of Senior Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends on the Senior Preferred Stock at a rate per annum equal
to % of the liquidation preference per share of Senior Preferred Stock. All
dividends will be cumulative whether or not earned or declared on a daily
basis from the date of issuance of the Senior Preferred Stock and will be
payable quarterly in arrears on March 1, June 1, September 1 and December 1
of each year, commencing on March 1, 1997. On or before December 1, 2001 the
Company may, at its option, pay dividends in cash or in additional fully paid
and non-assessable shares of Senior Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. After December
1, 2001 dividends may be paid only in cash. It is not expected that the
Company will pay any dividends in cash for any period ending on or prior to
December 1, 2001. The terms of the Company's debt instruments, including the
Indenture and the Credit Agreement, restrict the payment of cash dividends by
the Company, and future agreements may provide the same. See "Risk
Factors--Restrictive Covenants Limiting the Company's Ability to Repay the
Senior Notes and Senior Preferred Stock," "--Senior Notes--Certain Covenants"
and "Description of Certain Indebtedness." If any dividend (or portion
thereof) payable on any dividend payment date after December 1, 2001 is not
declared or paid in full in cash on such dividend payment date, the amount of
such dividend that is payable and that is not paid in cash on such date will
increase at the rate of % per annum from such dividend payment date until
declared and paid in full.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been or contemporaneously are declared and
paid in full or declared and, if payable in cash, a sum in cash set apart for
such payment on the Senior Preferred Stock. If full dividends are not so
paid, the Senior Preferred Stock will share dividends pro rata with the
Parity Securities. No dividends may be paid or set apart for such payment on
Junior Securities (except dividends on Junior Securities in additional shares
of Junior Securities) and no Junior Securities or Parity Securities may be
repurchased, redeemed or otherwise retired nor may funds be set apart for
payment with respect thereto, if full cumulative dividends have not been paid
on the Senior Preferred Stock.
In connection with the Offerings, the Company has committed to BKC that,
without BKC's prior written consent, (i) it will not pay cash dividends on
the Senior Preferred Stock on or prior to December 1, 2001 and (ii) it will
not pay cash dividends to holders of Common Stock until the Senior Notes are
repaid in full and the Senior Preferred Stock is redeemed or otherwise
retired. See "Risk Factors--BKC Consent to Issuance of Securities and to
Payment of Dividends."
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REDEMPTION OF SENIOR PREFERRED STOCK
Optional Redemption. The Senior Preferred Stock may be redeemed (subject
to contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at any time on or after December 1, 2001, in
whole or in part, at the option of the Company, at the redemption prices
(expressed as a percentage of the liquidation preference thereof) set forth
below, plus an amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the period from
the dividend payment date immediately prior to the redemption date to the
redemption date), if redeemed during the 12-month period beginning December 1
of each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------- --------------
<S> <C>
2001 ................... %
2002 ................... %
2003 ................... %
2004 and thereafter ... 100%
</TABLE>
In addition, the Company may redeem the Senior Preferred Stock in whole,
but not in part, at a redemption price equal to % of the liquidation
preference thereof, plus an amount in cash equal to all accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend
for the period from the dividend payment date immediately prior to the
redemption date to the redemption date), with the proceeds of an Equity
Offering, provided that such redemption shall occur within 60 days of the
date of the closing of such Equity Offering.
No optional redemption may be authorized or made (i) unless prior thereto
full unpaid cumulative dividends shall have been paid or a sum set apart for
such payment on the Senior Preferred Stock or (ii) at less than 101% of the
liquidation preference of the Senior Preferred Stock at any time when the
Company is making or purchasing shares of Senior Preferred Stock under an
Offer in accordance with the provisions of "--Change of Control."
In the event of partial redemptions of Senior Preferred Stock, the shares
to be redeemed will be determined pro rata or by lot, as determined by the
Company. The terms of the Company's debt instruments, including the Indenture
and the Credit Agreement, restrict the ability of the Company to redeem the
Senior Preferred Stock, and future agreements may provide the same. See
"--Senior Notes--Certain Covenants" and "Description of Certain
Indebtedness."
Mandatory Redemption. On December 1, 2008, the Company will be required to
redeem (subject to contractual and other restrictions with respect thereto
and to the legal availability of funds therefor) all outstanding shares of
Senior Preferred Stock at a price equal to the then effective liquidation
preference thereof, plus an amount in cash equal to all accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend
for the period from the dividend payment date immediately prior to the
redemption date to the redemption date).
Procedure for Redemption. On and after a redemption date, unless the
Company defaults in the payment of the applicable redemption price, dividends
will cease to accrue on shares of Senior Preferred Stock called for
redemption and all rights of holders of such shares will terminate except for
the right to receive the redemption price, without interest. The Company will
send a written notice of redemption by first class mail to each holder of
record of shares of Senior Preferred Stock, not fewer than 30 days nor more
than 60 days prior to the date fixed for such redemption. Shares of Senior
Preferred Stock issued and reacquired will, upon compliance with the
applicable requirements of Delaware law, have the status of authorized but
unissued shares of Preferred Stock of the Company undesignated as to series
and may with any and all other authorized but unissued shares of Preferred
Stock of the Company be designated or redesignated and issued or reissued, as
the case may be, as part of any series of Preferred Stock of the Company,
except that any issuance or reissuance of shares of Senior Preferred Stock
must be in compliance with the Certificate of Designation.
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Change of Control. Upon the occurrence of a Change of Control, each holder
of Senior Preferred Stock will have the right to require the Company to
purchase all or any part of such holder's Senior Preferred Stock pursuant to
an Offer at a purchase price equal to 101% of the liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends
per share (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the repurchase
date to the repurchase date). Notice of an Offer must be mailed within 30
days following a Change of Control, must remain open for at least 30 and not
more than 40 days and must comply with the requirements of Rule 14e-1 under
the Exchange Act and any other applicable securities laws and regulations.
None of the provisions in the Certificate of Designation relating to a
purchase upon a Change of Control are waivable by the Board of Directors. The
Company could, in the future, enter into certain transactions, including
certain recapitalizations of the Company, that would not constitute a Change
of Control, but would increase the amount of indebtedness outstanding at such
time. If a Change of Control were to occur, the Company could be obligated to
offer to repurchase all of the securities issued under the Indenture and to
repay all outstanding obligations under the Credit Agreement, and there can
be no assurance that the Company would have sufficient funds to pay the
purchase price for all shares of Senior Preferred Stock that the Company is
required to purchase. In addition, certain events that may obligate the
Company to offer to repurchase all of the securities issued under the
Indenture or to repay all outstanding obligations under the Credit Agreement
may not constitute a Change of Control under the Certificate of Designation.
Except as described under "--Change of Control," the Certificate of
Designation does not contain provisions that permit the holders of Senior
Preferred Stock to require the Company to redeem the Senior Preferred Stock
in the event of a takeover, recapitalization or similar restructuring,
including an issuer recapitalization or similar transaction with management.
Consequently, the Change of Control provisions will not afford any protection
in a highly leveraged transaction, including such a transaction initiated by
the Company, management of the Company or an affiliate of the Company, if
such transaction does not result in a Change of Control. The Change of
Control provisions may not be waived by the Board of Directors of the Company
without the consent of holders of at least a majority of the outstanding
Senior Preferred Stock. See "--Voting Rights."
In the event that the Company were required to purchase outstanding shares
of Senior Preferred Stock pursuant to an Offer, the Company expects that it
would need to seek third-party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. In
addition, the Company's ability to purchase the Senior Preferred Stock may be
limited by other then-existing borrowing agreements, including the Indenture
and the Credit Agreement. See "--Senior Notes--Certain Covenants" and
"Description of Certain Indebtedness."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company, holders of Senior Preferred Stock will be entitled to be
paid, out of the assets of the Company available for distribution, the
liquidation preference per share, plus an amount in cash equal to all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend
for the period from the last dividend payment date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on
any Junior Securities, including, without limitation, Common Stock of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the Senior
Preferred Stock and all other Parity Securities are not paid in full, the
holders of the Senior Preferred Stock and the Parity Securities will share
equally and ratably in any distribution of assets of the Company in
proportion to the full liquidation preference and accumulated and unpaid
dividends to which each is entitled. After payment of the full amount of the
liquidation preferences and accumulated and unpaid dividends to which they
are entitled, the holders of shares of Senior Preferred Stock will not be
entitled to any further participation in any distribution of assets of the
Company. However, neither the sale,
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conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Company nor the consolidation or merger of the Company with or into one
or more corporations will be deemed to be a liquidation, dissolution or
winding-up of the Company.
The Certificate of Designation for the Senior Preferred Stock does not
contain any provision requiring funds to be set aside to protect the
liquidation preference of the Senior Preferred Stock, although such
liquidation preference will be substantially in excess of the par value of
such shares of Senior Preferred Stock. In addition, the Company is not aware
of any provision of Delaware law or any controlling decision of the courts of
the State of Delaware (the state of incorporation of the Company) that
requires a restriction upon the surplus of the Company solely because the
liquidation preference of the Senior Preferred Stock will exceed its par
value. Consequently, there will be no restriction upon the surplus of the
Company solely because the liquidation preference of the Senior Preferred
Stock will exceed the par value and there will be no remedies available to
holders of the Senior Preferred Stock before or after the payment of any
dividend, other than in connection with the liquidation of the Company,
solely by reason of the fact that such dividend would reduce the surplus of
the Company to an amount less than the difference between the liquidation
preference of the Senior Preferred Stock and its par value.
VOTING RIGHTS
Holders of the Senior Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by law or as set
forth in the Certificate of Designation. The Certificate of Designation
provides that (a) if (i) dividends on the Senior Preferred Stock are in
arrears and unpaid (and, in the case of dividends payable after December 1,
2001, are not paid in cash) for four consecutive quarterly periods, (ii) the
Company fails to discharge any redemption obligation with respect to the
Senior Preferred Stock (whether or not the Company is permitted to do so by
the terms of the Indenture, the Credit Agreement or any other obligation of
the Company), (iii) the Company fails to make an offer to purchase all of the
outstanding shares of Senior Preferred Stock following a Change of Control
(whether or not the Company is permitted to do so by the terms of the
Indenture, the Credit Agreement or any other obligation of the Company), (iv)
a breach or violation of the provisions described under the caption
"--Certain Covenants" occurs and the breach or violation continues for a
period of 30 days or more or (v) a default occurs on the obligation to pay
principal of, interest on or any other payment obligation when due (a
"Payment Default") at final maturity on one or more classes of Indebtedness
of the Company or any Subsidiary of the Company, whether such Indebtedness
exists on the Senior Preferred Stock Issue Date or is incurred thereafter,
having individually or in the aggregate an outstanding principal amount of
$25,000,000 or more, or any other Payment Default occurs on one or more such
classes of Indebtedness and such class or classes of Indebtedness are
declared due and payable prior to their respective maturities, then the
number of directors constituting the Board of Directors will be adjusted to
permit the holders of the majority of the then outstanding Senior Preferred
Stock, voting separately as a class, to elect two directors, and (b) the
approval of holders of a majority of the outstanding shares of Senior
Preferred Stock, voting as a separate class, will be required for (i) any
merger, consolidation or sale of assets of the Company except as permitted
pursuant to the covenant entitled "Merger or Consolidation" and (ii) for any
modification of the Exchange Debenture Indenture. Each such event described
in clause (a) above is referred to herein as a "Voting Rights Triggering
Event." Voting rights arising as a result of a Voting Rights Triggering Event
will continue until such time as all dividends in arrears on the Senior
Preferred Stock are paid in full (and after December 1, 2001, paid in cash)
and any failure, breach or default referred to in clause (a) is remedied.
In addition, the Certificate of Designation provides that, except as
stated above under "--Ranking," the Company will not authorize any class of
Senior Securities or Parity Securities without the affirmative vote or
consent of holders of at least 50% of the shares of Senior Preferred Stock
then outstanding, voting or consenting, as the case may be, as one class. The
Certificate of Designation also provides that the Company may not amend the
Certificate of Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of the Senior
Preferred Stock, or authorize the issuance of any additional shares of Senior
Preferred Stock, without the affirmative vote or consent of the
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holders of at least 50% of the then outstanding shares of Senior Preferred
Stock, voting or consenting, as the case may be, as one class. The
Certificate of Designation also provides that, except as set forth above, (a)
the creation, authorization or issuance of any shares of Junior Securities,
Parity Securities or Senior Securities or (b) the increase or decrease in the
amount of authorized capital stock of any class, including any Preferred
Stock, shall not require the consent of the holders of Senior Preferred Stock
and shall not be deemed to affect adversely the rights, preferences,
privileges or voting rights of holders of shares of Senior Preferred Stock.
Under Delaware law, holders of Senior Preferred Stock will be entitled to
vote as a class upon a proposed amendment to the Certificate of
Incorporation, whether or not entitled to vote thereon by the Certificate of
Incorporation, if the amendment would increase or decrease the par value of
the shares of such class, or alter or change the powers, preferences or
special rights of the shares or such class so as to affect them adversely.
CERTAIN COVENANTS
Merger or Consolidation. The Certificate of Designation provides that,
without the consent of holders of a majority of the outstanding shares of
Senior Preferred Stock, voting as a separate class, the Company shall not
consolidate or merge with or into, or sell, lease, convey or otherwise
dispose of all or substantially all of its assets to, any person (any such
consolidation, merger or sale being a "Disposition") unless: (a) the
successor corporation of such Disposition or the corporation to which such
Disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(b) the Senior Preferred Stock shall be converted into or exchanged for and
shall become shares of the such successor, transferee or resulting
corporation, having in respect of such successor, transferee or resulting
corporation substantially the same powers, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereon, that the Senior Preferred Stock had
immediately prior to such Disposition; (c) immediately after such
Disposition, no Voting Rights Triggering Event shall have occurred and be
continuing; (d) the corporation formed by or surviving any such Disposition,
or the corporation to which such Disposition shall have been made, shall have
Consolidated Net Worth (immediately after the Disposition but prior to giving
any pro forma effect to purchase accounting adjustments or Restructuring
Charges resulting from the Disposition) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the Disposition;
and (e) prior to the consummation of any proposed Disposition, the Company
shall have delivered to the transfer agent an Officers' Certificate and an
opinion of counsel to the effect that such Disposition complies with the
terms of the Certificate of Designation and that all conditions precedent to
such Disposition have been satisfied.
Junior Payments. The Certificate of Designation provides that the Company
will not, directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of any Junior Securities (other than dividends or
distributions payable in Junior Securities (other than Disqualified Stock)),
(ii) purchase, redeem or otherwise acquire or retire for value any Junior
Securities or (iii) make any Restricted Investment (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements and
Restricted Investments being collectively referred to as "Junior Payments"),
if, at the time of such Junior Payment:
(a) a Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof; or
(b) all dividends on the Senior Preferred Stock payable on dividend
payment dates after December 1, 2001, have not been declared and paid in
cash.
Notwithstanding the foregoing, the Certificate of Designation shall not
prohibit as Junior Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all of the provisions of the Certificate of Designation
(including, but not limited to, the "Junior Payments" covenant);
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(ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $15,000,000 after the Senior Preferred
Stock Issue Date (it being understood that if any Restricted Investment
after the Senior Preferred Stock Issue Date pursuant to this clause (ii)
is sold, transferred or otherwise conveyed to any person other than the
Company or a Subsidiary, the portion of the net cash proceeds or fair
market value of securities or properties paid or transferred to the
Company and its Subsidiaries in connection with such sale, transfer or
conveyance that relates or corresponds to the repayment or return of the
original cost of such a Restricted Investment will replenish or increase
the amount of Restricted Investments permitted to be made pursuant to this
clause (ii), so that up to $15,000,000 of Restricted Investments may be
outstanding under this clause (ii) at any given time); provided that,
without otherwise limiting this clause (ii), any Restricted Investment in
a Subsidiary made pursuant to this clause (ii) is made for fair market
value (as determined by the Board of Directors in good faith);
(iii) the repurchase, redemption, retirement or acquisition of the
Company's stock from the executives, management, employees or consultants
of the Company or its Subsidiaries pursuant to the terms of any
subscription, stockholder or other agreement or plan, up to an aggregate
amount not to exceed $7,500,000;
(iv) any loans, advances, distributions or payments from the Company to
its Subsidiaries, or any loans, advances, distributions or payments by a
Subsidiary to the Company or to another Subsidiary, in each case pursuant
to intercompany Indebtedness, intercompany management agreements and other
intercompany agreements and obligations;
(v) the payment of (a) consulting, financial and investment banking fees
under the TJC Agreement, provided, that no Voting Rights Triggering Event
shall have occurred and be continuing, and (b) indemnities, expenses and
other amounts under the TJC Agreement;
(vi) the redemption, repurchase, retirement or other acquisition of any
Junior Securities in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company)
of other Junior Securities;
(vii) Restricted Investments made or received in connection with the
sale, transfer or disposition of any business, properties or assets of the
Company or any Subsidiary;
(viii) any Restricted Investment constituting securities or instruments
of a person issued in exchange for trade or other claims against such
person in connection with a financial reorganization or restructuring of
such person;
(ix) payments in connection with the application of the net proceeds of
the Offerings as set forth under "Use of Proceeds"; and
(x) payments of fees, expenses and indemnities to the directors of the
Company and its Subsidiaries.
Transactions with Affiliates. The provision of the Certificate of
Designation relating to transactions with Affiliates will be substantially
the same as the provisions of the Indenture relating to such matters. See
"--Senior Notes--Certain Covenants."
Reports. The provisions of the Certificate of Designations relating to the
provision of reports and information by the Company will be substantially the
same as the provisions of the Indenture relating to such matters. See
"--Senior Notes--Provision of Financial Information to Holders of Senior
Notes."
EXCHANGE
The Company may at its option exchange all, but not less than all, of the
then outstanding shares of Senior Preferred Stock into Exchange Debentures on
any dividend payment date, provided that on the date of such exchange: (a)
there are no contractual impediments to such exchange; (b) there are legally
available funds sufficient therefor; (c) a registration statement relating to
the Exchange Debentures shall have been declared effective under the
Securities Act prior to such exchange and shall continue to be in effect on
the date of such exchange or the Company shall have obtained a written
opinion of counsel that
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an exemption from the registration requirements of the Securities Act is
available for such exchange, and that upon receipt of such Exchange
Debentures pursuant to such exchange made in accordance with such exemption,
the holders (assuming such holder is not an Affiliate of the Company) thereof
will not be subject to any restrictions imposed by the Securities Act upon
the resale thereof and such exemption is relied upon by the Company for such
exchange; (d) the Exchange Debenture Indenture and the trustee thereunder
shall have been qualified under the Trust Indenture Act; (e) immediately
after giving effect to such exchange, no Default or Event of Default (each as
defined in the Exchange Debenture Indenture) would exist under the Exchange
Debenture Indenture; and (f) the Company shall have delivered a written
opinion of counsel, dated the date of exchange, regarding the satisfaction of
the conditions set forth in clauses (a), (b), (c) and (d) and certain other
matters. The Company shall send a written notice of exchange by mail to each
holder of record of shares of Senior Preferred Stock, which notice shall
state, among other things, (i) that the Company is exercising its option to
exchange the Senior Preferred Stock for Exchange Debentures pursuant to the
Certificate of Designation and (ii) the date of exchange (the "Exchange
Date"), which date shall not be less than 30 days nor more than 60 days
following the date on which such notice is mailed. On the Exchange Date,
holders of outstanding shares of Senior Preferred Stock will be entitled to
receive a principal amount of Exchange Debentures equal to the liquidation
preference per share, plus an amount in cash equal to all accrued and unpaid
dividends (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the Exchange Date
to the Exchange Date), as provided below.
The Exchange Debentures will be issued in registered form, without
coupons. Exchange Debentures issued in exchange for Senior Preferred Stock
will be issued in principal amounts of $1,000 and integral multiples thereof
to the extent possible, and will also be issued in principal amounts less
than $1,000 so that each holder of Senior Preferred Stock will receive
certificates representing the entire amount of Exchange Debentures to which
his shares of Senior Preferred Stock entitle him, provided that the Company
may, at its option, pay cash in lieu of issuing an Exchange Debenture in a
principal amount less than $1,000. On and after the Exchange Date, dividends
will cease to accrue on the outstanding shares of Senior Preferred Stock, and
all rights of the holders of Senior Preferred Stock (except the right to
receive the Exchange Debentures, an amount in cash equal to the accrued and
unpaid dividends to the Exchange Date and if the Company so elects, cash in
lieu of any Exchange Debenture which is in an amount that is not an integral
multiple of $1,000) will terminate. The person entitled to receive the
Exchange Debentures issuable upon such exchange will be treated for all
purposes as the registered holder of such Exchange Debentures.
The Credit Agreement and the Indenture will contain limitations with
respect to the Company's ability to issue the Exchange Debentures, and any
future credit agreements or other agreements relating to indebtedness to
which the Company becomes a party may contain similar limitations. See
"--Senior Notes--Certain Covenants" and "Description of Certain
Indebtedness."
The Company intends to comply with the provisions of Rule 13e-4
promulgated pursuant to the Exchange Act in connection with any exchange, to
the extent applicable.
Transfer Agent and Registrar. Harris Trust and Savings Bank is the
transfer agent and registrar for the Preferred Stock.
EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Exchange
Debenture Indenture between the Company and Fleet National Bank, as Trustee.
A copy of the form of Exchange Debenture Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
terms of the Exchange Debentures include those stated in the Exchange
Debenture Indenture and those made part of the Exchange Debenture Indenture
by reference to the Trust Indenture Act. The Exchange Debentures will be
subject to all such terms, and prospective holders of the Exchange Debentures
are referred to the Exchange Debenture Indenture and the Trust Indenture Act
for a statement of such terms. The following summary of certain provisions of
the Exchange Debenture Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act and to all of the provisions of the Exchange Debenture
Indenture, including the definitions of certain terms
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therein and those terms made a part of the Exchange Debenture Indenture by
reference to the Trust Indenture Act. The definitions of certain terms used
in the Exchange Debenture Indenture and in the following summary are
substantially the same as those used in the Indenture. See "--Senior
Notes--Certain Definitions."
GENERAL
The Exchange Debentures, if issued, will be general unsecured obligations
of the Company, subordinated to all existing and future Senior Indebtedness,
including the Senior Notes and indebtedness under the Credit Agreement. The
Exchange Debentures will be issued in fully registered form only in
denominations of $1,000 and integral multiples thereof (other than as
described in "--Senior Preferred Stock--Exchange" or with respect to
additional Exchange Debentures issued in lieu of cash interest as described
herein).
Principal of, and premium, if any, and interest on the Exchange Debentures
will be payable, and the Exchange Debentures may be presented for
registration of transfer or exchange, at the office of the Paying Agent and
Registrar in New York, New York. Holders of Exchange Debentures must
surrender their Exchange Debentures to the Paying Agent to collect principal
payments, and the Company may pay principal and interest by check and may
mail checks to a holder's registered address; provided that all payments with
respect to Exchange Debentures, the holders of which have given wire transfer
instructions to the Company, will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
The Registrar may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection with certain
transfers or exchanges. See "--Other Provisions of the Exchange Debenture
Indenture" and "--Senior Notes--Transfer and Exchange." The Trustee will
initially act as Paying Agent and Registrar. The Company may change any
Paying Agent and Registrar without prior notice to holders of the Exchange
Debentures, and the Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
The Exchange Debentures will mature on December 1, 2008. Each Exchange
Debenture will bear interest at the rate set forth on the cover of this
Prospectus from the Exchange Debenture Issue Date or from the most recent
interest payment date to which interest has been paid or provided for.
Interest will be payable semi-annually in cash (or, on or prior to December
1, 2001, in additional Exchange Debentures, at the option of the Company) in
arrears on June 1 and December 1 of each year, commencing with the first such
date after the Exchange Debenture Issue Date. Interest on the Exchange
Debentures will be computed on the basis of a 360-day year of twelve 30-day
months and the actual number of days elapsed.
SUBORDINATION AND RANKING
The Exchange Debentures will be subordinated to the prior payment when due
of the principal of, and premium, if any, and interest on, all existing and
future Senior Indebtedness of the Company, and will rank pari passu or senior
in right of payment to all other Subordinated Indebtedness of the Company.
The Exchange Debentures will also effectively rank junior to all indebtedness
of the Company's subsidiaries. As of September 30, 1996, on a pro forma basis
after giving effect to the Offerings and the application of the net proceeds
therefrom, the aggregate principal amount of Senior Indebtedness of the
Company and indebtedness of the Company's subsidiaries would have been
approximately $108.0 million. In addition, the Company's obligations under
the Exchange Debentures will be subject to the BKC Intercreditor Agreement.
See "--Subordination as a Result of BKC Intercreditor Agreement." The
Exchange Debenture Indenture will permit the Company and its Subsidiaries to
incur additional Indebtedness, including Senior Indebtedness, subject to
certain limitations. In addition, under the terms of the Exchange Debenture
Indenture, the Company's Subsidiaries may incur certain Indebtedness pursuant
to agreements that may restrict the ability of such Subsidiaries to make
dividends or other intercompany transfers to the Company necessary to service
the Company's obligations, including its obligations under the Exchange
Debentures. The Exchange Debenture Indenture will not limit the Company's
obligations, or the incurrence of new obligations under franchise, royalty
and lease obligations with BKC. Any failure by the Company to satisfy its
obligations with respect to the Exchange Debentures at maturity (with respect
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to payments of principal) or prior thereto (with respect to payments of
interest or required repurchases) would constitute a default under the
Exchange Debenture Indenture and the Credit Agreement and could cause a
default under agreements governing other indebtedness of the Company and its
Subsidiaries. See "Risk Factors--Holding Company Structure; Dependence on
Subsidiaries; Limitations on Access to Cash Flow of the Subsidiaries,"
"--Certain Covenants" and "Description of Certain Indebtedness."
Upon (a) any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property or
(b) an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness)
before holders of the Exchange Debentures will be entitled to receive any
payment with respect to the Exchange Debentures. Until all Obligations with
respect to Senior Indebtedness are paid in full, any distribution to which
holders of the Exchange Debentures would be entitled shall be made to holders
of Senior Indebtedness. However, holders of the Exchange Debentures may
receive securities that are subordinated to at least the same extent as the
Exchange Debentures to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness.
In addition, the Company may not make any payment upon or in respect of
the Exchange Debentures (except in such subordinated securities) if (a) a
default in the payment of any principal, premium, if any, interest or other
Obligations with respect to any Designated Senior Debt occurs and is
continuing beyond any applicable grace period (whether upon maturity, as a
result of acceleration or otherwise) or (b) any other default occurs and is
continuing with respect to any Designated Senior Debt that permits holders of
such Designated Senior Debt to accelerate its maturity, and the Company and
the Trustee receive a notice of such default (a "Payment Blockage Notice")
from the holders, or from the trustee, agent or other representative of the
holders, of any such Designated Senior Debt. Payments on the Exchange
Debentures may and shall be resumed upon the earlier of (i) the date upon
which the default is cured or waived or (ii) in the case of a default
referred to in clause (b) above, 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment
blockage may be commenced within 360 days after the receipt by the Trustee of
any prior Payment Blockage Notice. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been cured or waived for a period of
not less than 180 days.
"Designated Senior Debt" means (a) Indebtedness under the Senior Notes and
the Indenture, (b) Indebtedness under the Credit Agreement and (c) any other
Senior Indebtedness permitted to be incurred pursuant to the Exchange
Debenture Indenture in a principal amount of not less than $20,000,000
designated by the Company as Designated Senior Debt.
The Exchange Debenture Indenture will further require that the Company
promptly notify holders of Senior Indebtedness if payment on the Exchange
Debentures is accelerated because of an Event of Default. In addition, the
subordination provisions of the Exchange Debenture Indentures may not be
amended without the consent of all holders of Designated Senior Debt.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of the Exchange Debentures may
recover less ratably that other creditors of the Company.
BKC INTERCREDITOR AGREEMENT
Pursuant to the BKC Intercreditor Agreement, the Company's obligations
under the Exchange Debentures are subject to the prior payment in full of all
indebtedness, liabilities and other obligations of the Company and its
Subsidiaries to BKC under the BKC franchise agreements, BKC leases and any
other indebtedness of the Company and its Subsidiaries to BKC, whenever and
however arising, whether primary or secondary, absolute or contingent, and
including charges and costs of collection. In the event
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that the Company defaults in any such obligation to BKC, the Company will be
prohibited from making any payments in respect of the Exchange Debentures.
See "Risk Factors--Holding Company Structure; Dependence on Subsidiaries;
Limitations on Access to Cash Flow of Subsidiaries" and "--Subordination as a
Result of BKC Intercreditor Agreement."
REDEMPTION OF EXCHANGE DEBENTURES
Optional Redemption. The Exchange Debentures may not be redeemed at the
option of the Company prior to December 1, 2001 other than out of the net
proceeds of one or more Equity Offerings, as and to the extent described
below. During the 12-month period beginning on December 1 of the years
indicated below, the Exchange Debentures will be redeemable, at the option of
the Company, in whole or in part, on at least 30 but not more than 60 days'
notice to each holder of Exchange Debentures to be redeemed, at the
redemption prices (expressed as percentages of the principal amount) set
forth below, plus any accrued and unpaid interest to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ----------------------- --------------
<S> <C>
2001 ................... %
2002 ................... %
2003 ................... %
2004 and thereafter ... 100%
</TABLE>
In addition, at any time, the Company may redeem the Exchange Debentures
in whole, but not in part, at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest thereon to the
applicable redemption date, with the proceeds of an Equity Offering, provided
that such redemption shall occur within 60 days of the date of the closing of
such Equity Offering.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers
to Purchase Exchange Debentures--Change of Control" and "--Asset Sales," the
Company is not required to make any mandatory redemption, purchase or sinking
fund payments with respect to the Exchange Debentures.
MANDATORY OFFERS TO PURCHASE EXCHANGE DEBENTURES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of Exchange
Debentures shall have the right to require the Company to purchase all or any
part (equal to $1,000 or an integral multiple thereof) of such holder's
Exchange Debentures pursuant to an Offer (as defined) at a purchase price in
cash equal to 101% of the aggregate principal amount thereof, plus any
accrued and unpaid interest to the date of purchase. The Company shall
furnish to the Trustee, at least two Business Days before notice of an Offer
is mailed to all holders of Exchange Debentures pursuant to the procedures
described below under "--Procedures for Offers," notice that the Offer is
being made. Transactions constituting a Change of Control are not limited to
hostile takeover transactions not approved by the current management of the
Company. Except as described under "--Change of Control," the Exchange
Debenture Indenture does not contain provisions that permit the holders of
Exchange Debentures to require the Company to purchase or redeem the Exchange
Debentures in the event of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization or similar transaction
with management.
Consequently, the Change of Control provisions will not afford any
protection in a highly leveraged transaction, including such a transaction
initiated by the Company, management of the Company or an affiliate of the
Company, if such transaction does not result in a Change of Control. In
addition, because the obligations of the Company with respect to the Exchange
Debentures are effectively subordinated to all secured indebtedness of the
Company and all obligations of the Company's subsidiaries, existing or future
secured indebtedness of the Company or obligations of the Company's
subsidiaries may prohibit the Company from repurchasing the Exchange
Debentures upon a Change of Control. Moreover, the ability of the Company to
repurchase Exchange Debentures following a Change of Control will be limited
by the Company's then-available resources. The Change of Control provisions
may not be waived by the Board of Directors of the Company or the Trustee
without the consent of holders of at least a majority in principal amount of
the Exchange Debentures. See "--Amendment, Supplement and Waiver."
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The Company expects that prepayment of the Exchange Debentures following a
Change of Control would, and the exercise by holders of Exchange Debentures
of the right to require the Company to purchase Exchange Debentures may,
constitute a default under the Credit Agreement or other indebtedness of the
Company. The Exchange Debenture Indenture will provide that, prior to the
mailing of the notice referred to below, but in any event within 30 days
following any Change of Control Trigger Date, the Company covenants to (i)
repay in full and terminate all commitments under Indebtedness under the
Credit Agreement and all other Senior Indebtedness the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate
all commitments under all Indebtedness under the Credit Agreement and all
other such Senior Indebtedness and to repay the Indebtedness owed to each
lender which has accepted such offer or (ii) obtain the requisite consents
under the Credit Agreement and all such other Senior Indebtedness to permit
the repurchase of the Exchange Debentures as provided below. The Company
shall first comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase Exchange Debentures pursuant to the
provisions described below. The Company's failure to comply with this
covenant shall constitute an Event of Default described in clause (c) and not
in clause (b) under "--Events of Default and Remedies" below. In the event a
Change of Control occurs, the Company will likely be required to refinance
the Indebtedness outstanding under the Credit Agreement, the Senior Notes and
the Exchange Debentures. If there is a Change of Control, any Indebtedness
under the Credit Agreement could be accelerated. There can be no assurance
that sufficient funds will be available at the time of any Change of Control
to make any required repurchases of the Senior Notes and the Exchange
Debentures given the Company's high leverage. The financing of the purchases
of Senior Notes and the Exchange Debentures could additionally result in a
default under the Credit Agreement or other indebtedness of the Company. The
occurrence of a Change of Control may also have an adverse impact on the
ability of the Company to obtain additional financing in the future. The
ability of holders of Exchange Debentures to require that the Company
purchase Exchange Debentures upon a Change of Control may deter persons from
effecting a takeover of the Company. Except as described above with respect
to a Change of Control, the Indenture does not contain provisions that permit
the holders of Exchange Debentures to require that the Company purchase or
redeem the Exchange Debentures in the event of a takeover, recapitalization
or similar restructuring. See "Risk Factors--Substantial Current Leverage;
Limitations in Ability to Service Indebtedness" and "--Holding Company
Structure; Dependence on Subsidiaries; Limitations on Access to Cash Flow of
the Subsidiaries."
Asset Sales. The Exchange Debenture Indenture provides that the Company
may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, consummate an Asset Sale (including the sale of any of the
Capital Stock of any Restricted Subsidiary) providing for Net Proceeds in
excess of $3,000,000 unless at least 75% of the Net Proceeds from such Asset
Sale are applied (in any manner otherwise permitted by the Exchange Debenture
Indenture) to one or more of the following purposes in such combination as
the Company shall elect: (a) an investment in another asset or business in
the same line of business as, or a line of business similar to that of, the
line of business of the Company and its Restricted Subsidiaries at the time
of the Asset Sale; provided that such investment occurs on or prior to the
365th day following the date of such Asset Sale (the "Asset Sale Disposition
Date"), (b) to reimburse the Company or its Subsidiaries for expenditures
made, and costs incurred, to repair, rebuild, replace or restore property
subject to loss, damage or taking to the extent that the Net Proceeds consist
of insurance proceeds received on account of such loss, damage or taking, (c)
the purchase, redemption or other prepayment or repayment of outstanding
Senior Indebtedness of the Company or Indebtedness of the Company's
Restricted Subsidiaries on or prior to the 365th day following the Asset Sale
Disposition Date or (d) an Offer expiring on or prior to the Purchase Date
(as defined herein). The Exchange Debenture Indenture also provides that the
Company may not, and may not permit any Restricted Subsidiary to, directly or
indirectly, consummate an Asset Sale unless at least 75% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form
of cash, cash equivalents or marketable securities; provided that, solely for
purposes of calculating such 75% of the consideration, the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto, excluding contingent
liabilities and trade payables) of the Company or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Senior
Notes) that
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are assumed by the transferee of any such assets and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from
such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash and cash
equivalents for purposes of this provision. Any Net Proceeds from any Asset
Sale that are not applied or invested as provided in the first sentence of
this paragraph shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $6,000,000 (such date
being an "Asset Sale Trigger Date"), the Company shall make an Offer to all
holders of Exchange Debentures to purchase the maximum principal amount of
the Exchange Debentures then outstanding that may be purchased out of Excess
Proceeds, at an offer price in cash in an amount equal to 100% of principal
amount thereof plus any accrued and unpaid interest to the Purchase Date in
accordance with the procedures set forth in the Indenture. Notwithstanding
the foregoing, to the extent that any or all of the Net Proceeds of an Asset
Sale is prohibited or delayed by applicable local law from being repatriated
to the United States, the portion of such Net Proceeds so affected will not
be required to be applied as described in this or the preceding paragraph,
but may be retained for so long, but only for so long, as the applicable
local law prohibits repatriation to the United States.
To the extent that any Excess Proceeds remain after completion of an
Offer, the Company may use such remaining amount for general corporate
purposes. If the aggregate principal amount of Exchange Debentures
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange Debentures to be purchased on a pro rata
basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
Although the Credit Agreement will permit dividends from the Company's
Subsidiaries to the Company for the purpose of paying interest on the
Exchange Debentures, dividends for other purposes, such as repurchases of
Exchange Debentures by the Company upon an Asset Sale, will not be permitted
under the terms of the Credit Agreement. Accordingly, the Company would need
to seek the consent of its lenders under the Credit Agreement in order to
repurchase Exchange Debentures with the Net Proceeds of an Asset Sale. See
"Risk Factors--Holding Company Structure; Dependence on Subsidiaries;
Limitation on Access to Cash Flow of the Subsidiaries."
Procedures for Offers. Within 30 days following any Change of Control
Trigger Date or Asset Sale Trigger Date, subject to the provisions of the
Exchange Debenture Indenture, the Company shall mail a notice to each holder
of Exchange Debentures at such holder's registered address a notice stating:
(a) that an offer (an "Offer") is being made pursuant to a Change of Control
or an Asset Sale Trigger Date, as the case may be, the length of time the
Offer shall remain open and the maximum principal amount of Exchange
Debentures that will be accepted for payment pursuant to such Offer, (b) the
purchase price, the amount of accrued and unpaid interest as of the purchase
date, and the purchase date (which shall be no earlier than 30 days and no
later than 40 days from the date such notice is mailed (the "Purchase
Date")), and (c) such other information required by the Exchange Debenture
Indenture and applicable law and regulations.
On the Purchase Date for any Offer, the Company will, to the extent
required by the Exchange Debenture Indenture and such Offer, (1) in the case
of an Offer resulting from a Change of Control, accept for payment all
Exchange Debentures or portions thereof tendered pursuant to such Offer and,
in the case of an Offer resulting from an Asset Sale Trigger Date, accept for
payment the maximum principal amount of Exchange Debentures or portions
thereof tendered pursuant to such Offer that can be purchased out of the
Excess Proceeds, (2) deposit with the Paying Agent the aggregate purchase
price of all Exchange Debentures or portions thereof accepted for payment and
any accrued and unpaid interest on such Exchange Debentures as of the
Purchase Date, and (3) deliver or cause to be delivered to the Trustee all
Exchange Debentures tendered pursuant to the Offer. The Paying Agent shall
promptly mail to each holder of Exchange Debentures or portions thereof
accepted for payment an amount equal to the purchase price for such Exchange
Debentures plus any accrued and unpaid interest thereon, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by
book-entry) to such holder of Exchange Debentures accepted for payment in
part a new Exchange Debenture equal in principal
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amount to any unpurchased portion of the Exchange Debentures and any Exchange
Debenture not accepted for payment in whole or in part shall be promptly
returned to the holder thereof. The Company will publicly announce the
results of the Offer on or as soon as practicable after the Purchase Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
Offer required to be made by the Company to repurchase the Exchange
Debentures as a result of a Change of Control or an Asset Sale Trigger Date.
To the extent that the provisions of any securities laws or regulations
conflict with provisions of the Exchange Debenture Indenture, the Company
shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under the Indenture by virtue
thereof.
Selection and Notice. In the event of a redemption or purchase of less
than all of the Exchange Debentures, the Exchange Debentures to be redeemed
or purchased will be chosen by the Trustee pro rata, by lot or by any other
method that the Trustee considers fair and appropriate and, if the Exchange
Debentures are listed on any securities exchange, by a method that complies
with the requirements of such exchange; provided that, if less than all of a
holder's Exchange Debentures are to be redeemed or accepted for payment, only
principal amounts of $1,000 or multiples thereof may be selected for
redemption or accepted for payment. On and after any redemption or purchase
date, interest shall cease to accrue on the Exchange Debentures or portions
thereof called for redemption or accepted for payment. Notice of any
redemption or offer to purchase will be mailed at least 30 days but not more
than 60 days before the redemption or purchase date to each holder of
Exchange Debentures to be redeemed or purchased at such holder's registered
address.
CERTAIN COVENANTS
The Exchange Debenture Indenture contains, among other things, the
following covenants:
Limitation on Restricted Payments. The Exchange Debenture Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or
make any distribution on account of the Company's or such Restricted
Subsidiary's Capital Stock or other Equity Interests (other than dividends or
distributions payable in Capital Stock or other Equity Interests (other than
Disqualified Stock) of the Company and dividends or distributions payable by
a Restricted Subsidiary to a Restricted Subsidiary or to the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Capital Stock
or other Equity Interests of the Company or any of its Restricted
Subsidiaries (other than any such Equity Interest purchased from the Company
or any Restricted Subsidiary for fair market value (as determined by the
Board of Directors in good faith)); (iii) voluntarily prepay any Subordinated
Indebtedness of the Company, whether any such Subordinated Indebtedness is
outstanding on, or issued after, the date of original issuance of the
Exchange Debentures except as specifically permitted by the covenants of the
Exchange Debenture Indenture as described herein; or (iv) make any Restricted
Investment (all such dividends, distributions purchases, redemptions,
acquisitions, retirements, prepayments and Restricted Investments being
collectively referred to as "Restricted Payments"), if, at the time of such
Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b) immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the Senior
Preferred Stock, without duplication, exceeds the sum of: (1) 50% of the
aggregate Consolidated Net Income (including, for this purpose, gains from
Asset Sales and, to the extent not included in Consolidated Net Income,
any gain from a sale or disposition of a Restricted Investment) of the
Company (or, in case such aggregate is a loss, 100% of such loss) for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing immediately after the date of original issuance
of the Senior Preferred Stock and ended
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as of the Company's most recently ended fiscal quarter at the time of such
Restricted Payment; plus (2) 100% of the aggregate net cash proceeds and
the fair market value of any property or securities (as determined by the
Board of Directors in good faith) received by the Company from the issue
or sale of Capital Stock or other Equity Interests of the Company
subsequent to the date of original issuance of the Senior Preferred Stock
(other than (x) Capital Stock or other Equity Interests issued or sold to
a Restricted Subsidiary and (y) the issuance or sale of Disqualified
Stock); plus (3) $6,000,000; plus (4) the amount by which the principal
amount of and any accrued interest on either (A) Senior Indebtedness of
the Company or (B) any Indebtedness of any Restricted Subsidiary is
reduced on the Company's consolidated balance sheet upon the conversion or
exchange other than by a Restricted Subsidiary subsequent to the date of
original issuance of the Senior Preferred Stock of any Indebtedness of the
Company or any Restricted Subsidiary (not held by the Company or any
Restricted Subsidiary) for Capital Stock or other Equity Interests (other
than Disqualified Stock) of the Company (less the amount of any cash, or
the fair market value of any other property or securities (as determined
by the Board of Directors in good faith), distributed by the Company or
any Restricted Subsidiary (to persons other than the Company or any other
Restricted Subsidiary) upon such conversion or exchange); plus (5) if any
Non-Restricted Subsidiary is redesignated as a Restricted Subsidiary, the
value of the Restricted Payment that would result if such subsidiary were
redesignated as a Non-Restricted Subsidiary at such time, as determined in
accordance with the second sentence of the "Designation of Restricted and
Non-Restricted Subsidiaries" covenant; provided, however, that for
purposes of this clause (5), the value of any redesignated Non-Restricted
Subsidiary shall be reduced by the amount that any such redesignation
replenishes or increases the amount of Restricted Investments permitted to
be made pursuant to clause (ii) of the next sentence.
Notwithstanding the foregoing, the Indenture shall not prohibit as
Restricted Payments:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of such Indenture (including, but not limited to,
the "Limitation on Restricted Payments" covenant);
(ii) making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $12,000,000 after the date of original
issuance of the Senior Preferred Stock (it being understood that if any
Restricted Investment after the date of original issuance of the Senior
Preferred Stock pursuant to this clause (ii) is sold, transferred or
otherwise conveyed to any person other than the Company or a Restricted
Subsidiary, the portion of the net cash proceeds or fair market value of
securities or properties paid or transferred to the Company and its
Restricted Subsidiaries in connection with such sale, transfer or conveyance
that relates or corresponds to the repayment or return of the original cost
of such a Restricted Investment will replenish or increase the amount of
Restricted Investments permitted to be made pursuant to this clause (ii), so
that up to $12,000,000 of Restricted Investments may be outstanding under
this clause (ii) at any given time); provided that, without otherwise
limiting this clause (ii), any Restricted Investment in a Subsidiary made
pursuant to this clause (ii) is made for fair market value (as determined by
the Board of Directors in good faith);
(iii) the repurchase, redemption, retirement or acquisition of the
Company's stock from the executives, management, employees or consultants of
the Company or its Subsidiaries pursuant to the terms of any subscription,
stockholder or other agreement or plan, up to an aggregate amount not to
exceed $6,000,000;
(iv) any loans, advances, distributions or payments from the Company to
its Restricted Subsidiaries, or any loans, advances, distributions or
payments by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, in each case pursuant to intercompany Indebtedness, intercompany
management agreements and other intercompany agreements and obligations;
(v) the purchase, redemption, retirement or other acquisition of (a) any
Senior Indebtedness of the Company or any Indebtedness of a Restricted
Subsidiaries required by its terms to be purchased, redeemed, retired or
acquired with the net proceeds from asset sales (as defined in the instrument
evidencing such Senior Indebtedness or Indebtedness) or upon a change of
control (as defined in the instrument evidencing such Senior Indebtedness or
Indebtedness) and (b) the Exchange Debentures pursuant to the "--Change of
Control" or "--Asset Sales" provisions of the Indenture;
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(vi) the payment of (a) consulting, financial and investment banking fees
under the TJC Agreement, provided, that no Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence thereof, and
the Company's Obligations to pay such fees under the TJC Agreement shall be
subordinated expressly to the Company's Obligations in respect of the
Exchange Debentures, and (b) indemnities, expenses and other amounts under
the TJC Agreement;
(vii) the redemption, repurchase, retirement or other acquisition of any
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Capital
Stock or other Equity Interests of the Company (other than any Disqualified
Stock) or the redemption, repurchase, retirement or other acquisition of any
Capital Stock or other Equity Interests of any Restricted Subsidiary in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to the Company or a Subsidiary of the Company) of other Capital
Stock or other Equity Interests of such Restricted Subsidiary; provided that,
in each case, any net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition, and any Net Income
resulting therefrom, shall be excluded from clauses (c)(1) and (c)(2) of the
preceding paragraph;
(viii) the defeasance, redemption or repurchase of pari passu or
Subordinated Indebtedness with the net cash proceeds from an issuance of
permitted Refinancing Indebtedness or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock or other Equity
Interests of the Company (other than Disqualified Stock); provided that any
net cash proceeds that are utilized for any such defeasance, redemption or
repurchase, and any Net Income resulting therefrom, shall be excluded from
clauses (c)(1) and (c)(2) of the preceding paragraph;
(ix) Restricted Investments made or received in connection with the sale,
transfer or disposition of any business, properties or assets of the Company
or any Restricted Subsidiary, provided, that if such sale, transfer or
disposition constitutes an Asset Sale, the Company complies with the "Asset
Sale" provisions of the Exchange Debenture Indenture;
(x) any Restricted Investment constituting securities or instruments of a
person issued in exchange for trade or other claims against such person in
connection with a financial reorganization or restructuring of such person;
(xi) payments in connection with the application of the net proceeds of
the offerings as described under "Use of Proceeds"; and
(xii) payments of fees, expenses and indemnities to the directors of the
Company and its Restricted Subsidiaries.
Limitation on Incurrence of Indebtedness. The Exchange Debenture Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, issue any Indebtedness (other than the Indebtedness
represented by the Exchange Debentures) unless the Company's Cash Flow
Coverage Ratio for its four full fiscal quarters next preceding the date such
additional Indebtedness is issued would have been at least 2.0 to 1
determined on a Pro Forma Basis (including, for this purpose, any other
Indebtedness incurred since the end of the applicable four quarter period) as
if such additional Indebtedness and any other Indebtedness issued since the
end of such four quarter period had been issued at the beginning of such
four-quarter period.
The foregoing limitations will not apply to the issuance of:
(i) Indebtedness of the Company and/or its Restricted Subsidiaries as
measured on such date of issuance in an aggregate principal amount
outstanding on any such date of issuance not exceeding $90,000,000
aggregate principal amount under the Credit Agreement; provided that the
aggregate principal amount of Indebtedness outstanding under this clause
(i) together with the aggregate principal amount of Indebtedness
outstanding under clause (iii) below shall not exeed $96,000,000 in
aggregate principal amount at any one time outstanding.
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase
money obligations, capital expenditures or similar
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financing transactions relating to: (A) their properties, assets and
rights as of the date of original issuance of the Exchange Debentures up
to $6,000,000 in aggregate principal amount, or (B) their properties,
assets and rights acquired after the date of original issuance of the
Exchange Debentures, provided that the aggregate principal amount of such
Indebtedness under this clause (ii)(B) does not exceed 100% of the cost of
such properties, assets and rights;
(iii) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $30,000,000 (all or
any portion of which may be issued as additional Indebtedness under the
Credit Agreement); provided that the aggregate principal amount of
Indebtedness outstanding under this clause (iii) together with the
aggregate principal amount of Indebtedness outstanding under clause (i)
above shall not exceed $96,000,000 in aggregate principal amount at any
one time outstanding; and
(iv) Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of the Company except for
guarantees issued by Restricted Subsidiaries pursuant to the "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant,
provided, however, that the foregoing will not limit or restrict guarantees
issued by Restricted Subsidiaries in respect of Indebtedness of other
Restricted Subsidiaries.
Limitation on Liens. The Exchange Debenture Indenture provides that the
Company shall not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) upon any property or asset now owned or
hereafter acquired by them, or any income or profits therefrom, or assign or
convey any right to receive income therefrom; provided, however, that in
addition to creating Permitted Liens on its properties or assets, the Company
and any of its Restricted Subsidiaries may create any Lien upon any of their
properties or assets (including, but not limited to, any Capital Stock of its
Subsidiaries) if the Exchange Debentures are equally and ratably secured.
Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Exchange Debenture Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or
become effective, any encumbrance or restriction on the ability of any
Restricted Subsidiary to: (a) pay dividends or make any other distributions
on its Capital Stock or any other interest or participation in, or measured
by, its profits, owned by the Company or any Restricted Subsidiary, or pay
any Indebtedness owed to, the Company or any Restricted Subsidiary, (b) make
loans or advances to the Company, or (c) transfer any of its properties or
assets to the Company, except for such encumbrances or restrictions existing
under or by reason of:
(i) applicable law,
(ii) Indebtedness permitted (A) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant, (B)
under clauses (i) or (iii) of the second paragraph of the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v), (vi), (vii),
(ix), (x) or (xi) of the definition of Other Permitted Indebtedness, or
(C) by agreements and transactions permitted under the "Limitation on
Restricted Payments" covenant,
(iii) customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary,
(iv) (A) the terms of the BKC Intercreditor Agreement and any other BKC
Agreements, and (B) customary provisions of any other franchise,
distribution or similar agreement,
(v) any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by the Company or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets
of any person, other than the person, or the property or assets of the
person, so acquired,
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(vi) Indebtedness or other agreements existing on the date of original
issuance of the Exchange Debentures,
(vii) any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant or clauses (i), (v), (vi), (vii),
(ix), (x) or (xi) of the definition of Other Permitted Indebtedness;
provided that the encumbrances and restrictions created in connection with
such Refinancing Indebtedness are no more restrictive in any material
respect with regard to the interests of the holders of Exchange Debentures
than the encumbrances and restrictions in the refinanced Indebtedness,
(viii) any restrictions, with respect to a Restricted Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such
Restricted Subsidiary,
(ix) the terms of any Indebtedness of the Company incurred in connection
with the "Limitation on Incurrence of Indebtedness" covenant, provided
that the terms of such Indebtedness constitute no greater encumbrance or
restriction on the ability of any Restricted Subsidiary to pay dividends
or make distributions, make loans or advances or transfer properties or
assets than is otherwise permitted by this covenant, or
(x) the terms of purchase money obligations, but only to the extent such
purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens or restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
Limitation on Transactions With Affiliates. The Exchange Debenture
Indenture provides that neither the Company nor any of its Restricted
Subsidiaries may make any loan, advance, guarantee or capital contribution
to, or for the benefit of, or sell, lease, transfer or dispose of any
properties or assets to, or for the benefit of, or purchase or lease any
property or assets from, or enter into any or amend any contract, agreement
or understanding with, or for the benefit of, an Affiliate (each such
transaction or series of related transactions that are part of a common plan
are referred to as an "Affiliate Transaction"), except in good faith and on
terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction on an arm's length basis from an unrelated person.
The Indenture further provides that the Company will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transaction
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $3,000,000 (including cash and non-cash
payments and benefits valued at their fair market value by the Board of
Directors of the Company in good faith) unless the Company delivers to the
Trustee:
(i) a resolution of the Board of Directors of the Company stating that
the Board of Directors (including a majority of the disinterested
directors, if any) has, in good faith, determined that such Affiliate
Transaction complies with the provisions of the Exchange Debenture
Indenture, and
(ii) (A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) and
(B) above, a written certification from a nationally recognized
professional or firm experienced in evaluating similar types of
transactions, in each case, stating that the terms of such transaction are
fair to the Company or such Restricted Subsidiary, as the case may be,
from a financial point of view.
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Notwithstanding the foregoing, this Affiliate Transactions covenant will
not apply to:
(i) transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries;
(ii) payments under the TJC Agreement;
(iii) any other payments or transactions permitted pursuant to the
"Limitation on Restricted Payments" covenant;
(iv) (A) payments and transactions under the Executive Employment
Agreements and (B) reasonable compensation paid to officers, employees or
consultants of the Company or any Subsidiary as determined in good faith
by the Company's Board of Directors or executives;
(v) payments and transactions under the Jaro Leases;
(vi) payments and transactions involving First National Bank of Boston
and its subsidiaries and affiliates in connection with the BBI Note, the
Credit Agreement and any other Indebtedness permitted by the "Limitation
on Incurrence of Indebtedness" covenant; or
(vii) payments and transactions in connection with the Offerings and the
application of the net proceeds therefrom as described under "Use of
Proceeds."
Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly
or indirectly, to guarantee any Indebtedness of the Company other than the
Exchange Debentures (the "Other Company Indebtedness") unless (A) such
Restricted Subsidiary contemporaneously executes and delivers a supplemental
indenture to the Indenture providing for a guarantee of payment of the
Exchange Debentures then outstanding by such Restricted Subsidiary to the
same extent as the guarantee of payment (the "Other Company Indebtedness
Guarantee") of the Other Company Indebtedness (including waiver of
subrogation, if any) and (B) if the Other Company Indebtedness guaranteed by
such Restricted Subsidiary is (1) Senior Indebtedness, the guarantee for the
Exchange Debentures may be subordinated in right of payment, to the same
extent that the Exchange Debentures are subordinated to Senior Indebtedness,
to the Other Company Indebtedness Guarantee and (2) Subordinated
Indebtedness, the guarantee for the Senior Notes shall be pari passu or
senior in right of payment to the Other Company Indebtedness Guarantee;
provided that the foregoing will not limit or restrict guarantees issued by
Restricted Subsidiaries in respect of Indebtedness of other Restricted
Subsidiaries.
Each guarantee of the Exchange Debentures created by a Restricted
Subsidiary pursuant to the provisions described in the foregoing paragraph
shall be in form and substance satisfactory to the Trustee and shall provide,
among other things, that it will be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer permitted by
the Exchange Debentures Indenture of (a) all of the Company's Capital Stock
in such Restricted Subsidiary or (b) the sale of all or substantially all of
the assets of the Restricted Subsidiary and upon the application of the Net
Proceeds from such sale in accordance with the requirements of the "Asset
Sales" provisions described herein or (ii) the release or discharge of the
Other Company Indebtedness Guarantee that resulted in the creation of such
guarantee of the Exchange Debentures, except a discharge or release by or as
a result of direct payment under such Other Company Indebtedness Guarantee.
Designation of Restricted and Non-Restricted Subsidiaries. The Exchange
Debenture Indenture provides that, subject to the exceptions described below,
from and after the date of original issuance of the Exchange Debentures, the
Company may designate any existing or newly formed or acquired Subsidiary as
a Non-Restricted Subsidiary; provided that (i) either (A) the Subsidiary to
be so designated has total assets of $1,200,000 or less or (B) immediately
before and after giving effect to such designation on a Pro Forma Basis: (1)
the Company could incur $1.00 of additional Indebtedness pursuant to the
first sentence of the "Limitation on Incurrence of Indebtedness" covenant
determined on a Pro Forma Basis; and (2) no Default or Event of Default shall
have occurred and be continuing, and (ii) all transactions between the
Subsidiary to be so designated and its Affiliates remaining in effect are
permitted pursuant to the "Limitation on Transactions with Affiliates"
covenant. Any Investment made by the Company or
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any Restricted Subsidiary which is redesignated from a Restricted Subsidiary
to a Non-Restricted Subsidiary shall thereafter be considered as having been
a Restricted Payment (to the extent not previously included as a Restricted
Payment) made on the day such Subsidiary is designated a Non-Restricted
Subsidiary in the amount of the greater of (i) the fair market value (as
determined by the Board of Directors of the Company in good faith) of the
Equity Interests of such Subsidiary held by the Company and its Restricted
Subsidiaries on such date, and (ii) the amount of the Investments determined
in accordance with GAAP made by the Company and any of its Restricted
Subsidiaries in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted
Subsidiary. The Company may not, and may not permit any Restricted Subsidiary
to, take any action or enter into any transaction or series of transactions
that would result in a Person becoming a Restricted Subsidiary (whether
through an acquisition, the redesignation of a Non-Restricted Subsidiary or
otherwise, but not including through the creation of a new Restricted
Subsidiary) unless, immediately before and after giving effect to such
action, transaction or series of transactions on a Pro Forma Basis, (a) the
Company could incur at least $1.00 of additional Indebtedness pursuant to the
first sentence of "Limitation on Incurrence of Indebtedness" and (b) no
Default or Event of Default shall have occurred and be continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal
of such designation is required to be made by a resolution adopted by a
majority of the Board of Directors of the Company stating that the Board of
Directors has made such designation in accordance with the Exchange Debenture
Indenture, and the Company is required to deliver to the Trustee such
resolution together with an Officers' Certificate certifying that the
designation complies with the Exchange Debenture Indenture. Such designation
will be effective as of the date specified in the applicable resolution,
which may not be before the date the applicable Officers' Certificate is
delivered to the Trustee.
Senior Subordinated Debt. The Exchange Debenture Indenture will provide
that the Company will not, and will not permit any Restricted Subsidiary to,
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness and senior in any respect in right of payment to the Exchange
Debentures.
MERGER OR CONSOLIDATION
The Exchange Debenture Indenture provides that the Company shall not
consolidate or merge with or into, or sell, lease, convey or otherwise
dispose of all or substantially all of its assets to, any person (any such
consolidation, merger or sale being a "Disposition") unless: (a) the
successor corporation of such Disposition or the corporation to which such
Disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(b) the successor corporation of such Disposition or the corporation to which
such Disposition shall have been made expressly assumes the Obligations of
the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Exchange Debenture Indenture and the
Exchange Debentures; (c) immediately after such Disposition, no Default or
Event of Default shall exist; and (d) the corporation formed by or surviving
any such Disposition, or the corporation to which such Disposition shall have
been made, shall (i) have Consolidated Net Worth (immediately after the
Disposition but prior to giving any pro forma effect to purchase accounting
adjustments or Restructuring Charges resulting from the Disposition) equal to
or greater than the Consolidated Net Worth of the Company immediately
preceding the Disposition and (ii) have a Cash Flow Coverage Ratio, for the
four fiscal quarters immediately preceding the applicable Disposition, and
determined on a Pro Forma Basis, equal to or greater than the actual Cash
Flow Coverage Ratio of the Company for such four quarter period. The
limitations in the Exchange Debenture Indenture on the Company's ability to
make a Disposition described in this paragraph do not restrict the Company's
ability to sell less than all or substantially all of its assets, such sales
being governed by the "Asset Sales" provisions of the Exchange Debenture
Indenture as described herein.
Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustee an Officers' Certificate to the foregoing effect and
an opinion of counsel stating that the proposed Disposition and such
supplemental indenture comply with the Exchange Debentures Indenture.
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PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF EXCHANGE DEBENTURES
So long as the Exchange Debentures are outstanding, whether or not the
Company is subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall submit for filing with the Commission the
annual reports, quarterly reports and other documents relating to the Company
and its Restricted Subsidiaries that the Company would have been required to
file with the Commission pursuant to Section 13 or 15(d) if the Company were
subject to such reporting requirements. The Company will also provide to all
holders of Exchange Debentures and file with the Trustee copies of such
annual reports, quarterly reports and other documents required to be
furnished to stockholders generally under the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The Exchange Debenture Indenture provides that an Event of Default is: (a)
a default for 30 days in payment of interest on the Exchange Debentures; (b)
a default in payment when due of principal or premium, if any, with respect
to the Exchange Debentures; (c) the failure of the Company to comply with any
of its other agreements or covenants in, or provisions of, such Exchange
Debenture Indenture or the Exchange Debentures outstanding under such
Exchange Debenture Indenture and the Default continues for the period, if
applicable, and after the notice specified in the next paragraph; (d) a
default by the Company or any Restricted Subsidiary under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any Restricted Subsidiary (or the payment of which is guaranteed by the
Company or any Restricted Subsidiary), whether such Indebtedness or guarantee
now exists or shall be created hereafter, if (1) either (A) such default
results from the failure to pay principal of or interest on any such
Indebtedness (after giving effect to any extensions thereof) or (B) as a
result of such default the maturity of such Indebtedness has been accelerated
prior to its expressed maturity, and (2) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal or interest thereon, or,
because of the acceleration of the maturity thereof, aggregates in excess of
$6,000,000; (e) a failure by the Company or any Restricted Subsidiary to pay
final judgments (not covered by insurance) aggregating in excess of
$6,000,000 which judgments a court of competent jurisdiction does not
rescind, annul or stay within 45 days after their entry; and (f) certain
events of bankruptcy or insolvency involving the Company or any Significant
Subsidiary. In the case of any Event of Default pursuant to clause (a) or (b)
above occurring by reason of any willful action (or inactions) taken (or not
taken) by or on behalf of the Company with the intention of avoiding payment
of the premium that the Company would have to pay pursuant to a redemption of
Exchange Debentures as described under "--Redemption of Senior
Notes--Optional Redemption," an equivalent premium shall also become and be
immediately, due and payable to the extent permitted by law.
A Default or Event of Default under clause (c) (other than an Event of
Default arising under the "Merger or Consolidation" covenant which shall be
an Event of Default with the notice but without the passage of time specified
in this paragraph) is not an Event of Default under the Exchange Debenture
Indenture until the Trustee or the holders of at least 25% in principal
amount of the Exchange Debentures then outstanding notify the Company of the
Default and the Company does not cure the Default within 30 days after
receipt of the notice. A Default or Event of Default under clause (f) of the
preceding paragraph will result in the Exchange Debentures automatically
becoming due and payable without further action or notice.
Upon the occurrence of an Event of Default, the Trustee or the holders of
at least 25% in principal amount of the then outstanding Exchange Debentures
may declare all Exchange Debentures to be due and payable by providing written
notice to the Company and the Trustee and 10 days' advance written notice to BKC
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice") and the same shall become immediately
due and payable. The holders of a majority in principal amount of the Exchange
Debentures then outstanding under the Exchange Debenture Indenture, by notice to
the Trustee, may rescind any declaration of acceleration of such Exchange
Debentures and its consequences (if the rescission would not conflict with any
judgment or decree) if all existing Events of Default (other than the nonpayment
of principal of or interest on such Exchange Debentures that shall have become
due by such declaration)
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shall have been cured or waived. Subject to certain limitations, holders of a
majority in principal amount of the Exchange Debentures then outstanding
under the Exchange Debenture Indenture may direct the Trustee in its exercise
of any trust or power. Holders of the Exchange Debentures may not enforce the
Exchange Debenture Indenture, except as provided therein. The Trustee may
withhold from holders of Exchange Debentures notice of any continuing Default
or Event of Default (except a Default or an Event of Default in payment of
principal, premium, if any, or interest) if the Trustee determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Exchange
Debentures then outstanding may on behalf of all holders of such Exchange
Debentures waive any existing Default or Event of Default under the Exchange
Debenture Indenture and its consequences, except a continuing Default in the
payment of the principal of, or premium, if any, or interest on, such
Exchange Debentures, which may only be waived with the consent of each holder
of the Exchange Debentures affected.
Upon any payment or distribution of assets of the Company and its
subsidiaries in a total or partial liquidation, dissolution, reorganization
or similar proceeding, including a Default under clause (f) above involving
certain events of bankruptcy or insolvency of the Company or a Significant
Subsidiary, there may not be sufficient assets remaining to satisfy the
claims of any Holders of Exchange Debentures given the provisions described
under "--Subordination and Ranking" and the effective structural
subordination of the Exchange Debentures to the obligations of the
Subsidiaries of the Company.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Exchange Debenture Indenture, and upon an
officer of the Company becoming aware of any Default or Event of Default, a
statement specifying such Default or Event of Default.
OTHER PROVISIONS OF THE EXCHANGE DEBENTURE INDENTURE
The Exchange Debenture Indenture will include other provisions that are
substantially the same with respect to the Exchange Debentures as those with
respect to the Senior Notes set forth under "--Senior Notes--No Personal
Liability of Officers, Directors, Employees, Stockholders and Subsidiaries,"
"--Satisfaction and Discharge of the Indenture," "--Transfer and Exchange,"
"--Amendment, Supplement and Waiver," "--Concerning the Trustee,"
"--Book-Entry, Delivery and Form," "--Certificated Senior Notes" and
"--Same-Day Settlement and Payment."
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of the Certificate of
Incorporation, the Bylaws and the Stockholders Agreement, in each case giving
effect to the Recapitalization described below. Such summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Certificate of Incorporation, the
Bylaws and the Stockholders Agreement, including the definitions therein of
certain terms, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Board of Directors and the Company's stockholders have approved,
subject to the closing of the Offerings, the adoption of the Certificate of
Incorporation and Bylaws. The Certificate of Incorporation will provide for,
among other things, the authorization of 4,000,000 shares of Common Stock,
300,000 shares of non-voting Common Stock ("Non-Voting Common Stock), 4,425
shares of Class A(1 Preferred Stock, 1,200 shares of Class A(2 Preferred
Stock, 1,875 shares of Class B Preferred Stock, 2,500,000 shares of Senior
Preferred Stock and 100,000 shares of undesignated, serial preferred stock.
In connection with the Offerings, the Company has committed to BKC that,
without BKC's prior written consent, (i) it will not pay cash dividends on
the Senior Preferred Stock on or prior to December 1, 2001 and (ii) it will
not pay cash dividends to holders of Common Stock until the Senior Notes are
repaid in full and the Senior Preferred Stock is redeemed or otherwise
retired. See "Risk Factors--BKC Consent to Issuance of Securities and to
Payment of Dividends."
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THE RECAPITALIZATION
The Company's capital structure as reflected in its historical
consolidated financial statements consists of four classes of common stock
(Classes A, B, C and D) (the "Original Common Stock") and four classes of
Preferred Stock (Special Voting Preferred Stock and Classes A(1, A(2 and B
Preferred Stock) (the "Original Preferred Stock"). The Company eliminated the
Special Voting Preferred Stock in February 1996. The various classes of
Common Stock and Preferred Stock differ principally in respect of voting,
dividend and liquidation rights.
The Company and the Current Holders have entered into a recapitalization
agreement (the "Recapitalization Agreement"). Pursuant to the
Recapitalization Agreement, upon the consummation of the Offerings, the
Certificate of Incorporation, the Bylaws and the stockholders agreement,
dated September 1, 1994, between the Company and the Current Holders (the
"Stockholders Agreement") will be amended and restated so that, among other
things, (i) each share of Original Common Stock (other than the Class B
Common Stock) will be converted into a share of Common Stock and the Company
will effect a stock split resulting in the Current Holders receiving 1,000
shares of Common Stock for each share of Original Common Stock (other than
the Class B Common Stock) originally owned; (ii) each share of Class B Common
Stock will be converted into a share of Non-Voting Common Stock and the
Company will effect a stock split resulting in the holders of Class B Common
Stock prior to the Offerings receiving 1,000 shares of Non-Voting Common
Stock for each share of Class B Common Stock originally owned; and (iii) the
Current Holders and the Company will enter into an amended Stockholders
Agreement. See "--Stockholders Agreement."
Since the consummation of the Initial Acquisitions in September 1994, the
Company has at all times had 1,000,010 shares of Common Stock outstanding,
without giving effect to the exercise of options and warrants. Assuming the
exercise of all then currently exercisable options and warrants, as of September
30, 1996, the Company would have had 1,195,330 shares of Common Stock
outstanding. The primary impact of the Recapitalization on holders of Common
Stock is to effect a 1000-for-1 Common Stock Split. In connection with the
Offerings, the Company intends to (i) cancel warrants held by PMI which would
otherwise be exercisable for 71,720 shares of Common Stock and (ii) issue 46,817
shares of Common Stock in the Units Offering. Accordingly, after giving effect
to the Recapitalization and the Offerings, the Company will have outstanding
1,058,067 shares of Common Stock (assuming the exercise of outstanding options
and warrants) and 112,360 shares of Non-Voting Common Stock, 4,425 shares of
Class A(1, Preferred Stock, 1,200 shares of Class A(2, Preferred Stock and 1,875
shares of Class B Preferred Stock. See "Principal Stockholders."
COMMON STOCK
Following the Offerings, 1,046,827 shares of Common Stock will be issued
and outstanding. As of September 30, 1996, all of the issued and outstanding
shares of Common Stock were, and upon the consummation of the Recapitalization
and the Offerings the 46,817 shares of Common Stock offered hereby will be,
fully paid and non-assessable. Each holder of shares of Common Stock (other than
the Non-Voting Common Stock) is entitled to one vote per share on all matters to
be voted on by stockholders. The holders of Common Stock are entitled to
dividends and other distributions if, as and when declared by the Board of
Directors out of assets legally available therefor, subject to the rights of the
holders of Preferred Stock and the restrictions, if any, imposed by indebtedness
outstanding from time to time. See "Dividend Policy."
Upon the liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock would be entitled to share ratably in the
distribution of all of the Company's assets remaining available for
distribution after satisfaction of all its liabilities and the payment of the
liquidation preference of any outstanding shares of Preferred Stock. The
holders of Common Stock have no preemptive or other subscription rights to
purchase shares of stock of the Company, nor are such holders entitled to the
benefits of any sinking fund provisions. As of September 30, 1996, there were
29 beneficial owners of Common Stock.
NON-VOTING COMMON STOCK
Immediately prior to the consummation of the Offerings, the Company will
authorize 300,000 shares of Non-Voting Common Stock for issuance. The Company
intends to issue shares of Non-Voting Common Stock to stockholders that are
not permitted by law or under applicable regulation to own or control voting
equity securities. The Non-Voting Common Stock is identical to the Common
Stock in all respects except voting and conversion rights. The holders of
Non-Voting Common Stock have no right to vote except as required by law. Upon
transfer to an entity not restricted from holding voting Common Stock, each
share of Non-Voting Common Stock may be converted into an equal number of
shares of
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Common Stock, entitling the holders thereof to voting rights. Upon the close
of the Offerings, BancBoston will be the only holder of Non-Voting Common
Stock.
WARRANTS AND OPTIONS
Senior Subordinated Warrants. In connection with the financing of the
Company's acquisition of 36 Burger King restaurants from BKC franchisees in
February 1996, the Company issued immediately exercisable warrants (the
"Senior Subordinated Warrants") to purchase up to 71,720 shares of Common
Stock to PMI at a purchase price of $.01 per share. The number of shares of
Common Stock and the exercise price per share are subject to adjustment in
the event of certain dilutive issuances of Common Stock at less than the
current market price of the Common Stock. The Company can cancel the Senior
Subordinated Warrants at any time prior to August 7, 1997 in the event of a
public offering of Common Stock prior to such date upon the prepayment of the
Senior Subordinated Notes. The Company currently intends to cancel the Senior
Subordinated Warrants in connection with the consummation of the Offerings
and the repayment of the Senior Subordinated Notes held by PMI. The Senior
Subordinated Warrants expire on February 7, 2006. See "Use of Proceeds" and
"Description of Certain Indebtedness--Senior Subordinated Notes."
BBI Warrants. In connection with the financing of the Company's
acquisition of 68 Burger King restaurants from BKC in September 1994 and the
acquisition of 39 Burger King restaurants from a BKC franchisee in November
1994, the Company issued immediately exercisable warrants (the "BBI
Warrants") to purchase up to 112,360 shares of Non-Voting Common Stock to BBI
at a purchase price of $.001 per share. The number of shares of Non-Voting
Common Stock and the exercise price per share are subject to adjustment in
the event of certain dilutive issuance of Common Stock at less than the
current market price of the Common Stock. The BBI Warrants expire on February
7, 2006.
Employee Options. The Company has granted options to purchase an aggregate
of 11,240 shares of Common Stock to employees of the Company. See
"Management--Stock Options."
STOCKHOLDERS AGREEMENT
The Stockholders Agreement provides for certain rights and obligations
among the Company and the Current Holders including with respect to the
election of directors, restrictions on transfer, co-sale rights and
registration rights. Pursuant to the Stockholders Agreement, the Current
Holders have agreed to vote their shares for the election of at least four
members of the board of directors designated by affiliates of The Jordan
Company, including MCIT PLC (the "TJC Investors") and three directors
designated by the current executive officers of the Company (the "Management
Holders").
The Current Holders may only transfer shares of Common Stock in accordance
with the Stockholders Agreement. The Company and the Current Holders have a
right of fiirst offer to purchase all or any portion of any shares of Common
Stock to be transferred by any Current Holder, subject to certain limited
exceptions, on the same terms put forth for such transfer by the selling
holder. The Stockholders Agreement provides for preferences on the rights of
first offer such that the Management Holders have the first right to purchase
shares sold by any other Management Holder and the TJC Investors have the
first right to purchase shares sold by any other TJC Investor. The Company
also granted to each Current Holder a right of first refusal on any
additional issuance of capital stock or securities convertible into capital
stock. These rights have been waived in connection with the Offerings.
In the event any Current Holder proposes to sell (i) more than 5% of the
outstanding Common Stock of the Company or (ii) more than 50% of its initial
holdings of Common Stock, the other Current Holders may join in such sale on
the same terms on a pro rata basis and the purchaser must buy such securities
on a pro rata basis from each Current Holder who joins in the sale. In
addition, in the event that a majority of the TJC Investors and BancBoston
agree to sell two thirds or more of their aggregate shares of Common Stock to
a third party in an arms-length sale, they may obligate the other TJC
Investors, the Management Holders and PMI to sell their shares on the same
terms. Further, the TJC Investors are not permitted to effect a sale of
Common Stock or a transaction which results in a change of control of the
Company without the consent of BancBoston and MCIT.
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Pursuant to the Stockholders Agreement, the TJC Investors (other than
MCIT) and BancBoston have been granted by the Company demand and incidental
registration rights. All other Current Holders have been granted incidental
registration rights.
In general, each of (i) the holders of a majority of shares of Common
Stock held by the TJC Investors (other than MCIT) and (ii) BancBoston have
the right to cause the Company to register their holdings of Common Stock
under the Securities Act (such right being referred to as a "demand
registration right"), subject to certain exceptions. All stockholders of
Common Stock are each entitled, if the Company determines to file a
registration statement covering any of its securities under the Securities
Act, other than a registration statement on Form S-4 or Form S-8, to require
the Company to use its best efforts to include a requested amount of their
shares of Common Stock in the Company's registered offering (such right being
referred to as an "incidental registration right"), subject to certain
limitations. The number of shares of Common Stock registered pursuant to a
demand or incidental registration may be reduced pursuant to a specified
formula if the managing underwriter determines that market conditions require
a limitation on the number of such shares registered.
The Company is required to bear all registration expenses in connection
with each demand and incidental registration and has agreed to indemnify the
holders of demand and incidental registration rights against, and provide
contribution with respect to, certain liabilities under the Securities Act in
connection with incidental and demand registrations. See "Principal
Stockholders."
PREFERRED STOCK
Except where required by law, none of the shares of Class A(1 Preferred
Stock, Class A(2 Preferred Stock or Class B Preferred Stock are entitled to
vote on any matters to be voted on by the stockholders of the Company.
Subject to dividend payments to the holders of the Senior Preferred Stock,
shares of Class A(1 Preferred Stock and Class A(2 Preferred Stock are
entitled to receive annual dividends of 6% payable quarterly. Dividends of
Class A(1 Preferred Stock are payable either in additional shares of Class
A(1 Preferred Stock, or in cash and are cumulative if not declared and paid;
dividends of Class A(2 Preferred Stock are payable only in cash and are
cumulative if not declared and paid. Shares of Class B Preferred Stock are
entitled to receive annual dividends of 6% payable quarterly in cash and are
cumulative if not declared and paid. Dividend payments to the holders of
shares of Class B Preferred Stock, current and cumulative, may be made only
after all accrued dividends of Class A(1 Preferred Stock and Class A(2
Preferred Stock have been declared and paid.
Upon a liquidation, dissolution or winding up of the Company, the holders
of all shares of Class A(1 Preferred Stock and Class A(2 Preferred Stock are
entitled, before any distribution or payment is made to any other class of
capital stock of the Company other than Senior Preferred Stock, to be paid
all principal and accrued and unpaid dividends on the shares. In the event
that the assets of the Company are insufficient to pay all principal and
accrued and unpaid dividends of the shares of Class A(1 Preferred Stock and
Class A(2 Preferred Stock, holders of such shares shall be paid ratably in
proportion to the amount of principal and accrued and unpaid dividends on
each share. Holders of Class B Preferred Stock are entitled to be paid all
principal and accrued and unpaid dividends after distribution of all amounts
due the holders of Class A(1 Preferred Stock, Class A(2 Preferred Stock and
Senior Preferred Stock but before any distribution or payment to any other
class of capital stock of the Company.
All of the shares of Class A(1 Preferred Stock, Class A(2 Preferred Stock
and Class B Preferred Stock may be redeemed in whole or part in cash by the
Company provided that all accrued and unpaid dividends are first declared and
paid and such redemption is permissible under the Company's financing
agreements. Shares of Class B Preferred Stock may not be redeemed until all
shares of Class A(1 Preferred Stock and Class A(2 have first been redeemed.
All of the shares of Class A(1 Preferred Stock, Class A(2 Preferred Stock and
Class B Preferred Stock are subject to mandatory redemption by the Company on
March 31, 2009.
For a description of the Senior Preferred Stock, see "Description of
Securities--Senior Preferred Stock."
The Certificate of Incorporation will authorize the Board of Directors to
create and issue one or more series of Preferred Stock and determine the
rights and preferences of each series, to the extent permitted by the
Certificate of Incorporation and applicable law. Among other rights, the
Board of Directors may determine, without the further vote or action by the
Company's stockholders, (i) the
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number of shares constituting the series and the distinctive designation of
the series; (ii) the dividend rate on the shares of the series, whether
dividends will be cumulative and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series; (iii) whether the series shall have voting rights, in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
(iv) whether the series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall
determine; (v) whether or not the shares of that series shall be redeemable
or exchangeable and, if so, the terms and conditions of such redemption or
exchange, as the case may be, including the date or dates upon or after which
they shall be redeemable or exchangeable, as the case may be, and the amount
per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates; (vi) whether the
series shall have a sinking fund for the redemption or purchase of shares of
that series and, if so, the terms and amount of such sinking fund and (vii)
the rights of the shares of the series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Company and the
relative rights or priority, if any, of payment of shares of the series;
provided, that the holders of the Preferred Stock outstanding prior to the
Offerings will be required to consent to the issuance of certain series of
Preferred Stock that are senior in right of payment of dividends or
liquidations. Except for any difference so provided by the Board of
Directors, the shares of all series of Preferred Stock will rank on a parity
with respect to the payment of dividends and the distribution of assets upon
liquidation.
CERTIFICATE OF INCORPORATION AND BYLAWS
The rights of the Company's stockholders are governed by the Delaware
Corporation Law, the Certificate of Incorporation, and the Bylaws. Certain
provisions of the Certificate of Incorporation and the Bylaws, which are
summarized below, may discourage or make more difficult a takeover attempt
that a stockholder might consider in its best interest. Such provisions may
also adversely affect the prevailing market price for the Common Stock.
Preferred Stock. The Board of Directors will have the authority, without
action by the Company's stockholders, to fix the rights, privileges and
preferences of, and to issue up to 100,000 shares of Preferred Stock. The
issuance of such Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by
the stockholders and may adversely affect the voting and other rights of the
holders of the Common Stock, including the loss of voting control to others.
The Company currently has no plans to issue any additional shares of
Preferred Stock.
Advance Notice Requirements for Stockholder Proposals. The Bylaws will
establish advance notice procedures with regard to stockholder proposals.
These procedures provide that the notice of stockholder proposals must be
received by the Company no later than (i) with respect to an annual meeting
of stockholders, 60 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders and (ii) with respect to a special
meeting of stockholders, no later than the close of business on the tenth day
following the date on which notice of such meeting is first sent or given to
stockholders. Each stockholder proposal must set forth certain information as
specified in the Bylaws.
ANTI-TAKEOVER EFFECTS OF THE BKC FRANCHISE AGREEMENTS
Current BKC policies and procedures require the Company and each of its
subsidiaries that is a franchisee to seek BKC consent prior to making certain
changes to their capital structure and modifications to their corporate
governance documents. Pursuant to the BKC franchise agreements, BKC's consent
is required for transfers or issuances by the Company of its equity
securities or the transfer or issuance to third parties of the equity
securities of the Company's subsidiary franchisees and BKC consent may be
required or transfers of the Company's equity securities that result in a
change of control of the Company in connection with a public tender offer. If
BKC's required consent was not obtained in connection with any such issuance
or transfer of the Company's equity securities, BKC could terminate its
franchise agreements with the Company's subsidiaries, which would have a
material adverse effect on the Company's financial condition and results of
operations. In addition, the Company's financial flexibility and ability to
issue equity securities in connection with acquiring future Burger King
restaurants could be limited by BKC. Any such limitations would affect the
Company's growth strategy and could have a material adverse effect on the
Company's financial condition and results of operations.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of important terms of certain indebtedness of
the Company. For more complete information regarding such indebtedness,
reference is made to the definitive agreements and instruments setting forth
the terms of such indebtedness, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part and which
are incorporated by reference herein. For a description of the terms of the
Senior Notes and the Exchange Debentures, see "Description of
Securities--Senior Notes and -- Exchange Debentures."
CREDIT AGREEMENT
The Credit Agreement provides for up to $100.0 million of senior secured
indebtedness, consisting of two term loans of $45.0 million ("Term Loan A")
and $40.0 million ("Term Loan B" and, together with Term Loan A, the "Term
Loans"), and $15.0 million of Revolving Loans (the Revolving Loans, together
with the Term Loans, the "Loans"). Subject to certain restrictions, National
Restaurant Enterprises, Inc., a wholly owned subsidiary of the Company
("Enterprises") may use the commitments under the Revolving Loans for the
issuance of documentary or standby letters of credit.
Term Loan A and the Revolving Loans bear interest at a rate of the lower
of either FNBB's annual rate of interest (the "Base Rate") plus 1.5% or the
Eurodollar Rate (as defined in the Credit Agreement) plus 2.75%, and mature
on January 31, 2002. The interest rates for Term Loan A and the Revolving
Loans are subject to downward adjustment based on a debt service ratio of
Enterprises on specified dates. As of September 30, 1996, the outstanding
principal balance under the Revolving Loans was $2.5 million. Term Loan B
bears interest at a rate of the lower of either the Base Rate plus 2% or the
Eurodollar Rate plus 3.25%, and matures on January 31, 2004. Interest on
Loans utilizing the Base Rate is payable quarterly in arrears and interest on
Loans utilizing the Eurodollar Rate is payable at the end of each respective
interest period. Enterprises is required to repay the principal amount on the
Term Loans in consecutive quarterly installments pursuant to payment
schedules specified in the Credit Agreement. In addition, Enterprises is
required to make annual prepayments on the principal amount of the Term Loans
based on Consolidated Excess Cash Flow (as defined in the Credit Agreement).
Due to various amendments to the Credit Agreement and as a result of
Enterprises' various acquisitions, Enterprises has not been required to
prepay any amounts under the Term Loans based on Consolidated Excess Cash
Flow since entering into the Credit Agreement.
The Credit Agreement contains certain customary covenants with respect to,
among other things: (i) maintenance by Enterprises and its subsidiaries of
prescribed ratios of cash flow to total debt service and cash flow to total
interest expense (each as determined in the Credit Agreement); (ii)
maintenance by Enterprises and its subsidiaries of minimum levels of cash
flow (as determined); and (iii) restrictions on indebtedness, distributions,
investments, liens, sales and leasebacks, mergers, consolidations,
acquisitions, sales and dispositions of assets, capital expenditures, and
restaurant development. As of September 30, 1996, the Company was in
compliance with all such covenants and restrictions.
Borrowings under the Credit Agreement are secured by a first priority
security interest in all present and future acquired tangible assets of
Enterprises and certain of its subsidiaries (other than real estate and the
franchise agreements) and Enterprises' repayment obligations are guaranteed
by certain of its subsidiaries and the Company.
The Company intends to use $86.6 million of the net proceeds from the
Offerings to prepay the Loans in full. The Company will have $15.0 million of
Revolving Loans available for future borrowings after consummation of the
Offerings. The Company is currently negotiating with several lenders for a
new bank credit agreement to replace the Credit Agreement pursuant to which
the Company expects to be able to borrow up to approximately $75 million
under a revolving credit facility to fund acquisitions and provide working
capital and for other general corporate purposes. The Company expects that
the new credit agreement will extend over a term of six years and that the
agreement would be secured by a first priority security interest on
substantially all of the Company's assets, including a pledge of all of the
stock of the Company's subsidiaries. Closing of the Offerings are not subject
to the closing of the new credit agreement. See "Use of Proceeds."
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FAC NOTES
In connection with the acquisition of certain Burger King restaurants from
Daniel White and affiliate, AmeriKing Colorado Corporation I ("ACCI"), a
wholly owned subsidiary of Enterprises, issued a Promissory Note to Franchise
Acceptance Corporation Limited (the "CO Note") in the principal amount of
$1.87 million. Franchise Acceptance Corporation Limited is an affiliate of
BKC. The CO Note bears an interest rate of the Program Rate (as defined
therein) plus 2.75% per annum, payable monthly in arrears. The CO Note
matures on January 25, 2006 and requires ACCI to make monthly principal
payments of $15,541.67 ( 1/120 of the original principal amount) starting
January 25, 1996 for each month up to maturity.
ACCI may at its option, subject to certain restrictions, prepay the CO
Note, in whole or in part. However, ACCI is required to continue its monthly
principal payments following any partial voluntary prepayment. In addition,
ACCI is required to pay the CO Note in full following any Event of Default
(as defined therein). Events of Default under the CO Note include, among
other things, failure to make required payments or failure by ACCI to meet
BKC franchise agreement requirements.
Borrowings under the CO Note are secured by a security interest in all
present and future restaurant-related assets of ACCI.
In connection with the acquisition of certain Burger King restaurants from
the stockholders of QSC, Inc. and Ro-Lank, Inc., AmeriKing Tennessee
Corporation I ("ATCI"), a wholly owned subsidiary of Enterprises, issued a
Secured Promissory Note (the "TN Note") to BKC in the principal amount of
$6.9 million. Pursuant to the terms of the TN Note, on February 7, 1996 ATCI
paid down $817,000 of the principal from the proceeds of the sale of the
building and underlying real estate of one of its Burger King restaurants. In
July 1996, the TN Note was refinanced and is currently an obligation of ATCI
to Franchise Acceptance Corporation Limited. The CO Note and the TN Note are
collectively referred to as the "FAC Notes." The TN Note bears interest at a
rate of the Program Rate plus 2.75% per annum payable monthly in arrears,
matures on July 18, 2006 and requires ATCI to make monthly principal payments
of $50,083.33 ( 1/120 of the principal amount) starting August 25, 1996 for
each month up to maturity.
ATCI may at its option, subject to certain restrictions, prepay the TN
Note, in whole or in part. However, ATCI is required to continue its monthly
principal payments following any partial voluntary prepayment. In addition,
ATCI is required to pay the TN Note in full following any Event of Default
(as defined therein). Events of Default under the TN Note include, among
other things, failure to make required payments or failure by ATCI to meet
BKC franchise agreement requirements.
Borrowings under the TN Notes are secured by a security interest in all
present and future restaurant-related assets of ATCI.
The FAC Notes are senior in right of payment to the Senior Notes.
BBI NOTES
In connection with the acquisition of certain Burger King restaurants from
Sheldon Friedman and affiliates in November 1994, the Company issued
promissory notes to BancBoston in the aggregate principal amount of $600,000
(collectively, the "BBI Notes"). The BBI Notes are junior in right of payment
to the Senior Notes and bear interest at a rate of 6% per annum, payable
quarterly in arrears. The BBI Notes have a scheduled maturity date of March
31, 2005.
The Company may at its option prepay the BBI Notes, in whole or in part.
The Company is required to prepay all BBI Notes upon a Change of Control (as
defined in the BBI Notes). The Company is not subject to a prepayment premium
upon a voluntary or mandatory prepayment of the BBI Notes.
SENIOR SUBORDINATED NOTES
On February 7, 1996, the Company, Enterprises, and PMI entered into a note
purchase agreement (the "Senior Subordinated Note Purchase Agreement") for
the purchase by PMI of $15.0 million aggregate principal amount of Senior
Subordinated Notes (collectively, the "Senior Subordinated
102
<PAGE>
Notes"). The Senior Subordinated Notes are general, unsecured obligations of
Enterprises and are guaranteed by certain subsidiaries of Enterprises. The
Senior Subordinated Notes mature on January 31, 2005, without a prepayment
schedule, and bear interest at a rate of 12.5% per annum, payable quarterly
in arrears.
The Senior Subordinated Notes are subordinated in right of payment to the
loans under the Credit Agreement. The Senior Subordinated Notes may, at the
election of the Company, be prepaid in whole or in part, at any time, subject
to a specified prepayment premium. Upon (i) a Change of Control (as defined
in the Senior Note Purchase Agreement), (ii) a merger, reorganization, or
consolidation involving the Company or Enterprises, (iii) the sale or
disposition of all or substantially all of the assets of the Company,
Enterprises, and their subsidiaries, taken as a whole, (iv) the occurrence of
one or more events that give rise to a mandatory prepayment obligation with
respect to other indebtedness of the Company, or (v) the occurrence of a
public offering in which shares of Common Stock are being registered for sale
by holders other than the Company or PMI (or its designated transferee),
Enterprises, at the option of the holders of a majority of the Senior
Subordinated Notes, may be required to prepay the Senior Subordinated Notes
subject to a specified prepayment premium.
The Company intends to use $18.5 million of the net proceeds from the
Offerings to prepay the Senior Subordinated Notes in full (including a
prepayment penalty of approximately $3.4 million). See "Use of Proceeds."
SUBORDINATED NOTES
On February 7, 1996, the Company and MCIT entered into an amended and
restated purchase agreement (the "Subordinated Note Purchase Agreement")
which related to the prior purchase by MCIT of $11.0 million aggregate
principal amount of Subordinated Notes (collectively, the "Subordinated
Notes") and certain shares of capital stock of the Company. The Subordinated
Notes are general, unsecured obligations of the Company. The Subordinated
Notes mature on August 31, 2005, without a prepayment schedule, and bear
interest at a rate of 12.75% per annum, payable semi-annually in arrears.
The Subordinated Notes are subordinated to the Company's guarantee
obligations in respect of borrowings under the Credit Agreement. Subject to
their subordination terms, the Company may at its option prepay the
Subordinated Notes, in whole or in part; however, the Company is required to
prepay all Subordinated Notes upon a Change of Control (as defined in the
Subordinated Note Purchase Agreement). The Company is not subject to a
prepayment premium upon a voluntary or mandatory prepayment of the
Subordinated Notes.
The Company intends to use $11.0 million of the net proceeds from the
Offerings to prepay the Subordinated Notes in full. See "Use of Proceeds."
SELLER NOTES
In connection with the acquisition of certain Burger King restaurants from
Messrs. Jaro and Osborn in September 1994, the Company issued promissory
notes to entities controlled by Messrs. Jaro and Osborn in the aggregate
principal amount of $4.4 million (collectively and as amended and restated,
the "Seller Notes"). The Seller Notes are junior in right of payment to the
Senior Subordinated Notes and the Company's guarantee obligations in respect
of borrowings under the Credit Agreement and bear interest at a rate of
12.75% per annum, payable semi-annually in arrears. The Seller Notes have a
scheduled maturity of August 31, 2005.
The Company may prepay the Seller Notes only under certain specified
limited conditions and is required to prepay the Seller Notes in full without
a prepayment premium upon the occurrence of specified events, including upon
(i) an acceleration of the Subordinated Notes, (ii) a default by the Company
in the payment of any principal on a Seller Note, (iii) the commencement of a
bankruptcy proceeding by the Company or certain of its subsidiaries or (iv) a
Change of Control (which is defined to have the same meaning as set forth in
the Subordinated Note Purchase Agreement).
The Company intends to use $4.4 million of the net proceeds from the
Offerings to prepay the Seller Notes in full. See "Use of Proceeds."
103
<PAGE>
CERTAIN TRANSACTIONS
Subordinated Debt Holders. PMI, MCIT, affiliates of Messrs. Jaro and
Osborn and BancBoston are the holders of Senior Subordinated Notes,
Subordinated Notes, Seller Notes and the BBI Notes, respectively. For the
nine-month period ended September 30, 1996, the Company accrued approximately
$1.2 million of interest expense to PMI under the Senior Subordinated Notes
and during fiscal 1995, the Company paid to MCIT, the holders of the Seller
Notes and BancBoston approximately $1.4 million, $560,000 and $36,000 as
interest expense under the Subordinated Notes, the Seller Notes and the BBI
Notes, respectively. Simultaneously with the consummation of the Offerings,
the Company will use approximately $33.9 million from the net proceeds of the
Offerings to prepay the principal amount under each of the Senior
Subordinated Notes, the Subordinated Notes and the Seller Notes (including
the prepayment penalty of approximately $3.4 million to PMI). In connection
with the prepayment of the Senior Subordinated Notes, the Company will cancel
the Warrants held by PMI. The FAC Notes and the BBI Notes will remain
outstanding following the Offerings. PMI, MCIT and BancBoston are principal
stockholders of the Company. Mr. Jaro is the Company's Chairman, Chief
Executive Officer, managing owner and a principal stockholder and Mr. Osborn
is the Company's Vice Chairman, director and a principal stockholder. See
"Use of Proceeds" and "Description of Certain Indebtedness."
The Jordan Company. On September 1, 1994, the Company and Enterprises
entered into a consulting agreement with an affiliate of The Jordan Company
(the "TJC Consulting Agreement"). Under the TJC Consulting Agreement, the
Company retained an affiliate of The Jordan Company to render consulting
services to it regarding the Company and its subsidiaries, their financial
and business affairs and their relationships with their lenders and
stockholders, and the operation and expansion of their business. The TJC
Consulting Agreement expires on September 1, 2004, but is automatically
renewed for successive one-year terms, unless either party provides written
notice of termination 60 days prior to the scheduled renewal date. The TJC
Consulting Agreement provides for an annual consulting fee payable on a
quarterly basis equal to the higher of (i) $600,000 or (ii) 2.5% of the
Company's cash flow (as determined in the TJC Consulting Agreement). In
addition, the TJC Consulting Agreement provides for payment to the affiliate
of The Jordan Company of (i) an investment banking and sponsorship fee of up
to 2% of the purchase price of certain acquisitions or sales involving the
Company, Enterprises or any of their subsidiaries and (ii) a financial
consulting fee of up to 1.0% of any debt, equity or other financing arranged
by the Company with the assistance of TJC. During fiscal 1995 and the nine
months ended September 30, 1996, the Company paid consulting fees to the
affiliate of The Jordan Company of approximately $479,000 and $439,000,
respectively, pursuant to the terms of the TJC Consulting Agreement. In
connection with the acquisition on February 7, 1996 by certain subsidiaries
of Enterprises of an aggregate of 36 Burger King restaurant franchises
located in the States of Indiana, Kentucky, Ohio, Virginia and North
Carolina, the Company paid to the affiliate of The Jordan Company an
investment banking fee of $1.0 million and paid fees totalling $300,000 to
certain members of the Company's senior management. If the Offerings and
related financings are consummated by the Company, the Company will pay to
the affiliate of The Jordan Company an investment banking fee of $1.3 million
pursuant to the terms of the TJC Consulting Agreement. The Company believes
that the terms of the TJC Consulting Agreement are comparable to the terms
that it would obtain from disinterested third parties for comparable
services. Messrs. Jordan, Zalaznick and Caputo are partners of The Jordan
Company.
Burger King Corporation. In connection with certain of its previous
acquisitions of Burger King restaurants, the Company and its subsidiaries
have entered into certain agreements with BKC as a precondition to receiving
BKC approval of the acquisition. As part of its purchase agreement with BKC,
dated September 1, 1994, Enterprises committed to expend up to $2.25 million
by September 1, 1997 to upgrade the 68 Burger King restaurants it acquired.
As part of its November 21, 1995 acquisition of 11 Burger King restaurants,
the Company and ATCI agreed to (i) renew the Company's commitment, initially
made in connection with its November 30, 1994 acquisition, to sell up to 10
Burger King restaurants to a franchisee to be designated by BKC and (ii)
expend approximately $1.5 million by November 21, 1997 to upgrade certain of
the 11 Burger King restaurants so acquired. The commitment by ATCI to upgrade
the restaurants is subject to certain capital expenditures to be made by BKC.
As part of its acquisitions of 36 Burger King restaurants on February 7,
1996, the Company and ATCI (i) renewed
104
<PAGE>
the Company's commitment to sell up to 10 Burger King restaurants to a
franchisee to be designated and (ii) agreed to make the capital expenditures
necessary to bring each of the Burger King restaurants operated by the
Company and its subsidiaries into compliance with BKC current repair and
maintenance standards by September 7, 1997.
In connection with the Offerings, the Company will be required to enter
into an agreement with BKC pursuant to which the Company will, among other
things, indemnify BKC for any claims against BKC arising out of the
Offerings.
Members of the Board of Directors. Enterprises leases the land and
buildings for two Burger King restaurants under noncancelable operating
leases from an entity which is owned by Mr. Jaro. The leases expire in March
2006 and January 2007, respectively, and require total monthly rental
payments of $20,600. For the year ended January 1, 1996 and for the nine
month period ended September 30, 1996, the Company recorded rent expense of
$248,000 and $185,000, respectively, under these leases. The Company believes
that the terms of these leases are comparable to the terms it would obtain
from disinterested third parties for comparable sites.
Pursuant to the provisions of BKC's franchise agreements, Messrs. Jaro,
Osborn and Hubert, as managing owners and owners, have guaranteed the
obligations of the Company and its subsidiaries under each franchise
agreement and each lease agreement in which BKC is the lessor.
In connection with the September 1994 purchase of the Management
Restaurants, the Company (i) entered into a $700,000 revolving loan agreement
with Mr. Jaro whereby the Company loaned funds to Mr. Jaro and (ii) deferred
payment in full of the purchase price for one of the Management Restaurants
sold to the Company by a corporation controlled by Mr. Jaro. In September
1996, the Company canceled the outstanding balance of the revolving loan to
Mr. Jaro in exchange for Mr. Jaro's cancellation of the outstanding balance
of the deferred purchase price for the restaurant.
The Company has adopted a policy to provide that future transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Board of Directors and by a
majority of the disinterested members of the Board of Directors and (ii) be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
105
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") among the Company and the
Underwriters, the Company has agreed to issue and sell to the Underwriters,
and the Underwriters, severally and not jointly, have agreed to purchase from
the Company, the respective principal amounts of Senior Notes set forth
opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation $
Jefferies & Company, Inc. ...........................
-------------
Total ........................................... $100,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Senior Notes are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of
the Senior Notes are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such Senior Notes must be so purchased.
The Underwriters have advised the Company that the Underwriters propose to
offer the Senior Notes to the public initially at the price set forth on the
cover page of this Prospectus and to certain dealers (who may include the
Underwriters) at such offering price less a concession not to exceed $ per
Senior Note. The Underwriter may allow and such dealers may reallow discounts
not in excess of $ per Senior Note to certain dealers. After the initial
public offering, the public offering price and such concessions may be
changed at any time without notice.
The Senior Notes will constitute a new class of securities with no
established trading market. The Company does not intend to list such
securities on any national securities exchange or on the Nasdaq National
Market. The Company has been advised by the Underwriters that following the
completion of the Notes Offering, the Underwriters currently intend to make a
market in the Senior Notes. However, the Underwriters are not obligated to do
so and any such market-making may be discontinued at any time without notice
in their sole discretion. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act.
Accordingly, no assurance can be given as to the liquidity of, or the trading
market for, the Senior Notes. See "Risk Factors--Absence of Public Market for
the Securities."
The Company has agreed to indemnify the Underwriters against certain
liabilities and expenses in connection with the offer and sale by the Company
of the Senior Notes, including liabilities under the Securities Act, and to
contribute to payments that the Underwriters may be required to make in
respect thereof.
Donaldson, Lufkin & Jenrette Securities Corporation, one of the
Underwriters, is also acting as the underwriter of the Units Offering. See
"Summary--Concurrent Offering."
106
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the Securities
offered hereby will be passed upon for the Company by Mayer, Brown & Platt,
New York, New York. Mayer, Brown & Platt also represents The Jordan Company
and its affiliates from time to time in connection with its various
acquisitions and divestitures. Certain legal matters relating to the
Offerings will be passed upon for the Underwriters by Latham & Watkins, New
York, New York.
EXPERTS
The consolidated financial statements of the Company as of January 1, 1996
and December 31, 1994 and for the periods then ended and the historical
schedules of restaurant contribution for each of the periods from January 1,
1993 to the earlier of the date of purchase by the Company or December 31,
1995, appearing in this Prospectus and Registration Statement have been
audited by Deloitte & Touche LLP, independent certified public accountants,
as set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The statements in the Units Prospectus under the caption "Certain Federal
Income Tax Considerations" have been examined by and passed upon for the
Company by Mayer, Brown & Platt, and are included in reliance upon such
examination and upon the authority of such counsel as experts on the Federal
income taxation matters set forth therein.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to
the Securities offered hereby. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any
and all amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and
such Securities, reference is hereby made to such Registration Statement,
which can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission
at Seven World Trade Center, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
NEITHER BKC NOR ANY OF ITS SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS,
AGENTS, EMPLOYEES, ACCOUNTANTS OR ATTORNEYS ARE IN ANY WAY PARTICIPATING IN,
APPROVING OR ENDORSING THESE OFFERINGS OF SECURITIES, ANY OF THE UNDERWRITING
OR ACCOUNTING PROCEDURES USED IN THE OFFERINGS, OR ANY REPRESENTATIONS MADE
IN CONNECTION WITH THE COMPANY. THE GRANT BY BKC OF ANY FRANCHISE OR OTHER
RIGHTS TO THE COMPANY IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS,
AN EXPRESS OR IMPLIED APPROVAL, ENDORSEMENT OR ADOPTION OF ANY STATEMENT
REGARDING ACTUAL OR PROJECTED FINANCIAL OR OTHER PERFORMANCE WHICH MAY BE
CONTAINED IN THE COMPANY'S OFFERING MATERIALS. ALL FINANCIAL AND OTHER
PROJECTIONS HAVE BEEN PREPARED BY, AND ARE THE SOLE RESPONSIBILITY OF, THE
COMPANY.
ANY REVIEW BY BKC OF THE OFFERING MATERIALS OR THE INFORMATION INCLUDED
THEREIN HAS BEEN CONDUCTED SOLELY FOR THE BENEFIT OF BKC TO
107
<PAGE>
DETERMINE CONFORMANCE WITH BKC'S INTERNAL POLICIES, AND NOT TO BENEFIT OR
PROTECT ANY OTHER PERSON. NO INVESTOR SHOULD INTERPRET SUCH REVIEW BY BKC AS
AN APPROVAL, ENDORSEMENT, ACCEPTANCE OR ADOPTION OF ANY REPRESENTATION,
WARRANTY, COVENANT OR PROJECTION CONTAINED IN THE MATERIALS REVIEWED.
THE ENFORCEMENT OR WAIVER OF ANY OBLIGATION OF THE COMPANY UNDER ANY
AGREEMENT BETWEEN THE COMPANY AND BKC OR BKC'S AFFILIATES IS A MATTER OF
BKC'S OR BKC'S AFFILIATES' SOLE DISCRETION. NO INVESTOR SHOULD RELY ON ANY
REPRESENTATION, ASSUMPTION OR BELIEF THAT BKC OR BKC'S AFFILIATES WILL
ENFORCE OR WAIVE PARTICULAR OBLIGATIONS OF THE COMPANY UNDER SUCH AGREEMENTS.
108
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma consolidated statements of operations of the Company for
fiscal 1995, for the nine months ended October 2, 1995 and September 30, 1996
and for the twelve months ended September 30, 1996 give effect to each of the
following transactions as if each had occurred on January 1, 1995: (i) the
Company's acquisition of a total of 18 restaurants accounted for under the
purchase method of accounting from BKC and two existing Burger King
franchisees in three transactions, one in September 1995, one in October 1995
and one in November 1995, including five restaurants in Colorado, nine in
Tennessee, two in Illinois and two in Georgia (collectively, the "1995
Acquisitions"); (ii) the Company's acquisition of a total of 36 restaurants
accounted for under the purchase method of accounting from two existing
Burger King franchisees in two transactions in February 1996, including 21
restaurants in Virginia, three in North Carolina, seven in Kentucky, three in
Ohio and two in Indiana (collectively, the "1996 Acquisitions"); and (iii)
the consummation of the Offerings and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds." The pro forma
consolidated balance sheet gives effect to the consummation of the Offerings
and the application of the estimated net proceeds therefrom as further
described in "Use of Proceeds" as if they had occurred as of September 30,
1996.
The Company believes that the assumptions used in the pro forma financial
statements provide a reasonable basis on which to present such statements.
The pro forma financial statements are provided for information purposes only
and should not be construed to be indicative of the Company's results of
operations or financial position had the Offerings and the other events
described above been consummated on or as of the dates assumed, and are not
intended to project the Company's results of operations or its financial
position for any future period or as of any future date. The Pro Forma
Consolidated Financial Statements of the Company and accompanying notes
should be read in conjunction with the Historical Schedules of Restaurant
Contribution and the notes thereto and the audited Consolidated Financial
Statements of the Company and the notes thereto, each included elsewhere in
this Prospectus.
P-1
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR FISCAL 1995
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------------
1995 1996 1995 AND 1996
ACQUISITIONS ACQUISITIONS ACQUISITIONS
ACTUAL (1) (2) ADJUSTMENTS
----------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Restaurant sales ....................... $139,572 $14,399 $41,721 $ 0
Restaurant operating expenses:
Cost of sales ......................... 44,798 4,846 13,116
Restaurant labor and related costs ... 34,526 4,038 10,254
Depreciation and amortization ......... 4,927 321 462 1,355 (3)
Occupancy and other operating expenses 38,930 3,834 12,393 (1,500)(4)
(247)(5)
----------- -------------- -------------- -------------
Total restaurant operating expenses . 123,181 13,039 36,225 (392)
----------- -------------- -------------- -------------
Restaurant contribution ................ 16,391 1,360 5,496 392
General and administrative expenses ... 5,904 799(6) 1,992(6) (1,324)(7)
121 (8)
----------- -------------- -------------- -------------
Operating income ..................... 10,487 561(9) 3,504(9) 1,595
Other income (expense):
Interest expense ...................... (8,323) (4,045)(10)
Amortization of deferred costs ....... (511) (522)(12)
Other income (expense), net ........... 74
----------- -------------- -------------- -------------
Total other income (expense), net ... (8,760) (4,567)
----------- -------------- -------------- -------------
Income before income taxes ............. 1,727 561(9) 3,504(9) (2,972)
Provision for income taxes ............. 825 448 (14)
----------- -------------- -------------- -------------
Net income ............................. $ 902 $ 561(9) $ 3,504(9) $(3,420)
=========== ============== ============== =============
Preferred stock dividends ..............
Weighted average number of shares
outstanding (in thousands)(20) ........ 1,124
Net income per common share(21) ....... $ 0.40
EBITDA ................................. $ 15,613 (18)
=========== ============== ============== =============
Adjusted EBITDA(19) ....................
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------- -----------
PRO FORMA PRO FORMA AS
SUBTOTAL OFFERINGS ADJUSTED
--------- ----------- --------------
<S> <C> <C> <C> <C>
Restaurant sales ....................... $195,692 $ 0 $195,692
Restaurant operating expenses:
Cost of sales ......................... 62,760 -- 62,760
Restaurant labor and related costs ... 48,818 -- 48,818
Depreciation and amortization ......... 7,065 -- 7,065
Occupancy and other operating expenses 53,410 -- 53,410
--------- ----------- --------------
Total restaurant operating expenses . 172,053 -- 172,053
--------- ----------- --------------
Restaurant contribution ................ 23,639 -- 23,639
General and administrative expenses ... 7,492 -- 7,492
--------- ----------- --------------
Operating income ..................... 16,147 -- 16,147
Other income (expense):
Interest expense ...................... (12,368) 966 (11) (11,402)
Amortization of deferred costs ....... (1,033) 489 (13) (544)
Other income (expense), net ........... 74 -- 74
--------- ----------- --------------
Total other income (expense), net ... (13,327) 1,455 (11,872)
--------- ----------- --------------
Income before income taxes ............. 2,820 1,455 4,275
Provision for income taxes ............. 1,273 597 (15) 1,870
--------- ----------- --------------
Net income ............................. $ 1,547 $ 858 $ 2,405 (16)(17)
========= =========== ==============
Preferred stock dividends .............. 4,200
Weighted average number of shares
outstanding (in thousands)(20) ........ 1,047
Net income per common share(21) ....... $ (1.71)
========= ==============
EBITDA ................................. $ 23,411 (18)
========= =========== ==============
Adjusted EBITDA(19) .................... $ 24,817 (19)
</TABLE>
P-2
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 2, 1995
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------------
1995 1996
ACQUISITIONS ACQUISITIONS 1995 AND 1996
ACTUAL (1) (2) ACQUISITIONS
----------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Restaurant sales ........................ $103,446 $12,638 $31,315 $ 0
Restaurant operating expenses:
Cost of sales .......................... 33,226 4,285 9,829 --
Restaurant labor and related costs .... 25,818 3,550 7,571 --
Depreciation and amortization .......... 3,646 259 306 1,111 (3)
Occupancy and other operating expenses 28,650 3,410 9,257 (1,125)(4)
(187)(5)
----------- -------------- -------------- -------------
Total restaurant operating expenses .. 91,340 11,504 26,963 (201)
----------- -------------- -------------- -------------
Restaurant contribution ................. 12,106 1,134 4,352 201
General and administrative expenses .... 4,202 685(6) 1,494(6) (1,030)(7)
97 (8)
----------- -------------- -------------- -------------
Operating income ...................... 7,904 449(9) 2,858(9) 1,134
Other income (expense):
Interest expense ....................... (6,222) -- -- (3,200)(10)
Amortization of deferred costs ........ (378) -- -- (397)(12)
Other income (expense), net ............ 78 -- -- --
----------- -------------- -------------- -------------
Total other income (expense) .......... (6,522) -- -- (3,597)
----------- -------------- -------------- -------------
Income before provision for income taxes 1,382 449(9) 2,858(9) (2,463)
Provision for income taxes .............. 661 -- -- 346 (14)
----------- -------------- -------------- -------------
Net income .............................. $ 721 $ 449(9) $ 2,858(9) $(2,809)
=========== ============== ============== =============
Preferred stock dividends ...............
Weighted average number of shares
outstanding (in thousands)(20) ......... 1,124
Net income per common share(20) ........ $ 0.34
EBITDA .................................. $ 11,697 (18)
=========== ============== ============== =============
Adjusted EBITDA(19) .....................
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADJUSTMENTS
--------- -----------
PRO FORMA PRO FORMA AS
SUBTOTAL OFFERINGS ADJUSTED
--------- ----------- --------------
<S> <C> <C> <C>
Restaurant sales ........................ $147,399 $ 0 $147,399
Restaurant operating expenses:
Cost of sales .......................... 47,340 -- 47,340
Restaurant labor and related costs .... 36,939 -- 36,939
Depreciation and amortization .......... 5,322 -- 5,322
Occupancy and other operating expenses 40,005 -- 40,005
--------- ----------- --------------
Total restaurant operating expenses .. 129,606 -- 129,606
--------- ----------- --------------
Restaurant contribution ................. 17,793 -- 17,793
General and administrative expenses .... 5,448 -- (9) 5,448
--------- ----------- --------------
Operating income ...................... 12,345 -- 12,345
Other income (expense):
Interest expense ....................... (9,422) 852 (11) (8,570)
Amortization of deferred costs ........ (775) 367 (13) (408)
Other income (expense), net ............ 78 -- 78
--------- ----------- --------------
Total other income (expense) .......... (10,119) 1,219 (8,900)
--------- ----------- --------------
Income before provision for income taxes 2,226 1,219 3,445
Provision for income taxes .............. 1,007 500 (15) 1,507
--------- ----------- --------------
Net income .............................. $ 1,2190 $ 719 $ 1,938 (16)(17)
========= =========== ==============
Preferred stock dividends ............... 3,150
Weighted average number of shares
outstanding (in thousands)(20) ......... 1,047
Net income per common share(21) ........ $ (1.16)
========= ==============
EBITDA .................................. $ 17,814 (18)
========= =========== ==============
Adjusted EBITDA(19) ..................... $ 18,749 (19)
</TABLE>
P-3
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------ -----------
1996 1996 PRO FORMA
ACTUAL ACQUISITIONS(2) ADJUSTMENTS SUBTOTAL
------------- --------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Restaurant sales ........................ $149,973 $3,454 $ 0 $153,427
Restaurant operating expenses:
Cost of sales .......................... 48,476 1,121 -- 49,597
Restaurant labor and related costs .... 37,406 938 -- 38,344
Depreciation and amortization .......... 5,431 44 128 (3) 5,603
(149)(4)
Occupancy and other operating expenses 41,050 1,169 4 (5) 42,074
------------- --------------- ------------- -----------
Total restaurant operating expenses .. 132,363 3,272 (17) 135,618
------------- --------------- ------------- -----------
Restaurant contribution ................. 17,610 182 17 17,809
(132)(7)
General and administrative expenses .... 5,907 235 (6) 11 (8) 6,021
------------- --------------- ------------- -----------
Operating income ...................... 11,703 (53)(9) 138 11,788
Other income (expense):
Interest expense ....................... (8,880) -- 544 (10) (8,336)
Amortization of deferred costs ........ (736) -- (39)(12) (775)
Other income (expense), net ............ (87) -- -- (87)
Other non-recurring expense ............ (3,064) -- -- (3,064)
------------- --------------- ------------- -----------
Total other income (expense) .......... (12,767) -- 505 (12,262)
------------- --------------- ------------- -----------
Income before provision for income taxes (1,064) (53)(9) 643 (474)
Provision for income taxes .............. (426) -- 242 (14) (184)
------------- --------------- ------------- -----------
Net income .............................. $ (638) $ (53)(9) $ 401 $ (290)
============= =============== ============= ===========
Preferred stock dividends ...............
Weighted average number of shares
outstanding (in thousands) (20) ....... 1,000
Net income per common share (20) ....... $ (0.98)
EBITDA .................................. $ 17,456 (18)
============= =============== ============= ===========
Adjusted EBITDA(19) .....................
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------- PRO FORMA AS
OFFERINGS ADJUSTED
------------- --------------
<S> <C> <C> <C>
Restaurant sales ........................ $ 0 $153,427
Restaurant operating expenses:
Cost of sales .......................... -- 49,597
Restaurant labor and related costs .... -- 38,344
Depreciation and amortization .......... -- 5,603
Occupancy and other operating expenses -- 42,074
------------- --------------
Total restaurant operating expenses .. -- 135,618
------------- --------------
Restaurant contribution ................. -- 17,809
General and administrative expenses .... -- 6,021
------------- --------------
Operating income ...................... -- 11,788
Other income (expense):
Interest expense ....................... (173)(11) (8,509)
Amortization of deferred costs ........ 367 (13) (408)
Other income (expense), net ............ -- (87)
Other non-recurring expense ............ -- (3,064)
------------- --------------
Total other income (expense) .......... 194 (12,068)
------------- --------------
Income before provision for income taxes 194 (280)
Provision for income taxes .............. 80 (15) (104)
------------- --------------
Net income .............................. $ 114 $ (176) (16)(17)
============= ==============
Preferred stock dividends ............... 3,150
Weighted average number of shares
outstanding (in thousands) (20) ....... 1,047
Net income per common share (21) ....... $ (3.18)
============= ==============
EBITDA .................................. $ 17,713 (18)
============= ==============
Adjusted EBITDA(19) ..................... $ 19,115 (19)
</TABLE>
P-4
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
-----------------------------------------
1996 1995 1996 1995 & 1996
ACTUAL ACQUISITIONS(1) ACQUISITIONS(2) ADJUSTMENTS
----------- ------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Restaurant sales ............................ $186,099 $1,761 $13,860 $ 0
Restaurant operating expenses:
Cost of sales .............................. 60,048 561 4,408 --
Restaurant labor and related costs ........ 46,114 488 3,621 --
Depreciation and amortization .............. 6,712 62 200 372 (3)
(524)(4)
Occupancy and other operating expenses .... 51,330 424 4,305 (56)(5)
----------- ------------- ------------- -----------
Total restaurant operating expenses ...... 164,204 1,535 12,534 (208)
----------- ------------- ------------- -----------
Restaurant contribution ..................... 21,895 226 1,326 208
(426)(7)
General and administrative expenses ........ 7,609 114 (6) 733 (6) 35 (8)
----------- ------------- ------------- -----------
Operating income .......................... 14,286 112 (9) 593 (9) 599
Other income (expense):
Interest expense ........................... (10,981) -- -- (301)(10)
Amortization of deferred costs ............. (869) -- -- (164)(12)
Other income (expense), net ................ (91) -- -- --
Other income (expense), net ................ (3,064) -- -- --
----------- ------------- ------------- -----------
Total other income (expense) .............. (15,005) -- -- (465)
----------- ------------- ------------- -----------
Income before provision for income taxes ... (719) 112 (9) 593 (9) 134
Provision for income taxes(6) ............... (262) -- -- 344 (14)
----------- ------------- ------------- -----------
Net income .................................. $ (457) $ 112 (9) $ 593 (9) $(210)
=========== ============= ============= ===========
Preferred stock dividends ...................
Weighted average number of shares
outstanding
(in thousands) (20) ........................ 1,000
Net income per common share (21) ............ $ (0.91)
EBITDA ...................................... $ 21,372 (18)
=========== ============= ============= ===========
Adjusted EBITDA(19) .........................
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ADJUSTMENTS
-----------
PRO FORMA PRO FORMA
SUBTOTAL OFFERINGS AS ADJUSTED
--------- ----------- ------------
<S> <C> <C> <C>
Restaurant sales ............................ $201,720 $ 0 $201,720
Restaurant operating expenses:
Cost of sales .............................. 65,017 -- 65,017
Restaurant labor and related costs ........ 50,223 -- 50,223
Depreciation and amortization .............. 7,346 -- 7,346
Occupancy and other operating expenses .... 55,479 -- 55,479
--------- ----------- ------------
Total restaurant operating expenses ...... 178,065 -- 178,065
--------- ----------- ------------
Restaurant contribution ..................... 23,655 -- 23,655
General and administrative expenses ........ 8,065 -- 8,065
--------- ----------- ------------
Operating income .......................... 15,590 -- 15,590
Other income (expense):
Interest expense ........................... (11,282) (59)(11) (11,341)
Amortization of deferred costs ............. (1,033) 489 (13) (544)
Other income (expense), net ................ (91) -- (91)
Other income (expense), net ................ (3,064) -- (3,064)
--------- ----------- ------------
Total other income (expense) .............. (15,470) 430 (15,040)
--------- ----------- ------------
Income before provision for income taxes ... 120 430 550
Provision for income taxes(6) ............... 82 177 (15) 259
--------- ----------- ------------
Net income .................................. $ 38 $253 $ 291 (16)(17)
========= =========== ============
Preferred stock dividends ................... 4,200
Weighted average number of shares
outstanding
(in thousands) (20) ........................ 1,047
Net income per common share (21) ............ $ (3.73)
========= ============
EBITDA ...................................... $ 23,310 (18)
========= =========== ============
Adjusted EBITDA(19) ......................... $ 25,183 (19)
</TABLE>
P-5
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The Pro Forma Consolidated Statements of Operations of the Company for
fiscal 1995, for the nine months ended October 2, 1995 and September 30, 1996
and for the twelve months ended September 30, 1996 gives effect to (i) the
Offerings and the application of the estimated net proceeds therefrom and
(ii) the acquisition of each of the 54 Burger King restaurants acquired by
the Company subsequent to January 1, 1995, as if each had occurred on January
1, 1995.
(1) Reflects restaurant contribution and the unaudited estimates of
general and administrative expenses for the restaurants acquired in
the 1995 Acquisitions for the period prior to their respective
acquisition by the Company, during which period such acquired
restaurants were operated by their prior owners. See the Historical
Schedules of Restaurant Contribution and the footnotes thereto
included elsewhere in this Prospectus. The "1995 Acquisitions"
consist of the September 12, 1995 asset purchase of five restaurants
in Colorado; the October 24, 1995 asset purchase of two restaurants
in Illinois; and the November 21, 1995 stock purchase of nine
restaurants in Tennessee and two in Georgia. Restaurant contribution
for acquired restaurants subsequent to their acquisition is included
under "Actual" for fiscal 1995.
(2) Reflects restaurant contribution and the unaudited estimates of
general and administrative expenses for the restaurants acquired in
the 1996 Acquisitions for the period prior to their respective
acquisition by the Company, during which period such acquired
restaurants were operated by their prior owners. See the Historical
Schedules of Restaurant Contribution and the footnotes thereto
included elsewhere in this Prospectus. The "1996 Acquisitions"
consist of two asset purchases as of February 7, 1996: (i) the
acquisition of seven restaurants in Kentucky, three in Ohio and two
in Indiana, and (ii) the acquisition of 21 restaurants in Virginia
and three in North Carolina. Restaurant contribution for acquired
restaurants subsequent to their acquisition is included under
"Actual" for the nine months ended September 30, 1996.
(3) Reflects an increase in depreciation and amortization expense arising
from the Company's increased basis in acquired tangible restaurant
assets (restaurant equipment, signs and decor) and intangible assets
(franchise agreements and goodwill). For fiscal 1995, the $1,355
adjustment for the 1995 and 1996 Acquisitions consists of $141 and
$1,214 pertaining to the 1995 Acquisitions and the 1996 Acquisitions,
respectively. For the nine months ended October 2, 1995, the $1,111
adjustment for the 1995 and 1996 Acquisitions consists of $152 and
$959 pertaining to the 1995 Acquisitions and 1996 Acquisitions,
respectively. For the twelve months ended September 30, 1996, the
$372 adjustment of the 1995 and 1996 Acquisitions consists of ($8)
and $380 pertaining to the 1995 Acquisitions and 1996 Acquisitions,
respectively.
(4) Reflects a decrease in occupancy and other operating expenses
resulting from a decrease in equipment rental expense relating to the
purchase of certain restaurant equipment previously leased in the
1996 Acquisitions. For fiscal 1995, the full amount of the $1,500
decrease for the 1995 and 1996 Acquisitions pertains to the 1996
Acquisitions. For the nine months ended October 2, 1995, the full
amount of the $1,125 decrease of the 1995 and 1996 Acquisitions
pertains to the 1996 Acquisitions. For the twelve months ended
September 30, 1996, the $524 decrease for the 1995 and 1996
Acquisitions pertains to the 1996 Acquisitions, respectively.
(5) Reflects an overall decrease in occupancy and other operating
expenses resulting from a decrease in rental expense reflecting more
favorable leasing terms negotiated by the Company in connection with
the acquisition of certain restaurants. For fiscal 1995, the $247
adjustment for the 1995 and 1996 Acquisitions consists of a $44
increase and $291 decrease in rental expense pertaining to the 1995
Acquisitions and the 1996 Acquisitions, respectively. For the nine
months ended October 30, 1995, the $187 adjustment of the 1995 and
1996 Acquisitions consists of a $25 increase and $212 decrease fin
rental expense pertaining to the 1995 Acquisitions and 1996
Acquisitions, respectively. For the twelve months ended September 30,
1996, the $56 adjustment for the 1995 and 1996 Acquisitions consists
of a $13 increase and $69 decrease in rental expense pertaining to
the 1995 Acquisitions and 1996 Acquisitions, respectively.
(6) The amounts set forth reflect the Company's estimates of general and
administrative expenses of the prior owners of the acquired
restaurants, based upon unaudited information provided by the prior
owners to the extent that such information was available. See Notes
to Historical Schedules of Restaurant Contribution.
(7) The adjustments to general and administrative expenses reflect cost
savings resulting from employee terminations and other consequences
of the acquisition of Burger King restaurants by the Company, net of
additional costs incurred by the Company to operate the acquired
restaurants. For fiscal 1995, the $1,324 decrease for the 1995 and
1996 Acquisitions consists of $375 and $949 for the 1995 Acquisitions
and 1996 Acquisitions, respectively. For the nine months ended
October 2, 1995, the $1,030 decrease for the 1995 and 1996
Acquisitions consists of $319 and $711 for the 1995 Acquisitions and
1996 Acquisitions, respectively. For the twelve months ended
September 30, 1996, the $426 decrease for the 1995 and 1996
Acquisitions consists of $84 and $342 for the 1995 Acquisitions and
1996 Acquisitions, respectivley.
(8) Reflects an increase in management fees payable under the management
consulting agreement (the "TJC Consulting Agreement") with an
affiliate of The Jordan Company. For fiscal 1995, the $121 adjustment
for the 1995 and 1996 Acquisitions consists of $21 and $100
pertaining to the 1995 Acquisitions and the 1996 Acquisitions,
respectively. See "Certain Transactions." For the nine months ended
October 2, 1995, the $97
P-6
<PAGE>
increase for the 1995 and 1996 Acquisitions consists of $18 and $79
for the 1995 Acquisitions and 1996 Acquisitions, respectively. For
the twelve months ended September 30, 1996, the $35 increase for the
1995 and 1996 Acquisitions consists of $6 and $29 for the 1995
Acquisitions and 1996 Acquisitions, respectively.
(9) Presented for informational and referencing purposes only.
(10) Reflects an increase in interest expense associated with an aggregate
increase in average net borrowings for the 1995 and 1996 Acquisitions
(in the case of the fiscal 1995, the nine months ended October 2,
1995 and the twelve months ended September 30, 1996 pro forma income
statements) and for the 1996 Acquisitions (in the case of the nine
months ended September 30, 1996). For fiscal 1995, the $4,045
adjustment for the 1995 and 1996 Acquisitions consists of $637 and
$3,408 pertaining to the 1995 Acquisitions and the 1996 Acquisitions,
respectively. For the nine months ended October 2, 1995, the $3,200
adjustment for the 1995 and 1996 Acquisitions consists of $545 and
$2,655 for the 1995 Acquisitions and 1996 Acquisitions, respectively.
For the twelve months ended September 30, 1996, the $301 adjustment
for the 1995 and 1996 Acquisitions consists of $34 and $267 for the
1995 Acquisitions and 1996 Acquisitions, respectively.
(11) Reflects reduction in interest expense resulting from the application
of a portion of the estimated net proceeds of the Offerings to pay or
prepay aggregate borrowings.
(12) Reflects the amortization of deferred financing and organizational
costs on a straight line basis over seven and five years,
respectively. For fiscal 1995, the $522 adjustment for the 1995 and
1996 Acquisitions consists of $14 and $508 pertaining to the 1995
Acquisitions and the 1996 Acquisitions, respectively. For the nine
months ended October 2, 1995, the $397 adjustment for the 1995 and
1996 Acquisitions consists of $11 and $386 pertaining to the 1995
Acquisitions and 1996 Acquisitions, respectively. For the twelve
months ended September 30, 1996, the $164 adjustment pertaining to
the 1995 and 1996 Acquisitions consists of $3 and $161 for the 1995
Acquisitions and 1996 Acquisitions, respectively.
(13) Reflects a change in amortization expense relating to the write-off
of deferred financing costs associated with the prepayment of the
Subordinated Debt and the repayment of the existing Credit Agreement,
offset by the amortization expense of the deferred financing costs of
the issuance.
(14) Represents the incremental tax effect of the pro forma adjustments
assuming an effective corporate tax rate of 41.0%. For fiscal 1995,
the $448 increase relates to $1,093 of incremental income before
income taxes comprised of $561 for the 1995 Acquisitions, $3,504 for
the 1996 Acquisitions and $(2,972) for the adjustments to restaurant
operating expenses, corporate overhead and capital structure arising
from the 1995 and 1996 Acquisitions. For the nine months ended
October 2, 1995, the $346 adjustment relates to $844 of incremental
income before income taxes comprised of $449 and $2,858 of
incremental income for the 1995 Acquisitions and 1996 Acquisitions,
respectively, and ($2,463) for the adjustments to restaurant
operating expenses, corporate overhead and capital structure arising
from the 1995 and 1996 Acquisitions, respectively. For the nine
months ended September 30, 1996, the $242 adjustment relates to $590
of incremental loss/income before income taxes comprised of $53 for
the 1996 Acquisitions and $643 for the adjustments to restaurant
operating expenses, corporate overhead and capital structure arising
for the 1996 Acquisitions. For the twelve months ended September 30,
1996, the $344 adjustment relates to $839 of incremental income
before income taxes comprised of $112 and $593 for the 1995
Acquisitions and 1996 Acquisitions, respectively, and $134 for the
adjustments to restaurant operating expenses, corporate overhead and
capital structure arising from the 1995 and 1996 Acquisitions,
respectively.
(15) Represents the incremental tax effect of the Offerings pro forma
adjustments assuming an effective corporate tax rate of 41.0%.
(16) Does not reflect anticipated future increases in salary expenses
under the Company's employment agreements with its executive
officers. See "Management--Employment Agreements."
(17) The pro forma income statements do not give effect to an
extraordinary pre-tax charge which the Company expects to incur
immediately following the close of the Offerings. If such pre-tax
charge were taken at the beginning of fiscal 1995, such charge would
have been approximately $10,015 (approximately $5,909 on an after-tax
basis), consisting of (i) an approximate $6,565 (approximately $3,873
on an after-tax basis) write-off of deferred financing costs related
to the repayment of the Subordinated Debt and indebtedness under the
Credit Agreement and (ii) a write-off related to a prepayment penalty
to a related party of approximately $3,450 ($2,036 net of applicable
taxes) incurred in connection with the prepayment of the Senior
Subordinated Notes. See "Certain Transactions--Subordinated
Debtholders."
P-7
<PAGE>
(18) EBITDA represents operating income plus depreciation and
amortization. While EBITDA should not be construed as a substitute
for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance
with generally accepted accounting principles, EBITDA is included
herein to provide additional information with respect to the ability
of the Company to meet its future debt service, capital expenditure
and working capital requirements. In addition, management believes
that certain investors find EBITDA to be a useful tool for measuring
the ability of the Company to service its debt. EBITDA is not
necessarily a measure of the Company's ability to fund its cash
needs. See the Consolidated Statements of Cash Flows of the Company
and the related notes to the Consolidated Financial Statements
thereto included herein.
(19) Adjusted EBITDA, on a pro forma basis, represents EBITDA plus
management and director's fees and certain non-recurring items. For a
description of management and director's fees, see "Certain
Transactions--The Jordan Company." The certain non-recurring items,
consist of:
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------
NINE MONTHS ENDED TWELVE MONTHS
----------------------------- ENDED
FISCAL OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996 1996
-------- ------------ --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Change in estimate of disputed invoices ............. $(60) $(110) $144 $ 194
Excessive insurance premiums and long distance costs 420 314 377 483
Headcount reduction due to consolidated territories 396 243 393 546
-------- ------------ --------------- ---------------
Total addition to EBITDA ............................ $756 $ 447 $914 $1,223
======== ============ =============== ===============
</TABLE>
Adjusted EBITDA is included because the Cash Flow Coverage Ratio, when
calculated on a Pro Forma Basis (each as defined in the Indenture and
the Exchange Debenture Indenture), is calculated on a similar basis.
Adjusted EBITDA may not be comparable to EBITDA measures reported by
other companies.
(20) For all periods reflected in the pro forma financial statements, the
Company had 1,046,827 shares of Common Stock outstanding, and had
outstanding options and warrants exercisable for 123,600 shares of
Common Stock. The weighted average number of shares outstanding assumes
the following changes to the historical number of shares outstanding:
(i) the 1,000-for-1 stock split of Common Stock pursuant to the
Recapitalization, (ii) for the pro forma period only, the issuance of
46,817 shares of Common Stock in the Units Offering in connection with
consummation of the Offerings and (iii) for all periods in which there
is positive earnings available for the holders of Common Stock, the
conversion of immediately exercisable warrants and options to purchase
123,600 shares of Common Stock.
(21) Net income per share was computed by deducting in all periods
dividends payable to the holders of Original Preferred Stock and
deducting in the pro forma periods dividends payable to the holders
of Senior Preferred Stock and using the weighted average number of
shares of Common Stock outstanding.
P-8
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
OFFERINGS PRO FORMA, AS
ACTUAL ADJUSTMENTS ADJUSTED
---------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........... $ 2,705 $ 2,350(1) $ 5,055
Accounts receivable ................. 665 -- 665
Inventory ........................... 1,774 -- 1,774
Prepaid expenses .................... 1,456 -- 1,456
---------- -------------- -------------
Total current assets .............. 6,600 2,350 8,950
PROPERTY AND EQUIPMENT .............. 35,733 -- 35,733
GOODWILL ............................ 96,141 -- 96,141
OTHER ASSETS:
Deferred financing costs ............ 5,147 $ (320) (2) 4,827
Deferred organization costs ......... 185 -- 185
Development costs ................... 366 -- 366
Franchise agreements ................ 4,309 -- 4,309
Deferred income taxes ............... -- 2,696 (3) 2,696
---------- -------------- -------------
Total other assets ................ 10,007 2,376 12,383
---------- -------------- -------------
TOTAL ASSETS ........................ $148,481 $ 4,726 $152,100
========== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued
expenses ........................... $ 8,016 $ 0 $ 8,016
Accrued payroll ..................... 2,909 -- 2,909
Accrued sales tax payable ........... 822 -- 822
Accrued interest payable ............ 1,477 -- 1,477
Current portion of long-term debt .. 6,712 $ (6,200) (4) 512
Current portion of capital leases .. 109 -- 109
---------- -------------- -------------
Total current liabilities ......... 20,045 (6,200) 13,845
LONG-TERM DEBT--Less current
portion ............................ 119,453 $(11,550)(5) 107,903
OBLIGATIONS UNDER
CAPITAL LEASE ....................... 89 -- 89
DEFERRED INCOME TAXES ............... 789 (789)(3) --
---------- -------------- -------------
TOTAL LIABILITIES ................... 140,376 (18,539) 121,837
---------- -------------- -------------
SENIOR EXCHANGEABLE PREFERRED STOCK -- 28,281 (6) 28,281
STOCKHOLDERS' EQUITY
Capital stock and additional paid-in
capital ............................ 7,600(7) -- (8) 7,600(9)
Retained earnings ................... 505 (5,106)(10) (4,511)
---------- -------------- -------------
Total stockholders' equity ....... 8,105 (5,106) 3,089
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .............................. $148,481 $ 4,726 $153,207
---------- -------------- -------------
</TABLE>
P-9
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The Pro Forma Consolidated Balance Sheet of the Company as of September
30, 1996 gives effect to the consummation of the Offerings and the
application of the estimated net proceeds therefrom, as if each such
transaction had occurred on September 30, 1996.
(1) Reflects the gross increase in cash relating to the issuance of
Senior Notes and Preferred Stock. See "Use of Proceeds."
(2) Reflects an increase in deferred financing costs relating to the
issuance of the Senior Notes which is partially offset by a decrease
in financing costs pertaining to the Subordinated Debt and the Credit
Agreement. See Note 7.
(3) Reflects the net income tax benefit to be received upon the write-off
of deferred financing costs and a prepayment penalty paid in
connection with the prepayment of Subordinated Debt. See Note 7.
(4) Reflects the prepayment of indebtedness under the Credit Agreement.
(5) Reflects the prepayment of the Subordinated Debt and indebtedness
under the Credit Agreement which is partially offset by the issuance
of $100,000 of Senior Notes.
(6) Reflects the issuance of $30,000 of Senior Exchangeable Preferred
Stock which is partially offset by issuance costs.
(7) As of September 30, 1996, the Company had 1,000,010 shares of Common
Stock outstanding.
(8) In connection with the Unit Offering, the Company is issuing 46,817
shares of Common Stock.
(9) Due to rounding, the impact of (i) the issuance of 46,817 shares of
Common Stock in the Units Offering and (ii) the cancellation of warrants
held by PMI and exercisable for 71,720 shares of Common Stock do not
appear to impact stockholders' equity.
(10) Reflects an extraordinary pre-tax charge which the Company expects to
incur immediately following the close of the Offerings. If such
pre-tax charge were taken at the end of the third quarter ended
September 30, 1996, such charge would have been approximately $8,501
(approximately $5,016 on an after-tax basis), consisting of (i) an
approximate $5,051 (approximately $2,980 on an after-tax basis)
write-off of deferred financing costs related to the repayment of the
Subordinated Debt and indebtedness under the Credit Agreement and
(ii) a write-off related to a prepayment penalty to a related party
of approximately $3,450 (approximately $2,036 on an after-tax basis)
in connection with the prepayment of the Senior Subordinated Notes.
See "Certain Transactions--Subordinated Debtholders."
P-10
<PAGE>
AMERIKING, INC.
(formerly named NRE Holdings, Inc.)
Index to the Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report .............................................................. F-2
Consolidated Balance Sheets as of September 30, 1996 (unaudited), January 1, 1996 and
December 31, 1994 ........................................................................ F-3
Consolidated Statements of Operations for the period January 1, 1995 to January 1, 1996
and the period August 17, 1994 (date of incorporation) to December 31, 1994 ............. F-4
Consolidated Statements of Operations for the period January 2, 1996 to September 30, 1996
and the period January 1, 1995 to October 2, 1995 (unaudited) ............................ F-5
Consolidated Statements of Stockholders' Equity for the period January 2, 1996 to
September 30, 1996 (unaudited), the period January 1, 1995 to January 1, 1996 and the
period August 17, 1994 (date of incorporation) to December 31, 1994 ...................... F-6
Consolidated Statements of Cash Flows for the period January 1, 1995 to January 1, 1996
and the period August 17, 1994 (date of incorporation) to December 31, 1994 ............. F-7
Consolidated Statements of Cash Flows for the period January 2, 1996 to September 30, 1996
and the period January 1, 1995 to October 2, 1995 (unaudited) ............................ F-8
Notes to Consolidated Financial Statements ................................................ F-9
</TABLE>
INDEX TO THE HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
INITIAL ACQUISITIONS
Independent Auditors' Report ................................................................ F-19
Historical Schedules of Restaurant Contribution for the BKC Restaurants, Jaro restaurants
and Osborn restaurants for the period January 1, 1994 through September 1, 1994 ........... F-20
Historical Schedules of Restaurant Contribution for the BKC Restaurants, Jaro restaurants
and Osborn restaurants for the year ended December 31, 1993 ................................ F-21
Notes to the Historical Schedules of Restaurant Contribution ................................ F-22
ACQUISITIONS
Independent Auditors' Report ................................................................ F-23
Historical Schedules of Restaurant Contribution for Curtis James Investments, Inc., and C&N
Dining, Inc. for the period January 1, 1996 through the date of acquisition ............... F-24
Historical Schedules of Restaurant Contribution for DMW, Inc., BKC, QSC, Inc. and Ro-Lank,
Inc., Curtis James Investments, Inc., and C&N Dining, Inc. for the year ended December 31,
1995 or the period January 1, 1995 through date of acquisition ............................. F-25
Historical Schedules of Restaurant Contribution for Friedman, QSC, Inc. and Ro-Lank, Inc.,
Curtis James Investments, Inc., and C&N Dining, Inc. for the year ended December 31, 1994
or the period January 1, 1994 through date of acquisition .................................. F-26
Historical Schedules of Restaurant Contribution for Friedman, QSC, Inc. and Ro-Lank, Inc.,
Curtis James Investments, Inc., and C&N Dining, Inc. for the year ended December 31, 1993 . F-27
Notes to the Historical Schedules of Restaurant Contribution ................................ F-28
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AmeriKing, Inc.
Westchester, Illinois
We have audited the accompanying consolidated balance sheets of AmeriKing,
Inc. (formerly NRE Holdings, Inc.) and subsidiary as of January 1, 1996 and
December 31, 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period January 1, 1995 to January
1, 1996 and the period August 17, 1994 (date of incorporation) to December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of AmeriKing, Inc. and
subsidiary as of January 1, 1996 and December 31, 1994, and the results of
their operations and their cash flows for the period January 1, 1995 to
January 1, 1996 and the period August 17, 1994 (date of incorporation) to
December 31, 1994 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
March 12, 1996
Chicago, Illinois
F-2
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED), JANUARY 1, 1996 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1, DECEMBER 31,
1996 1996 1994
--------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 2,705,000 $ 1,887,000 $ 7,650,000
Accounts receivable .......................... 665,000 1,118,000 134,000
Inventory .................................... 1,774,000 1,009,000 1,001,000
Prepaid expenses ............................. 1,456,000 1,218,000 775,000
--------------- -------------- --------------
Total current assets ........................ 6,600,000 5,232,000 9,560,000
PROPERTY AND EQUIPMENT ........................ 35,733,000 28,457,000 23,471,000
GOODWILL ...................................... 96,141,000 66,847,000 61,739,000
OTHER ASSETS:
Deferred financing costs ..................... 5,147,000 3,096,000 3,509,000
Deferred organization costs .................. 185,000 220,000 272,000
Development costs ............................ 366,000
Franchise agreements ......................... 4,309,000 3,384,000 3,239,000
--------------- -------------- --------------
Total other assets .......................... 10,007,000 6,700,000 7,020,000
--------------- -------------- --------------
TOTAL ......................................... $148,481,000 $107,236,000 $101,790,000
=============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses . $ 8,016,000 $ 5,399,000 $ 6,037,000
Accrued payroll .............................. 2,909,000 802,000 1,193,000
Accrued sales tax payable .................... 822,000 1,047,000 924,000
Accrued interest payable ..................... 1,477,000 346,000 1,041,000
Current portion of long-term debt (Note 5) .. 6,712,000 10,741,000 3,450,000
Current portion of capital leases (Note 6) .. 109,000 99,000
--------------- -------------- --------------
Total current liabilities ................... 20,045,000 18,434,000 12,645,000
LONG-TERM DEBT -- Less current portion (Note
5) ........................................... 88,453,000 63,094,000 65,050,000
LONG-TERM DEBT -- Related Parties (Note 5) ... 31,000,000 16,000,000 16,000,000
OTHER LONG-TERM LIABILITIES (Note 6) ......... 89,000 176,000
DEFERRED INCOME TAXES ......................... 789,000 789,000 254,000
STOCKHOLDERS' EQUITY:
Preferred stock .............................. 75 75 75
Common stock ................................. 10 10 10
Additional paid-in capital ................... 7,599,915 7,599,915 7,599,915
Retained earnings ............................ 505,000 1,143,000 241,000
--------------- -------------- --------------
Total stockholders' equity .................. 8,105,000 8,743,000 7,841,000
--------------- -------------- --------------
TOTAL ......................................... $148,481,000 $107,236,000 $101,790,000
=============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
JANUARY 1, AUGUST 17,
1995 TO 1994 TO
JANUARY 1, PERCENTAGE DECEMBER 31, PERCENTAGE
1996 OF SALES 1994 OF SALES
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
RESTAURANT SALES .............................. $139,572,000 100.0% $33,931,000 100.0%
RESTAURANT OPERATING EXPENSES:
Cost of sales ................................ 44,798,000 32.1 10,807,000 31.8
Restaurant labor and related costs ........... 34,526,000 24.7 8,647,000 25.5
Occupancy .................................... 15,454,000 11.1 3,768,000 11.1
Depreciation and amortization of goodwill and
franchise agreements ........................ 4,927,000 3.6 1,193,000 3.5
Advertising .................................. 6,330,000 4.5 1,449,000 4.3
Royalties .................................... 4,788,000 3.4 1,162,000 3.4
Other operating expenses ..................... 12,358,000 8.9 2,850,000 8.4
-------------- ------------ -------------- ------------
Total restaurant operating expenses ....... 123,181,000 88.3 29,876,000 88.0
-------------- ------------ -------------- ------------
RESTAURANT CONTRIBUTION ....................... 16,391,000 11.7 4,055,000 12.0
GENERAL AND ADMINISTRATIVE
EXPENSES ..................................... 5,176,000 3.7 1,227,000 3.6
OTHER OPERATING EXPENSES:
Depreciation expense -office ............... 199,000 0.1 15,000 0.1
Management and directors' fees ............... 529,000 0.4 132,000 0.4
-------------- ------------ -------------- ------------
Operating income ........................... 10,487,000 7.5 2,681,000 7.9
OTHER INCOME (EXPENSE):
Interest expense ............................. (6,296,000) (4.4) (1,256,000) (3.7)
Interest expense -related party ............ (2,027,000) (1.5) (669,000) (2.0)
Amortization of deferred costs ............... (511,000) (0.4) (104,000) (0.3)
Other income ................................. 209,000 0.1 16,000 0.1
Other expense ................................ (135,000) (0.1) (236,000) (0.7)
-------------- ------------ -------------- ------------
Total other expense ........................ (8,760,000) (6.3) (2,249,000) (6.6)
-------------- ------------ -------------- ------------
INCOME BEFORE PROVISION FOR INCOME TAXES ..... 1,727,000 1.2 432,000 1.3
PROVISION FOR INCOME TAXES .................... 825,000 0.6 191,000 0.6
-------------- ------------ -------------- ------------
NET INCOME .................................... $ 902,000 0.6% $ 241,000 0.7%
============== ============ ============== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,123,610 1,123,610
NET INCOME PER SHARE .......................... $ 0.40 $ 0.11
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND
THE PERIOD JANUARY 1, 1995 TO OCTOBER 2, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 2 JANUARY 1,
1996 TO 1995 TO
SEPTEMBER 30, PERCENTAGE OCTOBER 2, PERCENTAGE
1996 OF SALES 1995 OF SALES
--------------- ------------ -------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
RESTAURANT SALES .............................. $149,973,000 100% $103,446,000 100%
RESTAURANT OPERATING EXPENSES:
Cost of sales ................................ 48,476,000 32.3 33,226,000 32.1
Restaurant labor and related costs ........... 37,406,000 24.9 25,818,000 25.0
Occupancy .................................... 15,938,000 10.7 11,440,000 11.1
Depreciation and amortization of goodwill and
franchise agreements ........................ 5,431,000 3.6 3,646,000 3.5
Advertising .................................. 7,219,000 4.8 4,416,000 4.3
Royalties .................................... 5,126,000 3.4 3,561,000 3.4
Other operating expenses ..................... 12,767,000 8.6 9,233,000 8.9
--------------- ------------ -------------- ------------
Total restaurant operating expenses ....... 132,363,000 88.3 91,340,000 88.3
--------------- ------------ -------------- ------------
RESTAURANT CONTRIBUTION ....................... 17,610,000 11.7 12,106,000 11.7
GENERAL AND ADMINISTRATIVE
EXPENSES ..................................... 5,108,000 3.4 3,664,000 3.5
OTHER OPERATING EXPENSES:
Depreciation expense -office ............... 322,000 0.2 147,000 0.1
Management and directors' fees ............... 477,000 0.3 391,000 0.4
--------------- ------------ -------------- ------------
Operating income ........................... 11,703,000 7.8 7,904,000 7.6
OTHER INCOME (EXPENSE):
Interest expense ............................. (6,148,000) (4.1) (4,702,000) (4.5)
Interest expense -related party ............ (2,732,000) (1.8) (1,520,000) (1.5)
Amortization of deferred costs ............... (736,000) (0.5) (378,000) (0.4)
Other income ................................. 180,000 0.2
Other expense ................................ (3,151,000) (2.1) (102,000) (0.1)
--------------- ------------ -------------- ------------
Total other expense ........................ (12,767,000) (8.5) (6,522,000) 6.3
--------------- ------------ -------------- ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES ........................................ (1,064,000) (0.7) 1,382,000 1.3
PROVISION (BENEFIT) FOR INCOME TAXES ......... (426,000) (0.3) 661,000 (0.6)
--------------- ------------ -------------- ------------
NET INCOME (LOSS) ............................. $ (638,000) (0.4)% $ 721,000 0.7%
=============== ============ ============== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,000,010 1,123,610
NET INCOME PER SHARE .......................... $ (0.91) $ 0.34
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD JANUARY 2, 1996 TO SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF STOCK .. $56 $10 $5,699,934 $5,700,000
Issuance of preferred stock 19 1,899,981 1,900,000
Net income ................. $ 241,000 241,000
----------- -------- ------------ ----------- ------------
BALANCE -- December 31, 1994 75 10 7,599,915 241,000 7,841,000
Net income ................. 902,000 902,000
----------- -------- ------------ ----------- ------------
BALANCE -- January 1, 1996 . 75 10 7,599,915 1,143,000 8,743,000
Net loss (unaudited) ....... (638,000) (638,000)
----------- -------- ------------ ----------- ------------
BALANCE -- September 30,
1996 (unaudited) ........... $75 $10 $7,599,915 $ 505,000 $8,105,000
=========== ======== ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
JANUARY 1, 1995 AUGUST 17, 1994
TO TO
JANUARY 1, 1996 DECEMBER 31, 1994
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 902,000 $ 241,000
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization ............................ 5,637,000 1,311,000
Deferred income taxes .................................... 535,000 171,000
Unrealized loss on property and equipment ................ 135,000
Changes in:
Accounts receivable ..................................... (984,000) (134,000)
Inventory ............................................... (8,000) (1,001,000)
Prepaid expenses ........................................ (443,000) (775,000)
Accounts payable and accrued expenses ................... (1,601,000) 7,845,000
--------------- -----------------
Net cash flows from operating activities ............... 4,173,000 7,658,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of restaurant franchise agreements, equipment and
goodwill ................................................. (11,305,000) (81,671,000)
Cash paid for organization costs .......................... (6,000) (290,000)
Cash paid for franchise agreements ........................ (60,000)
Cash paid for property and equipment ...................... (3,721,000) (597,000)
--------------- -----------------
Net cash flows from investing activities ............... (15,092,000) (82,558,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock ............................... 5,900,000
Issuance of common stock .................................. 71,000
Proceeds from short-term debt ............................. 6,920,000
Proceeds from long-term debt .............................. 1,865,000 68,500,000
Proceeds from subordinated debt -related party ......... 11,600,000
Cash paid for financing costs ............................. (135,000) (3,521,000)
Advances under line of credit ............................. 2,000,000 3,500,000
Payments on line of credit ................................ (2,000,000) (3,500,000)
Payments on long-term debt ................................ (3,450,000)
Payments on capital leases ................................ (44,000)
--------------- -----------------
Net cash flows from financing activities ............... 5,156,000 82,550,000
--------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................... (5,763,000) 7,650,000
CASH AND CASH EQUIVALENTS -- Beginning of period .......... 7,650,000
--------------- -----------------
CASH AND CASH EQUIVALENTS -- End of period ................. $ 1,887,000 $ 7,650,000
=============== =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest .................. $ 9,018,000 $ 884,000
=============== =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
On September 1, 1994, in connection with the purchase of
restaurant franchises from certain members of the
Company's management, the Company issued the following
noncash consideration:
Preferred stock (including additional paid-in capital) .. $ 1,600,000
Common stock (including additional paid-in capital) ..... 29,000
Subordinated debt -related party ....................... 4,400,000
New capital leases ........................................ $ 319,000
--------------- -----------------
TOTAL ...................................................... $ 319,000 $ 6,029,000
=============== =================
On September 1, 1994, in connection with the purchase of
restaurant franchises from Burger King Corporation, the
Company received a purchase price allowance for deferred
maintenance which was recorded as other accrued expenses . $ 1,350,000
=================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND
THE PERIOD JANUARY 1, 1995 TO OCTOBER 2, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 2, 1996 JANUARY 1, 1995
TO TO
SEPTEMBER 30, 1996 OCTOBER 2, 1995
(UNAUDITED) (UNAUDITED)
------------------ ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (638,000) $ 721,000
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation and amortization ............................. 6,489,000 4,171,000
Changes in:
Accounts receivable ...................................... 453,000 (616,000)
Inventory ................................................ (765,000) 85,000
Prepaid expenses ......................................... (238,000) (62,000)
Accounts payable and accrued expenses .................... 5,630,000 (1,401,000)
------------------ ---------------
Net cash flows from operating activities ................ 10,931,000 2,898,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of restaurant franchise agreements, equipment and
goodwill .................................................. (39,415,000) (2,626,000)
Cash paid for franchise agreements ......................... (300,000)
Cash paid for property and equipment ....................... (4,725,000) (2,768,000)
Proceeds from disposal of property and equipment .......... 817,000
------------------ ---------------
Net cash flows from investing activities ................ (43,623,000) (5,394,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ............................... 91,900,000
Proceeds from subordinated debt ............................ 15,000,000
Cash paid for financing costs .............................. (2,743,000)
Advances under line of credit .............................. 5,000,000
Payments on line of credit ................................. (2,500,000)
Payments on long-term debt ................................. (73,070,000) (2,587,000)
Payments on capital leases ................................. (77,000) (38,000)
------------------ ---------------
Net cash flows from financing activities ................ 33,510,000 (2,625,000)
------------------ ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................... 818,000 (5,121,000)
CASH AND CASH EQUIVALENTS -- Beginning of period ........... 1,887,000 7,650,000
------------------ ---------------
CASH AND CASH EQUIVALENTS -- End of period .................. $ 2,705,000 $ 2,529,000
================== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................... $ 7,749,000 $ 6,049,000
================== ===============
New capital leases ......................................... 319,000
================== ===============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
AmeriKing, Inc. (formerly NRE Holdings, Inc.) ("AmeriKing") and its wholly
owned subsidiary, National Restaurant Enterprises, Inc. d/b/a/ AmeriKing
Corporation ("Enterprises") (consolidated, the "Company"), were formed on
August 17, 1994 to acquire and operate Burger King restaurants in five states
(Illinois, Indiana, Colorado, Texas and Wisconsin) and to grow through the
development or acquisition of additional Burger King restaurants in these and
other states.
Effective September 2, 1994, the Company acquired 68 Burger King
restaurants located in the Chicago metropolitan area from Burger King
Corporation ("BKC") for $41,500,000 in cash, and 14 restaurants in Colorado
and Texas from certain members of the Company's current management for
$6,029,000 of subordinated debt and preferred and common stock in the Company
and $1,975,000 in cash, (collectively the "Initial Acquisitions"). Effective
December 1, 1994, Enterprises acquired 39 Burger King restaurants from a
third-party franchisee in Chicago for $37,000,000 in cash.
During 1995, the Company purchased 18 restaurants in Colorado, Illinois,
Tennessee and Georgia for $10,769,000 in cash and opened one restaurant
located in Texas (the "1995 Acquisitions"). As a result of these acquisitions
and developments, the Company is one of the largest independent Burger King
franchisees in the United States, operating 140 restaurants at January 1,
1996.
ORGANIZATIONAL STRUCTURE -- Enterprises is a wholly owned subsidiary of
AmeriKing. Enterprises is comprised of the following subsidiaries: AmeriKing
Colorado Corporation I, AmeriKing Illinois Corporation I, AmeriKing Tennessee
Corporation I, and, subsequent to January 1, 1996 (see Note 10), AmeriKing
Cincinnati Corporation I and AmeriKing Virginia Corporation I.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR --In 1995, the Company converted its fiscal year to a
52/53-week fiscal year. Due to this conversion, the 1995 fiscal year ended
January 1, 1996 included 366 days of operating activity. The comparative
fiscal period ended December 31, 1994 included 136 days with 121 days of
operating activity. The period ended September 30, 1996 included 273 days of
operating activity while the comparative period ended October 2, 1995
included 275 days of operating activity.
USE OF ESTIMATES --The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of AmeriKing and its wholly owned subsidiary,
Enterprises. All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
INVENTORIES -- Inventories consist primarily of restaurant food and
supplies and are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
F-9
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost. Normal
repairs and maintenance cost are expensed as incurred. Depreciation is being
recorded using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
<S> <C>
Restaurant equipment and furnishings ...5-15 years
Office furniture and equipment .......... 5-9 years
Buildings ............................... 40 years
Leasehold improvement ................... Life of lease
</TABLE>
FRANCHISE AGREEMENTS -- The franchise agreements with BKC require the
Company's subsidiaries to pay a franchise fee for each restaurant opened.
Amortization is recorded on the straight-line method over the terms of the
related franchise agreements. The franchise agreements generally provide for
a term of 20 years with renewal options upon expiration. Accumulated
amortization as of January 1, 1996 and December 31, 1994 was approximately
$309,000 and $60,000, respectively. Accumulated amortization as of September
30, 1996 was approximately $571,000 (unaudited).
GOODWILL -- Goodwill represents the excess of cost over fair value of the
net assets acquired in conjunction with the acquisitions described in Note 1.
Goodwill is being amortized over 35 years using the straight-line method.
Accumulated amortization as of January 1, 1996 and December 31, 1994 was
approximately $2,203,000 and $394,000, respectively. Accumulated amortization
as of September 30, 1996 was approximately $4,260,000 (unaudited).
The Company reviews regularly the operations of its subsidiaries and the
potential for impairment of franchise agreements and goodwill.
DEFERRED COSTS -- Costs associated with the organization of the Company
and its subsidiaries have been deferred and are being amortized on a
straight-line basis over five years. Costs incurred by the Company in
obtaining the financing for the acquisitions have been deferred and are being
amortized on a straight-line basis over seven years. Accumulated amortization
as of January 1, 1996 and December 31, 1994 was approximately $76,000 and
$18,000, respectively, for deferred organization costs and approximately
$569,000 and $86,000, respectively, for deferred financing costs. Accumulated
amortization as of September 30, 1996 was approximately $121,000 for deferred
organization costs and approximately $1,200,000 for deferred financing costs
(unaudited).
RECLASSIFICATIONS -- Certain information in the consolidated financial
statements for fiscal 1994 has been reclassified to conform with the current
reporting format.
PRO FORMA OPERATING RESULTS (UNAUDITED) -- The following are the pro forma
operating results for the periods ended September 30, 1996, January 1, 1996
and December 31, 1994 as if the acquisitions by the Company described above
had occurred on August 17, 1994. The pro forma results give effect to changes
in depreciation and amortization resulting from valuing property and
franchise agreements at their estimated fair value and recording the excess
of purchase price over the net assets acquired (000's omitted):
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------------------------------
SEPTEMBER 30, JANUARY 1, DECEMBER 31,
1996 1996 1994
--------------- ------------ --------------
<S> <C> <C> <C>
Net sales .............. $153,427 $153,971 $37,891
Restaurant contribution 17,896 17,752 4,681
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual operating results that would have occurred had the acquisitions been
consummated at the beginning of the respective periods.
F-10
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
3. FRANCHISE AGREEMENTS
In connection with the purchase of the Burger King restaurants, the
Company's subsidiaries entered into franchise agreements with BKC for the
operation of Burger King restaurants. The franchise agreements provide BKC
with significant rights regarding the business and operations of the
subsidiaries. The franchise agreements with BKC require the subsidiaries to
pay monthly royalty and advertising fees equal to 3.5% and 4.0%,
respectively, of restaurant sales.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1, DECEMBER 31,
1996 1996 1994
--------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Restaurant equipment and furnishings $38,015,000 $28,020,000 $23,663,000
Office furniture and equipment ..... 2,706,000 1,941,000 302,000
Leasehold improvements .............. 1,480,000 756,000 67,000
Land ................................ 423,000
Buildings ........................... 456,000 850,000
New restaurant development .......... 347,000 313,000 98,000
--------------- ------------- --------------
Total ............................... 43,004,000 32,303,000 24,130,000
Less accumulated depreciation ...... 7,271,000 3,846,000 659,000
--------------- ------------- --------------
Property and equipment -net ...... $35,733,000 $28,457,000 $23,471,000
=============== ============= ==============
</TABLE>
The Company included in accumulated depreciation an unrealized loss on
property and equipment of $135,000 due to the forced disposition of a
Company-owned restaurant that will occur in May 1997. Such loss represents
the difference between the salvage value and the book value of the equipment,
decor, landscaping and signs of the restaurant at the date of disposition.
The loss on disposition is included in other expenses on the consolidated
statements of operations.
F-11
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
5. LONG TERM DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 JANUARY 1, 1996
--------------------------- ----------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Term Loan A, at a variable interest rate,
8.687% at January 1, 1996, due 2002 ..... $2,500,000 $41,750,000 $ 3,500,000 $41,750,000
Term Loan B, at a variable interest rate,
9.187% at January 1, 1996, due 2004 ..... 400,000 39,400,000 200,000 19,600,000
Letter of Credit, at a variable interest
rate, 8.6871, at January 1, 1996,
due 2002 ................................. 2,500,000
Franchise Acceptance Corporation
Limited note, at a variable interest
rate,
8.56% at January 1, 1996, due 2005 ...... 129,000 1,647,000 121,000 1,744,000
Burger King Corporation note,
9.75%, due 1996 .......................... 6,920,000
Franchise Acceptance Corporation Limited
note, 9.86%, due 2006 .................... 383,000 5,656,000
Franchise Acceptance Corporation Revolving
Facility at a variable interest rate,
10.52% at September 30, 1996
due ...................................... 800,000
------------ ------------- ------------- -------------
Total ..................................... $6,712,000 $88,453,000 $10,741,000 $63,094,000
============ ============= ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------
CURRENT LONG-TERM
------------ -------------
<S> <C> <C>
Term Loan A, at a variable interest rate,
8.687% at January 1, 1996, due 2002 ..... $3,250,000 $45,250,000
Term Loan B, at a variable interest rate,
9.187% at January 1, 1996, due 2004 ..... 200,000 19,800,000
Letter of Credit, at a variable interest
rate, 8.6871, at January 1, 1996,
due 2002 .................................
Franchise Acceptance Corporation
Limited note, at a variable interest
rate,
8.56% at January 1, 1996, due 2005 ......
Burger King Corporation note,
9.75%, due 1996 ..........................
Franchise Acceptance Corporation Limited
note, 9.86%, due 2006 ....................
Franchise Acceptance Corporation Revolving
Facility at a variable interest rate,
10.52% at September 30, 1996
due ......................................
------------ -------------
Total ..................................... $3,450,000 $65,050,000
============ =============
</TABLE>
Debt to related parties consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 JANUARY 1, 1996
--------------------------- ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------------ ------------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Subordinated notes,
12.75%, due 2005 ......... $15,400,000 $15,400,000
Junior subordinated notes,
6.00%, due 2005 .......... 600,000 600,000
Senior subordinated notes,
12.5%, due 2005 .......... 15,000,000
------------ ------------- --------- -------------
Total ..................... $31,000,000 $16,000,000
============ ============= ========= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------
CURRENT LONG-TERM
--------- -------------
<S> <C> <C>
Subordinated notes,
12.75%, due 2005 ......... $15,400,000
Junior subordinated notes,
6.00%, due 2005 .......... 600,000
Senior subordinated notes,
12.5%, due 2005 ..........
--------- -------------
Total ..................... $16,000,000
========= =============
</TABLE>
On September 1, 1994, the Company entered into a revolving credit and term
loan agreement with a lender (the "Agent Bank"). On November 30, 1994, the
loan agreement was amended and restated (the "Loan Agreement"). Under the
terms of the Loan Agreement, a consortium of banks led by the Agent Bank (the
"Consortium") provided two term loans, one for $48,500,000 ("Term Loan A")
and one for $20,000,000 ("Term Loan B"), and a $6,000,000 revolving credit
facility to the Company (collectively, the "Loans"). The original proceeds
from the Loans were used to acquire the BKC Restaurants and the Management
Restaurants, and the additional proceeds from the Loans were used to acquire
the Franchise Restaurants (see Note 1). The Loans are secured by all of the
assets of Enterprises and a guaranty from AmeriKing.
Term Loan A and Term Loan B (collectively, the "Term Loans") provide for
quarterly principal payments as provided by the Loan Agreement until final
maturity. Term Loan A matures November 30, 2001. Term Loan B matures November
30, 2002. The Company may prepay the Term Loans, in whole or in part, at any
time, provided such prepayments are at least $500,000 or a larger multiple of
$100,000.
The Term Loans bear interest at the lower of two variable rates which are
determined by reference to either (i) the Agent Bank's prime rate, or (ii)
the adjusted Eurodollar rate as determined by the Agent Bank, plus certain
interest rate spreads as specified in the Loan Agreement.
F-12
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
5. LONG TERM DEBT (Continued)
In connection with the Loan Agreement, the Company entered into a
three-year interest rate cap agreement with the Agent Bank expiring December
29, 1997. Under the terms of this agreement, the maximum Eurodollar rate to
be used in the determination of the interest rates on 40% of the outstanding
principal of the Term Loans is limited to 9% per annum. The Company paid the
Agent Bank $242,000 in connection with the Loan Agreement, which is being
amortized over the term of the Loan Agreement. Accumulated amortization as of
January 1, 1996 was approximately $81,000. No amortization was recorded prior
to December 31, 1994.
Under the Loan Agreement, the revolving line of credit facility provides
for revolving borrowings bearing interest at the lower of two variable rates
which are determined by reference to either (i) the Agent Bank's prime rate,
or (ii) the adjusted Eurodollar rate as determined by the Agent Bank, plus
certain interest rate spreads as specified in the Loan Agreement. All
outstanding principal under the line of credit is due November 30, 2001. No
amounts were outstanding under the revolving credit facility at January 1,
1996 or December 31, 1994.
The Loan Agreement contains, among other provisions, certain covenants for
maintaining defined levels of tangible net worth and various financial
ratios, including debt service coverage and interest coverage. As of January
1, 1996, the Company was in compliance with all such covenants.
On September 1, 1994, the Company issued subordinated notes (the
"Subordinated Notes") to certain stockholders. Such Subordinated Notes bear
interest at a rate of 12.75% per annum and are subordinated to amounts due to
the consortium and to BKC. All principal of the Subordinated Notes is due
August 2005.
On November 30, 1994, the Company issued junior subordinated notes (the
"Junior Subordinated Notes") to the Agent Bank. Such Junior Subordinated
Notes bear interest at a rate of 6% per annum and are subordinated to the
amounts due to the Consortium and the Senior Subordinated Notes. All
principal of the Junior Subordinated Notes is due March 2005.
On November 21, 1995, AmeriKing Tennessee Corporation I ("ATCI"), a
wholly-owned subsidiary of the Company, issued a note to BKC in connection
with its acquisition of 11 restaurants located in Tennessee and Georgia. Such
note bears interest at a rate of 9.75% per annum and is secured by a pledge
of all capital stock of ATCI. All principal of the note is due May 1996.
On November 29, 1995, AmeriKing Colorado Corporation I ("ACCI"), a
wholly-owned subsidiary of the Company, issued a note to Franchise Acceptance
Corporation Limited in connection with its acquisition of five restaurants
located in Colorado. Such note bears interest at the 30-day commercial paper
rate plus 2.75% and is secured by certain assets of ACCI. Principal
installments of the note are due monthly through December 2005.
On February 7, 1996, the Company amended and restated the Loan Agreement
("the Amended and Restated Loan Agreement"). The Amended and Restated Loan
Agreement provides for an increase of principal of $20 million and $9 million
for the Term Loans and the revolving credit facility, respectively, resulting
in additional borrowing capacity of $29 million. The Amended and Restated
Loan Agreement provides for a principal balance of $45 million for Term Loan
A, $40 million for Term Loan B and $15 million for the revolving credit
facility. Interest on the new agreements remains unchanged from the prior
agreements; however, the new agreements provide for changes to existing and
additional covenants. In addition, beginning in 1996, the Company is required
to make additional principal payments on the Term Loans of 75% of the
Company's consolidated excess cash flow as defined by the Amended and
Restated Loan Agreement.
F-13
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
5. LONG TERM DEBT (Continued)
On July 18, 1996, ATCI, issued a $7.0 million note ("TN Note") to
Franchise Acceptance Corporation Limited in connection with the repayment of
the BKC note. Such TN note consists of a $6.1 million facility which bears
interest at a fixed rate of 9.86% and is secured by certain assets of ACTI.
Principal installments of the note are due monthly. The remaining $900,000
represents a revolving credit facility. The TN Note bears interest at a
variable rate with payments due monthly based on a seven year amortization.
At September 30, 1996, the Company had $800,000 outstanding on the revolving
credit facility (unaudited). The TN Note matures in July, 2006.
Aggregate maturities of the Company's long-term debt are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
1996 1996
--------------- -------------
(UNAUDITED)
<S> <C> <C>
1996 ........ $ 6,712,000 $10,741,000
1997 ........ 3,923,000 5,832,000
1998 ........ 5,975,000 6,944,000
1999 ........ 9,159,000 8,408,000
2000 ........ 11,597,000 11,673,000
Thereafter . 88,799,000 46,237,000
--------------- -------------
Total ....... $126,165,000 $89,835,000
=============== =============
</TABLE>
6. LEASES
The Company leases restaurant space under noncancelable operating leases
with remaining lease terms of one to twenty years. In many cases, the leases
provide for rent escalations and for one or more five-year renewal options.
The leases generally require the Company to pay property taxes, insurance,
maintenance and other operating costs of the properties, as well as
contingent rentals based upon a percentage (generally 8.5%) of net sales. In
addition, the Company leases office space, office equipment, restaurant
equipment and vehicles under noncancelable operating leases.
Rent expense amounted to:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1996 1994
------------- --------------
<S> <C> <C>
Minimum rentals under operating leases $11,072,000 $2,691,000
Contingent rentals .................... 958,000 253,000
------------- --------------
Total ................................. $12,030,000 $2,944,000
============= ==============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2,
1996 1995
--------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Minimum rentals under operating leases $11,346,000 $8,213,000
Contingent rentals .................... 1,517,000 835,000
--------------- ------------
Total ................................. $12,683,000 $9,048,000
=============== ============
</TABLE>
F-14
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
<PAGE>
6. LEASES (Continued)
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
1996 1996
--------------- -------------
(UNAUDITED)
<S> <C> <C>
1996 ........ $ 4,093,000 $ 12,229,000
1997 ........ 16,325,000 12,164,000
1998 ........ 16,193,000 11,997,000
1999 ........ 15,913,000 11,748,000
2000 ........ 15,309,000 11,157,000
Thereafter . 144,852,000 93,921,000
--------------- -------------
Total ....... $212,685,000 $153,216,000
--------------- -------------
</TABLE>
Future minimum lease payments under noncancelable capital leases are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
1996 1996
--------------- ------------
(UNAUDITED)
<S> <C> <C>
1996 .............................. $ 33,000 $129,000
1997 .............................. 129,000 129,000
1998 .............................. 66,000 66,000
--------------- ------------
Total minimum lease payments ..... 228,000 324,000
Less amount representing interest 30,000 49,000
--------------- ------------
Present value of the minimum lease
obligation ....................... $198,000 $275,000
=============== ============
</TABLE>
Payments on capital leases for the period ended September 30, 1996
(unaudited) and January 1, 1996 were $99,000 and $63,000, respectively; no
payments were made in the period ended December 31, 1994.
F-15
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
7. CAPITAL STOCK
At September 30, 1996 (unaudited), January 1, 1996 and December 31, 1994,
the Company's authorized capital stock was as follows (common stock in
thousands):
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES ISSUED VOTING
VALUE PER SHARES AND RIGHTS PER
SHARE AUTHORIZED OUTSTANDING SHARE
------------ ------------- -----------
<S> <C> <C> <C> <C>
Class A Common Stock .......... $0.01 2,000.0 634.0 1
Class B Common Stock .......... 0.01 100.0 0.0 0
Class C Common Stock .......... 0.01 700 0.0 0
Class D Common Stock .......... 0.01 700 366.0 1
------------ -------------
Total common stock ............ 3,500.0 1,000.0
============ ============= ===========
Special Voting Preferred Stock $0.01 1.0 1.0 716
Class A1 Preferred Stock ..... 0.01 5,000.0 4,425.0 0
Class A2 Preferred Stock ..... 0.01 2,500.0 1,200.0 0
Class B Preferred Stock ...... 0.01 3,000.0 1,875.0 0
------------ ------------- -----------
Total preferred stock ......... 10,501.0 7,501.0
============ =============
</TABLE>
The preferred stock pays dividends at 6% per annum on the total issuance
price of each share, payable quarterly when allowed under the Loan Agreement.
Any preferred dividends not paid when due are cumulative. Any preferred
dividends not paid in cash will be paid in preferred stock.
The Special Voting Preferred Stock was eliminated from the Company's
Certificate of Incorporation on February 7, 1996.
In connection with entering into the original Loan Agreement, the Company
issued warrants to purchase 112.36 shares of Class B Common Stock for an
exercise price of $0.01 per share to an affiliate of the Agent Bank. The
warrants are exercisable at any time and expire the earlier of the date such
warrants are exercised in full or November 30, 2002.
During 1994, the Company granted stock options to purchase 11.24 shares of
Class D Common Stock at $100 per share in connection with employment
agreements with two members of the Company's management. All of these options
vest ratably over a two-year period ending September 1, 1996 at which time
all become exercisable. The options expire at the earlier of 90 to 180 days
after separation of the employee from the Company or December 31, 2004. At
January 1, 1996, all of these options remained outstanding; fifty percent
(50%) of such options were currently excercisable as of September, 1995.
In connection with its Recapitalization and the Offerings, the Company
converted all of its authorized, issued and outstanding Class A Common Stock,
Class C Common Stock and Class D Common Stock into an equal number of shares
of Common Stock, converted all of its authorized, issued and outstanding shares
of Class B Common Stock into an equal number of Non-Voting Common Stock and
split all of its shares of Common Stock and Non-Voting Common Stock on a 1,000
for 1 basis. All applicable share and per share data have been restated to give
effect to the stock split.
Net income per share was computed by deducting in all periods dividends
payable to the holders of Original Preferred Stock and using the weighted
average number of Common Stock outstanding.
F-16
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
8. INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2, JANUARY 1, DECEMBER 31,
1996 1995 1996 1994
--------------- ------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current -state . $(426,000) $661,000 $290,000 $ 20,000
Deferred --
federal .......... 535,000 171,000
--------------- ------------ ------------ --------------
Total ............. $(426,000) $661,000 $825,000 $191,000
=============== ============ ============ ==============
</TABLE>
The Company's assumed effective tax rate on pretax income for the periods
ended January 1, 1996 and December 31, 1994 differs from the U.S. federal
statutory rate of 35% primarily due to state taxes and nondeductible
expenses.
The deferred tax liability at January 1, 1996 and December 31, 1994
results primarily from the use of accelerated depreciation methods for income
tax purposes and differences between the financial reporting basis and the
tax basis of the Company's assets, reduced by the tax benefit of the net
operating loss carry-forward.
On September 1, 1994, the Company acquired the assets of the restaurants
from the Predecessors in a transaction which involved a partial carry-over of
basis for income tax purposes. The Company recorded goodwill and a long-term
deferred income tax liability since the income tax basis of the restaurants
acquired from the Predecessors is lower than the financial reporting basis of
such assets.
The Company has a net operating loss carry-forward for tax purposes at
January 1, 1996 of approximately $8,735,000 which carry-forward will expire
in 2009.
9. RELATED PARTIES
At January 1, 1996, the Company has Subordinated Notes payable to certain
stockholders totaling $15,400,000 (see Note 5). During the periods ended
January 1, 1996 and December 31, 1994 the Company recorded interest expense
on the Subordinated Notes totaling $1,982,000 and $660,000, respectively.
During the periods ended September 30, 1996 and October 2, 1995, the Company
recorded interest expense on the Subordinated Notes totaling $1,470,000 and
$1,493,000, respectively, (unaudited).
The Company leases two restaurants under noncancelable operating leases
from an entity which is owned by a member of the Company's management. The
leases expire in March 2006 and January 2007, respectively, and require total
monthly rental payments of $20,600. During the periods ended January 1, 1996
and December 31, 1994, the Company recorded rent expense of $248,000 and
$82,000, respectively, under these leases. During the periods ended September
30, 1996 and October 2, 1995, the Company recorded rent expense of $185,000
under those leases (unaudited).
The Company has entered into a management consulting agreement with an
affiliate of a stockholder. Under the terms of the agreement, the Company is
required to pay the consultant an annual management fee equal to the higher
of $300,000 or 0.35% of food sales. During the periods ended January 1, 1996
and December 31, 1994, the Company recorded expense of $479,000 and $116,000,
respectively, under this agreement. On February 7, 1996, the Company amended
the management consulting agreement changing the annual management fee
calculation to the higher of $600,000 or 2.5% of EBITDA. During the periods
ended September 30, 1996 and October 2, 1995, the Company recorded expense of
$439,000 and $353,000 respectively, under this agreement (unaudited).
F-17
<PAGE>
AMERIKING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 1, 1995 TO JANUARY 1, 1996 AND
THE PERIOD AUGUST 17, 1994 (DATE OF INCORPORATION) TO DECEMBER 31, 1994; AND
FOR THE PERIOD
JANUARY 2, 1996 TO SEPTEMBER 30, 1996 AND THE PERIOD JANUARY 1, 1995 TO
OCTOBER 2, 1995 (UNAUDITED)
(CONTINUED)
10. SUBSEQUENT EVENTS
ISSUANCE OF SUBORDINATED NOTES -- On February 7, 1996, the Company's
subsidiary issued Senior Subordinated Notes of $15.0 million to PMI Mezzanine
Fund, L.P. ("PMI"). Such Subordinated Notes bear interest at a rate of 12.5%
per annum and are subordinated to amounts due to the Agent Bank and its
consortium and certain amounts due BKC. All principal of the subordinated
notes is due January 31, 2005. The Subordinated Note Agreement contains,
among other provisions, certain covenants for maintaining defined levels of
tangible net worth and various financial ratios, including debt service
coverage and interest coverage. Concurrent with the issuance of the
Subordinated Notes, the Company issued common stock purchase warrants for the
purchase of shares of Class C Common Stock to PMI.
ACQUISITION OF RESTAURANTS -- Concurrent with the refinancing on February
7, 1996 (see Note 5) and issuance of Senior Subordinated Notes, the Company
acquired 36 Burger King restaurants located in Virginia, North Carolina,
Kentucky, Indiana and Ohio. The purchase price aggregated $36.9 million for
the 36 restaurants and $4.1 million for transaction fees and expenses. The
acquisitions were financed through net borrowings of $20.0 million under Term
Loans A and B, $5.0 million under the revolving credit facility and $15.0
million from the Senior Subordinated Notes and warrants issued to PMI. The
acquisitions will be accounted for using the purchase method. The excess of
the purchase price over the acquired tangible and intangible net assets, when
determined, will be allocated to goodwill and amortized on a straight-line
basis over 35 years. In addition, concurrent with the acquisitions, the
Company entered into operating leases on all 36 properties.
* * * * * *
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
AmeriKing, Inc.
Westchester, Illinois
We have audited the Historical Schedules of Restaurant Contribution (the
"Schedules") of the restaurants purchased by National Restaurant Enterprises,
Inc., a wholly-owned subsidiary of AmeriKing, Inc. (formerly NRE Holdings,
Inc.), from Burger King Corporation ("BKC") and from entities owned or
controlled by Lawrence E. Jaro ("Jaro") and William C. Osborn ("Osborn") for
the period January 1, 1994 through September 1, 1994 and the year ended
December 31, 1993. These schedules are the responsibility of the management
of the entities from whom the restaurants were acquired. Our responsibility
is to express an opinion on these schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Schedules are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Schedules. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Schedules. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Schedules were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in the registration statement on Form S-1 of AmeriKing, Inc.) as
described in Note 2 and are not intended to be a complete presentation of the
earnings of the restaurants purchased from BKC, Jaro and Osborn.
In our opinion, the Schedules referred to above present fairly, in all
material respects, the restaurant contribution for the restaurants purchased
by National Restaurant Enterprises, Inc. from BKC, Jaro and Osborn for the
period January 1, 1994 through September 1, 1994 and the year ended December
31, 1993, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
October 10, 1995
Chicago, Illinois
F-19
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
FOR THE PERIOD JANUARY 1, 1994 THROUGH SEPTEMBER 1, 1994
<TABLE>
<CAPTION>
BKC JARO OSBORN
RESTAURANTS RESTAURANTS RESTAURANTS TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
RESTAURANT SALES ..................... $47,762,000 $7,400,000 $1,558,000 $56,720,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ....................... 15,589,000 2,534,000 479,000 18,602,000
Restaurant labor and related costs . 13,253,000 1,849,000 427,000 15,529,000
Occupancy ........................... 6,211,000 843,000 152,000 7,206,000
Depreciation and amortization of
franchise agreements ............... 1,161,000 179,000 26,000 1,366,000
Advertising ......................... 2,091,000 386,000 94,000 2,571,000
Royalties ........................... 1,642,000 254,000 54,000 1,950,000
Other operating expenses ............ 5,310,000 673,000 144,000 6,127,000
------------- ------------- ------------- -------------
Total restaurant operating expenses 45,257,000 6,718,000 1,376,000 53,351,000
------------- ------------- ------------- -------------
RESTAURANT CONTRIBUTION .............. $ 2,505,000 $ 682,000 $ 182,000 $ 3,369,000
============= ============= ============= =============
</TABLE>
See notes to historical schedules of restaurant contribution.
F-20
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
BKC JARO OSBORN
RESTAURANTS RESTAURANTS RESTAURANTS TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
RESTAURANT SALES ..................... $70,667,000 $10,115,000 $2,113,000 $82,895,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ....................... 21,844,000 3,344,000 644,000 25,832,000
Restaurant labor and related costs . 18,921,000 2,510,000 567,000 21,998,000
Occupancy ........................... 9,063,000 1,221,000 216,000 10,500,000
Depreciation and amortization of ...
franchise agreements ............... 1,722,000 292,000 48,000 2,062,000
Advertising ......................... 3,711,000 567,000 117,000 4,395,000
Royalties ........................... 2,434,000 348,000 73,000 2,855,000
Other operating expenses ............ 7,568,000 884,000 203,000 8,655,000
------------- ------------- ------------- -------------
Total restaurant operating expenses 65,263,000 9,166,000 1,868,000 76,297,000
------------- ------------- ------------- -------------
RESTAURANT CONTRIBUTION .............. $ 5,404,000 $ 949,000 $ 245,000 $ 6,598,000
============= ============= ============= =============
</TABLE>
See notes to historical schedules of restaurant contribution.
F-21
<PAGE>
NOTES TO THE HISTORICAL SCHEDULES OF
RESTAURANT CONTRIBUTION
FOR THE PERIOD JANUARY 1, 1994 THROUGH SEPTEMBER 1, 1994
AND THE YEAR ENDED DECEMBER 31, 1993
1. DESCRIPTION OF BUSINESS
AmeriKing, Inc. (formerly NRE Holdings, Inc.) ("AmeriKing") and its
wholly-owned subsidiary, National Restaurant Enterprises, Inc. d/b/a
AmeriKing Corporation (consolidated, the "Company"), were formed on August
17, 1994 to acquire and operate Burger King restaurants in five states
(Illinois, Indiana, Colorado, Texas and Wisconsin) and grow through the
development and acquisition of additional Burger King restaurants in these
and other states.
Effective September 2, 1994, the Company acquired 68 Burger King
restaurants located in the Chicago metropolitan area from Burger King
Corporation ("BKC") for $41,500,000 in cash, and 14 Burger King restaurants
in Colorado and Texas from entities owned or controlled by Lawrence E. Jaro
("Jaro") and William C. Osborn ("Osborn"), who are members of the Company's
current management, for $6,029,000 of subordinated debt and preferred and
common stock of AmeriKing and $1,975,000 in cash.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Historical Schedules of Restaurant Contribution (the "Schedules"),
include operations of the acquired restaurants for the periods prior to their
purchase by the Company, and have been prepared pursuant to Article 3 of
Regulation S-X, Section 210.3-02(a).
SALES -- Sales consist primarily of food and premium sales.
COST OF SALES -- Costs of sales consist primarily of restaurant and food
supplies, determined using the first-in, first-out (FIFO) method of inventory
valuation.
RESTAURANT LABOR AND RELATED COSTS -- Restaurant labor and related costs
include managers' salaries, hourly wages and related payroll taxes and
benefits.
OCCUPANCY -- Occupancy costs consist of rents, licenses and permits, real
estate taxes and common area maintenance.
DEPRECIATION AND AMORTIZATION OF FRANCHISE AGREEMENTS --Depreciation is
recorded using accelerated methods permissible under generally accepted
accounting principles over the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
Building improvements ............................ 10-20years
Furniture, fixtures and restaurant equipment .... 5-10years
</TABLE>
The franchise agreements with BKC require the Predecessors to pay a
franchise fee for each restaurant opened. Amortization is recorded on the
straight-line method over the terms of the related franchise agreements. The
franchise agreements generally provide for a term of 20 years with renewal
options upon expiration.
ADVERTISING -- Under the franchise agreements with BKC, monthly
advertising fees are to be paid at 4% of restaurant food sales.
ROYALTIES -- Under the franchise agreements with BKC, monthly royalties
are to be paid at 3.5% of restaurant food sales.
OTHER OPERATING EXPENSES -- Other operating expenses include utilities,
repairs and maintenance, cleaning, security, uniforms, workmen's compensation
and training expenses.
The Schedules of Restaurant Contribution do not include amounts relative
to general and administrative expenses, such as supervisory management and
overhead expenses. As the individual acquisitions primarily represented
acquisitions of a portion of a larger business (or, in other words, carve-out
acquisitions), any attempted allocation of such expenses would be assumption
driven. As a result, such expenses have been excluded from the statement of
restaurant contribution.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
AmeriKing, Inc.
Westchester, Illinois
We have audited the Historical Schedules of Restaurant Contribution (the
"Schedules") of the restaurants purchased by National Restaurant Enterprises,
Inc., a wholly-owned subsidiary of AmeriKing, Inc. (formerly NRE Holdings,
Inc.,) ("AmeriKing") from Sheldon T. Friedman ("Friedman"), QSC, Inc. and
Ro-Lank, Inc., Curtis James Investments, Inc., and C&N Dining, Inc.
(collectively, the "Entities") for the periods indicated in the accompanying
Schedules. These Schedules are the responsibility of the Entities'
management. Our responsibility is to express an opinion on these Schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Schedules are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Schedules. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
Schedules. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying Schedules were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in the registration statement on Form S-1 of AmeriKing) as
described in Note 2 and are not intended to be a complete presentation of the
Entities' restaurant earnings.
In our opinion, the Schedules referred to above present fairly, in all
material respects, the restaurant contribution for the restaurants purchased
by National Restaurant Enterprises, Inc. for the periods indicated in the
accompanying Schedules, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
May 8, 1996
Chicago, Illinois
F-23
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
CURTIS JAMES
INVESTMENTS, INC. C&N DINING, INC.
FOR THE PERIOD FOR THE PERIOD
JANUARY 1, 1996 JANUARY 1, 1996
THROUGH FEBRUARY THROUGH FEBRUARY
6, 1996 6, 1996
----------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
RESTAURANT SALES ...................................... $1,372,000 $2,082,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ........................................ 458,000 663,000
Restaurant labor and related costs ................... 395,000 543,000
Occupancy ............................................ 129,000 392,000
Depreciation and amortization of franchise agreements 32,000 12,000
Advertising .......................................... 66,000 97,000
Royalties ............................................ 47,000 72,000
Other operating expenses ............................. 123,000 243,000
----------------- ----------------
Total restaurant operating expenses ................. 1,250,000 2,022,000
----------------- ----------------
RESTAURANT CONTRIBUTION ............................... $ 122,000 $ 60,000
================= ================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-24
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
QSC, INC. AND
RO-LANK, INC. FOR
DMW, INC. FOR THE BKC FOR THE THE PERIOD
PERIOD JANUARY 1, PERIOD JANUARY JANUARY 1, 1995
1995 THROUGH 1, 1995 THROUGH THROUGH NOVEMBER
SEPTEMBER 12, 1995 OCTOBER 24, 1995 20, 1995
------------------ ---------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
RESTAURANT SALES .................... $2,814,000 $1,324,000 $10,261,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 942,000 543,000 3,361,000
Restaurant labor and related costs 739,000 486,000 2,812,000
Occupancy .......................... 272,000 34,000 959,000
Depreciation and amortization of
franchise agreements .............. 71,000 0 250,000
Advertising ........................ 173,000 46,000 490,000
Royalties .......................... 97,000 40,000 352,000
Other operating expenses ........... 220,000 179,000 972,000
------------------ ---------------- -----------------
Total restaurant operating
expenses ......................... 2,514,000 1,328,000 9,196,000
------------------ ---------------- -----------------
RESTAURANT CONTRIBUTION ............. $ 300,000 $ (4,000) $ 1,065,000
================== ================ =================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CURTIS JAMES
INVESTMENTS, INC. C&N DINING, INC.
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
RESTAURANT SALES .................... $14,766,000 $26,955,000
RESTAURANT OPERATING EXPENSES:
Cost of sales ...................... 4,753,000 8,363,000
Restaurant labor and related costs 4,100,000 6,154,000
Occupancy .......................... 1,369,000 4,274,000
Depreciation and amortization of
franchise agreements .............. 353,000 83,000
Advertising ........................ 616,000 1,159,000
Royalties .......................... 509,000 926,000
Other operating expenses ........... 1,276,000 2,264,000
------------------ ------------------
Total restaurant operating
expenses ......................... 12,976,000 23,223,000
------------------ ------------------
RESTAURANT CONTRIBUTION ............. $ 1,790,000 $ 3,732,000
================== ==================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-25
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
FRIEDMAN FOR THE QSC, INC. AND CURTIS JAMES
PERIOD JANUARY 1, RO-LANK, INC. FOR INVESTMENTS, INC. C&N DINING, INC.
1994 THROUGH THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
NOVEMBER 30, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
RESTAURANT SALES ................ $43,494,000 $10,627,000 $13,242,000 $23,918,000
RESTAURANT OPERATING EXPENSES:
Cost of sales .................. 14,133,000 3,451,000 4,203,000 7,221,000
Restaurant labor and related
costs ......................... 10,733,000 2,810,000 3,664,000 5,428,000
Occupancy ...................... 3,607,000 903,000 1,234,000 3,991,000
Depreciation and amortization of
franchise agreements .......... 4,294,000 257,000 221,000 40,000
Advertising .................... 2,166,000 475,000 538,000 1,027,000
Royalties ...................... 1,499,000 365,000 457,000 822,000
Other operating expenses ....... 3,486,000 1,002,000 1,261,000 2,048,000
----------------- ------------------ ------------------ ------------------
Total restaurant operating
expenses ..................... 39,918,000 9,263,000 11,578,000 20,577,000
----------------- ------------------ ------------------ ------------------
RESTAURANT CONTRIBUTION ......... $ 3,576,000 $ 1,364,000 $ 1,664,000 $ 3,341,000
================= ================== ================== ==================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-26
<PAGE>
HISTORICAL SCHEDULES OF RESTAURANT CONTRIBUTION
<TABLE>
<CAPTION>
QSC, INC. AND CURTIS JAMES
FRIEDMAN FOR THE RO-LANK, INC. FOR INVESTMENTS, INC. C&N DINING, INC.
YEAR ENDED THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
RESTAURANT SALES ................ $33,365,000 $9,035,000 $11,252,000 $21,635,000
RESTAURANT OPERATING EXPENSES:
Cost of sales .................. 10,825,000 2,857,000 3,618,000 6,440,000
Restaurant labor and related
costs ......................... 8,319,000 2,529,000 3,188,000 5,129,000
Occupancy ...................... 3,037,000 794,000 1,047,000 3,778,000
Depreciation and amortization of
franchise agreements .......... 4,299,000 481,000 226,000 39,000
Advertising .................... 1,870,000 407,000 481,000 978,000
Royalties ...................... 1,151,000 310,000 388,000 743,000
Other operating expenses ....... 2,686,000 965,000 1,091,000 2,024,000
------------------ ------------------ ------------------ ------------------
Total restaurant operating
expenses ..................... 32,187,000 8,343,000 10,039,000 19,131,000
------------------ ------------------ ------------------ ------------------
RESTAURANT CONTRIBUTION ......... $ 1,178,000 $ 692,000 $ 1,213,000 $ 2,504,000
================== ================== ================== ==================
</TABLE>
See notes to historical schedules of restaurant contribution.
F-27
<PAGE>
NOTES TO THE HISTORICAL SCHEDULES OF
RESTAURANT CONTRIBUTION
1. DESCRIPTION OF BUSINESS
AmeriKing, Inc. (formerly NRE Holdings, Inc.) and its wholly-owned
subsidiary, National Restaurant Enterprises, Inc. d/b/a AmeriKing Corporation
(consolidated, the "Company"), were formed on August 17, 1994 to acquire and
operate Burger King restaurants in five states (Illinois, Indiana, Colorado,
Texas and Wisconsin) and grow through the development and acquisition of
additional Burger King restaurants in these and other states.
Effective December 1, 1994, the Company acquired 39 Burger King
restaurants located in the Chicago metropolitan area from Sheldon T. Friedman
("Friedman") for $37,000,000 in cash.
Effective September 13, 1995, the Company acquired 4 existing and 1
developmental Burger King restaurants located in Colorado from DMW, Inc. for
$2,629,000 in cash. On October 25, 1995, the Company acquired 2 restaurants
located in the Chicago metropolitan area from Burger King Corporation ("BKC")
for nominal consideration. Effective November 21, 1995, the Company acquired
11 Burger King restaurants located in Tennessee and Georgia from QSC, Inc.
and Ro-Lank, Inc. for $8,142,000 in cash.
Effective February 7, 1996, the Company acquired 24 Burger King
restaurants located in Virginia and North Carolina from C&N Dining, Inc. for
$27,469,000 in cash. Concurrent with the C&N Dining acquisition, the Company
acquired 12 restaurants located in the Cincinnati metropolitan area from
Curtis James Investments, Inc. for $9,400,000 in cash.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Historical Schedules of Restaurant Contribution (the "Schedules")
include operations of the acquired restaurants for the periods to the earlier
of the date of purchase by the Company or December 31, 1995, and have been
prepared pursuant to Article 3 of Regulation S-X, Section 210.3-02(a).
SALES -- Sales consist primarily of food and premium sales.
COST OF SALES -- Costs of sales consist primarily of restaurant and food
supplies, determined using the first-in, first-out (FIFO) method of inventory
valuation.
RESTAURANT LABOR AND RELATED COSTS -- Restaurant labor and related costs
include managers' salaries, hourly wages and related payroll taxes and
benefits.
OCCUPANCY -- Occupancy costs consist of rents, licenses and permits, real
estate taxes and common area maintenance.
DEPRECIATION AND AMORTIZATION OF FRANCHISE AGREEMENTS --Depreciation is
recorded using accelerated methods permissible under generally accepted
accounting principles over the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
BUILDING IMPROVEMENTS ........................... 10-20 YEARS
FURNITURE, FIXTURES AND RESTAURANT EQUIPMENT ... 5-10 YEARS
</TABLE>
The franchise agreements with BKC require the Entities to pay a franchise
fee for each restaurant opened. Amortization is recorded on the straight-line
method over the terms of the related franchise agreements. The franchise
agreements generally provide for a term of 20 years with renewal options upon
expiration.
ADVERTISING --Under the franchise agreements with BKC, monthly advertising
fees are to be paid at 4% of restaurant food sales.
ROYALTIES --Under the franchise agreements with BKC, monthly royalties are
to be paid at 3.5% of restaurant food sales.
OTHER OPERATING EXPENSES -- Other operating expenses include utilities,
repairs and maintenance, cleaning, security, uniforms, workmen's compensation
and training expenses.
GENERAL AND ADMINISTRATIVE EXPENSES (UNAUDITED) --The Schedules of
Restaurant Contribution do not include amounts relative to general and
administrative expenses, such as supervisory management
F-28
<PAGE>
and overhead expenses. As the individual acquisitions primarily represented
acquisitions of a portion of a larger business (or, in other words, carve-out
acquisitions), any attempted allocation of such expenses would be
assumption-driven. As a result, such expenses have been excluded from the
statement of restaurant contribution. Estimates of such expenses for each of
the acquisitions reflected above (except the acquisition of 2 restaurants
from BKC in 1995, for which estimates were not available) are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 1 THROUGH JANUARY 1 THROUGH JANUARY 1 THROUGH JANUARY 1 THROUGH
APRIL 1, 1996 OR DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
THROUGH DATE OF OR THROUGH DATE OF OR THROUGH DATE OF OR THROUGH THE DATE
ACQUISITION ACQUISITION ACQUISITION OF ACQUISITION
----------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
1994 ACQUISITIONS
Friedman .................... $ -- $ -- $ 605,000 $ 652,000
================= ================== ================== ===================
1995 ACQUISITIONS
DMW, Inc. ................... $ -- $ 75,000 $ -- $ --
BKC ......................... -- -- -- --
QSC, Inc. and Ro-Lank, Inc. -- 724,000 756,000 562,000
----------------- ------------------ ------------------ -------------------
Total ...................... $ -- $ 799,000 $ 756,000 $ 562,000
================= ================== ================== ===================
1996 ACQUISITIONS
Curtis James ................ $ 81,000 $ 759,000 $ 628,000 $ 540,000
C&N Dining .................. 154,000 1,233,000 1,042,000 864,000
----------------- ------------------ ------------------ -------------------
Total ...................... $235,000 $1,992,000 $1,670,000 $1,404,000
================= ================== ================== ===================
</TABLE>
* * * * * *
F-29
<PAGE>
#############################################################################
GRAPHIC OMITTED
IGT: "AMERI"
#############################################################################
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH
ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDER WRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary .......................................... 3
Summary Pro Forma Consolidated Financial
Information ..................................... 8
Risk Factors ..................................... 10
Use of Proceeds .................................. 18
Capitalization ................................... 19
Dividend Policy .................................. 19
Selected Consolidated Financial Information ..... 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 23
Business ......................................... 31
Management ....................................... 41
Principal Stockholders ........................... 46
Description of Securities ........................ 48
Description of Capital Stock ..................... 96
Description of Certain Indebtedness .............. 101
Certain Transactions ............................. 104
Underwriting ..................................... 106
Legal Matters .................................... 107
Experts .......................................... 107
Available Information ............................ 107
Pro Forma Consolidated Financial Statements ..... P-1
Index to Consolidated Financial Statements ...... F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
$100,000,000
##################################################################
GRAPHIC OMITTED
IGT: "AMERKI"
##################################################################
% SENIOR NOTES DUE 2006
PROSPECTUS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
JEFFERIES & COMPANY, INC.
, 1996
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy, nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
[ALTERNATE PAGE FOR PREFERRED STOCK PROSPECTUS]
SUBJECT TO COMPLETION, DATED NOVEMBER 25, 1996
PROSPECTUS
, 1996
############################################
GRAPHIC OMITTED
IGT: "AMERKI"
############################################
UNITS CONSISTING OF
$30,000,000
% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2008
AND
SHARES OF COMMON STOCK
The 30,000 Units (the "Units"), each consisting of 40 shares of % Senior
Exchangeable Preferred Stock due 2008 (the "Senior Preferred Stock") of
AmeriKing, Inc. (the "Company") and 1.561 shares of Common Stock, $0.01 par
value per share (the "Common Stock"), of the Company, are being offered
hereby (the "Units Offering"). The Senior Preferred Stock and the Common
Stock will not be separately transferrable until the Separation Date.
Concurrent with the Units Offering, the Company is offering $100,000,000
aggregate principal amount of its % Senior Notes due 2006 (the "Senior
Notes") to the public (the "Notes Offering" and, together with the Units
Offering, the "Offerings"). The Units Offering is contingent upon the
consummation of the Notes Offering, and there can be no assurance that the
Notes Offering will be consummated. See "Summary--Concurrent Offering."
Each share of Senior Preferred Stock will have a liquidation preference of
$25 per share. Dividends on the Senior Preferred Stock will accrue in each
period ending on March 1, June 1, September 1 and December 1 of each year at
a rate of % per annum of the liquidation preference. On or before December
1, 2001, the Company may, at its option, pay dividends in cash or in
additional fully paid and non-assessable shares of Senior Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends. Thereafter, dividends may be paid in cash only. The Senior
Preferred Stock will be redeemable at the option of the Company, in whole or
in part, at any time on or after December 1, 2001 at the redemption prices
set forth herein, plus an amount in cash equal to all accumulated and unpaid
dividends per share to the date of redemption. In addition, at the option of
the Company, the Senior Preferred Stock may be redeemed in whole, but not in
part, at any time at the redemption price set forth herein, plus an amount in
cash equal to all accumulated and unpaid dividends per share to the date of
redemption, with the proceeds of an Equity Offering. Upon the occurrence of a
Change of Control, each holder of Senior Preferred Stock will have the right
to require the Company to purchase all or any part of such holder's Senior
Preferred Stock at an offer price in cash equal to 101% of the liquidation
preference thereof, plus an amount in cash equal to all accumulated and
unpaid dividends per share to the date of purchase. In the event of a Change
of Control, there can be no assurance that the Company will have, or will
have access to, sufficient funds to repurchase the Senior Preferred Stock or
to pay the holders of the Senior Preferred Stock. In addition, the Company's
obligations under the Senior Preferred Stock are subject to the terms of the
BKC Intercreditor Agreement. See "Risk Factors--Subordination as a Result of
BKC Intercreditor Agreement" and "--Change of Control Provisions; Limitations
on Rights of Repayment" and "Description of Securities--Senior Preferred
Stock--Certain Covenants" and "--Redemption of Senior Preferred Stock--Change
of Control."
On any scheduled dividend payment date, the Company may, at its option,
exchange all but not less than all of the shares of Senior Preferred Stock
then outstanding for the Company's % Subordinated Exchange Debentures due
2008 (the "Exchange Debentures"). See "Description of Securities--Senior
Preferred Stock--Exchange." The Exchange Debentures will bear interest at a
rate of % per annum, payable semi-annually in arrears on June 1 and December
1 of each year, commencing with the first such date to occur after the date
of exchange. On or before December 1, 2001, the Company may, at its option,
pay interest in cash or in additional Exchange Debentures having an aggregate
principal amount equal to the amount of such interest. Thereafter, interest
may be paid in cash only. The Exchange Debentures will be redeemable at the
option of the Company, in whole or in part, at any time on or after December
1, 2001 at the redemption prices set forth herein, plus accrued and unpaid
interest thereon to the date of redemption. In addition, at the option of the
Company, the Exchange Debentures may be redeemed in whole, but not in part,
at any time at the redemption price set forth herein, plus accrued and unpaid
interest thereon to the date of redemption, with the proceeds of an Equity
Offering. Upon the occurrence of a Change of Control, each holder of Exchange
Debentures will have the right to require the Company to purchase all or any
part of such holder's Exchange Debentures at an offer price in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the date of purchase. In the event of a Change of
Control, there can be no assurance that the Company will have, or will have
access to, sufficient funds to repurchase the Exchange Debentures or to pay
the holders of the Exchange Debentures. In addition, the Company's
obligations under the Exchangeable Debentures are subject to the terms of the
BKC Intercreditor Agreement. See "Risk Factors--Subordination as a Result of
BKC Intercreditor Agreement" and "--Change of Control Provisions; Limitations
on Rights of Repayment" and "Description of Securities--Exchange
Debentures--Certain Covenants" and "--Mandatory Offers to Purchase Exchange
Debentures--Change of Control."
The Units, the Senior Preferred Stock, the Exchange Debentures, the Common
Stock and the Senior Notes are sometimes referred to collectively herein as
the "Securities."
THE COMPANY DOES NOT INTEND TO APPLY FOR LISTING OF ANY OF THE SECURITIES
ON ANY SECURITIES EXCHANGE OR FOR QUOTATION THROUGH THE NATIONAL ASSOCIATION
OF SECURITIES DEALERS AUTOMATED QUOTATION SYSTEM. ALTHOUGH THE UNDERWRITER
HAS ADVISED THE COMPANY THAT IT CURRENTLY INTENDS TO MAKE A MARKET IN THE
SECURITIES, IT IS NOT OBLIGATED TO DO SO AND MAY DISCONTINUE SUCH MARKET
MAKING AT ANY TIME WITHOUT NOTICE. SEE "RISK FACTORS--ABSENCE OF PUBLIC
MARKET FOR THE SECURITIES."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN
INVESTMENT IN THE SECURITIES.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO THE DISCOUNTS AND PROCEEDS TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Unit ..... $ $ $
Total ........ $ $ $
</TABLE>
(1) Plus accumulated dividends, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriter (as defined)
against, and to provide contribution with respect to, certain
liabilities under the Securities Act. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at
$2,200,000.
The Units are being offered by Donaldson, Lufkin & Jenrette Securities
Corporation (the "Underwriter"), subject to prior sale and various prior
conditions, including the Underwriter's right to reject orders in whole or in
part. It is expected that delivery of the Units will be made in New York, New
York on or about , 1996 against payment therefor in immediately available
funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
[ALTERNATIVE PAGE FOR PREFERRED STOCK PROSPECTUS]
#############################################################################
GRAPHIC OMITTED
IGT: "BURGER"
#############################################################################
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
BURGER KING(REGISTERED TRADEMARK) IS A REGISTERED TRADEMARK AND SERVICE
MARK, WHOPPER(REGISTERED TRADEMARK) AND "HAVE IT YOUR WAY(REGISTERED
TRADEMARK)" ARE REGISTERED TRADEMARKS, AND "GET YOUR BURGER'S
WORTH(TRADEMARK)" IS A TRADEMARK OF BURGER KING BRANDS, INC., A WHOLLY OWNED
SUBSIDIARY OF BURGER KING CORPORATION. BURGER KING CORPORATION IS WHOLLY
OWNED BY GRAND METROPOLITAN PLC. NEITHER BURGER KING CORPORATION NOR ANY OF
ITS SUBSIDIARIES OR AFFILIATES IS IN ANY WAY PARTICIPATING IN OR APPROVING
THE OFFERINGS. FOR A FULL DISCUSSION OF THE BURGER KING CORPORATION
DISCLAIMER, SEE PAGE 115.
2
<PAGE>
THE UNITS OFFERING
UNITS:
Securities Offered ... Units, consisting of an aggregate of
1,200,000 shares of Senior Preferred Stock
of the Company with an aggregate liquidation
preference of $30,000,000 and 46,817 shares
of Common Stock of the Company. Each Unit
will consist of 40 shares of Senior
Preferred Stock and 1.561 shares of Common
Stock.
Separability ......... The Senior Preferred Stock and the Common
Stock will not be separately transferrable
until the Separation Date (as defined).
Use of Proceeds ...... The proceeds from the Offerings will be used
to repay borrowings under the Credit
Agreement, to repay outstanding Subordinated
Debt (as defined) (including a prepayment
penalty and a warrant redemption payment),
to repay certain senior debt, to pay the
fees and expenses of the Offerings and for
general corporate purposes. See "Use of
Proceeds" and "Description of Certain
Indebtedness."
PREFERRED STOCK:
Securities Offered ... 1,200,000 shares of % Senior Exchangeable
Preferred Stock due 2008 of the Company.
Dividends ............ Dividends on the Senior Preferred Stock will
accrue in each period ending on March 1,
June 1, September 1 and December 1of each
year at a rate of % per annum of the
liquidation preference. On or before
December 1, 2001 the Company may, at its
option, pay dividends in cash or in
additional fully paid and non-assessable
shares of Senior Preferred Stock having an
aggregate liquidation preference equal to
the amount of such dividends. Thereafter,
dividends may be paid in cash only.
Liquidation
Preference ........... $25 per share.
Ranking .............. The Senior Preferred Stock will rank senior
in right of payment with respect to all
Junior Securities (as defined) and pari
passu in right of payment with respect to
all Parity Securities (as defined). In
addition, the Company's obligations under
the Senior Preferred Stock are subject to
the terms of the BKC Intercreditor
Agreement. See "Risk Factors--Subordination
as a Result of BKC Intercreditor Agreement,"
"Business--Obligations to Burger King
Corporation" and "Description of
Securities--Senior Preferred Stock--BKC
Intercreditor Agreement."
Optional Redemption .. The Senior Preferred Stock will be
redeemable at the option of the Company, in
whole or in part, at any time on or after
December 1, 2001 at the redemption prices
set forth herein, plus an amount in cash
equal to all accumulated and unpaid
dividends per share to the date of
redemption.
3
<PAGE>
In addition, at the option of the Company,
the Senior Preferred Stock may be redeemed
in whole, but not in part, at any time at
the redemption price set forth herein, plus
an amount in cash equal to all accumulated
and unpaid dividends per share to the date
of redemption, with the proceeds of an
Equity Offering (as defined). See
"Description of Securities--Senior Preferred
Stock--Redemption of Senior Preferred
Stock--Optional Redemption."
Change of Control .... Upon the occurrence of a Change of Control
(as defined), each holder of Senior
Preferred Stock will have the right to
require the Company to purchase all or any
part of such holder's Senior Preferred Stock
at an offer price in cash equal to 101% of
the liquidation preference thereof, plus an
amount in cash equal to all accumulated and
unpaid dividends per share to the date of
purchase. Except as described under
"Description of Securities--Senior Preferred
Stock--Redemption of Senior Preferred
Stock--Change of Control," the certificate
of designations with respect to the Senior
Preferred Stock will be issued (the
"Certification of Designation") does not
contain provisions that permit the holder of
Senior Preferred Stock to require the
Company to redeem the Senior Preferred Stock
in the event of a takeover, recapitalization
or similar restructuring, including an
issuer recapitalization or similar
transaction with management. Consequently,
the Change of Control provisions will not
afford any protection in a highly leveraged
transaction, including such a transaction
initiated by the Company, management of the
Company or an affiliate of the Company, if
such transaction does not result in a Change
of Control. See "Description of
Securities--Senior Preferred
Stock--Redemption of Senior Preferred
Stock--Change of Control."
Covenants ............ The Certificate of Designation will contain
customary covenants that limit the ability
of the Company to redeem or repurchase
Junior Securities or Parity Securities and
pay dividends thereon, to merge or
consolidate with any other entity, to sell
assets and to enter into transactions with
affiliates. The Certificate of Designation
will also require the Company to deliver
certain reports and information to the
holders of the Senior Preferred Stock. See
"Description of Securities--Senior Preferred
Stock--Certain Covenants."
Exchange Feature ..... On any scheduled dividend payment date, the
Company may, at its option, exchange all but
not less than all of the shares of Senior
Preferred Stock then outstanding for the
Company's % Subordinated Exchange
Debentures due 2008 (the "Exchange
Debentures"). See "Description of
Securities--Senior Preferred
Stock--Exchange."
EXCHANGE DEBENTURES:
Securities Offered ... % Subordinated Exchange Debentures due
2008 of the Company.
ALT-4
<PAGE>
Maturity ............ December 1, 2008.
Interest ............. The Exchange Debentures will bear interest
at a rate of % per annum, payable
semi-annually in arrears on June 1 and
December 1 of each year, commencing with the
first such date to occur after the date of
exchange. On or before December 1, 2001, the
Company may, at its option, pay interest in
cash or in additional Exchange Debentures
having an aggregate principal amount equal
to the amount of such interest. Thereafter,
interest may be paid in cash only.
Ranking .............. The Exchange Debentures will be unsecured
obligations of the Company, subordinate to
all existing and future Senior Indebtedness
(as defined), including the Senior Notes and
the Credit Agreement (as defined). At
September 30, 1996, on a pro forma basis
after giving effect to the Offerings and the
application of the net proceeds therefrom,
the aggregate amount of outstanding Senior
Indebtedness would have been approximately
$108.0 million. The Company's obligations
under the Exchange Debentures will also be
subject to the terms of the BKC
Intercreditor Agreement. See "Risk
Factors--Subordination as Result of BKC
Intercreditor Agreement,"
"Business--Obligations to Burger King
Corporation" and "Description of
Securities--Exchange Debentures--BKC
Intercreditor Agreement."
Optional Redemption .. The Exchange Debentures will be redeemable
at the option of the Company, in whole or in
part, at any time on or after December 1,
2001 at the redemption prices set forth
herein, plus accrued and unpaid interest
thereon to the date of redemption.
In addition, at the option of the Company,
the Exchange Debentures may be redeemed in
whole, but not in part, at any time at the
redemption price set forth herein, plus
accrued and unpaid interest thereon to the
date of redemption, with the proceeds of an
Equity Offering. See "Description of
Securities--Exchange Debentures--Redemption
of Exchange Debentures--Optional
Redemption."
Change of Control .... Upon the occurrence of a Change of Control,
each holder of Exchange Debentures will have
the right to require the Company to purchase
all or any part of such holder's Exchange
Debentures at an offer price in cash equal
to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest
thereon to the date of purchase. Except as
described under "Description of
Securities--Exchange Debentures--Mandatory
Offers to Purchase Exchange
Debentures--Change of Control," the
indenture pursuant to which the Exchange
Debentures will be issued (the "Exchange
Debenture Indenture") does not contain
provisions that permit the holder of
Exchange Debentures to require the Company
to purchase or redeem the Exchange
Debentures in the event of a takeover,
ALT-5
<PAGE>
recapitalization or similar restructuring,
including an issuer recapitalization or
similar transaction with management.
Consequently, the Change of Control
provisions will not afford any protection in
a highly leveraged transaction, including
such a transaction initiated by the Company,
management of the Company or an affiliate of
the Company, if such transaction does not
result in a Change of Control. See
"Description of Securities--Exchange
Debentures--Mandatory Offers to Purchase
Exchange Debentures--Change of Control."
Certain Covenants .... The Exchange Debenture Indenture will
contain covenants that, among other things,
limit the ability of the Company and its
Restricted Subsidiaries (as defined) to pay
dividends or make certain Restricted
Payments (as defined), including Restricted
Investments (as defined), to incur
additional Indebtedness (as defined), to
encumber or sell assets, to enter into
transactions with affiliates, to enter into
certain guarantees of Indebtedness, to merge
or consolidate with any other entity and to
transfer or lease all or substantially all
of their assets. In addition, under certain
circumstances, the Company will be required
to offer to purchase Exchange Debentures at
a price equal to 100% of the principal
amount thereof, plus accrued and unpaid
interest to the date of purchase with the
proceeds of certain Asset Sales (as
defined). See "Description of
Securities--Exchange Debentures--Certain
Covenants" and "--Mandatory Offers to
Purchase Exchange Debentures--Asset Sales."
CONCURRENT OFFERING
Concurrent with the Units Offering, the Company is offering $100,000,000
aggregate principal amount of its % Senior Notes due 2006 to the public.
The Units Offering is contingent upon the consummation of the Notes Offering,
and there can be no assurance that the Notes Offering will be consummated.
ALT-6
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States
federal income tax considerations relevant to the purchase, ownership and
disposition of the Units, Senior Preferred Stock and Common Stock by holders
acquiring Units on original issue for cash, but does not purport to be a
complete analysis of all potential tax effects. To the extent it relates to
matters of law or legal conclusions, this summary constitutes the opinion of
Mayer, Brown & Platt, special tax counsel to the Company. The discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decisions all in effect as of the date hereof, all of which are
subject to change at any time, and any such change may be applied retroactively
in a manner that could adversely affect a holder of the Units, Senior Preferred
Stock or Common Stock. Certain proposed tax legislation, if enacted in
substantially the same form as proposed, may affect some of the tax consequences
discussed herein. See "--Proposed Legislation." The discussion does not address
all of the federal income tax consequences that may be relevant to a holder in
light of such holder's particular circumstances or to holders subject to special
rules, such as certain financial institutions, insurance companies, dealers in
securities, foreign corporations, nonresident alien individuals and persons
holding the Units, Senior Preferred Stock or Common Stock as part of a
"straddle," "hedge" or "conversion transaction." Moreover, the effect of any
applicable state, local or foreign tax laws is not discussed. The discussion
deals only with Units, Senior Preferred Stock and Common Stock held as "capital
assets" within the meaning of section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the position of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the Units, Senior
Preferred Stock or Common Stock or that any such position would not be
sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAX LAWS.
ALLOCATION OF BASIS
Each holder of a Unit will have an aggregate tax basis in the Unit equal
to the amount of cash paid by the holder for such Unit. For federal income
tax purposes, a holder's aggregate tax basis in the Units will be allocated
between the Senior Preferred Stock and the Common Stock represented by such
Units based on their relative fair market values at the time of the issuance.
The Company will determine and provide holders with its estimate of the fair
market values of the Senior Preferred Stock and Common Stock and the holders
will allocate the basis of the Units between the Senior Preferred Stock and
Common Stock, in proportion to these relative fair market values. There can
be no assurance, however, that the IRS will respect the Company's
determination.
CLASSIFICATION OF SENIOR PREFERRED STOCK
Although the characterization of an instrument as debt or equity is a
facts and circumstances determination that cannot be predicted with
certainty, it is the opinion of Counsel that the Senior Preferred Stock should
be treated as stock for federal income tax purposes. Accordingly, the Company
intends to treat the Senior Preferred Stock as stock for federal income tax
purposes, and the remainder of this discussion assumes that such treatment will
be respected.
DISTRIBUTIONS ON SENIOR PREFERRED STOCK AND COMMON STOCK
Distributions on the Senior Preferred Stock, whether paid in cash or in
additional shares of Senior Preferred Stock, or distributions on Common
Stock, if any, will be taxable as ordinary dividend income to the extent that
the cash amount or the fair market value of any Senior Preferred Stock
distributed on the Senior Preferred Stock or the cash amount distributed on
the Common Stock does not exceed the Company's current or accumulated
earnings and profits (as determined for federal income tax purposes). To the
extent that the amount of such distributions paid on the Senior Preferred
Stock or Common Stock
ALT-7
<PAGE>
exceeds the Company's current or accumulated earnings and profits (as
determined for federal income tax purposes), the distributions will be
treated as a return of capital, thus reducing the holder's adjusted tax basis
in such Senior Preferred Stock or Common Stock. The amount of any such excess
distribution that is greater than the holder's adjusted basis in the Senior
Preferred Stock or Common Stcok will be taxed as capital gain and will be
long-term capital gain if the holder's holding period for such Senior
Preferred Stock or Common Stock exceeds one year. There can be no assurance
that the Company will have sufficient earnings and profits (as determined for
federal income tax purposes) to cause distributions on the Senior Preferred
Stock or Common Stock to be treated as dividends for federal income tax
purposes. For purposes of the remainder of this discussion, the term
"dividend" refers to a distribution paid out of allocable earnings and
profits, unless the context indicates otherwise.
A stockholder's initial tax basis in any additional shares of Senior
Preferred Stock distributed by the Company will be equal to the fair market
value of such additional shares on their date of distribution. A
stockholder's holding period for such additional shares will commence with
their distribution, and will not include his holding period for the shares of
Senior Preferred Shares with respect to which the additional shares were
distributed.
To the extent that dividends are treated as ordinary income, dividends
received by corporate holders will be eligible for the 70% dividends-received
deduction under Section 243 of the Code, subject to limitations generally
applicable to the dividends-received deductions, including those contained in
Section 246 and 246A of the Code and the corporate alternative minimum tax.
The 70% dividends-received deduction may be reduced if a holder's shares of
Senior Preferred Stock or Common Stock are debt financed. Under Section
246(c) of the Code, the 70% dividends-received deduction will not be
available with respect to stock that is held for 45 days or less (90 days in
the case of a dividend on preferred stock attributable to a period or periods
aggregating more that 366 days). The length of time that a holder is deemed
to have held stock for these purposes is reduced for periods during which the
holder's risk of loss with respect to the stock is diminished by reason of
the existence of certain options, contracts to sell, short sales or other
similar transactions. Section 246(c) also denies the 70% dividends-received
deduction to the extent that a corporate holder is under an obligation, with
respect to substantially similar or related property, to make payments
corresponding to the dividend received. The Clinton Administration has
proposed legislation which, if enacted, would affect the availability of the
dividends-received deduction for dividends on Senior Preferred Stock or
Common Stock . See "--Proposed Legislation."
Under Section 1059 of the Code, the tax basis of Senior Preferred Stock or
Common Stock that has been held by a corporate shareholder for two years or
less (ending on the earliest of the date on which the Company declares,
announces or agrees to the payment of an actual or constructive dividend) is
reduced (but not below zero) by the non-taxed portion of an "extraordinary
dividend" for which a dividends-received deduction is allowed. To the extent
a corporate holder's tax basis would have been reduced below zero but for the
foregoing limitation, such holder must increase the amount of gain recognized
on the ultimate sale or exchange of such Senior Preferred Stock or Common
Stock. Generally, an "extraordinary dividend" is a dividend that (i) equals
or exceeds, in the case of Senior Preferred Stock, 5% of the holder's basis
in such stock, or, in the case of Common Stock, 10% of the holder's basis in
such stock, (treating all dividends having ex-dividend dates within an 85-day
period as a single dividend) or (ii) exceeds 20% of the holder's adjusted
basis in the Senior Preferred Stock or Common Stock (treating all dividends
having ex-dividend dates within a 365-day period as a single dividend). If an
election is made by the holder, under certain circumstances the fair market
value of the Senior Preferred Stock or Common Stock as of the day before the
ex-dividend date may be substituted for the holder's basis in applying these
tests.
Special rules exist with respect to extraordinary dividends for "qualified
preferred dividends," which are any fixed dividends payable with respect to
any share of stock which (i) provides for fixed preferred dividends payable
not less frequently than annually and (ii) is not in arrears as to dividends
at the time the holder acquires such stock. A qualified preferred dividend
does not include any dividend payable with respect to any share if the actual
rate of return of such stock for the period the stock has been held by the
holder receiving the dividend exceeds 15%.
ALT-8
<PAGE>
REDEMPTION PREMIUM ON SENIOR PREFERRED STOCK
If the redemption price of redeemable preferred stock exceeds its issue
price by more than a de minimis amount, such excess may be treated as a
constructive distribution of additional stock on preferred stock over the
term of the preferred stock using a constant interest rate method similar to
that described below for accruing original issue discount. See discussions
below under "--Original Issue Discount on Exchange Debentures." A preferred
stock discount will generally be considered de minimis as long as it is less
than the redemption price of the preferred stock multiplied by 1/4 of 1%
multiplied by the number of years until the issuer must redeem the preferred
stock. Although not entirely clear, the Company believes that for purposes of
determining the issue price of the Senior Preferred Stock initially issued, a
Unit is considered an investment unit consisting of the Senior Preferred
Stock and the Common Stock, and the issue price of the Senior Preferred Stock
is determined by allocating the issue price of a Unit between the Senior
Preferred Stock and Common Stock based on the relative fair market values of
the Senior Preferred Stock and the Common Stock. See discussion above under
"--Allocation of Basis." There is no assurance, however, that the IRS will
not challenge such allocation.
As a result of the allocation of a portion of the purchase price of the
Units to the Common Stock, the Senior Preferred Stock initially purchased by
holders may have a redemption price that exceeds its issue price by more than
a de minimis amount, resulting in constructive distributions under the above
rules. In addition, because the issue price of the Senior Preferred Stock
distributed in lieu of payments of cash dividends will be equal to its fair
market value at the time of distribution it is possible, depending on its
fair market value at that time, that such Senior Preferred Stock will be
issued with a redemption premium large enough to be considered a dividend
under the above rules. In such event, as noted above, holders would be
required to include such premium in income as a distribution over some period
in advance of receiving the cash attributable to such income and such Senior
Preferred Stock might trade separately, which might adversely affect the
liquidity of the Senior Preferred Stock.
In addition to the mandatory redemption feature, the Senior Preferred
Stock is also redeemable (either in whole or in part, or in whole but not in
part under certain circumstances) at the option of the Company prior to 2008.
Furthermore, each holder of the Senior Preferred Stock has the right to
require the Company to repurchase the Senior Preferred Stock upon the
occurrence of a Change of Control. Although such optional redemption or
holder put may result in constructive distributions to the holders under
certain circumstances, the Company believes that neither the optional
redemption nor the holder put of the Senior Preferred Stock will be subject
to those rules.
REDEMPTION, SALE OR EXCHANGE OF SENIOR PREFERRED STOCK OR COMMON STOCK
A redemption of shares of Senior Preferred Stock in exchange for Exchange
Debentures or shares of Senior Preferred Stock or Common Stock for cash, and
a sale of Senior Preferred Stock or Common Stock will be taxable events.
A redemption of shares of Senior Preferred Stock or Common Stock for cash
will generally be treated as a sale or exchange if the holder does not own,
actually or constructively within the meaning of Section 318 of the Code, any
stock of the Company other than the stock redeemed. If a holder does own,
actually or constructively, such other stock (including Senior Preferred
Stock or Common Stock not redeemed), a redemption of Senior Preferred Stock
or Common Stock may be treated as a dividend to the extent of the Company's
current or accumulate earnings and profits (as determined for federal income
tax purposes). Such dividend treatment would not be applied if the redemption
is "substantially disproportionate" with respect to the holder under Section
302(b)(2) of the Code or is "not essentially equivalent to a dividend" with
respect to the holder under Section 302(b)(1) of the Code. A distribution to
a holder will be "not essentially equivalent to a dividend" if it results in
a "meaningful reduction" in the holder's stock interest in the Company. For
these purposes, a redemption of Senior Preferred Stock or Common Stock for
cash that results in a reduction in the proportionate interest in the Company
(taking into account any constructive ownership) of a holder whose relative
stock interest in the Company is minimal and who exercises no control over
corporate affairs should be regarded as a meaningful reduction in the
holder's stock interest in the Company.
ALT-9
<PAGE>
If the redemption of the Senior Preferred Stock or Common Stock for cash
is not treated as a distribution taxable as a dividend or if the Senior
Preferred Stock or Common Stock is sold, the redemption or sale would result
in capital gain or loss equal to the difference between the amount of cash
and the fair market value of other proceeds received in such sale or
redemption and the holder's adjusted tax basis in the Senior Preferred Stock
or Common Stock sold or redeemed.
If a redemption of Senior Preferred Stock or Common Stock for cash is not
treated as a distribution taxable as a dividend, the redemption would result
in capital gain or loss equal to the difference between the amount of cash
received and the holder's adjusted tax basis in the Senior Preferred Stock or
Common Stock redeemed.
A redemption of Senior Preferred Stock in exchange for Exchange Debentures
will be subject to the same general rules as a redemption for cash, except
that the holder would have capital gain or loss equal to the difference
between the issue price of the Exchange Debentures received and the holder's
adjusted tax basis in the Senior Preferred Stock redeemed. The issue price of
the Exchange Debentures would be determined in the manner described below for
purposes of computing original issue discount (if any) on the Exchange
Debentures. See the discussion below under "--Original Issue Discount on
Exchange Debenture."
If a redemption of Senior Preferred Stock or Common Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution
will be measured by the amount of cash received by the holder. The holder's
adjusted tax basis in the redeemed Senior Preferred Stock or Common Stock
will be transferred to any remaining stock holdings in the Company. If the
holder does not retain any stock ownership in the Company, the holder may
lose such basis entirely. Under the "extraordinary dividend" provision of
Section 1059 of the Code, a corporate holder may, under certain
circumstances, be required to reduce its basis in its remaining shares of
stock of the Company (and possibly recognize gain upon a disposition of such
shares) to the extent the holder claims the 70% dividends-received deduction
with respect to the dividend.
ORIGINAL ISSUE DISCOUNT ON EXCHANGE DEBENTURES
If the Senior Preferred Stock is exchanged for Exchange Debentures at a
time when the stated redemption price at maturity of the Exchange Debentures
exceeds their issue price by more than a de minimis amount, the Exchange
Debentures will be treated as having original issue discount ("OID") equal to
the entire amount of such excess. OID will generally be considered de minimis
as long as it is less than the stated redemption price at maturity of the
Exchange Debentures multiplied by 1/4 of 1% multiplied by the number of years
to maturity. If the Exchange Debentures are deemed to be traded on an
established securities market on or at any time during the 60-day period
ending 30 days after their issue date, the issue price of the Exchange
Debentures will be their fair market value as determined as of their issue
date. Subject to certain limitations described in the regulations, the
Exchange Debentures will be deemed to be traded on an established securities
market if, among other things, price quotations are readily available from
dealers, brokers or traders. Similarly, if the Senior Preferred Stock, but
not the Exchange Debentures issued and exchanged therefor, is deemed to be
traded on an established securities market at the time of the exchange, then
the issue price of each Exchange Debenture should be the fair market value of
the Senior Preferred Stock exchanged therefor at the time of the exchange.
The Preferred Stock will generally be deemed to be traded on an established
securities market if it appears on a system of general circulation that
provides a reasonable basis to determine fair market value based either on
recent price quotations or recent sales transactions. In the event that
neither the Senior Preferred Stock nor the Exchange Debentures are deemed to
be traded on an established securities market, the issue price of the
Exchange Debentures will be their stated principal amount or, in the event
the Exchange Debentures do not bear "adequate stated interest" within the
meaning of Section 1274 of the Code, their "imputed principal amount," which
is generally the sum of the present values of all payments due under the
Exchange Debentures, discounted from the date of payment to their issue date
at the appropriate "applicable federal rate."
The stated redemption price at maturity of the Exchange Debentures would
equal the total of all payments required to be made thereon, other than
payments of qualified stated interest. Qualified stated
ALT-10
<PAGE>
interest generally is stated interest that is unconditionally payable in
cash or other property (other than debt instruments of the issuer) at least
annually at a single fixed rate. Therefore, Exchange Debentures that are
issued when the Company has the option to pay interest thereon for certain
periods in additional Exchange Debentures should be treated as having been
issued without any qualified stated interest. Accordingly, the sum of all
interest payable pursuant to the stated interest rate on such Exchange
Debentures over the entire term should be treated as OID and accrued into
income under a constant yield method by the holder, and the holder should not
treat the receipt of stated interest on the Debentures as interest for
federal income tax purposes.
An additional Exchange Debenture (a "Secondary Debenture") issued in
payment of interest with respect to an initially issued Exchange Debenture
(an "Initial Debenture") will not be considered as a payment made on the
Initial Debenture and will be aggregated with the Initial Debenture for
purposes of computing and accruing OID on the Initial Debenture. As between
the Initial Debenture and the Secondary Debenture, the Company will allocate
the adjusted issue price of the Initial Debenture between the Initial
Debenture and the Secondary Debenture in proportion to their respective
principal amounts. That is, upon its issuance of a Secondary Debenture with
respect to an Initial Debenture, the Company intends to treat the Initial
Debenture and the Secondary Debenture derived from the Initial Debenture as
initially having the same adjusted issue price and inherent amount of OID per
dollar of principal amount. The Initial Debenture and the Secondary Debenture
derived therefrom will be treated as having the same yield to maturity.
Similar treatment will be applied when additional Exchange Debentures are
issued on Secondary Debentures.
In the event the Exchange Debentures are not issued with OID, because they
are issued at a time when the Company does not have the option to pay
interest thereon in additional Exchange Debentures and the redemption price
of the Exchange Debentures does not exceed their issue price by more than a
de minimis amount, stated interest should be included in income by a holder
in accordance with his method of accounting.
BOND PREMIUM ON EXCHANGE DEBENTURES
If the Senior Preferred Stock is exchanged for Exchange Debentures at a
time when the issue price of the Exchange Debentures exceeds the amount
payable at the maturity date (or earlier call date, if appropriate) of the
Exchange Debentures, such excess will be deductible by the holder of the
Exchange Debentures as amortizable bond premium over the term of the Exchange
Debentures (taking into account earlier call dates, as appropriate), under a
yield-to-maturity formula, only if an election by the holder under Section
171 of the Code is made or is already in effect. An election under Section
171 is available only if the Exchange Debentures are held as capital assets.
This election is revocable only with the consent of the IRS and applies to
all obligations owned or subsequently acquired by the holder. To the extent
the excess is deducted as amortizable bond premium, the holder's adjusted tax
basis in the Exchange Debentures will be reduced.
REDEMPTION OR SALE OF EXCHANGE DEBENTURES
Generally, any redemption or sale of Exchange Debentures by a holder would
result in taxable gain or loss equal to the difference between the amount of
cash received (except to the extent that cash received is attributable to
accrued, but previously untaxed, interest) and the holder's tax basis in the
Exchange Debentures. The tax basis of a holder who receives an Exchange
Debenture in exchange for Senior Preferred Stock will generally be equal to
the issue price of the Exchange Debenture on the date the Exchange Debenture
is issued plus any OID on the Exchange Debenture included in the holder's
income prior to sale or redemption of the Exchange Debenture, reduced by any
amortizable bond premium applied against the holder's income prior to sale or
redemption of the Exchange Debenture and payments other than payments of
"qualified stated interest." Such gain or loss would be long-term capital
gain or loss if the holding period exceeded one year.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
Pursuant to Section 163 of the Code, the "disqualified portion" of the OID
accruing on certain debt instruments may be treated as a dividend eligible
for the dividends-received deduction. The corporation
ALT-11
<PAGE>
issuing such debt instrument would not be entitled to deduct this
"disqualified portion" on the OID accruing on such debt instrument and would
be allowed to deduct the remainder of the OID only when paid.
This treatment would apply to "applicable high yield discount obligations"
("AHYDO"), which generally are debt instruments that have a term of more than
five years, have a yield to maturity that equals or exceeds five percentage
points over the "applicable federal rate" and have "significant" OID. A debt
instrument is treated as having "significant" OID if the aggregate amount
that would be includible in gross income with respect to such debt instrument
for periods before the close of any accrual period ending five years or more
after the date of issue exceeds the sum of (i) the aggregate amount of
interest to be paid in cash under the debt instrument before the close of
such accrual period and (ii) the product of the initial issue price of such
debt instrument and its yield to maturity. For purposes of determining
whether an Exchange Debenture is an AHYDO, holders are bound by the issuer's
determination of the appropriate accrual period. It is impossible to
determine at the present time whether an Exchange Debenture will be treated
as an AHYDO.
If an Exchange Debenture is treated as an AHYDO, a corporate holder would
be treated as receiving dividend income (to the extent of the Company's
current and accumulated earnings and profits) solely for purposes of the
dividends-received deduction in an amount equal to the "dividend equivalent
portion" of the "disqualified portion" of the OID of such AHYDO. The Clinton
Administration has proposed legislation that, if enacted, would affect the
availability of the dividends-received deduction for a corporate holder of an
Exchange Debenture that is treated as an AHYDO. See "--Proposed Legislation."
The "disqualified portion" of the OID is equal to the lesser of (i) the
amount of the OID or (ii) the portion of the "total return" (the excess of
all payments to be made with respect to such obligation over its issue price)
on such obligation that bears the same ratio to the obligation's total return
as the "disqualified yield" (the extent to which the yield exceeds the
applicable federal rate plus 6%) bears to the obligation's yield to maturity.
The dividend equivalent portion of the disqualified portion is the portion of
such portion that would be treated as a dividend if distributed by the issuer
with respect to its stock. The Company's deduction for OID will be
substantially deferred with respect to an Exchange Debenture that is treated
as an AHYDO. In addition, such deduction will be disallowed if and to the
extent that the yield on such AHYDO exceeds the applicable federal rate by
more than 6%.
PROPOSED LEGISLATION
On March 19, 1996, and on August 29, 1996, the Clinton Administration
released versions of the President's Fiscal Year 1997 Budget Proposal (the
"1997 Budget Proposal"). The 1997 Budget Proposal contains certain
revenue-raising items in the form of proposed tax law changes. Among these
proposed tax law changes are several items that, if enacted into law
substantially as proposed, would affect the tax treatment of corporate
holders of Senior Preferred Stock, Common Stock or Exchange Debentures that
are treated as AHYDOs. In particular, the Clinton Administration has proposed
to eliminate the 70% and the 80% dividends-received deduction for certain
debt-like preferred stock, effective for stock issued after the date of
enactment of such legislation. The Clinton Administration also has proposed
to reduce the 70% dividends-received deduction to 50% for dividends received
or accrued 30 days or more after such date of enactment. It cannot be
predicted with certainty whether these proposals will be introduced in
Congress as proposed legislation, or, if so introduced, whether such proposed
legislation would be enacted or, if enacted, what the effective date or dates
would be. Corporate holders of Senior Preferred Stock, Common Stock or
Exchange Debentures are urged to consult their own tax advisors regarding the
possible effects of this proposed legislation.
BACKUP WITHHOLDING
A holder of the Senior Preferred Stock or the Common Stock may be subject
to backup withholding at a rate of 31% with respect to dividends on Senior
Preferred Stock or Common Stock and gross proceeds upon sale or retirement of
the Senior Preferred Stock or Common Stock unless such holder (i) is a
corporation or other exempt recipient and, when required, demonstrates that
fact, or (ii) provides a correct taxpayer identification number, certifies,
when required, that such holder is not subject to backup
ALT-12
<PAGE>
withholding, and otherwise complies with applicable requirements of the
backup withholding rules. Backup withholding is not an additional tax; any
amounts so withheld are creditable against the holder's federal income tax,
provided the required information is provided to the IRS.
SUBSEQUENT PURCHASERS
The foregoing does not discuss special rules which may affect the
treatment of purchasers that acquire the Senior Preferred Stock or the
Exchange Debentures other than through purchasing the Senior Preferred Stock
at the time of original issuance at the issue price, including those
provisions of the Code relating to the treatment of "market discount,"
"acquisition premium" and "amortizable bond premium." For example, the market
discount provisions of the Code may require a subsequent purchaser of an
Exchange Debenture at a market discount to treat all or a portion of any gain
recognized upon sale or other disposition of the Exchange Debenture as
ordinary income and to defer a portion of any interest expense that would
otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry such Exchange Debenture until the holder disposes of the
Exchange Debenture in a taxable transaction.
ALT-13
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") between the Company and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Underwriter"), the Company has
agreed to issue and sell to the Underwriter, and the Underwriter has agreed
to purchase from the Company, all of the Units being offered hereby.
The Underwriting Agreement provides that the obligations of the
Underwriter to purchase the Units are subject to the approval of certain
legal matters by counsel and to certain other conditions. If any of the Units
are purchased by the Underwriter pursuant to the Underwriting Agreement, all
such Units must be so purchased.
The Underwriter has advised the Company that the Underwriter proposes to
offer the Units to the public initially at the price set forth on the cover
page of this Prospectus and to certain dealers (who may include the
Underwriter) at such offering price less a concession not to exceed $ per
Unit. The Underwriter may allow and such dealers may reallow discounts not in
excess of $ per Unit to certain dealers. After the initial public
offering, the public offering price and such concessions may be changed at
any time without notice.
The Units, the Senior Preferred Stock and the Common Stock will constitute
new classes of securities with no established trading market. The Company
does not intend to list such securities on any national securities exchange
or on the Nasdaq National Market. The Company has been advised by the
Underwriter that following the completion of the Units Offering, the
Underwriter currently intends to make a market in the Units, the Senior
Preferred Stock and the Common Stock. However, the Underwriter is not
obligated to do so and any such market-making may be discontinued at any time
without notice in its sole discretion. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. Accordingly, no assurance can be given as to the liquidity of,
or the trading market for, the Units, the Senior Preferred Stock or the
Common Stock. See "Risk Factors--Absence of Public Market for the
Securities."
The Company has agreed to indemnify the Underwriter against certain
liabilities and expenses in connection with the offer and sale by the Company
of the Units, including liabilities under the Securities Act, and to
contribute to payments that the Underwriter may be required to make in
respect thereof.
Donaldson, Lufkin & Jenrette Securities Corporation is also acting as one
of the underwriters of the Notes Offering. See "Summary--Concurrent
Offering."
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<PAGE>
#############################################################################
GRAPHIC OMITTED
IGT: "AMERI"
#############################################################################
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH
ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Summary .......................................... 3
Summary Consolidated Financial Information ...... 9
Risk Factors ..................................... 11
Use of Proceeds .................................. 19
Capitalization ................................... 20
Dividend Policy .................................. 20
Selected Consolidated Financial Information ..... 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 24
Business ......................................... 32
Management ....................................... 42
Principal Stockholders ........................... 47
Description of Securities ........................ 49
Description of Capital Stock ..................... 97
Description of Certain Indebtedness .............. 102
Certain Transactions ............................. 105
Certain Federal Income Tax Considerations ....... 107
Underwriting ..................................... 114
Legal Matters .................................... 115
Experts .......................................... 115
Available Information ............................ 115
Pro Forma Consolidated Financial Statements ..... P-1
Index to Consolidated Financial Statements ...... F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
##################################################################
GRAPHIC OMITTED
IGT: "AMERKI"
##################################################################
UNITS
CONSISTING OF
$30,000,000
% SENIOR EXCHANGEABLE
PREFERRED STOCK DUE 2008
AND
SHARES
OF COMMON STOCK
PROSPECTUS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the
distribution of the securities being registered:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee .. $ 40,734
NASD Filing Fee ....................................... 12,313
Printing and Engraving Expenses ....................... 300,000
Accounting Fees and Expenses .......................... 500,000
Attorneys' Fees and Expenses .......................... 700,000
Trustee Fees .......................................... 10,000
Rating Agency Fees .................................... 50,000
Blue Sky Fees and Expenses (including attorneys' fees) 20,000
Miscellaneous ......................................... 366,953
Total ............................................... $2,200,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Delaware General Corporation Law (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in
the defense of any lawsuit to which they are made parties by reason of being
or having been such directors or officers, subject to specified conditions
and exclusions; gives a director or officer who successfully defends an
action the right to be so indemnified; and authorizes the Company to buy
directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled
under any by-laws, agreement, vote of stockholders or otherwise.
(b) The Amended and Restated Certificate of Incorporation of the Company
requires, the Amended and Restated By-Laws of the Company provides for,
indemnification of directors, officers, employees and agents to the full
extent permitted by law. In addition, each of the Company's directors will
enter into indemnification agreements with the Company upon the consummation
of the Offerings.
(c) The Underwriting Agreement for the Notes Offering and the Underwriting
Agreement for the Units Offering (the forms of which are included as Exhibits
1.1 and 1.2 to this Registration Statement) provide for the indemnification
under certain circumstances of the Company, its directors and certain of its
officers by the Underwriters.
(d) In accordance with Section 102(b)(7) of the Delaware General
Corporation Law, the Company's Amended and Restated Certificate of
Incorporation provides that directors shall not be personally liable for
monetary damages for breaches of their fiduciary duty as directors except for
(1) breaches of their duty of loyalty to the Company or its stockholders, (2)
acts or omissions not in good faith or which involve intentional misconduct
or knowing violations of law, (3) under Section 174 of the Delaware General
Corporation Law (unlawful payment of dividends or stock purchase or
redemption) or (4) transactions from which a director derives an improper
personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation in August 1994, the Company has issued the
following securities:
(a) In connection with its acquisition of certain Burger King restaurants
from the Burger King Corporation and affiliates of Lawrence Jaro and William
Osborn on September 1, 1994 and related financing, the Company issued to (i)
the Jordan Investors 285.31 shares of Class A Common Stock, 500 shares of
Class B Preferred Stock and 1 share of Special Voting Preferred Stock (which
was subsequently cancelled), (ii) advisors to the Company 63.4 shares of
Class A Common Stock, (iii) The First National Bank of Boston warrants to
purchase 31.28 shares of Class B Common Stock, (iv) MCIT PLC 285.31 shares of
Class C Common Stock (which were subsequently converted into Class A Common
Stock), 3,000 shares of Class A(1 Preferred Stock and 500 shares of Class B
Preferred Stock, (v) the management of the Company (and affiliates of
management) 366.00 shares of Class D Common Stock, 1,200 shares of Class A(2)
Preferred Stock and 400 shares of Class B Preferred Stock, (v) options to
purchase 5.62 shares of Class D Common Stock to each of two executives of the
Company. The Company also issued to MCIT, PLC $11,000,000 aggregate principal
amount
II-1
<PAGE>
of the Company's 12.75% Note due August 31, 2004 and to affiliates of
Management a series of 12.75% Notes each due August 31, 2004 with an
aggregate principal amount of $4,400,000. Exemption from registration was
claimed on the grounds that the issuance of such securities did not involve a
public offering within the meaning of Section 4(2) of the Securities Act of
1933, as amended.
(b) In connection with its acquisition of certain Burger King restaurants
from Shelley Friedman and affiliates on November 30, 1994 and related
financing, the Company issued to (i) BancBoston Capital Inc. warrants to
purchase 81.08 shares of Class B Common Stock, (ii) BancBoston Investments,
Inc. 1,425 shares of Class A(1 Preferred Stock, 475 shares of Class B
Preferred Stock and $600,000 aggregate principal amount of the Company's 6%
Junior Subordinated Note due March 31, 2005. Exemption from registration was
claimed on the grounds that the issuance of such securities did not involve a
public offering within the meaning of Section 4(2) of the Securities Act of
1933, as amended.
(c) In connection with its acquisition of certain Burger King restaurants
from C&N Dining, Inc. and its affiliates Thirty-Forty, Inc., Houston, Inc.
and Fifth & Race, Inc. on February 7, 1996 and related financing, the Company
issued to PMI Mezzanine Fund, L.P. warrants to purchase 71.72 shares of Class
C Common Stock and $15,000,000 in aggregate principal amount of the Company's
12.5% Senior Subordinated Notes due January 31, 2005. Exemption from
registration was claimed on the grounds that the issuance of such securities
did not involve a public offering within the meaning of Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this Registration Statement is
set forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because they are not required, are inapplicable or the required information
has already been provided elsewhere in the registration statement.
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes to provide to the Underwriters
at the closings specified in the Underwriting Agreement for the Notes
Offering and the Underwriting Agreement for the Units Offering, respectively,
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions referred to in Item 14, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this amended registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Westchester, State of Illinois, on November 26, 1996.
AMERIKING, INC.
By *
-----------------------------------
Lawrence E. Jaro
Managing Owner, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amended registration state ment has been signed by the following persons
in the capacities indicated on the 26th day of November, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------- ---------------------------------------------------
<S> <C>
*
- ----------------------------------- Managing Owner, Chairman and Chief Executive Officer
Lawrence E. Jaro (Principal Executive Officer)
*
- -----------------------------------
William C. Osborn Vice Chairman
*
- -----------------------------------
Gary W. Hubert Director and Chief Operating Officer
*
- ----------------------------------- Chief Financial Officer and Corporate Secretary
Joel Aaseby (Principal Financial and Accounting Officer)
*
- -----------------------------------
A. Richard Caputo, Jr. Director and Vice President
*
- -----------------------------------
Thomas H. Quinn Director
*
- -----------------------------------
John W. Jordan II Director
*
- -----------------------------------
David W. Zalaznick Director
By: /s/ A. Richard Caputo, Jr.
- -----------------------------------
As Attorney-in-Fact
</TABLE>
II-3
<PAGE>
REGISTRATION NO. 333-04261
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
EXHIBITS
TO
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
AMERIKING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
<C>
1.1++++ FORM OF UNDERWRITING AGREEMENT FOR NOTES OFFERING ....................................
1.2++++ FORM OF UNDERWRITING AGREEMENT FOR UNITS OFFERING ....................................
2.1++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN BURGER KING CORPORATION
("BKC") AND NATIONAL RESTAURANT ENTERPRISES, INC. ("ENTERPRISES") .................. *
2.2++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN JARO ENTERPRISES, INC.
AND AMERIKING, INC. (FORMERLY KNOWN AS NRE HOLDINGS, INC.) ("AMERIKING") ........... *
2.3++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN JARO RESTAURANTS, INC.
AND AMERIKING ...................................................................... *
2.4++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN TABOR RESTAURANTS
ASSOCIATES, INC. AND AMERIKING ..................................................... *
2.5++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER, 1, 1994, BETWEEN JB RESTAURANTS, INC.
AND AMERIKING ...................................................................... *
2.6++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN CASTLEKING, INC. AND
AMERIKING .......................................................................... *
2.7++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN OSBURGER, INC. AND
AMERIKING .......................................................................... *
2.8++ PURCHASE AND SALE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN WHITE-OSBORN
RESTAURANTS, INC. AND AMERIKING .................................................... *
2.9++ PURCHASE AND SALE AGREEMENT, DATED NOVEMBER 30, 1994, BY AND AMONG SHELDON T.
FRIEDMAN, BNB LAND VENTURE, INC. AND ENTERPRISES ................................... *
2.10++ ASSET PURCHASE AGREEMENT, DATED JULY 5, 1995, BY AND AMONG DMW, INC., DANIEL L. WHITE
AND AMERIKING COLORADO CORPORATION I ............................................... *
2.11++ ASSET PURCHASE AGREEMENT, DATED JULY 5, 1995, BY AND AMONG WSG, INC., DANIEL L.
WHITE, SUSAN J. WAKEMAN, GEORGE ALAIZ, JR. AND AMERIKING COLORADO CORPORATION I .... *
2.12++ PURCHASE AGREEMENT, DATED NOVEMBER 21, 1995, BY AND AMONG QSC, INC., THE SHAREHOLDERS
OF QSC, INC. AND AMERIKING TENNESSEE CORPORATION I ................................. *
2.13++ PURCHASE AGREEMENT, DATED NOVEMBER 21, 1995, BY AND AMONG RO-LANK, INC., THE
SHAREHOLDERS OF RO-LANK, INC. AND AMERIKING TENNESSEE CORPORATION I ................ *
2.14++ PURCHASE AND SALE AGREEMENT, DATED NOVEMBER 30, 1995, BY AND AMONG C&N DINING, INC.
AND AFFILIATES AND AMERIKING VIRGINIA CORPORATION I ................................ *
2.15++ AMENDMENT NO. 1 TO PURCHASE AND SALE AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG
C&N DINING, INC. AND AFFILIATES AND AMERIKING VIRGINIA CORPORATION I ............... *
2.16++ ASSET PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN THIRTY-FORTY, INC. AND
AMERIKING CINCINNATI CORPORATION I ................................................. *
2.17++ ASSET PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN HOUSTON, INC. AND AMERIKING
CINCINNATI CORPORATION I ........................................................... *
2.18++ ASSET PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN FIFTH & RACE, INC. AND
AMERIKING CINCINNATI CORPORATION I ................................................. *
3.1++++ AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERIKING ....................... *
3.2++++ AMENDED AND RESTATED BYLAWS OF AMERIKING .............................................
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------- ----------------
4.1 STOCKHOLDERS AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG AMERIKING AND THE
STOCKHOLDERS APPEARING ON THE SIGNATURE PAGES THERETO .............................. *
4.2 CONSENT AND AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT, DATED NOVEMBER 30, 1994, BY
AND AMONG AMERIKING AND THE STOCKHOLDERS APPEARING ON THE SIGNATURE PAGES THERETO .. *
4.3 CONSENT AND AMENDMENT NO. 2 TO STOCKHOLDERS AGREEMENT, DATED FEBRUARY 7, 1996, BY AND
AMONG AMERIKING AND THE STOCKHOLDERS APPEARING ON THE SIGNATURE PAGES THERETO ...... *
4.4++++ FORM OF AMENDED AND RESTATED STOCKHOLDERS AGREEMENT BY AND AMONG AMERIKING AND THE
STOCKHOLDERS APPEARING ON THE SIGNATURE PAGES THERETO ..............................
4.5 MANAGEMENT SUBSCRIPTION AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG AMERIKING,
TABOR RESTAURANT ASSOCIATES, INC., JARO ENTERPRISES, INC., JARO RESTAURANTS, INC.,
JB RESTAURANTS, INC., CASTLEKING, INC., WHITE-OSBORN RESTAURANTS, INC., OSBURGER,
INC., LAWRENCE JARO, WILLIAM OSBORN, GARY HUBERT, JOEL AASEBY, DONALD STAHURSKI AND
SCOTT VASATKA ...................................................................... *
4.6 STOCK OPTION AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN AMERIKING AND SCOTT VASATKA *
4.7 STOCK OPTION AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN AMERIKING AND DONALD
STAHURSKI .......................................................................... *
4.8 WARRANT AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN AMERIKING AND THE FIRST NATIONAL
BANK OF BOSTON ..................................................................... *
4.9 COMMON STOCK PURCHASE WARRANT, DATED SEPTEMBER 1, 1994, BETWEEN AMERIKING AND
BANCBOSTON INVESTMENTS INC. ........................................................ *
4.10 FIRST AMENDMENT TO COMMON STOCK PURCHASE WARRANT, DATED NOVEMBER 30, 1994 ........... *
4.11 SECOND AMENDMENT TO COMMON STOCK PURCHASE WARRANT, DATED FEBRUARY 7, 1996 ........... *
4.12 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996, FROM AMERIKING TO MCIT PLC IN THE
AGGREGATE PRINCIPAL AMOUNT OF $11,000,000 .......................................... *
4.13 AMENDED AND RESTATED DEFERRED LIMITED INTEREST GUARANTY, DATED FEBRUARY 7, 1996, FROM
ENTERPRISES TO MCIT PLC ............................................................ *
4.14 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996, FROM AMERIKING TO JARO
ENTERPRISES, INC. IN THE AGGREGATE PRINCIPAL AMOUNT OF $1,224,000 .................. *
4.15 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996, FROM AMERIKING TO JARO
RESTAURANTS, INC. IN THE AGGREGATE PRINCIPAL AMOUNT OF $112,000 .................... *
4.16 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996, FROM AMERIKING TO JB RESTAURANTS,
INC. IN THE AGGREGATE PRINCIPAL AMOUNT OF $2,019,000 ............................... *
4.17 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996, FROM AMERIKING TO CASTLEKING, INC.
IN THE AGGREGATE PRINCIPAL AMOUNT OF $385,769 ...................................... *
4.18 AMENDED AND RESTATED NOTE, DATED FEBRUARY 7, 1996, FROM AMERIKING TO WHITE-OSBORN
RESTAURANTS, INC. IN THE AGGREGATE PRINCIPAL AMOUNT OF $659,231 .................... *
4.19 SECURITIES PURCHASE AGREEMENT, DATED NOVEMBER 30, 1994, BETWEEN AMERIKING AND
BANCBOSTON INVESTMENTS, INC. ....................................................... *
4.20 COMMON STOCK PURCHASE WARRANT, DATED NOVEMBER 30, 1994, BETWEEN AMERIKING AND
BANCBOSTON INVESTMENTS, INC. ....................................................... *
4.21 JUNIOR SUBORDINATED NOTE, DATED NOVEMBER 30, 1994, FROM AMERIKING TO BANCBOSTON
INVESTMENTS, INC. IN THE AGGREGATE PRINCIPAL AMOUNT OF $600,000 .................... *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------- ----------------
4.22 SECURED PROMISSORY NOTE, DATED NOVEMBER 21, 1995, FROM AMERIKING TENNESSEE
CORPORATION I TO BKC IN THE AGGREGATE PRINCIPAL AMOUNT OF $6,920,700 ............... *
4.23 AMENDMENT TO SECURED PROMISSORY NOTE, DATED MAY 21, 1996, FROM AMERIKING TENNESSEE
CORPORATION I TO BKC IN THE AGGREGATE PRINCIPAL AMOUNT OF $6,093,067 ............... *
4.24 GUARANTY, DATED NOVEMBER 21, 1995, FROM LAWRENCE JARO AND WILLIAM OSBORN TO BKC ..... *
4.25 RATIFICATION OF GUARANTY, MAY 21, 1996, FROM LAWRENCE JARO AND WILLIAM OSBORN TO BKC *
4.26 PROMISSORY NOTE, DATED NOVEMBER 29, 1995, FROM AMERIKING COLORADO CORPORATION I TO
FRANCHISE ACCEPTANCE CORPORATION LIMITED IN THE AGGREGATE PRINCIPAL AMOUNT OF
$1,865,000 ......................................................................... *
4.27 AMENDMENT TO PROMISSORY NOTE, DATED DECEMBER 14, 1995, FROM AMERIKING COLORADO
CORPORATION I TO FRANCHISE ACCEPTANCE CORPORATION LIMITED .......................... *
4.28 COMMON STOCK PURCHASE WARRANT, DATED FEBRUARY 7, 1996, FROM AMERIKING TO PMI
MEZZANINE FUND, L.P. ............................................................... *
4.29 SENIOR SUBORDINATED NOTE, DATED FEBRUARY 7, 1996, FROM ENTERPRISES TO PMI MEZZANINE
FUND, L.P IN THE AGGREGATE PRINCIPAL AMOUNT OF $15,000,000. ........................ *
4.30 SUBORDINATED GUARANTY, DATED FEBRUARY 7, 1996, FROM AMERIKING VIRGINIA CORPORATION I
AND AMERIKING CINCINNATI CORPORATION I TO PMI MEZZANINE FUND, L.P. ................. *
4.31 SECOND AMENDED AND RESTATED REVOLVING CREDIT NOTE, DATED FEBRUARY 7, 1996, FROM
ENTERPRISES TO THE FIRST NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS
LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ...... *
4.32 SECOND AMENDED AND RESTATED TERM LOAN A NOTE, DATED FEBRUARY 7, 1996, FROM
ENTERPRISES TO THE FIRST NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS
LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ...... *
4.33 SECOND AMENDED AND RESTATED TERM LOAN B NOTE, DATED FEBRUARY 7, 1996, FROM
ENTERPRISES TO THE FIRST NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS
LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ...... *
4.34 LIMITED GUARANTY, DATED SEPTEMBER 1, 1994, FROM AMERIKING TO THE FIRST NATIONAL BANK
OF BOSTON, THE OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE 1 THERETO, AND THE
FIRST NATIONAL BANK OF BOSTON, AS AGENT ............................................ *
4.35 GUARANTY, DATED FEBRUARY 7, 1996, FROM AMERIKING VIRGINIA CORPORATION I AND AMERIKING
CINCINNATI CORPORATION I TO THE FIRST NATIONAL BANK OF BOSTON, THE OTHER LENDING
INSTITUTIONS LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS
AGENT .............................................................................. *
4.36 UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE, DATED FEBRUARY 7, 1996, FROM
ENTERPRISES TO FFCA ACQUISITION CORPORATION ........................................ *
4.37++++ FORM OF AMENDMENT NO. 1 TO COMMON STOCK PURCHASE WARRANT FROM AMERIKING TO PMI
MEZZANINE FUND, L.P. ............................................................... *
4.38++++ INDENTURE BETWEEN AMERIKING AND TRUSTEE WITH RESPECT TO SENIOR NOTES ................
4.39++++ FORM OF SENIOR NOTES (ATTACHED TO EXHIBIT 4.38) ......................................
4.40++++ INDENTURE BETWEEN AMERIKING AND TRUSTEE WITH RESPECT TO EXCHANGE DEBENTURES ......... *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------- ----------------
4.41 INTENTIONALLY OMITTED ................................................................
4.42++++ FORM OF EXCHANGE DEBENTURES (ATTACHED TO EXHIBIT 4.40) ...............................
4.43 PROMISSORY NOTE, DATED JULY 18, 1996, FROM AMERIKING TENNESSEE CORPORATION I TO
FRANCHISE ACCEPTANCE CORPORATION LIMITED IN THE AGGREGATE PRINCIPAL AMOUNT OF
$6,100,000 ......................................................................... *
4.44++++ CERTIFICATE OF DESIGNATION RELATING TO THE SENIOR PREFERRED STOCK ....................
4.45 PROMISSORY NOTE, DATED JULY 18, 1996, FROM AMERIKING TENNESSEE CORPORATION I TO
FRANCHISE ACCEPTANCE CORPORATION LIMITED IN THE AGGREGATE PRINCIPAL AMOUNT OF
$900,000 ........................................................................... *
4.46++++ FORM OF AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT BY AND AMONG AMERIKING, SCOTT
VASATKA AND DONALD STAHURSKI .......................................................
4.47++++ FORM OF AMENDMENT NO. 1 TO MANAGEMENT SUBSCRIPTION AGREEMENT .........................
5 OPINION OF MAYER, BROWN & PLATT ......................................................
8 OPINION OF TAX COUNSEL ................................................................
9.1 JARO PROXY AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG LAWRENCE JARO, TABOR
RESTAURANT ASSOCIATES, INC., JARO ENTERPRISES, INC., JARO RESTAURANTS, INC. AND JB
RESTAURANTS, INC. .................................................................. *
9.2 OSBORN PROXY AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG WILLIAM OSBORN,
CASTLEKING, INC., OSBURGER, INC. AND WHITE-OSBORN, INC. ............................ *
10.1 SECOND AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT, DATED FEBRUARY
7, 1996, BY AND AMONG AMERIKING, ENTERPRISES, THE FIRST NATIONAL BANK OF BOSTON, THE
OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE 1 THERETO, AND THE FIRST NATIONAL BANK
OF BOSTON, AS AGENT ................................................................ *
10.2 SECURITY AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG ENTERPRISES AND THE FIRST
NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ........................... *
10.3 AMENDMENT TO SECURITY AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG ENTERPRISES AND
THE FIRST NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE
1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ......................... *
10.4 STOCK PLEDGE AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG AMERIKING AND THE FIRST
NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ........................... *
10.5 AMENDMENT TO STOCK PLEDGE AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG AMERIKING
AND THE FIRST NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS LISTED ON
SCHEDULE 1 THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ................ *
10.6 SECURITY AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG AMERIKING VIRGINIA
CORPORATION I, AMERIKING CINCINNATI CORPORATION I AND THE FIRST NATIONAL BANK OF
BOSTON ............................................................................. *
10.7 STOCK PLEDGE AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG ENTERPRISES, AMERIKING
VIRGINIA CORPORATION I, AMERIKING CINCINNATI CORPORATION I AND THE FIRST NATIONAL
BANK OF BOSTON ..................................................................... *
10.8 AMENDED AND RESTATED PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN AMERIKING
AND MCIT PLC ....................................................................... *
10.9 PLEDGE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN AMERIKING AND MCIT PLC ........... *
10.10 SUBORDINATION AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG BKC, MCIT PLC AND
AMERIKING .......................................................................... *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------- ----------------
10.11 AMENDMENT AND CONSENT NO. 1 TO SECURITIES PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996,
BETWEEN AMERIKING AND BANCBOSTON INVESTMENTS, INC. ................................. *
10.12 INTERCREDITOR AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG BKC, AMERIKING VIRGINIA
CORPORATION I, AMERIKING CINCINNATI CORPORATION I, LAWRENCE JARO, WILLIAM OSBORN,
GARY HUBERT, ENTERPRISES, AMERIKING AND THE FIRST NATIONAL BANK OF BOSTON .......... *
10.13 STOCK PLEDGE AGREEMENT, DATED NOVEMBER 21, 1995, BETWEEN ENTERPRISES AND BKC ........ *
10.14 RATIFICATION OF STOCK PLEDGE AGREEMENT, DATED MAY 21, 1996, BETWEEN ENTERPRISES AND
BKC ................................................................................ *
10.15 STOCK PLEDGE AGREEMENT, DATED NOVEMBER 21, 1995, BETWEEN ENTERPRISES AND THE FIRST
NATIONAL BANK OF BOSTON, THE OTHER LENDING INSTITUTIONS LISTED ON SCHEDULE 1
THERETO, AND THE FIRST NATIONAL BANK OF BOSTON, AS AGENT ........................... *
10.16 NOTE PURCHASE AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG AMERIKING, ENTERPRISES
AND PMI MEZZANINE FUND, L.P. ....................................................... *
10.17++++ FORM OF AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT, BY AND AMONG AMERIKING,
ENTERPRISES AND PMI MEZZANINE FUND, L.P. ...........................................
10.18 SUBORDINATION AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG AMERIKING, ENTERPRISES,
AMERIKING VIRGINIA CORPORATION I, AMERIKING CINCINNATI CORPORATION I, AMERIKING
TENNESSEE CORPORATION I, AMERIKING COLORADO CORPORATION I, LAWRENCE JARO, WILLIAM
OSBORN, GARY HUBERT AND BKC ........................................................ *
10.19 SALE-LEASEBACK AGREEMENT, DATED FEBRUARY 7, 1996, BY AND AMONG AMERIKING VIRGINIA
CORPORATION I, AMERIKING TENNESSEE CORPORATION I AND FFCA ACQUISITION CORPORATION .. *
10.20 LEASE, DATED FEBRUARY 7, 1996, BY AND AMONG AMERIKING VIRGINIA CORPORATION I,
AMERIKING TENNESSEE CORPORATION I AND FFCA ACQUISITION CORPORATION ................. *
10.21 FORM OF FRANCHISE AGREEMENT BETWEEN BKC AND FRANCHISEE ............................... *
10.22 SCHEDULE OF AMERIKING FRANCHISE AGREEMENTS ........................................... *
10.23 FORM OF LEASE AGREEMENT BETWEEN BKC AND LESSEE ....................................... *
10.24 SCHEDULE OF AMERIKING LEASE AGREEMENTS ............................................... *
10.25 FORM OF GUARANTEE, INDEMNIFICATION AND ACKNOWLEDGMENT OF BKC FRANCHISE AGREEMENT .... *
10.26 FORM OF GUARANTEE, INDEMNIFICATION AND ACKNOWLEDGMENT OF BKC LEASE AGREEMENT ........ *
10.27 CAPITAL EXPENDITURE AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG AMERIKING,
ENTERPRISES AND BKC ................................................................ *
10.28 CAPITAL EXPENDITURE AGREEMENT, DATED NOVEMBER 21, 1995, BY AND AMONG ENTERPRISES,
AMERIKING TENNESSEE CORPORATION I AND BKC .......................................... *
10.29 LETTER AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN ENTERPRISES AND BKC ............... *
10.30 NAPARLO DEVELOPMENT AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN AMERIKING VIRGINIA
CORPORATION I AND JOSEPH J. NAPARLO ................................................ *
10.31 MANAGEMENT CONSULTING AGREEMENT, DATED SEPTEMBER 1, 1994, BY AND AMONG TJC MANAGEMENT
CORPORATION, AMERIKING AND ENTERPRISES ............................................. *
10.32 INTENTIONALLY OMITTED ................................................................
10.33 INTERCOMPANY MANAGEMENT CONSULTING AGREEMENT, DATED SEPTEMBER 1, 1994 BETWEEN
ENTERPRISES AND AMERIKING .......................................................... *
<PAGE>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ----------- ------------------------------------------------------------------------------------- ----------------
10.34 AMENDED AND RESTATED TAX SHARING AGREEMENT, DATED FEBRUARY 7, 1996, BETWEEN
ENTERPRISES AND AMERIKING .......................................................... *
10.35 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN LAWRENCE
JARO AND ENTERPRISES ............................................................... *
10.36 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN WILLIAM
OSBORN AND ENTERPRISES ............................................................. *
10.37 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN GARY
HUBERT AND ENTERPRISES ............................................................. *
10.38 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN JOEL
AASEBY AND ENTERPRISES ............................................................. *
10.39 EMPLOYMENT AND NON-INTERFERENCE AGREEMENT, DATED SEPTEMBER 1, 1994, BETWEEN SCOTT
VASATKA AND ENTERPRISES ............................................................ *
10.40 INTENTIONALLY OMITTED ................................................................
10.41 FORM OF INDEMNIFICATION AGREEMENT BY AND AMONG AMERIKING AND EACH OF THE SIGNATORIES
TO THIS REGISTRATION STATEMENT ..................................................... *
10.42 INTENTIONALLY OMITTED ................................................................
10.43 INTENTIONALLY OMITTED ................................................................
10.44 LEASE AGREEMENT FOR WESTCHESTER, ILLINOIS HEADQUARTERS ............................... *
10.45 LOAN AND SECURITY AGREEMENT, DATED NOVEMBER 29, 1995, BETWEEN AMERIKING COLORADO
CORPORATION I AND FRANCHISE ACCEPTANCE CORPORATION LIMITED ......................... +
10.46 LOAN AND SECURITY AGREEMENT, DATED JULY 21, 1996, BETWEEN AMERIKING TENNESSEE
CORPORATION I AND FRANCHISE ACCEPTANCE CORPORATION LIMITED ......................... *
10.47 FORM OF INTERCREDITOR AGREEMENT BY AND AMONG BKC, AMERIKING, AND THE TRUSTEE AS
REPRESENTATIVE OF THE HOLDERS OF SENIOR NOTES UNDER THE INDENTURE (ATTACHED TO
EXHIBIT 4.38) ......................................................................
10.48 FORM OF RESTATED EMPLOYMENT AND NON-INTERFERENCE AGREEMENT BETWEEN WILLIAM OSBORN AND
ENTERPRISES ........................................................................
10.49 FORM OF RECAPITALIZATION AGREEMENT AMONG AMERIKING AND THE STOCKHOLDERS APPEARING ON
THE SIGNATURE PAGES THERETO ........................................................
10.50 MEMORANDUM OF UNDERSTANDING BETWEEN BKC AND THE COMPANY ..............................
21 SUBSIDIARIES OF AMERIKING ............................................................
23.1 CONSENT OF MAYER, BROWN & PLATT (INCLUDED IN THE OPINION OF MAYER, BROWN & PLATT,
FILED AS EXHIBIT 5) ................................................................
23.2 CONSENT OF DELOITTE & TOUCHE .........................................................
24 POWER OF ATTORNEY (INCLUDED ON THE SIGNATURE PAGE IN PART II OF THE INITIAL
REGISTRATION STATEMENT) ............................................................
25 T-1 FOR EXCHANGE DEBENTURE INDENTURE .................................................
26 T-1 FOR SENIOR NOTE INDENTURE ........................................................
27++++ FINANCIAL DATA SCHEDULE ..............................................................
</TABLE>
- ------------
* Previously filed.
++ The schedules and exhibits to these agreements have not been filed
pursuant to Item 601(b)(2) of Regulation S-K. Such schedules and
exhibits will be filed supplementally upon the request of the
Securities and Exchange Commission.
++++ Superceding exhibit.
+ To be filed by amendment.
MAYER, BROWN & PLATT
1675 Broadway
New York, New York 10019-5820
November 26, 1996
AmeriKing, Inc.
2215 Enterprise Drive
Suite 1502
Westchester, Illinois 60154
Re: Senior Notes due 2006; 1,200,000 Units consisting of Senior
Exchangeable Preferred Stock due 2008, $.01 par value per share
and Common Stock, $.01 par value per share
Ladies and Gentlemen:
We have acted as special counsel and special tax counsel to AMERIKING,
Inc., a Delaware corporation (the "Company"), in connection with the proposed
concurrent public offerings (the "Offerings") of (i) up to $100,000,000
aggregate principal amount of the Company's Senior Notes due 2006 (the "Senior
Notes") and (ii) up to 1,200,000 Units (the "Units") consisting of (A) Senior
Exchangeable Preferred Stock due 2008, $.01 par value per share (the "Senior
Preferred Stock") that is exchangeable for Exchange Indentures due 2008 (the
"Exchange Debentures") and (B) Common Stock, $.01 par value per share (the
"Common Stock" and together with Senior Notes, Senior Preferred Stock and
Exchange Debentures, the "Securities"). In this connection, we have examined
such corporate and other records, instruments, certificates and documents as we
have considered necessary to enable us to express this opinion.
Based on the foregoing, we hereby confirm our opinion as to certain
matters of law or legal conclusions as set forth under "Certain Federal Income
Tax Considerations" in the Preferred Stock Prospectus forming a part of the
Registration Statement, and we consent to the
<PAGE>
filing of this opinion as an exhibit to the Registration Statement and to the
references to us under the headings "Legal Matters" and "Experts" in the
Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Mayer, Brown & Platt
----------------------------
Mayer, Brown & Platt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Ameriking, Inc.
(formerly NRE Holdings, Inc.) on Form S-1 of our reports dated October 10, 1995,
March 12, 1996 and May 8, 1996, appearing in the Prospectus, which is part of
this Registration Statement and to the reference to us under the headings
"Selected Consolidated Financial Information" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
November 26, 1996
Chicago, Illinois
