<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FRD ACQUISITION CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 5812 57-1040952
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
18831 VON KARMAN AVENUE
IRVINE, CA 92715
(714) 757-7900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
RHONDA J. PARISH
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
FRD ACQUISITION CO.
203 EAST MAIN STREET
SPARTANBURG, SOUTH CAROLINA 29319
(864) 597-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
RANDALL C. BASSETT, ESQ.
ANDREW D. HUTTON, ESQ.
LATHAM & WATKINS
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
---------------
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of
the Securities Act of 1933, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER NOTE(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 1/2% Senior Notes due
2004................... $150,000,000 100% $150,000,000 $51,725
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
---------------
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 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
FRD ACQUISITION CO.
CROSS-REFERENCE SHEET
----------------
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT PROSPECTUS CAPTION
------------------------------- ------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................ Facing Page; Cross-Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Summary; Risk Factors; Selected
Combined Historical Financial
Information
4. Use of Proceeds.................... Not Applicable
5. Determination of Offering Price.... Not Applicable
6. Dilution........................... Not Applicable
7. Selling Security Holder............ Selling Securityholders
8. Plan of Distribution............... Plan of Distribution
9. Description of Securities to be
Registered........................ Description of Notes
10. Interests of Named Experts and
Counsel........................... Experts; Legal Matters
11. Information with Respect to the
Registrant........................ Outside and Inside Front Cover Pages
of Prospectus; Summary; Risk Factors;
Capitalization; Selected Combined
Historical Financial Information;
Unaudited Pro Forma Combined
Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal
Stockholders; Certain Relationships
and Related Transactions.
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Not Applicable
</TABLE>
<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 JULY 3, 1996
$150,000,000
FRD ACQUISITION CO.
12 1/2% SENIOR NOTES DUE 2004
This Prospectus (the "Prospectus") relates to the public offering and sale by
certain holders (the "Selling Securityholders") of up to $150 million aggregate
principal amount of 12 1/2% Senior Notes due 2004 (the "Notes") of FRD
Acquisition Co., a Delaware corporation (the "Company" or "FRD"). The Notes
will be issued in fully registered form only, in denominations of $1,000 and
integral multiples thereof.
The Company is a newly formed holding company whose sole asset is 100% of the
outstanding capital stock of FRI-M Corporation, a Delaware corporation ("FRI-
M"). Pursuant to the terms of agreements governing its outstanding
indebtedness, FRI-M is subject to restrictions on its ability to make dividend
payments, loans or other transfers of cash to the Company unless certain
financial and other conditions are satisfied. Unless FRI-M is either (i) able
to satisfy such financial and other conditions at the time when the Company is
required to make cash payments of principal or interest on the Notes or (ii)
able to have such restrictions amended or waived, FRI-M may be precluded from
paying sufficient dividends to the Company to permit the Company to make such
payments of principal or interest on the Notes. See "Description of Credit
Agreement."
The Notes are limited in aggregate principal amount to $150 million plus
additional Securities (as defined), if any, issued pursuant to the purchase
price adjustment provisions set forth in the Purchase Agreement (as defined)
and mature on July 15, 2004. Interest on the Notes accrues at the rate of 12
1/2% per annum and is payable semi-annually in arrears on each January 15 and
July 15, commencing on July 15, 1996. The Company has the option, in its sole
discretion, upon the failure to achieve certain financial performance levels
and subject to certain conditions and restrictions, to issue additional
Securities at a rate of 14% per annum ("Secondary Securities") in lieu of a
cash payment of any or all of the interest due on the Notes on up to four
interest payment dates within the first 39-months following issuance of the
Notes. See "Description of Notes--Principal, Maturity and Interest." This
Prospectus does not relate to the resale of any such additional Securities or
Secondary Securities.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after May 23, 2001 at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of redemption.
Prior to May 23, 1999, the Company may, subject to certain conditions described
herein, use the proceeds from an Initial Public Equity Offering (as defined) to
redeem up to $50 million aggregate principal amount of the Notes at the
redemption price set forth herein. See "Description of Notes--Optional
Redemption." Upon a Change of Control (as defined), each holder of Notes will
have the right to require the Company to repurchase such holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase, subject to
certain conditions described herein. See "Description of Notes--Repurchase at
the Option of Holders--Change of Control."
The Notes are unsecured obligations of the Company and rank senior in right
of payment to all future subordinated indebtedness of the Company and pari
passu in right of payment to all future senior indebtedness of the Company. The
Notes are structurally subordinated to all existing and future liabilities and
obligations (whether or not for borrowed money) of FRI-M and the Company's
other subsidiaries. The Company on a stand alone basis does not currently have
any outstanding senior indebtedness other than the Notes and its guarantee of
FRI-M's borrowings under the Credit Agreement (as defined). As of March 31,
1996, on a pro forma basis, FRI-M and the Company's other subsidiaries had
approximately $157.4 million of indebtedness and other liabilities (including
trade payables and capitalized lease obligations). The indenture pursuant to
which the Notes were issued (the "Indenture") and the Credit Agreement
restrict, among other things, the ability of the Company, FRI-M and the
Company's other subsidiaries to incur additional indebtedness. See "Description
of Notes--Certain Covenants--Incurrence of Indebtedness and Issuance of Capital
Stock" and "Description of Credit Agreement."
Prior to this offering, there has been no public market for the Notes. The
Company does not intend to list the Notes on a national securities exchange and
there can be no assurance that an active public market for the Notes will
develop.
The Selling Securityholders named herein directly, through agents to be
designated from time to time, or through dealers or underwriters also to be
designated, may sell the Notes from time to time on terms to be determined at
the time of the sale. To the extent required, the specific Notes to be sold,
the name of the Selling Securityholders, the respective purchase prices and
public offering prices, the names of any such agent, dealer or underwriter, and
any applicable commissions or discounts with respect to a particular offer will
be set forth in an accompanying Prospectus Supplement, or if appropriate, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part. See "Plan of Distribution." The Selling Securityholders reserve the
sole right to accept and, together with their agents from time to time to
reject, in whole or in part, any proposed purchase of Notes to be made directly
or through agents.
The aggregate proceeds to the Selling Securityholders from the sale of the
Notes will be the purchase price of the Notes sold less the aggregate agents'
commissions and underwriters' discount, if any, and other expenses of issuance
and distribution not borne by the Company. The Selling Securityholders are
entitled to the registration of their Notes pursuant to a Registration Rights
Agreement dated as of May 23, 1996, (the "Registration Rights Agreement") and
this offer is intended to satisfy the rights granted by the Registration Rights
Agreement. The Company has agreed to pay the expenses of the offering of the
Notes by holders thereof other than underwriting discounts, commissions,
placement agent fees and transfer taxes, if any. The Company will not receive
any proceeds from the sales of the Notes by the Selling Securityholders.
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any commissions received by
them and any profit on the resale of the Notes purchased by them may be deemed
underwriting commissions or discounts under the Securities Act.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH AN
INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC")
a Registration Statement on Form S-1 (including all amendments thereto, the
"Registration Statement") under the Securities Act, with respect to the Notes
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to the Company and the Notes, reference is hereby made to the
Registration Statement and the exhibits and schedules thereto. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
thereof, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement may be inspected, without charge,
and copied at prescribed rates at the public reference facilities maintained
by the SEC at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 75 Park Place, 14th Floor, New York, New York
10007. Copies of such material can be obtained from the Public Reference
Section of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
To the extent permitted by applicable law or regulation, whether or not the
Company is subject to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
will file with the SEC all quarterly and annual reports and such other
information, documents or other reports required to be filed pursuant to such
provisions of the Exchange Act. If the Company is not permitted by applicable
law or regulations to file such reports, the Company will furnish to each
holder of the Notes annual reports containing audited financial statements and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year, as well as such other reports as it may
determine or as may be required by law.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including notes thereto, located
elsewhere in this Prospectus. For purposes hereof and unless the context
requires otherwise, the "Company" refers to FRD, a newly-formed unrestricted
subsidiary of Flagstar Corporation ("Flagstar"), and the newly-acquired
operations of the Family Restaurant Division formerly owned by Family
Restaurants, Inc. ("FRI"), which include FRI-M and certain subsidiaries of FRI-
M, including those restaurants that make up the Family Restaurant Division and
including the FRD Commissary. Concurrently with the issuance of the Notes, FRD
acquired the operations of the Family Restaurant Division by acquiring the
outstanding stock of FRI-M (the "Acquisition"). Upon completion of the
Acquisition, FRI-M became a wholly-owned subsidiary of FRD.
THE COMPANY
The Company is one of the nation's leading operators of family restaurants.
As of March 31, 1996 the Company operated 348 restaurants principally under the
Coco's and Carrows names. As of March 31, 1996, the Company operated 168
Coco's, 160 Carrows, 17 jojos, 1 Jeremiah's and 2 Bob's restaurants.
Approximately 74% of the Company's restaurants are located in California,
making the Company the second largest family restaurant operator in California,
both in terms of sales volume and number of restaurants. Coco's and Carrows
restaurants were founded more than 25 years ago and have developed excellent
name recognition and a loyal customer base, with customers on average making
return visits to the restaurants seven and six times per month, respectively.
In addition to its domestic operations, as of March 31, 1996 the Company is the
licensor of 251 Coco's restaurants in Japan and South Korea, representing the
most substantial penetration of any United States, non-fast food restaurant
chain overseas.
The Company's restaurants offer an extensive menu of moderately priced
breakfast, lunch and dinner items and are typically open either 18 or 24 hours
a day. Both Coco's and Carrows restaurants emphasize consistently high quality
food with an excellent price/value relationship and friendly, efficient
service. During the twelve months ended December 31, 1995, the average check
per person was approximately $6.73 for Coco's and $6.09 for Carrows,
representing increases of 3.2% and 5.0%, respectively, over the previous year.
The Company generates approximately 23%, 32%, 40% and 5% of its revenue from
breakfast, lunch, dinner and late night meals, respectively, which the Company
believes represents a higher dinner proportion than its major competitors. The
Company's average weekly restaurant customer count in 1995 was 4,244 for Coco's
and 4,443 for Carrows.
The Company's restaurants are generally located in densely populated suburban
areas with high commercial traffic and a strong residential base. The
commercial traffic typically provides a large portion of the Company's weekday
breakfast and lunch customers, while the residential traffic accounts for a
majority of the Company's dinner and weekend business. The Company's
restaurants average between 5,000 and 6,000 square feet of floor space,
allowing them to accommodate approximately 120 to 180 guests. The Company
believes that the location and concentration of its restaurants allows it to
realize economies of scale in advertising, distribution and field supervision.
In 1992, the Company significantly increased its revenue base and California
market share with the acquisition of 109 Bob's Big Boy and Allie's Restaurants
(collectively, "Bob's") from Marriott Corporation. The Company believes that
the acquisition of Bob's enabled the Company to establish attractive locations
in developed areas at a substantially lower cost than had the Company built the
locations itself. The Company completed its conversion of the Bob's restaurants
to the Company's Coco's and Carrows concepts in 1994 at an average cost of
approximately $230,000 per restaurant. In addition, the Company implemented a
remodeling program in 1994 to remodel its 208 Coco's and Carrows restaurants
that were not part of the Bob's conversion.
3
<PAGE>
From January 1, 1994 through March 31, 1996, the Company remodeled 64 Coco's
and 50 Carrows restaurants, at an average cost of approximately $150,000 per
restaurant, with the majority of such remodels occurring in 1994 and early
1995. Since such time, remodeling activities have been curtailed due to the
limited availability of capital.
The Company's headquarters are located at 18831 Von Karman Avenue, Irvine,
California, 92715. The Company's telephone number is (714) 757-7900.
THE ACQUISITION
Flagstar, through the newly-formed FRD, acquired 100% of the capital stock of
FRI-M and its Family Restaurant Division operating subsidiaries on May 23, 1996
for a purchase price of approximately $306 million. FRD financed the
acquisition with $125 million in cash, $150 million in Notes and the assumption
of approximately $31 million in lease and other debt obligations of FRI-M. The
$125 million in cash paid to the seller was funded by a $75 million equity
investment from Flagstar and a $51.5 million intercompany loan from FRI-M ($1.5
million of which was used to fund transaction costs). In order to fund an
intercompany loan to FRD and provide a source of working capital, FRI-M
obtained at the May 23, 1996 closing of the Acquisition a new credit facility
consisting of a $56 million, 39-month term loan and a $35 million working
capital facility to support letters of credit and for general working capital
purposes (together, the "Credit Facility"). See "Description of Credit
Agreement." Hereinafter, these transactions are collectively referred to as the
"Acquisition." Flagstar is a wholly-owned subsidiary of Flagstar Companies,
Inc. ("FCI").
4
<PAGE>
THE NOTES
Securities.................. $150,000,000 aggregate principal amount of 12
1/2% Senior Notes due 2004
Issuer...................... FRD Acquisition Co., a Delaware corporation
Maturity Date............... July 15, 2004
Interest Payments........... Interest on the Notes accrues at the rate of 12
1/2% per annum and is paid semi-annually on each
January 15 and July 15, commencing July 15, 1996.
The Company has the option, in its sole
discretion, upon the failure to achieve certain
financial performance levels and subject to
certain conditions and restrictions, to issue
Secondary Securities at a rate of 14% per annum
in lieu of a cash payment of any or all of the
interest due on the Notes on up to four interest
payment dates within the first 39-months
following issuance of the Notes. See "Description
of Notes--Principal, Maturity and Interest."
Ranking..................... The Notes are unsecured obligations of the
Company and rank senior in right of payment to
all future subordinated indebtedness of the
Company and pari passu in right of payment to all
future senior indebtedness of the Company. The
Notes are structurally subordinated to all
existing and future liabilities and obligations
(whether or not for borrowed money) of FRI-M and
the Company's other subsidiaries. The Company on
a stand alone basis does not currently have any
outstanding senior indebtedness other than the
Notes and its guarantee of FRI-M's borrowings
under the Credit Agreement. As of March 31, 1996,
on a pro forma basis, FRI-M and the Company's
other subsidiaries had approximately $157.4
million of indebtedness and other liabilities
(including trade payables and capitalized lease
obligations).
Optional Redemption......... The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after May 23, 2001 at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, prior to May 23, 1999, the Company may,
subject to certain conditions described herein,
use the proceeds from an Initial Public Equity
Offering to redeem up to $50 million aggregate
principal amount of the Notes at the redemption
price set forth herein. See "Description of
Notes--Optional Redemption."
Change of Control........... Upon a Change of Control, each holder of Notes
will have the right to require the Company to
repurchase such holder's Notes at a purchase
price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest,
if any, to the date of repurchase, subject to
certain conditions described herein. See
"Description of Notes--Repurchase at the Option
of Holders--Change of Control."
5
<PAGE>
Certain Covenants........... The Indenture limits, among other things, (i) the
issuance of additional debt or disqualified stock
by the Company or any of its subsidiaries, (ii)
the payment of dividends on, and redemption of,
stock of the Company and certain other restricted
payments, (iii) creation of liens, (iv) asset
sales, (v) transactions with affiliates, (vi)
licensing of trade names or other intangible
assets, (vii) engaging in a business other than
the Company's current lines of business, (viii)
consolidations, mergers, or transfers of all or
substantially all of the Company's assets and
(ix) the payment of management fees, franchise
fees and tax payments by the Company to Flagstar
or its other subsidiaries.
Original Issue Discount..... The Notes were issued with original issue
discount for federal income tax purposes.
Original issue discount (that is, the difference
between the face amount and the issue price of
the Notes) will accrue from the date of issuance
of a Note to its maturity date and will be
includible as interest income for each day during
each taxable year in which the Note is held by a
holder in such holder's gross income for federal
income tax purposes possibly in advance of
receipt of the cash payments to which the income
is attributable. See "Certain Federal Income Tax
Considerations."
Risk Factors................ An investment in the Notes involves a high degree
of risk. For a discussion of certain
considerations relevant to an investment in the
Notes, see "Risk Factors."
For a detailed discussion of the terms of the Notes, see "Description of
Notes."
6
<PAGE>
SUMMARY COMBINED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
The summary combined historical and unaudited combined pro forma financial
information presented below have been derived from the audited combined
financial statements, the Selected Combined Historical Financial Information
and the Unaudited Pro Forma Combined Financial Information included elsewhere
herein. For additional financial information about the Company, see
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited combined financial statements
included elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR PRO FORMA(e)
---------------------------------------------------------------------------- -------------------------
FISCAL YEAR ENDED THREE-MONTHS THREE-MONTHS
DECEMBER(a), ENDED MARCH(d), YEAR ENDED ENDED
---------------------------------------------------- -------------------- DECEMBER 31, MARCH 31,
1991 1992 1993 1994(b) 1995(c) 1995 1996 1995 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Operating revenues..... $339,894 $438,582 $487,433 $504,174 $501,248 $117,596 $118,996 $501,248 $118,996
Operating income....... 22,484 23,486 30,522 27,073 27,909 4,332 4,725 33,108 6,679
Interest and debt
expenses.............. 4,601 4,852 4,594 6,934(f) 16,515(f) 2,750 3,931 29,333 7,249
Net income (loss)...... 10,619 10,899 15,236 10,111 4,724 421 (52) 142 (873)
Ratio of earnings to
fixed charges (g)..... 4.9x 4.8x 6.6x 3.9x 1.7x 1.6x 1.2x 1.1x (h)
SELECTED OPERATING DATA:
Depreciation and
amortization of
property.............. $ 11,280 $ 8,416 $ 9,241 $ 19,006(i) $ 23,167 $ 5,151 $ 5,606 $ 23,167 $ 5,606(k)
Amortization of
goodwill and other
intangibles........... 276 703 801 4,993(i) 5,280 1,320 1,320 5,307 1,327
Capital expenditures... 6,394 85,231(j) 14,720 24,154 22,890 8,825 1,335 22,890 1,335
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF MARCH 31, 1996
DECEMBER 31, --------------------
1995 ACTUAL AS ADJUSTED
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Net property............................... $146,042 $141,671 $141,671(k)
Total assets............................... 332,847 317,184 382,373
Long-term debt, excluding current portion
and loans payable to bank................. 27,502 25,780 232,780
Stockholder's equity (l)................... 152,601 132,199 75,000
</TABLE>
- -------------------
(a) The Company's five most recently completed fiscal years ended on December
30, 1991, December 28, 1992, December 26, 1993, December 25, 1994 and
December 31, 1995.
(b) Data presented for 1994 includes one month of financial information for the
Company prior to FRI's reorganization under Chapter 11 of the Bankruptcy
Code and eleven months of financial information for the Company following
such reorganization. In January 1994, FRI's predecessor corporation, The
Restaurant Enterprises Group, Inc. ("REG"), completed a reorganization
under Chapter 11 of the Bankruptcy Code (the "Reorganization") and applied
the provisions of the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," ("SOP 90-7"). Pursuant to SOP
90-7, REG qualified for fresh start reporting as of January 27, 1994. Under
this concept, all assets and liabilities of FRI are restated to current
value at the date of reorganization. FRI obtained an appraisal of the
assets and liabilities of FRI and the Company which determined the
reorganization value (i.e., fair value) of the assets and liabilities. FRI
utilized the results of this appraisal to implement fresh start reporting,
which resulted in reorganization value in excess of amounts allocable to
identifiable assets of $155,540,000 to the Company at January 27, 1994. For
the one month ended January 26, 1994, the Company's selected operating
statement data consisted of operating revenues of $43,538,000, operating
income of $1,707,000, interest and debt expenses of $458,000, net income of
$717,000, ratio of earnings to fixed charges of 3.7 times, depreciation and
amortization of property of $697,000, amortization of goodwill and other
intangibles of $81,000 and capital expenditures of $412,000. For the eleven
months ended December 25, 1994, the Company's selected operating statement
data consisted of operating revenues of $460,636,000, operating income of
$25,366,000, interest and debt expenses of $6,476,000, net income of
$9,394,000, ratio of earnings to fixed charges of 3.9 times, depreciation
and amortization of property of $18,309,000, amortization of intangibles of
$4,912,000 and capital expenditures of $23,742,000.
(c) Fiscal 1995 represents a 53 week period.
(d) The Company's two most recently completed fiscal first quarters ended on
March 26, 1995 and March 31, 1996.
7
<PAGE>
(e) Pro forma information gives effect to the Acquisition as if it had occurred
on December 26, 1994.
(f) Includes $3,033,000 in 1994 and $13,117,000 in 1995 for interest related to
the Company's outstanding balance under the working capital portion of
FRI's credit agreement used to fund operating cash flow needs for all of
FRI's subsidiaries.
(g) For purposes of computing the ratio of earnings to fixed charges, "fixed
charges" consist of interest on debt, amortization of deferred financing
expense and the interest element in rental payments under operating and
capital leases. "Earnings" consist of income (loss) before income taxes,
plus fixed charges.
(h) On a pro forma basis for the three months ended March 31, 1996, earnings
were insufficient to cover fixed charges by $570,000.
(i) In connection with the Reorganization in January 1994, the Company restated
all assets and liabilities, which resulted in reorganization value in
excess of amounts allocable to identifiable assets of $155,540,000 to the
Company at January 27, 1994.
(j) Includes $67,904,000 related to the acquisition of 109 Bob's restaurants in
February 1992.
(k) Certain assets and liabilities are subject to appraisals which have not yet
been completed.
(l) The predecessor financial information presented represents a combination of
certain subsidiaries and divisions of FRI and does not represent a legal
entity. Therefore, stockholder's equity represents the net activity with
FRI.
8
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective purchasers of the Notes should consider carefully the following
risk factors in evaluating an investment in the Notes. Certain statements in
this Prospectus that are not historical fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Discussions containing such forward-looking statements may be found
in the material set forth under "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as within the Prospectus generally. In addition, when used in the
Prospectus the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and the matters set forth in
the Prospectus generally. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances. The Company
cautions the reader that this list of risk factors may not be exhaustive.
CORPORATE STRUCTURE AND EFFECTIVE SUBORDINATION TO SUBSIDIARY DEBT
The Company operates primarily through its subsidiaries. Accordingly, the
rights of the Company and its creditors, including holders of Notes, to
participate in the assets of any subsidiary of the Company upon such
subsidiary's liquidation or recapitalization will be subject to the prior
claims of the subsidiary's creditors, except to the extent that the Company
may be a creditor with recognized claims against the subsidiary. Dividends,
loans and advances from certain subsidiaries of the Company are contingent
upon the earnings of such subsidiaries and are subject to certain contractual
restrictions, including restrictions under the Credit Agreement. Borrowings
under the Credit Agreement will be made by FRI-M, a subsidiary of the Company,
will be guaranteed by the Company and the Company's other subsidiaries and
generally will be secured by substantially all of the assets of the Company
and the Company's subsidiaries and by a pledge of the stock of FRI-M and the
Company's other subsidiaries. As a result, the Notes will be effectively
subordinated to borrowings under the Credit Agreement and structurally
subordinated to all existing and future liabilities and obligations of FRI-M
and the Company's other subsidiaries. As of March 31, 1996, on a pro forma
basis, FRI-M and the Company's other subsidiaries had approximately $157.4
million of indebtedness and other liabilities (including trade payables and
capitalized lease obligations). Moreover, payment of the Company's other
ongoing obligations will be dependent upon the ability of the Company's
subsidiaries to advance money or pay dividends to the Company. The Credit
Agreement prohibits the payment of dividends or other funds to the Company if,
after giving effect to such payment, there would exist a continuing event of
default under the Credit Agreement, including an event of default arising as a
result of the Company's failure to maintain certain specified financial
ratios. See "--Restrictive Covenants" and "Description of Credit Agreement."
LEVERAGE
As a result of the Acquisition, the Company is highly leveraged. At March
31, 1996, the Company would have had total pro forma combined long-term debt
(including current maturities) of $241.7 million and total stockholder's
equity of $75 million. Concurrently with the Acquisition, the Company entered
into the Credit Agreement which provides for a $56 million term loan and
working capital facility in the aggregate principal amount of $35 million. As
of May 23, 1996, the Company had $23.1 million of letters of credit and no
borrowings outstanding under the working capital portion of the Credit
Facility. Subsequent to May 23, 1996, the Company borrowed $5.0 million under
the working capital portion of the Credit Facility.
The indebtedness incurred in connection with the Acquisition has resulted in
significant annual fixed charge obligations. The Company's ability to make
scheduled payments, to refinance its obligations with respect to its
indebtedness or to obtain additional financing in the future will depend on
its financial and operating performance, which in turn is subject to
prevailing economic conditions and to financial, business and other factors
beyond its control. The Company believes it will have sufficient cash flow
from operations to service its indebtedness. However, a significant downturn
in the restaurant industry, the California economy or other
9
<PAGE>
developments adversely affecting the Company's cash flow could materially
impair the Company's ability to service its indebtedness. If the Company's
cash flow and capital resources are insufficient to fund its debt service
obligations, the Company may be forced to refinance all or a portion of its
debt or sell assets. There can be no assurance that the Company will be able
to meet its debt service requirements or to repay the Notes at maturity or
that the Company will be able to refinance the Notes or sell assets upon
commercially reasonable terms.
RESTRICTIVE COVENANTS
The Credit Agreement and the Indenture contain a number of restrictive
covenants, including those restricting (i) the issuance of additional debt or
disqualified stock by the Company or any of its subsidiaries, (ii) the payment
of dividends on, and redemption of, stock of the Company and certain other
restricted payments, (iii) creation of liens, (iv) asset sales, (v)
transactions with affiliates, (vi) licensing of trade names or other
intangible assets, (vii) engaging in a business other than the Company's
current lines of business, (viii) consolidations, mergers, or transfers of all
or substantially all of the Company's assets and (ix) the payment of
management fees, franchise fees and tax payments by the Company to Flagstar or
its other subsidiaries. See "Description of Notes" and "Description of Credit
Agreement." A failure by the Company to comply with the restrictions contained
in the Credit Agreement, the Indenture or other agreements relating to the
Company's indebtedness could result in a default thereunder, which in turn
could cause such indebtedness (and, by reason of cross-default provisions,
other indebtedness) to become immediately due and payable. There can be no
assurance that such restrictions will not adversely affect the Company's
ability to conduct its operations or finance its capital needs or impair the
Company's ability to pursue attractive business and investment opportunities
if such opportunities arise. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Notes." While the restrictions described above,
in combination with the leveraged nature of the Company, could limit the
Company's ability to obtain financing in the future or may otherwise restrict
corporate activities, the Company does not believe that its debt structure
will have a material adverse effect on its ability to compete in the various
restaurant markets in which it operates.
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence by the Company of the indebtedness represented by the Notes
as part of the Acquisition, may be subject to review under relevant federal
and state fraudulent transfer laws in a bankruptcy case or a lawsuit commenced
by or on behalf of unpaid creditors of the Company (including a lawsuit
brought under circumstances not including bankruptcy) or a representative of
such creditors, such as a trustee or the Company as debtor-in-possession.
Under these laws, if a court were to find that, at the time the Notes were
issued, (a) the Company either incurred indebtedness represented by the Notes
with the intent of hindering, delaying or defrauding creditors or received
less than reasonably equivalent value or fair consideration for incurring such
indebtedness and (b) the Company (i) was insolvent or was rendered insolvent
by reason of incurring such indebtedness and effecting the Acquisition, (ii)
was engaged in a business or transaction for which the assets remaining with
it constituted unreasonably small capital or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court may void the Company's obligations under the Notes
and direct the repayment of any amounts paid thereunder to the Company or to a
fund for the benefit of the Company's creditors or take other action
detrimental to the holders of the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction which is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it incurred the indebtedness constituting the Notes, either
(a) the fair market value (or the fair saleable value) of its assets on a
going concern basis is less than the amount required to pay the probable
liability on its total existing debts and liabilities (including contingent
liabilities) as they become absolute and matured or (b) it is incurring debt
beyond its ability to pay or refinance as such debt matures.
The Company believes it received fair value at the time the indebtedness
represented by the Notes was incurred. In addition, the Company does not
believe that it, as a result of the issuance of the Notes, and the
10
<PAGE>
consummation of the Acquisition (i) is insolvent or rendered insolvent under
the foregoing standards, (ii) is engaged in a business or transaction for
which its remaining assets constitute unreasonably small capital or
(iii) incurred debts beyond its ability to pay such debts as they mature.
These beliefs are based on the Company's operating history, the Company's net
worth and management's analysis of internal cash flow projections and
estimated values of Company assets and liabilities at the time of consummation
of the Acquisition. There can be no assurance, however, that a court passing
on these issues would make the same determination.
LIMITED OPERATING HISTORY SINCE THE ACQUISITION
Prior to the Acquisition, FRI-M and its subsidiaries operated as wholly-
owned subsidiaries of FRI. FRI-M and its subsidiaries have a limited operating
history under the current ownership structure and investors have a very
limited history to evaluate the Company's performance.
FACTORS AFFECTING THE RESTAURANT INDUSTRY
The Company's future performance will be subject to a number of factors that
affect the restaurant industry generally, including (i) the highly competitive
nature of the restaurant industry, (ii) general and local economic conditions,
(iii) consumer spending habits, (iv) changes in tastes and eating and drinking
habits, (v) changes in tax laws that affect the deductibility of business
related meals, (vi) changes in food costs due to shortages, inflation or other
causes, (vii) population and traffic patterns, (viii) demographic trends, (ix)
general employment and wage and benefit levels in the restaurant industry,
which may be affected by changes in federal and local minimum wage
requirements or by federally or locally mandated health insurance benefits,
and (x) the number of people willing to work at or near the minimum wage.
The restaurant business is highly competitive and the competition can be
expected to increase. Price, restaurant location, food quality, service and
attractiveness of facilities are important aspects of competition, and the
competitive environment is often affected by factors beyond the Company's or a
particular restaurant's control. The Company's restaurants compete with a wide
variety of restaurants ranging from national and regional restaurant chains
(some of which have substantially greater financial resources than the
Company) to locally-owned restaurants. There is also active competition for
liquor licenses in certain markets and for advantageous commercial real estate
sites suitable for restaurants.
The Company's restaurants are subject to federal, state and local laws and
regulations governing health, sanitation, environmental matters, safety, the
sale of alcoholic beverages and regulations regarding hiring and employment
practices. The Company believes it has all licenses and approvals material to
the operation of its businesses, and that its operations are in material
compliance with applicable laws and regulations.
The Company is subject to federal and state laws and regulations governing
matters such as minimum wages, overtime and other working conditions.
Approximately 56% of the Company's employees are paid at rates related to the
minimum wage. Accordingly, increases in the minimum wage or decreases in the
allowable tip credit (which reduce the minimum wage that must be paid to
tipped employees in certain states) increase the Company's labor costs. This
is especially true in California, where there is no tip credit. There is
currently an initiative to raise the minimum wage in California from $4.25 to
$5.00 per hour effective March 1, 1997, and to $5.75 per hour effective March
1, 1998. The initiative will be voted upon in November 1996.
The Company is also subject to both federal and state regulations governing
disabled persons' access to its restaurant facilities. Each of the Company's
restaurants is subject to state and local laws and regulations governing
health, sanitation and safety. The selection of new restaurant sites is
affected by federal, state and local laws and regulations regarding
environmental matters, zoning and land use. In the past, none of these laws
and regulations has had a significant negative effect on operations, nor has
the Company experienced any significant difficulties in obtaining necessary
licenses and approvals. More stringent and varied requirements (particularly
at the local level), however, may result in increases in the cost and time
required for opening new restaurants, as well as increases in the cost of
operating restaurants, and difficulties in obtaining necessary licenses or
permits could cause delays in or cancellations of new restaurant openings.
11
<PAGE>
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase such holder's Notes in whole or
in part at a purchase price in cash in an amount equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. The Company's ability to redeem Notes may be
limited by the availability of sufficient funds, restrictions imposed by any
other debt obligations (including the Credit Agreement) that may then be in
effect and compliance with applicable securities laws. After giving effect to
the Acquisition, the Company is not expected to, and no assurance can be given
that the Company will have, sufficient funds available to purchase all of the
outstanding Notes were they to be tendered in response to an offer made as a
result of a Change of Control.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no public market for the trading of the Notes. No assurance can be
given that any trading market for the Notes will develop, or if developed, as
to the liquidity of any trading market for the Notes or that any such trading
market will continue. In addition, the liquidity of and the market prices for
the Notes can be expected to vary with changes in market and economic
conditions, the financial condition and prospects of the Company and other
factors that generally influence the market prices of securities, including,
in particular, further fluctuations in the market for high-yield securities.
Such fluctuations in the high-yield market may significantly affect liquidity
and market prices independent of the financial performance of and prospects
for the Company.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the sale of any Notes
pursuant to this Prospectus.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996, as adjusted to reflect the consummation of the Acquisition. This
table should be read in conjunction with the unaudited pro forma financial
statements and the notes thereto, as well as the other financial information
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations," included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Long-term debt (including current portion):
Existing long-term debt................................ $ 30,692
Working capital revolver............................... 5,000
Term loan.............................................. 56,000
Notes.................................................. 150,000
--------
Total long-term debt..................................... 241,692
Stockholder's equity..................................... 75,000
--------
Total capitalization..................................... $316,692
========
</TABLE>
12
<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL INFORMATION
The combined historical results of operations data and balance sheet of the
Company's predecessor corporation are presented below for or at the end of
each of the fiscal years 1991, 1992, 1993, 1994 and 1995 and the three-months
ended March 26, 1995 and March 31, 1996. The selected combined historical
financial information for the years ended 1991 and 1992 and for the three-
months ended March 26, 1995 and March 31, 1996 were derived from unaudited
financial statements which, in the opinion of management, reflect all
adjustments (consisting only of normal recurring items) necessary to present
fairly, in accordance with generally accepted accounting principles, the
information contained therein. Such information should be read in conjunction
with the combined financial statements and related notes thereto included
elsewhere in this Prospectus, as well as in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Because FRD is a wholly owned subsidiary of Flagstar, per share data is not
meaningful and has been omitted for the periods presented below.
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------------------------------------------------
FISCAL YEAR ENDED THREE-MONTHS
DECEMBER(a), ENDED MARCH(d),
---------------------------------------------------- --------------------
1991 1992 1993 1994(B) 1995(C) 1995 1996
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT
DATA:
Operating revenues..... $339,894 $438,582 $487,433 $504,174 $501,248 $117,596 $118,996
Operating income....... 22,484 23,486 30,522 27,073 27,909 4,332 4,725
Interest and debt
expenses.............. 4,601 4,852 4,594 6,934(e) 16,515(e) 2,750 3,931
Net income (loss)...... 10,619 10,899 15,236 10,111 4,724 421 (52)
Ratio of earnings to
fixed charges (f)..... 4.9x 4.8x 6.6x 3.9x 1.7x 1.6x 1.2x
SELECTED OPERATING DATA:
Depreciation and
amortization of
property.............. $ 11,280 $ 8,416 $ 9,241 $ 19,006(g) $ 23,167 $ 5,151 $ 5,606
Amortization of
goodwill and other
intangibles........... 276 703 801 4,993(g) 5,280 1,320 1,320
Capital expenditures... 6,394 85,231(h) 14,720 24,154 22,890 8,825 1,335
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------- AS OF
1991 1992 1993 1994 1995 MARCH 31, 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) (i)...... $(28,096) $(47,397) $(46,293) $(106,223) $(121,032) $(137,503)
Net property........... 58,731 73,369 78,471 165,285 146,042 141,671
Total assets........... 86,432 130,394 135,843 350,993 332,847 317,184
Long-term debt,
excluding current
portion and loans
payable to bank....... 34,031 36,116 34,605 32,499 27,502 25,780
Stockholder's equity
(j)................... 2,768 23,823 31,852 192,354 152,601 132,199
</TABLE>
- -------------------
(a) The Company's five most recently completed fiscal years ended on December
30, 1991, December 28, 1992, December 26, 1993, December 25, 1994 and
December 31, 1995.
(b) Data presented for 1994 includes one month of financial information for
the Company prior to FRI's reorganization under Chapter 11 of the
Bankruptcy Code and eleven months of financial information for the Company
following such reorganization. In January 1994, FRI's predecessor
corporation, REG, completed the Reorganization and applied the provisions
of SOP 90-7. Pursuant to SOP 90-7, REG qualified for fresh start reporting
as of January 27, 1994. Under this concept, all assets and liabilities of
FRI are restated to current value at the date of reorganization. FRI
obtained an appraisal of the assets and liabilities of FRI and the Company
which determined the reorganization value (i.e., fair value) of the assets
and liabilities. FRI utilized the results of this appraisal to implement
fresh start reporting, which resulted in reorganization value in excess of
amounts allocable to identifiable assets of $155,540,000 to the Company at
January 27, 1994. For the one month ended January 26, 1994, the Company's
operating statement data consisted of operating revenues of $43,538,000,
operating income of $1,707,000, interest and debt expenses of $458,000,
net income of $717,000, ratio of earnings to fixed charges of 3.7 times,
depreciation and amortization of property of $697,000, amortization of
goodwill and other intangibles of $81,000 and capital expenditures of
$412,000. For the eleven months ended December 25, 1994, the Company's
selected operating statement data consisted of operating revenues of
$460,636,000, operating income of $25,366,000, interest and debt expenses
of $6,476,000, net income of $9,394,000 ratio of earnings to fixed charges
of 3.9 times, depreciation and amortization of property of $18,309,000,
amortization of intangibles of $4,912,000 and capital expenditures of
$23,742,000.
(c) Fiscal 1995 represents a 53 week period.
(d) The Company's two most recently completed fiscal first quarters ended on
March 26, 1995 and March 31, 1996.
(e) Includes $3,033,000 in 1994 and $13,117,000 in 1995 for interest related
to the Company's outstanding balance under the working capital portion of
FRI's credit agreement used to fund operating cash flow needs for all of
FRI's subsidiaries.
13
<PAGE>
(f) For purposes of computing the ratio of earnings to fixed charges, "fixed
charges" consist of interest on debt, amortization of deferred financing
expense and the interest element in rental payments under operating and
capital leases. "Earnings" consist of income (loss) from continuing
operations before income taxes, plus fixed charges.
(g) In connection with the Reorganization in January 1994, the Company restated
all assets and liabilities, which resulted in reorganization value in
excess of amounts allocable to identifiable assets of $155,540,000 to the
Company at January 27, 1994.
(h) Includes $67,904,000 related to the acquisition of 109 Bob's restaurants in
February 1992.
(i) The Company historically operates with a working capital deficiency because
(i) restaurant operations are conducted primarily on a cash (and cash
equivalent) basis with a low level of accounts receivable, (ii) rapid
turnover allows a limited investment in inventories and (iii) cash from
sales is usually received before related accounts payable for food,
beverage and supplies become due.
(j) The predecessor financial information presented represents a combination of
certain subsidiaries and divisions of FRI and does not represent a legal
entity. Therefore, stockholder's equity represents the net activity with
FRI.
14
<PAGE>
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The unaudited pro forma combined statement of operations data for the year
ended December 31, 1995 and the three-month period ended March 31, 1996,
combines the results of operations of FRD and FRI-M assuming that the
Acquisition had been consummated on December 26, 1994 (the beginning of the
Company's 1995 fiscal year). The unaudited pro forma combined balance sheet
data combines the historical balance sheet data of FRD and FRI-M as of March
31, 1996, assuming that the Acquisition had been consummated on such date. FRD
was incorporated on February 14, 1996 for the purpose of acquiring FRI-M. Its
capitalization upon incorporation was $100, representing 1,000 shares of
common stock with a par value of $0.10 per share. Accordingly, no amounts are
presented for FRD in the historical statement of operations data. Because FRD
is a wholly owned subsidiary of Flagstar, per share data is not meaningful and
has been omitted for the periods presented.
The unaudited pro forma combined financial information has been provided for
comparative purposes only and does not purport to be indicative of results
which would actually have been obtained had the Acquisition been effected on
the date or dates indicated or which may be obtained in the future. These
unaudited pro forma combined financial statements should be read in
conjunction with the combined audited financial statements and unaudited
interim combined financial statements, including the notes thereto, which
appear elsewhere in this Prospectus.
The unaudited pro forma adjustments are based upon information set forth in
this Prospectus and certain assumptions included in the notes to the unaudited
pro forma combined financial statements. The Company is performing an ongoing
evaluation regarding the nature and scope of its restaurant operations and
various short-and long-term strategic considerations in the process of
assessing whether, and to what extent, integration, consolidation or other
modification of its restaurant operations is appropriate following the
Acquisition. These strategic considerations include, among other things, the
elimination of certain duplicative administrative functions, which are
reflected in the unaudited pro forma adjustments. The Company believes the pro
forma assumptions are reasonable under the circumstances.
The Acquisition will be accounted for by the purchase method of accounting.
Accordingly, FRD's cost to acquire FRI-M and certain of its subsidiaries (the
"Purchase Consideration"), calculated to be $286,000,000, will be allocated to
the assets acquired and liabilities assumed according to their respective fair
values. The final allocation of the Purchase Consideration, including the fair
value of the Notes, is dependent upon certain valuations and other studies
that have not progressed to a stage where there is sufficient information to
make such an allocation in the accompanying unaudited pro forma combined
financial statements. Accordingly, the purchase allocation adjustments made in
connection with the preparation of the unaudited pro forma combined financial
statements are preliminary and have been made solely for the purpose of
preparing such unaudited pro forma combined financial statements.
15
<PAGE>
UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
-------------------------------- --------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS ADJUSTED ACTUAL ADJUSTMENTS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues...... $501,248 $501,248 $118,996 $118,996
-------- ------- -------- -------- ------- --------
Operating expenses:
Product cost............ 143,206 143,206 33,090 33,090
Payroll and related
costs.................. 180,922 180,922 45,271 45,271
Occupancy costs......... 95,659 95,659 22,347 22,347
Depreciation and
amortization........... 23,167 23,167 5,606 5,606(q)
Amortization of
intangibles............ 5,280 $ 27 (a) 5,307 1,320 $ 7 (a) 1,327
General and
administrative......... 27,207 (5,226)(b) 21,981 7,361 (1,961)(b) 5,400
Franchise fees.......... (4,371) (4,371) (844) (844)
Loss on disposition of
properties............. 2,269 2,269 120 120
-------- ------- -------- -------- ------- --------
473,339 (5,199) 468,140 114,271 (1,954) 112,317
-------- ------- -------- -------- ------- --------
Operating income........ 27,909 5,199 33,108 4,725 1,954 6,679
Interest expense, net... 16,515 12,818 (c) 29,333 3,931 3,318 (c) 7,249
-------- ------- -------- -------- ------- --------
Income before income
taxes.................. 11,394 (7,619) 3,775 794 (1,364) (570)
Income taxes............ 6,670 (3,037)(d) 3,633 846 (543)(d) 303
-------- ------- -------- -------- ------- --------
Net income (loss)....... $ 4,724 $(4,582) $ 142 $ (52) $ (821) $ (873)
======== ======= ======== ======== ======= ========
Ratio of earnings to
fixed charges.......... 1.7x 1.1x 1.2x (e)
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 5,410 $ (1,195)(f) $ 4,215
Receivables............................ 6,958 (3,485)(g) 3,473
Merchandise inventories................ 5,184 5,184
Net assets held for sale............... 2,338 (2,338)(h) 0
Other.................................. 1,812 (191)(i) 1,621
-------- --------- --------
Total current assets.................. 21,702 (7,209) 14,493
Property and equipment, net............. 141,671 141,671(q)
Reorganization value in excess of
amounts allocable to identifiable
assets, net............................ 144,056 (144,056)(k) 0
Goodwill................................ 212,285 (l) 212,285
Other assets............................ 9,755 4,169 (i)(j) 13,924
-------- --------- --------
Total assets.......................... $317,184 $ 65,189 $382,373
======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Loans payable to bank.................. $ 91,223 $ (91,223)(m) $ 0
Current maturities of long term debt,
including capitalized lease
obligations........................... 4,912 4,000 (o) 8,912
Accounts payable....................... 21,923 21,923
Self-insurance reserve................. 18,091 18,091
Other.................................. 23,056 2,611 (n) 43,758
-------- --------- --------
Total current liabilities............. 159,205 (84,612) 74,593
-------- --------- --------
Debt, including capitalized lease
obligations, less current maturities.. 25,780 207,000 (o) 232,780
-------- --------- --------
Stockholder's equity:
Common stock........................... 0 0
Additional paid-in-capital............. 75,000 (o) 75,000
Combined equity........................ 132,199 (132,199)(p) 0
-------- --------- --------
Total stockholder's equity............ 132,199 (57,199) 75,000
-------- --------- --------
Total liabilities and stockholder's
equity................................. $317,184 $ 65,189 $382,373
======== ========= ========
</TABLE>
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) The adjustment for amortization of intangibles represents the elimination
of the Company's amortization of reorganization costs over 30 years and
includes the amortization of the excess of the purchase price paid by FRD
over the net assets acquired over 40 years.
(b) The adjustment for general and administrative expenses at December 31,
1995 and March 31, 1996 represents reductions in corporate overhead
charges previously incurred by the Company of $10,111,000 and $3,589,000,
respectively, and elimination of the management fee charged by FRI to the
Company of $2,634,000 and $157,000, respectively, offset by management
fees of 1.0% of sales to be charged by Flagstar and an estimated 0.5% of
sales, estimated to be the Company's allocated cost of shared
administrative services provided by Flagstar or its subsidiaries.
(c) The adjustment for interest expense represents the elimination of interest
of $13,117,000 and $3,167,000 at December 31, 1995 and March 31, 1996,
respectively, on the Company's loan payable to banks, including
amortization of deferred financing costs, and includes interest on (i) the
$150,000,000 of Notes at an annual interest rate of 12 1/2%, (ii) the
$56,000,000 term loan (including the current portion of $4,000,000) at an
annualized interest rate of 8.5%, (iii) assumed borrowings of $5,000,000
on the revolving portion of the Credit Facility at an assumed annual
interest rate of 8.5% and (iv) use of $23,100,000 of the revolving portion
of the Credit Facility to support letters of credit at an annual interest
rate of 3% and a commitment fee of 0.5% annually on the unused portion of
the revolving portion of the Credit Facility ($6,900,000). The adjustment
also includes amortization of the deferred financing costs incurred in
connection with the financing of the Acquisition. These deferred financing
costs of $3,900,000 in connection with the Credit Facility and $600,000 on
the Notes are amortized over 39 months and eight years, respectively. See
"Description of Credit Agreement."
(d) The provision for income taxes has been adjusted assuming an effective
federal and state income tax rate of 40% on the combined earnings of the
Company, excluding amortization of intangibles, after giving effect to the
adjustments set forth in (a) through (c), above.
(e) On a pro forma basis for the three months ended March 31, 1996, earnings
were insufficient to cover fixed charges by $570,000.
(f) Reflects assumed borrowings of $5,000,000 (including $1,500,000 paid in
transaction fees) in proceeds from the revolving portion of the Credit
Facility and the transfer of $4,695,000 of excess cash to FRI in
accordance with the terms of the Acquisition.
(g) Reflects the collection of $3,485,000 of royalty receivables from Kasumi
(as defined) and the corresponding transfer of cash collected to FRI.
(h) Reflects the sale/leaseback of two restaurants to third parties and the
transfer of one restaurant to FRI in accordance with the terms of the
Acquisition.
(i) Reflects the transfer of a utility deposit and a note receivable to FRI in
accordance with the terms of the Acquisition, the current portion of which
is $191,000 and the long-term portion of which is $331,000.
(j) Reflects the addition of deferred financing costs of $4,500,000.
(k) Reflects the removal of the net reorganization costs.
(l) Reflects the net effect of pro forma adjustments that impact the excess
purchase price and other expenses of the Acquisition over the fair value
of the net assets being acquired.
(m) Reflects the removal of the Company's prior $91,223,000 revolving credit
facility that was repaid on the date of the Acquisition.
(n) Reflects the addition of a $3,000,000 liability relative to severance,
software relicensing from FRI to FRI-M and the relocation of certain FRI-M
operations from California to South Carolina. Also reflects the removal of
$389,000 of administrative bonus payments to be assumed by FRI. FRI-M will
retain a $208,000 bonus liability to be paid out to certain administrative
employees in accordance with the terms of the Acquisition.
(o) The Acquisition was financed as follows:
<TABLE>
<S> <C>
Term loan................................................... $ 56,000,000
Working capital revolver.................................... 5,000,000
Flagstar cash investment.................................... 75,000,000
Long-term note payable to FRI............................... 150,000,000
------------
Acquisition financing..................................... $286,000,000
============
</TABLE>
(p) Reflects the removal of the net combined equity balance of the Company's
predecessor.
(q) Certain assets and liabilities are subject to appraisals which have not
yet been completed.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Over the past three years, the Company's results have been impacted by (i)
capital constraints that limited the Company's ability to remodel its
restaurants; (ii) a weak California economy; and (iii) increased competitive
pressure within the entire restaurant industry.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 to Three Months Ended March 26, 1995
Operating revenues for the first three months of 1996 increased by
approximately $1.4 million (1.2%) as compared with the first three months of
1995. This increase was the result of one additional restaurant in the 1996
period, as well as an increase in comparable store sales. The Carrows
restaurants experienced a 2.3% increase in comparable store sales in the first
three months of 1996 compared to the first three months of 1995, while the
Coco's restaurants experienced a slight decrease in comparable store sales of
0.2% during the period. The Company's average guest check remained fairly
constant during the period.
The Company's overall operating income increased for the first three months
of 1996 by $0.4 million (9.1%) as compared with the same period in 1995. This
increase was attributed to the Company's increased focus on reducing food
costs, which reduced product costs by $0.4 million (1.2%). Other operating
expenses were substantially consistent with increased operating revenues.
Interest and debt expense increased by $1.2 million (43%) for the first
three months of 1996 as compared with the same period in 1995. This increase
was due to an increase in working capital borrowings under the Company's prior
credit facility which was used to fund operating cash flow needs of all FRI
subsidiaries.
Fiscal 1995 to Fiscal 1994
Operating revenues for 1995 decreased by approximately $2.9 million (0.6%)
as compared with the twelve months ended December 25, 1994. This decrease is
attributed to a reduction in the number of the Company's restaurants, as well
as a decrease in comparable store sales. The Carrows restaurants experienced a
slight decrease of 0.2% in comparable store sales in 1995 compared to 1994,
while the Coco's restaurants experienced a decrease in comparable store sales
of 5.0% in 1995 compared to 1994. Carrows average weekly customer count per
restaurant decreased by 30 guests (0.7%) in 1995 as compared to 1994, while
Coco's average weekly customer count decreased by 335 guests (7.0%) in 1995
compared to 1994. These decreases in customer count were partially offset by
increases in average guest check for Carrows and Coco's of 5.0% and 3.2%,
respectively, in 1995 as compared to 1994. The decrease in traffic during 1995
resulted from intense competition and discounting in the family restaurant
segment. In addition, the California economy continued to generally experience
weakness in 1995. In January 1995, California required all restaurants to be
"non-smoking" and the Company believes this legislation had a substantial
negative impact on traffic in the Company's restaurants due to the fact that
75% of the Company's restaurants are located in California.
The Company's overall operating income increased by $0.8 million (3.1%) in
1995 as compared to 1994. This increase was primarily attributable to improved
efficiencies in labor and related fringe benefits of $6.6 million. However,
these efficiencies were partially offset by the decrease in operating revenues
in 1995 as compared to 1994 and increased depreciation and amortization
expense as a result of the asset revaluation made upon the Reorganization and
the Company's 1994 remodeling activities.
Interest and debt expense increased by $9.6 million (138%) in 1995 as
compared to 1994. This increase was due to an increase in working capital
borrowings under the Company's prior credit facility which was used to fund
operating cash flow needs of all FRI subsidiaries.
19
<PAGE>
Fiscal 1994 to Fiscal 1993
Operating revenues for 1994 increased by approximately $16.7 million (3.4%)
as compared with the twelve months ended December 26, 1993. This increase was
the result of the continuing effect of the acquisition of 109 Bob's
restaurants in 1992 and their subsequent conversion to Carrows and Coco's
concepts. Following the conversion of Bob's to Carrows and Coco's, the average
restaurant traffic increased by approximately 80% from pre-conversion levels.
In addition, Carrows restaurants experienced an increase of 1.0% in comparable
store sales in 1994 compared to 1993, while the Coco's restaurants experienced
an increase in comparable store sales of 1.5% in 1994 compared to 1993.
Carrows average weekly customer count per restaurant increased by less than
1.0% in 1994 as compared to 1993, while Coco's average weekly customer count
remained virtually even in 1994 as compared to 1993. Average guest check for
Carrows and Coco's increased by 4.9% and 2.2%, respectively, in 1994 as
compared to 1993.
The Company's overall operating income decreased by $3.4 million (11.3%) in
1994 as compared to 1993. This decrease was primarily attributable to an
increase in depreciation and amortization as a result of the Reorganization in
January 1994. Depreciation and amortization in 1994 (one month pre-
Reorganization and 11 months post-Reorganization) compared to 1993
depreciation and amortization increased by $14.0 million. Other operating
expenses were substantially consistent with increased operating revenues.
Interest and debt expense increased by $2.3 million (51%) in 1994 as
compared to 1993. This increase was due to an increase in working capital
borrowings under the Company's prior credit facility which was used to fund
operating cash flow needs of all FRI subsidiaries. Prior to January 1994, FRI-
M did not have a working capital facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically operates with a working capital deficiency because
(i) restaurant operations are conducted primarily on a cash (and cash
equivalent) basis with a low level of accounts receivable, (ii) rapid turnover
allows a limited investment in inventories and (iii) cash from sales is
usually received before related accounts payable for food, beverages and
supplies become due.
The Company intends to continue to operate with working capital deficiencies
and to rely upon internally generated funds and borrowings under the Credit
Agreement to finance its daily restaurant operations. The Company is
performing an ongoing evaluation regarding the nature and scope of its
restaurant operations and various short-term and long-term strategic
considerations in the process of assessing whether, and to what extent,
integration, consolidation or other modification of its restaurant operations
is appropriate following the Acquisition. The Company believes that funds to
be generated internally from operations and the funds available to the Company
under the Credit Agreement will be adequate to meet the Company's debt service
and capital expenditure requirements for the foreseeable future. See "Risk
Factors--Leverage" and "Description of Credit Agreement."
20
<PAGE>
BUSINESS
OVERVIEW
The Company is one of the nation's leading operators of family restaurants.
As of March 31, 1996, the Company operated 348 restaurants, principally under
the Coco's and Carrows names. As of March 31, 1996, the Company operated 168
Coco's, 160 Carrows, 17 jojos, 1 Jeremiah's and 2 Bob's restaurants.
Approximately 74% of the Company's restaurants are located in California,
making the Company the second largest family restaurant operator in
California, both in terms of sales volume and number of restaurants. Coco's
and Carrows restaurants were founded more than 25 years ago and have developed
excellent name recognition and a loyal customer base, with customers on
average making return visits to the restaurants seven and six times per month,
respectively. In addition to its domestic operations, as of March 31, 1996 the
Company is the licensor of 251 Coco's restaurants in Japan and South Korea,
representing the most substantial penetration of any United States, non-fast
food restaurant chain overseas.
The Company's restaurants offer an extensive menu of moderately priced
breakfast, lunch and dinner items and are typically open either 18 or 24 hours
a day. Both Coco's and Carrows restaurants emphasize consistently high quality
food with an excellent price/value relationship and friendly, efficient
service. During 1995, the average check per person was approximately $6.73 for
Coco's and $6.09 for Carrows, representing increases of 3.2% and 5.0%,
respectively, over the previous year. The Company generates approximately 23%,
32%, 40% and 5% of its revenue from breakfast, lunch, dinner and late night
meals, respectively, which the Company believes represents a higher dinner
proportion than its major competitors. The Company's average weekly restaurant
customer count in 1995 was 4,244 for Coco's and 4,443 for Carrows.
The Company's restaurants are generally located in densely populated
suburban areas with high commercial traffic and a strong residential base. The
commercial traffic typically provides a large portion of the Company's weekday
breakfast and lunch customers, while the residential traffic accounts for a
majority of the Company's dinner and weekend business. The Company's
restaurants average between 5,000 and 6,000 square feet of floor space,
allowing them to accommodate approximately 120 to 180 guests. The Company
believes that the location and concentration of its restaurants allows it to
realize economies of scale in advertising, distribution and field supervision.
In 1992, the Company significantly increased its revenue base and California
market share with the acquisition of 109 Bob's restaurants from Marriott
Corporation. The Company believes that the acquisition of Bob's enabled the
Company to establish attractive locations in developed areas at a
substantially lower cost than had the Company built the locations itself. The
Company completed its conversion of the Bob's restaurants to the Company's
Coco's and Carrows concepts in 1994 at an average cost of approximately
$230,000 per restaurant. In addition, the Company implemented a remodeling
program in 1994 to remodel its 208 Coco's and Carrows restaurants that were
not part of the Bob's conversion. From January 1, 1994 through March 31, 1996,
the Company remodeled 64 Coco's and 50 Carrows restaurants, at an average cost
of approximately $150,000 per restaurant, with the majority of such remodels
occurring in 1994 and early 1995. Since such time, remodeling activities have
been curtailed due to the limited availability of capital.
The Company has been built through a series of acquisitions, the first of
which was the purchase of Coco's restaurants (originally known as Snack Shop)
in 1970 from its founder, John McIntosh; in January 1980, the Company
purchased 120 jojos restaurants from its founder, Harold Butler; in May 1984,
the Company purchased 21 Sambo's restaurants out of bankruptcy; in January
1985, the Company purchased 91 Carrows restaurants from Carrows founder, David
Nancarrow; and in February 1992, the Company purchased 109 Bob's restaurants
from Marriott Corporation.
21
<PAGE>
RESTAURANTS
While the Coco's and Carrows concepts appeal to many of the same broad-based
customers, they are positioned to target two distinct groups within the family
restaurant segment. Through this dual positioning, the Company capitalizes on
various demographic and industry trends while achieving substantial economies
of scale (i.e., advertising, distribution and supervision) through operating a
large chain of restaurants.
The Coco's Concept. Coco's is positioned to appeal to a younger, more
contemporary customer who is more quality oriented than cost conscious and who
seeks a wide variety of unique menu items that are not typically offered at
family restaurants. Coco's customers are more often white-collar professionals
who are 25-54 years of age and have annual incomes in excess of $50,000. Coco's
has developed a strong following among this customer base through its creative
menu, new product development and execution capabilities, quality of food and
consistent, traditional "dinnerhouse style" service. Coco's service is evolving
in order to better compete with the casual dining restaurants by focusing more
on a "fun" dining experience. In addition, Coco's has successfully implemented
an in-restaurant and takeout bakery business which reinforces the concept's
quality food image and offers high margin products.
The average Coco's check during fiscal 1995 was $6.73, and the average weekly
customer count per store was 4,244. Positioned in the upper end of the family
restaurant segment, Coco's competes most directly with Marie Callender's,
Baker's Square, Sizzler and Mimi's Cafe. Coco's has been increasing its market
share since 1992 primarily through conversions of acquired restaurants, while
most of its direct competitors have been decreasing or maintaining market
share. At the same time customer counts have declined. See "Business--
Restaurant Competition." The chart below sets forth certain data with respect
to the Company's Coco's restaurants:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER, ENDED
-------------------------------------------------- MARCH 31,
1991 1992(1) 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Number of Restaurants
(end of period)(2)
Owned................. 144 185 189 187 188 185
Franchised............ 0 2 4 5 6 6
International
Licensed............. 183 202 206 214 251 254
Sales (Owned) (in
thousands)............. $199,886 $244,617 $285,022 $288,494 $282,251 $55,772
Comparable Restaurant
Sales Growth........... 6.8% (0.6)% (1.2)% 1.5% (5.0)% (0.2)%
Average Weekly Customer
Count Per Restaurant... 4,643 4,622 4,578 4,579 4,244 4,046
Average Check........... $ 6.07 $ 6.13 $ 6.38 $ 6.52 $ 6.73 $ 6.74
</TABLE>
- ---------------------
(1) Includes the effect of the acquisition of Bob's restaurants in February
1992.
(2) Includes the Company's jojos restaurants.
The Carrows Concept. In contrast to Coco's, Carrows caters to a slightly
older clientele with more conservative tastes in food. Carrows' customers
typically have traditional values and tastes and seek dependable food and
service at reasonable prices. Carrows' primary target market is blue-collar
customers who are 35-64 years of age, while its secondary target market is
senior citizens. Carrows has developed a strong reputation as a restaurant
serving quality, traditional food at affordable prices in a familiar setting
while providing especially friendly service. This service, along with Carrows'
emphasis on larger portioned, traditional American entrees, enable Carrows to
appeal to its targeted customers. The average Carrows check during Fiscal 1995
was $6.09, and the average weekly customer count per store was 4,443. Carrows
is in the upper-middle price range of the family restaurant segment and
competes most directly with Denny's, IHOP, Baker's Square and Lyons. Similar
22
<PAGE>
to Coco's, Carrows has been increasing its market share since 1992 while most
of its direct competitors have been decreasing or maintaining market share.
See "Business--Restaurant Competition." The chart below sets forth certain
data with respect to the Company's Carrows restaurants:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER, ENDED
------------------------------------------------ MARCH 31,
1991 1992(1) 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Number of Restaurants
Owned (end of
period)(2)............. 108 167 167 163 161 163
Sales (in thousands).... $140,008 $195,196 $203,790 $217,351 $220,234 $52,224
Comparable Restaurant
Sales Growth........... 3.0% 3.3% 1.2% 1.0% (0.2)% 2.3%
Average Weekly Customer
Count Per Restaurant... 4,891 4,524 4,456 4,473 4,443 4,311
Average Check........... $ 5.15 $ 5.30 $ 5.53 $ 5.80 $ 6.09 $ 6.10
</TABLE>
- ---------------------
(1) Includes the effect of the acquisition of Bob's restaurants in February
1992.
(2) Includes the Company's Bob's and Jeremiahs restaurants. Also includes the
effect of one Carrows restaurant located in Las Vegas, Nevada which was
retained by FRI and not acquired by the Company in the Acquisition.
OPERATING STRATEGY
The Company's operating strategy focuses on three primary areas: (i)
maintaining its momentum in its major West Coast markets through innovative
product development, creative marketing and superior execution and
repositioning the Coco's concept toward a more select targeted market; (ii)
selectively expanding its domestic presence in existing and contiguous markets
through new franchising agreements and conversion opportunities; and (iii)
expanding its international presence through additional licensing
arrangements.
RESTAURANT LICENSING AND FRANCHISING
The Company has successfully established the largest foreign presence of any
United States-based, non-fast food restaurant chain. As of March 31, 1996 the
Company licensed 251 Coco's restaurants abroad. This presence was established
primarily through a 1979 licensing agreement with Kasumi Stores K.K. and
Coco's Japan, Ltd. (collectively, "Kasumi"). Under the terms of this licensing
agreement, Kasumi has the exclusive right through February 1, 2010, to use the
Coco's restaurant concept in Japan, and a non-exclusive right to do so in
certain other Asian countries. This agreement also gives Kasumi access to
certain training procedures and technical information concerning the operation
of such family restaurants. At March 31, 1996, 220 Coco's were in operation in
Japan under the agreement with Kasumi. In addition, a sublicensee of Kasumi
operated 31 restaurants under the Coco's name in South Korea. During the
twelve months ended December 31, 1995, operating profit from these license
arrangements was $3.5 million. The Company's license agreement with Kasumi was
renegotiated effective February/March 1995. Prior to such renegotiation,
Kasumi paid the Company a weighted average royalty of 1.67% of net sales
attributable to the Company's Coco's restaurants located in Japan and Korea.
Effective February/March 1995, under the renegotiated agreement Kasumi pays
the Company a weighted average royalty of 0.92% of net sales attributable to
such restaurants. The Company incurs minimal expenses relating to the
licensing arrangements as the Company has no assets located overseas. The
Company intends to leverage its international brand recognition by entering
into additional licensing agreements in existing and new markets abroad. The
Company is in preliminary discussions with prospective licensees and initial
market research has indicated that attractive opportunities may exist in
Indonesia, Western Europe and Southeast Asia.
In 1990, the Company established a wholly owned subsidiary, CFC Franchising
Company ("CFC"), to franchise Coco's restaurants in the United States. Six
such Coco's franchised restaurants have been opened. In
23
<PAGE>
1996, CFC obtained certain license rights in Asia. Franchising represents an
opportunity to achieve additional growth with low investment risk for both the
Coco's and Carrows concepts.
RESTAURANT SITES
At March 31, 1996, the Company operated 348 restaurants in ten states.
Approximately 75% of the Company's 348 restaurants are located in California,
making the Company the second largest family restaurant chain in California in
terms of number of restaurants. Set forth below is a breakout of the Company's
restaurant concepts by state:
<TABLE>
<CAPTION>
NUMBER OF RESTAURANTS
-------------------------------------------------
STATE COCO'S CARROWS JOJOS JEREMIAH'S BOB'S TOTAL %
<S> <C> <C> <C> <C> <C> <C> <C>
California................... 136 120 -- -- 2 258 74.1%
Arizona...................... 17 9 -- -- -- 26 7.5
Texas........................ 1 10 14 -- -- 25 7.2
Oregon....................... -- 9 -- -- -- 9 2.6
Nevada....................... -- 7 -- 1 -- 8 2.3
Washington................... 6 1 -- -- -- 7 2.0
Colorado..................... 6 -- -- -- -- 6 1.7
New Mexico................... -- 4 -- -- -- 4 1.2
Indiana...................... -- -- 3 -- -- 3 0.8
Missouri..................... 2 -- -- -- -- 2 0.6
--- --- --- --- --- --- -----
Total...................... 168 160 17 1 2 348 100.0%
=== === === === === === =====
</TABLE>
The Company completed the sale/leaseback of most of its owned restaurants
during the beginning of 1996. The Company has relatively low occupancy costs
since most of its restaurants operate under leases that have been in place for
many years. Minimum occupancy costs for the Company's existing restaurants
average $65,000 compared to $165,000 for the Company's new restaurants.
Franchise Site Selection. The Company has a Franchise Development Group
which is responsible for identifying and securing new franchise locations. The
Franchise Development Group works closely with real estate brokers in the
Company's existing markets who are familiar with the Company's needs and
selection criteria. In general, the Company's restaurants are located in high-
traffic commercial areas with a substantial surrounding residential base
within a three mile radius. The commercial traffic typically provides the
Company's weekday breakfast and lunch clientele while the residential traffic
accounts for a majority of the Company's dinner and weekend business. Sites
are evaluated on the basis of a variety of factors, including demographic
data, land use and environmental restrictions, competition in the area, ease
of access, visibility, availability of parking and proximity to a major
traffic generator such as a shopping mall, office complex, stadium or
university. Under the Company's franchise program, the franchisee becomes the
tenant for the restaurant and incurs the cost of any leasehold tenant
improvements and all operating costs.
RESTAURANT LAYOUT
The Company's restaurants average in size between 5,000 and 6,000 square
feet of floor space, allowing them to accommodate approximately 120 to 180
guests. Approximately 60% of each restaurant's space is dedicated to dining
room and customer areas, while 40% is dedicated to back room, kitchen and
storage areas. The Company's Coco's restaurants all have in-house bakeries
that reinforce the concept's high-quality image. Most of the Company's
restaurants do not have full bars but serve beer and wine at the tables.
Seating is a combination of tables and booths. Every restaurant has a waiting
area where customers may be seated while waiting for tables or booths to open.
Since most restaurants are located in power centers or strip center shopping
malls, the Company's restaurants have ample parking spaces to support their
respective guest counts.
24
<PAGE>
RESTAURANT OPERATIONS AND MANAGEMENT
The Company's restaurants offer an extensive menu of moderately priced
breakfast, lunch and dinner items and are typically open approximately 18 to
24 hours a day. Both Coco's and Carrows restaurants emphasize consistently
high quality food designed to enhance the price/value relationship of
friendly, efficient service. Approximately 80% of the Company's customers pay
in cash and most of the credit card payments are made during dinner meals. The
average weekly guest count per restaurant at Coco's was 4,244 and at Carrows
was 4,443 during fiscal 1995.
The Company generates approximately 23%, 32%, 40% and 5% of its revenue from
breakfast, lunch, dinner and late night meals, respectively, representing a
higher dinner proportion than competitors. The Company believes that the
higher dinner proportion primarily at Coco's increases its average checks and
asset utilization relative to competitors. The Company employs a different
strategy during each meal time, offering lower prices at breakfast (which is
primarily commodity-oriented) during the weekdays, faster service at lunch
time during the weekdays, and a better quality, more differentiated product at
dinnertime.
The Dining Experience. Both Coco's and Carrows provide casual, sit-down
dining experiences. Guests are greeted by hosts or hostesses at the door who
direct guests to available tables or booths. A sit down waiting area is
provided for when the restaurants are at capacity. Once seated, guests are
given menus, which outline specials, and servers approach the table to
describe specials further and take beverage orders. Orders are taken, the food
is prepared and delivered, plates are cleared and coffee and dessert are then
offered. Checks are paid for at the cash register on the customer's way out of
the restaurant. A typical lunch meal takes 20 to 45 minutes to complete while
typical dinner meal takes approximately one hour to complete (meals can be
completed more quickly depending upon customer preferences).
Food Preparation and Delivery. To maintain its reputation of offering high
quality food and service, the Company has standardized, documented
specifications for the preparation and efficient service of quality food.
Major emphasis is placed on the proper preparation and delivery of the product
to the consumer, portion control, prompt and courteous service, cleanliness
and the cost-effective procurement and distribution of quality products. Food
items are prepared fresh daily on a made-to-order basis at the restaurants.
The Company's commissary manufactures the soups, salad dressings and sauces
and these items are delivered to the restaurants by the Company's distributors
approximately two to three times per week.
Restaurant Management and Employee Structure. The Company's restaurant
management field structure is comprised of six Divisional Vice Presidents
(three for each concept), who each oversee approximately six to eleven
District Managers. Each District Manager in turn oversees five to nine
restaurants. A General Manager, Associate Manager and Assistant Manager are
employed at each restaurant to manage day-to-day operations, including
customer relations, food service, cost control, restaurant maintenance, hiring
and training of restaurant employees, and the implementation of all Company
policies. Coco's and Carrows restaurants typically operate with a staff of 40
employees for low volume restaurants to 70 employees for high volume
restaurants. The average restaurant employs approximately 45 to 55 employees,
and a majority of the restaurant level employees work part time.
The Company recognizes the importance of its personnel in providing
customers with a quality dining experience. As a result, the Company offers
its employees extensive training (described below), opportunities for
promotion, and incentive-based compensation that meets, and frequently
exceeds, industry standards. The success of these endeavors allows the Company
to enjoy employee turnover rates that the Company believes are below industry
averages and to benefit from a staff of highly experienced employees. The
Company's restaurant General Managers average approximately 8.5 years of
experience with the Company.
Training. Both Coco's and Carrows provide formal training programs for new
managers and employees of the Company's restaurants. Exceptional General
Managers are identified as "Executive Training Managers." Management training
includes one week at the Company's corporate headquarters and eight weeks with
25
<PAGE>
Executive Training Managers for Coco's (because of the bakery concept) and
seven weeks with Executive Training Managers for Carrows. Hourly employees are
trained by the respective restaurants managers and each shift has an hourly
employee who has been certified to help train other employees.
Quality Control. Coco's and Carrows have developed programs and systems that
ensure the safety, quality, and consistency of key ingredients, menu items and
operations. The major components of these programs include a
Supplier/Distributor QA program that audits ingredients and suppliers to
ensure compliance to specifications, and a Restaurant Food Safety program
which is responsible for maintaining communications with regulatory agencies
and proactively managing risk situations.
Facility Maintenance. The Company has five Facility Maintenance Managers who
each report to a Director of Facilities. Each of the Facility Maintenance
Managers established preferred vendor relationships and is actively involved
in evaluating bids for major repairs. Janitorial services for each restaurant
are performed nightly by the restaurant employees.
RESTAURANT MENUS
Carrows Menu Strategy. The Company's menu strategy for Carrows is to (i)
serve a consistent quality and variety of traditional American cuisine, with
an emphasis on traditional home style fare, taking the extra steps to prepare
these meals better than any other chain; (ii) provide an excellent value
relationship through the amount of food offered for the money; (iii) leverage
the high quality of its food products to achieve increased margins from its
menu items; and (iv) generate sales and profits in the breakfast and dinner
day parts through the strong marketing of breakfast specials and high quality
dinner items, such as prime rib and seafood, which are not generally available
in family restaurants. To reinforce its traditional positioning, Carrows has
recently introduced such items as Smoky Mountain BBQ Ribs and Grilled Pork
Chops, as well as a home style side dish program at dinner called "Fixin's"
that allows guests to customize their entrees with fresh, made from scratch
side orders such as mashed potatoes, stuffing and a vegetable casserole.
Carrows recently received an award from the National Restaurant Association
for Best Menu in its price category. Carrows' Children's Menu and Dessert
Menus also received awards.
Coco's Menu Strategy. The Company's menu strategy for Coco's is to (i) serve
a high quality and variety of traditional American cuisine with emphasis on
new or trend-establishing fare with special attention given to plate
presentation in order to communicate price/value relationship; (ii) utilize
high quality food products including fresh fish, fresh baked muffins, rolls,
etc., to communicate the increasing strength of those product lines in the
market place; and (iii) improve sales and profits by strategic menu offerings
to appeal to a target market of families and adult males, a group with respect
to which Coco's has experienced substantial reductions since early 1994. The
Company intends to slightly reposition its Coco's restaurants during the
upcoming 12 months to appeal to a more "upscale" customer base. This
repositioning will be accomplished without substantial capital investment by
utilizing in-restaurant changes to products, flatware, dishware, table
settings, etc. The Company believes that by redesigning Coco's current menu,
Coco's will be in a better strategic position in its primary markets.
Enhancement and increased visibility of Coco's bakery capabilities will also
add to its strategic positioning.
New Product Development. The Company believes that its extensive product
development process, as well as the training received by district managers,
general managers and employees regarding new products, allows the Company to
execute new product development better than its competitors, providing the
Company with a significant competitive advantage. The Company develops
approximately 25 to 35 new products each year to maintain its reputation and
position as the family restaurant segment's menu innovator. The Company
reviews its menus two times each year to determine if slow-moving items should
be replaced with new products.
To develop new products, the Company's market research, food and beverage
and marketing departments for each chain conceive new ideas from trade
magazines, other restaurant formats and market research. Selected
26
<PAGE>
ideas are initially exposed to consumers as written "concepts" in consumer
research. Those ideas with the greatest consumer appeal are then developed
into products, and are placed into a limited number of restaurants for testing
to determine consumer acceptance of the product as well as operational
feasibility. Products which are successful are then introduced into all
restaurants (with a menu insert at Carrows, or a flyer handout at Coco's) as a
"special" or promotion. These items will remain on promotion for 8-12 weeks,
at which point the most successful items are added to the menu.
RESTAURANT MARKETING
Media advertising is a large part of the integrated process that the Company
uses to market its concepts. The Company also uses its menu strategy,
interior/exterior building design, employee uniforms, style of service, and
specialized promotions to help differentiate itself. Media advertising for
both Carrows and Coco's is primarily product oriented, featuring high margin,
special entrees presented and priced to convey high value. Examples include
Carrows' Prime Rib Special at $7.99 and Coco's Shrimp and Garlic Pasta at
$8.99. Coco's advertising typically features dinner entrees while mentioning
their pies, and Carrows focuses on breakfast and dinner. Both concepts
reinforce that they are the restaurant of choice for all dining occasions
(i.e. breakfast, lunch, dinner, families, seniors, healthy options). The
Company's advertising campaigns have historically been well received by the
public, have been recognized in the advertising industry for their creativity
and have received several awards in recent years.
FOOD PRODUCT PURCHASING
The Company uses Flagstar's purchasing department in order to obtain high
quality ingredients at the most favorable prices and to make centralized
purchasing arrangements for the main ingredients, supplies and equipment needs
of all Coco's and Carrows restaurants. Flagstar's size provides the Company
with significant purchasing power which often enables it to obtain products at
favorable prices from several nationally recognized distributors to service
the restaurants. Orders are placed to distributors by the restaurant managers
and deliveries are typically made two to three times a week. This strategy
allows the Company to minimize warehousing and transportation expenses and to
greatly reduce spoilage expenses.
All Coco's and Carrows in California and Arizona utilize Marriott
Distribution Services as their principal distributor. Restaurants located in
other states use either Kraft, White Swan or Food Services of America as their
principal distributor. In an effort to maintain the Company's stringent
quality standards, food products are inspected both before and after they are
delivered by the distributor. The Company is not dependent upon any of its
distributors for operation of its business and believes that satisfactory
arrangements could be made to replace any of its current distributors, if
necessary, on a timely basis.
In order to minimize the impact of fluctuations in price and availability,
the Company monitors the current and future prices and availability of the
primary commodities it purchases and, when such commitments are considered to
be advantageous, the Company makes advanced contract commitments for essential
commodities such as eggs, coffee, produce and meats.
In addition, the Company operates a commissary which produces proprietary
items such as soups, salad dressings, pie shells and fillings. Restaurant
purchases from the commissary totaled approximately $13.5 million in 1995.
RESTAURANT COMPETITION
The restaurant business is highly competitive and is affected by changes in
the public's eating habits and preferences, population trends and traffic
patterns, and local and national economic conditions affecting consumer
spending habits. Key competitive factors in the industry are the quality and
value of the food products offered, quality and speed of service, advertising,
name identification, attractiveness of facilities and restaurant location. The
Company's restaurants compete with a variety of restaurants ranging from
national and regional restaurant chains to locally owned restaurants.
27
<PAGE>
Management believes the Company's principal competitive strengths include
the Company's brand name recognition; the value, variety and quality of food
products served; the quality and training of its employees; and the Company's
market penetration, which has resulted in economies of scale in a variety of
areas, including advertising, distribution and supervision.
In fiscal 1995, the Company generated approximately 75% of its total revenue
from its California restaurants. With 258 restaurants in California, the
Company is the second largest family restaurant chain in California in terms
of sales volume and number of restaurants. Both Coco's and Carrows have
increased their market share since 1992. The Company was able to increase its
market share during a difficult competitive environment when most of its
competitors either lost or maintained their market shares. Listed below are
the market shares in California for the Company and its major competitors in
the family restaurant segment for 1992 to June 1995.
FAMILY RESTAURANT SEGMENT MARKET SHARE CALIFORNIA MARKET SHARE DATA
<TABLE>
<CAPTION>
CONCEPT 1992 1993 1994 6/30/95
<S> <C> <C> <C> <C>
Denny's(1).......................................... 27.0% 26.0% 25.6% 25.9%
- --------------------------------------------------------------------------------
THE COMPANY(2)...................................... 19.5 21.7 23.8 24.3
- --------------------------------------------------------------------------------
COCO'S.............................................. 12.1 13.5 14.1 14.1
Marie Callender's................................... 13.0 13.1 13.1 13.1
CARROWS............................................. 7.4 8.2 9.7 10.2
IHOP................................................ 6.7 7.2 7.7 8.0
Lyon's Restaurant................................... 8.1 7.9 7.6 7.6
Baker's Square...................................... 7.7 7.2 7.0 6.9
Mimi's Cafe......................................... 2.2 2.2 2.5 2.9
Bob's Big Boy....................................... 6.0 4.9 3.4 1.8
</TABLE>
- -------------------------------------------------------------------------------
(1) Denny's restaurants are currently owned, operated and/or franchised by
Flagstar.
(2) Includes Coco's and Carrows and excludes all Bob's restaurants, when
owned by the Company.
Source: Restaurant Trends June 1995 MarketSHARE Report for California
TRADEMARKS AND SERVICE MARKS
The Company regards its trademarks and service marks as important to the
identification of its restaurants and believes that they have significant
value in the conduct of its business. The Company has registered various
trademarks and service marks with the United States Patent and Trademark
Office. In general, subject to their continuous use and priority of use, these
registrations may be renewed indefinitely. In addition to its federal
registrations, certain trademarks and service marks have been registered in
various states in which the Company operates restaurants. Also, many of the
Company's menus, training manuals and other printed manuals utilized in
conjunction with its business are copyrighted.
EMPLOYEES
The Company believes that its relationship with its employees is excellent.
At March 31, 1996, the Company had a total of approximately 16,500 employees,
none of which were covered by union contracts.
PROPERTIES
Of the 348 restaurants operated by the Company as of March 31, 1996, the
Company owned the land and building for 6, owned the building and leased the
land for 49, and leased both land and building for the remaining 293
restaurants. Most of the restaurants are free standing units ranging from
approximately 5,000 to 6,000 square feet. Most of the leases provide for the
payment of a base rent or approximately 5% to 6% of gross sales.
28
<PAGE>
The leases (assuming exercise of no renewal options) have terms expiring as
follows:
<TABLE>
<CAPTION>
LEASE
EXPIRATION NUMBER OF RESTAURANTS
<S> <C>
1996-1999 67
2000-2004 188
</TABLE>
Assuming exercise of all options to renew leases, only 17 leases will expire
prior to December 31, 2000.
In addition to the restaurant locations set forth above under "--Restaurant
Sites," the Company's properties include (i) two office buildings located in
Irvine, California and (ii) various other regional offices and warehouses
which are leased. The Company shares a 53,916 square foot office building with
FRI located at 18831 Von Karman Avenue, Irvine, California, pursuant to a
lease that expires in April 1997, with annual rent of $806,376. Rent and
occupancy expenses are split evenly between the Company and FRI. The Company
owns a 106,864 square foot building located at 2450 White Road, Irvine,
California. The White Road building is used for a commissary (49,920 sq. ft.),
warehouse (24,840 sq. ft.) and office space currently occupied by a third
party (32,104 sq. ft.).
Substantially all of the Company's properties and assets are pledged to
secure indebtedness under the Credit Agreement.
GOVERNMENT REGULATION
The Company is subject to federal, state and local laws and regulations
governing health, sanitation, environmental matters, safety, the sale of
alcoholic beverages and regulations regarding hiring and employment practices.
The Company believes it has all licenses and approval material for the
operation of its business, and that its operations are in material compliance
with applicable laws and regulations.
The Company is subject to federal and state laws governing matters such as
minimum wages, overtime and other working conditions. At December 25, 1995,
approximately 56% of the Company's employees were paid at rates related to the
minimum wage. Accordingly, increases in the minimum wage or decreases in the
allowable tip credit (which reduces the minimum wage that must be paid to
tipped employees in certain states) increase the Company's labor costs. This
is especially true in California, where there is no tip credit. There is
currently an initiative on the ballot in California to raise the minimum wage
in California from $4.25 to $5.00 per hour, effective March 1, 1997, and to
$5.75 per hour effective March 1, 1998. The initiative will be voted upon in
November 1996.
The Company is also subject to both federal and state regulations governing
disabled persons' access to its restaurant facilities, including the Americans
with Disabilities Act ("ADA"), which became effective in January 1992. If the
ADA were interpreted to require a higher degree of accessibility for disabled
persons, the Company, and the restaurant industry as a whole, could be
required to make substantial modifications to its restaurant facilities which
have not been subject to recent remodels or conversions.
LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes that no currently pending
litigation to which it is a party will have a material adverse effect on its
liquidity, financial position or results of operations.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of June 30, 1996, and a
brief account of the business experience of each person who is a director or
executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<C> <C> <S>
Mark L. Shipman 47 Director and President
Kenneth R. Bell 53 Executive Vice President, Operations
C. Robert Campbell 51 Executive Vice President
Honorio J. Padron 43 Senior Vice President, Business
Engineering and Technology
Rhonda J. Parish 40 Senior Vice President, General
Counsel and Secretary
Ronald B. Hutchison 46 Vice President and Treasurer
Beth L. Libhart 43 Vice President, Human Resources
Carolyn Toth 36 Vice President, Research and
Development
Ann A. Wride 34 Vice President, Finance and Chief
Financial Officer
William J. Boger 54 Vice President, Franchise Development
of CFC
William A. Coston 51 Vice President, International of CFC
James B. Adamson 48 Director
Ellen Downey 43 Director
Paul E. Raether 49 Director
H. Jay Sarles 51 Director
Michael T. Tokarz 46 Director
</TABLE>
MARK L. SHIPMAN became President and a Director of the Company in May 1996.
From December 1995 to May 1996, Mr. Shipman was Vice President of Acquisitions
and Development of Flagstar. Prior thereto, from 1993 to December 1995, he was
Vice President of Administration of Denny's and from 1991 to 1993 he was Vice
President of Operations (West) of Denny's.
KENNETH R. BELL became Executive Vice President, Operations of the Company
in May 1996. From February 1993 to May 1996, Mr. Bell was Executive Vice
President--Operations, Family Division of FRI. Prior thereto, from October
1983 to February 1993 he was Vice President of Operations of Coco's and the
predecessor company of FRI, REG.
C. ROBERT CAMPBELL became Executive Vice President of the Company in June
1996. From May 1995 to the present, Mr. Campbell has served as Vice President
and Chief Financial Officer of FCI and Executive Vice President and Chief
Financial Officer of Flagstar. Prior thereto, from 1991 to May 1995 he was
Executive Vice President of Human Resources and Administration for Ryder
System, Inc. and from 1981 to 1991 he was Executive Vice President--Finance of
Vehicle Leasing Division of Ryder System, Inc.
HONORIO J. PADRON became Senior Vice President, Business Engineering and
Technology of the Company in May 1996. From April 1996 to the present, Mr.
Padron has served as Senior Vice President, Business Engineering and
Technology of Flagstar. Prior thereto, from March 1995 to April 1996 he was
Vice President, Business Transformation of Flagstar, from January 1995 to
March 1995 he was Senior Director of Research and Development of Burger King
Corporation, from 1993 to January 1995 he was Director of Re-engineering of
Burger King Corporation, in 1993 he was Director of Worldwide Profit and Loss
Improvement of Burger King Corporation and from 1990 to 1993 he was Manager of
Systems Support of Burger King Corporation.
30
<PAGE>
RHONDA J. PARISH became Senior Vice President, General Counsel and Secretary
of the Company in May 1996. From January 1995 to the present, Ms. Parish has
served as Senior Vice President and General Counsel of Flagstar and as Vice
President and General Counsel of FCI. In addition, from February 1995 to the
present, Ms. Parish has served as Secretary of Flagstar and FCI. From 1990 to
1994, she was Assistant General Counsel of Wal-Mart Stores, Inc.
RONALD B. HUTCHISON became Vice President and Treasurer of the Company in
May 1996. From August 1995 to the present, Mr. Hutchison has served as Vice
President and Treasurer of Flagstar. From 1988 to August 1995, he was Vice
President and Treasurer of Leaseway Transportation Corp.
BETH L. LIBHART became Vice President, Human Resources of the Company in May
1996. From 1988 to May 1996, Ms. Libhart was Director of Employee Relations of
FRI and its predecessor company, REG.
CAROLYN TOTH became Vice President, Research and Development of the Company
in May 1996. From December 1993 to May 1996, Ms. Toth was Vice President, Food
and Beverage of Coco's. Prior thereto, from 1991 to December 1993, she was
Director of Food and Beverage of Coco's and the predecessor company of FRI,
REG.
ANN A. WRIDE became Vice President and Chief Financial Officer of the
Company in May 1996. From March 1994 to May 1996, Ms. Wride was Vice President
of Finance of FRI. Prior thereto, from March 1989 to March 1994, she was
Controller of El Torito, FRI and its predecessor company, REG.
WILLIAM J. BOGER became Vice President, Development of CFC, a wholly-owned
subsidiary of the Company, in May 1996. From 1986 to May 1996, Mr. Boger was
Vice President, Development of FRI and its predecessor company, REG.
WILLIAM A. COSTON became Vice President, International of CFC, a wholly-
owned subsidiary of the Company, in May 1996. From 1986 to May 1996, Mr.
Coston was Vice President, International of FRI and its predecessor company,
REG.
JAMES B. ADAMSON became a Director of the Company in May 1996. From February
1995 to the present, Mr. Adamson has served as President, Chief Executive
Officer and a Director of Flagstar and FCI. Prior thereto, from 1993 to
January 1995 he was Chief Executive Officer of Burger King Corporation, from
1991 to 1993 he was Chief Operating Officer of Burger King Corporation and in
1991 he was President of Burger King U.S.A. Retail Division. He is also a
director of Kmart Corporation and Oxford Health Plans.
ELLEN DOWNEY became a Director of the Company in May 1996. From 1993 to the
present, Ms. Downey has been a private investor in Miami, Florida. Prior
thereto, from 1991 to 1993, she was Vice President and Treasurer of Ryder
System and from 1988 to 1991 she was Vice President and Group Controller of
Ryder Dedicated Logistics.
PAUL E. RAETHER became a Director of the Company in May 1996. Mr. Raether is
a member of the limited liability company that serves as the General Partner
of Kohlberg Kravis Roberts & Co., L.P. ("KKR") and is a General Partner of KKR
Associates and prior to January 1996 he served as a General Partner of KKR. He
is also a director of Flagstar, FCI, Bruno's, Inc., Duracell International,
Inc., Fred Meyer, Inc., IDEX Corporation and The Stop & Shop Companies, Inc.
H. JAY SARLES became a Director of the Company in June 1996. From March 1993
to the present, Mr. Sarles has been Vice Chairman of Fleet Financial Group and
Chairman of Fleet Bank, N.A. Prior thereto, from April 1991 to March 1993, he
was President and Chief Executive Officer of Fleet Banking Group. He is also a
director of the Consumers Bankers Association and ABA Securities Association.
MICHAEL T. TOKARZ became a Director of the Company in May 1996. Mr. Tokarz
is a member of the limited liability company that serves as the General
Partner of KKR and is a General Partner of KKR Associates and prior to January
1996 he served as a General Partner of KKR. He is also a director of Flagstar,
FCI, IDEX Corporation, K-III Communications Corporation, Safeway, Inc. and
Walter Industries, Inc.
31
<PAGE>
DIRECTOR COMPENSATION
The Company pays those directors who are not affiliated with the Company,
Flagstar or FCI $10,000 per year for service on its board of directors. The
Company does not pay any fees or remuneration to its other directors for
service on its board of directors or any board committee, but the Company
reimburses all directors for their out-of-pocket expenses incurred in
connection with attending meetings of the board.
EXECUTIVE COMPENSATION
Summary Compensation Table. The Company was incorporated as a Delaware
corporation in February 1996. Accordingly, the Company did not pay any cash
compensation to its executive officers for the year ended December 31, 1995.
The following table sets forth the annual base salary and other annual
compensation for services rendered to the Company and its subsidiaries which
the Company expects to pay in 1996 to the Company's Chief Executive Officer
and each of the other four most highly compensated executive officers of the
Company whose cash compensation on an annualized basis is expected to exceed
$100,000 (salary and bonus) (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ---------------
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION(2) OPTIONS/SARS(3)
<S> <C> <C> <C> <C> <C>
Mark L. Shipman......... 1996 $250,000 $162,500 $2,000 50,000
(President)
Kenneth R. Bell......... 1996 167,632 34,923(4) 1,900 25,000
(Executive Vice Presi- 44,003(5)
dent, Operations)
Ann A. Wride............ 1996 130,000 17,750(4) 5,800 25,000
(Vice President, 34,125(5)
Finance and Chief
Financial Officer)
Willaim J. Boger........ 1996 124,656 25,970(4) 1,400 25,000
(Vice President, 32,722(5)
Franchise Development
of CFC)
William A. Coston....... 1996 119,350 24,865(4) 1,450 25,000
(Vice President, Inter- 31,329(5)
national of CFC)
</TABLE>
- ---------------------
(1) Amounts given are annualized projections for the year ending December 31,
1996.
(2) Represents imputed value of life insurance provided by the Company and car
allowances.
(3) Represents options to purchase shares of FCI common stock granted in 1996.
See "--Option Grants in 1996" and "--1989 Option Plan".
(4) Represents bonus compensation earned prior to the Acquisition and payable
by the Company.
(5) Represents estimated bonus compensation for post-Acquisition services to
the Company.
Employment Arrangements. Pursuant to the Company's employment arrangement
with Mr. Shipman, the Company has agreed to provide Mr. Shipman a performance
bonus targeted to equal 65% of his 1996 annual base salary (determined on a
pro-rata basis from June through December 1996) if Flagstar and/or the Company
achieve budgeted financial and other performance targets. Twenty-five percent
of Mr. Shipman's targeted bonus will be paid only in the event Flagstar's cash
flow (calculated as cash generated in Flagstar's restaurant operations, after
restaurant and corporate-level expenses and capital expenditures) meets or
exceeds $229 million and Flagstar's comparable store sales (calculated to
include all of Flagstar's restaurants) for 1996 exceeds such sales for 1995 by
three percent or greater. An additional twenty-five percent of Mr. Shipman's
targeted bonus will be paid only in the event the Company meets or exceeds its
budgeted sales target for June 1996 through December 1996. A further twenty-
five percent of Mr. Shipman's targeted bonus will be paid only in the event
32
<PAGE>
the Company meets or exceeds its budgeted pro-forma EBITDA target for June
1996 through December 1996. The final twenty-five percent of Mr. Shipman's
targeted bonus will be paid at the discretion of the Chief Executive Officer
of Flagstar, based on both financial and non-financial measures. In the event
the Company terminates Mr. Shipman's employment for a reason other than fraud,
dishonesty or as a result of the commission of illegal acts, the Company has
agreed to provide Mr. Shipman, upon the satisfaction by Mr. Shipman of certain
conditions, with twenty-four months of severance benefits at his then-existing
base salary. All other employees of the Company (including its other executive
officers) are eligible to receive incentive bonus payments and/or severance
benefits under the terms of incentive and severance programs administered by
the Company or Flagstar, as the case may be.
Option Grants in 1996. The following table contains information concerning
the grant of stock options to the Named Executive Officers under FCI's 1989
Option Plan made or expected to be made for the year ended December 31, 1996.
The table also lists potential realizable values of such options on the basis
of assumed annual compounded stock appreciation rates of 5% and 10% over the
life of the options.
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF SHARE
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(4)
OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE(3) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Mark L. Shipman......... 50,000 5.7% $ 6 May 2006 $ 20,729 $ 210,708
Kenneth R. Bell......... 25,000 2.9% $ 6 May 2006 $ 10,365 $ 105,354
Ann A. Wride............ 25,000 2.9% $ 6 May 2006 $ 10,365 $ 105,354
William J. Boger........ 25,000 2.9% $ 6 May 2006 $ 10,365 $ 105,354
William A. Coston....... 25,000 2.9% $ 6 May 2006 $ 10,365 $ 105,354
</TABLE>
- ---------------------
(1) Such options were granted under FCI's 1989 Option Plan in connection with
the initial employment of the Named Executive Officers by the Company.
These options become exercisable in five equal installments on the first,
second, third, fourth and fifth anniversaries of their May 23, 1996 date
of grant.
(2) Under the 1989 Option Plan, the exercise price upon the exercise of an
option may be paid in cash or by surrender of other shares of common stock
of FCI having a fair market value on the date of exercise equal to such
exercise price, or in a combination of cash and such shares.
(3) The expiration date of the options is ten years after the date of grant.
In addition, upon termination of employment of a holder, all of such
holder's options not then exercisable expire and terminate. If such
termination is by reason of death, retirement or disability, such holder's
exercisable options remain exercisable for one year following termination.
If such termination is voluntary or without cause, such holder's
exercisable options generally remain exercisable for sixty days following
termination. If such termination is for cause, such holder's exercisable
options expire and terminate as of the date of termination.
(4) The potential realizable value is reported net of the option price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% only from
the date of grant to the expiration date of the option.
1989 OPTION PLAN
Under the 1989 Option Plan, the Compensation and Benefits Committee of the
Board of Directors of FCI has authority to grant options to key employees of
the Company (including officers) and otherwise administer the 1989 Option
Plan. Such committee consists of five members of the Board of Directors of FCI
who are "disinterested persons" within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Any employee of the Company is eligible to receive options under the 1989
Option Plan, at the discretion of the Committee. In the event that an
outstanding option terminates for any
33
<PAGE>
reason, the shares of common stock of FCI subject to the unexercised portion
of such option shall again be available for grants under the 1989 Option Plan.
An option granted under the 1989 Option Plan entitles the participant to
purchase shares of common stock of FCI at an option exercise price determined
by the committee. Option agreements may provide for the exercise of options,
in whole or in part, from time to time during the term of the option or in
such installments as the committee shall determine, subject to earlier
termination upon certain events as provided in the 1989 Option Plan. The
committee may, in its discretion, accelerate the date on which an option
becomes exercisable. The options are not "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended. The maximum term
of each option is ten years. The exercise price of all options granted
pursuant to the 1989 Option Plan is determined by the Committee at the time of
grant, but cannot be less than the minimum price required by law. The exercise
price of shares of common stock of FCI purchased upon exercise of an option
may be paid in cash, by surrender of other shares of common stock of FCI
having a fair market value on the date of exercise equal to such exercise
price, or subject to the approval of the committee, in a combination of cash
and such shares.
Upon termination of the services of a participant, all options granted to
such participant that are not then exercisable shall expire and terminate. If
such termination is by reason of death, retirement or disability, such
holder's exercisable options shall remain exercisable for one year following
termination. If such termination is due to voluntary termination or
termination without cause, such holder's exercisable options shall generally
remain exercisable for sixty days following termination. If such termination
is for cause, all of such holder's options shall expire and terminate as of
the date of termination.
Options granted under the 1989 Option Plan are nontransferable and
nonassignable by the optionee, other than by will or the laws of descent and
distribution, and are exercisable during his or her lifetime only by the
optionee. No option may be exercised after the expiration of its term. Neither
the Company, Flagstar nor FCI receives any proceeds upon the grant of options.
Any proceeds received by FCI from the sale of its common stock on the exercise
of options shall be used for general corporate purposes. No partial exercise
of an option shall be for an aggregate exercise price of less than $1,000 or
in respect of less than 100 shares of common stock of FCI. The partial
exercise of an option shall not cause termination of the remaining portion
thereof.
Upon the occurrence of certain events involving a recapitalization or
reorganization of FCI, the committee will make appropriate adjustments to the
number of shares covered by each outstanding option and the per share exercise
price thereof, redeem such options (whether or not then exercisable), or make
other appropriate adjustments, in its discretion, to prevent dilution or
enlargement of rights.
The Board of Directors of FCI may at any time suspend or discontinue the
1989 Option Plan or revise or amend it any respect whatsoever; provided,
however, that without approval of the stockholders of FCI, no revision or
amendment shall increase the number of shares of common stock of FCI that may
be issued under the 1989 Option Plan, materially increase the benefits
accruing to individuals holding options pursuant to the 1989 Option Plan or
materially modify the requirements as to eligibility for participation in the
1989 Option Plan. As of July 1, 1996, options with respect to approximately
3,825,290 shares of common stock of FCI had been granted and were outstanding
under the 1989 Option Plan.
34
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date hereof with
respect to the beneficial ownership of shares of common stock of the Company
(the "Common Stock"):
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF
OF SHARES OUTSTANDING
BENEFICIAL OWNER(1) OWNED SHARES
<S> <C> <C>
Flagstar Corporation...................................... 1,000 100%
203 East Main Street
Spartanburg, South Carolina 29319
</TABLE>
- ---------------------
(1) The beneficial owner has the sole power to vote and to dispose of all
shares of Common Stock.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consisted of 1,000 shares of Common Stock, of which 1,000 shares were
outstanding. There is no public trading market for the Common Stock. Holders
of Common Stock are entitled to one vote per share on any matter coming before
the stockholders for a vote. The Company does not expect in the foreseeable
future to pay dividends on the Common Stock.
35
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES AGREEMENT
Pursuant to a Management Services Agreement, dated as of May 24, 1996,
between Flagstar and the Company (the "Management Agreement"), Flagstar has
agreed to provide those management and support services that are requested
from time to time by the Company and its subsidiaries and that are of a nature
and extent generally performed by Flagstar. The term of the Management
Agreement continues through July 31, 2004, with automatic renewal for
successive one year terms unless otherwise terminated pursuant to its terms.
Pursuant to the Management Agreement, the Company shall pay Flagstar a
quarterly management fee equal to one percent of the Company's consolidated
net revenues during the preceding fiscal quarter. In addition, the Company
shall reimburse Flagstar on a quarterly basis for the Company's and its
subsidiaries' portion of shared administrative services provided by Flagstar
or any other subsidiary of Flagstar during the preceding fiscal quarter (such
reimbursement, together with the management fee described in the preceding
sentence, the "Management Charge"). However, in the event that the Company's
Consolidated EBITDA for the Reference Period (each as defined in "Description
of Notes") (calculated to exclude all expenses related to the Permitted
Royalties (as defined in "Description of Notes") and the Management Charge)
exceeds (the "Surplus") two times the Company's Consolidated Fixed Charges (as
defined in "Description of Notes") for such period, then the Company shall pay
Flagstar the lesser of the Management Charge and the Surplus for such period.
The Indenture and the Credit Agreement each impose limits on the amount of
payments from the Company to Flagstar and its affiliates under the Management
Agreement. To the extent the applicable management fee is not permitted to be
paid by the Company to Flagstar as a result of such restrictions contained in
the Indenture and Credit Agreement, such management fee shall be deferred and
Flagstar's claim therefor shall rank junior in right of payment to the Notes.
See "Description of Notes" and "Description of Credit Agreement."
TAX SHARING AND ALLOCATION AGREEMENT
Pursuant to a Tax Sharing and Allocation Agreement, dated as of May 23,
1996, by and among FCI, the Company, FRI-M and the direct and indirect
subsidiaries of FRI-M (the "Tax Allocation Agreement"), FCI has agreed to file
a consolidated federal income tax return, under which the federal income tax
liability of FCI and its subsidiaries is determined on a consolidated basis.
The Tax Sharing Agreement provides that in any year in which the Company, FRI-
M and its subsidiaries are included in any consolidated federal income tax
return of FCI and have taxable income, the Company will pay to FCI the amount
of the tax liability the Company, FRI-M and its subsidiaries would have had on
such due date if the Company, FRI-M and its subsidiaries had been filing a
separate consolidated return. Conversely, if the Company, FRI-M and its
subsidiaries generates losses or credits which actually reduce the
consolidated tax liability of FCI and its other subsidiaries, FCI will credit
to the Company the amount of such reduction in the consolidated tax liability
to the extent of tax payments previously made by the Company. These credits
are passed between FCI and the Company in the form of cash payments. In the
event any state and local income taxes are determinable on a combined or
consolidated basis, the Tax Allocation Agreement provides for a similar
allocation between FCI and the Company of such state and local taxes. The Tax
Allocation Agreement also provides that no payment shall be made by the
Company, FRI-M or any of its subsidiaries to FCI thereunder if it would
violate the provisions of the Indenture. The Indenture permits payments
required to be made pursuant to the Tax Allocation Agreement in accordance
with the terms thereof only if no Default or Event of Default (each as
defined) has occurred and is continuing or would occur as a consequence
thereof and if on the Interest Payment Date (as defined) immediately prior to
the date of the obligation to make such tax payment first accrued, interest on
the Notes was paid in Cash. To the extent any tax payment is not permitted to
be paid by the Company to Flagstar as a result of such restrictions contained
in the Indenture, any such tax payment shall be deferred and Flagstar's claim
therefor shall rank junior in right of payment to the Notes. See "Description
of Notes--Certain Covenants--Restricted Payments."
FOOD PRODUCT PURCHASING
The Company uses Flagstar's purchasing department to make centralized
purchasing arrangements for the main ingredients, supplies and equipment needs
of all Coco's and Carrows restaurants. Pursuant to such purchasing
arrangements, the Company pays suppliers directly. See "Business--Food Product
Purchasing."
36
<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
The Credit Agreement was entered into as of May 23, 1996 among the Company,
as Guarantor, FRI-M, as Borrower (the "Borrower"), Bankers Trust Company,
Chemical Bank and Citicorp USA, Inc., as Co-Syndication Agents (collectively,
the "Co-Agents"), Credit Lyonnais New York Branch, as Administrative Agent and
the other lenders party thereto (collectively, the "Banks"). The Credit
Agreement provides for a $56 million term loan (the "Term Loan") and a $35
million revolving credit facility (the "Revolving Credit Facility"), which is
also available for letters of credit. A copy of the Credit Agreement is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
Proceeds from the Term Loan were used by the Company for the acquisition of
all of the outstanding shares of capital stock of FRI-M and its subsidiaries,
and to pay the transactions costs associated therewith. Proceeds from the
Revolving Credit Facility are to be used for working capital requirements and
other general corporate purposes, which may include the making of intercompany
loans to any of the Borrower's wholly owned subsidiaries for their own working
capital and other general corporate purposes. Letters of credit may be issued
under the Revolving Credit Facility for the purpose of supporting (i) workers'
compensation liabilities of the Borrower or any of its subsidiaries, (ii) the
obligations of third party insurers of the Borrower or any of its
subsidiaries, and (iii) certain other obligations of the Borrower and its
subsidiaries.
Term Loan. The Term Loan matures on August 31, 1999. Principal installments
of the Term Loan are payable quarterly as follows: $4 million per quarter for
four consecutive quarters beginning February 28, 1997; $5 million for four
consecutive quarters beginning February 28, 1998; $6 million on February 28,
1999; and $7 million for two consecutive quarters beginning May 31, 1999. All
amounts owing under the Term Loan are required to be repaid on August 31,
1999.
Revolving Credit Facility. The commitment to make loans or issue letters of
credit pursuant to the Revolving Credit Facility expires, and all amounts
outstanding under the Revolving Credit Facility must be repaid, on August 31,
1999 (the "Termination Date").
Interest and Letter of Credit Fees. Amounts outstanding under the Term Loan
and the Revolving Credit Facility bear interest at an annual rate equal to,
generally at Borrower's option, either (a) the sum of the Base Rate (as
defined) plus 1.50%, or (b) the sum of the Eurodollar Rate (as defined) plus
2.75%. At May 23, 1996, the interest rate in effect was 8.19%. Interest on
both the Term Loans and the Revolving Credit Facility is payable quarterly in
arrears on amounts at a rate determined by reference to the Base Rate, or, on
amounts at a rate determined by reference to the Eurodollar Rate ("Eurodollar
Rate Advances"), if applicable, on the last day of each Eurodollar interest
period (one, two, three or six months), or every three months in the case of a
six-month interest period. Letter of Credit Fees of 3.00% per annum of the
maximum amount available to be drawn under such Letters of Credit, consisting
of a 2.75% letter of credit fee and a 0.25% fronting fee, are payable
quarterly in arrears commencing May 31, 1996.
Optional Prepayments. Borrowings under the Credit Agreement may be repaid,
in whole or in part, in the case of Base Rate Advances, upon not less than one
Business Day's (as defined) notice, and in the case of Eurodollar Rate
Advances, upon not less than three Business Day's notice, provided that a
Eurodollar Rate Advance may only be prepaid on the expiration date of the
applicable Eurodollar interest period. Any optional partial prepayment of the
Term Loan shall be applied to installments scheduled to be paid during the
twelve months immediately following the date of such prepayment, with any
excess being applied ratably to the scheduled installments of the Term Loan.
Mandatory Prepayments. The Credit Agreement requires the Borrower to make
mandatory prepayments in certain circumstances out of its Consolidated Excess
Cash Flow (as defined), out of cash proceeds of certain asset sales, out of
assets distributed to the Company, the Borrower or any of Borrower's direct or
indirect subsidiaries (each, a "Loan Party") in connection with an employee
benefit plan termination and out of net cash proceeds received by a Loan Party
from certain other sources. Any mandatory partial prepayment of the Term
37
<PAGE>
Loan shall be applied to installments scheduled to be paid during the twelve
months immediately following the date of such prepayment, with any excess
being applied ratably to the scheduled installments of the Term Loan.
Certain Covenants. The Credit Agreement contains certain restrictive
covenants which, among other things, limit (subject to certain exceptions) the
Borrower and its subsidiaries with respect to (a) incurrence of debt; (b) the
existence of liens; (c) investments and joint ventures; (d) the declaration or
payment of dividends; (e) the making of guarantees and other contingent
obligations; (f) the amendment or waiver of certain related agreements; (g)
mergers, consolidations, liquidations and sales of assets (including sale and
leaseback transactions); (h) payment obligations under leases; (i)
transactions with shareholders and affiliates; (j) the sale, assignment,
pledge or other disposition of shares of Borrower or its subsidiaries by
Borrower or its subsidiaries; (k) capital expenditures; and (l) material
changes in their business.
The Credit Agreement also imposes on the Company, the Borrower and its
subsidiaries certain financial tests and minimum ratios which, among other
things, require that Borrower (a) shall not permit the ratio of Consolidated
Adjusted EBITDA (as defined) to Consolidated Interest Expense (as defined) to
be less than levels increasing from 1.50 to 1 for the fiscal quarter ending
September 26, 1996 to 2.10 to 1 for the fiscal quarter ending September 23,
1999 and for each fiscal quarter thereafter; (b) permit the ratio of
Consolidated Total Debt (as defined) to Consolidated Adjusted EBITDA (as
defined) to exceed a level varying from 5.65 to 1 for the fiscal quarters
ending September 26, 1996 to 3.65 to 1 for the fiscal quarter ending September
23, 1999 and for each fiscal quarter thereafter; and (c) shall not permit
Consolidated Adjusted EBITDA to be less than an amount increasing from $11.2
million for the fiscal quarter ending September 26, 1996 to $49.5 million for
the fiscal year ending June 25, 1998 and each four-fiscal quarter period
thereafter.
Guarantees and Collateral. The Company and all of the Borrower's
subsidiaries have guaranteed the obligations of the Borrower under the Credit
Agreement and the other Loan Documents (as defined). All of the issued and
outstanding common stock of the Borrower and its subsidiaries has been pledged
as security for the obligations of the Company under the Credit Agreement and
the other Loan Documents. The obligations of the Borrower under the Credit
Agreement and the other Loan Documents are secured by substantially all assets
of the Borrower and its subsidiaries.
38
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes were issued pursuant to an Indenture (the "Indenture") between the
Company and The Bank of New York, as trustee (the "Trustee"). The terms of the
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders
of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain 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. Copies of the Indenture and Registration Rights Agreement have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part and are available as set forth under "Available Information". The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions."
The Notes are senior, unsecured, general obligations of the Company. The
Notes rank senior in right of payment to all existing and future subordinated
Indebtedness of the Company and will rank pari passu in right of payment with
all existing and future unsubordinated Indebtedness of the Company, including
under the company's guarantee of borrowings under the Credit Agreement. In
addition, the Notes are effectively subordinated to secured Indebtedness of
the Company to the extent of the value of the assets securing such
Indebtedness, including borrowings under the Credit Agreement. Borrowings
under the Credit Agreement are secured by substantially all of the Company's
assets.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes are
effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of the Company's
Subsidiaries. Any right of the Company to receive assets of any of its
Subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of that Subsidiary's creditors,
except to the extent that the Company is itself recognized as a creditor of
such Subsidiary, in which case the claims of the Company would still be
subordinate to any security in the assets of such Subsidiary and any
indebtedness of such Subsidiary senior to that held by the Company.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150 million
(excluding Secondary Securities (as defined below) and additional Securities,
if any, issued pursuant to the purchase price adjustment provisions set forth
in the Purchase Agreement) and mature on July 15, 2004. Interest on the Notes
accrues at the rate of 12 1/2% per annum and will be payable semi-annually in
arrears on January 15 and July 15, commencing on July 15, 1996, to holders of
record on the immediately preceding January 1 and July 1. Interest on the
Notes accrues 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 is
computed on the basis of a 360-day year comprised of twelve 30-day months. If
on any Record Date occurring on or prior to the 39-month anniversary of the
Issue Date, the ratio of (a) the sum of (i) the Company's Consolidated EBITDA
for the Reference Period plus (ii) the aggregate amount of expenses relating
to Permitted Royalties and Permitted Management Fees deducted in calculating
such Consolidated EBITDA to (b) the Company's Consolidated Interest Expense
for the Reference Period (excluding to the extent included therein (A)
amortization of original issue discount and deferred financing frees and (B)
that portion of the principal amount of the Securities issued in payment of
interest on the Securities that is in excess of the amount of interest that
would have been payable if interest had been paid in cash) is less than
1.25:1, then the Company may at its option pay the interest due on the
Securities on the applicable Interest Payment Date in additional Securities
("Secondary Securities") having a principal amount equal to the amount of such
interest due (accrued at an annual interest rate of 14%); provided, that
interest may be paid in Secondary Securities on no more than four Interest
Payment Dates. In such event, the Credit Agreement requires the Company to pay
interest in Secondary Securities.
39
<PAGE>
Principal, premium and interest on the Notes is payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the holders of the Notes at their respective addresses set
forth in the register of holders of Notes. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof; provided, however, that Secondary
Securities issued in lieu of cash interest payments pursuant to the Indenture
may be in denominations of greater or less than $1,000.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to May 23, 2001.
Thereafter, the Notes are subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest to the applicable redemption date, if
redeemed during the twelve-month period beginning on May 23 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001.......................................... 105.0%
2002.......................................... 102.5%
2003 and thereafter........................... 100.0%
</TABLE>
Notwithstanding the foregoing, at any time prior to May 23, 1999, the
Company may also redeem up to $50 million aggregate principal amount of the
Notes, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
redemption date, with the Net Cash Proceeds from one Initial Public Equity
Offering of the Company, if redeemed during the twelve-month period beginning
on May 23 of the years indicated below; provided that at least $60 million in
aggregate principal amount of the Notes originally issued remain outstanding
immediately after such redemption and provided, further, that such redemption
occurs within 60 days of the date of the closing of such Initial Public Equity
Offering:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1997.......................................... 110.00%
1998.......................................... 108.75%
1999.......................................... 107.50%
</TABLE>
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes on a date (the
"Change of Control Payment Date") that is no later than 70 business days after
the occurrence of such Change of Control, pursuant to the offer described
below (the "Change of Control Offer") 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 (the "Change of Control Payment"). Within ten
days following any Change of Control, the Company will mail a notice to each
holder describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Notes pursuant to the procedures
required by the Indenture and described in such notice. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
40
<PAGE>
Prior to the mailing of the notice of a Change of Control Offer provided for
below, the Company shall either (i) repay, or cause to be repaid, in full all
Indebtedness and terminate, or cause to be terminated, all commitments under
the Credit Agreement to the extent the terms thereof require repayment upon a
Change of Control (or offer to repay, or cause to be offered to repay all such
Indebtedness in full and terminate, or cause to be terminated, all commitments
under the Credit Agreement and repay, or cause to be repaid, the Indebtedness
owed to each lender which has accepted such offer), or (ii) obtain, or cause
to be obtained, the requisite consent under the Credit Agreement, the terms of
which require repayment upon a Change of Control, to permit the repurchase of
the Securities as provided for herein. The Company shall comply with the
covenant in the immediately preceding sentence before it shall be required to
repurchase Securities upon the occurrence of a Change of Control; provided,
that any failure to so comply shall constitute an Event of Default.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will,
within one business day following the Change of Control Payment Date,
authenticate and mail (or cause to be transferred by book entry) to each
holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
The Credit Agreement contains prohibitions of certain events that would
constitute a Change of Control. In addition, the exercise by the holders of
Notes of their right to require the Company to repurchase the Notes would
cause a default under the Credit Agreement absent consent under the Credit
Agreement to such repurchase, even if the Change of Control itself does not,
due to the financial effect of such repurchases on the Company. Finally, the
Company's ability to pay cash to the holders of Notes upon a repurchase may be
limited by the Company's then existing financial resources.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, engage in an Asset Sale unless (1) either (a) the Net
Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to the
repurchase of Notes pursuant to an irrevocable, unconditional offer (the
"Asset Sale Offer") to repurchase Notes at a purchase price (the "Asset Sale
Offer Price") of 100% of principal amount, plus accrued interest to the date
of payment or (b) within 360 days of such Asset Sale, the Asset Sale Offer
Amount is (i) invested in assets (excluding inventory, other than inventory
for new restaurants) that constitute a Related Business or (ii) used to
permanently reduce the amount of Indebtedness incurred under the Credit
Agreement (including that in the case of a revolver or similar arrangement
that makes credit available, such commitment is so reduced by such amount),
(2) at least 75% of the consideration for such Asset Sale consists of Cash or
Cash Equivalents; provided, that this clause (2) shall not apply to the sale
of an existing restaurant and related equipment to a franchisee of the
Company, (3) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on a pro forma
basis, to, such Asset Sale, (4) the Company or such Subsidiary, as applicable,
receives fair market value for such Asset Sale.
An Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds
from Asset Sales not applied to the uses set forth in (1)(b) of the prior
paragraph (the "Accumulated Amount") exceeds $5.0 million. When
41
<PAGE>
the Accumulated Amount exceeds $5.0 million, the Company will be required to
make an Asset Sale Offer to purchase the maximum principal amount of Notes
that may be purchased out of the Accumulated Amount, at an offer price in cash
in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
holders thereof exceeds the Accumulated Amount, the Trustee shall select the
Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
Notwithstanding the foregoing, the Company and its Subsidiaries may (i) in
the ordinary course of business, consistent with past practice, (A) sell
assets acquired and held for resale in the ordinary course of business and (B)
sell obsolete equipment, (ii) convey, sell, lease, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with the provisions
of the Indenture and (iii) convey, sell, transfer, assign or otherwise dispose
of assets to the Company or any of its Wholly Owned Subsidiaries; and such
transactions shall not be deemed Asset Sales.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of an Asset Sale.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest ceases to accrue on Notes or portions of them called for
redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any distribution on account of the Company's or any of its
Subsidiaries' Equity Interests (other than dividends or distributions payable
in Equity Interests (other than Disqualified Stock) of the Company or
dividends, distributions or other payments payable to the Company or any
Wholly Owned Subsidiary of the Company by the company or any of its
Subsidiaries); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any Subsidiary or other Affiliate of
the Company; (iii) make any principal payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness of the Company
(other than (A) any obligations under the Credit Agreement or (B) Indebtedness
of the Company owed to any of its Wholly Owned Subsidiaries) that is pari
passu with or subordinated to the Notes (other than Notes), except at final
maturity of such Indebtedness; (iv) make any payment or distribution to
Flagstar Companies, Inc. ("FCI"), Flagstar, or any of their respective
Affiliates (other than the Company and its Subsidiaries; or (v) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (v) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
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<PAGE>
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Coverage
Ratio test set forth in the first paragraph of the covenant described below
under caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clause (v) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests sold to a
Subsidiary of the Company and other than Disqualified Stock).
The foregoing provisions will not prohibit (u) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (v) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (w) if no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof, the payment of Permitted
Royalties to Flagstar or FCI or any of their respective Affiliates and the
payment of Permitted Management Fees; provided, that on the date (the
"Reference Date") of such payment (after giving effect thereto) (1) the
aggregate amount of Permitted Management Fees and Permitted Royalties paid in
cash on or after the first day of the second quarter of the Reference Period
(the "Start Date") does not exceed (2) the excess of (A) the Company's
Consolidated EBITDA for the Reference Period (calculated to exclude all
expenses related to the Permitted Royalties and Permitted Management Fee) over
(B) 2.0 times the Company's Consolidated Fixed Charges for the Reference
Period (provided, that if the Start Date is prior to the Issue Date, for
purposes of clause (1) above, the aggregate amount of Permitted Royalties and
Permitted Management Fees paid in cash shall be deemed to equal those amounts
paid in cash on or after the Issue Date and on or prior to the Reference Date
multiplied by a fraction, the numerator of which is 365 and the denominator of
which is the number of days from the Issue Date through the Reference Date);
(x) if no Default or Event of Default has occurred and is continuing or would
occur as a consequence thereof, payments required to be made pursuant to the
Tax Allocation Agreement in accordance with the terms thereof; provided, that
on the Interest Payment Date immediately prior to the date of the obligation
to make such payment first accrued, interest on the Notes was paid in cash;
(y) Investments in securities or other non-cash consideration received in and
solely as a result of (i) any restructuring or bankruptcy proceeding of any
Person; provided, that the interest of the Company and its Subsidiaries in
such Person giving rise to such Investment were permitted hereunder or (ii)
any Asset Sale made in compliance with the terms of the Indenture; or (z) the
payment of Permitted Advertising Fees to Flagstar or FCI or any of their
respective Subsidiaries.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
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Incurrence of Indebtedness and Issuance of Capital Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty, extend the maturity of or otherwise become directly or indirectly
liable, contingently or otherwise (collectively, "incur"), with respect to any
Indebtedness (including as a result of an Acquisition) or issue any
Disqualified Capital Stock. Notwithstanding the foregoing:
(i) The Company may incur Indebtedness if (i) no Default or Event of
Default shall have occurred and be continuing at the time of, or would
occur after giving effect on a pro forma basis to, such incurrence, (ii) on
the date of such incurrence, the Consolidated Coverage Ratio of the Company
for the Reference Period, after giving effect on a pro forma basis to such
incurrence of such Indebtedness, would be at least 2.0 to l, and (iii) the
Average Life of such Indebtedness is longer than that of the Notes and the
stated maturity of such Indebtedness is later than that of the Notes.
(ii) The Company may incur Indebtedness evidenced by the Notes and
represented by the Indenture.
(iii) FRI-M and its subsidiaries may incur Indebtedness in existence on
the Issue Date.
(iv) The Company and its Subsidiaries may incur Indebtedness pursuant to
the Credit Agreement in an aggregate amount outstanding at any time not to
exceed (a) $136 million minus (b) the sum of (1) the amount of any such
Indebtedness retired with Net Cash Proceeds from any Asset Sale or assumed
by a transferee in an Asset Sale and (2) all refinancings of Indebtedness
incurred under the Credit Agreement with Indebtedness incurred under
paragraph (v) below; provided, that the aggregate principal amount of term
Indebtedness incurred under this paragraph (iv) shall not exceed $86
million at any time and the aggregate principal amount of working capital
or other revolving Indebtedness incurred under this paragraph (iv)
(including letters of credit) shall not exceed $80 million at any time.
(v) The Company and its Subsidiaries may incur Indebtedness related to
mortgage financings, mortgage refinancings or sale and lease-back
transactions; provided, that the aggregate principal amount of such
Indebtedness is used solely to repay senior secured Indebtedness of such
person.
(vi) The Company and its Subsidiaries may incur Purchase Money
Indebtedness and Capitalized Lease Obligations; provided, that the
aggregate amount of such Indebtedness outstanding at any time, other than
Capitalized Lease Obligations existing on the Issue Date and permitted
Refinancings thereof, shall not exceed $25 million.
(vii) The Company and its Subsidiaries may incur Indebtedness
constituting reimbursement obligations with respect to letters of credit
(including workers' compensation claims); provided that such letters of
credit were permitted to be issued hereunder.
(viii) The Company may incur Indebtedness to any Wholly Owned Subsidiary,
and any Wholly Owned Subsidiary may incur Indebtedness to any other Wholly
Owned Subsidiary or to the Company but only so long as such Indebtedness is
owed to and held by the Company or a Wholly Owned Subsidiary.
(ix) The Company and its Subsidiaries may incur Indebtedness arising from
the overdraft of zero balanced bank accounts; provided, that the aggregate
amount of such Indebtedness outstanding at any time shall not exceed $5
million.
(x) The Company and its Subsidiaries may incur Indebtedness related to
surety and performance bonds issued in the ordinary course of business;
provided, that such incurrence does not result in the Incurrence of any
obligation for the payment of borrowed money of others.
(xi) The Company and its Subsidiaries may incur Indebtedness related to
Interest Swap and Hedging Obligations.
(xii) The Company and its Subsidiaries may incur Permitted Refinancing
Indebtedness with respect to any Indebtedness incurred under paragraphs (i)
and (iii) above.
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Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired, except
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, assume or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to the Company or
any of its Subsidiaries, (ii) make loans or advances to the Company or any of
its Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) set forth in any instruments
or agreements evidencing or governing Indebtedness of the Company or any such
Subsidiary (1) existing on the Issue Date (including the Credit Agreement as
in effect on the Issue Date) or (2) amending, supplementing, amending and
restating, or refinancing such Indebtedness; provided that the restrictions
contained in such refinancing (which, in the case of the Credit Agreement, may
apply to any present or future Subsidiary) are no more restrictive than those
contained in the agreements governing the debt being amended, supplemented,
amended and restated or refinanced, (b) applicable law, (c) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect 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, (d) by reason of customary non-assignment provisions
in leases entered into after the Issue Date and otherwise permitted under the
Indenture, or (e) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
Merger, Sale or Consolidation
The Indenture provides that the Company may not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other 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; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and the Indenture; (iii) no Default
or Event of Default shall exist or shall occur immediately before or after
giving effect on a pro forma basis to such transaction; (iv) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the consolidated surviving or transferee entity is at least equal to
the Consolidated Net Worth of the Company immediately prior to such
transaction; (v) immediately after giving effect to such transaction on a pro
forma basis, the consolidated surviving or transferee entity would immediately
thereafter be permitted to Incur at least $1.00 of additional Indebtedness
pursuant to the Consolidated Coverage Ratio test set forth in paragraph (i)
under the caption "--Incurrence of Indebtedness and Issuance of Capital Stock"
above; and (vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and, if a supplemental indenture is required, such
supplemental indenture complies with the Indenture and that all conditions
precedent therein relating to such transactions have been satisfied.
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Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to enter into or make any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Subsidiary with an unrelated Person, (ii)
if such transaction, individually or when aggregated with all other Affiliate
Transactions undertaken during the preceding twelve months, involves
consideration in excess of $50,000, a majority of the disinterested members of
the Board of Directors of the Company shall have made a determination prior to
the consummation thereof that such transaction complies with clause (i) above,
and (iii) if such Affiliate Transaction involves consideration in excess of
$5.0 million, prior to the consummation thereof, the Company obtains a written
favorable opinion as to the fairness of such transaction to the Company or
such Subsidiary from a financial point of view from an independent investment
banking firm of national reputation provided that the foregoing shall not
prohibit (w) transactions permitted by the provisions of the Indenture
described above under "--Restricted Payments," (x) customary fees paid to
independent directors of the Company by the Company or its Subsidiaries, (y)
the Management Services Agreement and a Permitted Franchise Agreement, and (z)
the Tax Allocation Agreement, provided that no Subsidiary is obligated to make
payments thereunder other than to the Company or a Wholly Owned Subsidiary, in
each case.
Restrictions on Sale and Issuance of Subsidiary Stock
The Company shall not sell, and shall not permit any of its Subsidiaries to
issue or sell, any shares of Capital Stock of any Subsidiary to any Person
other than the Company or a Wholly Owned Subsidiary of the Company (other than
the sale of all of the Capital Stock of any Subsidiary (a) permitted under the
Indenture as described in "--Asset Sales" and "--Merger, Sale or
Consolidation" or (b) pursuant to a foreclosure by the lenders conducted
pursuant to the Credit Agreement).
Line of Business
The Company will not, and will not permit any Subsidiary to, directly or
indirectly engage in any business other than (a) the ownership, operation or
franchising of family restaurants and (b) any business that in the reasonable,
good faith judgment of the Board of Directors of the Company is directly
related to such business.
Reports
The Indenture provides that, whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall timely file with the SEC (provided such filing is accepted by the SEC)
all reports, information and other documents that the Company is required or
would have been required to file with the SEC if the Company were subject to
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information, a report thereon by the Company's certified independent public
accountants as such would be required in such reports to the SEC, and, in each
case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required. The Company
shall deliver a copy of all such reports, information and other documents to
the Trustee (regardless of whether such filing is accepted by the SEC), and
cause the Trustee to provide a copy to each holder (at no cost to the holder)
and to prospective purchasers of Securities identified to the Company by the
holder (if requested, in writing), within 15 days after such reports,
information or documents are filed or would have been required to be filed
with the SEC. In addition, the Company has agreed that, for so long as any
Notes remain outstanding, it will furnish to the holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes; (ii) default in payment when due at maturity, redemption, by
acceleration, or otherwise, of the principal of or premium, if any, on the
Notes; (iii) failure by the Company to comply with the provisions described
under the captions "--Change of Control" or "--Asset Sales"; (iv) failure by
the Company for 30 days after notice from the Trustee or the holders of at
least 25% in aggregate principal amount of the outstanding Notes to observe or
perform any covenant, agreement or warranty contained in the Notes or the
Indenture (other than a default in the performance of any covenant, agreement
or warranty specifically covered by (i) or (ii) above, and including, without
limitation the covenants described in "--Restricted Payments," "--Incurrence
of Indebtedness and Issuance of Capital Stock," or "--Merger, Sale or
Consolidation"); (v) default under the Credit Agreement or other Indebtedness
of the Company or any of its Subsidiaries with an aggregate principal amount
in excess of $5 million, in each case (a) resulting from failure to pay
principal at final stated maturity (giving effect to extensions thereof) or
(b) as a result of which the maturity of such Indebtedness has been
accelerated prior to its stated maturity; (vi) failure by the Company or any
of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged, bonded or stayed for a
period of 60 days; and (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes by written
notice to the Company (and to the Trustee if given by holders) may declare all
the Notes to be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become immediately due and payable
without further action or notice by the Trustee or holders. Notwithstanding
the foregoing, in the event a declaration of acceleration resulting from an
Event of Default described in clause (v) above has occurred and is continuing,
such declaration of acceleration shall be automatically annulled if such
default is cured or waived or the holders of the Indebtedness which is the
subject of such default have rescinded their declaration of acceleration in
respect of such Indebtedness within 60 days thereof and the Trustee has
received written notice of such cure, waiver or rescission and no other Event
of Default described in clause (v) above has occurred that has not been cured
or waived within 60 days of the declaration of such acceleration in respect of
such Indebtedness. The holders of a majority in principal amount of the then
outstanding Notes are generally authorized to rescind such acceleration if all
existing Events of Default, other than the non-payment of the principal of,
premium, if any, and interest on the Notes which have become due solely by
such acceleration, have been cured or waived.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes or a Default or Event
of Default with respect to any covenant or provision which cannot be modified
or amended without the consent of the holder of each outstanding Note
affected.
Subject to certain limitations, holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power, provided that such direction shall not be in conflict with any rule
or law or with the Indenture and that the Trustee does not determine that the
action so directed would be unjustly prejudicial to the holders not taking
part in such direction.
The Company is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or
Event of Default and what action the Company is taking or proposes to take
with respect thereto.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No direct or indirect partner, director, officer, employee, incorporator or
stockholder, as such, past or future of the Company shall have any liability
for any obligations of the Company under the Notes, the Indenture by reason of
his or its status as such partner, director, officer, employee, incorporator
or stockholder. Each holder of Notes by accepting a Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that
such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below,
(ii) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be; (ii) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound and the Trustee shall receive a certificate from the administrative
agent under the Credit Agreement, if still in effect, to the effect that there
is no violation of the Credit Agreement; (vi) the Company must have delivered
to the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of
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Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and
(viii) the Company must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
percentage of principal amount of Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the rate of or change the time
for payment of interest on any Note, (iii) reduce the principal amount of any
Note, or reduce the Change of Control Payment, the Offer Price (as defined) or
the Redemption Price (as defined), (iv) change the Stated Maturity of any Note
or the Change of Control Payment Date or Purchase Date (as defined) of any
Note, (v) alter the redemption provisions of the Indenture described above in
"Optional Redemption," or the terms or provisions of the covenant in the
Indenture limiting sales of assets and subsidiary stock, described above in
"--Repurchase at the Option of Holders--Asset Sales," or the terms or
provisions of the Indenture described above in "--Repurchase at the Option of
Holders--Change of Control," in any case, in a manner adverse to any holder,
(vi) make any changes in the provisions of the Indenture concerning waivers of
Defaults or Events of Default by holders of the Securities or the rights of
holders to recover the principal or premium of, interest on, or redemption
payment with respect to, any Note, including without limitation any changes to
the amendment and waiver provisions of the Indenture referenced in (i) through
(vii) of this paragraph, or (vii) make the principal of, or the interest on,
any Note payable with anything or in any manner other than as provided for in
the Indenture (including changing the place of payment where, or the coin or
currency in which, any Note or any premium or the interest thereon is payable)
and the Notes as in effect on the date of the Indenture.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for collateral for
or guarantors of the Notes, to provide for the assumption of the Company's
obligations to holders of Notes in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of
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any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict and within 90 days, apply to the Commission
for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
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 and procedures. The Indenture provides that in case an
Event of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, FCI
or Flagstar. For purposes of this definition, the term "control" means the
power to direct the management and policies of a person, directly or through
one or more intermediaries, whether through the ownership of voting
securities, by contract, or otherwise; provided, that, a beneficial owner of
10% or more of the total voting power of the voting securities of any person
then outstanding shall for such purposes be deemed to constitute control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets other than in the ordinary course of business consistent with past
practices provided that the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "--Change of Control" and/or the provisions described
above under the caption "--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Wholly Owned
Subsidiary or by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned
Subsidiary to the Company or to another Wholly Owned Subsidiary, and (iii) a
Restricted Payment that is permitted by the covenant described above under the
caption "--Restricted Payments" will not be deemed to be Asset Sales.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years (or partial years) from the date of
determination to the date or dates of each successive scheduled principal (or
redemption) payment of such security or instrument and (b) the amount of each
such respective principal (or redemption) payment by (ii) the sum of all such
principal (or redemption) payments.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
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"Capitalized Lease Obligation" means rental obligations under a lease that
are required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations on
any date shall be the capitalized amount of such obligations on such date, as
determined in accordance with GAAP.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation
of any domestic commercial bank of recognized standing having capital and
surplus in excess of $500 million and commercial paper issued by others rated
at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at
least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing within one year after the date of acquisition and (iii)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) and (ii) above.
"Change of Control" means (i) any sale, lease, transfer, conveyance or other
disposition, whether direct or indirect, of all or substantially all of the
assets of the Company and its Subsidiaries, on a consolidated basis, in one
transaction or a series of related transactions, (ii) any "person" or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) (other than an Excluded Person), is
or becomes the beneficial owner, directly or indirectly, of more than 50% of
the total voting power of the voting securities of the Company, FCI or
Flagstar then outstanding, (iii) during any period of 24 consecutive months
after the Issue Date, individuals who at the beginning of any such 24 month
period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for election by
the shareholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election 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, or (iv) Flagstar ceases to be the
beneficial owner of at least 51% of the voting securities of the Company then
outstanding, or the Company ceases to be the beneficial owner of 100% of the
Capital Stock of FRI-M or any Significant Subsidiary then outstanding.
"Consolidated Coverage Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such person for the Reference
Period to (b) the aggregate Consolidated Fixed Charges of such person during
the Reference Period; provided, that for purposes of such calculation, (i)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (ii) the incurrence of any Indebtedness or issuance of any
Disqualified Capital Stock on or after the first day of the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of such Reference Period, and
(iii) Consolidated Fixed Charges attributable to interest on any Indebtedness
or dividends on any Disqualified Capital Stock bearing a floating interest (or
dividend) rate shall be computed on a pro forma basis as if the average rate
in effect from the beginning of the Reference Period to the Transaction Date
had been the applicable rate for the entire period, unless such Person or any
of its subsidiaries is a party to an Interest Swap or Hedging Obligation
(which shall remain in effect for the 12-month period immediately following
the Transaction Date) that has the effect of fixing the interest rate on the
date of computation, in which case such rate (whether higher or lower) shall
be used.
"Consolidated Depreciation and Amortization" means, with respect to any
person, for any period, the total consolidated depreciation and amortization
of such person and its Consolidated Subsidiaries for such period, as
determined in accordance with GAAP.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining such Consolidated Net
Income), without duplication, the sum of (i) Consolidated Income Tax Expense,
(ii) Consolidated Depreciation and Amortization, and (iii) Consolidated Fixed
Charges.
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"Consolidated Fixed Charges" means, with respect to any person, for any
period, the aggregate amount (without duplication) of (a) Consolidated
Interest Expense of such person for such period and (b) the amount of
dividends accrued, paid or payable by such person or any of its Consolidated
Subsidiaries in respect of Capital Stock (other than by subsidiaries of such
person to such person or such person's wholly owned subsidiaries).
"Consolidated Income Tax Expense" means, with respect to any person, for any
period, the total consolidated net income tax expenses of such person and its
Consolidated Subsidiaries for such period, as determined in accordance with
GAAP.
"Consolidated Interest Expense" means, with respect to any person, for any
period, the total consolidated interest expense of such person and its
Consolidated Subsidiaries for such period, whether paid or accrued (including
amortization of original issue discount, deferred financing fees, non-cash
interest payment, and the interest component of Capitalized Lease
Obligations). For purposes of this definition, interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by the Company to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any period,
the consolidated net income (or loss) of such person and its Consolidated
Subsidiaries (determined in accordance with GAAP) for such period, adjusted to
exclude (only to the extent included in computing such net income (or loss)
and without duplication) (a) all gains (but not losses) which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
Capital Stock), (b) the net income, if positive, of any person, other than a
wholly owned Consolidated Subsidiary, in which such person or any of its
Consolidated Subsidiaries has an interest, except to the extent of the amount
of any dividends or distributions actually paid in cash to such person or a
wholly owned Consolidated Subsidiary of such person during such period, but in
any case not in excess of such person's pro rata share of such person's net
income for such period, (c) the net income or loss of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, and (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation
of the terms of its charter or bylaws or any other agreement (other than the
Credit Agreement), instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Consolidated Subsidiary.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person and its Consolidated
Subsidiaries, as would be shown on the consolidated balance sheet of such
person prepared in accordance with GAAP, adjusted to exclude (to the extent
included in calculating such equity), (a) the amount of any such stockholders'
equity attributable to Disqualified Capital Stock or treasury stock of such
person and its Consolidated Subsidiaries, and (b) all upward revaluations and
other write-ups in the book value of any asset of such person or a
Consolidated Subsidiary of such person subsequent to the Issue Date, and (c)
all investments in subsidiaries of such person that are not Consolidated
Subsidiaries and in persons that are not subsidiaries of such person.
"Consolidated Subsidiary" means, for any Person, each subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated for financial
statement reporting purposes with the financial statements of such Person in
accordance with GAAP; provided, that Unrestricted Subsidiaries shall not be
Consolidated Subsidiaries of the Company.
"Credit Agreement" means (a) the credit agreement, dated as of the date
hereof, by and among the Company, FRI-M, certain financial institutions and
Credit Lyonnais New York Branch, as administrative agent, initially providing
for (A) an aggregate $56 million term loan facility, and (B) an aggregate $35
million revolving credit facility, together with the documents to be executed
by the Company, FRI-M or any of their respective subsidiaries in favor of the
banks under the Credit Agreement (including, without limitation, any related
guarantees and security agreements) in connection therewith, as such credit
agreement and/or related documents
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may be amended, amended and restated, extended, supplemented or otherwise
modified from time to time and (b) all refundings, refinancings, replacements
and other restructurings (whether by the same or any other agent, lender or
group of lenders) of all or any portion of the Indebtedness under the
agreements identified in clause (a) or this clause (b) (including for purposes
of clause (a) or clause (b) above, without limitation, those adding
Subsidiaries as additional borrowers or guarantors, or increasing the amount
of available borrowings thereunder); provided that the same would be permitted
pursuant to that covenant described above under clause (iv) of "--Incurrence
of Indebtedness and Issuance of Capital Stock."
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, Capital Stock of such person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of
the holder thereof) by such person or any of its subsidiaries, in whole or in
part, on or prior to July 15, 2004 and (b) with respect to any Subsidiary, any
Capital Stock of such Subsidiary (other than Capital Stock of such Subsidiary
so long as it is owned by the Company or any wholly owned Subsidiary).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect as of the Issue Date.
"Indebtedness" means, with respect to any Person (without duplication), (i)
all liabilities and obligations, contingent or otherwise, of such Person (a)
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of such Person or only to a portion thereof), (b)
evidenced by bonds, notes, debentures or similar instruments, (c) representing
the balance deferred and unpaid of the purchase price of any property or
services (other than trade payables to trade creditors incurred in the
ordinary course, on customary terms, no more than 90 days past due), (d)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks, (e) under Capitalized Lease Obligations, (f) evidenced by a letter of
credit or a reimbursement obligation of such Person with respect to any letter
of credit or (g) created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property);
(ii) all net obligations of such person under Interest Swap and Hedging
Obligations; (iii) all obligations to, directly or indirectly, purchase,
redeem, retire or otherwise acquire any Capital Stock of such Person or any of
its subsidiaries; (iv) all liabilities of others of the kind described in the
preceding clauses (i), (ii) or (iii) that such Person has, directly or
indirectly, guaranteed or that, directly or indirectly, is otherwise its legal
liability; and (v) all Indebtedness of the type referred to in clauses (i)
through (iv) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights) owned
by such person, even though such person has not assumed or become liable for
the payment of such Indebtedness; provided, that the amount of such
Indebtedness shall be the lesser of (x) the fair market value of such property
at the time of determination and (y) the amount of such Indebtedness.
"Initial Public Equity Offering" means a bona fide initial underwritten
offering of primary shares of common stock of the Company pursuant to an
effective registration statement on Form S-1 or other appropriate form under
the Securities Act.
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"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investments" by any Person means (a) the acquisition by such Person
(whether for cash, property, services, securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership or other ownership interests or
other securities, including any option or warrants, of any other Person or any
agreement to make any such acquisition; (b) the making by such person of any
deposit with, or advance, loan or other extension of credit to, any other
Person (including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property
to such other person) or any commitment to make such advance, loan or
extension (but excluding accounts receivable or deposits arising in the
ordinary course of business and travel and other advances of business expenses
to employees made in the ordinary course of business); (c) the entering into
by such Person of any guarantee of, or other credit support or contingent
obligation with respect to, any liability of any other Person (other than any
such guarantee that would constitute Indebtedness permitted to be incurred by
the covenant described above under "--Incurrence of Indebtedness and Issuance
of Capital Stock"); and (d) the making by such Person of any capital
contribution to or other investment in any other Person.
"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 or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Management Services Agreement" means that certain Management Services
Agreement, dated as of the Issue Date, between the Company and Flagstar, as
such agreement is in effect on the Issue Date.
"Net Cash Proceeds" means (a) in the case of a sale of Qualified Capital
Stock (i) the aggregate amount of Cash received by the Company, plus (ii) in
the case of an issuance of Qualified Capital Stock upon any exercise, exchange
or conversion of securities of the Company that were issued for Cash after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities, less (iii) the sum of all payments, fees,
commissions and expenses (including, without limitation, the fees and expenses
of legal counsel and investment banking fees and expenses) incurred in
connection with such sale of Qualified Capital Stock, and (b) in the case of
an Asset Sale, the aggregate amount of Cash and Cash Equivalents received by
the Company and its subsidiaries from such sale (including Cash and Cash
Equivalents received on or with respect to any non-cash proceeds), less the
sum of all reasonable and customary, direct, out-of-pocket fees and expenses
actually incurred and paid by the Company and its subsidiaries (other than
fees and expenses payable to, or on behalf of, Affiliates) in connection with
such Asset Sale.
"Permitted Franchise Agreement" means an agreement between the Company and
Flagstar or any of its subsidiaries pursuant to which the Company franchises
the Denny's or El Pollo Loco concepts from Flagstar or such subsidiary;
provided, that (i) the terms of such agreement are no less favorable to the
Company than those available to franchisees that are not Affiliates of or
otherwise related to Flagstar, (ii) all up-front and similar fees are waived,
(iii) advertising fees payable in any fiscal quarter do not exceed 3% of the
subject restaurant's net revenue for the immediately preceding fiscal quarter
("Permitted Advertising Fees") and (iv) no other royalties or fees are payable
by the Company thereunder except Permitted Royalties.
"Permitted Liens" means (a) Liens imposed by governmental authorities for
taxes not yet subject to penalty or which are being contested in good faith
and by appropriate proceedings, if adequate reserves with respect
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thereto are maintained on the books of the Company in accordance with GAAP;
(b) statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business; provided that (i) the underlying obligations are
not overdue for a period of more than 30 days, or (ii) such Liens are being
contested in good faith and by appropriate proceedings and adequate reserves
with respect thereto are maintained on the books of the Company in accordance
with GAAP; (c) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security legislation; (d) Liens incurred or deposits made securing
the performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, and governmental contracts incurred in the ordinary course of
business; (e) easements (or similar rights), rights-of-way, zoning, and
similar restrictions or right reserved to or vested in any governmental office
or agency to control or regulate the use of any real property, and immaterial
title defects and irregularities, in each case that do not, singly or in the
aggregate, materially detract from the value of the property subject thereto
or materially interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries; (f) Liens arising by operation of law in
connection with judgments, only to the extent, for an amount and for a period
not resulting in an Event of Default with respect thereto; (g) Liens securing
Purchase Money Indebtedness and Capitalized Lease Obligations permitted to be
incurred under this Indenture; provided, that such Liens relate only to the
property that is subject to such Purchase Money Indebtedness or Capitalized
Lease Obligation; (h) Liens securing Indebtedness permitted to be incurred
under subclause (iv) of the covenant described above in "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Capital Stock"; (i) Liens on assets
of the Subsidiaries existing on the Issue Date; (j) any (i) interest or title
of a lessor or sublessor under any lease permitted by this Indenture entered
into in the ordinary course of business, (ii) restriction or encumbrance that
the interest or title of such lessor or sublessor may be subject to, or (iii)
subordination of the interest of the lessee or sublessee under such lease to
any restriction or encumbrance referred to in the preceding clause (ii), so
long as the holder of such restriction or encumbrance agrees to recognize the
rights of such lessee or sublessee under such lease; (k) 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 in the ordinary
course of business; (l) licenses of patents, trademarks and other intellectual
property rights granted by Company or any of its Subsidiaries in the ordinary
course of business and not interfering in any material respect with the
ordinary conduct of the business of the Company or such Subsidiary; and (m)
other Liens on assets with an aggregate value not to exceed $1 million at any
time incurred in the ordinary course of business with respect to obligations
that do not exceed $1 million in the aggregate at any time outstanding.
"Permitted Management Fee" means a management fee payable in any fiscal
quarter not to exceed (a) 1.0% of net revenues of the Company and its
Subsidiaries during the immediately preceding fiscal quarter plus (b) the
actual allocated share of the cost of shared administrative services provided
by Flagstar or its subsidiaries to the Company and its Subsidiaries during
such quarter (which shall be calculated on a reasonable and consistent basis
and shall be certified quarterly by a certificate of the Chief Financial
Officer of Flagstar delivered to the Trustee); provided, that such amounts
shall be payable only to the extent that (after giving effect to such payment)
there is no Default or Event of Default.
"Permitted Refinancing Indebtedness" means Indebtedness (a) issued in
exchange for, or the proceeds from the issuance and sale of which are used
substantially concurrently to repay, redeem, defease, refund, refinance,
discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of (a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness in a principal amount not to exceed the lesser of (i) the
principal amount of the Indebtedness so refinanced and (ii) if such
Indebtedness being refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided, that (A) Permitted Refinancing Indebtedness shall
(x) not have an Average Life shorter than the Indebtedness being so refinanced
and (y) in all respects, be no less subordinated, if applicable, to the rights
of holders of the Securities than was the Indebtedness to be refinanced and
(B) such Permitted Refinancing Indebtedness shall have no installment of
principal (or redemption payment) scheduled to come due earlier than the
scheduled maturity of any corresponding installment of principal of the
Indebtedness to be so refinanced which was scheduled to come due prior to July
15, 2004.
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"Permitted Royalty" means a royalty payable pursuant to a Permitted
Franchise Agreement in any fiscal quarter not to exceed 4% of the subject
restaurant's net revenues for the immediately preceding fiscal quarter;
provided, that such amount shall be payable only to the extent that (after
giving effect to such payment) there is no Default or Event of Default.
"Purchase Money Indebtedness" means any Indebtedness incurred to finance the
acquisition of any real or personal tangible property; provided that (i) the
principal amount of such Indebtedness does not exceed 100% of such cost, (ii)
any Lien securing such Indebtedness does not extend to or cover any other
asset or property other than the asset or property being so acquired and (iii)
such Indebtedness is incurred, and any Liens with respect thereto are granted,
within 180 days of the acquisition of such property or asset.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Reference Period" means the last four full fiscal quarters of the Company
ended prior to the date upon which any determination is to be made pursuant to
the terms of the Notes or the Indenture for which financial statements have
been (or were required to be) delivered to the Trustee pursuant to the
Indenture, it being understood that if such four fiscal quarters include any
period prior to the Issue Date, the Reference Period shall include such period
on a pro forma basis.
"Related Business" means (a) the ownership, operation or franchising of
family restaurants and (b) any business that in the reasonable, good faith
judgment of the Board of Directors of the Company is directly related to such
business.
"Restricted Investment" means any direct or indirect Investment, other than
Investments (a) in Cash and Cash Equivalents, (b) in the Company or any Wholly
Owned Subsidiary, (c) made prior to the Issue Date, (d) in any Affiliate
solely for the purpose of obtaining liquor licenses and (e) other Investments
that do not exceed $100,000 in the aggregate at any time.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" with respect to any Note, means July 15, 2004.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Tax Allocation Agreement" means that certain Tax Allocation Agreement,
dated as of the Issue Date between FCI and the Company, as such agreement is
in effect on the Issue Date.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the significant federal income tax
consequences expected to result to holders from the purchase, ownership and
disposition of the Notes. This discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury Regulations, judicial authority and current administrative rulings
and pronouncements of the Internal Revenue Service (the "Service"). There can
be no assurance that the Service will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders.
The following summary is for general information only. The tax treatment of
a holder of the Notes may vary depending upon such holder's particular
situation. Certain holders (including, but not limited to, insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the
United States) may be subject to special rules not discussed below. EACH
PURCHASER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
ORIGINAL ISSUE DISCOUNT
General Original Issue Discount Rules
The amount of original issue discount, if any, on a debt instrument is the
excess of its "stated redemption price at maturity" over its "issue price,"
subject to a statutorily defined de minimis exception. The "issue price" of a
debt instrument issued in exchange for stock, such as the Notes, depends on
whether the debt instrument or the stock is treated as "traded on an
established securities market." If the debt instrument is "traded on an
established securities market," its issue price will be its trading price
immediately following issuance. If the stock is so traded (but the debt
instrument received in exchange therefor is not), the issue price of the debt
instrument received will generally be equal to the trading price of the stock
immediately after the exchange.
If neither the debt instrument nor the stock is traded on an established
securities market, the issue price of the debt instrument will be equal to its
stated principal amount, assuming the debt instrument provides for "adequate
stated interest" (i.e., interest at least equal to the applicable federal
rate), and will be equal to its "imputed principal amount" (the sum of the
present values of all payments due under the debt instrument, using a discount
rate equal to the applicable federal rate) if either the debt instrument does
not provide for "adequate stated interest" or in the case of any "potentially
abusive situation" (including certain recent sales transactions).
The "stated redemption price at maturity" of a debt instrument is the sum of
its principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest" (defined generally as stated interest
that is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed rate that
appropriately takes into account the length of intervals between payments).
In general, the amount of original issue discount that a holder of a debt
instrument with original issue discount must include in gross income for
federal income tax purposes will be the sum of the daily portions of original
issue discount with respect to such debt instrument for each day during the
taxable year or portion of a taxable year on which such holder holds the debt
instrument. The daily portion is determined by allocating to each day of an
accrual period (generally, a period of any length corresponding to the
interval between payment dates) a pro rata portion of an amount equal to the
"adjusted issue price" of the debt instrument at the beginning of the accrual
period multiplied by the yield to maturity of the debt instrument. The
"adjusted issue price" is the issue price of the debt instrument increased by
the accrued original issue discount for all prior accrual periods (and
decreased by the amount of cash payments made in all prior accrual periods or
on the first day of the current
57
<PAGE>
accrual period, other than qualified stated interest payments). The tax basis
of the debt instrument in the hands of the holder will be increased by the
amount of original issue discount, if any, on the debt instrument that is
included in the holder's gross income and will be decreased by the amount of
any cash payments (other than qualified stated interest payments) received
with respect to the debt instrument, whether such payments are denominated as
principal or interest.
Notwithstanding the original issue discount rules described in the preceding
paragraphs, a holder of a debt instrument will not be required to include
original issue discount in income if such holder's tax basis in the debt
instrument were to exceed the debt instrument's stated principal amount. In
addition, a holder would be permitted to offset any original issue discount
income by an amount equal to the excess of such holder's tax basis (if less
than or equal to the stated principal amount) over the issue price of the debt
instrument.
Notes
Because interest on the Notes may, upon failure of the Company to maintain
certain EBITDA to consolidated interest expense ratios, be paid in cash or in
additional Notes, no payments made on the Notes will be treated as qualified
stated interest, and the general rules set forth above with respect to the
reporting of original issue discount income will apply. As a result, the Notes
will initially be treated as having been issued with original issue discount
equal to the excess of their stated redemption price at maturity (which will
be equal to the sum of the principal amount plus all payments of stated
interest) over their issue price. In general, such original issue discount
will be includable in income in amounts equal to the stated interest paid in
cash on the Notes.
If, in fact, the Company's financial results were to deteriorate to the
point at which the Company could elect to pay interest in additional Notes and
were the Company to elect to do so, the additional Notes will not be treated
as payments of interest on the Notes. In this event, the Notes and the
additional Notes will be treated as a single original issue discount
obligation which will be deemed to be reissued for an issue price equal to the
original issue price of the Notes plus the principal amount of the additional
Notes issued with respect thereto, and will have original issue discount equal
to the excess of the stated redemption price at maturity of such obligation
(which will be equal to the sum of the principal amounts of the Notes and the
additional Notes plus all payments of stated interest on such debt
instruments) over the newly determined issue price. The Notes will similarly
be deemed to be reissued with a new issue price each time the Company issued
additional Notes in lieu of paying cash interest on the Notes.
Certain original issue discount obligations are also subject to additional
provisions of the Code governing Applicable High Yield Discount Obligations
(an "AHYDO"). In general, AHYDO's are defined as original issue discount
obligations having (A) a term of more than 5 years, (B) a yield to maturity
which equals or exceeds the Applicable Federal Rate for the month of issue
plus 5 percentage points, and (C) "significant original issue discount."
Because the Company believes that it will be able to make all interest
payments in cash under the alternative payment schedule which provides for the
payment of interest in cash, the Company does not believe that the Notes will
be issued with significant original issue discount and therefore the AHYDO
rules should not apply.
If the AHYDO rules were to apply to the Notes, the Company would not be
entitled to deduct any original issue discount until paid in cash and a
minimal portion of such original issue discount would not be deductible by the
Company even when paid in cash but would instead be treated as a dividend
eligible for the dividends received deduction under Section 243 of the Code.
No Treasury Regulations have been proposed or issued under the AHYDO
provision. Holders of the Notes are urged to consult their tax advisors
concerning the potential application of the AHYDO rules to Notes.
MARKET DISCOUNT
The Code generally requires holders of "market discount bonds" to treat as
ordinary income any gain realized on the disposition (or gift) of such bonds
to the extent of the market discount accrued during the holders'
58
<PAGE>
period of ownership. A "market discount bond" is a debt obligation purchased
at a market discount, subject to a statutory de minimis exception. For this
purpose, a purchase at a market discount includes a purchase at or after the
original issue at a price below the stated redemption price at maturity, or,
in the case of a debt instrument issued with original issue discount, at a
price below its "issue price," plus the amount of original issue discount
includable in income by all prior holders of the debt instrument, minus all
cash payments (other than payments constituting qualified stated interest)
received by such previous holders. The accrued market discount generally
equals a ratable portion of the bond's market discount, based on the number of
days the taxpayer has held the bond at the time of such disposition, as a
percentage of the number of days from the date the taxpayer acquired the bond
to its date of maturity.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset exceeds
the amount payable at maturity of the obligation, such excess will constitute
amortizable bond premium that the holder may elect to amortize under the
constant interest rate method and deduct over the period from his acquisition
date to the obligation's maturity date or to an earlier call date, if the use
of such date results in a smaller amount of amortizable bond premium. A holder
who elects to amortize bond premium must reduce his tax basis in the related
obligation by the amount of the aggregate deductions allowable for amortizable
bond premium. Amortizable bond premium will be treated under the Code as an
offset to interest income on the related debt instrument for federal income
tax purposes, subject to the promulgation of Treasury Regulations altering
such treatment.
DISPOSITION
In general, a holder of Notes will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of such Notes measured by
the difference between (D) the amount of cash and the fair market value of
property received (except to the extent attributable to accrued interest on
the Notes) and (E) the holder's tax basis in the Notes (as increased by any
original issue discount and market discount previously included in income by
the holder and decreased by any amortizable bond premium, if any, deducted
over the term of the Notes and any cash payments of interest under the Notes).
Subject to the market discount rules discussed above, any such gain or loss
will generally be long-term capital gain or loss, provided the Notes have been
held for more than one year.
ELECTION
A holder of Notes, subject to certain limitations, may elect to include all
interest and discount on the Notes in gross income under the constant yield
method. For this purpose, interest includes stated and unstated interest,
acquisition discount, original issue discount, de minimis market discount and
market discount, as adjusted by any acquisition premium. Such election, if
made in respect of a market discount bond, will constitute an election to
include market discount in income currently on all market discount bonds
acquired by such holder on or after the first day of the first taxable year to
which the election applies. See "--Market Discount."
BACKUP WITHHOLDING
A holder of Notes may be subject to backup withholding at the rate of 31%
with respect to interest paid on, original issue discount accrued on and gross
proceeds from the sale of, the Notes unless (i) such holder is a corporation
or comes within certain other exempt categories and, when required,
demonstrates this fact or (ii) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules. A holder of Notes who does not provide the Company with his or her
correct taxpayer identification number may be subject to penalties imposed by
the Service.
The Company will report to holders of the Notes and the Service the amount
of any "reportable payments" (including any interest paid and any original
issue discount accrued on the Notes) and any amount withheld with respect to
the Notes during the calendar year.
59
<PAGE>
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF HIS
OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF NOTES
SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO
SUCH HOLDER FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
SELLING SECURITYHOLDERS
The following table sets forth certain information with respect to the
holders (the "Selling Securityholders") of the Notes as of June 28, 1996,
including the principal amount of Notes owned by, and the principal amount of
Notes being registered for, each Selling Securityholder's account. Since the
Selling Securityholders may sell all or some of their Notes, no estimate can
be made of the aggregate amount of the Notes which would be owned by the
Selling Securityholders upon completion of the offering to which this
Prospectus relates.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NOTES OWNED
AS OF DATE OF PROSPECTUS AND
SELLING SECURITYHOLDERS PRINCIPAL AMOUNT OF NOTES OFFERED
<S> <C>
Family Restaurants, Inc................. $150,000,000
18831 Von Karman Avenue
Irvine, California 92715
</TABLE>
PLAN OF DISTRIBUTION
The Notes may be sold from time to time to purchasers directly by the
Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer the Notes through underwriters, dealers or agents, who may
receive compensation in the form of discounts and commissions. Such
compensation, which may be in excess of ordinary brokerage commissions, may be
paid by the Selling Securityholders and/or the purchasers of Notes for whom
such underwriters, dealers or agents may act. The Selling Securityholders and
any dealers or agents that participate in the distribution of Notes may be
deemed to be "underwriters" as defined in the Securities Act and any profit on
the sale of Notes by them and any discounts, commissions or concessions
received by any such dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act.
To the extent required, the specific Notes to be sold, the name of the
Selling Securityholders, the respective purchase prices and public offering
prices, the names of any such agent, dealer or underwriter, and any applicable
commissions or discounts with respect to a particular offer will be set forth
in an accompanying Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus is a part.
The Notes may be sold from time to time in one or more transactions at a
fixed offering price, which may be changed, or at varying prices determined at
the time of sale or at negotiated prices. Pursuant to National Association of
Securities Dealers, Inc. ("NASD") regulations, the compensation which may be
received by any NASD member which sells securities for a Selling
Securityholder may not exceed 8%.
The Company will pay substantially all the expenses incurred by the Selling
Securityholders and the Company incident to the offering and sale of the Notes
to the public, but excluding any underwriting discounts, commissions,
placement agent fees and transfer taxes, if any.
60
<PAGE>
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the Company
by Latham & Watkins, Los Angeles, California.
EXPERTS
The combined financial statements of FRI-M, which includes FRI-M and certain
subsidiaries of FRI-M including those restaurants that make up the Family
Restaurant Division and including the FRD Commissary, as of December 25, 1994
and December 31, 1995 and the related combined statements of operations and
net combined equity and cash flows for the year ended December 26, 1993, the
one month ended January 26, 1994, the eleven months ended December 25, 1994
and the year ended December 31, 1995 have been included herein and in the
Prospectus in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and upon the
authority of said firm as experts in accounting and auditing.
The balance sheet of FRD as of May 22, 1996 has been included herein and in
the Prospectus in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, upon the
authority of said firm as experts in accounting and auditing.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FRD ACQUISITION CO.
Independent Auditors' Report.............................................. F-2
Balance Sheet as of May 22, 1996.......................................... F-3
Note to Balance Sheet..................................................... F-4
FRI-M
Independent Auditors' Report.............................................. F-5
Combined Balance Sheets as of December 25, 1994 and December 31, 1995..... F-6
Combined Statements of Operations for the year ended December 26, 1993,
the one month ended January 26, 1994, the eleven months ended December
25, 1994 and the year ended December 31, 1995............................ F-7
Combined Statements of Cash Flows for the year ended December 26, 1993,
the one month ended January 26, 1994, the eleven months ended December
25, 1994 and the year ended December 31, 1995............................ F-8
Notes to Combined Financial Statements.................................... F-9
Combined Condensed Balance Sheet as of March 31, 1996 (unaudited)......... F-17
Combined Condensed Statements of Operations for the three months ended
March 26, 1995 (unaudited) and the three months ended March 31, 1996
(unaudited).............................................................. F-18
Combined Condensed Statements of Cash Flows for the three months ended
March 26, 1995 (unaudited) and the three months ended March 31, 1996
(unaudited).............................................................. F-19
Notes to Combined Condensed Financial Statements (unaudited).............. F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
FRD Acquisition Co.:
We have audited the accompanying balance sheet of FRD Acquisition Co. (a
wholly owned subsidiary of Flagstar Corporation) as of May 22, 1996. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit of a balance sheet includes examining, on a
test basis, evidence supporting the amounts and disclosures in that balance
sheet. An audit of a balance sheet also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of FRD Acquisition Co. at May 22,
1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
May 22, 1996
F-2
<PAGE>
FRD ACQUISITION CO.
(A WHOLLY OWNED SUBSIDIARY OF FLAGSTAR CORPORATION)
BALANCE SHEET
MAY 22, 1996
<TABLE>
<S> <C>
ASSETS
Total assets............................................................ $ --
=====
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's Equity
Common Stock, $.01 par value; authorized 1,000 shares; no shares
issued or outstanding................................................ --
Additional paid-in capital............................................ --
Common stock subscribed (1,000 shares)................................ $ 100
Less: stock subscriptions receivable.................................. $(100)
-----
Total liabilities and stockholder's equity.............................. $ --
=====
</TABLE>
See accompanying note to balance sheet.
F-3
<PAGE>
FRD ACQUISITION CO.
(A WHOLLY OWNED SUBSIDIARY OF FLAGSTAR CORPORATION)
NOTE TO BALANCE SHEET
MAY 22, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
FRD Acquisition Co. (the Company) was incorporated in the State of Delaware
in February 1996 as a wholly owned subsidiary of Flagstar Corporation.
On May 23, 1996 the Company acquired all of the outstanding common stock of
FRI-M Corporation and certain of its Family Restaurant Division operating
subsidiaries which operate principally under the Coco's and Carrows names.
The Company is in the process of filing a registration statement with the
Securities and Exchange Commission to register $150 million 12 1/2% Senior
Notes due 2004 which were issued on May 23, 1996.
The operations of the Company from the date of incorporation through May 22,
1996 are not considered material.
Fiscal Year
The Company will utilize a 52 or 53 week accounting period which ends on the
last Sunday of December each year.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
FRD Acquisition Co.:
We have audited the accompanying combined balance sheets of FRI-M which
includes FRI-M Corporation, a wholly owned subsidiary of Family Restaurants,
Inc. (The Parent), and certain subsidiaries including those restaurants that
make up the Family Restaurant Division and including the FRD Commissary
(collectively FRI-M or the Company) as of December 25, 1994 and December 31,
1995 and the related combined statements of operations and net combined equity
and cash flows for the year ended December 26, 1993 and the one month ended
January 26, 1994 (Predecessor Company), and the eleven months ended December
25, 1994 and the year ended December 31, 1995 (Successor Company). These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the combined
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, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 25, 1994 and December 31, 1995 and the results of their operations
and their cash flows for the year ended December 26, 1993 and the one month
ended January 26, 1994 (Predecessor Company), and the eleven months ended
December 25, 1994 and the year ended December 31, 1995 (Successor Company) in
conformity with generally accepted accounting principles.
As discussed in note 1 to the combined financial statements, the Parent
commenced a Chapter 11 bankruptcy case on November 23, 1993, which was
confirmed by the United States Bankruptcy Court for the District of Delaware
on January 7, 1994. Accordingly, the accompanying combined financial
statements have been prepared in conformity with American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting
for Entities in Reorganization Under the Bankruptcy Code."
KPMG Peat Marwick LLP
Orange County, California
February 9, 1996 except as to the fifth
paragraph of note 7 and note 14 which
are as of May 23, 1996
F-5
<PAGE>
FRI-M (NOTE 1)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31,
1994 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 4,220 $ 5,497
Receivables........................................ 7,414 5,439
Merchandise inventories............................ 6,063 5,288
Net assets held for sale........................... -- 13,248
Other.............................................. 2,220 2,240
-------- --------
Total current assets............................. 19,917 31,712
Property and equipment, net.......................... 165,285 146,042
Reorganization value in excess of amounts allocable
to identifiable assets, net......................... 150,632 145,352
Other assets......................................... 15,159 9,741
-------- --------
$350,993 $332,847
======== ========
LIABILITIES AND NET COMBINED EQUITY
Current liabilities:
Loans payable to bank.............................. $ 59,600 $ 79,815
Current maturities of long-term debt, including
capitalized lease obligations..................... 4,347 4,915
Accounts payable................................... 18,930 23,316
Self-insurance reserve............................. 13,870 16,868
Other.............................................. 29,393 27,830
-------- --------
Total current liabilities........................ 126,140 152,744
Debt, including capitalized lease obligations, less
current maturities.................................. 32,499 27,502
Net combined equity.................................. 192,354 152,601
-------- --------
$350,993 $332,847
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
FRI-M (NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------ -------------------------
FOR THE YEAR ONE MONTH ELEVEN FOR THE YEAR
ENDED ENDED MONTHS ENDED ENDED
DECEMBER 26, JANUARY 26, DECEMBER 25, DECEMBER 31,
1993 1994 1994 1995
<S> <C> <C> <C> <C>
Operating revenues.......... $487,433 $43,538 $460,636 $501,248
-------- ------- -------- --------
Product cost................ 143,619 12,946 131,436 143,206
Payroll and benefits........ 187,757 17,175 170,346 180,922
Occupancy and other
operating expenses......... 91,280 8,448 85,577 95,659
Depreciation and
amortization............... 10,042 778 23,221 28,447
General and administrative
expenses................... 28,125 3,023 27,015 27,207
Franchise fees.............. (4,850) (539) (5,389) (4,371)
Loss on disposition of
properties, net............ 938 -- 3,064 2,269
-------- ------- -------- --------
456,911 41,831 435,270 473,339
-------- ------- -------- --------
Operating income............ 30,522 1,707 25,366 27,909
Interest expense, net....... 4,594 458 6,476 16,515
-------- ------- -------- --------
Income before income taxes.. 25,928 1,249 18,890 11,394
Pro forma income tax
provision.................. 10,692 532 9,496 6,670
-------- ------- -------- --------
Net income.............. $ 15,236 $ 717 9,394 4,724
======== =======
Net combined equity,
beginning of period........ 242,275 192,354
Intercompany and equity
activity, net.............. (59,315) (44,477)
-------- --------
Net combined equity, end of
year....................... $192,354 $152,601
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
FRI-M (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------ -------------------------
FOR THE YEAR ONE MONTH ELEVEN FOR THE YEAR
ENDED ENDED MONTHS ENDED ENDED
DECEMBER 26, JANUARY 26, DECEMBER 25, DECEMBER 31,
1993 1994 1994 1995
<S> <C> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating
activities:
Net income.............. $ 15,236 $ 717 $ 9,394 $ 4,724
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization......... 10,042 778 23,221 28,447
Amortization of debt
issuance costs....... -- -- 463 4,785
Loss on disposition of
properties........... 938 -- 3,064 2,269
(Increase) decrease in
assets:
Receivables......... (3,032) 503 (486) 1,975
Inventories......... 1,413 199 (377) 775
Other current
assets............. (1,510) 3,365 (3,941) (2,888)
Increase (decrease) in
liabilities:
Accounts payable.... (748) (312) (4,376) 4,386
Self-insurance
reserves........... 1,917 (2,430) (1,776) 2,998
Other accrued
liabilities........ (2,003) 2,029 3,431 (1,598)
-------- ------- -------- --------
Total adjustments. 7,017 4,132 19,223 41,149
Net cash provided
by operating
activities....... 22,253 4,849 28,617 45,873
-------- ------- -------- --------
Cash flows from investing
activities--proceeds from
disposal of property and
equipment................ 346 -- 283 7,866
Capital expenditures...... (14,720) (412) (23,742) (22,890)
Other..................... 650 317 (199) (881)
-------- ------- -------- --------
Net cash used in
investing
activities....... (13,724) (95) (23,658) (15,905)
-------- ------- -------- --------
Cash flows from financing
activities:
Net intercompany and
equity activity........ (5,730) (4,425) (59,315) (44,477)
Borrowings (repayments)
of loans payable to
bank and long-term
debt, including
capitalized lease
obligations............ (1,746) (686) 56,184 15,786
-------- ------- -------- --------
Net cash used in
financing
activities....... (7,476) (5,111) (3,131) (28,691)
-------- ------- -------- --------
Net increase
(decrease) in
cash and cash
equivalents...... 1,053 (357) 1,828 1,277
Cash and cash equivalents at
beginning of period........ 1,696 2,749 2,392 4,220
-------- ------- -------- --------
Cash and cash equivalents at
end of period.............. $ 2,749 $ 2,392 $ 4,220 $ 5,497
======== ======= ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-8
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 25, 1994 AND DECEMBER 31, 1995
(1) ORGANIZATION AND BASIS OF PRESENTATION
The FRI-M combined financial statements combine the financial position and
operations of FRI-M Corporation, a wholly owned subsidiary of Family
Restaurants, Inc. (the Parent), and certain subsidiaries including those
restaurants that make up the Family Restaurant Division (FRD) and including
the FRD Commissary, a division of the Parent (collectively, the Company). FRD
primarily represents the Coco's and Carrows concept restaurants. The FRI-M
combined financial statements exclude the financial position and operations of
FRI-MRD Corporation, a wholly owned subsidiary of the FRI-M Corporation which
owns El Torito Restaurants, Inc. and Chi-Chi's, Inc., the Traditional
Dinnerhouse Division, which operates the Charley Brown's and Reuben's concept
restaurants, FRI-Admin Corporation and the Parent. See note 14 regarding the
sale of the Company.
Reference to the "Predecessor Company" refers to the period of ownership of
the Company by The Restaurant Enterprises Group, Inc. prior to January 27,
1994. Reference to the "Successor Company" refers to the period of ownership
of the Company by Family Restaurants, Inc. giving effect to information about
events occurring upon the Parent's emergence from a Chapter 11 bankruptcy code
reorganization (the Reorganization).
At December 31, 1995, the Company operated 349 full-service restaurants
located in 10 states, with approximately 74% of its restaurants located in
California. FRD restaurants primarily offer moderately priced breakfast, lunch
and dinner items. Additionally, as of December 31, 1995, the Company was the
licensor of 251 full-service restaurants in Japan and South Korea and the
franchisor of 6 family restaurants in the United States.
The combined financial statements of the Predecessor Company were prepared
on a going concern basis, which contemplated continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. While the reorganization plan was in process, the Parent continued
in possession of its properties and operated and managed its business as a
debtor-in-possession pursuant to the bankruptcy code. The Company applied the
provisions of the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," (SOP 90-7) in the December 23, 1993 combined financial
statements.
Pursuant to SOP 90-7, the Predecessor Parent qualified for fresh start
reporting as of January 27, 1994. Under this concept, all assets and
liabilities of the Parent are restated to current value at the date of
reorganization. The Parent obtained an appraisal of the assets and liabilities
of the Successor Company. This appraisal determined the reorganization value
(i.e., fair value) of the assets and liabilities of the Successor Company. The
Company utilized the results of this appraisal to implement fresh start
reporting, which resulted in reorganization value in excess of amounts
allocable to identifiable assets of $155,540,000 at January 27, 1994.
The retained earnings of the Predecessor Company and the receivable from the
Parent Company were eliminated as required by fresh start reporting. The
combined balance sheets of the Company as of December 25, 1994 and December
31, 1995 and the accompanying combined statements of operations for the eleven
months ended December 25, 1994 and the year ended December 31, 1995 represent
that of the Successor Company which, in effect, is a new entity with assets
and liabilities having carrying values not comparable with prior periods. The
accompanying combined statements of operations for the year ended December 26,
1993 and for the one month ended January 26, 1994 represent that of the
Predecessor Company.
F-9
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1994 AND DECEMBER 31, 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company reported 1993 and 1994 results of operations based on 52 weeks
ending on the Thursday preceding the last Sunday in December.
The Company reported 1995 results of operations based on 53 weeks ending on
the last Sunday in December.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the operations
described in note 1 including their affiliated subsidiaries. All significant
affiliated intercompany balances and transactions have been eliminated.
ESTIMATIONS
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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories consist primarily of food and liquor and are stated at the lower
of cost or market. Costs are determined using the first-in, first-out (FIFO)
method.
NET ASSETS HELD FOR SALE
Net assets held for sale are carried at the lower of their cost or their
fair values, less estimated selling costs.
PRE-OPENING EXPENSES
Certain costs incurred in connection with opening a restaurant (principally
stocking the restaurant and training staff) are capitalized and amortized on a
straight-line basis over one year after opening. Capitalized pre-opening
expenses are classified as other current assets in the accompanying combined
balance sheet and amounted to $1,285,000 and $745,000 at December 25, 1994 and
December 31, 1995, respectively. Amortization of pre-opening expenses,
included in depreciation and amortization in the combined statements of
income, was $2,747,000 for the year ended December 26, 1993, $235,000 for the
one month ended January 26, 1994, $2,644,000 for the eleven months ended
December 25, 1994 and $1,917,000 for the year ended December 31, 1995.
PROPERTY AND EQUIPMENT
Property and equipment are stated at appraised value or cost and are
depreciated on a straight-line basis over estimated useful lives (buildings
principally over 25 to 35 years and furniture, fixtures and equipment over 3
to 10 years). Leasehold improvements are amortized on a straight-line basis
over the shorter of estimated useful lives or the terms of related leases.
Property under capitalized leases is amortized over the terms of the leases
using the straight-line method.
F-10
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1994 AND DECEMBER 31, 1995
Losses on disposition of properties are recognized when a commitment to
divest a restaurant property is made by the Company and include estimated
carrying costs through the expected date of disposal.
REORGANIZATION VALUE
Reorganization value in excess of amounts allocable to identifiable assets
is amortized using the straight-line method over 30 years. Accumulated
amortization of reorganization value amounted to $4,912,000 and $10,192,000 at
December 25, 1994 and December 31, 1995, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment by comparison of the
carrying value of the assets to estimated undiscounted cash flows expected to
be generated from the asset over its estimated useful life. In addition, the
Company's evaluation considers data such as continuity of personnel, changes
in the operating environment, name identification, competitive information and
market trends. Finally, the evaluation considers changes in management's
strategic direction or market emphasis. When the foregoing considerations
suggest that a deterioration of the financial condition of the Company or any
of its restaurants has occurred, the Company measures the amount of an
impairment, if any, based on the estimated fair value of each of its
restaurants over the remaining amortization period. The Company believes its
long-lived assets are not impaired as of December 25, 1994 and December 31,
1995.
SELF-INSURANCE RESERVES
The Parent is self-insured for workers compensation and general liability
claims up to $500,000. Provisions for expected future payments are accrued
based on the Parent's estimate of its aggregate liability for all open claims,
using actuarially determined methods.
FRANCHISE AND LICENSE FEES
Initial franchise and license fees are recognized when all material services
have been performed and conditions have been satisfied. Initial fees for all
periods presented are insignificant. Monthly fees are accrued as earned based
on the respective monthly sales. Such fees totaled $4,850,000 for the year
ended December 26, 1993, $539,000 for the one month ended January 26, 1994,
$5,389,000 for the eleven months ended December 25, 1994 and $4,371,000 for
the year ended December 31, 1995.
ADVERTISING
Production costs of commercials, programming and the costs of other
advertising, promotion and marketing programs are expensed in the year
incurred and are included in occupancy and other operating expenses in the
combined statement of operations. Such costs totaled $12,910,000 for the year
ended December 26, 1993, $1,318,000 for the one month ended January 26, 1994,
$13,068,000 for the eleven months ended December 25, 1994 and $16,328,000 for
the year ended December 31, 1995.
PRO FORMA INCOME TAXES
The accompanying combined financial statements combine the accounts of
subsidiaries and divisions and exclude some operations of the combined
entities. Some combined entities are not taxable entities, but all are
included in the consolidated tax return of the parent. For financial reporting
purposes, a pro forma tax expense has been provided at 40% of reported
combined income excluding amortization of certain intangibles.
F-11
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1994 AND DECEMBER 31, 1995
(3) RECEIVABLES
A summary of receivables follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Trade, principally credit cards........................ $ 886,000 $ 924,000
License and franchise fees and related receivables..... 4,751,000 3,286,000
Receivable from distributors........................... 668,000 645,000
Note receivable, net................................... 751,000 31,000
Other, net............................................. 358,000 553,000
---------- ----------
$7,414,000 $5,439,000
========== ==========
</TABLE>
(4) NET ASSETS HELD FOR SALE
As a result of the Parent's efforts to improve cash flows (see note 7), the
Company has identified certain FRD restaurants for potential sale/leaseback
financing transactions. During 1995, the Company entered into 8 such
transactions, resulting in proceeds of $8,665,000, $999,000 less than carrying
values. As of December 31, 1995, 12 additional restaurants, whose estimated
fair value approximates carrying value, are to be financed under this program.
The carrying value of these restaurants at December 31, 1995 is $13,248,000.
These transactions result in estimated proceeds being less than carrying
amounts by $1,869,000, which will be deferred and amortized over the lease
terms, as these net losses result from financing transactions and the
estimated fair values cover the deferred losses.
(5) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Land............................................. $ 19,783,000 $ 11,821,000
Buildings and improvements....................... 110,974,000 110,385,000
Furniture, fixtures and equipment................ 41,090,000 54,569,000
Projects under construction...................... 7,885,000 3,662,000
------------ ------------
179,732,000 180,437,000
Less accumulated depreciation and amortization... (14,447,000) (34,395,000)
------------ ------------
$165,285,000 $146,042,000
============ ============
</TABLE>
Property under capitalized leases in the amount of $37,520,000 and
$36,869,000 at December 25, 1994 and December 31, 1995, respectively, is
included in buildings and improvements. Accumulated amortization of property
under capital leases amounted to $4,219,000 and $8,811,000 at December 25,
1994 and December 31, 1995, respectively. Capital leases primarily relate to
the building on certain restaurants properties; the land portions of these
leases are accounted for as operating leases.
Depreciation and amortization relating to property and equipment was
$6,494,000 for the year ended December 26, 1993, $463,000 for the one month
ended January 26, 1994, $15,728,000 for the eleven months ended December 25,
1994, and $21,297,000 for the year ended December 31, 1995, of which
$2,600,000, $204,000, $4,647,000 and $4,624,000, respectively, was related to
amortization of property under capitalized leases.
F-12
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1994 AND DECEMBER 31, 1995
A majority of the capitalized and operating leases have original terms of 25
years, and substantially all of these leases expire in the year 2005 or later.
Most leases have renewal options. The leases generally provide for payment of
minimum annual rent, real estate taxes, insurance and maintenance and, in most
cases, contingent rent, calculated as a percentage of sales, in excess of
minimum rent. The total amount of contingent rent under capitalized leases for
the year ended December 26, 1993, the one month ended January 26, 1994, the
eleven months ended December 25, 1994 and the year ended December 31, 1995 was
$3,089,000, $207,000, $2,914,000 and $3,107,000 respectively. Total rental
expense for all operating leases comprised the following:
<TABLE>
<CAPTION>
ONE MONTH ELEVEN MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 26, JANUARY 26, DECEMBER 25, DECEMBER 31,
1993 1994 1994 1995
<S> <C> <C> <C> <C>
Minimum rent............... $11,130,000 $ 845,000 $11,066,000 $12,568,000
Contingent rent............ 1,651,000 113,000 1,621,000 2,245,000
Leased equipment rent...... 2,070,000 189,000 1,810,000 1,343,000
Sublease rent.............. (81,000) (5,000) (174,000) (321,000)
----------- ---------- ----------- -----------
$14,770,000 $1,142,000 $14,323,000 $15,835,000
=========== ========== =========== ===========
</TABLE>
At December 31, 1995, the present value of capitalized lease payments and
the future minimum lease payments on noncancelable operating leases were:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
DUE IN LEASES LEASES
<S> <C> <C>
1996............................................. $ 6,699,000 $ 13,711,000
1997............................................. 6,559,000 13,041,000
1998............................................. 6,297,000 12,692,000
1999............................................. 5,867,000 12,157,000
2000............................................. 5,095,000 11,365,000
Later years...................................... 14,137,000 74,027,000
------------ ------------
Total minimum lease payments................. 44,654,000 $136,993,000
============
Interest......................................... (13,201,000)
------------
Present value of minimum lease payments...... $ 31,453,000
============
</TABLE>
The future lease payments summarized above include commitments for lease
properties included in the Company's divestiture program.
(6) OTHER ASSETS
A summary of other assets follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Debt issuance costs.................................. $ 5,534,000 $ --
Franchise operating rights........................... 8,728,000 8,108,000
Liquor licenses...................................... 383,000 411,000
Other................................................ 514,000 1,222,000
----------- ----------
$15,159,000 $9,741,000
=========== ==========
</TABLE>
Franchise operating rights are stated at their appraised value determined as
of the date of the Reorganization, based on royalty income streams, and are
amortized over 15 years. Debt issuance costs are amortized over the term of
the related debt agreement (see note 7).
F-13
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1994 AND DECEMBER 31, 1995
(7) LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS
Long-term debt, including capitalized lease obligations, is comprised of the
following:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Revolving credit facility............................ $59,600,000 $79,815,000
=========== ===========
Capitalized lease obligations........................ $35,591,000 $31,453,000
Mortgage notes, 12 1/4%-12 1/2%, due 1996-1998....... 1,005,000 750,000
Other................................................ 250,000 214,000
----------- -----------
36,846,000 32,417,000
Amount due within one year........................... 4,347,000 4,915,000
----------- -----------
$32,499,000 $27,502,000
=========== ===========
</TABLE>
In January 1994, FRI-M Corporation entered into a Credit Facility Agreement
with $150 million in senior secured revolving credit facilities with a $100
million sub-limit for standby letters of credit which is used for general
corporate purposes including working capital, debt service and capital
expenditure requirements. The Credit Facility terminates and obligations
thereunder are immediately due and payable on January 27, 1999.
Borrowings outstanding under the Credit Facility bear interest at a rate of
10.0% at December 31, 1995. On August 1, 1995, the Company borrowed
$14,625,000 under this Credit Facility to fund an interest payment made on the
Parent's 10 7/8% Senior Subordinated Notes (Senior Notes). This amount was
paid off in December 1995. On February 1, 1996, the Company borrowed
$14,625,000 to fund an additional interest payment on the Parent's Senior
Notes.
Standby letters of credit are issued under the Credit Facility primarily to
provide security for future amounts payable by the Company under its workers'
compensation insurance program ($37,600,000 of such letters of credit were
outstanding as of December 31, 1995).
The Credit Facility contains various covenants including the maintenance of
certain financial ratios. At December 31, 1995, the Parent and certain of its
subsidiaries were suffering from deficit cash flows from operations and made
required debt service payments on other obligations through borrowings on the
Credit Facility. Accordingly, the Parent has failed to comply with certain of
such financial covenants. However, the banks under the Credit Facility (the
Banks) have agreed to waive such noncompliance, through July 31, 1996. In
accordance with generally accepted accounting principles, and since the
waivers only extend to July 31, 1996, at this time the Company classified the
outstanding balance of $79,815,000 at December 31, 1995 as a current
liability. Further, the amortization of the related debt issuance costs was
accelerated assuming the debt will be retired or replaced earlier. In
connection with the sale of the Company (see note 14), the Credit Facility was
paid off and is not available for additional borrowings by FRI-M.
The mortgage notes were issued to a group of institutional lenders and are
collateralized by mortgages covering nine restaurants having book values of
approximately $8,197,000 at December 31, 1995.
Maturities of long-term debt, including capitalized lease obligations,
during the five years subsequent to December 31, 1995 are as follows:
$4,915,000 in 1996, $4,307,000 in 1997, $4,300,000 in 1998, $4,009,000 in
1999, $3,661,000 in 2000 and $11,225,000 thereafter.
F-14
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1994 AND DECEMBER 31, 1995
(8) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts of the Company's cash, self-insurance reserves, other
accrued liabilities, and revolving credit borrowings at December 25, 1994 and
December 31, 1995 approximate fair value. The fair value of the Company's
long-term debt, excluding capitalized lease obligations, based on an estimate
using a discount rate which the Company believes would be currently available
to it for debt with similar terms and average maturities, approximates its
carrying value.
(9) OTHER ACCRUED LIABILITIES
A summary of other accrued liabilities follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Wages, salaries, accrued vacation and bonuses....... $13,128,000 $13,894,000
Sales tax........................................... 6,363,000 4,452,000
Property taxes...................................... 1,225,000 1,354,000
Accrued rent........................................ 2,584,000 2,707,000
Utilities........................................... 1,255,000 1,300,000
Other............................................... 4,838,000 4,123,000
----------- -----------
$29,393,000 $27,830,000
=========== ===========
</TABLE>
(10) PRO FORMA INCOME TAXES
The Company reported income before income tax provision for the year ended
December 26, 1993, the one month ended January 26, 1994, the eleven months
ended December 25, 1994 and the year ended December 31, 1995. For financial
reporting purposes, a pro forma tax expense equal to 40% of reported earnings,
excluding certain amortization of intangibles, has been provided in the
statements of operations.
Upon the Reorganization on January 27, 1994, the Parent's net operating loss
carryovers and other tax attributes were reduced significantly for Federal
income tax purposes. In addition, because the consummation of the
Reorganization triggered an ownership change of the Parent for Federal income
tax purposes, the Parent's and the Company's post-Reorganization use of its
remaining net operating loss carryovers for regular and alternative minimum
Federal income tax purposes is subject to an annual limitation in an amount
equal to the product of (i) the long-term tax-exempt rate prevailing on the
closing date of the Reorganization and (ii) the value of the Parent's stock,
increased to reflect the cancellation of indebtedness pursuant to the
Reorganization (but without taking into account contributions to capital
pursuant to the Reorganization). The Parent's annual limit is approximately
$5,300,000.
At December 31, 1995, the Parent and its subsidiaries had additional tax
credit carryforwards of approximately $1,981,000 not utilized by a former
owner (Former Owner). In accordance with a previous acquisition, the Parent
must reimburse the Former Owner for 75% of the benefit of these tax credits if
they are utilized in future Company tax returns.
(11) RELATIONSHIPS WITH PARENT
The Company's Successor and Predecessor Parent provide certain financial,
administrative, legal and staff functions and services. These costs are
allocated to the Company based on number of opened and operating units. The
Company believes that this method is reasonable. The management fee for these
services was $3,410,000 for the year ended December 26, 1993, $257,000 for the
one month ended January 26, 1994, $2,626,000 for the
F-15
<PAGE>
FRI-M (NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1994 AND DECEMBER 31, 1995
eleven months ended December 25, 1994, and $2,634,000 for the year ended
December 31, 1995. These costs are included in general and administrative
expenses in the combined statements of operations. Further, interest expense
associated with the revolving credit loan is also allocated to the
subsidiaries, based on current liabilities outstanding. The Company deposits
cash in excess of its operating requirements with its Parent, and the Parent
advances funds to the Company to finance expansion of its restaurant business.
These deposits and advances have been made on an interest-free basis.
The Company is charged premiums by its Parent for certain insurance coverage
provided under the Parent's insurance plans (employee group medical and life,
workers compensation, general liability and property insurance). During the
year ended December 26, 1993, the one month ended January 26, 1994, the eleven
months ended December 25, 1994 and the year ended December 31, 1995, such
premium charges amounted to $16,393,000, $1,286,000, $14,358,000 and
$12,730,000, respectively.
(12) BENEFIT PLANS
The Parent maintains several incentive compensation and related plans for
executives and key operating personnel of its subsidiaries, including
restaurant and field management. Total expenses for these plans included in
the combined statements of operations were $5,252,000 for the year ended
December 26, 1993, $413,000 for the one month ended January 26, 1994,
$4,718,000 for the eleven months ended December 25, 1994 and $2,235,000 for
the year ended December 31, 1995.
The Company participated in savings and investment plans sponsored by the
Parent. Substantially all of the Company's salaried employees were eligible to
participate in the plans. The Company's expenses under such plans for the year
ended December 26, 1993, the one month ended January 26, 1994, the eleven
months ended December 25, 1994, and the year ended December 31, 1995 were
$15,000, $0, $17,000 and $159,000, respectively.
(13) CONTINGENCIES
The Parent and the Company are involved in various litigation matters
incidental to their business. The Company does not believe that any of the
claims or actions filed against it will have a material adverse effect upon
the combined financial position and results of operations of the Company.
(14) SUBSEQUENT EVENTS
Flagstar Corporation (Flagstar), through a newly-formed company, FRD
Acquisition Co. (Acquisition Co.), acquired 100% of the capital stock of FRI-M
Corporation and certain of its Family Restaurant Division operating
subsidiaries (see note 1) on May 23, 1996 for a purchase price of
approximately $306,000,000 (the Acquisition). Acquisition Co. financed the
Acquisition with $125,000,000 in cash, $150,000,000 in 12 1/2% senior notes
and the assumption of approximately $31,000,000 in lease and other debt
obligations of FRI-M Corporation. The $125,000,000 in cash paid to the Parent
was funded by a $75,000,000 equity investment from Flagstar and a $50,000,000
loan from FRI-M Corporation. In order to fund the loan and provide a source of
working capital, FRI-M obtained at the May 23, 1996 closing of the
Acquisition, a new credit facility consisting of a $56,000,000, 39-month
senior term loan and a $35,000,000 working capital facility to support letters
of credit and for working capital purposes.
F-16
<PAGE>
FRI-M (NOTE 1)
COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1996
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 5,410
Receivables...................................................... 6,958
Merchandise inventories.......................................... 5,184
Net assets held for sale......................................... 2,338
Other............................................................ 1,812
--------
Total current assets........................................... 21,702
Property and equipment, net........................................ 141,671
Reorganization value in excess of amounts allocable to identifiable
assets, net....................................................... 144,056
Other assets....................................................... 9,755
--------
$317,184
========
LIABILITIES AND NET COMBINED EQUITY
Current liabilities:
Loans payable to bank............................................ $ 91,223
Current maturities of long-term debt, including capitalized lease
obligations..................................................... 4,912
Accounts payable................................................. 21,923
Self-insurance reserve........................................... 18,091
Other............................................................ 23,056
--------
Total current liabilities...................................... 159,205
Debt, including capitalized lease obligations, less current
maturities........................................................ 25,780
Net combined equity................................................ 132,199
--------
$317,184
========
</TABLE>
See accompanying notes to combined financial statements.
F-17
<PAGE>
FRI-M (NOTE 1)
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 26, MARCH 31,
1995 1996
(UNAUDITED)
<S> <C> <C>
Operating revenues.................................... $117,596 $118,996
-------- --------
Product cost.......................................... 33,503 33,090
Payroll and benefits.................................. 44,492 45,271
Occupancy and other operating expenses................ 23,330 22,347
Depreciation and amortization......................... 6,471 6,926
General and administrative expenses................... 6,878 7,361
Franchise fees........................................ (1,415) (844)
Loss on disposition of properties, net................ 5 120
-------- --------
113,264 114,271
-------- --------
Operating income...................................... 4,332 4,725
Interest expense, net................................. 2,750 3,931
-------- --------
Income before income taxes............................ 1,582 794
Income tax provision.................................. 1,161 846
-------- --------
Net income (loss)..................................... $ 421 $ (52)
Net combined equity, beginning of period.............. 192,354 152,601
Intercompany and equity activity, net................. (36,253) (20,350)
-------- --------
Net combined equity, end of period.................... $156,522 $132,199
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-18
<PAGE>
FRI-M
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 26, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income (loss) ............................... $ 421 $ (52)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 6,471 6,926
Amortization of debt issuance costs............ 5,052 738
Loss on disposition of properties.............. 5 120
(Increase) decrease in assets:
Receivables.................................. (1,396) (1,519)
Inventories.................................. 682 104
Other current assets......................... 816 (1,083)
Increase (decrease) in liabilities:
Accounts payable............................. 2,215 (1,393)
Self-insurance reserves...................... 4,630 1,223
Other accrued liabilities.................... (5,427) (5,034)
-------- --------
Total adjustments.......................... 13,048 82
Net cash provided by operating activities.. 13,469 30
-------- --------
Cash flows from investing activities--proceeds from
disposal of property and equipment................ 5,166 11,649
Capital expenditures............................... (8,825) (1,335)
Other.............................................. -- (26)
-------- --------
Net cash provided by (used in) investing
activities................................ (3,659) 10,288
-------- --------
Cash flows from financing activities:
Net intercompany and equity activity............. (36,253) (20,350)
Repayment of loans payable to bank and long-term
debt, including capitalized lease obligations... 27,589 9,945
-------- --------
Net cash used in financing activities...... (8,664) (10,405)
-------- --------
Net increase (decrease) in cash and cash
equivalents............................... 1,146 (87)
Cash and cash equivalents at beginning of period..... 4,220 5,497
-------- --------
Cash and cash equivalents at end of period........... $ 5,366 $ 5,410
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-19
<PAGE>
FRI-M
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
MARCH 26, 1995 AND MARCH 31, 1996
(UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The combined condensed financial statements combine the financial position
and operations of FRI-M Corporation, a wholly owned subsidiary of Family
Restaurants, Inc. (the Parent), and certain subsidiaries including those
restaurants that make up the Family Restaurant Division (FRD) and including
the FRD Commissary, a division of the Parent (collectively, the Company). FRD
primarily represents the Coco's and Carrows concept restaurants.
(2) FINANCIAL STATEMENTS
The accompanying combined condensed financial statements have been prepared
in accordance with Securities and Exchange Commission Regulation S-X.
Reference is made to the notes to the combined financial statements for the
year ended December 31, 1995, for information with respect to the Company's
significant accounting and financial reporting policies as well as other
pertinent information. The Company believes that all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of the interim periods presented have been made. The results of
operations for the quarter ended March 31, 1996, are not necessarily
indicative of those for the full year.
(3) IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted SFAS No, 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which generally requires the assessment of certain long-lived assets for
possible impairment when events or circumstances indicate the carrying value
of these assets may not be recoverable.
The Company evaluates property and equipment for impairment by comparison of
the carrying value of the assets to estimated undiscounted cash flows (before
interest charges) expected to be generated by the asset over its estimated
useful life. In addition, the Company's evaluation considers data such as
continuity of personnel, changes in the operating environment, name
identification, competitive information and market trends. Finally, the
evaluation considers changes in management's strategic direction or market
emphasis. When the foregoing considerations suggest that a deterioration of
the financial condition of the Company or any of its assets has occurred, the
Company measures the amount of an impairment, if any, based on the estimated
fair value of each of its assets over the remaining amortization period.
The Company believes that there has been no impairment of its long-lived
assets based on re-engineering and re-positioning plans currently under
development, other than impairment already recognized in connection with
various properties held for sale.
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLIC-
ITATION OF AN OFFER TO BUY, ANY OF THESE SECURITIES IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JU-
RISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................................................... 2
Summary................................................................... 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 12
Capitalization............................................................ 12
Selected Combined Historical Financial Information........................ 13
Unaudited Pro Forma Combined Financial Information........................ 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 21
Management................................................................ 30
Principal Stockholders.................................................... 35
Certain Relationships and Related Transactions............................ 36
Description of Credit Agreement........................................... 37
Description of Notes...................................................... 39
Certain Federal Income Tax Considerations................................. 57
Selling Securityholders................................................... 60
Plan of Distribution...................................................... 60
Legal Matters............................................................. 61
Experts................................................................... 61
Index to Financial Statements............................................. F-1
</TABLE>
-------------
UNTIL , 1996 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 UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$150,000,000
FRD ACQUISITION CO.
12 1/2% SENIOR NOTES
DUE 2004
-----------------
PROSPECTUS
-----------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the shares of Common Stock being registered hereby.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $51,725
Accounting fees and expenses..................................... *
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Trustee fees..................................................... *
Miscellaneous expenses........................................... *
-------
TOTAL.......................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
FRD Acquisition Co. is a Delaware corporation and its Certificate of
Incorporation and Bylaws provide for indemnification of their officers and
directors to the fullest extent permitted by law. Section 102(b)(7) of the
Delaware General Corporation Law (the "DGCL") eliminates the liability of a
corporation's directors to a corporation or its stockholders, except for
liabilities related to breach of duty or loyalty, actions not in good faith,
and certain other liabilities.
Section 145 of the DGCL provides for the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection
with actions, suits or proceedings brought against them by a third party or in
the right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the financing of the Acquisition, on May 23, 1996 the
Company issued $150,000,000 aggregate principal amount of its 12 1/2% Senior
Notes due 2004 to FRI. Such securities were issued in a private placement
transaction exempt from registration under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-1 is set
forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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 is made for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered), the registrant
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 registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, FRD
Acquisition Co. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on July 3, 1996.
FRD ACQUISITION CO.
By: /s/ Ann A. Wride
-----------------------------------
Name: Ann A. Wride
Title: Vice President, Finance
and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mark L.
Shipman, Ronald B. Hutchison and Ann A. Wride, and each of them, with full
power to act without the other, such person's true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign this
Registration Statement, and any and all amendments thereto (including pre- and
post-effective amendments) or any registration statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with exhibits and
schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary or desirable to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ James B. Adamson Director July 3, 1996
---------------------
James B. Adamson
/s/ Ellen Downey Director July 3, 1996
---------------------
Ellen Downey
/s/ Paul E. Raether Director July 3, 1996
---------------------
Paul E. Raether
Director July 3, 1996
---------------------
H. Jay Sarles
/s/ Mark L. Shipman Director July 3, 1996
---------------------
Mark L. Shipman
/s/ Michael T. Tokarz Director July 3, 1996
---------------------
Michael T. Tokarz
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
<C> <S> <C>
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Indenture dated as of May 23, 1996 between the Company and The
Bank of New York, as Trustee
4.2 Stock Purchase Agreement dated as of March 1, 1996 by and among
Flagstar, Flagstar Companies, Inc., the Company, and Family
Restaurants, Inc.
4.3 Registration Rights Agreement dated as of May 23, 1996 between
the Company and Family Restaurants, Inc.
5.1 Form of Opinion of Latham & Watkins regarding the legality of
the Notes, including consent
8.1 Form of Opinion of Latham & Watkins regarding tax matters,
including consent
10.1 Credit Agreement dated as of May 23, 1996 by and among the
Company, as guarantor, FRI-M as borrower, the financial
institution listed therein, as lenders, Bankers Trust Company,
Chemical Bank and Citicorp USA, Inc., as co-syndication
agents, and Credit Lyonnais New York Branch, as administrative
agent
10.2 Tax Sharing and Allocation Agreement dated as of May 23, 1996
among Flagstar Companies, Inc., the Company and the
subsidiaries of the Company
10.3 Management Services Agreement dated as of May 24, 1996 between
the Company and Flagstar Corporation
10.4 Flagstar Companies, Inc. 1989 Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10.9 to Flagstar
Companies, Inc.'s 1995 Form 10-K, File No. 0-18051)
12.1 Statement regarding computation of ratio of earnings to fixed
charges
22.1 Subsidiaries of the Company
23.1 Consent of Latham & Watkins (included as part of Exhibits 5.1
and 8.1)
23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (included in the signature pages in Part II
of the Registration Statement)
25.1 Statement of eligibility of trustee on Form T-1
</TABLE>
E-1
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
FRD ACQUISITION CO.
* * * *
1. The name of the corporation is FRD Acquisition Co.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of such
shares is Zero Dollars and Ten Cents ($0.10) amounting in the aggregate to One
Hundred Dollars and No Cents ($100.00).
5. The board of directors is authorized to make, alter or repeal the by-
laws of the corporation. Election of directors need not be by written ballot.
6. The name and mailing address of the sole incorporator is:
Mary Ann Brzoska
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
7. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
8. The corporation shall indemnify its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 14th day of February, 1996.
/s/ Mary Ann Brzoska
-------------------------
Sole Incorporator
Page 1
<PAGE>
EXHIBIT 3.2
BY-LAWS
-------
OF
--
FRD ACQUISITION CO.
-----------------------
ARTICLE I - OFFICES
-------------------
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
------------------------------------
Section 1 - Annual Meetings:
- ----------------------------
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2 - Special Meetings:
- -----------------------------
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Act.
Section 3 - Place of Meetings:
- ------------------------------
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
1
<PAGE>
Section 4 - Notice of Meetings:
- -------------------------------
(a) Except as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less then
ten or more than fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the
meeting, or to any shareholder who attends such meeting, in person or by proxy,
or to any shareholder who, in person or by proxy, submits a signed waiver of
notice either before or after such meeting. Notice of any adjourned meeting of
shareholders need not be given, unless otherwise required by statute.
Section 5 - Quorum:
- -------------------
(a) Except as otherwise provided herein, or by statute, on in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and
2
<PAGE>
sufficient to constitute a quorum for the transaction of any business. The
withdrawal of any shareholder after the commencement of a meeting shall have no
effect on the existence of a quorum, after a quorum has been established at such
meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 - Voting:
- ------------------
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without
a meeting, may do so by proxy; provided, however, that the instrument
authorizing such proxy to act shall have been executed in writing by the
shareholder himself, or by his attorney-in-fact thereunto duly authorized in
writing. No proxy shall be valid after the expiration of eleven months from
the date of its execution, unless the persons executing it shall have specified
therein the length of time it is to continue in force. Such instrument shall be
exhibited to the Secretary at the meeting and shall be filed with the records of
the Corporation.
3
<PAGE>
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
Section 1 - Number, Election and Term of Office:
- ------------------------------------------------
(a) The number of the directors of the Corporation shall be one (1), unless
and until otherwise determined by vote of a majority of the entire Board of
Directors. The number of Directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of directors shall not be less than the
number of shareholders permitted by statute.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the
shareholders next succeeding his election, and until his successor is elected
and qualified, or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
- ------------------------------
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
- ------------------------------------------------
(a) A regular annual meeting of the Board of Directors shall be held
immediately following the annual meeting of the shareholders, at the place
of such annual meeting of shareholders.
4
<PAGE>
(b) The Board of Directors, from time to time, may provide by resolution for
the holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
- -------------------------------------
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of any special meeting
shall be mailed directly to each director, addressed to him at his residence or
usual place of business, at least two (2) days before the day on which the
meeting is to be held, or shall be sent to him at such place by telegram, radio
or cable, or shall be delivered to him personally or given to him orally, not
later than the day before the day on which the meeting is to be held. A notice,
or waiver of notice, except as required by Section 8 of this Article III, need
not specify the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to
any director who shall attend such meeting without protesting prior thereto or
at its commencement, the lack of notice to him, or who submits a signed waiver
of notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
- ---------------------
At all meetings of the Board of Directors the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
5
<PAGE>
Section 6 - Quorum and Adjournments:
- ------------------------------------
(a) At all meetings of the Board of Directors, the presence of a majority of
the entire Board shall be necessary and sufficient to constitute a quorum for
the transaction of business, except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
- -----------------------------
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
- ----------------------
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
- ------------------------
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
6
<PAGE>
Section 10 - Removal:
- ---------------------
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for cause by action of
the Board.
Section 11 - Salary:
- --------------------
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
- -----------------------
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be
counted in determining the presence of a quorum at such meeting. This Section
shall not
7
<PAGE>
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
- ------------------------
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
---------------------
Section 1 - Number, Qualifications, Election
- --------------------------------------------
and Term of Office:
-------------------
(a) The officers of the Corporation shall consist of a President, a Secretary,
a Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
- ------------------------
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
8
<PAGE>
Section 3 - Removal:
- --------------------
Any officer may be removed, either with or without cause, and a successor
elected by a majority of the Board of Directors at any time.
Section 4 - Vacancies:
- ----------------------
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
- -------------------------------
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
- -------------------------------
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
- -----------------------------------------
Whenever the Corporation is the holder of shares of any other Corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies, or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
---------------------------
Section 1 - Certificate of Stock:
- ---------------------------------
(a) The certificates representing shares of the Corporation shall be in such
form as shall
9
<PAGE>
be adopted by the Board of Directors, and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares,
and shall be signed by (i) the Chairman of the Board or the President or a Vice
President, and (ii) the Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
- -------------------------------------------
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost of destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claim, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
10
<PAGE>
Section 3 - Transfers of Shares:
- --------------------------------
(a) Transfers of shares of the Corporation shall be made on the share records
of the Corporation only by the holder of record thereof, in person or by his
duly authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
- ------------------------
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive
notice of, or to vote at, any meeting of shareholders, or to consent to any
proposal without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividends, or allotment of any rights, or for
the purpose of any other action. If no record date is fixed, the record date for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
11
<PAGE>
ARTICLE VI - DIVIDENDS
----------------------
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
-----------------------------
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
-----------------------
Section 1 - By Shareholders:
- ----------------------------
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by the affirmative vote of shareholders holding of record
in the aggregate at least a majority of the outstanding shares entitled to vote
in the election of directors at any annual or special meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment.
Section 2 - By Directors:
- -------------------------
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX above-
provided may alter, amend or repeal by-laws made by the Board of Directors,
except that the Board of Directors shall have no power to change the quorum for
meetings of shareholders or of the Board of Directors, or to change any
provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
12
<PAGE>
ARTICLE X - INDEMNITY
---------------------
(a) Any person made a party to any action, suit or proceeding, by reason of the
fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such
action, suit or proceedings, or in connection with any appeal therein that such
officer, director or employee is liable for negligence or misconduct in the
performance of his duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors, except that in any case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to then existing rules of the American Arbitration
Association.
13
<PAGE>
EXHIBIT 4.1
================================================================================
FRD ACQUISITION CO.,
ISSUER,
AND
THE BANK OF NEW YORK,
TRUSTEE
---------------------
INDENTURE
Dated as of May 23, 1996
---------------------
12 1/2% Senior Notes due 2004
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE 1
SECTION 1.1. Definitions............................................. 1
SECTION 1.2. Other Definitions....................................... 16
SECTION 1.3. Incorporation by Reference of TIA....................... 17
SECTION 1.4. Rules of Construction................................... 17
SECTION 1.5. Calculations............................................ 18
ARTICLE II. THE SECURITIES........................................................ 18
SECTION 2.1. Form and Dating......................................... 18
SECTION 2.2. Execution and Authentication............................ 18
SECTION 2.3. Registrar and Paying Agent.............................. 19
SECTION 2.4. Paying Agent to Hold Assets in Trust.................... 20
SECTION 2.5. Securityholder Lists.................................... 20
SECTION 2.6. Transfer and Exchange................................... 20
SECTION 2.7. Replacement Securities.................................. 22
SECTION 2.8. Outstanding Securities.................................. 23
SECTION 2.9. Treasury Securities..................................... 23
SECTION 2.10. Temporary Securities.................................... 23
SECTION 2.11. Cancellation............................................ 24
SECTION 2.12. Defaulted Interest...................................... 24
SECTION 2.13. Liquidated Damages...................................... 24
SECTION 2.14. Form of Certification................................... 25
SECTION 2.15. CUSIP Numbers........................................... 26
ARTICLE III. REDEMPTION............................................................ 27
SECTION 3.1. Right of Redemption..................................... 27
SECTION 3.2. Notices to Trustee...................................... 27
SECTION 3.3. Selection of Securities to Be Redeemed.................. 27
SECTION 3.4. Notice of Redemption.................................... 27
SECTION 3.5. Effect of Notice of Redemption.......................... 28
SECTION 3.6. Deposit of Redemption Price............................. 29
SECTION 3.7. Securities Redeemed in Part............................. 29
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE IV. COVENANTS............................................................. 29
SECTION 4.1. Payment of Securities................................... 29
SECTION 4.2. Maintenance of Office or Agency......................... 30
SECTION 4.3. Limitation on Restricted Payments....................... 31
SECTION 4.4. Corporate Existence..................................... 33
SECTION 4.5. Payment of Taxes and Other Claims....................... 33
SECTION 4.6. Maintenance of Properties and Insurance................. 33
SECTION 4.7. Compliance Certificate; Notice of Default............... 34
SECTION 4.8. Reports................................................. 34
SECTION 4.9. Limitation on Status as Investment Company.............. 35
SECTION 4.10. Limitation on Transactions with Affiliates.............. 35
SECTION 4.11. Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock............. 35
SECTION 4.12. Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries..................... 37
SECTION 4.13. Limitations on Liens.................................... 38
SECTION 4.14. Limitation on Sales of Assets and
Subsidiary Stock........................................ 38
SECTION 4.15. Waiver of Stay, Extension or Usury Laws................. 41
SECTION 4.16. Rule 144A Information Requirement....................... 41
SECTION 4.17. Limitation on Lines of Business......................... 41
SECTION 4.18. Restriction on Sale and Issuance of
Subsidiary Stock........................................ 41
SECTION 4.19. Corporate Governance.................................... 41
SECTION 4.20. Licensing............................................... 41
ARTICLE V. SUCCESSOR CORPORATION................................................. 42
SECTION 5.1. Limitation on Merger, Sale or Consolidation............. 42
SECTION 5.2. Successor Corporation Substituted....................... 43
ARTICLE VI. EVENTS OF DEFAULT AND REMEDIES........................................ 43
SECTION 6.1. Events of Default....................................... 43
SECTION 6.2. Acceleration of Maturity Date; Rescission
and Annulment........................................... 44
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 6.3. Collection of Indebtedness and Suits for
Enforcement by Trustee................................... 45
SECTION 6.4. Trustee May File Proofs of Claim......................... 46
SECTION 6.5. Trustee May Enforce Claims Without
Possession of Securities................................. 47
SECTION 6.6. Priorities............................................... 47
SECTION 6.7. Limitation on Suits...................................... 47
SECTION 6.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest.......................... 48
SECTION 6.9. Rights and Remedies Cumulative........................... 48
SECTION 6.10. Delay or Omission Not Waiver............................. 49
SECTION 6.11. Control by Holders....................................... 49
SECTION 6.12. Waiver of Past Default................................... 49
SECTION 6.13. Undertaking for Costs.................................... 49
SECTION 6.14. Restoration of Rights and Remedies....................... 50
ARTICLE VII. TRUSTEE................................................................ 50
SECTION 7.1. Duties of Trustee........................................ 50
SECTION 7.2. Rights of Trustee........................................ 51
SECTION 7.3. Individual Rights of Trustee............................. 52
SECTION 7.4. Trustee's Disclaimer..................................... 52
SECTION 7.5. Notice of Default........................................ 52
SECTION 7.6. Reports by Trustee to Holders............................ 53
SECTION 7.7. Compensation and Indemnity............................... 53
SECTION 7.8. Replacement of Trustee................................... 54
SECTION 7.9. Successor Trustee by Merger, Etc......................... 55
SECTION 7.10. Eligibility; Disqualification............................ 55
SECTION 7.11. Preferential Collection of Claims
against Company.......................................... 55
ARTICLE VIII. DEFEASANCE............................................................. 55
SECTION 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance............................................... 55
SECTION 8.2. Legal Defeasance and Discharge........................... 55
SECTION 8.3. Covenant Defeasance...................................... 56
</TABLE>
iii
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 8.4. Conditions to Legal or Covenant Defeasance.............. 56
SECTION 8.5. Deposited U.S. Legal Tender and U.S.
Government Obligations to be Held in
Trust; Other Miscellaneous Provisions................... 58
SECTION 8.6. Repayment to the Company................................ 58
SECTION 8.7. Reinstatement........................................... 58
ARTICLE IX. AMENDMENTS, SUPPLEMENTS AND WAIVERS................................... 58
SECTION 9.1. Supplemental Indentures Without Consent
of Holders.............................................. 58
SECTION 9.2. Amendments, Supplemental Indentures and
Waivers with Consent of Holders......................... 59
SECTION 9.3. Compliance with TIA..................................... 61
SECTION 9.4. Revocation and Effect of Consents....................... 61
SECTION 9.5. Notation on or Exchange of Securities................... 61
SECTION 9.6. Trustee to Sign Amendments, Etc......................... 62
ARTICLE X. MEETINGS OF HOLDERS................................................... 62
SECTION 10.1. Purposes for Which Meetings May Be Called............... 62
SECTION 10.2. Manner of Calling Meetings.............................. 62
SECTION 10.3. Call of Meetings by the Company or Holders.............. 63
SECTION 10.4. Who May Attend and Vote at Meetings..................... 63
SECTION 10.5. Regulations May Be Made by Trustee; Conduct
of the Meeting; Voting Rights; Adjournment.............. 63
SECTION 10.6. Voting at the Meeting and Record to Be Kept............. 64
SECTION 10.7. Exercise of Rights of Trustee or Holders May
Not Be Hindered or Delayed by Call of Meeting........... 64
ARTICLE XI. RIGHT TO REQUIRE REPURCHASE........................................... 65
SECTION 11.1. Repurchase of Securities at Option of the Holder
Upon a Change of Control................................ 65
</TABLE>
iv
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE XII. MISCELLANEOUS........................................................ 67
SECTION 12.1. TIA Controls.......................................... 67
SECTION 12.2. Notices............................................... 67
SECTION 12.3. Communications by Holders with Other Holders.......... 68
SECTION 12.4. Certificate and Opinion as to Conditions Precedent.... 69
SECTION 12.5. Statements Required in Certificate or Opinion......... 69
SECTION 12.6. Rules by Trustee, Paying Agent, Registrar............. 69
SECTION 12.7. Legal Holidays........................................ 69
SECTION 12.8. Governing Law......................................... 70
SECTION 12.9. No Adverse Interpretation of Other Agreements......... 70
SECTION 12.10. No Recourse against Others............................ 70
SECTION 12.11. Successors............................................ 70
SECTION 12.12. Duplicate Originals................................... 70
SECTION 12.13. Severability.......................................... 71
SECTION 12.14. Table of Contents, Headings, Etc...................... 71
SECTION 12.15. Qualification of Indenture............................ 71
SECTION 12.16. Registration Rights................................... 71
SIGNATURES......................................................................... 71
EXHIBIT A FORM OF SECURITY......................................................... A-1
</TABLE>
v
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- ---------
<S> <C>
310(a)(1)......................................... 7.10
(a)(2)......................................... 7.10
(a)(3)......................................... N.A.
(a)(4)......................................... N.A.
(a)(5)......................................... 7.10
(b)............................................ 7.8; 7.10
(c)............................................ N.A.
311(a)............................................ 7.11
(b)............................................ 7.11
(c)............................................ N.A.
312(a)............................................ 2.5
(b)............................................ 12.3
(c)............................................ 12.3
313(a)............................................ 7.6
(b)(1)......................................... N.A.
(b)(2)......................................... 7.6
(c)............................................ 7.6; 12.2
(d)............................................ 7.6
314(a)............................................ 4.8; 12.2
(b)............................................ N.A.
(c)(1)......................................... 2.2; 7.2; 12.4; 12.5
(c)(2)......................................... 7.2; 12.4; 12:5
(c)(3)......................................... N.A.
(d)............................................ N.A.
(e)............................................ 12.5
(f)............................................ N.A.
315(a)............................................ 7.1(b)
(b)............................................ 7.5; 12.2
(c)............................................ 7.1(a)
(d)............................................ 6.11; 7.1(c)
(e)............................................ 6.13
316(a)(last sentence)............................. 2.9
(a)(1)(A)...................................... 6.11
(a)(1)(B)...................................... 6.12
(a)(2)......................................... N.A.
(b)............................................ 6.12; 6.7
317(a)(1)......................................... 6.3
(a)(2)......................................... 6.4
(b)............................................ 2.4
318(a)............................................ 12.1
- ----------
</TABLE>
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
vi
<PAGE>
INDENTURE, dated as of May 23, 1996, between FRD ACQUISITION CO., a Delaware
corporation (the "Company"), and THE BANK OF NEW YORK, as TRUSTEE. Each party
hereto agrees as follows for the benefit of each other party and for the equal
and ratable benefit of the Holders of the Company's 12 1/2% Senior Notes due
2004:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
-----------
"Acquisition" means the purchase or other acquisition of any person or
-----------
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Adjusted Consolidated Net Income" means, for any period, Consolidated Net
--------------------------------
Income reduced by 100% of the amount of any writedowns, writeoffs, or negative
extraordinary charges not otherwise reflected in Consolidated Net Income during
such period.
"Affiliate" means any person directly or indirectly controlling or
---------
controlled by or under direct or indirect common control with the Company, FCI
or Flagstar. For purposes of this definition, the term "control" means the power
to direct the management and policies of a person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise; provided, that, a Beneficial Owner of 10% or more of the
total voting power of the Voting Stock of any person then outstanding shall for
such purposes be deemed to constitute control.
"Affiliate Transaction" means any agreement, arrangement or transaction or
---------------------
series of related agreements, arrangements or transactions, directly or
indirectly, with, or for the benefit of, any Affiliate; provided that any such
--------
agreement, arrangement or transaction solely between, or for the benefit of, the
Company and its Wholly Owned Subsidiaries, or between Wholly Owned Subsidiaries,
shall not constitute an Affiliate Transaction.
"Agent" means any REGISTRAR or Paying Agent.
-----
"Average Life" means, as of the date of determination, with respect to any
------------
security or instrument, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years (or partial years) from the date of
determination to the date or dates of each successive scheduled principal (or
redemption) payment of such security or instrument and (b) the amount of
<PAGE>
each such respective principal (or redemption) payment by (ii) the sum of all
such principal (or redemption) payments.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal, state
--------------
or foreign law for the relief of debtors.
"Beneficial Owner" has the meaning attributed to it in Rules 13d-3 and
----------------
13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that in determining whether any "person" is a "Beneficial
Owner" such "person" shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time.
"Board of Directors" means, with respect to any Person, the Board of
------------------
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized to exercise the power of the Board of Directors of such
Person.
"Board Resolution" means, with respect to any Person, a duly adopted
----------------
resolution of the Board of Directors of such Person.
"Business Day" means a day that is not a Legal Holiday.
------------
"Capitalized Lease Obligation" means rental obligations under a lease that
----------------------------
are required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations on any
date shall be the capitalized amount of such obligations on such date, as
determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
-------------
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Cash" means such coin or currency of the United States of America as at
----
the time of payment shall be legal tender for the payment of public and private
debts.
"Cash Equivalent" means (i) securities issued or directly and fully
---------------
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $500 million and commercial paper issued by others rated at least
A-2 or the equivalent thereof by
2
<PAGE>
Standard & Poor's Corporation or at least P-2 or the equivalent thereof by
Moody's Investors Service, Inc. and in each case maturing within one year after
the date of acquisition and (iii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) and (ii) above.
"Change of Control" means (i) any sale, lease, transfer, conveyance or
-----------------
other disposition, whether direct or indirect, of all or substantially all of
the assets of the Company and its Subsidiaries, on a consolidated basis, in one
transaction or a series of related transactions, (ii) any "person" or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) (other than an Excluded Person), is or becomes
the Beneficial Owner, directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of the Company, FCI or Flagstar then
outstanding, (iii) during any period of 24 consecutive months after the Issue
Date, individuals who at the beginning of any such 24 month period constituted
the Board of Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election 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, or (iv) Flagstar ceases to be the Beneficial Owner of at least 51% of
the Voting Stock of the Company then outstanding, or the Company ceases to be
the Beneficial Owner of 100% of the Capital Stock of FRI-M or any Significant
Subsidiary then outstanding.
"Company" means the party named as such in this Indenture until a successor
-------
replaces it pursuant to the Indenture, and thereafter means such successor.
"Consolidated Coverage Ratio" of any person on any date of determination
---------------------------
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such person for the Reference Period
to (b) the aggregate Consolidated Fixed Charges of such person during the
Reference Period; provided, that for purposes of such calculation, (i)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (ii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock on or after the first day of the Reference Period and on or prior
to the Transaction Date (and the application of the proceeds therefrom to the
extent used to refinance or retire other Indebtedness) shall be assumed to have
occurred on the first day of such Reference Period, and (iii) Consolidated Fixed
Charges attributable to interest on any Indebtedness or dividends on any
Disqualified Capital Stock bearing a floating interest (or dividend) rate shall
be computed on a pro forma basis as if the average rate in effect from the
beginning of the Reference Period to the Transaction Date had been the
applicable rate for the entire period, unless such Person or any of its
subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall
remain in effect for the 12-month period
3
<PAGE>
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated Depreciation and Amortization" means, with respect to any
------------------------------------------
person, for any period, the total consolidated depreciation and amortization of
such person and its Consolidated Subsidiaries for such period, as determined in
accordance with GAAP.
"Consolidated EBITDA" means, with respect to any person, for any period,
-------------------
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining such
Consolidated Net Income), without duplication, the sum of (i) Consolidated
Income Tax Expense, (ii) Consolidated Depreciation and Amortization, and (iii)
Consolidated Fixed Charges.
"Consolidated Fixed Charges" means, with respect to any person, for any
--------------------------
period, the aggregate amount (without duplication) of (a) Consolidated Interest
Expense of such person for such period and (b) the amount of dividends accrued,
paid or payable by such person or any of its Consolidated Subsidiaries in
respect of Capital Stock (other than by subsidiaries of such person to such
person or such person's wholly owned subsidiaries).
"Consolidated Income Tax Expense" means, with respect to any person, for any
-------------------------------
period, the total consolidated net income tax expenses of such person and its
Consolidated Subsidiaries for such period, as determined in accordance with
GAAP.
"Consolidated Interest Expense" means, with respect to any person, for any
-----------------------------
period, the total consolidated interest expense of such person and its
Consolidated Subsidiaries for such period, whether paid or accrued (including
amortization of original issue discount, deferred financing fees, non-cash
interest payment, and the interest component of Capitalized Lease Obligations).
For purposes of this definition, interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by the
Company to be the rate of interest implicit in such Capitalized Lease Obligation
in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any period,
-----------------------
the consolidated net income (or loss) of such person and its Consolidated
Subsidiaries (determined in accordance with GAAP) for such period, adjusted to
exclude (only to the extent included in computing such net income (or loss) and
without duplication) (a) all gains (but not losses) which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
Capital Stock), (b) the net income, if positive, of any person, other than a
wholly owned Consolidated Subsidiary, in which such person or any of its
Consolidated Subsidiaries has an interest, except to the extent of the amount
4
<PAGE>
of any dividends or distributions actually paid in cash to such person or a
wholly owned Consolidated Subsidiary of such person during such period, but in
any case not in excess of such person's pro rata share of such person's net
income for such period, (c) the net income or loss of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, and (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or bylaws or any other agreement (other than the Credit
Agreement), instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary.
"Consolidated Net Worth" of any person at any date means the aggregate
----------------------
consolidated stockholders' equity of such person and its Consolidated
Subsidiaries, as would be shown on the consolidated balance sheet of such person
prepared in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (a) the amount of any such stockholders' equity
attributable to Disqualified Capital Stock or treasury stock of such person and
its Consolidated Subsidiaries, and (b) all upward revaluations and other write-
ups in the book value of any asset of such person or a Consolidated Subsidiary
of such person subsequent to the Issue Date, and (c) all investments in
subsidiaries of such person that are not Consolidated Subsidiaries and in
persons that are not subsidiaries of such person.
"Consolidated Subsidiary" means, for any Person, each subsidiary of such
-----------------------
Person (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated for financial
statement reporting purposes with the financial statements of such Person in
accordance with GAAP; provided, that Unrestricted Subsidiaries shall not be
Consolidated Subsidiaries of the Company.
"Credit Agreement" means (a) the credit agreement, dated as of the date
----------------
hereof, by and among the Company, FRI-M, certain financial institutions and
Credit Lyonnais New York Branch, as administrative agent, initially providing
for (A) an aggregate $56 million term loan facility, and (B) an aggregate $35
million revolving credit facility, together with the documents to be executed by
the Company, FRI-M or any of their respective subsidiaries in favor of the banks
under the Credit Agreement (including, without limitation, any related
guarantees and security agreements) in connection therewith, as such credit
agreement and/or related documents may be amended, amended and restated,
extended, supplemented or otherwise modified from time to time and (b) all
refundings, refinancings, replacements and other restructurings (whether by the
same or any other agent, lender or group of lenders) of all or any portion of
the Indebtedness under the agreements identified in clause (a) or this clause
(b) (including for purposes of clause (a) or clause (b) above, without
limitation, those adding Subsidiaries as additional borrowers or guarantors, or
increasing the amount of available borrowings thereunder); provided that the
--------
same would be permitted pursuant to Section 4.11(d).
5
<PAGE>
"Custodian" means any receiver, TRUSTEE, assignee, liquidator, sequestrator
---------
or similar official under any Bankruptcy Law.
"Default" means any event or condition that is, or after notice or passage
-------
of time or both would be, an Event of Default.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
--------------------------
respect to any person, Capital Stock of such person that, by its terms or by the
terms of any security into which it is convertible, exercisable or exchangeable,
is, or upon the happening of an event or the passage of time would be, required
to be redeemed or repurchased (including at the option of the holder thereof) by
such person or any of its subsidiaries, in whole or in part, on or prior to the
Stated Maturity and (b) with respect to any Subsidiary, any Capital Stock of
such Subsidiary (other than Capital Stock of such Subsidiary so long as it is
owned by the Company or any wholly owned Subsidiary).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated by the SEC thereunder.
"Excluded Person" means Kohlberg Kravis Roberts & Co., a Delaware limited
---------------
partnership ("KKR"), any person directly or indirectly controlling, controlled
by or under direct or indirect common control with KKR, Flagstar or any wholly
owned subsidiary of Flagstar.
"FCI" means Flagstar Companies, Inc.
---
"Flagstar" means Flagstar Corporation, a Delaware corporation.
--------
"FRI-M" means FRI-M Corporation, a Delaware corporation.
-----
"GAAP" means United States generally accepted accounting principles set
----
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board ("FASB") or in such
other statements by such other entity as approved by a significant segment of
the accounting profession as in effect as of the Issue Date.
"Holder" or "Securityholder" means the Person in whose name a Security is
------ --------------
registered on the REGISTRAR's books.
"Indebtedness" means, with respect to any Person (without duplication), (i)
------------
all liabilities and obligations, contingent or otherwise, of such Person (a) in
respect of borrowed
6
<PAGE>
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a portion thereof), (b) evidenced by bonds, notes,
debentures or similar instruments, (c) representing the balance deferred and
unpaid of the purchase price of any property or services (other than trade
payables to trade creditors incurred in the ordinary course, on customary terms,
no more than 90 days past due), (d) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (e) under Capitalized Lease
Obligations, (f) evidenced by a letter of credit or a reimbursement obligation
of such Person with respect to any letter of credit or (g) created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property); (ii) all net obligations of such person
under Interest Swap and Hedging Obligations; (iii) all obligations to, directly
or indirectly, purchase, redeem, retire or otherwise acquire any Capital Stock
of such Person or any of its subsidiaries; (iv) all liabilities of others of the
kind described in the preceding clauses (i), (ii) or (iii) that such Person has,
directly or indirectly, guaranteed or that, directly or indirectly, is otherwise
its legal liability; and (v) all Indebtedness of the type referred to in clauses
(i) through (iv) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness; provided, that the amount of such Indebtedness
shall be the lesser of (x) the fair market value of such property at the time of
determination and (y) the amount of such Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
---------
time in accordance with the terms hereof.
"Initial Public Equity Offering" means a bona fide initial underwritten
------------------------------
offering of primary shares of common stock of the Company pursuant to an
effective registration statement on Form S-1 or other appropriate form under the
Securities Act.
"Initial Purchaser" means Family Restaurants, Inc., a Delaware corporation.
-----------------
"Interest Payment Date" means the stated due date of an installment of
---------------------
interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of any person
------------------------------------
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or
7
<PAGE>
floating rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or floating rate of
interest on the same notional amount.
"Investment" by any person means (a) the acquisition by such person
----------
(whether for cash, property, services, securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership or other ownership interests or
other securities, including any option or warrants, of any other person or any
agreement to make any such acquisition; (b) the making by such person of any
deposit with, or advance, loan or other extension of credit to, any other person
(including the purchase of property from another person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
such other person) or any commitment to make such advance, loan or extension
(but excluding accounts receivable or deposits arising in the ordinary course of
business and travel and other advances of business expenses to employees made in
the ordinary course of business); (c) the entering into by such person of any
guarantee of, or other credit support or contingent obligation with respect to,
any liability of any other person (other than any such guarantee that would
constitute Indebtedness permitted to be incurred under Section 4.11); and (d)
the making by such person of any capital contribution to or other investment in
any other person. The Company shall be deemed to make an "Investment" in an
amount equal to the fair market value of the net assets of any Subsidiary (or,
if neither the Company nor any of its Subsidiaries has theretofore made an
Investment in such Subsidiary, in an amount equal to the Investments being
made), at the time that such Subsidiary is designated an Unrestricted
Subsidiary, and any property transferred to an Unrestricted Subsidiary from the
Company or a Subsidiary shall be deemed an Investment valued at its fair market
value at the time of such transfer.
"Issue Date" means the date of first issuance of the Securities under this
----------
Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
-------------
institutions in New York, New York are authorized or obligated by law or
executive order to close.
"Lien" means any mortgage, lien, pledge, charge, security interest or
----
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"Management Services Agreement" means that certain Management Services
-----------------------------
Agreement, dated as of the Issue Date, between the Company and Flagstar, as such
agreement is in effect on the Issue Date.
8
<PAGE>
"Maturity Date" means, when used with respect to any Security, the date
-------------
specified on such Security as the fixed date on which the final installment of
principal of such Security is due and payable (in the absence of any
acceleration thereof).
"Net Cash Proceeds" means (a) in the case of a sale of Qualified Capital
-----------------
Stock (i) the aggregate amount of Cash received by the Company, plus (ii) in the
case of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities of the Company that were issued for Cash after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities, less (iii) the sum of all payments, fees,
commissions and expenses (including, without limitation, the fees and expenses
of legal counsel and investment banking fees and expenses) incurred in
connection with such sale of Qualified Capital Stock, and (b) in the case of an
Asset Sale, the aggregate amount of Cash and Cash Equivalents received by the
Company and its subsidiaries from such sale (including Cash and Cash Equivalents
received on or with respect to any non-cash proceeds), less the sum of all
reasonable and customary, direct, out-of-pocket fees and expenses actually
incurred and paid by the Company and its subsidiaries (other than fees and
expenses payable to, or on behalf of, Affiliates) in connection with such Asset
Sale.
"obligation" means any principal, interest, penalties, fees,
----------
reimbursements, damages, indemnification and other liabilities relating to
obligations of the Company or under the Securities or the Indenture, including
any liquidated damages under the Registration Rights Agreement.
"Officer" means the Chief Executive Officer, the President, any Vice
-------
President, the Chief Financial Officer, the Treasurer, the Controller, or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers or by an
---------------------
Officer and an Assistant Secretary of the Company and otherwise complying with
the requirements of Sections 12.4 and 12.5.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the TRUSTEE complying with the requirements of Sections
12.4 and 12.5.
"Paying Agent" shall have the meaning specified in Section 2.3.
------------
"Permitted Franchise Agreement" means an agreement between the Company and
-----------------------------
Flagstar or any of its subsidiaries pursuant to which the Company franchises the
Denny's or El Pollo Loco concepts from Flagstar or such subsidiary; provided,
that (i) the terms of such agreement are no less favorable to the Company than
those available to franchisees that are not Affiliates of or otherwise related
to Flagstar, (ii) all up-front and similar fees are waived, (iii)
9
<PAGE>
advertising fees payable in any fiscal quarter do not exceed 3% of the subject
restaurant's net revenue for the immediately preceding fiscal quarter
("Permitted Advertising Fees") and (iv) no other royalties or fees are payable
by the Company thereunder except Permitted Royalties.
"Permitted Franchise Fees" means the Permitted Advertising Fees and the
------------------------
Permitted Royalties.
"Permitted Lien" means (a) Liens imposed by governmental authorities for
--------------
taxes not yet subject to penalty or which are being contested in good faith and
by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (b) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or
other like Liens arising by operation of law in the ordinary course of business;
provided that (i) the underlying obligations are not overdue for a period of
more than 30 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) pledges or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security
legislation; (d) Liens incurred or deposits made securing the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds, and
governmental contracts incurred in the ordinary course of business; (e)
easements (or similar rights), rights-of-way, zoning, and similar restrictions
or right reserved to or vested in any governmental office or agency to control
or regulate the use of any real property, and immaterial title defects and
irregularities, in each case that do not, singly or in the aggregate, materially
detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries; (f) Liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not resulting in
an Event of Default with respect thereto; (g) Liens securing Purchase Money
Indebtedness and Capitalized Lease Obligations permitted to be incurred under
this Indenture; provided, that (i) such Liens relate only to the property that
is subject to such Purchase Money Indebtedness or Capitalized Lease Obligation,
as the case may be, and (ii) such Purchase Money Indebtedness and Capitalized
Lease Obligations (excluding Capitalized Lease Obligations existing on the Issue
Date and permitted Refinancings thereof) do not at any time exceed $25 million
in the aggregate; (h) Liens securing Indebtedness permitted to be incurred under
Section 4.11(d); (i) Liens on assets of the Subsidiaries existing on the Issue
Date; (j) any (i) interest or title of a lessor or sublessor under any lease
permitted by this Indenture entered into in the ordinary course of business,
(ii) restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to, or (iii) subordination of the interest of the
lessee or sublessee under such lease to any restriction or encumbrance referred
to in the preceding clause (ii), so long as the holder of such restriction or
encumbrance agrees to recognize the rights of such lessee or sublessee under
such lease; (k) 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
10
<PAGE>
of goods in the ordinary course of business; (l) licenses of patents, trademarks
and other intellectual property rights granted by Company or any of its
Subsidiaries in the ordinary course of business and not interfering in any
material respect with the ordinary conduct of the business of the Company or
such Subsidiary; and (m) other Liens on assets with an aggregate value not to
exceed $1 million at any time incurred in the ordinary course of business with
respect to obligations that do not exceed $1 million in the aggregate at any
time outstanding.
"Permitted Management Fee" means a management fee payable in any fiscal
------------------------
quarter not to exceed (a) 1.0% of net revenues of the Company and its
Subsidiaries during the immediately preceding fiscal quarter plus (b) the actual
allocated share of the cost of shared administrative services provided by
Flagstar or its subsidiaries to the Company and its Subsidiaries during such
quarter (which shall be calculated on a reasonable and consistent basis and
shall be certified quarterly by a certificate of the Chief Financial Officer of
Flagstar delivered to the Trustee); provided, that such amounts shall be payable
only to the extent that (after giving effect to such payment) there is no
Default or Event of Default.
"Permitted Royalty" means a royalty payable pursuant to a Permitted
-----------------
Franchise Agreement in any fiscal quarter not to exceed 4% of the subject
restaurant's net revenues for the immediately preceding fiscal quarter;
provided, that such amount shall be payable only to the extent that (after
giving effect to such payment) there is no Default or Event of Default.
"Person" or "person" means any corporation, individual, limited liability
------ ------
company, joint stock company, joint venture, partnership, unincorporated
association, governmental regulatory entity, country, state or political
subdivision thereof, trust, municipality or other entity.
"principal" of any Indebtedness means the principal of such Indebtedness
---------
plus, without duplication, any applicable premium, if any, on such Indebtedness.
"property" means any right or interest in or to property or assets of any
--------
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Agreement" means that certain Stock Purchase Agreement, dated
------------------
March 1, 1996, by and among Flagstar, FCI, the Company and the Initial
Purchaser, as such agreement may be amended, modified or supplemented from time
to time in accordance with the terms thereof.
"Purchase Money Indebtedness" means any Indebtedness incurred to finance
---------------------------
the acquisition of any real or personal tangible property; provided that (i) the
principal amount of such Indebtedness does not exceed 100% of such cost, (ii)
any Lien securing such Indebtedness does not extend to or cover any other asset
or property other than the asset or property being so
11
<PAGE>
acquired and (iii) such Indebtedness is incurred, and any Liens with respect
thereto are granted, within 180 days of the acquisition of such property or
asset.
"Qualified Capital Stock" means any Capital Stock of the Company that is
-----------------------
not Disqualified Capital Stock.
"Record Date" means a Record Date specified in the Securities whether or
-----------
not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be redeemed,
---------------
means the date fixed for such redemption pursuant to Article III of this
Indenture and Paragraph 5 in the form of Security.
"Redemption Price," when used with respect to any Security to be redeemed,
----------------
means the redemption price for such redemption pursuant to Paragraph 5 in the
form of Security attached as Exhibit A hereto, which shall include, without
---------
duplication, in each case, accrued and unpaid interest to the Redemption Date.
"Reference Period" means the last four full fiscal quarters of the Company
----------------
ended prior to the date upon which any determination is to be made pursuant to
the terms of the Securities or the Indenture for which financial statements have
been (or were required to be) delivered to the Trustee pursuant to Section 4.8,
it being understood that if such four fiscal quarters include any period prior
to the Issue Date, the Reference Period shall include such period on a pro forma
basis as contemplated by Section 1.5.
"Refinancing Indebtedness" means Indebtedness (a) issued in exchange for,
------------------------
or the proceeds from the issuance and sale of which are used substantially
concurrently to repay, redeem, defease, refund, refinance, discharge or
otherwise retire for value, in whole or in part, or (b) constituting an
amendment, modification or supplement to, or a deferral or renewal of ((a) and
(b) above are, collectively, a "Refinancing"), any Indebtedness in a principal
amount not to exceed the lesser of (i) the principal amount of the Indebtedness
so refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided, that (A) Refinancing
Indebtedness shall (x) not have an Average Life shorter than the Indebtedness
being so refinanced and (y) in all respects, be no less subordinated, if
applicable, to the rights of Holders of the Securities than was the Indebtedness
to be refinanced and (B) such Refinancing Indebtedness shall have no installment
of principal (or redemption payment) scheduled to come due earlier than the
scheduled maturity of any corresponding installment of principal of the
Indebtedness to be so refinanced which was scheduled to come due prior to the
Stated Maturity.
12
<PAGE>
"Registration Rights Agreement" means the Registration Rights Agreement,
-----------------------------
dated the date hereof, by and among the Initial Purchaser and the Company, as
such agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"Related Business" means (a) the ownership, operation or franchising of
----------------
family restaurants and (b) any business that in the reasonable, good faith
judgment of the Board of Directors of the Company is directly related to such
business.
"Restricted Investment" means any direct or indirect Investment, other than
---------------------
Investments (a) in Cash and Cash Equivalents, (b) in the Company or any Wholly
Owned Subsidiary, (c) made prior to the Issue Date, (d) in any Affiliate solely
for the purpose of obtaining Liquor Licenses and (e) other Investments that do
not exceed $100,000 in the aggregate at any time.
"Restricted Payment" means, with respect to any Person, (i) the
------------------
declaration or payment of any dividend on, or other distribution in respect of,
Capital Stock or other equity interest of such Person or any subsidiary of such
Person, (ii) any purchase, redemption or other acquisition or retirement for
value of Capital Stock or other equity interest of such Person or any subsidiary
of such Person or any of their respective Affiliates, (iii) any purchase,
redemption, or other acquisition or retirement for value of, or any payment in
respect of any amendment of the terms of or any defeasance of, any Indebtedness
of the Company (other than (A) any obligations under the Credit Agreement and
(B) Indebtedness of the Company owed to any of its Wholly Owned Subsidiaries)
that is pari passu with or subordinated to the Securities, directly or
indirectly, by such Person or any subsidiary of such Person prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness, (iv) any other payment
or distribution of value to FCI, Flagstar or any of their respective Affiliates
(other than the Company and its Subsidiaries), and (v) any Restricted Investment
by such Person; provided, however, that the term "Restricted Payment" does not
include (i) any dividend or distribution on or with respect to Capital Stock of
the Company to the extent payable solely in shares of Qualified Capital Stock or
(ii) any dividend, distribution or other payment to the Company or any of its
Wholly Owned Subsidiaries, by the Company or any of its Subsidiaries.
"Restricted Security" means a Security, unless or until it has been
-------------------
(i) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it, (ii) distributed to the
public pursuant to Rule 144 or (iii) freely tradeable by the Holder thereof
under Rule 144(k) (or any similar provision then in force).
"Rule 144" means Rule 144 promulgated under the Securities Act or any
--------
similar provision then in force.
13
<PAGE>
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the 12 1/2% Senior Notes due 2004 issued under this
----------
Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the SEC promulgated thereunder.
"Significant Subsidiary" shall have the meaning ascribed to such term in
----------------------
Regulation S-X under the Securities Act, as in effect on the Issue Date.
"Special Record Date" for payment of any Defaulted Interest means a date
-------------------
fixed by the TRUSTEE pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security, means July 15,
---------------
2004.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement
------------------------
dated as of March 1, 1996 by and among Family Restaurants, Inc., Flagstar
Companies, Inc., Flagstar Corporation and FRD Acquisition Co.
"subsidiary" with respect to any Person, means (i) a corporation a
----------
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by such Person and one or more subsidiaries of such Person or by
one or more subsidiaries of such Person, (ii) a partnership in which such person
or a subsidiary of such person is, at the date of determination, a general
partner of such partnership, or (iii) any other person (other than a corporation
or a partnership) in which such person, a subsidiary of such person or such
person and one or more subsidiaries of such person, directly or indirectly, at
the date of determination, has (x) at least a majority ownership interest or (y)
the power to elect or direct the election of the directors or other governing
body of such person.
"Subsidiary" means any subsidiary of the Company other than an Unrestricted
----------
Subsidiary.
"Tax Allocation Agreement" means that certain Tax Allocation Agreement,
------------------------
dated as of the Issue Date between FCI and the Company, as such agreement is in
effect on the Issue Date.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
---
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
14
<PAGE>
"TRUSTEE" means the party named as such in this Indenture until a successor
-------
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
"Trust Officer" means any officer within the corporate trust division (or
-------------
any successor group) of the TRUSTEE or any other officer of the TRUSTEE
customarily performing functions similar to those performed by the Persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer of the TRUSTEE to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
"Unrestricted Subsidiary" means any subsidiary of the Company that, at the
-----------------------
time of determination, shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company as provided below). The Board of Directors of
the Company may designate a subsidiary of the Company to be an Unrestricted
Subsidiary only if (a) such subsidiary does not own any Capital Stock of, or own
or hold any Lien on any property of, the Company or any Subsidiary, (b) such
subsidiary does not engage in any line or lines of business activity other than
a Related Business, (c) neither immediately prior thereto nor after giving pro
forma effect to such designation would there exist a Default or Event of Default
and (d) immediately after giving effect to such designation, on a pro forma
basis, the Company could incur at least $1.00 of Indebtedness pursuant to
Section 4.11(a). The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Subsidiary only if (i) no Default or Event of
Default is existing or will occur as a consequence thereof and (ii) immediately
after giving effect to such designation, on a pro forma basis, the Company could
incur at least $1.00 of Indebtedness pursuant to Section 4.11(a). Each such
designation shall be evidenced by filing with the TRUSTEE a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
---------------------------
non-callable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
"Voting Stock" means, with respect to any person, (i) one or more classes
------------
of the Capital Stock or other equity of such person having general voting power
to elect at least a majority of the board of directors, managers or trustees of
such person (irrespective of whether or not at the time Capital Stock or other
equity of any other class or classes have or might have voting power by reason
of the happening of any contingency) and (ii) any Capital Stock or other equity
of such person convertible or exchangeable without restriction at the option of
the holder thereof into Capital Stock of such person described in clause
(i) above.
15
<PAGE>
"Wholly Owned" or "wholly owned" means (i) with respect to a subsidiary of
------------ ------------
any person, a subsidiary of such person whose Capital Stock (other than
directors' qualifying shares) is 100% Beneficially Owned by such person or
another wholly owned subsidiary of such person and (ii) with respect to a
Subsidiary, a Subsidiary whose Capital Stock (other than directors' qualifying
shares) is 100% Beneficially Owned by the Company or another wholly owned
Subsidiary.
SECTION 1.2. Other Definitions.
-----------------
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Acceleration Notice"......................................... 6.2
"Acceptance Amount"........................................... 4.14
"Accumulated Amount".......................................... 4.14
"Asset Sale".................................................. 4.14
"Asset Sale Offer"............................................ 4.14
"Asset Sale Offer Amount...................................... 4.14
"Asset Sale Offer Price....................................... 4.14
"Change of Control Offer"..................................... 11.1
"Change of Control Offer Period".............................. 11.1
"Change of Control Payment"................................... 11.1
"Change of Control Payment Date".............................. 11.1
"Change of Control Put Date".................................. 11.1
"Covenant Defeasance"......................................... 8.3
"Event of Default"............................................ 6.1
"Incur"....................................................... 4.11
"Independent Director"........................................ 4.19
"Legal Defeasance"............................................ 8.2
"Minimum Accumulation Date"................................... 4.14
"Notice of Default"........................................... 6.1(c)
"Offer Amount"................................................ 4.14
"Offer Price"................................................. 4.14
"Offer to Purchase"........................................... 4.1
"Paying Agent"................................................ 2.3
"Purchase Date"............................................... 4.1
"Reference Date".............................................. 4.3(a)
"Registrar"................................................... 2.3
"Restricted Notes"............................................ 2.6(b)
</TABLE>
16
<PAGE>
"Start Date"................................................... 4.3(a)
SECTION 1.3. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
----------
"indenture securities" means the Securities.
--------------------
"indenture securityholder" means a Holder or a Securityholder.
------------------------
"indenture to be qualified" means this Indenture.
-------------------------
"indenture TRUSTEE" or "institutional TRUSTEE" means the TRUSTEE.
----------------- ---------------------
"obligor" on the indenture securities means the Company and any other
-------
obligor on the Securities.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute, or defined by SEC rule and not otherwise
defined herein have the meanings assigned to them thereby.
SECTION 1.4. Rules of Construction. Unless the context otherwise
---------------------
requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in the plural
include the singular;
(e) provisions apply to successive events and transactions;
17
<PAGE>
(f) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(g) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
SECTION 1.5. Calculations.
------------
For purposes of the definitions of Consolidated Coverage Ratio,
Consolidated EBITDA, Consolidated Interest Expense and Consolidated Fixed
Charges, if the date of the transaction giving rise to the need to calculate any
such amounts occurs prior to the first anniversary of the Issue Date, such
amounts shall be calculated after giving effect on a pro forma basis to the
Acquisition of FRI-M by the Company on the Issue Date and the transactions
consummated in connection therewith (including the issuance of the Securities
and the incurrence of Indebtedness under the Credit Agreement) as if they had
occurred on the first day of the Reference Period.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating. The Securities, and the TRUSTEE's
---------------
certificate of authentication in respect thereof, shall be substantially in the
form of Exhibit A attached hereto, which Exhibit is part of this Indenture. The
---------
Securities may have notations, legends or endorsements required by law, stock
exchange rule or usage. The Company shall approve the form of the Securities
and any notation, legend or endorsement on them. Any such notations, legends or
endorsements not contained in the form of Security attached as Exhibit A hereto
---------
shall be delivered in writing to the TRUSTEE. Each Security shall be dated the
date of its authentication.
The terms and provisions contained in the form of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the TRUSTEE, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.2. Execution and Authentication. Two Officers shall sign,
----------------------------
or one Officer shall sign and one Officer shall attest to, the Security for the
Company by manual or facsimile signature. The Company's seal shall be
impressed, affixed, imprinted or reproduced on the Securities and may be in
facsimile form.
18
<PAGE>
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the TRUSTEE
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
TRUSTEE manually signs the certificate of authentication on the Security, but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The TRUSTEE shall authenticate Securities for original issue in the
aggregate principal amount of up to the sum of (a) $150,000,000 plus (b) any
additional Securities issued pursuant to Article I of the Purchase Agreement
plus (c) any additional Securities issued in payment of interest or liquidated
damages on the Securities pursuant to Section 4.1, in each case upon a written
order of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of Securities to be authenticated and the
date on which the Securities are to be authenticated. The aggregate principal
amount of Securities outstanding at any time may not exceed $150,000,000 plus
any additional Securities issued pursuant to Article I of the Purchase Agreement
plus any additional Securities theretofore issued in payment of interest on the
Securities pursuant to Section 4.1, except as provided in Section 2.7. Upon the
written order of the Company in the form of an Officers' Certificate, the
TRUSTEE shall authenticate Securities in substitution of Securities originally
issued to reflect any name change of the Company.
The TRUSTEE may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
TRUSTEE may do so. Each reference in this Indenture to authentication by the
TRUSTEE includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3. REGISTRAR and Paying Agent. The Company shall maintain
--------------------------
an office or agency in the Borough of Manhattan, The City of New York, where
Securities may be presented for registration of transfer or for exchange
("REGISTRAR") and an office or agency where Securities may be presented for
payment ("Paying Agent") and where notices and demands to or upon the Company in
respect of the Securities may be served. The Company may act as REGISTRAR or
Paying Agent, except that, for the purposes of Articles III, VIII, XI, and
Section 4.14 and as otherwise specified in the Indenture, neither the Company
nor any Affiliate of the Company shall act as Paying Agent. The REGISTRAR shall
keep a register of the Securities and of their
19
<PAGE>
transfer and exchange. The Company may have one or more additional Paying
Agents. The term "Paying Agent" includes any additional Paying Agent. The
Company hereby initially appoints the TRUSTEE as REGISTRAR and Paying Agent, and
the TRUSTEE hereby initially agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
promptly notify the TRUSTEE in writing of the name and address of any such
Agent. If the Company fails to maintain a REGISTRAR or Paying Agent, the TRUSTEE
shall act as such.
SECTION 2.4. Paying Agent to Hold Assets in Trust. The Company shall
------------------------------------
require each Paying Agent other than the TRUSTEE to agree in writing that each
Paying Agent shall hold in trust for the benefit of Holders or the TRUSTEE all
assets held by the Paying Agent for the payment of principal of, premium, if
any, or interest on, the Securities (whether such assets have been distributed
to it by the Company or any other obligor on the Securities), and shall notify
the TRUSTEE in writing of any Default in making any such payment. If either of
the Company or a subsidiary of the Company acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund for the benefit of
the Holders or the TRUSTEE. The Company at any time may require a Paying Agent
to distribute all assets held by it to the TRUSTEE and account for any assets
distributed and the TRUSTEE may at any time during the continuance of any
payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the TRUSTEE and to account for any
assets distributed. Upon distribution to the TRUSTEE of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent (if
other than the Company) shall have no further liability for such assets.
SECTION 2.5. Securityholder Lists. The TRUSTEE shall preserve in as
--------------------
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Holders. If the TRUSTEE is not the REGISTRAR, the
Company shall furnish to the TRUSTEE on or before the third Business Day
preceding each Interest Payment Date and at such other times as the TRUSTEE may
request in writing a list in such form and as of such date as the TRUSTEE
reasonably may require of the names and addresses of Holders.
SECTION 2.6. Transfer and Exchange.
---------------------
(a) Transfer and Exchange. When Securities are presented to the
---------------------
REGISTRAR with a request: (i) to register the transfer of such Securities; or
(ii) to exchange such Securities for an equal principal amount of Securities of
other authorized denominations, the REGISTRAR shall register the transfer or
make the exchange as requested if its reasonable requirements
20
<PAGE>
for such transaction are met; provided, however, that the Securities surrendered
for transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the REGISTRAR, duly
executed by the Holder thereof or his attorney duly authorized in writing; and
(2) in the case of Restricted Securities, shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Restricted Securities are being delivered to the
REGISTRAR by a Holder for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect (substantially in
the form set forth in Section 2.14); or
(B) if such Restricted Securities are being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with Rule 144 or
Regulation S under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification to that
effect (substantially in the form set forth in Section 2.14); or
(C) if such Restricted Securities are being transferred in
reliance on another exemption from the registration requirements of the
Securities Act, a certification to that effect and an Opinion of Counsel
reasonably acceptable to the Company and to the REGISTRAR to the effect that
such transfer is in compliance with the Securities Act (substantially in the
form set forth in Section 2.14); and
(3) in the case of Securities registered in the name of Family
Restaurants, Inc. as the initial Holder of the Securities, an aggregate
principal amount of $10,000,000 of such Securities shall not be transferable by
such Holder prior to 135 days from the Issue Date unless such Holder certifies
to the Trustee and the Company (substantially in the form set forth in Section
2.14) that it is permitted to transfer such Securities in accordance with
Section 1.2 of the Stock Purchase Agreement.
(b) Legends. Each Restricted Security shall bear a legend in
-------
substantially the form set forth on the Security attached as Exhibit A hereto.
---------
Upon any sale or transfer of a
21
<PAGE>
Restricted Security pursuant to Rule 144 or an effective registration statement
under the Securities Act, the REGISTRAR shall permit the Holder thereof to
exchange such Restricted Security for a Security that does not bear the legend
set forth above and rescind any restriction on the transfer of such Restricted
Security.
In addition, initially $6,500,000 principal amount of Securities (the
"Restricted Notes") shall bear the following legend for the period specified
below:
THIS NOTE IS ISSUED PURSUANT TO THE TERMS OF A STOCK PURCHASE AGREEMENT
DATED AS OF MARCH 1, 1996 BY AND AMONG FAMILY RESTAURANTS, INC., FLAGSTAR
COMPANIES, INC., FLAGSTAR CORPORATION AND FRD ACQUISITION CO., AND IS
SUBJECT TO REDUCTION OF THE PRINCIPAL AMOUNT UNDER CERTAIN CIRCUMSTANCES
AND CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN.
If the holder of Restricted Notes delivers Restricted Notes to the Company or
its Affiliates, the Company shall deliver such Restricted Notes to the Trustee
for cancellation, and the principal amount of Restricted Notes subject to the
foregoing legend shall be reduced thereby. From and after the eighteen month
anniversary of the Issue Date until the 48 month anniversary of the Issue Date,
the foregoing legend shall apply to the lesser of (A) $3,250,000 aggregate
principal amount of Securities and (B) such lesser amount of Restricted Notes
still outstanding after giving effect to the provisions of the foregoing
sentence. After the 48 month anniversary of the Issue Date such legend shall no
longer apply to any of the Securities.
(c) Obligations with respect to Transfers and Exchanges. To permit
---------------------------------------------------
registrations of transfers and exchanges, the Company shall execute and the
TRUSTEE shall authenticate Securities at the REGISTRAR's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax,
assessment, or similar governmental charge payable in connection therewith
(other than any such transfer tax, assessment, or similar governmental charge
payable upon exchanges or transfers pursuant to Section 2.2, 2.7, 2.10, 3.7,
4.14, 9.5, or 11.1).
(d) The Trustee and the Registrar shall be entitled to rely
conclusively on the certificates and documents delivered pursuant to Section
2.14 and shall be relieved of all liability for transfers made in reliance
thereon.
SECTION 2.7. Replacement Securities. If a mutilated Security is
----------------------
surrendered to the TRUSTEE or if the Holder of a Security claims and submits an
affidavit or other evidence, satisfactory to the TRUSTEE, to the effect that the
Security has been lost, destroyed or wrongfully
22
<PAGE>
taken, the Company shall issue and the TRUSTEE shall authenticate a replacement
Security. If required by the TRUSTEE or the Company, such Holder must provide an
indemnity bond or other indemnity, sufficient in the reasonable judgment of both
the Company and the TRUSTEE, to protect the Company, the TRUSTEE or any Agent
from any loss which any of them may suffer if a Security is replaced. The
Company may charge such Holder for its reasonable, out-of-pocket expenses in
replacing a Security. Every replacement Security is an additional obligation of
the Company.
SECTION 2.8. Outstanding Securities. Securities outstanding at any time
----------------------
are all the Securities that have been authenticated by the TRUSTEE except those
cancelled by it, those delivered to it for cancellation and those described in
this Section 2.8 as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security, except as
provided in Section 2.9.
If a Security is replaced pursuant to Section 2.7 (other than a mutilated
Security surrendered for replacement), it ceases to be outstanding unless the
TRUSTEE receives proof satisfactory to it that the replaced Security is held by
a bona fide purchaser. A mutilated Security ceases to be outstanding upon
surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent (other than
the Company or an Affiliate of the Company) holds Cash or U.S. Government
Obligations sufficient to pay all of the principal and interest due on the
Securities payable on that date and payment of the Securities called for
redemption is not otherwise prohibited, then on and after that date such
Securities shall cease to be outstanding and interest on them shall cease to
accrue.
SECTION 2.9. Treasury Securities. In determining whether the Holders of
-------------------
the required principal amount of Securities have concurred in any direction,
amendment, supplement, waiver or consent, Securities owned by the Company or
Affiliates of the Company shall be disregarded, except that, for the purposes of
determining whether the TRUSTEE shall be protected in relying on any such
direction, amendment, supplement, waiver or consent, only Securities that the
TRUSTEE has actual knowledge are so owned shall be disregarded.
SECTION 2.10. Temporary Securities. Until definitive Securities are ready
--------------------
for delivery, the Company may prepare and the TRUSTEE shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company reasonably and in
good faith considers appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the TRUSTEE shall authenticate definitive
Securities in exchange for temporary Securities. Until so exchanged, the
23
<PAGE>
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities authenticated and delivered
hereunder.
SECTION 2.11. Cancellation. The Company at any time may deliver Securities
------------
to the TRUSTEE for cancellation. The REGISTRAR and the Paying Agent shall
forward to the TRUSTEE any Securities surrendered to them for transfer, exchange
or payment. The TRUSTEE, or at the direction of the TRUSTEE, the REGISTRAR or
the Paying Agent (other than the Company or an Affiliate of the Company), and no
one else, shall cancel and, at the written direction of the Company, shall
dispose of all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.7, the Company may not issue new Securities
to replace Securities that have been paid or delivered to the TRUSTEE for
cancellation. No Securities shall be authenticated in lieu of or in exchange for
any Securities cancelled as provided in this Section 2.11, except as expressly
permitted in the form of Securities and as permitted by this Indenture.
SECTION 2.12. Defaulted Interest. Interest on any Security which is
------------------
payable, and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the person in whose name that Security (or one or more
predecessor Securities) is registered at the close of business on the Record
Date for such interest. If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent Special Record Date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior to
the payment date, in each case at the rate provided in the Securities and in
Section 4.1. The Company shall, with the consent of the TRUSTEE, fix or cause to
be fixed each such Special Record Date and payment date. At least 15 days before
the Special Record Date, the Company (or the TRUSTEE, in the name of and at the
expense of the Company) shall mail to the Holders a notice that states the
Special Record Date, the related payment date and the amount of such interest to
be paid.
Subject to the foregoing provisions of this Section, each Security delivered
under this Indenture upon transfer of or in exchange for or in lieu of any other
Security shall carry the rights to interest accrued and unpaid, and to accrue,
which were carried by such other Security.
SECTION 2.13. Liquidated Damages. The Company shall notify the TRUSTEE
------------------
within one Business Day after circumstances arise under which the Company is
required to make liquidated damages payments pursuant to the Registration Rights
Agreement (and, in any event, on or prior to the Record Date for the Interest
Payment Date on which such liquidated damages are to be paid). The Company shall
pay any such liquidated damages due on the Securities by depositing with the
TRUSTEE, in trust, for the benefit of the Holders thereof, before the Interest
Payment Date next arising hereunder, immediately available funds in sums
sufficient to pay liquidated damages then due together with an Officers'
Certificate specifying the amount of
24
<PAGE>
liquidated damages due and the Holder of each Security entitled to receive such
liquidated damages payments. The TRUSTEE shall pay such liquidated damages to
the Holders of Securities entitled to receive the interest payment to be made on
such Interest Payment Date on each Interest Payment Date on which such
liquidated damages have been deposited.
SECTION 2.14. Form of Certification. In connection with any certification
---------------------
contemplated by Section 2.6, relating to compliance with certain restrictions
relating to transfer or exchanges of the Securities, such certification shall be
provided substantially in the form of the following certificate, with only such
changes as shall be reasonably acceptable to the Company and the TRUSTEE:
CERTIFICATES TO BE DELIVERED UPON [ ] EXCHANGE OF A BENEFICIAL INTEREST IN
THE GLOBAL SECURITY FOR DEFINITIVE SECURITIES OR [ ] EXCHANGE OR
REGISTRATION OF TRANSFER OF DEFINITIVE SECURITIES
Re: 12 1/2 Senior Notes Due 2004 (the "Securities") of FRD Acquisition Co. (the
"Company")
This Certificate relates to $_______ principal amount of Securities
currently registered in ______ book-entry ("Global Securities") or ______
definitive form ("Definitive Securities") in the name of _______________ (the
"Transferor").
All capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Indenture relating to the Securities.
The Transferor:
[_] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Security held by the Depository or the
Securities Custodian a Definitive Security or Securities of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[_] has requested the Trustee by written order to exchange or register the
transfer of a Definitive Security or Securities.
In connection with such request and in respect of each such Security, the
Transferor does hereby certify as follows:
1. [_] Such Security is being transferred to the Company.
25
<PAGE>
2. [_] Such Security is being acquired for its own account, without
transfer.
3. [_] Such Security is being transferred pursuant to an effective
registration statement under the Securities Act.
4. [_] Such Security is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act) in accordance with Rule
144A under the Securities Act.
5. [_] Such Security is being transferred pursuant to the exemption from
the registration requirements of the Securities Act provided by Regulation S
thereunder.*
6. [_] Such Security is being transferred pursuant to another available
exemption from the registration requirements of the Securities Act.*
7. [_] (Applicable to Securities Registered in the name of Family
Restaurants, Inc., as the initial holder, prior to October 5, 1996.) The
transfer of such Security is permitted in accordance with Section 1.2 of the
Stock Purchase Agreement dated as of March 1, 1996 by and among Family
Restaurants, Inc., Flagstar Companies, Inc., Flagstar Corporation and FRD
Acquisition Co.
* If box (5) or (6) is checked, such transfer is subject to the Transferor
having previously furnished to the Company and the Trustee such certifications,
legal opinions or other information requested to confirm that such transfer is
being made pursuant to an exemption from, or not in a transaction subject to,
the registration requirements of the Securities Act, such as the exemption
provided by Rule 144 thereunder.
[INSERT NAME OF TRANSFEROR]
By:
-----------------------
Date: ,
----------- ----
To be dated the date of
presentation or surrender
26
<PAGE>
SECTION 2.15. CUSIP Numbers. The Company in issuing the Securities may use
-------------
"CUSIP" numbers (if then generally in use) and, if so, the Company and the
TRUSTEE shall use "CUSIP" numbers when delivering any notices of redemption as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption. Redemption of Securities, as permitted
-------------------
by any provision of this Indenture, shall be made in accordance with such
provision and this Article III. The Company will not have the right to redeem
any Securities except as set forth in Paragraph 5 of the form of the Securities
attached as Exhibit A hereto.
---------
SECTION 3.2. Notices to TRUSTEE. If the Company elects to redeem
------------------
Securities pursuant to Paragraph 5 of the Securities, it shall notify the
TRUSTEE in writing of the Redemption Date and the principal amount of Securities
to be redeemed and whether it wants the TRUSTEE to give notice of redemption to
the Holders. The Company shall give each notice to the TRUSTEE provided for in
this Section 3.2 at least 45 days before the Redemption Date (unless a shorter
notice shall be reasonably satisfactory to the TRUSTEE).
SECTION 3.3. Selection of Securities to Be Redeemed. If less than all of
--------------------------------------
the Securities are to be redeemed pursuant to Paragraph 5 thereof, the TRUSTEE
shall select the Securities to be redeemed pro rata. The TRUSTEE shall make the
selection from the Securities outstanding and not previously called for
redemption and shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Security selected for partial
redemption, the principal amount thereof to be redeemed. Securities in
denominations of $1,000 may be redeemed only in whole. The TRUSTEE may select
for redemption portions (equal to $1,000 or any integral multiple thereof) of
the principal of Securities that have denominations larger than $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption.
SECTION 3.4. Notice of Redemption. At least 30 days but not more than 60
--------------------
days before a Redemption Date, the Company shall mail a notice of redemption by
first class mail, postage prepaid, to the TRUSTEE and each Holder whose
Securities are to be redeemed. At the Company's request, the TRUSTEE shall give
the notice of redemption in the Company's name
27
<PAGE>
and at the Company's expense. Each notice for redemption shall identify the
Securities to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price, including the amount of accrued and unpaid
interest to be paid upon such redemption;
(c) the name, address and telephone number of the Paying Agent;
(d) that Securities called for redemption must be surrendered to the
Paying Agent at the address specified in such notice to collect the Redemption
Price;
(e) that, unless the Company defaults in making such redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders of such
Securities is to receive payment of the Redemption Price, including accrued and
unpaid interest to the Redemption Date, upon surrender to the Paying Agent of
the Securities called for redemption and to be redeemed;
(f) if any Security is being redeemed in part, the portion of the
principal amount, equal to $1,000 or any integral multiple thereof, of such
Security to be redeemed and that, after the Redemption Date, and upon surrender
of such Security, a new Security or Securities in aggregate principal amount
equal to the unredeemed portion thereof will be issued;
(g) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be redeemed,
as well as the aggregate principal amount of such Securities to be redeemed and
the aggregate principal amount of Securities to be outstanding after such
partial redemption;
(h) the CUSIP number of the Securities to be redeemed; and
(i) that the notice is being sent pursuant to this Section 3.4 and the
optional redemption provisions of Paragraph 5 of the Securities.
SECTION 3.5. Effect of Notice of Redemption. Once notice of redemption is
------------------------------
mailed in accordance with Section 3.4, Securities called for redemption become
due and payable on the Redemption Date and at the Redemption Price, including
accrued and unpaid interest to the Redemption Date (or to the next Business Day
if the Redemption Date is a Legal Holiday). Upon surrender to the TRUSTEE or
Paying Agent, such Securities called for redemption shall be paid at the
Redemption Price, including interest, if any, accrued and unpaid to the
Redemption
28
<PAGE>
Date (or to the next Business Day if the Redemption Date is a Legal Holiday);
provided, that (a) if the Redemption Date is after a regular Record Date and on
or prior to the Interest Payment Date, the accrued interest shall be payable to
the Holder of the redeemed Securities registered on the relevant Record Date;
and (b) if a Redemption Date is a Legal Holiday, payment shall be made on the
next succeeding Business Day and interest shall accrue for the period from such
Redemption Date to such succeeding Business Day.
SECTION 3.6. Deposit of Redemption Price. On or prior to the Redemption
---------------------------
Date, the Company shall deposit with the Paying Agent (other than the Company or
an Affiliate of the Company) Cash sufficient to pay the Redemption Price of,
including accrued and unpaid interest on, all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for redemption
on that date that have been delivered by the Company to the TRUSTEE for
cancellation). The Paying Agent shall promptly return to the Company any Cash
so deposited that is not required for that purpose upon the written request of
the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prohibited, interest on the Securities to be redeemed will
cease to accrue on the applicable Redemption Date (or to the next Business Day
if the Redemption Date is a Legal Holiday), whether or not such Securities are
presented for payment. Notwithstanding anything herein to the contrary, if any
Security surrendered for redemption in the manner provided in the Securities
shall not be so paid upon surrender for redemption, interest shall continue to
accrue and be paid from the Redemption Date until such payment is made on the
unpaid principal, and, to the extent lawful, on any interest not paid on such
unpaid principal, in each case at the rate and in the manner provided in Section
4.1.
SECTION 3.7. Securities Redeemed in Part. Upon surrender of a Security
---------------------------
that is to be redeemed in part, the Company shall execute and the TRUSTEE shall
authenticate and deliver to the Holder, without service charge to the Holder, a
new Security or Securities equal in principal amount to the unredeemed portion
of the Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities. The Company shall pay the principal
---------------------
of, and interest on, the Securities on the dates and in the manner provided in
the Securities. An installment of principal of or interest on the Securities
shall be considered paid on the date it is due if the TRUSTEE or Paying Agent
(other than the Company, a Subsidiary or an Affiliate of the Company) holds for
the benefit of the Holders, on or before 10:00 a.m. New York City time on that
date, Cash deposited and designated for and sufficient to pay the installment.
29
<PAGE>
The Company shall pay interest (including post-petition interest) on overdue
principal at the rate equal to 1% per annum in excess of the then applicable
interest rate on the Securities to the extent lawful; it shall pay interest
(including post-petition interest) on overdue installments of interest (without
regard to any applicable grace period) at the same rate to the extent lawful.
If on any Record Date occurring on or prior to the 39-month anniversary of
the Issue Date, the ratio of (a) the sum of (i) the Company's Consolidated
EBITDA for the Reference Period plus (ii) the aggregate amount of expenses
relating to Permitted Royalties and Permitted Management Fees deducted in
calculating such Consolidated EBITDA to (b) the Company's Consolidated Interest
Expense for the Reference Period (excluding to the extent included therein (A)
amortization of original issue discount and deferred financing fees and (B) that
portion of the principal amount of the Securities issued in payment of interest
on the Securities that is in excess of the amount of interest that would have
been payable if interest had been paid in cash) is less than 1.25:1, then the
Company may pay the interest due on the Securities on the applicable Interest
Payment Date (including Liquidated Damages, if any, described in the
Registration Rights Agreement) in additional Securities having a principal
amount equal to the amount of such interest due (accrued at an annual interest
rate of 14%); provided, that interest (and such Liquidated Damages, if any) may
be paid in additional Securities on no more than four Interest Payment Dates.
The Company shall notify the Trustee and deliver to the Trustee the
Officers' Certificate required by Section 2.2 at least 15 days prior to the
Record Date with respect to such Interest Payment Date of its election to so pay
such interest and liquidated damages in additional Securities. Additional
Securities to be issued pursuant to this Section 4.1 shall be issued only in
principal amounts of $1,000 or integral multiples thereof, and any remaining
amounts due shall be paid in cash. Any additional Securities so issued in
payment of interest and liquidated damages shall be dated as of the applicable
Interest Payment Date, and are additional obligations of the Company and
entitled to the benefits of this Indenture.
SECTION 4.2. Maintenance of Office or Agency. The Company shall maintain
-------------------------------
in the Borough of Manhattan, The City of New York, an office or agency where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prompt written notice to the TRUSTEE of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the TRUSTEE with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the TRUSTEE set forth in Section 12.2.
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The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of their obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York, for such purposes. The Company shall give
prompt written notice to the TRUSTEE of any such designation or rescission and
of any change in the location of any such other office or agency. The Company
hereby initially designates the Corporate Trust Office of the TRUSTEE as such
office.
SECTION 4.3. Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make any Restricted Payment, if, after
giving effect thereto on a pro forma basis, (i) a Default or an Event of Default
shall have occurred and be continuing, (ii) the Company is not permitted to
incur at least $1.00 of additional Indebtedness pursuant to Section 4.11(a), or
(iii) the aggregate amount of all Restricted Payments made by the Company and
its Subsidiaries, from and after the Issue Date, would exceed the sum of (x) 50%
of the aggregate Adjusted Consolidated Net Income of the Company for the period
(taken as one accounting period) commencing on the first day of the first full
fiscal quarter commencing after the Issue Date, to and including the last day of
the fiscal quarter ended immediately prior to the date of each such calculation
(or, in the event Consolidated Net Income for such period is a deficit, then
minus 100% of such deficit), plus (y) the aggregate Net Cash Proceeds received
by the Company from the sale of Qualified Capital Stock (other than to a
subsidiary of the Company) after the Issue Date.
The foregoing provisions shall not prohibit the following Restricted
Payments:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions hereof;
(2) the defeasance, redemption or repurchase of Indebtedness pursuant
to Section 4.11(l);
(3) if no Default or Event of Default has occurred and is continuing
or would occur as a consequence thereof, the payment of Permitted Royalties
to Flagstar or FCI or any of their respective Affiliates and the payment of
Permitted Management Fees; provided, that on the date (the "Reference Date")
of such payment (after giving effect thereto) (A) the aggregate amount of
Permitted Management Fees and Permitted Royalties paid in cash on or after
the first day of
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the second quarter of the Reference Period (the "Start Date") does not
exceed (B) the excess of (i) the Company's Consolidated EBITDA for the
Reference Period (calculated to exclude all expenses related to the
Permitted Royalties and Permitted Management Fee) over (ii) 2.0 times the
Company's Consolidated Fixed Charges for the Reference Period (provided,
that if the Start Date is prior to the Issue Date, for purposes of clause
(A) above, the aggregate amount of Permitted Royalties and Permitted
Management Fees paid in cash shall be deemed to equal those amounts paid in
cash on or after the Issue Date and on or prior to the Reference Date
multiplied by a fraction, the numerator of which is 365 and the denominator
of which is the number of days from the Issue Date through the Reference
Date);
(4) if no Default or Event of Default has occurred and is continuing
or would occur as a consequence thereof, payments required to be made
pursuant to the Tax Allocation Agreement in accordance with the terms
thereof; provided, that on the Interest Payment Date immediately prior to
the date the obligation to make such payment first accrued, interest on the
Securities was paid in cash.
(5) Investments in securities or other non-cash consideration received
in and solely as a result of (i) any restructuring or bankruptcy proceeding
of any Person; provided, that the interest of the Company and its
Subsidiaries in such Person giving rise to such Investment were permitted
hereunder or (ii) any Asset Sale made in compliance with the terms of the
Indenture.
(6) the payment of Permitted Advertising Fees to Flagstar or FCI or
any of their respective Subsidiaries.
(b) To the extent any Permitted Royalties or Permitted Management Fees
are not permitted to be paid by reason of the restrictions contained in clause
(3) of Section 4.3(a), such amounts shall accrue and be permitted to be paid
when and to the extent the Company's Consolidated Coverage Ratio, after giving
effect to such payments, exceeds 2.0 to 1; provided, that to the extent any such
amounts are accrued and not paid, the person entitled thereto expressly agrees
in writing for the benefit of the Holders that such items rank junior in right
of payment to the Securities. To the extent any payment pursuant to the Tax
Allocation Agreement is not permitted to be paid by reason of the restrictions
contained in clause (4) of Section 4.3(a), such amount shall accrue and be
permitted to be paid when and to the extent the Company's Consolidated Coverage
Ratio, after giving effect to such payments, exceeds 2.0 to 1; provided, that to
the extent any such amounts are accrued and not paid, the person entitled
thereto expressly agrees in writing for the benefit of the Holders that such
items rank junior in right of payment to the Securities.
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(c) Not later than the date of making any Restricted Payment, the
Company shall deliver to the TRUSTEE an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.3 were computed, which calculations may
be based upon the Company's latest available internal financial statements. The
TRUSTEE may rely on such Officers' Certificate without further inquiry.
SECTION 4.4. Corporate Existence. Subject to Article V, the Company shall
-------------------
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and the corporate or other existence of each
of its Subsidiaries in accordance with the respective organizational documents
of each of them and the rights (charter and statutory) and corporate franchises
of the Company and each of its Subsidiaries; provided, however, that the Company
shall not be required to preserve, with respect to itself, any right or
franchise, and with respect to any of its Subsidiaries, any such existence,
right or franchise, if (a) the Board of Directors of the Company shall
reasonably and in good faith determine that the preservation thereof is no
longer desirable in the conduct of the business of such entity and (b) the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 4.5. Payment of Taxes and Other Claims. The Company shall, and
---------------------------------
shall cause each of its subsidiaries to, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon the Company or any of
its subsidiaries or any of its properties and assets and (ii) all lawful claims,
whether for labor, materials, supplies, services or anything else, which have
become due and payable and which by law have or may become a Lien upon the
property and assets of the Company or any of its subsidiaries; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which disputed amounts adequate reserves have been
established in accordance with GAAP.
SECTION 4.6. Maintenance of Properties and Insurance. The Company shall
---------------------------------------
cause all material properties used or useful to the conduct of its business and
the business of each of its Subsidiaries to be maintained and kept in good
condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
their reasonable, good faith judgment may be necessary, so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section 4.6 shall prevent the Company
from discontinuing any operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is (i) (a) in the
reasonable, good faith judgment of the Board of Directors of the Company or such
Subsid-
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iary, desirable in the conduct of the business of such entity and (b) not
disadvantageous in any material respect to the Holders or (ii) otherwise
pursuant to a sale permitted by Section 4.14.
The Company shall provide, or cause to be provided, for itself and each of
its Subsidiaries, insurance (including appropriate self-insurance) against loss
or damage of the kinds that, in the reasonable, good faith judgment of the
Company is adequate and appropriate for the conduct of the business of the
Company and such Subsidiaries in a prudent manner, with (except for self-
insurance) reputable insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the reasonable, good
faith judgment of the Company, and adequate and appropriate for the conduct of
the business of the Company and such Subsidiaries in a prudent manner for
entities similarly situated in the industry, unless failure to provide such
insurance (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries taken as a whole.
SECTION 4.7. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the TRUSTEE within 120 days after the
end of its fiscal year an Officers' Certificate complying with Section 314(a)(4)
of the TIA and stating that a review of its activities and the activities of its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture and further stating, as to each such Officer signing such certificate,
whether or not the signer knows of any failure by the Company or any Subsidiary
of the Company to comply with any conditions or covenants in this Indenture and,
if such signor does know of such a failure to comply, the certificate shall
describe such failure with particularity. The Officers' Certificate shall also
notify the TRUSTEE should the relevant fiscal year end on any date other than
the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the TRUSTEE, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any payment
to or by the TRUSTEE in respect of the Securities, an Officers' Certificate
specifying such Default, Event of Default or fact and what action the Company is
taking or proposes to take with respect thereto. The TRUSTEE shall not be
deemed to have knowledge of any Default, any Event of Default or any such fact
unless one of its Trust Officers receives notice thereof from the Company or any
of the Holders.
SECTION 4.8. Reports. Whether or not the Company is subject to the
-------
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall timely file with the SEC (provided such filing is accepted by the SEC) all
reports, information and other documents
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that the Company is required or would have been required to file with the SEC if
the Company were subject to Section 13 or 15(d) of the Exchange Act, including,
with respect to annual information, a report thereon by the Company's certified
independent public accountants as such would be required in such reports to the
SEC, and, in each case, together with a management's discussion and analysis of
financial condition and results of operations which would be so required. The
Company shall deliver a copy of all such reports, information and other
documents to the TRUSTEE (regardless of whether such filing is accepted by the
SEC), and cause the TRUSTEE to provide a copy to each Holder (at no cost to the
Holder) and to prospective purchasers of Securities identified to the Company by
the Holder (if requested, in writing), within 15 days after such reports,
information or documents are filed or would have been required to be filed with
the SEC.
SECTION 4.9. Limitation on Status as Investment Company. The Company shall
------------------------------------------
not, and shall not permit any of its subsidiaries to, become an "investment
company" (as that term is defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act")), or otherwise become subject to
regulation under the Investment Company Act.
SECTION 4.10. Limitation on Transactions with Affiliates. The Company
------------------------------------------
shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, enter into any Affiliate Transaction unless (a) such transaction is
on terms no less favorable to the Company or such Subsidiary, as the case may
be, than could have been obtained in an arm's-length transaction with a non-
Affiliate ("Fair Terms"), (b) if such transaction, individually or when
aggregated with all other Affiliate Transactions undertaken during the preceding
twelve months, involves consideration in excess of $50,000, a majority of the
disinterested members of the Board of Directors of the Company shall have made a
determination prior to the consummation thereof that such transaction is on Fair
Terms, and (c) if such Affiliate Transaction involves consideration in excess of
$5.0 million, prior to the consummation thereof, the Company obtains a written
favorable opinion as to the fairness of such transaction to the Company or such
Subsidiary from a financial point of view from an independent investment banking
firm of national reputation. Notwithstanding the foregoing, (i) the Company and
its Subsidiaries may make Restricted Payments not prohibited by Section 4.3,
(ii) the Company and its Subsidiaries may pay reasonable and customary fees to
the Independent Directors, (iii) the Company may enter into a Permitted
Franchise Agreement and the Management Services Agreement and (iv) the Company
and its Subsidiaries may enter into the Tax Allocation Agreement; provided, that
no Subsidiary is obligated to make payments thereunder other than to the Company
or a wholly owned Subsidiary.
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness and
-------------------------------------------------------
Disqualified Capital Stock. The Company shall not, and shall not permit any of
- --------------------------
its Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur,
become directly or indirectly liable with respect to (including as a result of
an Acquisition), extend the maturity of, or otherwise become responsible for,
contingently or otherwise (individually and collectively, to "incur" or "Incur"
or, as appropriate, an "incurrence" or "Incurrence"), any Indebtedness or any
Disqualified Capital Stock. Notwithstanding the foregoing:
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<PAGE>
(a) The Company may Incur Indebtedness if (i) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect on a pro forma basis to, such Incurrence, (ii) on the date
of such Incurrence, the Consolidated Coverage Ratio of the Company for the
Reference Period, after giving effect on a pro forma basis to such incurrence of
such Indebtedness, would be at least 2.0 to l, and (iii) the Average Life of
such Indebtedness is longer than that of the Securities and the stated maturity
of such Indebtedness is later than that of the Securities.
(b) The Company may Incur Indebtedness evidenced by the Securities and
represented by the Indenture.
(c) FRI-M and its subsidiaries may Incur Indebtedness in existence on
the Issue Date.
(d) The Company and its Subsidiaries may Incur Indebtedness pursuant
to the Credit Agreement in an aggregate amount outstanding at any time not to
exceed (i) $136 million minus (ii) the sum of (x) the amount of any such
Indebtedness retired with Net Cash Proceeds from any Asset Sale or assumed by a
transferee in an Asset Sale and (y) all refinancings of Indebtedness Incurred
under the Credit Agreement with Indebtedness incurred under Section 4.11(e);
provided, that the aggregate principal amount of term Indebtedness incurred
under this Section 4.11(d) shall not exceed $86 million at any time and the
aggregate principal amount of working capital or other revolving Indebtedness
incurred under this Section 4.11(d) (including letters of credit) shall not
exceed $80 million at any time.
(e) The Company and its Subsidiaries may Incur Indebtedness related to
mortgage financings, mortgage refinancings or sale and lease-back transactions;
provided, that the aggregate principal amount of such Indebtedness is used
solely to repay senior secured Indebtedness of such person.
(f) The Company and its Subsidiaries may Incur Purchase Money
Indebtedness and Capitalized Lease Obligations; provided, that the aggregate
amount of such Indebtedness outstanding at any time, other than Capitalized
Lease Obligations existing on the Issue Date and permitted Refinancings thereof,
shall not exceed $25 million.
(g) The Company and its Subsidiaries may Incur Indebtedness
constituting reimbursement obligations with respect to letters of credit
(including workers' compensation claims); provided that such letters of credit
were permitted to be issued hereunder.
(h) The Company may Incur Indebtedness to any Wholly Owned Subsidiary,
and any Wholly Owned Subsidiary may Incur Indebtedness to any other Wholly Owned
Subsidiary or to the Company but only so long as such Indebtedness is owed to
and held by the Company or a Wholly Owned Subsidiary.
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(i) The Company and its Subsidiaries may Incur Indebtedness arising
from the overdraft of zero balanced bank accounts; provided, that the aggregate
amount of such Indebtedness outstanding at any time shall not exceed $5 million.
(j) The Company and its Subsidiaries may Incur Indebtedness related to
surety and performance bonds issued in the ordinary course of business;
provided, that such incurrence does not result in the Incurrence of any
obligation for the payment of borrowed money of others.
(k) The Company and its Subsidiaries may Incur Indebtedness related to
Interest Swap and Hedging obligations.
(l) The Company and its Subsidiaries may Incur Refinancing
Indebtedness with respect to any Indebtedness incurred under clauses (a) and (c)
of this Section 4.11.
SECTION 4.12. Limitations on Dividends and Other Payment Restrictions
-------------------------------------------------------
Affecting Subsidiaries. The Company shall not, and shall not permit any of its
- ----------------------
Subsidiaries to, directly or indirectly, create, assume or otherwise cause or
suffer to exist any encumbrance or restriction of any kind on the ability of (a)
any Subsidiary of the Company to (i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on such Subsidiary's
Capital Stock or (B) with respect to any other interest or participation in, or
measured by, such Subsidiary's profits or (ii) pay any Indebtedness owed to the
Company or any of its Subsidiaries, (b) any Subsidiary of the Company to make
loans or advances to the Company or any of its Subsidiaries or (c) any
Subsidiary of the Company to transfer any of its properties or assets to the
Company or any of its Subsidiaries, except for such encumbrances or restrictions
(1) existing under applicable law; (2) set forth in any instruments or
agreements evidencing or governing Indebtedness of the Company or any such
Subsidiary (x) existing on the Issue Date (including the Credit Agreement as in
effect on the Issue Date) or (y) amending, supplementing, amending and
restating, or refinancing such Indebtedness; provided that the restrictions
contained in such refinancing (which, in the case of the Credit Agreement, may
apply to any present or future Subsidiary) are no more restrictive than those
contained in the agreements governing the debt being amended, supplemented,
amended and restated or refinanced; (3) set forth in any instrument evidencing
or governing Indebtedness or equity interests of a Person acquired by the
Company or any restricted Subsidiaries; provided that such encumbrance or
restriction is not applicable to any person, or the property or assets of any
person, other than the person so acquired; (4) existing by reason of customary
non-assignment provisions in existing leases or leases entered into after the
Issue Date and otherwise permitted hereunder; and (5) existing by reason of the
provisions set forth in Refinancing Indebtedness; provided that the restrictions
contained in such Refinancing Indebtedness are not more restrictive than those
contained in the agreements governing the Indebtedness being refinanced or
modified.
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SECTION 4.13. Limitations on Liens. The Company shall not, and shall not
--------------------
permit any of its Subsidiaries to, directly or indirectly, Incur, or suffer to
exist any Lien (other than Permitted Liens) upon any of its property or assets,
whether now owned or hereafter acquired.
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
(a) The Company shall not, and shall not permit any of its Subsidiaries
to, in one or a series of transactions, convey, sell, transfer, assign or
otherwise dispose of, directly or indirectly, any of its business or assets,
including by merger or consolidation, and including any issuance of Capital
Stock of any Subsidiary, whether by the Company or a Subsidiary (an "Asset
Sale"), unless:
(1) either (A) the Net Cash Proceeds therefrom (the "Asset Sale Offer
Amount") are applied to the repurchase of Securities pursuant to an irrevocable,
unconditional offer (the "Asset Sale Offer") to repurchase Securities at a
purchase price (the "Asset Sale Offer Price") of 100% of principal amount, plus
accrued interest to the date of payment, made pursuant to Section 4.14(b) or (B)
within 360 days of such Asset Sale, the Asset Sale Offer Amount is (i) invested
in assets (excluding inventory, other than inventory for new restaurants) that
constitute a Related Business or (ii) used to permanently reduce the amount of
Indebtedness permitted pursuant to Section 4.11(d) (including that in the case
of a revolver or similar arrangement that makes credit available, such
commitment is so reduced by such amount);
(2) at least 75% of the consideration for such Asset Sale consists of
Cash or Cash Equivalents; provided, that this clause (2) shall not apply to the
sale of an existing restaurant and related equipment to a franchisee;
(3) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on a pro forma
basis, to, such Asset Sale; and
(4) the Company or such Subsidiary, as applicable, receives fair market
value for such Asset Sale.
Notwithstanding the foregoing, the Company and its Subsidiaries may, (i) in
the ordinary course of business, consistent with past practice, (A) sell assets
acquired and held for resale in the ordinary course of business and (B) sell
obsolete equipment, (ii) convey, sell, lease, transfer, assign or otherwise
dispose of assets pursuant to and in accordance with the provisions of Article V
hereof and (iii) convey, sell, transfer, assign or otherwise dispose of assets
to the Company or any of its Wholly Owned Subsidiaries; and such transactions
shall not be deemed Asset Sales.
(b) The Company shall accumulate all Net Cash Proceeds (including any
cash as and when received from the proceeds of any asset that was acquired in
consideration of
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an Asset Sale), and the aggregate amount of such accumulated Net Cash Proceeds
not used for the purposes permitted and within the time provided by Section
4.14(a)(1)(B) is referred to as the "Accumulated Amount."
"Minimum Accumulation Date" means each date on which the Accumulated Amount
exceeds $5 million. Not later than 10 Business Days after each Minimum
Accumulation Date, the Company will commence an irrevocable unconditional offer
(an "Offer to Purchase") to the Holders to purchase, on a pro rata basis, for
Cash, Securities having a principal amount (the "Offer Amount") equal to the
Accumulated Amount, at a purchase price (the "Offer Price") equal to 100% of
principal amount, plus accrued but unpaid interest to, and including, the date
(the "Purchase Date") the Securities tendered are purchased and paid for in
accordance with this Section 4.14, which date shall be no later than 60 Business
Days after the first date on which the Offer to Purchase is required to be made.
Notice of an Offer to Purchase will be sent 23 Business Days prior to the
Purchase Date by first-class mail, by the Company to each Holder at its
registered address, with a copy to the TRUSTEE. The notice to the Holders will
contain all information, instructions and materials required by applicable law
or otherwise material to such Holders' decision to tender Securities pursuant to
the Offer to Purchase. The notice, which (to the extent consistent with the
Indenture) shall govern the terms of the Offer to Purchase, shall state:
(1) that the Offer to Purchase is being made pursuant to such notice
and this Section 4.14;
(2) the Offer Amount, the Offer Price (including the amount of accrued
and unpaid interest) and the Purchase Date, which Purchase Date shall be on or
prior to 60 Business Days following the Minimum Accumulation Date;
(3) that any Security or portion thereof not tendered or accepted for
payment will continue to accrue interest;
(4) that, unless the Company defaults in depositing Cash with the
Paying Agent or such payment is otherwise prevented, any Security, or portion
thereof, accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest after the Purchase Date;
(5) that Holders electing to have a Security, or portion thereof,
purchased pursuant to an Offer to Purchase will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, to the Paying Agent (which may not be the
Company or any Affiliate of the Company) at the address specified in the notice
prior to the close of business on the Purchase Date;
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(6) that Holders will be entitled to withdraw their elections, in
whole or in part, if the Paying Agent receives, up to the close of business on
the Purchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Securities the Holder
is withholding and a statement that such Holder is withdrawing his election to
have such principal amount of Securities purchased;
(7) that if Securities in a principal amount in excess of the
principal amount of Securities to be acquired pursuant to the Offer to Purchase
are tendered and not withdrawn, the Company shall purchase Securities on a pro
rata basis (with such adjustments as may be deemed appropriate by the Company so
that only Securities in denominations of $1,000 or integral multiples of $1,000
shall be acquired);
(8) that Holders whose Securities were purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered; and
(9) a brief description of the circumstances and relevant facts
regarding such Asset Sales.
Each Offer to Purchase shall comply with all applicable provisions of
Federal and state laws, including those regulating tender offers, if applicable.
(c) On or before a Purchase Date, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the Offer
to Purchase on or before the Purchase Date (on a pro rata basis if required
pursuant to paragraph (7) hereof), (ii) deposit with the Paying Agent (which may
not be the Company or an Affiliate of the Company) Cash sufficient to pay the
Offer Price for all Securities or portions thereof so tendered and accepted and
(iii) deliver to the TRUSTEE Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall within one Business Day following each Purchase
Date mail or deliver to Holders of Securities so accepted payment in an amount
equal to the Offer Price for such Securities, and the TRUSTEE shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Security not so accepted shall be promptly mailed or delivered by the Company to
the Holder thereof.
If the amount required to acquire all Securities tendered by Holders
pursuant to the Offer to Purchase (the "Acceptance Amount") is less than the
Offer Amount, the excess of the Offer Amount over the Acceptance Amount may be
used by the Company for general corporate purposes without restriction, unless
otherwise restricted by the other provisions of the Indenture. Upon
consummation of any Offer to Purchase made in accordance with the terms of the
Inden-
40
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ture, the Accumulated Amount will be reduced to zero irrespective of the amount
of Securities tendered pursuant to the Offer to Purchase.
SECTION 4.15. Waiver of Stay, Extension or Usury Laws. The Company
---------------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of, premium of, or interest on the Securities as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the TRUSTEE, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.16. Rule 144A Information Requirement. The Company shall furnish
---------------------------------
to the Holders of Restricted Securities and prospective purchasers of Restricted
Securities designated by such Holders, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The Company shall also furnish such information during the pendency of any
suspension of effectiveness of the resale registration statement.
SECTION 4.17. Limitation on Lines of Business. The Company shall not, and
-------------------------------
shall cause each of its Subsidiaries not to, directly or indirectly engage in
any business other than a Related Business.
SECTION 4.18. Restriction on Sale and Issuance of Subsidiary Stock. The
----------------------------------------------------
Company shall not sell, and shall not permit any of its Subsidiaries to issue or
sell, any shares of Capital Stock of any Subsidiary to any Person other than the
Company or a Wholly Owned Subsidiary of the Company (other than the sale of all
of the Capital Stock of any Subsidiary (a) permitted under and pursuant to
Section 4.14 or Article V or (b) pursuant to a foreclosure by the lenders
conducted pursuant to the Credit Agreement).
SECTION 4.19. Corporate Governance. The Company shall at all times
--------------------
maintain at least two Independent Directors. "Independent Director" means a
member of the Board of Directors of the Company that is neither an Affiliate nor
a director, officer, employee, agent, representative or designee of any
Affiliate other than by reason of such person being a member of such Board of
Directors.
SECTION 4.20. Licensing. The Company shall not permit any Affiliate (other
---------
than the Company and its Subsidiaries) to use the Coco's or Carrows trade names
to license or franchise restaurants, or use any other intangible assets of the
Company or of any of its Subsidiary unless such license or use is made on an
arm's-length basis and the Company or such Subsidiary receives all fees
generated therefrom.
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ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
-------------------------------------------
(a) The Company shall not, nor shall it permit any Subsidiary to,
directly or indirectly, consolidate with or merge with or into another Person or
sell, lease, convey or transfer all or substantially all of the Company's assets
(computed on a consolidated basis), whether in a single transaction or a series
of related transactions, to another Person or group of affiliated Persons,
unless:
(i) either (x) the Company is the continuing entity or (y) the
resulting, surviving or transferee entity is a corporation organized under
the laws of the United States, any state thereof or the District of
Columbia and expressly assumes by supplemental indenture all of the
obligations of the Company in connection with the Securities and the
Indenture;
(ii) no Default or Event of Default shall exist or shall occur
immediately before or after giving effect on a pro forma basis to such
transaction;
(iii) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Net Worth of the consolidated surviving or
transferee entity is at least equal to the Consolidated Net Worth of the
Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro
forma basis, the consolidated surviving or transferee entity would
immediately thereafter be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to Section 4.11(a); and
(v) the Company has delivered to the TRUSTEE an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and, if a supplemental indenture is
required, such supplemental indenture complies with the Indenture and that
all conditions precedent therein relating to such transactions have been
satisfied.
Notwithstanding the foregoing, a Wholly Owned Subsidiary may (1) consolidate or
merge with or into any other Wholly Owned Subsidiary or the Company or (2) sell,
lease, convey or transfer all or substantially all of its assets to any other
Wholly Owned Subsidiary or the Company.
(b) For purposes of clause (a), the sale, lease, conveyance,
assignment, transfer, or other disposition of all or substantially all of the
properties and assets of one or more
42
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Subsidiaries, which properties and assets, if held by the Company instead of
such Subsidiaries, would constitute all or substantially all of the properties
and assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.2. Successor Corporation Substituted. Upon any consolidation or
---------------------------------
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made, shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under the Indenture with the same effect as if such
successor corporation had been named herein as the Company, and when a successor
corporation duly assumes all of the obligations of the Company pursuant hereto
and pursuant to the Securities, the predecessor shall be released from such
obligations (except with respect to any obligations that arise from, or are
related to, such transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default. "Event of Default," wherever used herein,
-----------------
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be caused voluntarily or involuntarily or effected,
without limitation, by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) failure to pay any installment of interest upon the Securities as
and when the same becomes due and payable, and the continuance of such default
for a period of 30 days;
(b) failure to pay all or any part of the principal of the Securities
when and as the same becomes due and payable at maturity, redemption, by
acceleration, or otherwise, including, without limitation, default in the
payment of the Change of Control Payment in accordance with Article XI or the
Offer Price in accordance with Section 4.14;
(c) failure by the Company to observe or perform any covenant,
agreement or warranty contained in the Securities or this Indenture (other than
a default in the performance of any covenant, agreement or warranty which is
specifically dealt with in (a) or (b) above), and continuance of such failure
for a period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee, or to the Company and the Trustee by
Holders of at least 25% in aggregate principal amount of the outstanding
Securities, a written notice specifying such default or breach, requiring it to
be remedied and stating that such notice is a "Notice of Default" hereunder;
43
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(d) a default under the Credit Agreement or other Indebtedness of the
Company or any of its Subsidiaries with an aggregate principal amount in excess
of $5 million, in each case (a) resulting from the failure to pay principal at
final stated maturity (giving effect to any extensions thereof) or (b) as a
result of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity;
(e) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered in an involuntary case under any bankruptcy or similar
law adjudging the Company or any of its Significant Subsidiaries as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization of
the Company or any of its Significant Subsidiaries under any bankruptcy or
similar law, and such decree, judgment or order shall have continued
undischarged and unstayed for a period of 60 days; or a decree or order of a
court of competent jurisdiction over the appointment of a receiver, liquidator,
trustee, or assignee in bankruptcy or insolvency of the Company, any of its
Significant Subsidiaries, or over all or substantially all of the property of
any such Person, or for the winding up or liquidation of the affairs of any such
Person, shall have been entered, and such decree, or order shall have remained
in force undischarged and unstayed for a period of 60 days;
(f) the Company or any of its Significant Subsidiaries shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
entry of any order for relief in an involuntary case under any bankruptcy or
similar law or similar statute, or shall consent to the appointment of a
Custodian, receiver, liquidator, trustee, or assignee in bankruptcy or
insolvency for all or substantially all of its assets or property, or shall make
a general assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due, or shall, within the
meaning of any Bankruptcy Law, become insolvent, fail generally to pay its debts
as they become due, or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(g) final unsatisfied judgments not covered by insurance for the
payment of money, or the issuance of any warrant of attachment against any
portion of the property or assets of the Company or any of its Subsidiaries,
aggregating in excess of $5 million at any one time shall be rendered against
the Company or any of its Subsidiaries and shall not be stayed, bonded or
discharged for a period (during which execution shall not be effectively stayed)
of 60 days (or, in the case of any such final judgment which provides for
payment over time, which shall so remain unstayed, unbonded or undischarged 60
days beyond any payment date provided therein).
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment. If
-------------------------------------------------------
an Event of Default (other than an Event of Default specified in Section 6.1(e)
or (f)) occurs and is continuing, then, and in every such case, unless the
principal of all of the Securities shall have already become due and payable,
either the TRUSTEE or the Holders of not less than 25% in aggregate principal
amount of then outstanding Securities, by a notice in writing to the Company
(and to the TRUSTEE if given by Holders) (an "Acceleration Notice"), may declare
all of the principal of the Securities (or the Change of Control Payment if the
Event of Default includes
44
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failure to pay the Change of Control Payment), determined as set forth below,
including in each case accrued interest thereon, to be due and payable
immediately. In the event a declaration of acceleration resulting from an Event
of Default described in Section 6.1(d) above has occurred and is continuing,
such declaration of acceleration shall be automatically annulled if such default
is cured or waived or the holders of the Indebtedness which is the subject of
such default have rescinded their declaration of acceleration in respect of such
Indebtedness within 60 days thereof and the TRUSTEE has received written notice
of such cure, waiver or rescission and no other Event of Default described in
Section 6.1(d) above has occurred that has not been cured or waived within 60
days of the declaration of such acceleration in respect of such Indebtedness. If
an Event of Default specified in Section 6.1(e) or (f) occurs, all principal and
accrued interest thereon will be immediately due and payable on all outstanding
Securities without any declaration or other act on the part of TRUSTEE or the
Holders.
At any time after such a declaration of acceleration being made and before a
judgment or decree for payment of the money due has been obtained by the TRUSTEE
as hereinafter provided in this Article VI, the Holders of a majority in
aggregate principal amount of then outstanding Securities, by written notice to
the Company and the TRUSTEE, may rescind, on behalf of all Holders, any such
declaration of acceleration if (i) the Company has paid or deposited with the
TRUSTEE Cash sufficient to pay (A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, applicable to) any Securities which
would become due otherwise than by such declaration of acceleration, and
interest thereon at the rate borne by the Securities, (C) to the extent that
payment of such interest is lawful, interest upon overdue interest at the rate
borne by the Securities, (D) all sums paid or advanced by the TRUSTEE hereunder
and the compensation, expenses, disbursements and advances of the TRUSTEE, its
agents and counsel, and (ii) all Events of Default, other than the non-payment
of the principal of, premium, if any, and interest on Securities which have
become due solely by such declaration of acceleration, have been cured or waived
as provided in Section 6.12, including, if applicable, any Event of Default
relating to the covenants contained in Section 11.1.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall
be effective against any Holder for any Event of Default or event which with
notice or lapse of time or both would be an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event. No such waiver shall cure or waive any subsequent default or impair any
right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
TRUSTEE. The Company covenants that if an Event of Default in payment of
- -------
principal, premium, or interest specified in clause (a) or (b) of Section 6.1
occurs and is continuing, the Company shall, upon demand of the TRUSTEE, pay to
it, for the benefit of the Holders of such Securities, the whole amount then due
and payable on such Securities for principal, premium (if any) and interest,
and, to the extent that payment of such interest shall be legally enforceable,
interest on any overdue
45
<PAGE>
principal (and premium, if any) and on any overdue interest, at the rate borne
by the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including compensation
to, and expenses, disbursements and advances of the TRUSTEE, its agents and
counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
TRUSTEE, in its own name and as TRUSTEE of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the TRUSTEE may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the TRUSTEE shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. TRUSTEE May File Proofs of Claim. In case of the pendency of
--------------------------------
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or their creditors, the TRUSTEE (irrespective
of whether the principal of the Securities shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
TRUSTEE shall have made any demand on the Company for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise to take any and all actions under the TIA, including
(a) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the TRUSTEE (including any claim for the reasonable
compensation, expenses, disbursements and advances of the TRUSTEE, its agent and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, TRUSTEE, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the TRUSTEE and, in the event that the
TRUSTEE shall consent to the making of such payments directly to the Holders, to
pay to the TRUSTEE any amount due it for the reasonable compensation, ex-
46
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penses, disbursements and advances of the TRUSTEE, its agents and counsel, and
any other amounts due the TRUSTEE under Section 7.7.
Nothing herein contained shall be deemed to authorize the TRUSTEE to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the TRUSTEE to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.5. TRUSTEE May Enforce Claims Without Possession of Securities.
-----------------------------------------------------------
All rights of action and claims under this Indenture or the Securities may be
prosecuted and enforced by the TRUSTEE without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the TRUSTEE shall be brought in its own name as
TRUSTEE of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the TRUSTEE, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6.6. Priorities. Any money collected by the TRUSTEE pursuant to
----------
this Article VI shall be applied in the following order, at the date or dates
fixed by the TRUSTEE and, in case of the distribution of such money on account
of principal, premium (if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the TRUSTEE in payment of all amounts due pursuant to Section
7.7;
SECOND: To the Holders in payment of the amounts then due and unpaid for
principal of, premium (if any) and interest on, the Securities in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Securities for principal, premium (if any) and interest,
respectively; and
THIRD: To whomsoever may be lawfully entitled thereto, the remainder, if
any.
SECTION 6.7. Limitation on Suits. No Holder of any Security shall have any
-------------------
right to order or direct the TRUSTEE to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or TRUSTEE, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the TRUSTEE of
a continuing Event of Default;
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(b) the Holders of not less than 25% in principal amount of then
outstanding Securities shall have made written request to the TRUSTEE to
institute proceedings in respect of such Event of Default in its own name as
TRUSTEE hereunder;
(c) such Holder or Holders have offered to the TRUSTEE reasonable
security or indemnity against the costs, expenses and liabilities to be incurred
or reasonably probable to be incurred in compliance with such request;
(d) the TRUSTEE for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the TRUSTEE during such 60-day period by the Holders of a majority in
principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive Principal, Premium
------------------------------------------------------------
and Interest. Notwithstanding any other provision of this Indenture, the Holder
- ------------
of any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any) and interest on, such
Security on the Maturity Dates of such payments as expressed in such Security
(in the case of redemption, the Redemption Price on the applicable Redemption
Date, in the case of the Change of Control Payment, on the applicable Change of
Control Payment Date, and in the case of the Offer Price, on the Purchase Date)
and to institute suit for the enforcement of any such payment after such
respective dates, and such rights shall not be impaired without the consent of
such Holder.
SECTION 6.9. Rights and Remedies Cumulative. Except as otherwise provided
------------------------------
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in Section 2.7, no right or remedy herein conferred upon or
reserved to the TRUSTEE or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
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SECTION 6.10. Delay or Omission Not Waiver. No delay or omission by the
----------------------------
TRUSTEE or by any Holder of any Security to exercise any right or remedy arising
upon any Event of Default shall impair the exercise of any such right or remedy
or constitute a waiver of any such Event of Default. Every right and remedy
given by this Article VI or by law to the TRUSTEE or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
TRUSTEE or by the Holders, as the case may be.
SECTION 6.11. Control by Holders. The Holder or Holders of a majority in
------------------
aggregate principal amount of then outstanding Securities shall have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the TRUSTEE or exercising any trust or power conferred upon the
TRUSTEE, provided, that (a) such direction shall not be in conflict with any
rule of law or with this Indenture, (b) the TRUSTEE shall not determine that the
action so directed would be unjustly prejudicial to the Holders not taking part
in such direction, and (c) the TRUSTEE may take any other action deemed proper
by the TRUSTEE which is not inconsistent with such direction.
SECTION 6.12. Waiver of Past Default. Subject to Section 6.8, the Holder
----------------------
or Holders of not less than a majority in aggregate principal amount of the
outstanding Securities may, on behalf of all Holders, prior to the declaration
of the maturity of the Securities, waive any past default hereunder and its
consequences, except a default (a) in the payment of the principal of, premium,
if any, or interest on, any Security as specified in clauses (a) and (b) of
Section 6.1, or (b) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder of
each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs. All parties to this Indenture agree,
---------------------
and each Holder of any Security by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the TRUSTEE for any action taken, suffered or omitted to be taken by it as
TRUSTEE, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section 6.13 shall not apply to any suit instituted by the Company, to any suit
instituted by the TRUSTEE, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for
enforcement of the payment of principal of, or premium (if any) or interest on,
any Security on or after the respective Maturity Date expressed in such Security
(including, in the case of redemption, on or after the Redemption Date, in the
case of a Change of Control, on or
49
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after the Change of Control Payment Date, and in the case of an Offer to
Purchase, on or after the Purchase Date).
SECTION 6.14. Restoration of Rights and Remedies. If the TRUSTEE or any
----------------------------------
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the TRUSTEE or to such Holder, then and in
every case, subject to any determination in such proceeding, the Company, the
TRUSTEE and the Holders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the TRUSTEE
and the Holders shall continue as though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The TRUSTEE hereby accepts the trust imposed upon it by this Indenture and
Covenants and agrees to perform the same, as herein expressed.
SECTION 7.1. Duties of TRUSTEE.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, the TRUSTEE shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The TRUSTEE need perform only those duties as are specifically set
forth in this Indenture and no others, and no other covenants or
obligations shall be implied in or read into this Indenture which are
adverse to the TRUSTEE.
(2) In the absence of bad faith on its part, the TRUSTEE may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the TRUSTEE and conforming to the requirements of this Indenture. However,
the TRUSTEE shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The TRUSTEE may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.1.
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(2) The TRUSTEE shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the TRUSTEE was
negligent in ascertaining the pertinent facts.
(3) The TRUSTEE shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the TRUSTEE to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
TRUSTEE is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1.
SECTION 7.2. Rights of TRUSTEE. Subject to Section 7.1:
-----------------
(a) The TRUSTEE may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The TRUSTEE need not
investigate any fact or matter stated in the document.
(b) Before the TRUSTEE acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of Counsel,
which shall conform to Sections 12.4 and 12.5. The TRUSTEE shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or advice of counsel.
(c) The TRUSTEE may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The TRUSTEE shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(e) The TRUSTEE shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the TRUSTEE, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
51
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(f) The TRUSTEE shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the TRUSTEE reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Unless otherwise specifically provided for in this Indenture, any
demand, request, or direction as notice from the Company shall be sufficient if
signed by an Officer of the Company.
(h) The TRUSTEE shall have no duty to inquire as to the performance of
the Company's covenants in Article IV hereof. In addition, the TRUSTEE shall
not be deemed to have knowledge of any Default or Event of Default except (i)
any Event of Default occurring pursuant to Sections 6.1(a) and 6.1(b), or (ii)
any Default or Event of Default of which the TRUSTEE shall have received written
notification or obtained actual knowledge.
(i) The TRUSTEE shall not be deemed to have notice of the occurrence
of a Change of Control until the TRUSTEE receives written notice thereof from
the Company pursuant to Article XI or that events have occurred which would
require the Company to make an Offer to Purchase until the TRUSTEE receives
written notice thereof from the Company pursuant to Section 4.14.
SECTION 7.3. Individual Rights of TRUSTEE. The TRUSTEE in its individual
----------------------------
or any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company and any of its Subsidiaries or Affiliates with
the same rights it would have if it were not TRUSTEE. Any Agent may do the same
with like rights. However, the TRUSTEE must comply with Sections 7.10 and 7.11.
SECTION 7.4. TRUSTEE's Disclaimer. The TRUSTEE makes no representation as
--------------------
to the validity or adequacy of this Indenture or the Securities and it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement in the Securities, other than the
TRUSTEE's certificate of authentication, or the use or application of any funds
received by a Paying Agent other than the TRUSTEE.
SECTION 7.5. Notice of Default. If a Default or an Event of Default occurs
-----------------
and is continuing and if it is known to the TRUSTEE, the TRUSTEE shall mail to
each Securityholder notice of the uncured Default or Event of Default within 90
days after such Default or Event of Default occurs. Except in the case of a
Default or an Event of Default in payment of principal (or premium, if any) of,
or interest on, any Security (including the payment of the Change of Control
Purchase Price on the Change of Control Payment Date, the payment of the
Redemption Price on the Redemption Date and the payment of the Offer Price on
the Purchase Date), the TRUSTEE may withhold the notice if and so long as a
Trust Officer in good faith determines that withholding the notice is in the
interest of the Holders.
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SECTION 7.6. Reports by TRUSTEE to Holders. Within 60 days after each May
-----------------------------
15 beginning with the May 15 following the date of this Indenture, the TRUSTEE
shall, if required by law, mail to each Holder a brief report dated as of such
May 15 that complies with TIA (S) 313(a). The TRUSTEE also shall comply with
TIA (S)(S) 313(b) and 313(c).
The Company shall promptly notify the TRUSTEE in writing if the Securities
become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Holders shall be mailed
to the Company and filed with the SEC and each stock exchange, if any, on which
the Securities are listed.
SECTION 7.7. Compensation and Indemnity. The Company agrees to pay to the
--------------------------
TRUSTEE from time to time reasonable compensation for its services. The
TRUSTEE's compensation shall not be limited by any law on compensation of a
TRUSTEE of an express trust. The Company shall reimburse the TRUSTEE upon
request for all reasonable disbursements, expenses and advances incurred or made
by it. Such expenses shall include the reasonable compensation, disbursements
and expenses of the TRUSTEE's agents, accountants, experts and counsel.
The Company agrees to indemnify the TRUSTEE (in its capacity as TRUSTEE) and
each of its officers, directors, attorneys-in-fact and agents for, and hold it
harmless against, any claim, demand, expense (including but not limited to
reasonable compensation, disbursements and expenses of the TRUSTEE's agents and
counsel), loss or liability incurred by it without negligence or bad faith on
its part, arising out of or in connection with the administration of this
Indenture and its rights or duties hereunder including the reasonable costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
TRUSTEE shall notify the Company promptly of any claim asserted against the
TRUSTEE for which it may seek indemnity. The Company shall defend the claim and
the TRUSTEE shall provide reasonable cooperation at the Company's expense in the
defense. The TRUSTEE may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided, that the Company will
not be required to pay such fees and expenses if it assumes the TRUSTEE's
defense and there is no conflict of interest in the reasonable opinion of
counsel to the TRUSTEE between the Company and the TRUSTEE in connection with
such defense. The Company need not pay for any settlement made without their
written consent. The Company need not reimburse any expense or indemnify
against any loss or liability to the extent incurred by the TRUSTEE through its
negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the TRUSTEE
shall have a Lien prior to the Securities on all assets held or collected by the
TRUSTEE, in its capacity as TRUSTEE, except assets held in trust to pay
principal and premium, if any, of or interest on particular Securities.
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When the TRUSTEE incurs expenses or renders services after an Event of
Default specified in Section 6.1(e) or (f) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any Lien arising
hereunder shall survive the resignation or removal of the TRUSTEE, the discharge
of the Company's obligations pursuant to Article VIII of this Indenture and any
rejection or termination of this Indenture under any Bankruptcy Law.
SECTION 7.8. Replacement of TRUSTEE. The TRUSTEE may resign by giving the
----------------------
Company not less than 10 days prior written notice. The Holder or Holders of a
majority in principal amount of the outstanding Securities may remove the
TRUSTEE by so notifying the Company and the TRUSTEE in writing and may appoint a
successor TRUSTEE with the Company's consent (which consent will not be
unreasonably withheld). The Company may remove the TRUSTEE if (a) the TRUSTEE
fails to comply with Section 7.10, (b) the TRUSTEE is adjudged bankrupt or
insolvent, (c) a receiver, Custodian, or other public officer takes charge of
the TRUSTEE or its property or (d) the TRUSTEE becomes incapable of acting.
If the TRUSTEE resigns or is removed or if a vacancy exists in the office of
TRUSTEE for any reason, the Company shall promptly appoint a successor TRUSTEE.
Within one year after the successor TRUSTEE takes office, the Holder or Holders
of a majority in principal amount of the Securities may appoint a successor
TRUSTEE to replace the successor TRUSTEE appointed by the Company.
A successor TRUSTEE shall deliver a written acceptance of its appointment to
the retiring TRUSTEE and to the Company. Immediately after that and provided
that all sums owing to the TRUSTEE provided for in Section 7.7 have been paid,
the retiring TRUSTEE shall transfer all property held by it as TRUSTEE to the
successor TRUSTEE, subject to the Lien provided in Section 7.7, the resignation
or removal of the retiring TRUSTEE shall become effective, and the successor
TRUSTEE shall have all the rights, powers and duties of the TRUSTEE under this
Indenture. A successor TRUSTEE shall mail notice of its succession to each
Holder.
If a successor TRUSTEE does not take office within 60 days after the
retiring TRUSTEE resigns or is removed, the retiring TRUSTEE, the Company or the
Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor TRUSTEE.
If the TRUSTEE fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the TRUSTEE and the
appointment of a successor TRUSTEE.
Notwithstanding replacement of the TRUSTEE pursuant to this Section 7.8, the
Company's obligations under Section 7.7 shall continue for the benefit of the
retiring TRUSTEE.
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SECTION 7.9. Successor TRUSTEE by Merger, Etc. If the TRUSTEE consolidates
---------------------------------
with, merges or converts into, or transfers all or substantially all of its
corporate trust business to, another corporation, the resulting, surviving or
transferee corporation without any further act shall, if such resulting,
surviving or transferee corporation is otherwise eligible hereunder, be the
successor TRUSTEE.
SECTION 7.10. Eligibility; Disqualification. The TRUSTEE shall at all
-----------------------------
times satisfy the requirements of TIA (S) 310(a)(1), (2) and (5). The TRUSTEE
shall have a combined capital and surplus of at least $25,000,000 as set forth
in its most recent published annual report of condition. The TRUSTEE shall
comply with TIA (S) 310(b).
SECTION 7.11. Preferential Collection of Claims against Company. The
-------------------------------------------------
TRUSTEE shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A TRUSTEE who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated.
ARTICLE VIII
DEFEASANCE
SECTION 8.1. Option to Effect Legal Defeasance or Covenant Defeasance. The
--------------------------------------------------------
Company may, at the option of its Board of Directors evidenced by a resolution
set forth in an Officers' Certificate elect to have Section 8.2 or, at any time,
Section 8.3 applied to all outstanding Securities upon compliance with the
conditions set forth below in this Article VIII.
SECTION 8.2. Legal Defeasance and Discharge. Upon the Company's exercise
------------------------------
under Section 8.1 of the option applicable to this Section 8.2, the Company
shall be deemed to have been discharged from its obligations with respect to all
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of Section 8.5 and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Securities and this Indenture
(and the TRUSTEE, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Securities to receive solely from the trust fund
described in Section 8.4, and as more fully set forth in such section, payments
in respect of the principal of, premium, if any, and interest on such Securities
when such payments are due, (b) the Company's obligations with respect to such
Securities under Sections 2.4, 2.6, 2.7, 2.10 and 4.2, (c) the rights, powers,
trusts, duties and immunities of the TRUSTEE hereunder and the Company's
obligations in connection therewith and (d) this Article VIII. Subject to
compliance with this Article VIII, the
55
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Company may exercise its option under this Section 8.2 notwithstanding the prior
exercise of its option under Section 8.3 with respect to the Securities.
SECTION 8.3. Covenant Defeasance. Upon the Company's exercise under
-------------------
Section 8.1 of the option applicable to this Section 8.3, the Company shall be
released from its obligations under the covenants contained in Sections 4.3,
4.6, 4.7, 4.8, 4.10, 4.11, 4.12, 4.13, 4.14, 4.17, 4.18, 4.19 and 4.20 and
Article V with respect to the outstanding Securities on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Securities shall thereafter be deemed not "outstanding" for the purposes
of any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Securities, the Company need not comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document, but, except as specified above,
the remainder of this Indenture and such Securities shall be unaffected thereby.
SECTION 8.4. Conditions to Legal or Covenant Defeasance. The following
------------------------------------------
shall be the conditions to the application of either Section 8.2 or Section 8.3
to the outstanding Securities:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the TRUSTEE (or another TRUSTEE satisfying the requirements of
Section 7.10 who shall agree to comply with the provisions of this Article VIII
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities, (a) Cash in an amount, or (b)
non-callable U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, Cash in an
amount, or (c) a combination thereof, in such amounts, as in each case will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
TRUSTEE, to pay and discharge and which shall be applied by the TRUSTEE (or
other qualifying TRUSTEE) to pay and discharge the principal of and interest on
the outstanding Securities on the Stated Maturity or on the applicable
redemption date, as the case may be, of such principal or installment of
principal or interest.
(b) In the case of an election under Section 8.2, the Company shall
have delivered to the TRUSTEE an Opinion of Counsel in the United States in form
and substance reasonably satisfactory to the TRUSTEE confirming that (i) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date hereof, there has been a change in the
applicable Federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders will not recognize income,
gain or loss
56
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for Federal income tax purposes as a result of such Legal Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance has not
occurred.
(c) In the case of an election under Section 8.3, the Company shall
have delivered to the TRUSTEE an Opinion of Counsel in the United States
reasonably satisfactory to the Trustee to the effect that the Holders will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Covenant Defeasance and will be subject to Federal income tax in the same
amount, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred.
(d) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or, in so far
as Section 6.1(e) or 6.1(f) is concerned, at any time in the period ending on
the 91st day after the date of such deposit (it being understood that this
condition is a condition subsequent which shall not be deemed satisfied until
the expiration of such period, but in the case of Covenant Defeasance, the
covenants which are defeased under Section 8.3 will cease to be in effect unless
an Event of Default under Section 6.1(e) or 6.1(f) occurs during such period).
(e) Such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them is bound; and the TRUSTEE shall
receive a certificate from the administrative agent under the Credit Agreement,
if still in effect, to the effect that there is no violation of the Credit
Agreement.
(f) The Company shall have delivered to the TRUSTEE an Opinion of
Counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable Bankruptcy Law.
(g) The Company shall have delivered to the TRUSTEE an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election under Section 8.2 or 8.3, as the case may be, was not made by the
Company with the intent of preferring the Holders over other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
(h) The Company shall have delivered to the TRUSTEE an Officers'
Certificate and an Opinion of Counsel in the United States reasonably
satisfactory to the Trustee, each stating that all conditions precedent provided
for relating to either the Legal Defeasance under Section 8.2 or the Covenant
Defeasance under Section 8.3 (as the case may be) have been complied with as
contemplated by this Section 8.4.
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SECTION 8.5. Deposited U.S. Legal Tender and U.S. Government Obligations to
--------------------------------------------------------------
be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.6, all
- ------------------------------------------------
Cash and U.S. Government Obligations (including the proceeds thereof) deposited
with the TRUSTEE (or other qualifying TRUSTEE), pursuant to Section 8.4 in
respect of the outstanding Securities shall be held in trust and applied by the
TRUSTEE, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent as the
TRUSTEE may determine, to the Holders of such Securities of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
SECTION 8.6. Repayment to the Company. Any money deposited with the
------------------------
TRUSTEE or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of, premium, if any, or interest on any Security and
remaining unclaimed for two years after such principal, and premium, if any, or
interest has become due and payable shall be paid to the Company on its request;
and the Holder of such Security shall thereafter look only to the Company for
payment thereof, and all liability of the TRUSTEE or such Paying Agent with
respect to such trust money shall thereupon cease; provided, however, that the
TRUSTEE or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.7. Reinstatement. If the TRUSTEE or Paying Agent is unable to
-------------
apply any Cash or U.S. Government Obligations in accordance with Section 8.2 or
8.3, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.2 or 8.3 until such time as the TRUSTEE or Paying Agent is
permitted to apply such money in accordance with Section 8.2 and 8.3, as the
case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the cash held by
the TRUSTEE or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders. Without
--------------------------------------------------
the consent of any Holder, the Company, when authorized by Board Resolution, and
the TRUSTEE, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the TRUSTEE, for any of
the following purposes:
58
<PAGE>
(a) to cure any ambiguity, defect, or inconsistency in a manner not
inconsistent with the provisions of this Indenture; provided such action
pursuant to this clause (a) shall not adversely affect the interests of any
Holder in any respect;
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company or
to make any other change that does not adversely affect the rights of any
Holder; provided, that the Company has delivered to the TRUSTEE an Opinion of
Counsel stating that such change does not adversely affect the rights of any
Holder;
(c) to provide for collateral for or guarantors of the Securities;
(d) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the obligations of the Company, herein
and in the Securities in accordance with Article V; or
(e) to comply with the TIA.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with Consent
------------------------------------------------------------
of Holders. Subject to Section 6.8, with the consent of the Holders of not less
- ----------
than a majority in aggregate principal amount of then outstanding Securities, by
written act of said Holders delivered to the Company and the TRUSTEE, the
Company, when authorized by Board Resolution, and the TRUSTEE may amend or
supplement this Indenture or the Securities or enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
the Securities or of modifying in any manner the rights of the Holders under
this Indenture or the Securities. Subject to Section 6.8, the Holder or Holders
of not less than a majority, in principal amount of then outstanding Securities
may waive compliance by the Company with any provision of this Indenture or the
Securities. Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall, without the consent of the Holder of
each outstanding Security affected thereby:
(a) reduce the percentage of principal amount of Securities whose
Holders must consent to an amendment, supplement or waiver of any provision of
this Indenture or the Securities;
(b) reduce the rate or extend the time for payment of interest on any
Security;
(c) reduce the principal amount of any Security, or reduce the Change
of Control Payment, the Offer Price or the Redemption Price;
59
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(d) change the Stated Maturity or the Change of Control Payment Date
or the Purchase Date of any Security;
(e) alter the redemption provisions of Article III or the terms or
provisions of Section 4.14 or the terms or provisions of Article XI, in any
case, in a manner adverse to any Holder;
(f) make any changes in the provisions concerning waivers of Defaults
or Events of Default by Holders of the Securities or the rights of Holders to
recover the principal or premium of, interest on, or redemption payment with
respect to, any Security, including without limitation any changes in Section
6.8, 6.12 or this third sentence of this Section 9.2; or
(g) make the principal of, or the interest on, any Security payable
with anything or in any manner other than as provided for in this Indenture
(including changing the place of payment where, or the coin or currency in
which, any Security or any premium or the interest thereon is payable) and the
Securities as in effect on the date hereof.
It shall not be necessary for the consent of the Holders under this Section
9.2 to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2 becomes
effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this Article
IX, the Company may, but shall not be obligated to, offer to any Holder who
consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
Neither the Company nor any of its Subsidiaries or Affiliates shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Securities unless such consideration is offered to be paid to all Holders of the
Securities who consent or waive.
60
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SECTION 9.3. Compliance with TIA. Every amendment, waiver or supplement of
-------------------
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents. Until an amendment, waiver
---------------------------------
or supplement becomes effective, a consent to it by a Holder is a continuing
consent by the Holder and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holder's Security, even
if notation of the consent is not made on any Security. However, any such
Holder or subsequent Holder may revoke the consent as to his Security or portion
of his Security by written notice to the Company or the Person designated by the
Company as the Person to whom consents should be sent if such revocation is
received by the Company or such Person before the date on which the TRUSTEE
receives an Officers' Certificate certifying that the Holders of the requisite
principal amount of Securities have consented (and not theretofore revoked such
consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder, unless it makes a change described in any of clauses (a) through
(h) of Section 9.2, in which case, the amendment, supplement or waiver shall
bind only each Holder of a Security who has consented to it and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security; provided, that any such amendment, supplement
or waiver shall not impair or affect the right of any Holder to receive payment
of principal and premium of and interest on a Security, on or after the
respective dates set for such amounts to become due and payable expressed in
such Security, or to bring suit for the enforcement of any such payment on or
after such respective dates.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment,
-------------------------------------
supplement or waiver changes the terms of a Security, the TRUSTEE may require
the Holder of the Security to deliver it to the TRUSTEE or require the Holder to
put an appropriate notation on the Security. The TRUSTEE may place an
appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Company or the TRUSTEE so determines, the
Company in exchange for the Security shall issue and the TRUSTEE shall
authenticate a new Security that reflects the changed terms. Any failure to
make the appropriate notation or to issue a new Security shall not affect the
validity of such amendment, supplement or waiver.
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SECTION 9.6. TRUSTEE to Sign Amendments, Etc. The TRUSTEE shall execute
--------------------------------
any amendment, supplement or waiver authorized pursuant to this Article IX;
provided, that the TRUSTEE may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the TRUSTEE's own rights, duties
or immunities under this Indenture. The TRUSTEE shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of any amendment, supplement or waiver authorized pursuant to this
Article IX is authorized or permitted by this Indenture.
ARTICLE X
MEETINGS OF HOLDERS
SECTION 10.1. Purposes for Which Meetings May Be Called. A meeting of
-----------------------------------------
Securityholders may be called at any time and from time to time pursuant to the
provisions of this Article X for any of the following purposes:
(a) to give any notice to the Company or to the TRUSTEE, or to give
any directions to the TRUSTEE, or to waive or to consent to the waiving of any
Default or Event of Default hereunder and its consequences, or to take any other
action authorized to be taken by Holders pursuant to any of the provisions of
Article VI;
(b) to remove the TRUSTEE or appoint a successor TRUSTEE pursuant to
the provisions of Article VII;
(c) to consent to an amendment, supplement or waiver pursuant to the
provisions of Section 9.2; or
(d) to take any other action (i) authorized to be taken by or on
behalf of the Holder or Holders of any specified aggregate principal amount of
the Securities under any other provision of this Indenture, or authorized or
permitted by law or (ii) which the TRUSTEE deems necessary or appropriate in
connection with the administration of this Indenture.
SECTION 10.2. Manner of Calling Meetings. The TRUSTEE may at any time call
--------------------------
a meeting of Holders to take any action specified in Section 10.1, to be held at
such time and at such place in The City of New York, New York or elsewhere as
the TRUSTEE shall determine. Notice of every meeting of Holders, setting forth
the time and place of such meeting and in general terms the action proposed to
be taken at such meeting, shall be mailed by the TRUSTEE, first-class postage
prepaid, to the Company and to the Holders at their last addresses as they shall
appear on the registration books of the REGISTRAR, not less than 10 nor more
than 60 days prior to the date fixed for a meeting.
Any meeting of Holders shall be valid without notice if the Holders of all
Securities then outstanding are present in Person or by proxy, or if notice is
waived before or
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after the meeting by the Holders of all Securities outstanding, and if the
Company and the TRUSTEE are either present by duly authorized representatives or
have, before or after the meeting, waived notice.
SECTION 10.3. Call of Meetings by the Company or Holders. In case at any
------------------------------------------
time the Company or the Holders of not less than 10% in aggregate principal
amount of the Securities then outstanding, shall have requested the TRUSTEE to
call a meeting of Holders to take any action specified in Section 10.1, by
written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the TRUSTEE shall not have mailed the notice of such
meeting within 20 days after receipt of such request, then the Company or the
Holders of Securities in the amount above specified may determine the time and
place in The City of New York, New York or elsewhere for such meeting and may
call such meeting for the purpose of taking such action, by mailing or causing
to be mailed notice thereof as provided in Section 10.2, or by causing notice
thereof to be published at least once in each of two successive calendar weeks
(on any Business Day during such week) in a newspaper or newspapers printed in
the English language, customarily published at least five days a week of a
general circulation in The City of New York, New York, the first such
publication to be not less than 10 nor more than 60 days prior to the date fixed
for the meeting.
SECTION 10.4. Who May Attend and Vote at Meetings. To be entitled to vote
-----------------------------------
at any meeting of Holders, a Person shall (a) be a registered Holder of one or
more Securities, or (b) be a Person appointed by an instrument in writing as
proxy for the registered Holder or Holders of Securities. The only Persons who
shall be entitled to be present or to speak at any meeting of Holders shall be
the Persons entitled to vote at such meeting and their counsel and any
representatives of the TRUSTEE and its counsel and any representatives of the
Company and its counsel.
SECTION 10.5. Regulations May Be Made by TRUSTEE; Conduct of the Meeting;
-----------------------------------------------------------
Voting Rights; Adjournment. Notwithstanding any other provision of this
- --------------------------
Indenture, the TRUSTEE may make such reasonable regulations as it may deem
reasonably advisable for any action by or any meeting of Holders, in regard to
proof of the holding of Securities and of the appointment of proxies, and in
regard to the appointment and duties of inspectors of votes, and submission and
examination of proxies, certificates and other evidence of the right to vote,
and such other matters concerning the conduct of the meeting as it shall think
appropriate. Such regulations may fix a record date and time for determining
the Holders of record of Securities entitled to vote at such meeting, in which
case those and only those Persons who are Holders of Securities at the record
date and time so fixed, or their proxies, shall be entitled to vote at such
meeting whether or not they shall be such Holders at the time of the meeting.
The TRUSTEE shall, by an instrument in writing, appoint a temporary chairman
of the meeting, unless the meeting shall have been called by the Company or by
Holders as provided in Section 10.3, in which case the Company or the Holders
calling the meeting, as the case may be, shall in like manner appoint a
temporary chairman. A permanent chairman and a permanent
63
<PAGE>
secretary of the meeting shall be elected by vote of the Holders of a majority
in principal amount of the Securities represented at the meeting and entitled to
vote.
At any meeting each Holder or proxy shall be entitled to one vote for each
$1,000 principal amount of Securities held or represented by him; provided,
however, that no vote shall be cast or counted at any meeting in respect of any
Securities challenged as not outstanding and ruled by the chairman of the
meeting to be not then outstanding. The chairman of the meeting shall have no
right to vote other than by virtue of Securities held by him or instruments in
writing as aforesaid duly designating him as the proxy to vote on behalf of
other Holders. Any meeting of Holders duly called pursuant to the provisions of
Section 10.2 or Section 10.3 may be adjourned from time to time by vote of the
Holder or Holders of a majority in aggregate principal amount of the Securities
represented at the meeting and entitled to vote, and the meeting may be held as
so adjourned without further notice.
SECTION 10.6. Voting at the Meeting and Record to Be Kept. The vote upon
-------------------------------------------
any resolution submitted to any meeting of Holders shall be by written ballots
on which shall be subscribed the signatures of the Holders of Securities or of
their representatives by proxy and the principal amount of the Securities voted
by the ballot. The permanent chairman of the meeting shall appoint two
inspectors of votes, who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of the
meeting their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of Holders
shall be prepared by the secretary of the meeting and there shall be attached to
such record the original reports of the inspectors of votes on any vote by
ballot taken thereat and affidavits by one or more Persons having knowledge of
the facts, setting forth a copy of the notice of the meeting and showing that
such notice was mailed as provided in Section 10.2 or published as provided in
Section 10.3. The record shall be signed and verified by the affidavits of the
permanent chairman and the secretary of the meeting and one of the duplicates
shall be delivered to the Company and the other to the TRUSTEE to be preserved
by the TRUSTEE, the latter to have attached thereto the ballots voted at the
meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
SECTION 10.7. Exercise of Rights of TRUSTEE or Holders May Not Be Hindered
------------------------------------------------------------
or Delayed by Call of Meeting. Nothing contained in this Article X shall be
- -----------------------------
deemed or construed to authorize or permit, by reason of any call of a meeting
of Holders or any rights expressly or impliedly conferred hereunder to make such
call, any hindrance or delay in the exercise of any right or rights conferred
upon or reserved to the TRUSTEE or to the Holders under any of the provisions of
this Indenture or of the Securities.
64
<PAGE>
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
SECTION 11.1. Repurchase of Securities at Option of the Holder Upon a
-------------------------------------------------------
Change of Control.
- -----------------
(a) In the event that a Change of Control occurs, each Holder shall
have the right, at such Holder's option, subject to the terms and conditions of
the Indenture, to require the Company to repurchase all or any part of such
Holder's Securities (provided, that the principal amount of such Securities must
be $1,000 or an integral multiple thereof) on the date that is no later than 70
Business Days after the occurrence of such Change of Control (the "Change of
Control Payment Date"), at a cash price (the "Change of Control Payment") equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to and including the Change of Control Payment Date. Prior to the mailing
of the notice of a Change of Control Offer provided for in paragraph (b) below,
the Company shall either (i) repay, or cause to be repaid, in full and
terminate, or cause to be terminated, all commitments under Indebtedness under
the Credit Agreement to the extent the terms thereof require repayment upon a
Change of Control (or offer to repay, or cause to be offered to repay, in full
and terminate, or cause to be terminated, all commitments under all such
Indebtedness under the Credit Agreement and repay, or cause to be repaid, the
Indebtedness owed to each lender which has accepted such offer), or (ii) obtain,
or cause to be obtained, the requisite consent under the Credit Agreement, the
terms of which require repayment upon a Change of Control, to permit the
repurchase of the Securities as provided for in this Section 11.1. The Company
shall comply with the covenant in the immediately preceding sentence before it
shall be required to repurchase Securities pursuant to this Section 11.1;
provided, that any failure to so comply shall constitute an Event of Default.
- --------
(b) In the event that, pursuant to this Section 11.1, the Company
shall be required to commence an offer to purchase Securities (a "Change of
Control Offer"), the Company shall follow the procedures set forth in this
Section 11.1 as follows:
(1) the Change of Control Offer shall commence within 10 Business
Days following the Change of Control date;
(2) the Change of Control Offer shall remain open for 20 Business
Days, except to the extent that a longer period is required by applicable law,
but in any case not more than 60 Business Days following commencement (the
"Change of Control Offer Period");
(3) upon the expiration of a Change of Control Offer, the Company
shall purchase all of the properly tendered Securities at the Change of Control
Payment, plus accrued interest;
65
<PAGE>
(4) if the Change of Control Payment Date is on or after an interest
payment record date and on or before the related interest payment date, any
accrued interest will be paid to the Person in whose name a Security is
registered at the close of business on such record date, and no additional
interest will be payable to Holders who tender Securities pursuant to the Change
of Control Offer;
(5) the Company shall provide the TRUSTEE with notice of the Change
of Control Offer at least 5 Business Days before the commencement of any Change
of Control Offer; and
(6) on or before the commencement of any Change of Control Offer, the
Company or the TRUSTEE (upon the request and at the expense of the Company)
shall send, by first-class mail, a notice to each of the Holders, which (to the
extent consistent with this Indenture) shall govern the terms of the Change of
Control Offer and shall state:
(i) that the Change of Control Offer is being made pursuant to
such notice and this Section 11.1 and that all Securities, or portions thereof,
tendered will be accepted for payment;
(ii) the Change of Control Payment (including the amount of
accrued and unpaid interest) and the Change of Control Payment Date;
(iii) that any Security, or portion thereof, not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in depositing Cash with
the Paying Agent in accordance with the last paragraph of this clause (b) or
such payment is prevented, any Security, or portion thereof, accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(v) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Change of Control Offer will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent (which
may not for purposes of this Section 11.1, notwithstanding anything in this
Indenture to the contrary, be the Company or any Affiliate of the Company) at
the address specified in the notice prior to the close of business on the Change
of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election,
in whole or in part, if the Paying Agent (which may not for purposes of this
Section 11.1, notwithstanding anything in this Indenture to the contrary, be the
Company or any Affiliate of the Company) receives, up to the close of business
on the Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of
66
<PAGE>
the Holder, the principal amount of the Securities the Holder is withdrawing and
a statement that such Holder is withdrawing his election to have such principal
amount of Securities purchased; and
(vii) a brief description of the events resulting in such Change
of Control.
Any such Change of Control Offer shall comply with all applicable provisions
of Federal and state laws, including those regulating tender offers, if
applicable, and any provisions of this Indenture which conflict with such laws
shall be deemed to be superseded by the provisions of such laws.
On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer on or before the Change of Control Put Date,
(ii) deposit with the Paying Agent Cash sufficient to pay the Change of Control
Payment (including accrued and unpaid interest) for all Securities or portions
thereof so tendered and (iii) deliver to the TRUSTEE Securities so accepted
together with an Officers' Certificate listing the Securities or portions
thereof being purchased by the Company. The Paying Agent shall, within one
Business Day following the Change of Control Payment Date, mail to Holders of
Securities so accepted payment in an amount equal to the Change of Control
Payment for such Securities, and the TRUSTEE shall promptly authenticate and
mail or deliver to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. Any Securities not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. TIA Controls. If any provision of this Indenture limits,
------------
qualifies, or conflicts with the duties imposed by operation of the TIA, the
imposed duties, upon qualification of this Indenture under the TIA, shall
control.
SECTION 12.2. Notices. Any notices or other communications to the Company
-------
or the TRUSTEE required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
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<PAGE>
if to the Company:
Mr. C.R. Campbell
Executive Vice President
FRD Acquisition Co.
Mail Station P-16-5
203 East Main Street
Spartanburg, South Carolina 29319
Telecopy:
if to the TRUSTEE:
The Bank of New York
10161 Centurion Parkway
Towermarc Plaza
Jacksonville, Florida 32256
Attn: Corporate Trust Department
Telecopy: (904) 645-1932
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to it by
first class mail or other equivalent means at its address as it appears on the
registration books of the REGISTRAR and shall be sufficiently given if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
SECTION 12.3. Communications by Holders with Other Holders. Holders may
--------------------------------------------
communicate pursuant to TIA (S) 312(b) with other Holders with respect to their
rights under this Indenture or the Securities. The Company, the TRUSTEE, the
REGISTRAR and any other Person shall have the protection of TIA (S) 312(c).
68
<PAGE>
SECTION 12.4. Certificate and Opinion as to Conditions Precedent. Upon any
--------------------------------------------------
request or application by the Company to the TRUSTEE to take any action under
this Indenture, such Person shall furnish to the TRUSTEE:
(a) an Officers' Certificate (in form and substance reasonably
satisfactory to the TRUSTEE) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel (in form and substance reasonably
satisfactory to the TRUSTEE) stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
SECTION 12.5. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided, however,
that with respect to matters of fact, an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 12.6. Rules by TRUSTEE, Paying Agent, REGISTRAR. The TRUSTEE may
-----------------------------------------
make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or REGISTRAR may make reasonable rules for its functions.
SECTION 12.7. Legal Holidays. If a payment date is a Legal Holiday at such
--------------
place, payment may be made at such place on the next succeeding day that is not
a Legal Holiday, and no interest shall accrue for the intervening period.
69
<PAGE>
SECTION 12.8. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE
-------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND
THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF THE TRUSTEE OR ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
SECTION 12.9. No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any of its Subsidiaries. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 12.10. No Recourse against Others. No direct or indirect partner,
--------------------------
employee, stockholder, director or officer, as such, past or future of the
Company, shall have any personal liability in respect of the obligations of the
Company under the Securities or this Indenture by reason of his or its status as
such partner, stockholder, employee, director or officer. Each Holder by
accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities.
SECTION 12.11. Successors. All agreements of the Company in this Indenture
----------
and the Securities shall bind its successor. All agreements of the TRUSTEE in
this Indenture shall bind its successor.
SECTION 12.12. Duplicate Originals. All parties may sign any number of
-------------------
copies or counterparts of this Indenture. Each signed copy or counterpart shall
be an original, but all of them together shall represent the same agreement.
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<PAGE>
SECTION 12.13. Severability. In case any one or more of the provisions in
------------
this Indenture or in the Securities shall be held invalid, illegal or
unenforceable, in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions shall not in any way be affected or impaired thereby, it being
intended that all of the provisions hereof shall be enforceable to the full
extent permitted by law.
SECTION 12.14. Table of Contents, Headings, Etc. The Table of Contents,
---------------------------------
Cross-Reference Table and headings of the Articles and the Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof.
SECTION 12.15. Qualification of Indenture. The Company shall qualify this
--------------------------
Indenture under the TIA in accordance with the terms and conditions of the
Registration Rights Agreement and shall pay all costs and expenses (including
attorneys' fees for the Company and the TRUSTEE) incurred in connection
therewith, including, but not limited to, costs and expenses of qualification of
the Indenture and the Securities and printing this Indenture and the Securities.
The TRUSTEE shall be entitled to receive from the Company any such Officers'
Certificates, Opinions of Counsel or other documentation as it may reasonably
request in connection with any such qualification of this Indenture under the
TIA.
SECTION 12.16. Registration Rights. Certain Holders of the Securities are
-------------------
entitled to certain registration rights with respect to such Securities pursuant
to, and subject to the terms of, the Registration Rights Agreement.
71
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed as of the date first written above.
FRD ACQUISITION CO., a
Delaware corporation
[SEAL]
By: /s/ Ronald B. Hutchison
----------------------------------------
Name: Ronald B. Hutchison
Title: Vice President and Treasurer
Attest: /s/ Timothy E. Flemming
-------------------------
Assistant Secretary
THE BANK OF NEW YORK,
as TRUSTEE
By: /s/ Sandra Carreker
-------------------------------
Name: Sandra Carreker
Title: Agent
<PAGE>
EXHIBIT A
[FORM OF SECURITY]
FRD ACQUISITION CO.
12 1/2% SERIES A SENIOR NOTE
DUE 2004
No. $ _________
FRD ACQUISITION CO., a Delaware corporation (hereinafter called the
"Company", which term includes any successors under the Indenture hereinafter
referred to), for value received, hereby promises to pay to
______________________ or registered assigns, the principal sum of _____
DOLLARS, on July 15, 2004.
Interest Payment Dates: January 15 and July 15; commencing July 15,
1996.
Record Dates: January 1 and July 1.
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
73
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated: May __, 1996
FRD ACQUISITION CO., a
Delaware corporation
[SEAL]
By:
--------------------------
Name:
Title:
Attest:
----------------
Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
THE BANK OF NEW YORK, as TRUSTEE
By
--------------------------------
Authorized Signatory
Dated:
A-2
<PAGE>
FRD ACQUISITION CO.
12 1/2% SENIOR NOTE
DUE 2004
[THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION
S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION REASONABLY SATISFACTORY TO EACH OF THEM.]
1. Interest.
--------
FRD Acquisition Co., a Delaware corporation (hereinafter called the
"Company," which term includes any successors under the Indenture hereinafter
referred to), promises to pay interest on the principal amount of this Security,
in cash, at the rate of 12 1/2% per annum; provided, that, if on any Record Date
occurring on or prior to the 39-month anniversary of the Issue Date, the ratio
of (a) the sum of (i) the Company's Consolidated EBITDA for the Reference Period
plus (ii) the aggregate
A-3
<PAGE>
amount of expenses relating to Permitted Royalties and Permitted Management Fees
deducted in calculating such Consolidated EBITDA to (b) the Company's
Consolidated Interest Expense (excluding to the extent included therein (A)
amortization of original issue discount and deferred financing fees and (B) that
portion of the principal amount of the Securities issued in payment of interest
on the Securities that is in excess of the amount of interest that would have
been payable if interest had been paid in cash) is less than 1.25:1, then the
Company may pay the interest due on the Securities on the applicable Interest
Payment Date (including Liquidated Damages, if any, described in the
Registration Rights Agreement) in additional Securities having a principal
amount equal to the amount of such interest due (accrued at an annual interest
rate of 14%); provided, further, that interest and such Liquidated Damages may
be paid in additional Securities on no more than four Interest Payment Dates.
The Company shall pay interest (including post-petition interest) on
overdue principal at the rate equal to 1% per annum in excess of the then
applicable interest rate on the Securities to the extent lawful; it shall pay
interest (including post-petition interest) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
The Company will pay interest semi-annually on January 15 and July 15
of each year (each, an "Interest Payment Date"), commencing July 15, 1996.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
May 23, 1996. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. Except as
provided below and in the case of interest payable in additional Securities as
provided in Paragraph 1 above, the Company shall pay principal and interest in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by wire transfer
of Federal funds, or interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or the
Company may mail any such interest payment to a Holder at the Holder's
registered address.
A-4
<PAGE>
3. Paying Agent and REGISTRAR.
--------------------------
Initially, The Bank of New York (the "TRUSTEE") will act as Paying
Agent and REGISTRAR. The Company may change any Paying Agent, REGISTRAR without
notice to the Holders. The Company or any of its Subsidiaries may, subject to
certain exceptions, act as Paying Agent or REGISTRAR.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of May
23, 1996 (the "Indenture"), among the Company and the TRUSTEE. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the TIA, as in effect on the date of the
Indenture. The Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and the TIA for a statement of them.
The Securities are general unsecured obligations of the Company limited in
aggregate principal amount to (a) $150,000,000 plus (b) any additional
Securities issued pursuant to Article I of the Purchase Agreement plus (c) any
additional Securities issued in payment of interest on the Securities pursuant
to Section 4.1 of the Indenture and paragraph 1 hereof.
5. Redemption.
----------
The Securities may be redeemed in whole or from time to time in part
at any time on and after May 23, 2001, at the option of the Company, at the
Redemption Price (expressed as a percentage of principal amount) set forth below
with respect to the indicated Redemption Date, in each case, plus any accrued
but unpaid interest to the Redemption Date. The Securities may not be so
redeemed prior to May 23, 2001 (other than out of the Net Cash Proceeds of
certain issuances of common stock of the Company described below).
If redeemed during
the 12-month period
beginning MAY 23 Redemption Price
---------------- ----------------
2001 . . . . . . . . . 105.0%
2002 . . . . . . . . . 102.5%
2003 and thereafter. . 100.0%
Notwithstanding the foregoing, at any time prior to May 23, 1999, the
Company may also redeem up to $50 million aggregate principal amount of the
Securities, at the Redemption Price (expressed as a percentage of principal
amount) set forth below with respect to the indicated Redemption Date, in each
case, plus any accrued
A-5
<PAGE>
but unpaid interest to the Redemption Date, with the Net Cash Proceeds from one
Initial Public Equity Offering of the Company; provided that at least $60
million in aggregate principal amount of the Securities originally issued remain
outstanding after such redemption and that such redemption occurs within 60 days
after the receipt of such Net Cash Proceeds.
If redeemed during
the 12-month period
ending MAY 23 Redemption Price
------------- ----------------
1997 . . . . . . . . . 110.00%
1998 . . . . . . . . . 108.75%
1999 . . . . . . . . . 107.50%
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
--------------------
Notice of redemption will be sent by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the REGISTRAR. Securities may be redeemed in part in
multiples of $1,000 only.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date and payment of
the Securities called for redemption is not prohibited under Article XII of the
Indenture, the Securities called for redemption will cease to bear interest and
the only right of the Holders of such Securities will be to receive payment of
the Redemption Price, plus any accrued and unpaid interest to the Redemption
Date.
7. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. 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. The REGISTRAR need not register the transfer
of or exchange any Securities selected for redemption.
A-6
<PAGE>
8. Persons Deemed Owners.
---------------------
The registered Holder of a Security may be treated as the owner of it
for all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the TRUSTEE and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the TRUSTEE and
such Paying Agent(s) with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
-----------------------------------------
Except as set forth in the Indenture, if the Company irrevocably
deposits with the TRUSTEE, in trust, for the benefit of the Holders, Cash, U.S.
Government Obligations or a combination thereof, in such amounts as will be
sufficient in the opinion of a nationally recognized firm of independent public
accountants selected by the TRUSTEE, to pay the principal of, premium, if any,
and interest on the Securities to redemption or maturity and comply with the
other provisions of the Indenture relating thereto, the Company will be
discharged from certain provisions of the Indenture and the Securities
(including the financial covenants, but excluding their obligation to pay the
principal of and interest on the Securities). Upon satisfaction of certain
additional conditions set forth in the Indenture, the Company may elect to have
its obligations discharged with respect to outstanding Securities.
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
or make any other change that does not adversely affect the rights of any Holder
of a Security.
12. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness and Disqualified Capital Stock, pay dividends or make certain other
restricted payments, enter into
A-7
<PAGE>
certain transactions with Affiliates, incur Liens, sell assets, merge or
consolidate with any other Person or transfer (by lease, assignment or
otherwise) substantially all of the properties and assets of the Company. The
limitations are subject to a number of important qualifications and exceptions.
The Company must periodically report to the TRUSTEE on compliance with such
limitations.
13. Ranking.
-------
Payment of principal, premium, if any, and interest on the Securities
is pari passu to all existing and future senior indebtedness of the Company and
senior to all subordinated indebtedness of the Company.
14. Repurchase at Option of Holder.
------------------------------
(a) If there is a Change of Control, the Company shall be required to
offer to purchase on the Change of Control Payment Date all outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the Change of Control Payment Date.
Prior to the mailing of the notice of a Change of Control Offer, the Company
shall either (i) repay, or cause to be repaid, in full and terminate, or cause
to be terminated, all commitments under Indebtedness under the Credit Agreement
to the extent the terms thereof require repayment upon a Change of Control (or
offer to repay, or cause to be offered to repay, in full and terminate, or cause
to be terminated, all commitments under all such Indebtedness under the Credit
Agreement and repay, or cause to be repaid, the Indebtedness owed to each lender
which has accepted such offer), or (ii) obtain, or cause to be obtained, the
requisite consent under the Credit Agreement, the terms of which require
repayment upon a Change of Control, to permit the repurchase of the Securities
as provided for in the Indenture. The Company shall comply with the covenant in
the immediately preceding sentence before it shall be required to repurchase
Securities pursuant to the Indenture; provided, that any failure to so comply
--------
shall constitute an Event of Default. Holders of Securities will receive a
Change of Control Offer from the Company prior to any related Change of Control
Payment Date and may elect to have such Securities purchased by completing the
form entitled "Option of Holder to Elect Purchase" appearing below.
(b) The Indenture imposes certain limitations on the ability of the
Company or any of its Subsidiaries to sell assets. In the event the proceeds
from a permitted Asset Sale exceed certain amounts, as specified in the
Indenture, the Company will be required either to reinvest the proceeds of such
Asset Sale in its business or repay certain indebtedness of the Company and its
Subsidiaries or to make an offer to purchase each Holder's Securities at 100% of
the principal amount thereof, plus accrued interest, if any, to the purchase
date.
A-8
<PAGE>
15. Successors.
----------
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
16. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing (other than an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization), then in every such case, unless the principal of all of the
Securities shall have already become due and payable, either the TRUSTEE or the
Holders of 25% in aggregate principal amount of Securities then outstanding may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. Holders of Securities may not enforce
the Indenture or the Securities except as provided in the Indenture. The TRUSTEE
may require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the Securities then outstanding may direct the TRUSTEE in
its exercise of any trust or power. The TRUSTEE may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest), if it determines that withholding
notice is in their interest.
17. TRUSTEE Dealings with Company.
-----------------------------
The TRUSTEE under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates as if it were not the TRUSTEE.
18. No Recourse Against Others.
--------------------------
No stockholder, director, officer or employee, as such, past, present
or future, of the Company or any successor corporation shall have any personal
liability in respect of the obligations of the Company under the Securities or
the Indenture by reason of his or its status as such stockholder, director,
officer or employee. Each Holder of a Security by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
A-9
<PAGE>
19. Authentication.
--------------
This Security shall not be valid until the TRUSTEE or authenticating
agent signs the certificate of authentication on the other side of this
Security.
20. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company may cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
22. Additional Rights of Holders of Transfer Restricted Securities.
--------------------------------------------------------------
In addition to the rights provided to Holders of Securities under the
Indenture, Holders of Securities shall have all the rights set forth in the
Registration Rights Agreement.
A-10
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
- -
- ----- --- -----
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Dated: Signed:
------------- ---------------------------------------------------
- --------------------------------------------------------------------------------
(Sign exactly as name appears on
the other side of this Security)
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.14 or Article XI of the Indenture, check the appropriate
box: / / Section 4.14 / /Article XI
--- ---
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.14 or Article XI of the Indenture, as the case
may be, state the amount you want to be purchased: $________
Date: Signature:
------------------ -------------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
A-12
<PAGE>
EXHIBIT 4.2
STOCK PURCHASE AGREEMENT
by
and
among
FAMILY RESTAURANTS, INC.,
FLAGSTAR COMPANIES, INC.,
FLAGSTAR CORPORATION
and
FRD ACQUISITION CO.
Dated as of March 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I PURCHASE AND SALE OF STOCK
<S> <C> <C>
SECTION 1.1 Purchase and Sale........................................ 1
-----------------
SECTION 1.2 Purchase Price........................................... 1
--------------
SECTION 1.3 Post-Closing Purchase Price Adjustment................... 3
--------------------------------------
ARTICLE II THE CLOSING
SECTION 2.1 Closing Date............................................. 4
------------
SECTION 2.2 Transactions To Be Effected at the Closing............... 5
------------------------------------------
SECTION 2.3 Transactions to be Effected Concurrently with Closing.... 5
-----------------------------------------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Seller............. 6
--------------------------------------------
SECTION 3.2 Representations and Warranties of the Acquiring Companies 17
---------------------------------------------------------
ARTICLE IV COVENANTS
SECTION 4.1 Conduct of Business...................................... 19
-------------------
SECTION 4.2 Further Actions; Cooperation............................. 19
----------------------------
SECTION 4.3 Access to Information; Reports........................... 20
------------------------------
SECTION 4.4 Consents................................................. 21
--------
SECTION 4.5 Employee Benefit Plans................................... 21
----------------------
SECTION 4.6 WARN Act................................................. 23
--------
SECTION 4.7 Cooperation With Respect to Tax Matters.................. 23
---------------------------------------
SECTION 4.8 Tax Indemnity............................................ 26
-------------
SECTION 4.9 Financial Information.................................... 27
---------------------
SECTION 4.10 Expenses................................................. 28
--------
SECTION 4.11 Insurance................................................ 28
---------
SECTION 4.12 Publicity................................................ 28
---------
SECTION 4.13 Certain Understandings................................... 28
----------------------
SECTION 4.14 Transfer of Properties................................... 29
----------------------
SECTION 4.15 Transfer of Employees.................................... 29
---------------------
SECTION 4.16 Termination of Agreements................................ 30
-------------------------
SECTION 4.17 Environmental Investigation and Indemnification.......... 30
-----------------------------------------------
ARTICLE V CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Obligations of the Purchaser..... 33
----------------------------------------------------
SECTION 5.2 Conditions Precedent to the Obligations of the Seller.... 34
-----------------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VI INDEMNIFICATION
SECTION 6.1 Indemnification by the Seller............................ 36
-----------------------------
SECTION 6.2 Indemnification by Parent, Flagstar and the Purchaser.... 37
-----------------------------------------------------
SECTION 6.3 Claims for Indemnity..................................... 38
--------------------
SECTION 6.4 Third Person Claims...................................... 38
-------------------
SECTION 6.5 Exclusive Remedy......................................... 39
----------------
SECTION 6.6 Restricted Notes......................................... 39
----------------
ARTICLE VII TERMINATION AND AMENDMENT
SECTION 7.1 Termination.............................................. 40
-----------
SECTION 7.2 Effect of Termination.................................... 41
---------------------
SECTION 7.3 Amendment................................................ 41
---------
ARTICLE VIII MISCELLANEOUS
SECTION 8.1 Notices.................................................. 42
-------
SECTION 8.2 Interpretation........................................... 43
--------------
SECTION 8.3 Supplements to Disclosure Schedules...................... 43
-----------------------------------
SECTION 8.4 Severability............................................. 43
------------
SECTION 8.5 Counterparts............................................. 43
------------
SECTION 8.6 Entire Agreement......................................... 43
----------------
SECTION 8.7 Governing Law............................................ 44
-------------
SECTION 8.8 Assignment............................................... 44
----------
SECTION 8.9 No Third-Party Beneficiaries............................. 44
----------------------------
</TABLE>
SCHEDULES
Schedule 1.2(a) Terms of Seller Note
Schedule 1.2(b) Intercompany Accounts
Schedule 1.3(a) Tangible Net Asset Value at 12/31/95
Schedule 1.3(b) Adjustments to Closing Tangible NAV
Schedule 2.3(a) Excluded Asset Purchase Price
Schedule 2.3(a)(iii) Corporate Real Property
Schedule 2.3(a)(iv) Corporate Personal Property
Schedule 2.3(a)(A) Commissary Assets
Schedule 3.1(b) Subsidiaries
Schedule 3.1(d) Capital Stock
Schedule 3.1(e) No Conflict
Schedule 3.1(f) Financial Statements
Schedule 3.1(g) Liabilities
Schedule 3.1(h) Certain Changes or Events
Schedule 3.1(i) Compliance with Applicable Laws
Schedule 3.1(j) Litigation; Decrees
ii
<PAGE>
Schedule 3.1(k) Properties
Schedule 3.1(1) Applicable Contracts; Leases
Schedule 3.1(m) Taxes
Schedule 3.1(n) Employee Benefit Plans
Schedule 3.1(o) Labor Matters
Schedule 3.1(p) Intellectual Property
Schedule 3.1(r) Environmental Matters
Schedule 3.2(h) Capitalization
Schedule 4.1 Conduct of Business
Schedule 4.3(a) Reports
Schedule 4.14(a) Dinnerhouse Properties
Schedule 4.14(b) Closed Properties
Schedule 4.16(a) Surviving Obligations
Schedule 4.16(b) Distribution, Supply and Purchasing Agreements
EXHIBITS
Exhibit A Form of Legal Opinion of Skadden, Arps, Slate,
Meagher & Flom
Exhibit B Form of Legal Opinion of Latham & Watkins
iii
<PAGE>
TABLE OF DEFINITIONS
--------------------
Defined Term Initial Section Reference
- ------------ -------------------------
Acquired Entities 3.1(b)
Acquiring Companies First Paragraph
Acquisition 1.1
Adjustment Date 1.2(d)
Affected Persons 3.1(n)
Additional Investigations 4.17(c)
Adjusted Closing Tangible NAV 1.3(b)
Applicable Contracts 3.1(e)
Assumed Liabilities 1.2(b)
Audit 4.7(f)
Balance Sheet Date 3.1(f)
Business 3.1(h)
Closed Properties 4.14(b)
Closed Restaurant Agreement 4.14(b)
Closing 2.1
Closing Balance Sheet 1.3(d)
Closing Date 2.1
Code 3.1(m)
Commissary Assets 2.3(a)
Company Second Paragraph
Consultant 4.17(c)
Contracts 3.1(e)
Corporate Personal Property 2.3(a)
Corporate Real Property 2.3(a)
Cost Analysis 4.17(c)
Credit Agreement 5.1(h)
Deferred Compensation Plan 4.5(c)
Dinnerhouse Properties 4.14(a)
DLJ 3.1(t)
Eligible Person 4.5(e)
Employee Benefit Plans 3.1(n)
Employee Pension Benefit Plan 3.1(n)
Employees 3.1(o)
Environmental Laws 3.1(r)
Existing Conditions 4.17(c)
Excluded Assets 2.3(a)
ERISA 3.1(n)
Financial Statements 3.1(f)
Flagstar First Paragraph
iv
<PAGE>
FRI First Paragraph
FRI-Admin 2.3(a)
FRI-M Second Paragraph
FRI-MRD 2.3(a)
FTC 5.1(a)
GAAP 1.3(a)
Grace 4.8(c)
Grace Tax Procedures Agreement 4.8(c)
Holdback Amount 1.2(d)
HSR Act 3.1(e)
Indemnitee 6.3
Indemnitor 6.3
Indenture 1.2(a)
Independent Accounting Firm 1.3(e)
Intellectual Property 3.1(p)
IRS 3.1(n)
Liens 3.1(b)
Losses 6.1
Material Adverse Effect 3.1(a)
Notes 1.2(a)
Operating Business 3.1(f)
Other Documents 3.1(h)
Parent First Paragraph
Participant 4.5(e)
Permitted Liens 3.1(h)
Phase I's 4.17(a)
Post-Closing Period 4.7(a)
Pre-Closing Period 4.7(a)
Properties 4.17(a)
Purchase Price 1.2(a)
Purchaser First Paragraph
Purchaser Group 6.1
Purchaser's Benefit Plans 4.5(d)
Registration Rights Agreement 2.3(d)
Restaurant Services Agreement 4.14(a)
Restricted Notes 6.6(a)
Savings Plan 4.5(b)
Securities Act 3.1(w)
Seller First Paragraph
Seller Contracts 3.1(e)
Selling Group 6.2
Social Security Taxes 4.7(f)
Stock Second Paragraph
Straddle Tax Returns 4.7(a)
v
<PAGE>
Subsidiaries 3.1(b)
Tangible Net Asset Value 1.3(a)
Tax Benefit Amount 4.8(c)
Taxes 4.7(f)
Tax Returns 4.7(f)
TRAC 4.8(a)
Transferred Business Employees 4.15
Transferred Non-Business
Employees 4.15
Transition Services Agreement 2.3(d)
Trustee 2.3(e)
WARN Act 4.6
vi
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of March 1, 1996, among Family
Restaurants, Inc., a Delaware corporation ("FRI" or the "Seller"), Flagstar
Companies, Inc., a Delaware corporation ("Parent"), Flagstar Corporation, a
Delaware corporation and direct wholly owned subsidiary of Parent ("Flagstar"),
and FRD Acquisition Co., a newly formed Delaware corporation and direct wholly
owned subsidiary of Flagstar (the "Purchaser" and, together with Parent and
Flagstar, the "Acquiring Companies").
WHEREAS, FRI owns all of the outstanding shares of capital stock (the
"Stock") of FRI-M Corporation, a Delaware corporation ("FRI-M" or the
"Company");
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, all of the Stock, upon the terms and
subject to the conditions set forth herein; and
WHEREAS the Seller desires that FRI-M not own the Excluded Assets (as
defined below) when the Purchaser purchases the Stock.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
SECTION 1.1 Purchase and Sale. Upon the terms and subject to the
-----------------
conditions set forth herein, the Seller agrees to sell, assign, transfer, convey
and deliver to the Purchaser, and the Purchaser agrees to purchase and accept
from the Seller, on the Closing Date (as defined below), all of the Seller's
rights, title and interest in and to the Stock (the "Acquisition").
SECTION 1.2 Purchase Price.
--------------
(a) In consideration for the purchase by the Purchaser of the Stock,
the Purchaser shall (and Parent and Flagstar shall cause the Purchaser to) pay
to the Seller on the Closing Date an aggregate purchase price (the "Purchase
Price") paid as follows:
(i) $125 million, in cash, payable by wire transfer of immediately
available funds to such account or accounts as the Seller shall have designated
at least two business days prior to the Closing Date; and
1
<PAGE>
(ii) $150 million aggregate principal amount of Senior Notes due 2004
(the "Notes"). The Notes shall be issued pursuant to an indenture containing
the terms set forth on Schedule 1.2(a) and other customary terms and conditions
(the "Indenture").
(b) As additional consideration, the Purchaser shall assume at
Closing, pursuant to an assumption agreement in form and substance reasonably
satisfactory to the parties hereto, (i) the intercompany accounts identified on
Schedule 1.2(b) and (ii) its allocated portion of liabilities of the Seller and
its consolidated subsidiaries as set forth on the Closing Balance Sheet (as
defined below) (the liabilities described in clauses (i) and (ii), the "Assumed
Liabilities").
(c) In the event of a reduction in the Purchase Price pursuant to
Section 1.3, the amount of such reduction shall be paid by the Seller by
delivery to the Purchaser of that principal amount of Notes (and cancellation of
the interest related thereto) equal to the amount of such reduction (rounded to
the nearest $1,000), within five business days following the determination in
accordance with Section 1.3 of the amount of such reduction. In the event of an
increase in the Purchase Price pursuant to Section 1.3, the amount of such
increase shall be paid by the Purchaser by the issuance to the Seller of
additional Notes with an aggregate principal amount equal to such increase
(rounded to the nearest $1,000), which Notes shall bear interest from the
Closing Date, within five business days following the determination in
accordance with Section 1.3 of the amount of such increase; provided, that to
--------
the extent the reason for the increase in the Purchase Price is a Delayed Sale
(as defined in Schedule 1.3(b)) the amount of such increase shall be paid by the
Purchaser, in cash, by wire transfer of immediately available funds, on or prior
to the later of (i) the business day following the date such Delayed Sale is
consummated and (ii) five days following the determination in accordance with
Section 1.3 of the amount of such increase (unless the Delayed Sale is
terminated, in which case the Adjusted Closing Tangible NAV shall be
recalculated to add back the net book value of the property subject to such
terminated Delayed Sale and such increase shall be paid in additional Notes, as
provided above, on or prior to the later of (A) the business day following the
date such Delayed Sale is terminated and (B) five days following the
determination in accordance with Section 1.3 of the amount of such increase).
The Purchaser shall not terminate a Delayed Sale without the Seller's prior
consent.
(d) Prior to the Adjustment Date (as defined below), the Seller shall
maintain ownership of a principal amount of Notes not less than the Holdback
Amount. "Holdback Amount" shall mean (i) $10 million until the earliest to
occur of (A) the date on which the Purchaser makes the deliveries required by
Section 1.3(d) and (B) the 60th day following the Closing Date and (ii)
thereafter, the lesser of (A) $10 million, and (B) the excess, if any, of
$55,326,000 over the Adjusted Closing Tangible NAV determined by the Purchaser
and delivered to the Seller pursuant to Section 1.3(d) (provided, that (x) if
--------
such Adjusted Closing Tangible NAV is equal to or greater than $55,326,000, or
(y) the Purchaser has not made the deliveries required by Sections 1.3(d) and
(e) on or prior to the
2
<PAGE>
60th day following the Closing Date, the Holdback Amount shall be $0).
"Adjustment Date" shall mean the date on which any adjustment to the Purchase
Price is finally determined pursuant to Section 1.3.
SECTION 1.3 Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) "Tangible Net Asset Value" means, as of any date, the amount, if
any, by which the (i) aggregate book value of the tangible assets of the
Acquired Entities (as defined below), excluding assets not intended to
constitute a part of the Business, exceeds (ii) the aggregate book value of
liabilities of the Acquired Entities, excluding liabilities not intended to
constitute a part of the Business; in each case determined on a consolidated
basis in accordance with generally accepted accounting principles ("GAAP")
applied in a manner consistent with the determination of the Tangible Net Asset
Value as of December 31, 1995 set forth in Schedule 1.3(a).
(b) "Adjusted Closing Tangible NAV" means the Tangible Net Asset Value
on the Closing Date, as reflected on the Closing Balance Sheet (determined in a
manner consistent with the determination of Tangible Net Asset Value as of
December 31, 1995, as reflected in Schedule 1.3(a)), after giving effect to the
adjustments identified on Schedule 1.3(b).
(c) The Purchase Price shall be (i) increased by the amount, if any,
by which the Adjusted Closing Tangible NAV exceeds $55,326,000, or (ii) reduced
by the amount, if any, by which $55,326,000 exceeds the Adjusted Closing
Tangible NAV.
(d) As soon as practicable following the Closing (but in any case
within 60 days), the Purchaser, at its expense, shall prepare and deliver to the
Seller the consolidated balance sheet of the Acquired Entities, as of the close
of business on the Closing Date (the "Closing Balance Sheet"), together with a
calculation of the Adjusted Closing Tangible NAV as of the Closing Date, and all
relevant work papers and support for the Purchaser's calculation. The Closing
Balance Sheet shall be prepared in accordance with GAAP on a basis consistent
with the Financial Statements (as defined below). Without limiting the
foregoing, all accounting estimates made in connection with the preparation of
the Closing Balance Sheet shall be made on a basis consistent with those made in
connection with the preparation of the Financial Statements.
(e) Such balance sheet and Adjusted Closing Tangible NAV calculation
shall be audited within such 60-day period by KPMG Peat Marwick LLP and shall be
accompanied by a report confirming the calculation of the Adjusted Closing
Tangible NAV and all relevant work papers. The Seller shall be provided with
access, during normal business hours, to the relevant accounting books and
records and accounting personnel of the Purchaser during such 60-day period and
thereafter until the Adjusted Closing Tangible NAV has been finally determined
in accordance with the provisions of this Section.
3
<PAGE>
If, within 30 days following the Seller's receipt of the Closing
Balance Sheet from the Purchaser, the Seller determines in good faith that it
disagrees with the Adjusted Closing Tangible NAV calculation, it shall notify
the Purchaser of its objection setting forth its determination of Adjusted
Closing Tangible NAV and the basis for its disagreement, including any relevant
work papers and support for the Seller's calculation. A failure by the Seller
to notify the Purchaser of its disagreement within such 30-day period will
constitute acceptance by the Seller of the calculation of Adjusted Closing
Tangible NAV. The Seller and the Purchaser will negotiate in good faith to
resolve any disagreement during the 15-day period following the Seller's
notification of a disagreement. If such disagreement is not resolved within
such 15 day period, the disputed matters shall promptly be submitted to
whichever of Andersen Worldwide, Coopers & Lybrand or Price Waterhouse is
mutually selected by the parties (such selection being the "Independent
Accounting Firm") for a final resolution within 30 days after the expiration of
the 15 day negotiation period. The Independent Accounting Firm will be
requested to review only such disputed matters, and shall resolve such dispute
solely by choosing between the Adjusted Closing Tangible NAV specified by the
Seller or the Purchaser in accordance with the provisions of this Section. In
its determination, the Independent Accounting Firm shall be entitled to rely on
the work papers and similar items generated by the Purchaser, the Seller and
their respective accountants. The decision of the Independent Accounting Firm
shall be conclusive between, and final and binding on, the parties hereto.
If the determination of the Independent Accounting Firm is that the
Adjusted Closing Tangible NAV is the Adjusted Closing Tangible NAV calculated by
the Seller, the fees and expenses of the Independent Accounting Firm will be
paid by the Purchaser. If the determination of the Independent Accounting Firm
is that the Adjusted Closing Tangible NAV is the Adjusted Closing Tangible NAV
calculated by the Purchaser, the fees and expenses of the Independent Accounting
Firm will be paid by the Seller.
ARTICLE II
THE CLOSING
SECTION 2.1 Closing Date. The consummation of the Acquisition (the
------------
"Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher &
Flom, 300 South Grand Avenue, Los Angeles, California 90071, or such other place
as the parties shall mutually agree, at 10:00 a.m. (local time) on the fifth
business day after the date on which the conditions set forth in Article V
(other than those conditions to be satisfied or waived on the Closing Date)
shall be satisfied or waived, or such other date as the parties shall mutually
agree upon (the date of the Closing being herein referred to as the "Closing
Date").
4
<PAGE>
SECTION 2.2 Transactions To Be Effected at the Closing. At the Closing:
------------------------------------------
(a) the Seller shall deliver to the Purchaser (i) certificates
representing the Stock, duly endorsed in blank, or accompanied by stock powers
duly executed in blank, by the Seller, (ii) the stock books, stock ledgers,
minute books and corporate seals of the Company, and (iii) such other documents
as provided in Article V hereof; and
(b) the Purchaser shall deliver to the Seller (i) payment of the cash
portion of the Purchase Price as provided in Section 1.2(a), (ii) the Notes, in
such names and denominations as the Purchaser shall have designated at least two
business days prior to Closing, and (iii) such other documents as provided in
Article V hereof.
SECTION 2.3 Transactions to be Effected Concurrently with Closing.
-----------------------------------------------------
Concurrently with the Closing:
(a) The Seller shall purchase from FRI-M (i) all of the outstanding
capital stock of FRI-MRD Corporation ("FRI-MRD"), (ii) all of the outstanding
capital stock of FRI-Admin Corporation ("FRI-Admin"), (iii) the assets
identified on Schedule 2.3(a)(iii) (the "Corporate Real Property") and (iv) the
assets identified on Schedule 2.3(a)(iv) (the "Corporate Personal Property"), in
each case, for consideration with a value as set forth on Schedule 2.3(a). Such
consideration will be paid by the conveyance, transfer and delivery of (A) the
net assets identified on Schedule 2.3(a)(A) (the "Commissary Assets") and (B)
cash and/or an adjustment in the intercompany account between the Seller and
FRI-M with respect to the balance due.
As used herein, the term "Excluded Assets" means FRI-MRD, FRI-Admin,
the Corporate Real Property, the Corporate Personal Property, the Dinnerhouse
Properties (as defined below) and the Closed Properties (as defined below).
(b) FRI-M shall repay all indebtedness then outstanding under the
Credit Agreement from cash on hand, the proceeds referred to in Section
2.3(a)(B) or otherwise.
(c) The Acquiring Companies or the Acquired Entities shall replace (i)
all letters of credit relating to the Business (as defined below) that are
outstanding under the Credit Agreement or otherwise and (ii) the deposit with
San Diego Gas & Electric. If following the Closing any of the Acquiring
Companies or Acquired Entities continue to maintain an account with Bank of
America ("BOA") and in connection therewith BOA requires a minimum deposit, the
Acquiring Companies or the Acquired Entities shall fund such deposit.
(d) The Seller and the Purchaser shall enter into a Transition
Services Agreement in a form to be mutually agreed upon (the "Transition
Services Agreement"), a Registration Rights Agreement relating to the Notes in a
form to be mutually agreed upon (the "Registration Rights Agreement"), the
Closed Restaurant Agreement (as defined below)
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<PAGE>
and the Restaurant Services Agreement (as defined below). The parties shall use
their best efforts to negotiate the form of each such agreement within 28 days
from the date hereof.
(e) The Purchaser and a bank or trust company with capital surplus of
not less than $100,000,000, and otherwise reasonably satisfactory to the Seller,
as trustee (the "Trustee"), shall enter into the Indenture. The parties shall
use their best efforts to negotiate the form of such agreement within 28 days
from the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Seller. The Seller
--------------------------------------------
represents and warrants to the Purchaser as follows:
(a) Organization, Standing and Power. Each of FRI and the Acquired
--------------------------------
Entities (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (ii) has all requisite
power and authority to own, lease or operate the assets it now owns, leases or
operates and (iii) is duly qualified or licensed to do business in each
jurisdiction in which the ownership or use of its assets or conduct of its
business requires it to be so qualified, in each case except for such failures
that would not have an adverse effect on the financial condition or annual
results of operations of the Acquired Entities, taken as a whole, of either (A)
$500,000 or more for any single item, event or condition, or (B) $1.5 million or
more combining all such items, events and conditions described in a particular
representation (a "Material Adverse Effect").
(b) Subsidiaries. As of the Closing, the only direct or indirect
------------
subsidiaries of the Company will be those set forth on Schedule 3.1(b)
(collectively, the "Subsidiaries" and, together with the Company, the "Acquired
Entities") and ownership of the Subsidiaries shall be as set forth on Schedule
3.1(b). Except as set forth on Schedule 3.1(b), as of the Closing Date, no
Acquired Entity will own, directly or indirectly, any of the capital stock or
other equity securities of any other person other than holdings of shares of
common stock of publicly traded restaurant companies. All of the issued and
outstanding shares of capital stock of the Subsidiaries are duly authorized,
have been validly issued, were issued without violation of pre-emptive rights,
are free of pre-emptive rights, are fully paid and nonassessable, and as of the
Closing will be owned by the Company or other Subsidiaries, as shown on Schedule
3.1(b), free and clear of all liens, pledges and encumbrances (collectively,
"Liens"), and not subject to any options, warrants or subscription rights, other
than (i) Liens that will be released in connection with the Closing and (ii)
Liens, options, warrants or subscription rights arising by action of the
Purchaser.
(c) Authority. The execution and delivery of this Agreement, and the
---------
performance by the Seller of its obligations hereunder, have been duly
authorized by all
6
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necessary action on the part of the Seller. This Agreement has been duly
executed and delivered by the Seller and, assuming the due execution and
delivery hereof by the Acquiring Companies, this Agreement constitutes a valid
and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, except as such enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium (whether general or specific)
or similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law).
(d) Capital Stock. The entire authorized capital stock of the Company
-------------
is set forth on Schedule 3.1(d). The shares of Stock are duly authorized, have
been validly issued, and are fully paid and nonassessable. The shares of Stock
have not been issued in violation of, and are not subject to, any preemptive
rights. Upon consummation of the Acquisition, the Purchaser will acquire title
to the Stock, free and clear of all Liens and not subject to any options,
warrants or subscription rights, in each such case other than those arising from
the actions of the Purchaser.
(e) No Conflict. The consummation of the transactions hereunder and
-----------
under the Other Documents will not require (A) the consent of any party to any
contract, lease, agreement, mortgage or indenture ("Contracts") listed on
Schedule 3.1(l) (the "Applicable Contracts"), or any material contract to which
the Seller is a party, to which no Acquired Entity is a party or bound (the
"Seller Contracts"), or (B) the consent, approval, order or authorization of, or
the registration, declaration or filing with, any governmental authority, except
(in either case (A) or (B)) for those (i) required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) set forth
on Schedule 3.1(e), (iii) that become applicable solely as a result of the
specific regulatory status of the Acquiring Companies and their affiliates, or
(iv) the failure of which to make or obtain would not have a Material Adverse
Effect. Except as set forth on Schedule 3.1(e), assuming the consents,
approvals, orders, authorizations, registrations, declarations and filings
contemplated by the immediately preceding sentence are obtained or made, as
applicable, the execution, delivery and performance by the Seller of this
Agreement and under the Other Documents will not (x) violate any law applicable
to the Seller, the Company or any Subsidiary, (y) result in a breach or
violation of any provision of, or constitute a default under, any Applicable
Contract or Seller Contract, or (z) conflict with any provision of the
certificate of incorporation or by-laws of the Seller, the Company or any
Subsidiary, in each case except for any such violation, breach, default or
conflict that would not have a Material Adverse Effect.
(f) Financial Statements. Attached hereto as Schedule 3.1(f) are
--------------------
copies of the audited balance sheet of the Company and its consolidated
subsidiaries (other than FRI-MRD, FRI-Admin and their respective subsidiaries
and including the Commissary Assets) as of December 31, 1995 (the "Balance Sheet
Date"), and the related audited statement of operations for the twelve months
then ended (the "Financial Statements"). The Financial Statements present
fairly, in all material respects, the financial position of the Company and
7
<PAGE>
such consolidated subsidiaries as of December 31, 1995 and the results of
operations of the Company and such consolidated subsidiaries for the twelve
months then ended, in each case in accordance with GAAP applied on a basis
consistent with the Seller's historical financial statements (except as
otherwise indicated therein or in the notes thereto). Except as otherwise
indicated therein or in the notes thereto, the Financial Statements do not
reflect the accounts of any entities other than the Acquired Entities. The
portion of the combining Financial Statements captioned "Operating Business"
does not reflect the results of operations, asset or liabilities of any business
other than the Business (as defined below). On the Closing Date the Acquired
Entities will have, on a consolidated basis, at least $715,000 in unit safe
funds and the change fund bank account.
(g) No Undisclosed Liabilities. As of the date hereof, the Company
--------------------------
and the Subsidiaries, on a consolidated basis, have no liabilities of a nature
required by GAAP to be reflected on a balance sheet or in notes thereto, except
(i) as set forth or reflected on the Financial Statements (or described in the
notes thereto), (ii) as disclosed in Schedule 3.1(g) or (iii) for liabilities
incurred in the ordinary course of business since the Balance Sheet Date.
(h) Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Schedule 3.1(h) or as otherwise contemplated hereby or by the Other Documents
(as defined below), since the Balance Sheet Date through the date hereof, there
has not been:
(i) any material adverse change in the financial condition or
results of operations of the Acquired Entities, taken as a whole, other than
changes caused by changes in the economy or the restaurant industry, generally;
(ii) any damage or destruction, loss or other casualty to real
property, leasehold improvements or equipment of the Acquired Entities, however
arising, not covered by insurance, that will result in a Material Adverse
Effect;
(iii) any indebtedness incurred by any Acquired Entity for borrowed
money other than indebtedness that will be repaid on or prior to the Closing;
(iv) any material change in the accounting methods or practices of
any Acquired Entity, or any material change in depreciation or amortization
policies or rates theretofore adopted, in each case for both financial reporting
and tax reporting purposes, unless otherwise required by law;
(v) any material amendment or termination by any Acquired Entity of
any material Contract, in either case that would have an adverse effect on such
Acquired Entity, it being understood that extensions of purchasing or
distribution agreements that do not expire by their terms from the Balance Sheet
Date through the date hereof, or modification of any termination rights
thereunder, shall be deemed material and adverse;
8
<PAGE>
(vi) any amendment of the certificate of incorporation or by-
laws of any Acquired Entity;
(vii) any mortgage, pledge or other encumbering of any material
property or assets of any Acquired Entity (except for the incurrence of
Permitted Liens (as defined below));
(viii) any material liability incurred by any Acquired Entity
(except liabilities incurred in the ordinary course of business) or any
cancellation or compromise by any Acquired Entity of any material debt or claim
owed to or held by it;
(ix) any sale, transfer, lease, abandonment or other disposal of
any material portion of the properties or assets of any Acquired Entity (real,
personal or mixed, tangible or intangible), except in the ordinary course of
business (which course of business includes, without limitation, the sale of
owned properties no longer operated as restaurants);
(x) any transfer, disposal or grant of any material rights under
any patent, trademark, trade name, copyright, service mark, invention or license
owned by any Acquired Entity, or any disclosure to any person (other than
representatives of the Purchaser and other potential buyers subject to
confidentiality agreements) of any material trade secret, formula, process or
know-how owned by any Acquired Entity not theretofore a matter of public
knowledge; in each case except in the ordinary course of business;
(xi) any grant by any Acquired Entity of any general increase in
the compensation of its officers, employees or directors, any grant by any
Acquired Entity of any material increase in compensation payable to or to become
payable to any officer, employee or director, or any material agreement by any
Acquired Entity entered into with any officer, employee or director; except, in
each case, in the ordinary course of business, consistent with past practice
(which course of business includes, without limitation, bonuses under
established plans and increases due to changes in position);
(xii) any single capital expenditure made, or any commitment to
make any capital expenditure, by any Acquired Entity in excess of $100,000 for
any tangible or intangible capital assets, additions or improvements, except in
the ordinary course of business;
(xiii) except in the ordinary course of business and consistent
with past practice (A) any grant or extension by any Acquired Entity of any
power-of-attorney or guaranty in respect of the obligation of any person other
than an Acquired Entity or (B) any waiver by any Acquired Entity of any right of
substantial value to the Business in exchange for consideration in excess of
$100,000; or
(xiv) any entry by any Acquired Entity into any binding agreement,
whether in writing or otherwise, to take any action described in this Section
3.1(h).
9
<PAGE>
The provisions of this Section 3.1(h) shall not apply to any of the
foregoing actions or events to the extent they apply to the Excluded Assets.
"Permitted Liens" means (i) Liens set forth on Schedule 3.1(h); (ii)
Liens for Taxes (as defined below) that are not yet due or delinquent or that
are being contested in good faith by appropriate proceedings if a reserve or
other appropriate provision, if any, as shall be required by GAAP shall have
been made therefor; (iii) statutory Liens or landlords', carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business with respect to amounts not yet
overdue for a period of 45 days or amounts being contested in good faith by
appropriate proceedings if a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefor; (iv) Liens incurred or
deposits made in connection with workers' compensation, unemployment insurance
and other types of social security benefits; (v) Liens incurred or 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 like nature; (vi) easements, rights-of-way,
restrictions and other similar charges or encumbrances not materially
interfering with the ordinary conduct of the Business (as defined below); (vii)
leases or subleases granted to others not materially interfering with the
ordinary conduct of the Business; (viii) purchase money Liens incurred to secure
the purchase price of property (and Liens on property existing at the time of
the acquisition thereof), which Lien shall not cover any property other than
that being acquired, purchased, improved or constructed, and shall not cover
property purchased, acquired, constructed or improved more than 18 months before
the creation of such Lien; (ix) title defects or irregularities that do not in
the aggregate materially impair the use of the property; (x) capitalized lease
obligations; (xi) Liens in favor of any Acquired Entity; (xii) any other Liens
imposed by operation of law that do not materially affect the Business; (xiii)
extensions, renewals or refundings of any Liens referred to in clauses (i)
through (xii) above, provided that the renewal, extension or refunding is
--------
limited to all or part of the property securing the original Lien; (xiv) Liens
that will be released in connection with the Closing; and (xv) Liens in addition
to the foregoing, provided that the amount of the obligations secured by such
--------
Liens does not exceed in the aggregate $250,000.
"Business" means the Coco's, Carrows and jojos operating restaurant
businesses (including, without limitation, franchising) conducted by the Seller
and its subsidiaries, including the Acquired Entities; the operation of the
commissary related to these restaurant businesses; the foreign licensing of the
Coco's restaurant concept conducted by CFC Franchising Company or Coco's
Restaurants, Inc.; and the operation of three Jeremiah's, two Bob's Big Boy
Restaurants and one H.I. Ribster's.
"Other Documents" means the Indenture, the Registration Rights
Agreement, the Notes, the Transition Services Agreement, the Closed Restaurant
Agreement, and the Restaurant Services Agreement.
10
<PAGE>
(i) Compliance with Applicable Laws. Except as set forth on Schedule
-------------------------------
3.1(i) and 3.1(r), (i) the conduct of the Acquired Entities complies with all
statutes, laws, regulations and ordinances applicable thereto, except where the
failure to so comply, if any, would not have a Material Adverse Effect and (ii)
the Seller or an Acquired Entity has all material licenses and material permits
required for the operation of the Business and has not received written notice
either of any material violation of the terms under which it holds any such
license or permit or of any enforcement action that would result in the
suspension or termination of any such license or permit.
(j) Litigation; Decrees. Except as set forth on Schedule 3.1(j), as
-------------------
of the date hereof, (i) there is no suit, action or proceeding pending against
any Acquired Entity in any Federal, state or local court or agency that
specifically seeks (A) more than $500,000 in damages, or (B) any material
injunctive relief, and the Seller has not received written notice that any such
suit, action or proceeding is threatened and (ii) no Acquired Entity is in
default under any judgment, order or decree of any governmental authority
applicable to its business.
(k) Title to Properties. Except (A) as set forth on Schedule 3.1(k)
-------------------
or as otherwise contemplated hereby or by the Other Documents and (B) for items
sold, transferred or otherwise disposed of in the ordinary course of business,
on the Closing Date the Company or a Subsidiary (i) will have good title to all
the real properties and other assets (tangible, intangible or mixed) used in the
operation of the Business and reflected in the Financial Statements as owned,
free and clear of all Liens other than Permitted Liens and (ii) will have a
valid leasehold interest under all leases of real property to which it is a
party as lessee. All of the material leases to which any Acquired Entity is a
party are legal, valid and binding obligations of such Acquired Entity, except
as such obligation may be limited by (x) bankruptcy, insolvency, reorganization,
moratorium (whether general or specific) or similar laws now or hereafter in
effect relating to creditors' rights generally and (y) general principles of
equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law). No property or asset, the value of which is reflected in the
balance sheet included in the Financial Statements, is held under any lease
(other than a capitalized lease) or under any conditional sale or other title
retention agreement. Except for such assets, plants and facilities as are
immaterial in the aggregate to the Business, all tangible assets, plants and
facilities of each of the Acquired Entities are adequate in all material
respects for the uses to which they are being put or would be put in the
ordinary course of business.
(l) Contracts. Except for the Contracts listed in Schedule 3.1(l), as
---------
of the date hereof, no Acquired Entity is a party to:
(i) any Contract relating to the borrowing or lending of
$500,000 or more by any Acquired Entity;
11
<PAGE>
(ii) any agreement pursuant to which any Acquired Entity is bound
to employ any person other than those terminable without payment or penalty upon
no more than 30 days' notice;
(iii) any Contract not made in the ordinary course of business
involving an estimated total future payment or payments in excess of $500,000
other than those terminable with payment or penalty of less than $50,000 upon no
more than 30 days' notice;
(iv) any Contract for the sale of any of the assets of any Acquired
Entity (other than inventory sales in the ordinary course of business or sales
of tangible personal property having a value under $500,000), or the grant of
any preferential rights to purchase any of the assets of any Acquired Entity; or
(v) any Contract that is otherwise material to the Business and is
terminable by the other party thereto upon the occurrence of the transactions
contemplated hereby that, if terminated, would have a material adverse effect on
the business, financial condition or results of operations of the Acquired
Entities, taken as a whole.
Except as disclosed in Schedule 3.1(l), none of the Acquired Entities
nor, to the knowledge of the Seller, any third party is in breach or default in
any respect under any Applicable Contract described in clauses (ii) through (v)
above, except for such breaches and defaults as to which requisite waivers or
consents have been or will be obtained prior to the Closing Date or that would
not have a Material Adverse Effect. Complete and correct copies of all
Applicable Contracts, together with all modifications and amendments thereto,
have been delivered or made available to the Purchaser; provided, that to the
--------
extent any of such Contracts are items susceptible to duplication and are either
(i) used in connection with any of the Seller's businesses other than those
relating to the Business or (ii) are required by law to be retained by the
Seller, the Seller may deliver photostatic copies or other reproductions
certified to be complete and correct by the Seller from which the Seller may
delete information concerning the Seller's businesses other than those relating
to the Business. For purposes of this subsection 3.1(l), the term "Contract"
shall not include Employee Benefit Plans referred to in Section 3.1(n).
(m) Taxes. Except as set forth in Schedule 3.1(m), (i) all material
-----
income Tax Returns (as defined below) required to be filed by or on behalf of
the Company or any Subsidiary have been filed and all such returns are true,
complete, and correct in all material respects; (ii) all material Taxes (as
defined below) that are due or claimed to be due from the Company or any
Subsidiary have been paid other than those (a) currently payable without penalty
or interest or (b) being contested in good faith and by appropriate proceedings
and for which adequate reserves have been established in accordance with GAAP;
(iii) since January 1, 1987, neither the Seller nor any of the Subsidiaries has
been a member of an affiliated group as defined in section 1504 of the Internal
Revenue Code of 1986, as amended (the "Code"), filing a consolidated federal
income tax return, other than
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an affiliated group as defined in the Code the common parent of which has been
FRI; and (iv) neither the Seller nor any of the Subsidiaries has or will have as
a consequence of the transactions contemplated by this Agreement any liability
for the payment of a nondeductible parachute payment as defined in section 280G
of the Code. Schedule 3.1(m) is a complete listing of any (i) material Tax
Return the filing date of which has been extended and (ii) waivers of the
statutory period of limitation in respect to any material Tax Return. Neither
the Seller, the Company, nor any Subsidiary is undergoing any Audit (as defined
below) of its liability for Social Security Taxes related to tip income.
(n) Employee Benefit Plans.
----------------------
(i) Set forth on Schedule 3.1(n) is a list of each bonus,
deferred compensation, pension, profit-sharing, retirement, stock purchase or
stock option, hospitalization or other medical, life or other insurance plan
relating to the Business, including any policy, plan, program or agreement that
provides for the payment of severance benefits, salary continuation, benefits to
executives, salary in lieu of notice or similar benefits (collectively, the
"Employee Benefit Plans"), maintained, sponsored or contributed to by the Seller
or any Acquired Entity or under which any Acquired Entity has any present or
future obligations or liability on behalf of the Company's employees or former
employees or their dependents or beneficiaries of the Company (collectively, the
"Affected Persons"). No Employee Benefit Plan is subject to Title IV of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
Employee Benefit Plans are in compliance in all material respects with the plan
documents and applicable law, including without limitation ERISA and the Code.
All contributions made or required to be made under any Employee
Benefit Plan meet the requirements for deductibility under the Code in all
material respects, and all contributions that are required but have not been
made have been properly recorded on the books of the Company, the Subsidiaries
or the Seller to the extent required under GAAP.
No Employee Benefit Plan is a "multi-employer plan" (as defined in
section 3(37) or 4001(a)(3) of ERISA) or a "multiple employer plan" (within the
meaning of section 413(c) of the Code) and no Acquired Entity has been required
to make contributions to a multi-employer plan or multiple employer plan within
the last six years nor does any Affected Person have any rights in any such
multi-employer plan or multiple employer plan arising out of his or her
employment with any Acquired Entity or their respective predecessors. No event
has occurred with respect to the Company or any Subsidiary in connection with
which the Company or any Subsidiary could be subject to any liability (other
than any liability for benefits accrued in the ordinary course) or Lien with
respect to any Employee Benefit Plan under ERISA or the Code.
(ii) True and complete copies of each of the following documents
have been delivered or been made available to the Purchaser: (A) all Employee
Benefit Plans and all amendments thereto, all material written interpretations
and descriptions
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thereof that have been distributed to the Company's employees and all annuity
contracts or other funding instruments with respect to such plans, (B) the most
recent determination letter issued by the Internal Revenue Service (the "IRS")
to the Seller, (C) for the most recent plan year, Annual Reports on Form 5500
Series required to be filed with any governmental agency for each "Employee
Pension Benefit Plan" (as defined in section 3(2) of ERISA) that covers or has
covered employees of the Company or a Subsidiary (with respect to their
relationship with such entities), and (D) all actuarial reports, if any,
prepared for the latest plan year of each Employee Pension Benefit Plan.
(iii) Except as set forth in Schedule 3.1(n):
(1) No Employee Benefit Plan is subject to the minimum
funding requirements of ERISA or the Code. Each Employee Benefit Plan and each
related trust agreement, annuity contract or other funding instrument that is
intended to be qualified and tax-exempt under the provisions of Code sections
401(a) (or 403(a), as appropriate) and 501(a), has been determined to be so
qualified by the IRS and since the date of such letter no event has occurred
that would jeopardize such qualified status.
(2) There are no foreign Subsidiaries and none of the
Employee Benefit Plans that cover any employee or former employee of the Company
or a Subsidiary covers any person who is employed in any country other than the
United States.
(3) None of the Acquired Entities is a party to any
litigation relating to or seeking benefits under any Employee Benefit Plan.
(4) Neither the Company nor any Subsidiary has incurred any
liability with respect to or under any employee benefit plan, program, policy or
arrangement, including any "pension plan" or "welfare plan" as defined in
sections 3(2) and 3(3), respectively, of ERISA, or any plan, program, policy or
arrangement that provides deferred compensation, profit sharing bonuses, stock
options, stock appreciation rights, stock purchases or other forms of incentive
compensation, other than the Employee Benefit Plans listed on Schedule 3.1(n).
(5) To the knowledge of the Company, no Employee Benefit
Plan holds as an asset any interest in any annuity contract, guaranteed
investment contract or any other investment or insurance contract issued by an
insurance company that is the subject of bankruptcy, conservatorship or
rehabilitation proceedings.
(6) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any person to benefits under any
Employee Benefit Plan (including, without limitation, the acceleration of the
vesting or exercisability of any stock options, the acceleration of the vesting
of any restricted stock, the acceleration or creation
14
<PAGE>
of any rights under any severance, parachute or change in control agreement)
other than any rights or benefits that are payable by the Seller.
(7) Neither the Company nor any Employee Benefit Plan has
any present or future obligation to make any payment to or with respect to any
present or former employee of the Company or any Subsidiary for post retirement
medical, health, death or other welfare benefits except to the extent required
by applicable law.
(o) Labor Matters. Set forth on Schedule 3.1(o) are all agreements
-------------
with labor unions or associations representing employees of the Acquired
Entities (collectively, "Employees") in effect as of the date hereof. To the
knowledge of the Seller, there are no union organization efforts in progress.
As of the date hereof, no material work stoppage against the Acquired Entities
is actually pending or, to the knowledge of the Seller, threatened. Except as
set forth on Schedule 3.1(o), as of the date hereof, there are no pending, or,
to the knowledge of the Seller, threatened, labor disputes, arbitrations,
lawsuits or administrative proceedings relating to labor matters involving the
Employees (excluding routine workers' compensation claims) that would have a
Material Adverse Effect.
(p) Intellectual Property. Set forth on Schedule 3.1(p) are (i) all
---------------------
material trademarks, copyrights, trade names, service marks and other
intellectual property rights used or held for use primarily in the Business
("Intellectual Property"), owned, or licensed for use, by the Acquired Entities
as of the date hereof and (ii) trademarks and tradenames held by the Acquired
Entities that are unrelated to the Business, which shall be transferred to FRI-
Admin or an affiliate thereof. At the Closing Date, the Acquired Entities will
have valid and subsisting rights to all trademarks, trade names, service marks
and other intellectual property rights used in the Business. Set forth on
Schedule 3.1(p) are all licenses of Intellectual Property to which any Acquired
Entity is a party as of the date hereof. Except as set forth on Schedule 3.1(p),
(i) there are no existing, or, to the knowledge of the Seller, threatened,
claims based on the use by, or challenging the ownership of, the Acquired
Entities of any Intellectual Property that would have a Material Adverse Effect
and (ii) the Seller does not have any knowledge of any infringing use of any
Intellectual Property by any other person.
(q) Insurance. Copies of all material insurance policies held by the
---------
Seller have been made available to the Purchaser. Such policies (together with
self-insurance programs in effect) provide coverage for the Company's business
in amounts and against risks consistent with past practice. No representation
or warranty is made by the Seller hereunder that any such policy will not lapse
or terminate by reason of consummation of the transactions contemplated hereby.
(r) Environmental Matters. Except as set forth on Schedule
---------------------
3.1(r), to the Seller's knowledge, the Acquired Entities are in compliance with
all Federal, state and local laws governing pollution or the protection of the
environment (the "Environmental Laws"), except where the failure to comply with
the Environmental Laws
15
<PAGE>
would not have a Material Adverse Effect. Except as set forth on Schedule
3.1(r), to the Seller's knowledge, (i) no written notice or claim has been
received by the Company from any governmental authority or third party alleging
that any Acquired Entity is not in compliance with any Environmental Law, and
(ii) there has been no release of a Hazardous Substance, as that term is defined
in the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. (S)(S) 9601 et seq., in excess of a reportable quantity on any of the
-------
real properties now or previously owned or leased by the Company or any of the
Subsidiaries for which any of the Acquired Entities could reasonably be expected
to have a liability that would have a Material Adverse Effect.
(s) Government Regulations. None of the Acquired Entities is subject
----------------------
to regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act, the Commodity Exchange Act or any Federal or State statute or
regulation limiting its ability to incur or assume indebtedness for borrowed
money.
(t) Brokers, Finders, etc. Except for Donaldson, Lufkin & Jenrette
---------------------
Securities Corporation ("DLJ"), neither the Seller nor any Acquired Entity is
subject to any valid claim of any broker, investment banker, finder or other
intermediary in connection with the transactions contemplated by this Agreement.
The Seller is solely responsible for any payment, fee or commission that may be
due to DLJ in connection with the transactions contemplated hereby.
(u) Books and Records. The Seller has furnished or made available to
-----------------
the Purchaser true and complete copies of all minute books, all accounting books
and records and other similar records of the Company and the Acquired Entities.
The books and records of the Acquired Entities have been maintained in all
material respects in accordance with law.
(v) Disclosure. No representation or warranty of the Seller contained
----------
in this Agreement (including the Schedules furnished or to be furnished by or on
behalf of the Seller pursuant hereto) contains any untrue statement of a
material fact, or omits to state any material fact necessary, in light of the
circumstance under which it was made, in order to make the statements herein not
misleading.
(w) Purchase For Investment. The Seller is acquiring the Notes being
-----------------------
acquired by it hereunder for investment (for its own account or for accounts
over which it exercises investment control), and not with a view to, or for
offer or sale in connection with, any distribution thereof that would be in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities law, without prejudice, however, to the Seller's
right at all times to sell or otherwise dispose of all or any part of the Notes
pursuant to an effective registration statement under the Securities Act and
applicable state securities laws, or under an exemption from such registration
available under the Securities Act and other applicable state securities laws.
The Seller (i) is
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knowledgeable, sophisticated and experienced in business and financial matters
and fully understands the limitations on transfer described above; and (ii) is
an "accredited investor" as such term is defined in Rule 501(a) of Regulation D
under the Securities Act.
SECTION 3.2 Representations and Warranties of the Acquiring Companies.
---------------------------------------------------------
The Acquiring Companies hereby represent and warrant to the Seller as follows:
(a) Organization and Standing. Each Acquiring Company (i) is a
-------------------------
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (ii) has all requisite power and authority to
own, lease or operate the assets it now owns, leases or operates and (iii) is
duly qualified or licensed to do business in each jurisdiction in which the
ownership or use of its assets or conduct of its business requires it to be so
qualified, in each case except for such failures that would not have an adverse
effect on the financial condition or annual results of operations of the
Acquiring Companies, taken as a whole, of $500,000 or more for any single item,
event or condition or $1.5 million or more combining all such items, events or
conditions.
(b) Authority. The execution and delivery of this Agreement, and the
---------
performance by the Acquiring Companies of their obligations hereunder, have been
duly authorized by all necessary action on the part of each Acquiring Company.
This Agreement has been duly executed and delivered by each Acquiring Company
and, assuming the due execution and delivery hereof by the Seller, this
Agreement constitutes a valid and binding obligation of each Acquiring Company,
enforceable against each Acquiring Company in accordance with its terms, except
as such enforcement may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforcement is sought in a proceeding in equity or at law). On
the Closing Date, each of the Indenture, the Notes and the Registration Rights
Agreement will have been duly authorized, executed and delivered by the
Purchaser, and each of the Indenture, the Notes and the Registration Rights
Agreement will constitute a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as such
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforcement is sought in a proceeding in equity or at law).
(c) No Conflict. The consummation of the transactions hereunder and
-----------
under the Other Documents (including, without limitation, the issuance and
delivery of the Notes) will not require the consent of any party to any material
Contract to which the Acquiring Companies, or any of their affiliates, is a
party or by which any of them is bound, or the consent, approval, order or
authorization of, or the registration, declaration or filing with, any
governmental authority, except for those (i) required under the HSR Act or (ii)
that become applicable solely as a result of the specific regulatory status of
the Seller and its affiliates. Assuming the consents, approvals, orders,
authorizations, registrations,
17
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declarations and filings contemplated by the immediately preceding sentence are
obtained or made, as applicable, the execution, delivery and performance by the
Acquiring Companies of this Agreement and under the Other Documents will not (i)
violate any material law applicable to the Acquiring Companies or any of their
respective affiliates, (ii) result in a breach or violation of any material
provision of, or constitute a material default under, any such Contract, or
(iii) conflict with any provision of the certificate of incorporation or by-laws
of the Acquiring Companies.
(d) Financing. The Purchaser has sufficient funds or firm financing
---------
commitments in place with respect to all funds necessary to consummate the
transactions contemplated by this Agreement. The Purchaser will have available
as of the Closing Date funds sufficient to pay the Purchase Price.
(e) Purchase For Investment. The Purchaser is acquiring the Stock
-----------------------
being acquired by it hereunder for investment (for its own account or for
accounts over which it exercises investment control), and not with a view to, or
for offer or sale in connection with, any distribution thereof that would be in
violation of the Securities Act, or any applicable state securities law, without
prejudice, however, to the Purchaser's right at all times to sell or otherwise
dispose of all or any part of said Stock pursuant to an effective registration
statement under the Securities Act and applicable state securities laws, or
under an exemption from such registration available under the Securities Act and
other applicable state securities laws. The Purchaser (i) is knowledgeable,
sophisticated and experienced in business and financial matters and fully
understands the limitations on transfer described above; and (ii) is an
"accredited investor" as such term is defined in Rule 501(a) of Regulation D
under the Securities Act.
(f) Brokers, Finders, etc. Except for Ernst & Young LLP, the
---------------------
Purchaser is not subject to any valid claim of any broker, investment banker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement. The Purchaser is solely responsible for any payment, fee or
commission that may be due to Ernst & Young LLP in connection with the
transactions contemplated hereby.
(g) Disclosure. No representation or warranty of the Acquiring
----------
Companies contained in this Agreement (including the Schedules furnished or to
be furnished by or on behalf of the Acquiring Companies pursuant hereto)
contains any untrue statement of a material fact, or omits to state any material
fact necessary, in light of the circumstance under which it was made, in order
to make the statements herein not misleading.
(h) No Prior Activities; Capitalization. Except for (i) obligations
-----------------------------------
or liabilities incurred in connection with its incorporation and (ii) the
transactions contemplated by this Agreement and the Other Documents, as of the
Closing Date, the Purchaser will not have, directly or indirectly, (A) incurred
any obligations or liabilities, (B) engaged in any business activities of any
kind or (C) entered into any Contracts.
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<PAGE>
Immediately following the Closing, the Purchaser will have a capitalization as
set forth on Schedule 3.2(h).
ARTICLE IV
COVENANTS
SECTION 4.1 Conduct of Business. From the date of this Agreement through
-------------------
the Closing, the Seller agrees that, except (i) as disclosed in Schedule 4.1
hereof or otherwise provided for in, or contemplated by, this Agreement or the
Other Documents or (ii) as approved by the Purchaser:
(a) The Seller shall cause the Acquired Entities to carry on and
operate the Business in the ordinary course, consistent with past practices.
(b) Except in the ordinary course of business or as required by law or
by contractual obligations or other understandings or arrangements existing on
the date hereof, the Seller shall not, and shall not permit the Company or the
Subsidiaries to, knowingly perform any act, or omit to perform any act within
its reasonable control, that will cause a breach of any representation, warranty
or obligation contained in this Agreement, which breach will result in a
material adverse effect on the business, financial condition or results of
operations of the Acquired Entities, taken as a whole.
(c) The Seller shall cause the Acquired Entities to continue to
maintain and service the physical assets used in the conduct of the Business
consistent with past practices.
(d) The Seller shall not permit the Acquired Entities to materially
modify their current payment practices with the vendors, suppliers or employees
of the Acquired Entities.
(e) Other than in the ordinary course of business, consistent with
past practice, the Seller shall not permit the Acquired Entities to extend any
material purchasing or distribution agreement to which any of the Acquired
Entities is bound (or modify any termination rights thereunder) other than any
purchasing or distribution agreement that otherwise would expire by its terms on
or prior to the Closing.
On or prior to the Closing, the Seller shall satisfy or cause its
subsidiaries to satisfy, the $300,000 payable to Micros Systems, Inc., $200,000
of which is currently due and payable and $100,000 of which is due on or prior
to March 31, 1996.
SECTION 4.2 Further Actions; Cooperation.
----------------------------
19
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(a) The Seller and the Acquiring Companies shall use their reasonable
best efforts, whether before, at or after the Closing, to take, or cause to be
taken, all actions, and to negotiate and execute and deliver or cause to be
executed and delivered, all documents, reasonably necessary to (a) obtain all
material licenses, permits and certificates required for the Purchaser to
conduct the Business or own the Stock at the Closing or (b) otherwise consummate
the transactions contemplated hereby. Without limiting the foregoing each party
hereto will use its reasonable best efforts to respond to all inquiries,
investigations and requests for additional information, if any, of all Federal
and state authorities relating to the transactions contemplated hereby and to
seek to resolve prior to June 30, 1996 all concerns and issues, if any, raised
by such authorities.
(b) The parties hereto shall reasonably cooperate so that, to the
extent reasonably practicable, at Closing, the Acquired Entities shall have all
material rights and obligations presently vested in the Acquired Entities,
Seller and its affiliates (if any) concerning special purpose corporations
holding liquor licenses that are part of the Business (including, without
limitation, J.T. Beverage, Inc., The L.C.S. Beverage Company, Inc., GRC Club,
Inc., and JRI Club, Inc.) As to interests in these entities that will not be
owned by the Acquired Entities, the parties shall reasonably cooperate so that,
to the extent reasonably practicable, at Closing, such interests shall be held
by third parties subject to terms and conditions reasonably acceptable to
Purchaser and consistent with the business purpose for and existing legal
requirements binding such entities.
SECTION 4.3 Access to Information; Reports.
------------------------------
(a) Access. The Seller shall afford to representatives of the
------
Purchaser, at the Purchaser's expense, including its counsel, advisors,
accountants and lenders, reasonable access during normal business hours during
the period prior to the Closing Date to all the properties, books, Contracts and
records of the Company. After making any investigation of such properties,
books, Contracts or records, the Purchaser shall promptly restore such
properties, books, Contracts and records to their condition prior to such
investigation. The Seller shall provide to the Purchaser as soon as available
the reports set forth on Schedule 4.3(a) during the period prior to the Closing
Date. If, in the course of any investigation pursuant to this Section 4.3(a),
either Acquiring Company discovers any breach of any representation or warranty
contained in this Agreement or any circumstance or condition that, upon Closing,
would constitute such a breach, the Purchaser shall promptly inform the Seller.
The Seller shall promptly inform the Purchaser if, prior to Closing, the Seller
becomes aware of any breach of any of its representations or warranties
contained herein, or of any circumstance or condition that, upon Closing, would
constitute such a breach.
(b) Confidentiality. The Acquiring Companies acknowledge that the
---------------
information being provided to the Purchaser and its representatives by, or on
behalf of, the Seller is subject to the terms of a confidentiality agreement
between the Seller and the Purchaser dated November 9, 1995, which terms are
incorporated herein by reference.
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<PAGE>
(c) Confidentiality Agreements. Concurrently with the Closing, the
--------------------------
Seller shall assign to the Purchaser its rights under all confidentiality
agreements between the Seller and any prospective purchasers of the Stock, in
each case to the extent such rights may be so assigned.
SECTION 4.4 Consents. Subject to the terms and conditions hereof, the
--------
Seller and the Acquiring Companies agree (without being obligated to make any
payment to any third party) to use their best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and to cooperate with the others in
connection with the foregoing, including using their best efforts (i) to obtain
all necessary waivers, consents and approvals from other parties to material
Contracts, (ii) to obtain all consents, approvals and authorizations that are
required to be obtained under any Federal, state, local or foreign law or
regulations, (iii) to prevent the entry, enactment or promulgation of any
threatened or pending injunction or order that would adversely affect the
ability of the parties hereto to consummate the transactions contemplated
hereby, (iv) to lift or rescind any injunction or order adversely affecting the
ability of the parties hereto to consummate the transactions contemplated hereby
and (v) to effect all necessary registrations and filings, including filings
under the HSR Act, and submissions of information requested by governmental
authorities.
SECTION 4.5 Employee Benefit Plans.
----------------------
(a) No provision contained in this Agreement shall confer upon any
Affected Person any right with respect to continuance of employment by the
Acquired Entities, nor shall anything herein interfere with the right of the
Acquired Entities to terminate the employment of any of the Affected Persons at
any time, with or without cause, or subject to Section 4.5(d), restrict the
Acquired Entities in the exercise of its independent business judgment in
establishing or modifying any of the terms and conditions of the employment of
the Employees.
(b) The Seller shall cause the accounts of all Affected Persons (other
than Transferred Non-Business Employees (as defined below)) in the Family
Restaurants, Inc. Retirement Savings Plan (the "Savings Plan") to be fully
vested effective as of no later than the Closing and shall cause such accounts
to be distributed to the Affected Persons pursuant to the terms of the Savings
Plan as soon as practicable after the Closing. The Acquired Companies shall
permit the Affected Persons who are not Transferred Non-Business Employees and
who elect to do so to have their accounts in the Savings Plan be transferred, in
cash only, to the trustee of one or more of the qualified profit sharing plans
that may be maintained by any of the Acquiring Companies or Acquired Entities
after the Closing in a direct rollover pursuant to the terms of such plan.
(c) No later than the Closing, the Seller shall cause the interests of
any of the Affected Persons (other than Transferred Non-Business Employees) in
the Family
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Restaurants, Inc. Deferred Compensation Plan (the "Deferred Compensation Plan")
to be distributed to the Affected Persons.
(d) The Acquiring Companies hereby agree that as of the Closing Date,
and for a period of at least 12 months thereafter, the Purchaser shall provide
to the Affected Persons who are not Transferred Non-Business Employees wages and
benefits substantially similar in the aggregate to those currently provided to
such Affected Persons under the Employee Benefit Plans disclosed pursuant to
Section 3.1(n) hereof ("Purchaser's Benefit Plans") not taking into account any
deferred compensation or benefits that are provided only to executives or highly
compensated employees or any employer contributions, other than with respect to
elective deferred compensation, made by the Company and the Subsidiaries to any
qualified profit sharing plan. As of the Closing Date, the Seller shall cease
to provide coverage or benefits for Affected Persons under any Employee Benefit
Plans, except as required by applicable law or otherwise agreed to by the
parties hereto.
(e) As of the Closing Date, each Affected Person (other than a
Transferred Non-Business Employee or a dependent or beneficiary thereof) who was
a participant (a "Participant") or who was eligible to immediately participate
(an "Eligible Person") in Employee Benefit Plans of the Seller that are welfare
benefit plans (as defined in section 3(1) of ERISA) immediately prior to the
Closing Date shall become a participant in, or shall be immediately eligible to
participate in, as the case may be, applicable welfare benefit plans of the
Acquiring Companies (including, without limitation, health, life insurance,
accidental death, short-term and long-term disability), from and after the
Closing Date, otherwise in accordance with the terms and conditions of such
Acquiring Companies' plans; provided that the Acquired Companies shall cause to
--------
be waived any pre-existing condition exclusions under any such welfare plans
that would not have been applicable to such Affected Person as a Participant or
Eligible Person under the terms of any such applicable Employee Benefit Plan of
the Seller immediately prior to the Closing Date.
(f) As of the Closing Date, each Affected Person (other than a
Transferred Non-Business Employee or a dependent or beneficiary thereof) shall
continue as a participant in, or shall become a participant in, each other
employee benefit plan or arrangement of the Acquired Entities or the Acquiring
Companies as shall be required to fulfill that Acquiring Company's obligation to
provide benefits pursuant to Section 4.5(d) hereof. Length of service by any
such Affected Persons with the Company, the Seller or any of their respective
subsidiaries shall be recognized under each such benefit plan or arrangement for
purposes of (i) eligibility to participate and (ii) vesting, but in no event
shall such service be taken into account in determining the accrual of benefits
under any such benefit plan or arrangement (other than vacation time),
including, but not limited to, a defined benefit plan.
(g) The Seller and the Purchaser agree to cooperate in carrying out
the duties and responsibilities contained in this Section 4.5. In addition, the
Seller agrees to make available to the Purchaser such information as the
Purchaser may reasonably request
22
<PAGE>
to facilitate the determination of (i) the period of service of any Affected
Person with the Company, the Seller or any of the Subsidiaries prior to the
Closing Date, (ii) individual service accruals and salary histories of Affected
Persons, and (iii) such other information as the Purchaser may reasonably
request to carry out the provisions of this Section 4.5.
(h) The Company and the Purchaser shall comply with the filing
requirements of Revenue Procedure 84-77 to implement Section 3.1(n) hereof with
respect to Affected Persons other than Transferred Non-Business Employees.
(i) If the Purchaser so requests prior to the Closing, the Seller
shall request (without any obligation to cause) any insurance companies or third
party administrators that underwrite or administer any Employee Benefit Plans
that cover employees of the Seller or its subsidiaries other than the Acquired
Entities to offer to issue to the Company or the Purchaser policies or contracts
with respect to the Transferred Employees and their dependents that provide
substantially the same benefits and contain substantially the same terms and
conditions as the Seller's policies and contracts with such insurance companies
or third party administrators.
SECTION 4.6 WARN Act. The Seller shall not, at any time 90 days before
--------
the Closing Date, without complying fully with the notice and other requirements
of the Worker Adjustment and Retraining Notification Act (the "WARN Act"),
effectuate (1) a "plant closing" as defined in the WARN Act affecting any site
of employment or one or more facilities or operating units within any site of
employment of the Company; or (2) a "mass layoff" as defined in the WARN Act
affecting any site of employment of the Company; or any similar action under
applicable state or foreign law requiring notice to employees in the event of a
plant closing or layoff. The Purchaser shall not, at any time on or after the
Closing Date, without complying fully with the notice and other requirements of
the WARN Act, effectuate (i) a "plant closing" as defined in the WARN Act
affecting any site of employment or one or more facilities or operating units
within any site of employment of the Company; or (ii) a "mass layoff" as defined
in the WARN Act affecting any site of employment of the Company; or any similar
action under applicable state or foreign law requiring notice to employees in
the event of a plant closing or layoff. For purposes of the WARN Act and this
Agreement, the Closing Date is and shall be the same as the "effective date"
within the meaning of the WARN Act.
SECTION 4.7 Cooperation With Respect to Tax Matters.
---------------------------------------
(a) The Seller and the Acquiring Companies recognize that the Company
has joined with the Seller in filing unitary, consolidated or combined Tax
Returns. After the Closing Date (i) the Seller shall include (to the extent
required by law) the taxable income or loss, and all other items, of the Company
and the Subsidiaries for periods ending before or on the Closing Date, in its
unitary, consolidated or combined Tax Returns, (ii) with respect to any other
Tax Returns for any taxable period that includes but does not end on the Closing
Date (the "Straddle Tax Returns"), the Seller shall prepare a schedule setting
23
<PAGE>
forth, on a basis consistent with the preparation of the Seller's consolidated
Federal income tax return for the taxable period ending on the Closing Date and
specifically without making the election provided by Treasury Regulation section
1.1502-76(b)(2)(ii), the taxable income or loss, and all other items, of the
Company and the Subsidiaries to the period commencing with the first day of the
taxable period covered by such Straddle Tax Return up to and including the
Closing Date (the "Pre-Closing Period") and the period commencing with the first
day after the Closing Date and ending with the last day of the taxable period
covered by such Straddle Tax Return (the "Post-Closing Period") (iii) in the
case of any Tax Return referred to in clause (i) of this Section 4.7(a), the
Acquired Companies shall have a reasonable opportunity to review the portion of
such Tax Returns that relate to the Acquired Entities, and (iv) each of the
Seller, the Acquiring Companies, the Company and the Subsidiaries shall, for
Federal income tax purposes, treat all transactions that are required to be
effected at, or concurrently with, the Closing pursuant to Article II hereof as
occurring on the Closing Date.
(b) The Seller shall be responsible for, and shall have ultimate
discretion with respect to, (i) all Tax Returns required or permitted by
applicable law to be filed by the Company and the Subsidiaries (or by the Seller
on their behalf) with respect to periods that end on or before the Closing Date,
(ii) any elections related to such Tax Returns, provided that any material
election (other than those specified below in this Section 4.7(b) and the
election specified in 4.8(e) if such election is made on or after May 15, 1996)
shall be subject to the consent of the Acquiring Companies, which consent shall
not be unreasonably withheld, provided, however, that the Seller shall have the
-------- -------
right, in its sole discretion, to make any elections on a basis consistent with
prior year returns; and (iii) any Audit (as defined below), including the
execution of any waiver of limitation with respect to any Audit, relating to any
such Tax Returns. The Acquiring Companies, the Company and the Subsidiaries
shall cooperate with the Seller for the purpose of making (x) an election to
permit the Company to file any short period Tax Return for the taxable period
ending on the Closing Date, an election under Treasury Regulation section
1.1502-20(g), and an election under Proposed Treasury Regulation section 1.1502-
95(c) and, (y) any other election permitted under clause (ii) of this Section
4.7(b). In the event that any Audit for which the Seller is responsible
pursuant to this Section 4.7(b) could reasonably be expected to result in a
material increase in Tax liability for which the Purchaser or the Company would
be liable in the Post-Closing Period or subsequent tax year, the Seller shall
consult in good faith with the Purchaser and the Company in respect of the
specific issues that could give rise to such increased Tax liability.
(c) The Purchaser and the Company shall be responsible for, and shall
have ultimate discretion with respect to, (i) all Tax Returns required to be
filed by the Company and the Subsidiaries with respect to periods that begin
after the Closing Date and (ii) the Straddle Tax Returns, if any, and (iii) any
Audit (including the execution of any waiver of limitation with respect to any
Audit) relating to any such Tax Returns; provided, however, that (x) in the case
-------- -------
of any Straddle Tax Return, the preparation and filing of such Return shall be
subject to review and approval of the Seller, which approval shall not be
24
<PAGE>
unreasonably withheld, and (y) in the event that any Audit for which the
Purchaser is responsible pursuant to this Section 4.7(c) could reasonably be
expected to result in a material increase in Tax liability for which the Seller
would be liable, the Purchaser shall consult in good faith with the Seller in
respect of the specific issues that could give rise to such increased Tax
liability.
(d) After the Closing Date, each of the Acquiring Companies, the
Company and the Subsidiaries, on the one hand, and the Seller, on the other,
shall (i) provide, or cause to be provided, to each other's respective
subsidiaries, officers, employees, representatives and affiliates, such
assistance as may reasonably be requested, including making available employees
and the books and records of the Company, by any of them in connection with the
preparation of any Tax Return or any Audit of the Company in respect of which
the Purchaser, the Company or the Seller, as the case may be, is responsible
pursuant to Section 4.7(b) or (c) hereof and (ii) retain, or cause to be
retained, for so long as any such Taxable Years or Audits shall remain open for
adjustments, any records or information which may be relevant to any such Tax
Returns or Audits.
(e) Each of the Purchaser, the Company and the Seller shall promptly
inform, keep regularly apprised of the progress with respect to, and notify the
other party in writing not later than (i) ten business days after the receipt of
any notice of any Audit or (ii) fifteen business days prior to the settlement or
final determination of any Audit for which it was responsible pursuant to
Section 4.7(b) or (c) hereof which could affect the Tax liability of such other
party for any taxable year.
(f) As used in this Agreement:
(i) the term "Social Security Taxes" shall include any Taxes
imposed pursuant to the Federal Insurance Contributions Act under section 3101
et seq. of the Code.
- -- ---
(ii) the term "Tax" or "Taxes" shall include all Federal, state,
local and foreign taxes, escheat claims, assessments, and governmental charges
(whether imposed directly or through withholdings), including any interest,
penalties and additions to Tax applicable thereto;
(iii) the term "Tax Returns" shall include any Federal, state,
local and foreign tax returns, declarations, elections, statements, reports,
schedules and information returns or the refiling of any such Tax Returns
previously filed; and
(iv) the term "Audit" shall include any audit, assessment of
Taxes, reassessment of Taxes, or other examination by any taxing authority or
any judicial or administrative proceedings or appeal of such proceedings.
25
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SECTION 4.8 Tax Indemnity.
-------------
(a) The Seller and FRI-MRD shall be jointly and severally liable for,
shall pay to the appropriate Tax authorities, and shall hold the Purchaser, the
Company and the Subsidiaries harmless against, (A) all Taxes, other than Social
Security Taxes related to tip income, of the Acquired Entities that relate to
(i) the taxable periods ending before or on the Closing Date and (ii) the Pre-
Closing Period, including any liability arising because of Treasury Regulation
section 1.1502-6 or similar provision of state, local or foreign law, (B) Social
Security Taxes related to tip income and imposed on an Acquired Entity (x) as a
result of an Audit by the IRS of a particular employee of an Acquired Entity
(and not as a result of a Company or Subsidiary level Audit) that relate to the
taxable periods ending before or on the Closing Date and the Pre-Closing Period
or (y) in connection with (1) restaurant properties previously operated by an
Acquired Entity and (2) restaurant properties currently operated by an Acquired
Entity and regarding which a Social Security Tax Audit has commenced as of the
date hereof, in each such case that are not currently eligible to elect to
participate in the "tip reporting alternative commitment" ("TRAC") program and
(C) all Taxes related to the transfer and operation of the Dinnerhouse
Properties and the Closed Properties.
The Seller shall be entitled to all Tax refunds (including interest)
attributable to the taxable periods in respect of which the Seller and FRI-MRD
are so obligated to indemnify the Purchaser, the Company and the Subsidiaries.
(b) The Acquiring Companies, the Company and the Subsidiaries shall be
jointly and severally liable for, shall pay to the appropriate Tax authorities,
and shall hold the members of the Selling Group (as defined below) harmless
against (A) all Taxes of the Acquired Entities that relate to (i) the taxable
periods that begin after the Closing Date and (ii) the Post-Closing Period and
(B) all Social Security Taxes related to tip income of the Acquired Entities for
the taxable periods ending before or on the Closing Date and the Pre-Closing
Period other than Social Security Taxes related to tip income for which the
Seller and FRI-MRD are obligated to indemnify the Purchaser, the Company and the
Subsidiaries pursuant to Section 4.8(a)(B) hereof. The Acquiring Companies, the
Company, and the Subsidiaries shall be entitled to any Tax refund (including
interest) attributable to the taxable periods in respect of which the Acquiring
Companies and the Company are so obligated to indemnify the members of the
Selling Group.
(c) In the event that (i) the Acquiring Companies or the Acquired
Entities shall derive a reduction in "Income Tax" for which the Acquiring
----------
Companies and Acquired Entities are responsible pursuant to Section 4.7(c)
hereof, that is attributable to a "Carryforward Tax Credit," as such underscored
-----------------------
terms are defined in the Grace Restaurant Group Tax Procedures Agreement, dated
December 23, 1986, by and among W. R. Grace & Co. ("Grace"), The Restaurant
Enterprises Group, Inc. (subsequently renamed Family Restaurants, Inc.), and
others (the "Grace Tax Procedures Agreement"), and (ii) such reduction in Income
Tax results in an amount (the "Tax Benefit Amount") owing to Grace
26
<PAGE>
pursuant to the Grace Tax Procedures Agreement for which the Seller would be
liable, the Acquiring Companies or the Acquired Entities shall (A) provide
prompt written notice to the Seller setting forth in reasonable detail the
computation of the Tax Benefit Amount and (B) be jointly and severally liable
for, pay to Grace, and shall hold Seller, FRI-MRD, and their subsidiaries
harmless against any such Tax Benefit Amount.
(d) Seller and FRI-MRD shall be jointly and severally liable for,
shall pay to Grace, and shall hold the Purchaser, the Company, and the
Subsidiaries harmless against, any Tax Benefit Amount owing to Grace for which
the Purchaser, the Company, or the Subsidiaries would be liable pursuant to the
Grace Tax Procedures Agreement in respect of (i) any taxable period ending on or
before the Closing Date and the Pre-Closing Period, and (ii) to the extent that
such Tax Benefit Amount results from a reduction of Income Tax of FRI, FRI-MRD,
or their subsidiaries, any taxable period ending after the Closing Date, and the
Post-Closing Period.
(e) If the Closing Date does not occur prior to May 15, 1996, the
Purchaser may, at its option, direct the Seller to, or the Seller may, at its
option, properly prepare and timely submit prior to June 1, 1996, to the IRS an
application to enter into a TRAC agreement in respect of Social Security Taxes
related to tip income of the Acquired Entities.
(f) Any indemnity payment made pursuant to this Section 4.8 shall be
treated by all parties as an adjustment to the Purchase Price.
(g) The obligations of the parties to indemnify each other pursuant to
this Section 4.8 shall continue until the statutory period of limitations
(taking into account any extensions or waivers thereof) for the assessment of
Taxes, covered by this Section 4.8, has expired. Any payment due to an
indemnified party pursuant to this Section 4.8 shall be paid promptly by the
indemnifying party upon receipt of written notice.
SECTION 4.9 Financial Information.
---------------------
(a) After the Closing, upon reasonable written notice, the Purchaser
and the Seller shall furnish or cause to be furnished to each other and their
respective accountants, counsel and other representatives access, during normal
business hours, to such information (including records pertinent to the Company)
as is reasonably necessary for financial reporting and accounting matters.
(b) The Purchaser shall retain all of the books and records of the
Acquired Entities for a period of four years after the Closing Date or such
longer time as may be required by law. After the end of such period, before
disposing of such books or records, the Purchaser shall give notice to such
effect to the Seller and give the Seller an opportunity to remove and retain all
or any part of such books or records as the Seller may select.
27
<PAGE>
SECTION 4.10 Expenses. Whether or not the Closing takes place, except as
--------
otherwise provided herein, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses. Without limiting the foregoing, none of
the Acquired Entities shall be liable for any out-of-pocket costs and expenses
incurred in connection with the transactions contemplated hereby. All sales
taxes, if any, payable with respect to the transfer of the Commissary Assets
shall be paid by the Purchaser and all sales taxes, if any, payable with respect
to the transfer of the Corporate Personal Property shall be paid by the Seller.
SECTION 4.11 Insurance. The Purchaser shall secure insurance with respect
---------
to the Business from the Closing Date covering general liability (including,
without limitation, premises liability), property, and workers' compensation in
amounts customary for the industries in which the Acquired Entities operate.
SECTION 4.12 Publicity. The Seller and the Acquiring Companies agree
---------
that, prior to the Closing, no public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
written consent (which consent shall not be unreasonably withheld) of the other
party, except as such release or announcement may be required by law. The
Seller and the Acquiring Companies agree that, prior to the Closing, no
disclosure of the terms or provisions of this Agreement shall be made except to
representatives, advisors, counsel, and lenders to the parties hereto who
acknowledge the confidentiality hereof, and except as required by law.
SECTION 4.13 Certain Understandings.
----------------------
(a) The Acquiring Companies have received from the Seller certain
projections and forecasts relating to the Company. The Acquiring Companies
acknowledge that (i) there are uncertainties inherent in attempting to make such
projections and forecasts, (ii) the Acquiring Companies are familiar with such
uncertainties and are taking full responsibility for making their own evaluation
of the adequacy and accuracy of all projections and forecasts so furnished to
them and (iii) the Acquiring Companies shall not have any claim against the
Seller or its agents with respect thereto. Accordingly, the Seller makes no
representation or warranty with respect to such projections or forecasts.
(b) The Acquiring Companies acknowledge that, except as expressly set
forth herein, neither the Seller, nor any other person, have made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Company, and neither the Seller
nor any other person will be subject to any liability to the Acquiring Companies
or any other person resulting from the distribution to the Acquiring Companies,
or the use of, any such information. The Acquiring Companies acknowledge that,
should the Closing occur, the Acquiring Companies will acquire the Company's
business in an "as is" condition and on a "where is" basis, without any
28
<PAGE>
representation or warranty of any kind, express or implied, except such
representations and warranties expressly set forth herein.
(c) The Acquiring Companies acknowledge that, except as expressly set
forth herein, neither the Seller, nor any other person, has made any
representation or warranty, express or implied, as to (i) the physical condition
or state of repair of the Company's real property, the improvements constituting
a part thereof or the equipment and fixtures appurtenant thereto, (ii) the gross
or net income derived therefrom, (iii) the cost, book value or market value
thereof, (iv) the use or potential use thereof, or (v) any other matter
affecting, or relating to, such property or the operation or management thereof.
SECTION 4.14 Transfer of Properties.
----------------------
(a) The Seller shall use its reasonable best efforts to transfer the
fee or assign or sublease the lease relating to each of the restaurant
properties identified on Schedule 4.14(a) hereof, in each case together with all
fixtures thereon and all other tangible assets related thereto (the "Dinnerhouse
Properties"), from the Acquired Entities to the Seller or its designee on or
prior to the 90th day following the Closing Date. From and after the Closing,
upon the Seller's request (and without any obligation upon the Purchaser to
directly negotiate with third parties), the Purchaser shall use its reasonable
best efforts to transfer, assign or sublease to the Seller or its designee each
Dinnerhouse Property not yet so transferred, assigned or subleased, and in each
case until so transferred, assigned or subleased, each remaining Dinnerhouse
Property shall be subject to the terms and conditions of a Restaurant Services
Agreement, in the form to be mutually agreed upon (the "Restaurant Services
Agreement"). The Restaurant Services Agreement shall generally provide that the
Seller or its designee shall assume all costs, liabilities and obligations, and
be entitled to all income and benefits, arising out of or related to the
occupancy and operation of the Dinnerhouse Properties.
(b) The Seller shall use its reasonable best efforts to assign the
leases and subleases relating to each of the restaurant properties identified on
Schedule 4.14(b) hereof (the "Closed Properties") from the Acquired Entities to
Seller or its designee on or prior to the 90th day following the Closing Date.
From and after the Closing, in each case until transferred, assigned or
subleased, each remaining Closed Property shall be subject to the terms and
conditions of a Closed Restaurant Agreement, in the form to be mutually agreed
upon (the "Closed Restaurant Agreement"). The Closed Restaurant Agreement shall
generally provide that the Seller or its designee shall assume all costs,
liabilities and obligations, and be entitled to all income and benefits, arising
out of or related to the occupancy and operation of the Closed Properties.
SECTION 4.15 Transfer of Employees. As soon as reasonably practicable
---------------------
(but in any event within 28 days) after the date hereof, the parties shall, by
mutual agreement, identify (a) those employees of the Business that are not
employed by an Acquired Entity (the "Transferred Business Employees") and (b)
those employees of the Acquired Entities
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<PAGE>
that are not employees of the Business (the "Transferred Non-Business
Employees"). Prior to the Closing, the Seller, the Company and the Subsidiaries
shall (i) cause the employment of each Transferred Business Employee to be
transferred to the Company or a Subsidiary and (ii) cause the employment of each
Transferred Non-Business Employee to be transferred to the Seller or one if its
subsidiaries other than an Acquired Entity. The Seller shall assume all
obligations and liabilities of the Acquired Entities with respect to the
Transferred Non-Business Employees and their beneficiaries and dependents under
or in connection with any of the Employee Benefit Plans or the employment of the
Transferred Non-Business Employees; provided, that no provision hereof shall
--------
confer upon any Transferred Non-Business Employee any right with respect to
continuance of employment by the Seller or any of its subsidiaries, nor shall
anything herein interfere with the right of the Seller or any of its
subsidiaries to terminate the employment of any such person at any time, with or
without cause, or restrict the Seller or any of its subsidiaries in the exercise
of their independent business judgment in establishing or modifying any of the
terms and conditions of the employment of such persons..
SECTION 4.16 Termination of Agreements.
-------------------------
(a) Effective as of the Closing, other than rights or obligations
specified in, or arising out of, (i) those Contracts identified on Schedule
4.16(a), (ii) this Agreement and the Other Documents, and (iii) any other
Contract entered into pursuant hereto or thereto or in connection herewith or
therewith, all rights and obligations between the Acquired Entities, on the one
hand, and the Seller or any of its post-closing subsidiaries, on the other,
shall be terminated and of no force or effect, including (without limitation)
rights to payment accruing on or prior to the Closing Date.
(b) The parties shall negotiate in good faith with respect to a
mutually acceptable agreement pursuant to which the Acquired Entities would
continue to purchase under the distribution, supply and purchase agreements set
forth on Schedule 4.16(b) for a mutually acceptable period of time following the
Closing.
SECTION 4.17 Environmental Investigation and Indemnification.
-----------------------------------------------
(a) The Purchaser may, at its own expense, conduct Phase I
Environmental Site Assessments (the "Phase I's") of any or all of the properties
owned or leased by any of the Acquired Entities for use in connection with the
Business (the "Properties"). The Phase I's shall conform to, but may not exceed
in scope, the standards established by the American Society for Testing and
Materials (ASTM) Standard E 1527-93 for Phase I Environmental Site Assessments;
provided, however, that the Phase I's may, but need not, include (at the
- -------- -------
Purchaser's discretion and expense) bulk sampling of suspected asbestos
containing materials. The Purchaser will use its best efforts to have
preliminary drafts of all Phase I's prepared, with copies provided to the
Seller, no later than 45 days after the date hereof. Copies of all final Phase
I's and any proposals for remediation or abatement (as provided below) must be
provided to the Seller no later than 60 days after the date
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<PAGE>
hereof. If the Purchaser does not conduct or has not completed Phase I's for any
of the Properties at the end of the 60 day period, the Seller shall have no
liability or obligation to the Purchaser with respect to envi-ronmental
conditions, including any remedial or abatement activities, at the Properties
for which Phase I's were not conducted or completed.
(b) If this Agreement terminates prior to the Closing, the Purchaser
shall deliver to the Seller all originals and copies of the Phase I's and
Additional Investigations, together with all related materials, including but
not limited to reports, data, analyses, notes and findings concerning the
Properties or the Existing Conditions. The Purchaser agrees that at all times
prior to the Closing, it shall, and shall cause each of its representatives and
consultants to, keep confidential all information and documents generated in
connection with or as a result of the Phase I's or Additional Investigations,
except as otherwise required by law or court order.
(c) If the Purchaser determines that it is more likely than not that
remedial or abatement activity will be required based on existing environmental
conditions at any of the Properties, as identified in the Phase I's (the
"Existing Conditions"), the Purchaser shall provide to the Seller a cost
analysis (the "Cost Analysis") for all such remedial or abatement activity. The
Cost Analysis shall be based on an objective 51% confidence factor that the
costs of the remedial or abatement activity will not be exceeded. The Cost
Analysis shall not include any costs associated with (i) additional
environmental investigations ("Additional Investigations"), whether performed by
the Purchaser or any other person or (ii) plans to undertake any renovations at
any Property that are not directly the result of environmental conditions at
such Property that require remediation or abatement in its current, pre-Closing
state. The Seller, at its option, shall have up to 30 days to verify the
conclusions set forth in the Phase I's and the Cost Analysis. If the Seller's
conclusions differ from the Purchaser's conclusions in the Phase I's or the Cost
Analysis, the Seller, at its option, may require that any of the disputed
conclusions be independently verified by a third-party consultant (the
"Consultant"), who shall be mutually and reasonably agreeable to both the Seller
and the Purchaser. The Consultant will review only such disputed conclusions,
and shall resolve such dispute solely by choosing between the conclusion
specified by the Seller or the Purchaser in accordance with the provisions of
this Section. In its determination, the Consultant shall be entitled to rely on
all work generated by the Purchaser, the Seller and their respective
consultants. The costs of the Consultant shall be paid by the Seller. The
decision of the Consultant shall be conclusive between, and final and binding
on, the parties hereto for the purposes of resolving the disputed conclusion.
(d) The Acquiring Companies shall pay the first $1.5 million for any
remediation or abatement costs actually incurred by the Purchaser with respect
to the Existing Conditions. The Acquiring Companies, on the one hand, and the
Seller and FRI-MRD, on the other, shall share equally the next $10 million in
actual out-of-pocket remediation or abatement costs incurred with respect to the
Existing Conditions. Except as provided in clause (e) below, the Acquiring
Companies shall pay all other remediation or abatement costs with respect to the
Properties, including, without limitation, (i) costs with
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<PAGE>
respect to the Existing Conditions in excess of $11.5 million and (ii) costs
with respect to conditions at the Properties, which conditions were not
identified in the Phase I's.
(e) If the aggregate estimated remediation and abatement costs set
forth in the Cost Analysis exceed $11.5 million, the Seller and FRI-MRD may, at
their sole discretion, (i) agree to reimburse the Purchaser for such excess to
the extent the Purchaser actually incurs remediation or abatement costs with
respect to the Existing Conditions, or (ii) terminate this Agreement. If such
estimated costs exceed $15 million and the Seller and FRI-MRD agree to so
reimburse the Purchaser for such excess, the Purchaser may elect, in its sole
discretion, to terminate this Agreement if (x) based on the Cost Analysis, the
estimated cost of remedial or abatement activities relating to the Existing
Conditions at more than 10 of the Properties exceeds $500,000 at each such
Property, or (y) the total estimated costs for remediating or abating the
Existing Conditions exceed $20 million.
(f) The Seller and FRI-MRD shall be responsible only for out-of-pocket
costs to remediate or abate the Existing Conditions that are actually incurred
by the Purchaser and invoiced to the Seller; provided, that such costs shall be
--------
deemed to include the actual out-of-pocket cost of any Additional Investigations
but only to the extent such investigations are the subject of a written demand,
directive or order of any court or governmental agency. Such costs, as invoiced
by the Purchaser, shall include only actual out-of-pocket costs, and shall not
include any premium or additional charges for payment. Notwithstanding any
other provisions hereof, neither the Seller nor FRI-MRD shall have any liability
for any costs that are not either (i) actually paid by the Purchaser and
invoiced to the Seller no later than the fourth anniversary of the Closing or
(ii) actually committed to be paid by the Purchaser (with written evidence of
such commitment delivered to the Seller) no later than the fourth anniversary of
the Closing and invoiced to the Seller promptly following payment. Amounts
invoiced, unless disputed by the Seller, shall be paid within 30 days after
receipt of such invoice and any documentation requested by the Seller.
(g) Any payment made by the Seller or FRI-MRD for the Existing
Conditions shall not obligate the Seller or FRI-MRD to conduct any other testing
or remediation; nor shall any provision herein obligate the Seller or FRI-MRD
with respect to any third party or prevent the Seller, FRI-MRD or the Purchaser
from seeking reimbursement or contribution from any other party liable therefor.
(h) Except as provided in this Section 4.17, the Acquiring Companies
agree to waive and release, to the fullest extent permitted under applicable
law, each member of the Selling Group from any and all rights, claims and causes
of action that the Acquiring Companies may have against any such person with
respect to all obligations for or pertaining to environmental contamination or
conditions at or from the Properties arising under or based upon any federal,
state, local or foreign laws or regulations, or based upon common law or
otherwise, whether now or hereafter in effect. Except as provided in this
Section 4.17, the Acquiring Companies jointly and severally agree to indemnify,
reimburse,
32
<PAGE>
defend and hold harmless each member of the Selling Group for, from and against
all demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses (including, without limitation, interest,
penalties, attorneys' fees and consultants' fees, disbursements and expenses)
asserted against, resulting to, imposed on, or incurred by any such person
(whether absolute, accrued, contingent or otherwise) arising under any Federal,
state, local or foreign laws or regulations, whether now or hereafter in effect,
relating to environmental contamination or conditions at or from the Properties.
(i) Notwithstanding Article VI of this Agreement, the provisions in
this Section 4.17 shall be the exclusive remedy of the Purchaser against the
Seller or FRI-MRD with respect to any environmental matters in connection with,
relating to, resulting from, or arising out of the Properties whether as a
result of the Existing Conditions, or pertaining to or arising under any
Environmental Laws, whether now or hereafter in effect. Any indemnity payment
made pursuant to this Section 4.17 shall be treated by all parties as an
adjustment to the Purchase Price.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Obligations of the Purchaser. The
----------------------------------------------------
obligation of the Purchaser to purchase the Stock shall be subject to the
satisfaction or waiver on the Closing Date of the following conditions precedent
(which shall not be construed as covenants):
(a) HSR Act. The waiting period under the HSR Act, if applicable to
-------
the purchase and sale of the Stock, shall have expired or been terminated and
there shall have been no conditions to approval of the Acquisition set by the
Federal Trade Commission (the "FTC") that are not reasonably acceptable to the
Purchaser.
(b) No Injunctions or Restraints. No temporary restraining order or
----------------------------
preliminary or permanent injunction of any court or administrative agency of
competent jurisdiction prohibiting the purchase and sale of the Stock shall be
in effect.
(c) Consents. All consents, approvals and waivers from third parties
--------
and governmental authorities and other parties set forth on Schedule 3.1(e)
shall have been obtained, except where the failure to obtain any such consent,
approval or waiver would not have a material adverse effect on the business,
financial condition or results of operations of the Acquired Entities, taken as
a whole.
(d) Representations and Warranties. The representations and
------------------------------
warranties of the Seller set forth in this Agreement shall be true and correct
in all respects on and as of the Closing Date, as though made on and as of the
Closing Date, except (i) for any item
33
<PAGE>
that does not have a material adverse effect on the business, financial
condition or results of operations of the Acquired Entities, taken as a whole,
or (ii) as otherwise contemplated by this Agreement or any of the Other
Documents; and the Purchaser shall have received a certificate signed by an
authorized officer of the Seller to such effect.
(e) Performance of Obligations of the Seller. The Seller shall have
----------------------------------------
performed all obligations required to be performed by it under this Agreement on
or prior to the Closing Date, and the Purchaser shall have received a
certificate signed by an authorized officer of the Seller to such effect.
(f) Legal Opinion. The Purchaser shall have received an opinion of
-------------
Skadden, Arps, Slate, Meagher & Flom, special counsel to the Seller, dated the
Closing Date, substantially in the form of Exhibit A.
(g) Certified Resolutions; Good Standing Certificates. The Seller
-------------------------------------------------
shall have delivered to the Purchaser (i) certified copies of resolutions of its
Board of Directors authorizing the execution, delivery and performance of this
Agreement and each Other Document to which it or the Acquired Entities is a
party and (ii) a certified charter and a certificate of good standing of the
Secretary of State of the state in which each of the Seller and the Acquired
Entities is organized.
(h) Release of Credit Agreement. The Purchaser shall have received
---------------------------
evidence, in form and substance reasonably satisfactory to the Purchaser, that
each of the Acquired Entities shall have been discharged from all liabilities
and obligations under the Credit Agreement dated as of January 27, 1994, among
FRI-M, as borrower, the Guarantors named therein, the Banks named therein, and
Credit Lyonnais New York Branch, as Agent, Collateral Agent (the "Credit
Agreement").
(i) The Seller shall have executed and delivered, and/or shall have
caused to be executed and delivered, to the Purchaser, as licensee, non-
exclusive licenses (in form and substance reasonably satisfactory to the
Purchaser and the Seller) to all non-mainframe software used to manage the
Business on the Closing Date, that is either (1) owned by the Seller or any of
its subsidiaries or (2) licensed by the Seller or any of its subsidiaries,
provided, that (i) in each case, such license to the Purchaser does not violate
- --------
the terms of any Contract pursuant to which such software was purchased or
licensed and (ii) in the case of clause (2) above, such licenses to the
Purchaser will terminate upon expiration of the Seller's obligation to provide
services under the Transition Services Agreement.
SECTION 5.2 Conditions Precedent to the Obligations of the Seller. The
-----------------------------------------------------
obligation of the Seller to sell, assign, transfer, convey and deliver the Stock
is subject to the satisfaction or waiver on the Closing Date of each of the
following conditions precedent (which shall not be construed as covenants):
34
<PAGE>
(a) HSR Act. The waiting period under the HSR Act, if applicable to
-------
the purchase and sale of the Stock, shall have expired or been terminated and
there shall have been no conditions to approval of the Acquisition set by the
FTC that are not reasonably acceptable to the Seller.
(b) No Injunctions or Restraints. No temporary restraining order or
----------------------------
preliminary or permanent injunction of any court or administrative agency of
competent jurisdiction prohibiting the purchase and sale of the Stock or the
issuance of the Notes shall be in effect.
(c) Consents. All consents, approvals and waivers from third parties
--------
and governmental authorities and other parties set forth on Schedule 3.1(e)
shall have been obtained, except where the failure to obtain any such consent,
approval or waiver would not have a material adverse effect on the business,
financial condition or results of operations of the Purchaser or of the Acquired
Entities, taken as a whole.
(d) Representations and Warranties. The representations and
------------------------------
warranties of the Acquiring Companies set forth in this Agreement shall be true
and correct in all respects on and as of the Closing Date, as though made on and
as of the Closing Date, except (i) for any item that does not have a material
adverse effect on the business, financial condition or results of operations of
the Acquired Entities, taken as a whole, or (ii) as otherwise contemplated by
this Agreement or any of the Other Documents; and the Seller shall have received
a certificate signed by an authorized officer of each of the Acquiring Companies
to such effect.
(e) Performance of Obligations of the Purchaser. The Purchaser shall
-------------------------------------------
have performed all obligations required to be performed by it under this
Agreement on or prior to the Closing Date, and the Seller shall have received a
certificate signed by an authorized officer of each of the Acquiring Companies
to such effect.
(f) Legal Opinion. The Seller shall have received an opinion of
-------------
Latham & Watkins, special counsel to the Purchaser, dated the Closing Date,
substantially in the form of Exhibit B.
(g) Financing Documents. The Seller shall be satisfied with the form
-------------------
and substance of each document to be executed by any of the Acquiring Companies
in connection with its financing of the transactions contemplated hereby.
(h) Certified Resolutions; Good Standing Certificates. The Acquiring
-------------------------------------------------
Companies shall have delivered to the Seller (i) certified copies of resolutions
of each of its Board of Directors authorizing the execution, delivery and
performance of this Agreement and each Other Document to which any of the
Acquiring Companies is a party and (ii) a certified charter and certificate of
good standing of the Secretary of State of the state in which each of the
Acquiring Companies is organized.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Indemnification by the Seller. Subject to the terms and
-----------------------------
conditions of this Article VI, the Seller and FRI-MRD shall jointly and
severally indemnify and hold harmless the Purchaser and its affiliates
(collectively, the "Purchaser Group") from and against any and all losses,
claims, costs, damages, liabilities, interest, penalties and expenses
(including, except as provided in Section 6.4 below, reasonable attorneys' fees)
(collectively, "Losses") incurred by any of them, to the extent such Losses are
related to, or arise from:
(a) any breach by the Seller of any of its covenants to be performed
prior to the Closing, representations or warranties contained herein or in any
of the Other Documents;
(b) any breach by the Seller of any of its covenants to be performed
from and after the Closing contained herein or in any of the Other Documents;
(c) the Dinnerhouse Properties (including in connection with the
operation thereof prior to the Closing Date) or the Closed Properties; or
(d) liabilities of the Seller, FRI-MRD or FRI-Admin that are not being
acquired by the Acquiring Companies hereunder and liabilities of Far West
Concepts, Inc. and its predecessors (other than liabilities relating to or
arising out of the Business or the ownership of or obligations to any Acquired
Entity).
Notwithstanding the foregoing, (i) neither the Seller nor FRI-MRD
shall be required to indemnify members of the Purchaser Group under clause (a)
above unless and until the aggregate amount of such Losses exceeds $1,000,000,
at which point the Seller and FRI-MRD shall be obligated to indemnify members of
the Purchaser Group with respect to Losses incurred or suffered by them
thereafter and (ii) the maximum aggregate amount required to be paid by the
Seller and FRI-MRD under such clause shall not exceed $17.5 million; provided,
--------
that to the extent (but only to the extent) such indemnification obligation
relates to Losses that arise from a breach of the representations and warranties
contained in Sections 3.1(a), (b) or (d), the maximum aggregate amount required
to be paid by the Seller and FRI-MRD under such clause shall not exceed the
Purchase Price.
The indemnification provided for in Section 6.1(a) shall terminate 12
months after the Closing Date (and no claims shall be made by any member of the
Purchaser Group thereafter), except that:
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<PAGE>
(1) the indemnification obligation with respect to the
representations and warranties set forth in Section 3.1(n) shall survive for a
period of five years following the Closing Date;
(2) the indemnification obligation with respect to the
representations and warranties set forth in Sections 3.1(a), (b) and (d) shall
survive for a period of three years following the Closing Date;
(3) the indemnification obligation with respect to the
representations and warranties set forth in Section 3.1(g) shall survive for a
period of 18 months following the Closing Date; and
(4) the indemnification obligation with respect to the
representations and warranties set forth in Sections 3.1(m) and (r) shall not
survive the Closing Date.
SECTION 6.2 Indemnification by Parent, Flagstar and the Purchaser.
-----------------------------------------------------
Subject to the terms and conditions of this Article VI, Parent, Flagstar and the
Purchaser shall, jointly and severally, indemnify and hold harmless the Seller
and each of its affiliates (collectively, the "Selling Group") from and against
any and all Losses incurred by any of them, to the extent such Losses are
related to, or arise from:
(a) any breach by any Acquiring Company of any of its covenants to be
performed prior to the Closing, representatives or warranties contained in this
Agreement or any of the Other Documents;
(b) any breach by any Acquiring Company of any of its covenants to be
performed from and after the Closing contained herein or in any of the Other
Documents; or
(c) any Assumed Liability, any liability accrued on the Closing
Balance Sheet, or the ownership or operation of the Business from and after the
Closing.
The indemnification provided for in Section 6.2(a) shall terminate 12
months after the Closing Date (and no claims shall be made by any member of the
Selling Group thereafter), except that:
(1) the indemnification obligation with respect to the
representations and warranties set forth in Sections 3.2(a) and (b) shall
survive for a period of three years following the Closing Date; and
(2) the indemnification obligation of the Acquiring Companies with
respect to the representations and warranties set forth in Section 3.2(h ) shall
survive for a period of 18 months following the Closing Date.
37
<PAGE>
SECTION 6.3 Claims for Indemnity. Whenever a claim shall arise for which
--------------------
any person (an "Indemnitee") shall be entitled to indemnification pursuant to
Sections 4.8 or 4.17 or this Article VI, the Indemnitee shall notify the
Purchaser or the Seller, as the case may be, in writing, within 30 days of the
first receipt of notice of, or to the best of Indemnitee's knowledge of, such
claim, and in any event within such shorter period as may be necessary for the
party obligated to provide indemnification hereunder (an "Indemnitor") to take
appropriate action to resist such claim, provided that the failure of an
--------
Indemnitee to give timely notice shall not affect its right to indemnification
hereunder except to the extent that the Indemnitor demonstrates actual prejudice
caused by such failure (it being understood that this proviso does not modify or
otherwise affect the time periods specified in Section 6.1). Such notice shall
specify all facts known to the Indemnitee giving rise to such indemnity rights,
estimate the amount of the liability arising therefrom, include the method of
computation of such amount and a reference to the provision of this Agreement
upon which such claim is based.
After the giving of any notice pursuant hereto, the amount of
indemnification to which an Indemnitee shall be entitled shall be determined:
(a) by written agreement between such Indemnitee and the Indemnitor or (b) by a
final judgment or decree of any court of competent jurisdiction. The judgment
or decree of a court shall be deemed final when the time for appeal, if any,
shall have expired and no appeal shall have been taken or when all appeals taken
shall have been finally determined. The Indemnitee shall have the burden of
proof in establishing the amount of Losses suffered by it. In calculating the
amount of any Loss, there shall be taken into account (i) the amount of any Tax
benefit realized by the Indemnitee (or any of its affiliates) with respect to
such Loss, regardless of whether any such person is actually a taxpayer,
determined on the basis of an assumed rate of Tax of 40%, which Tax benefit
amount shall be subject to subsequent adjustment resulting from any Audit and
(ii) all amounts recovered or recoverable by the Indemnitee and its affiliates
under insurance policies with respect to such Loss. In addition, in calculating
any Loss incurred by the Purchaser or any of its affiliates, there shall be
deducted any Loss to the extent it has been accrued on the Closing Balance Sheet
(or otherwise reduced the Adjusted Closing Tangible NAV).
SECTION 6.4 Third Person Claims. The Indemnitor shall have the right to
-------------------
conduct and control, through counsel of its choosing, the defense, compromise or
settlement of any third person claim, action, suit or proceeding as to which
indemnification may be sought by any Indemnitee hereunder and each Indemnitee
shall cooperate in connection therewith and shall furnish such records,
information and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by the Indemnitor in
connection therewith; provided, however, that the Indemnitee may participate,
-------- -------
through counsel chosen by it and at its own expense, in the defense of any such
claim, action, suit or proceeding as to which the Indemnitor has so elected to
conduct and control the defense thereof. If the Indemnitor does not so conduct
the defense, compromise or settlement of such claim, action, suit or proceeding,
the Indemnitee may assume the defense thereof at the expense of such Indemnitor;
provided, that the Indemnitor shall be
- --------
38
<PAGE>
responsible for the reasonable fees and expenses of only one counsel (together
with appropriate local counsel) for all Indemnitees. Notwithstanding the
foregoing, (i) the Indemnitee shall have the right to pay, settle or compromise
any such claim, action or suit without the consent of Indemnitor if Indemnitee
shall waive any right to indemnity therefor and (ii) the Indemnitor shall not
enter into any settlement or compromise of any claim, action, suit or
proceeding, or the consent to the entry of any judgment that does not include as
an unconditional term thereof the delivery by the claimant or plaintiff to
Indemnitee of a written release from all liability in respect of such claim,
action, suit or proceeding.
Any amounts paid by the Seller or FRI-MRD as Indemnitor in respect of
such defense, compromise or settlement shall be deemed to be amounts paid
pursuant to Section 6.1 (whether or not any breach of a covenant or
representation, failure to perform an obligation or inaccuracy of a
representation, as the case may be, has occurred or exists), it being understood
that nothing in this Section 6.4 shall affect, or otherwise deny Indemnitor of
the benefit of, the terms of the limitation on the total amount of
indemnification required to be paid in respect of certain Losses.
SECTION 6.5 Exclusive Remedy. Except for (a) remedies that cannot be
----------------
waived as a matter of law, (b) injunctive and provisional relief, (c)
obligations with respect to the Indenture, the Notes and the Registration Rights
Agreement, (d) indemnification for Taxes pursuant to Section 4.8 and (e)
indemnification for environmental matters at or relating to the Properties
pursuant to Section 4.17, if the Closing occurs, this Article VI shall be the
exclusive remedy for breach of this Agreement (including any covenant,
obligation, representation or warranty contained in this Agreement) or any
certificate delivered pursuant to this Agreement or otherwise in respect of the
Acquisition. Notwithstanding any other provision hereof, Section 4.8 shall be
the exclusive remedy of the Purchaser and its affiliates for Losses arising out
of or relating to Taxes and Section 4.17 shall be the exclusive remedy of the
Purchaser and its affiliates for Losses arising out of or relating to
environmental matters at or relating to the Properties.
SECTION 6.6 Restricted Notes.
----------------
(a) Immediately following the Closing, $6.5 million aggregate
principal amount of Notes shall be designated as restricted Notes (the
"Restricted Notes"), and so long as the restrictions on transfer contained in
Section 6.6(b) apply with respect thereto, the Restricted Notes shall bear the
following legend:
This Note is issued pursuant to the terms of a Stock Purchase
Agreement dated as of March 1, 1996 by and among the Payee, Flagstar
Companies, Inc., Flagstar Corporation and the Payor, and is subject to
reduction of the principal amount under certain circumstances and
restrictions on transfer set forth therein.
39
<PAGE>
(b) The Seller shall not sell or otherwise dispose of the Restricted
Notes prior to the 48 month anniversary of the Closing Date.; provided, however,
-------- -------
that on and after the 18 month anniversary of the Closing Date, such restriction
on transfer shall only apply to the lesser of (A) $3.25 million aggregate
principal amount of Restricted Notes and (B) the principal amount of Restricted
Notes still outstanding after giving effect to the provisions of Section 6.6(c).
The foregoing restriction on transfer shall not apply to any pledge,
hypothecation or encumbrance of Restricted Notes to secure a bona fide loan so
long as the lender acknowledges the restriction on transfer and potential
reduction of principal amount and agrees not to effect any transfer of the
Restricted Notes including following foreclosure. Any interest paid on the
Notes, whether in cash or additional Notes, will not be subject to the
restrictions contained in this Section 6.6.
(c) If any member of the Purchaser Group is entitled to
indemnification with respect to any Loss pursuant to Sections 4.8 or 4.17 hereof
or this Article VI, such indemnification obligation shall be satisfied (i)
initially by delivery by the Seller of an aggregate principal amount of the
Restricted Notes, which together with accrued but unpaid interest thereon, is
equal to the amount of such indemnification obligation (determined in accordance
with the provisions of this Agreement and rounded to the nearest $1,000) and
(ii) thereafter, at the Seller's option, either in cash or by delivery by the
Seller of an aggregate principal amount of the Notes, which together with
accrued but unpaid interest thereon, is equal to the amount of such
indemnification obligation (determined in accordance with the provisions of this
Agreement and rounded to the nearest $1,000).
ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.1 Termination. This Agreement may be terminated and the
-----------
Acquisition may be abandoned at any time prior to the Closing:
(a) by mutual written consent of the Seller and the Acquiring
Companies;
(b) by either the Seller or by the Acquiring Companies, by written
notice to the other party or parties, if there has been a breach of any of such
other party's or parties' covenants, representations or warranties or if there
has been a failure on a scheduled Closing Date of satisfaction of any of the
conditions to the obligations of the terminating party or parties that, in any
such case has not been cured within 20 days after written notice thereof by the
terminating party to the other party; provided, that the Acquiring Companies may
--------
not so terminate this Agreement unless such breach would result in a material
adverse effect on the business, financial condition or results of operations of
the Acquired Entities, taken as a whole;
40
<PAGE>
(c) by either the Seller or by the Acquiring Companies, by written
notice to the other party or parties, if the Acquisition has not been
consummated by June 30, 1996 (or such later date as is agreed to by the Seller
and the Acquiring Companies), and such failure to consummate is not caused by a
breach of this Agreement (or any covenant representation, or warranty included
herein) by the party or parties electing to terminate pursuant to this clause
(c);
(d) by either the Seller or by the Acquiring Companies, by written
notice to the other party or parties, if, there shall be any law or regulation
that makes consummation of the Acquisition illegal or otherwise prohibited or if
any judgment, injunction, order or decree enjoining Seller or the Acquiring
Companies from consummating the Acquisition is entered and such judgment,
injunction, order or decree shall become final and nonappealable;
(e) by either the Seller or the Acquiring Companies, by written notice
to the other party or parties, if the identification of the Transferred Business
Employees and the Transferred Non-Business Employees or the form of any of the
Other Documents is not agreed upon prior to 28 days following the date hereof;
or
(f) by the Seller, by written notice to the Acquiring Companies, if
any of the Acquiring Companies shall fail to approve any proposed supplement or
amendment to the Schedules made by the Seller pursuant to Section 8.3.
SECTION 7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement in accordance with Section 7.1, this Agreement shall forthwith become
void and have no effect, except (a) to the extent that such termination results
from the breach by a party hereto of its obligations hereunder (in which case
such breaching party shall be liable for all damages allowable at law and any
relief available at equity), (b) as otherwise set forth in any written
termination agreement, and (c) that Sections 4.3(b), 4.10, 4.12, 4.17(b) and 7.2
shall survive termination of this Agreement.
SECTION 7.3 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by the party against whom enforcement of any such
amendment is sought. Any party hereto may, only by an instrument in writing,
waive compliance by any other party hereto with any term or provision of this
Agreement on the part of such other party hereto to be performed or complied
with. The waiver by any party hereto of a breach of any term or provision of
this Agreement shall not be construed as a waiver of any subsequent breach.
41
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given (i) when delivered personally or by
documented overnight courier or (ii) upon return of the receipt after being
mailed by registered or certified mail (return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to the Acquiring Companies, to
Mr. C. R. Campbell, Executive Vice President
Flagstar Corporation, Mail Station P-16-5
203 East Main Street
Spartanburg, South Carolina 29319
with a copy to:
Mr. Timothy E. Flemming
Flagstar Corporation, Mail Station P-12-3
203 East Main Street
Spartanburg, South Carolina 29319
and to:
Randall C. Bassett, Esq.
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
(b) if to Seller, to
Family Restaurants, Inc.
18831 Von Karman Avenue
Irvine, California 92715
Attention: Todd E. Doyle, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Michael A. Woronoff, Esq.
42
<PAGE>
SECTION 8.2 Interpretation. When a reference is made in this Agreement to
--------------
a Section, Schedule or Exhibit, such reference shall be to a Section, Schedule
or Exhibit of this Agreement unless otherwise indicated. The table of contents,
table of definitions and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. When the words "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." When any representation or warranty in Section 3.1 is made to the
knowledge of the Seller, such term shall mean only the actual knowledge of the
Seller's executive officers and the executive officers of the Acquired Entities,
and the knowledge of no other person shall be imputed to any such executive
officer or to the Seller. All accounting terms not defined in this Agreement
shall have the meanings determined by GAAP as of the date hereof. All
capitalized terms defined herein are equally applicable to both the singular and
plural forms of such terms.
SECTION 8.3 Supplements to Disclosure Schedules. From time to time prior
-----------------------------------
to five days before the Closing Date, the Seller may provide to the Acquiring
Companies proposed supplements or amendments to the Schedules with respect to
any material matter that is required to be set forth or described thereon.
Unless objected to in writing within 10 days after the date when the Acquiring
Companies receive the proposed supplement or amendment (or, if such supplement
or amendment is received by the Acquiring Companies less than ten days prior to
the Closing Date, then at least one day prior to the Closing Date), the
Acquiring Companies shall be deemed to have approved the proposed change.
SECTION 8.4 Severability. If any provision of this Agreement or the
------------
application of any such provision shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof. In lieu of any such invalid, illegal or unenforceable provision, the
parties hereto intend that there shall be added as part of this Agreement a
provision as similar in terms to such invalid, illegal or unenforceable
provision as may be possible and be valid, legal and enforceable.
SECTION 8.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6 Entire Agreement. This Agreement (including agreements
----------------
incorporated herein) and the Schedules and Exhibits hereto constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof.
SECTION 8.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, regardless of
the laws that might be applied under applicable principles of conflicts of laws.
43
<PAGE>
SECTION 8.8 Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of the parties hereto and their respective successors and assigns.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned or delegated by any of the parties hereto without the prior
written consent of the other parties.
SECTION 8.9 No Third-Party Beneficiaries. Nothing herein expressed or
----------------------------
implied shall be construed to give any person other than the parties hereto (and
entities which are their successors and assigns permitted by Section 8.8) and
the Indemnitees any legal or equitable rights hereunder.
44
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of the
Seller and the Acquiring Companies, all as of the date first written above.
FAMILY RESTAURANTS, INC.
By: /s/ Kevin S. Relyea
----------------------------------------------------
Name: Kevin S. Relyea
Title: Chief Executive Officer and President
FLAGSTAR COMPANIES, INC.
By: /s/ C. Robert Campbell
----------------------------------------------------
Name: C. Robert Campbell
Title: Vice President and Chief Financial Officer
FLAGSTAR CORPORATION
By: /s/ C. Robert Campbell
----------------------------------------------------
Name: C. Robert Campbell
Title: Executive Vice President and
Chief Financial Officer
FRD ACQUISITION CO.
By: /s/ C. Robert Campbell
----------------------------------------------------
Name: C. Robert Campbell
Title: Vice President
Accepted and Agreed,
solely for purposes of
Sections 4.8, 4.17 and
Article VI hereof:
FRI-MRD Corporation
By: /s/ Kevin S. Relyea
--------------------------
Name: Kevin S. Relyea
Title: Chief Executive Officer
45
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of May __, 1996, by and between FRD Acquisition Co., a Delaware
corporation (the "Company"), and Family Restaurants, Inc., a Delaware
corporation ("FRI").
This Agreement is made pursuant to the Stock Purchase Agreement, dated
as of March 1, 1996, among FRI, Flagstar Companies, Inc., a Delaware
corporation, Flagstar Corporation, a Delaware corporation, and the Company (the
"Purchase Agreement"). In order to induce FRI to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights for the
Registrable Securities (as hereinafter defined) on the terms set forth in this
Agreement.
The parties hereby agree as follows:
SECTION 1. Definitions.
-----------
Capitalized terms used herein without definition shall have their
respective meanings as set forth in the Indenture (as hereinafter defined). In
addition, as used in this Agreement, the following terms shall have the
following meanings:
Advice: See the last paragraph in Section 4.
------
Affiliate: With respect to any specified person, any other person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
-------
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
----------- ----------
foregoing.
Effectiveness Date: The date that is 105 days after the Issue
------------------
Date.
Effectiveness Period: See Section 2(a).
--------------------
Event Date: See Section 2(b).
----------
Filing Date: The date that is 45 days after the Issue Date.
-----------
<PAGE>
Indenture: The Indenture, dated as of May __, 1996, between the
---------
Company and The Bank of New York, as trustee, pursuant to which the Senior Notes
are being issued, as amended or supplemented from time to time in accordance
with the terms thereof.
Liquidated Damages: See Section 2(b).
------------------
Losses: See Section 7.
------
Proceeding: An action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: The Senior Notes upon original issuance
----------------------
thereof, and at all times subsequent thereto, until in the case of any such
Senior Note, (i) a Registration Statement covering such Senior Note has been
declared effective by the SEC and such Senior Note has been disposed of in
accordance with such effective Registration Statement, or (ii) it is sold in
compliance with Rule 144.
Registration Default: See Section 2(b).
--------------------
Registration Statement: Any registration statement of the Company
----------------------
that covers Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
2
<PAGE>
Rule 144: Rule 144 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
---------
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Rule 415: Rule 415 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Senior Notes: The 12.50% Senior Notes due 2004 of the Company issued
------------
under the Indenture.
Shelf Registration: See Section 2(a).
------------------
Special Counsel: Any firm acting as special counsel to the holders of
---------------
Registrable Securities.
Trustee: The trustee under the Indenture.
-------
underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. Shelf Registration.
------------------
(a) The Company shall prepare and file with the SEC, as promptly as
practicable after the Closing Date but in no event later than the Filing Date, a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Registrable Securities (the "Shelf
Registration"). The Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Securities for
resale by such holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Company shall not
permit any securities other than the Registrable Securities to be included in
the Shelf Registration. The Company shall use its best efforts to (i) cause the
Shelf Registration to be declared effective under the Securities Act on or prior
to the Effectiveness Date and (ii) keep the Shelf Registration continuously
effective under the Securities Act for a period (the
3
<PAGE>
"Effectiveness Period") of the shorter of (A) 36 months from the Issue Date and
(B) such shorter period that will terminate when all Registrable Securities
covered by the Shelf Registration have been disposed of in accordance with the
Shelf Registration. If the Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period the Company shall use its
best effort to obtain the withdrawal of any order suspending the effectiveness
thereof at the earliest possible moment, and if necessary, to file additional
Shelf Registrations covering all of the Registrable Securities. The Company
shall supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used by the
Company, if required by the Securities Act, or if requested by the holders of a
majority in principal amount of the Registrable Securities covered by such
Registration Statement or by any underwriter of such Registrable Securities.
(b) The parties hereto agree that the holders of Registrable
Securities will suffer damages if the Company fails to fulfill its obligations
under this Section 2 and that it would not be feasible to ascertain the extent
of such damages with precision. Accordingly, if (i) a Registration Statement
relating to the Shelf Registration is not filed with the SEC on or prior to the
Filing Date, (ii) after being so filed, the Shelf Registration is not declared
effective by the SEC on or prior to the Effectiveness Date or (iii) the Shelf
Registration is declared effective by the SEC, but thereafter ceases to be
effective or usable during the Effectiveness Period (the Filing Date in the case
of clause (i), the Effectiveness Date in the case of clause (ii) and the date on
which the Shelf Registration ceases to be effective or usable in the case of
clause (iii), each being referred to herein as an "Event Date," and each such
event referred to in clauses (i) through (iii), a "Registration Default"), then
the Company will pay as liquidated damages to each holder of Registrable
Securities an amount (the "Liquidated Damages") equal to (A) for the 90-day
period beginning on an Event Date, $.05 per week per $1,000 principal amount of
such Registrable Securities, and (B) for each subsequent 90-day period, the
Liquidated Damages for the prior 90-day period increased by an additional $.05
per week per $1,000 principal amount of such Registrable Securities; provided,
--------
however, that the Liquidated Damages will, in each case, cease to accrue on the
- -------
date on which (x) a Registration Statement relating to the Shelf Registration is
filed, with respect to Liquidated Damages payable pursuant to clause (i) above
for failure to file by the Filing Date; (y) the Shelf Registration is declared
effective, with respect to the Liquidated Damages payable pursuant to clause
(ii) above for failure to be declared effective by the Effectiveness Date; or
(z) the Shelf Registration is no longer subject to an order suspending the
effectiveness thereof or a new subsequent Shelf Registration is declared
effective, with respect to Liquidated Damages payable pursuant to
4
<PAGE>
clause (iii) above for the failure to remain effective or usable during the
Effectiveness Period.
(c) The Company shall notify the Trustee within one Business Day
after each and every Event Date. The Company shall pay the Liquidated Damages
due on the Registrable Securities by depositing with the Trustee, in trust, for
the benefit of the holders thereof, on or before the applicable semi-annual
interest payment date, immediately available funds in sums sufficient to pay the
Liquidated Damages then due or additional Senior Notes if interest on the Senior
Notes is then payable in additional Senior Notes. The Liquidated Damages due
shall be payable on each interest payment date to the record holder of
Registrable Securities entitled to receive the interest payment to be made on
such date as set forth in the Indenture. Each obligation to pay the Liquidated
Damages shall be deemed to accrue on the applicable Event Date. The parties
hereto agree that the Liquidated Damages provided for in Section 2(b) constitute
a reasonable estimate of the damages that may be incurred by holders of
Registrable Securities by reason of a Registration Default.
SECTION 3. Hold-Back Agreements.
--------------------
The Company shall not effect any (i) registration of its debt
securities or (ii) public or private sale or distribution of any of its debt
securities, whether on its own behalf or at the request of any holder or holders
of such securities (other than pursuant to and in accordance with this
Agreement), from the date hereof until the earlier of (A) 90 days after the date
on which all securities covered by the Shelf Registration have been sold or (B)
180 days after the effective date of the Shelf Registration, unless the Company
shall have first notified in writing the holders of Registrable Securities
covered by such Registration Statement of its intention to do so, and the
holders of a majority in aggregate principal amount of Registrable Securities to
be included in such Registration Statement or the managing underwriter, if any,
shall have consented thereto in writing. The Company further agrees to cause
each holder of its debt securities issued at any time on or after the date of
this Agreement (other than securities purchased in a registered public offering)
to agree to the extent permitted by law not to effect any public sale or
distribution of any such securities during such period, including a sale
pursuant to Rule 144 or Rule 144A.
SECTION 4. Registration Procedures.
-----------------------
In connection with the registration of any Registrable Securities
pursuant to Section 2 hereof, the Company shall effect such registrations to
permit the sale of such Registrable Securities in accordance with the intended
method or
5
<PAGE>
methods of disposition thereof as specified by the holders thereof, and pursuant
thereto the Company shall, as expeditiously as possible:
(a) Prepare and file with the SEC, as soon as practicable after the
date hereof but in any event prior to the Filing Date, a Registration Statement
or Registration Statements as prescribed by Section 2, and to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that before filing any Registration Statement or
-------- -------
Prospectus or any amendments or supplements thereto (including documents that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall furnish to and afford the holders of the Registrable Securities
covered by such Registration Statement, the Special Counsel and the managing
underwriters, if any, copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed, which documents will be subject to the review of such
holders, the Special Counsel and such underwriters, and the Company shall not
file any Registration Statement or Prospectus or any amendments or supplements
thereto (including documents that would be incorporated or deemed to be
incorporated therein by reference) to which the holders of a majority in
aggregate principal amount of the Registrable Securities covered by such
Registration Statement, their Special Counsel or the managing underwriters, if
any, shall reasonably object, in writing, on a timely basis.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period;
cause the related Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented in accordance with the intended
method or methods of disposition specified by the holders thereof.
(c) Notify the selling holders of Registrable Securities, the Special
Counsel and the managing underwriters, if any, promptly (but in any event within
3 Business Days), and confirm such notice in writing, (i) when a Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective (including in such notice a written statement that any
holder may, upon request, obtain, without charge, one conformed copy of such
Registration
6
<PAGE>
Statement or post-effective amendment including financial statements and
schedules, documents incorporated or deemed to be incorporated by reference and
exhibits), (ii) of any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information, (iii) of the issuance by
the SEC or any other Federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the initiation
of any proceedings for that purpose, (iv) if at any time the representations and
warranties of the Company contained in any agreement contemplated by Section
4(o) (including, without limitation, any underwriting agreement) below cease to
be true and correct, (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of a Registration Statement or any of the Registrable Securities for offer or
sale in any jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (vi) of the happening of any event that makes any statement made
in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in such Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, not misleading, and that in the case of the Prospectus,
it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (vii) of the Company's reasonable determination that a post-
effective amendment to a Registration Statement would be appropriate.
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, and, if any such order is issued, use its best efforts to
obtain the withdrawal of any such order at the earliest possible moment.
(e) If requested by the managing underwriters, if any, or the holders
of a majority in aggregate principal amount of the Registrable Securities, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment such
information relating to the underwriters, any holder of Registrable Securities
or the plan of distribution of Registrable Securities as the managing
underwriters, if any,
7
<PAGE>
or such holders reasonably request to be included therein, (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment pursuant to clause (i), and (iii) supplement or make amendments to
such Registration Statement as required in connection with any request made
pursuant to clause (i).
(f) Furnish to each selling holder of Registrable Securities who so
requests and to Special Counsel and each managing underwriter, if any, without
charge, one conformed copy of the Registration Statement or Statements and each
post-effective amendment thereto, including financial statements and schedules,
all documents incorporated or deemed to be incorporated therein by reference and
all exhibits (including those previously furnished or incorporated by reference)
at the earliest practicable time under the circumstances before the filing of
such documents with the SEC.
(g) Deliver to each selling holder of Registrable Securities, their
Special Counsel and the underwriters, if any, without charge, as many copies of
the applicable Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may reasonably request;
and the Company hereby consents to the use of such Prospectus and each amendment
or supplement thereto by each of the selling holders of Registrable Securities
(and the underwriters or agents, if any) in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any amendment
or supplement thereto;
(h) Prior to any public offering of Registrable Securities, register
or qualify, and to cooperate with the selling holders of Registrable Securities,
the underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling holder or the managing underwriters reasonably request; where
Registrable Securities are offered other than through an underwritten offering,
cause its counsel to perform Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section 4(h); and keep each
such registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided,
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8
<PAGE>
however, in no case shall the Company be required to submit to jurisdiction of
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or qualify to do business in any such jurisdiction where it is not already so
subject.
(i) Cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company ("DTC"); and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriters, if any, or holders may reasonably request at least
two Business Days prior to any sale of Registrable Securities in a firm
commitment underwritten public offering, or at least five Business Days prior to
any other such sale.
(j) Cause the Registrable Securities covered by the Registration
Statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable the seller or sellers thereof or
the underwriters, if any, to consummate the disposition of such Registrable
Securities, except as may be required solely as a consequence of the nature of
such selling holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals.
(k) Upon the occurrence of any event contemplated by section 4(c)(v)
or 4(c)(vi) above, as promptly as practicable prepare a supplement or post-
effective amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities being sold thereunder, such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(l) Use its best efforts to cause the Registrable Securities to be
rated by the appropriate rating agencies, if so requested by the holders of a
majority in aggregate principal amount of Registrable Securities covered by such
Registration Statement or the managing underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Securities, (i) provide the Trustee with printed
certificates
9
<PAGE>
for the Registrable Securities in a form eligible for deposit with DTC and (ii)
provide a CUSIP number for the Registrable Securities;
(n) Cause all Registrable Securities covered by such Registration
Statement to be (i) listed on each securities exchange, if any, on which similar
securities issued by the Company are then listed, or (ii) authorized to be
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or the National Market System of NASDAQ if similar securities
of the Company are so authorized, in each case if so requested by the holders of
a majority in aggregate principal amount of Registrable Securities covered by
such Registration Statement or the managing underwriters, if any.
(o) Enter into such agreements (including, in the event of an
underwritten offering, an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other actions in
connection therewith (including those requested by the managing underwriters, if
any, or the holders of a majority in aggregate principal amount of the
Registrable Securities being sold) in order to expedite or facilitate the
registration or the disposition of such Registrable Securities in accordance
with the intended method or methods of distribution, and in such connection,
whether or not an underwriting agreement is entered into and whether or not the
registration is an underwritten registration:
(i) make such representations and warranties to the holders of
such Registrable Securities and the underwriters, if any, with respect to the
business of the Company and its subsidiaries, and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, in form, scope and substance as are customarily
made by issuers to underwriters in underwritten offerings, and confirm the same
if and when requested;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the Special Counsel),
addressed to each selling holder of Registrable Securities and each of the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters;
(iii) obtain "cold comfort" letters and updates thereof (which
letters and updates (in form, scope and substance) shall be reasonably
satisfactory to the holders of such Registrable Securities and the managing
underwriters, if any)
10
<PAGE>
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants), addressed to
each selling holder of Registrable Securities and each of the underwriters, if
any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings; and
(iv) deliver such documents and certificates as may be requested
by the holders of a majority in aggregate principal amount of the Registrable
Securities being sold, the Special Counsel and the managing underwriters, if
any, to evidence the continued validity of the representations and warranties of
the Company and its subsidiaries made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
If an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set forth
in Section 6 hereof (or such other provisions and procedures acceptable to
holders of a majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement and the managing underwriters or agents)
with respect to all parties to be indemnified pursuant to said Section.
(p) Make available for inspection by any selling holder of such
Registrable Securities being sold, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney or accountant
retained by any such selling holder or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the officers, directors and employees of the Company
and its subsidiaries to supply all information in each case reasonably requested
by any such Inspector in connection with such Registration Statement; provided,
--------
however, that any Records that the Company determines, in good faith, to be, and
- -------
that it notifies the Inspectors in writing are, confidential shall not be
disclosed by the Inspectors unless (i) such Records are in the public domain or
otherwise publicly available, (ii) the disclosure of such Records is necessary
to avoid or correct a misstatement or omission in such Registration Statement,
(iii) the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or (iv) disclosure of such Records
is otherwise required by law (including, without limitation, the Securities
Act).
11
<PAGE>
(q) Provide an indenture trustee for the Registrable Securities, and
cause the Indenture, to be qualified under the TIA not later than the effective
date of the first Registration Statement relating to the Registrable Securities;
and in connection therewith, cooperate with the trustee under any such Indenture
and the holders of the Registrable Securities, to effect such changes to such
Indenture as may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use its best efforts to cause such
trustee to execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(r) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month period.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii),
4(c)(iv), 4(c)(v) or 4(c)(vi), such holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus until such holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 4(k), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto, and at the Company's request and expense shall redeliver
copies of such Registration Statement and Prospectus (other than permanent file
copies) to the Company. In the event the Company shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such periods
from and including the date of the giving of such notice to and including the
date when each seller of Registrable Securities covered by such Registration
Statement shall have received (x) the copies of the supplemented or amended
Prospectus contemplated by Section 4(k) or (y) the Advice.
12
<PAGE>
SECTION 5. Registration Expenses.
---------------------
(a) All fees and expenses incident to the performance of or compliance
with this Agreement shall be borne by the Company whether or not any
Registration Statement becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the National Association of
Securities Dealers, Inc. and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the underwriters or selling holders in connection
with Blue Sky qualifications of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or the holders of a
majority in principal amount of the Registrable Securities being sold may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities in a form eligible for deposit
with DTC and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriters, if any, or, in respect of Registrable
Securities, by the holders of a majority in aggregate principal amount of the
Registrable Securities included in any Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and reasonable fees and disbursements of Special Counsel for the sellers
of Registrable Securities, (v) fees and disbursements of all independent
certified public accountants referred to in Section 4(o)(iii) (including,
without limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) the fees and expenses of any
"qualified independent underwriter" or other independent appraiser participating
in an offering pursuant to Section 3 of Schedule E to the By-laws of the
National Association of Securities Dealers, Inc., (vii) rating agency fees,
(viii) Securities Act liability insurance, if the Company so desires such
insurance, (ix) fees and expenses of all other Persons (including special
experts) retained by the Company, (x) internal expenses of the Company
(including, without limitation, all salaries and expenses of officers and
employees of the Company performing legal or accounting duties), (xi) the
expense of any annual audit, and (xii) the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange.
(b) In connection with any Shelf Registration hereunder, the Company
shall reimburse the holders of the Registrable Securities being registered in
such registration for the reasonable fees and disbursements of not more than one
counsel (or more than one counsel if a conflict exists among such selling
holders in the exercise of reasonable judgment of counsel for the selling
holders and counsel
13
<PAGE>
for the Company), together with appropriate local counsel, chosen by the holders
of a majority in aggregate principal amount of the Registrable Securities to be
included in such Registration Statement.
SECTION 6. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall, without
------------------------------
limitation as to time, indemnify and hold harmless each holder of Registrable
Securities, the officers, directors, agents and employees of each of them, each
Person who controls each such holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) (individually, an "Indemnified
Party"), to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, costs (including, without limitation, costs of
preparation and reasonable attorneys' fees) and expenses (including expenses of
investigation) (collectively, "Losses"), as incurred, arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendments or
supplements thereto or in any preliminary prospectus, or arising out of or based
upon, in the case of the Registration Statement or any amendments thereto, any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, and, in the case of the
Prospectus or form of Prospectus or in any amendments or supplements thereto or
in any preliminary prospectus, any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the Company shall not be liable in either case to
- -------- -------
the extent that such Losses are based upon, and are consistent with, information
furnished in writing to the Company by such Indemnified Party or the related
holder of Registrable Securities expressly for use therein; and (2) the Company
shall not be liable in either case to the extent that such Losses are based upon
an untrue statement or alleged untrue statement or omission or alleged omission
in the Prospectus, or form of Prospectus, if (x) such untrue statement or
alleged untrue statement, omission or alleged omission is completely corrected
in an amendment or supplement to the Prospectus and (y) having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such holder thereafter fails to deliver such Prospectus
as so amended or supplemented, prior to or concurrently with the sale of a
Registrable Security to the person asserting the claim from which such Losses
arise.
14
<PAGE>
The Company shall also indemnify each underwriter, selling broker,
dealer manager and similar securities industry professional participating in the
distribution, and each of their officers, directors, agents and employees and
each Person who controls such Persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) to the same extent as provided
above with respect to the indemnification of the holders of Registrable
Securities.
(b) Indemnification by Holder of Registrable Securities. In
---------------------------------------------------
connection with a registration in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any Registration Statement or Prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, its directors,
officers, agents and employees and each Person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act), from and against all Losses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus, or form of Prospectus, or arising out of or based upon,
in the case of the Registration Statement, any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading and, in the case of the Prospectus or form of Prospectus,
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in either case, to the
extent, but only to the extent, that such untrue or alleged untrue statement is
contained in or omission or alleged omission is required to be contained in any
information so furnished in writing by such holder to the Company expressly for
use in such Registration Statement or Prospectus and that such information was
relied upon by the Company in preparation of such Registration Statement,
Prospectus or form of Prospectus; provided, however, that no holder of
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Registrable Securities shall be liable in any such case to the extent that any
such Losses are based upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus or form of Prospectus, if (x)
such untrue statement or alleged untrue statement, omission or alleged omission
is completely corrected in writing by such holder and (y) the Company thereafter
fails to deliver a Prospectus as so amended or supplemented, prior to or
concurrently with the sale of a Registrable Security to the person asserting the
claim from which such Losses arise. In no event shall the liability of any
selling holder of Registrable Securities hereunder be greater in amount than the
dollar amount of the proceeds (net of payment of all expenses) received by such
holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
15
<PAGE>
(c) Conduct of Indemnification Proceedings. If any Person shall be
--------------------------------------
entitled to indemnity hereunder (an "indemnified party"), such indemnified party
shall give prompt notice to the party or parties from which such indemnity is
sought (the "indemnifying parties") of the commencement of any Proceeding with
respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; provided, however, that the failure so to notify the
-------- -------
indemnifying parties shall not relieve the indemnifying parties from any
obligation or liability except to the extent that the indemnifying parties have
been prejudiced by such failure. The indemnifying parties shall have the right,
exercisable by giving written notice to an indemnified party promptly after the
receipt of written notice from such indemnified party of such Proceeding, to
assume, at the indemnifying parties' expense, the defense of any such
Proceeding, with counsel reasonably satisfactory to such indemnified party;
provided, however, that an indemnified party or parties (if more than one such
- -------- -------
indemnified party is named in any Proceeding) shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless: (l) the indemnifying parties agree in
writing to pay such fees and expenses; or (2) the indemnifying parties fail
promptly to assume the defense of such Proceeding or fail to employ counsel
reasonably satisfactory to such indemnified party or parties; or (3) if the
indemnified party or parties shall have been advised by counsel in its
reasonable judgment that there is reasonably likely to be a conflict between the
positions of the indemnifying party or an Affiliate of the indemnifying party
and such indemnified party or parties in conducting the defense of such action
or proceeding or that there are reasonably likely to be legal defenses available
to such indemnified party or parties different from or in addition to those
available to the indemnifying party or such Affiliate, in which case, if such
indemnified party or parties notifies the indemnifying parties in writing that
it elects to employ separate counsel at the expense of the indemnifying parties,
the indemnifying parties shall not have the right to assume the defense thereof
and such counsel shall be at the expense of and must be reasonably satisfactory
to the indemnifying parties, it being understood, however, that, unless there
exists a conflict among indemnified parties, the indemnifying parties shall not,
in connection with any one such Proceeding or separate but substantially similar
or related Proceedings, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for such
indemnified party or parties, or for fees and expenses that are not reasonable.
Whether or not such defense is assumed by the indemnifying parties, such
indemnifying parties or indemnified party or parties will not be subject to any
liability for any settlement made without its or their consent (but such consent
will not be unreasonably withheld). No indemnifying party shall be liable
16
<PAGE>
for any settlement of any such action or proceeding effected without its written
consent, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, each indemnifying
party jointly and severally agrees subject to the exception and limitations set
forth above, to indemnify and hold harmless each indemnified party from and
against any loss or liability by reason of such settlement or judgment. The
indemnifying parties shall not consent to the entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party or parties of a
release, in form and substance reasonably satisfactory to the indemnified party
or parties, from all liability in respect of such Proceeding for which such
indemnified party would be entitled to indemnification hereunder (whether or not
any indemnified party is a party thereto).
(d) Contribution. If the indemnification provided for in this
------------
Section 6 is unavailable to an indemnified party or is insufficient to hold such
indemnified party harmless for any Losses in respect of which this Section 6
would otherwise apply by its terms, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, to the fullest extent lawful shall
have a joint and several obligation to contribute to the amount paid or payable
by such indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party, on the one hand, and indemnified party, on the other hand, shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been taken by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding, to the extent such party would have been indemnified for such
expenses if the indemnification provided for in Section 6(a) or 6(b) was
available to such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
--------
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), an indemnifying party that
is a selling holder of
17
<PAGE>
Registrable Securities shall not be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities sold
by such indemnifying party and distributed to the public were offered to the
public exceeds the amount of any damages that such indemnifying party has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(e) Indemnity Cumulative. The indemnity, contribution and expense
--------------------
reimbursement obligations under this Section 6 shall be in addition to any
liability each indemnifying person may otherwise have, under the Purchase
Agreement or otherwise. The provisions of this Section 6 shall survive
notwithstanding any transfer of the Registrable Securities by any holder or any
termination of this Agreement.
SECTION 7. Rule 144 and Rule 144A.
----------------------
The Company shall file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder as soon as is practicable and, if at any time the Company is
not required to file such reports, it will, upon the request of any holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the Act. The
Company shall take such further action as any holder of Registrable Securities
may request, all to the extent required from time to time to enable such holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 and Rule 144A.
Upon the request of any holder of Registrable Securities, the Company will
deliver to such holder a written statement as to whether the Company has
complied with such information requirements.
SECTION 8. Underwritten Registrations.
--------------------------
If any of the Registrable Securities covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the holders of a majority in aggregate principal amount of such Registrable
Securities included in such offering.
18
<PAGE>
SECTION 9. Miscellaneous.
-------------
(a) Remedies. In the event of a breach by the Company of any of its
--------
obligations under this Agreement, each holder of Registrable Securities, in
addition to being entitled to exercise all rights provided herein, in the
Indenture or in the Purchase Agreement or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. As of the date hereof, the Company
--------------------------
does not have, and, after the date of this Agreement, it shall not enter into,
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not entered and
it will not enter into any agreement with respect to any of its securities which
will grant to any Person piggy-back rights with respect to a Registration
Statement.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, without the written consent of the Company and holders of at
least a majority of the then outstanding aggregate principal amount of
Registrable Securities to the extent such amendment, modification, supplement,
waiver or consent affects their rights hereunder as holders of Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by
holders of at least a majority in aggregate principal amount of the Registrable
Securities being sold by such holders pursuant to such Registration Statement;
provided, that the provisions of this sentence may not be amended, modified or
- --------
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(d) Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given (i) when delivered personally or by
19
<PAGE>
documented overnight courier or (ii) upon return of the receipt after being
mailed by registered or certified mail (return receipt requested) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(i) if to the Company, to
Mr. C. R. Campbell, Executive Vice President
FRD Acquisition Co., Mail Station P-16-5
203 East Main Street
Spartanburg, South Carolina 29319
with a copy to:
Mr. Timothy E. Flemming
FRD Acquisition Co., Mail Station P-12-3
203 East Main Street
Spartanburg, South Carolina 29319
and to:
Randall C. Bassett, Esq.
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
(ii) if to the Holder, to
Family Restaurants, Inc.
18831 Von Karman Avenue
Irvine, California 92715
Attention: Todd E. Doyle, Esq.
20
<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Michael A. Woronoff, Esq.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent holders of Registrable Securities. The Company may not assign its
rights or obligations hereunder without the prior written consent of each holder
of any Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Agreement.
(i) Severability. If any term, provision, covenant or restriction of
------------
this Agreement, is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction.
21
<PAGE>
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(j) Attorneys' Fees. As between the parties to this Agreement, in any
---------------
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
(k) Securities Held by the Company or Its Respective Affiliates.
-----------------------------------------------------------
Whenever the consent or approval of holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or its Affiliates shall not be counted in determining whether such
consent or approval was given by the holders of such required percentage.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
FRD ACQUISITION CO.
By: /s/ Ronald B. Hutchison
------------------------------
Name: Ronald B. Hutchison
Title: Vice President and Treasurer
FAMILY RESTAURANTS, INC.
By: /s/ R. T. Trebing, Jr.
------------------------------
Name: R. T. Trebing, Jr.
Title: Senior Vice President and Chief Financial
Officer
23
<PAGE>
EXHIBIT 5.1
FORM OF OPINION OF LATHAM & WATKINS
[LATHAM & WATKINS LETTERHEAD]
____ __, 1996
FRD Acquisition Co.
18831 Von Karman Avenue
Irvine, CA 92714
Re: FRD ACQUISITION CO.
REGISTRATION STATEMENT ON FORM S-1
Ladies/Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
(the "Registration Statement") of FRD Acquisition Co., a Delaware corporation
(the "Company"), which you have filed with the Securities and Exchange
Commission on July __, 1996 in connection with the registration under the
Securities Act of 1933, as amended, of $150,000,000 principal amount of 12 1/2%
Notes due 2004 (the "Notes").
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of this opinion. We have examined, among
other things, the terms of the Notes, and the indenture pursuant to which the
Notes are to be issued. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and the conformity to authentic original documents of all documents submitted to
us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal securities laws of the United States, the internal laws of the State
of New York and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of any other laws.
Based upon the foregoing, we are of the opinion that, the Notes are legally
valid and binding obligations of the Company, except as may be limited by the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights or remedies
of creditors; the affect of general principles of equity, whether enforcement is
considered in a proceeding in equity or at law, and the discretion of the court
before which any proceeding therefor may be brought; and the unenforceability
under certain circumstances under law or
<PAGE>
FRD Acquisition Co.
____ __, 1996
Page 2
court decisions of provisions providing for the indemnification of or
contribution to a party with respect to a liability where such indemnification
or contribution is contrary to public policy.
We consent to your filing this opinion as an exhibit to the Registration
Statement.
Very truly yours,
LATHAM & WATKINS
2
<PAGE>
EXHIBIT 8.1
FORM OF OPINION OF LATHAM & WATKINS
[LATHAM & WATKINS LETTERHEAD]
____ __, 1996
FRD Acquisition Co.
18831 Von Karman Avenue
Irvine, CA 92714
Re: FRD ACQUISITION CO.
REGISTRATION STATEMENT ON FORM S-1
Ladies/Gentlemen:
You have requested our opinion concerning the material federal income tax
consequences of the offering of the 12 1/2% Notes due 2004 of FRD Acquisition
Co., a Delaware corporation, in connection with the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission (the "Commission") on
July __, 1996 (the "Registration Statement").
The facts, as we understand them, and upon which with you permission we
rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, it is our opinion that the
material federal income tax consequences are accurately set forth under the
heading "Certain Federal Income Tax Considerations" in the Registration
Statement. No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement may
affect the conclusion stated herein.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement and to the reference of our firm under the heading
"Certain Federal Income Tax Considerations."
Very truly yours,
LATHAM & WATKINS
<PAGE>
EXHIBIT 10.1
===============================================================================
CREDIT AGREEMENT
DATED AS OF MAY 23, 1996
AMONG
FRD ACQUISITION CO.,
as Guarantor,
FRI-M CORPORATION,
as Borrower,
THE LENDERS LISTED HEREIN,
as Lenders,
BANKERS TRUST COMPANY,
CHEMICAL BANK,
and
CITICORP USA, INC.,
as Co-Syndication Agents,
and
CREDIT LYONNAIS NEW YORK BRANCH,
as Administrative Agent
===============================================================================
<PAGE>
FRD AQUISITION CO.
and
FRI-M CORPORATION
CREDIT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. DEFINITIONS................................................ 2
1.1 Certain Defined Terms...................................... 2
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement............................... 33
1.3 Other Definitional Provisions and Rules of Construction.... 34
Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS..................34
2.1 Commitments; Making of Loans; the Register; Notes.......... 34
2.2 Interest on the Loans...................................... 42
2.3 Fees....................................................... 46
2.4 Repayments, Prepayments and Reductions in Revolving Loan
Commitments; General Provisions Regarding Payments;
Application of Proceeds of Collateral and Payments Under
Guaranties................................................. 46
2.5 Use of Proceeds............................................ 55
2.6 Special Provisions Governing Eurodollar Rate Loans......... 56
2.7 Increased Costs; Taxes; Capital Adequacy................... 58
2.8 Obligation of Lenders and Issuing Lenders to Mitigate...... 62
Section 3. LETTERS OF CREDIT.......................................... 63
3.1 Issuance of Letters of Credit and Revolving Lenders'
Purchase of Participations Therein......................... 63
3.2 Letter of Credit Fees...................................... 66
3.3 Drawings and Reimbursement of Amounts Paid Under Letters
of Credit.................................................. 66
3.4 Obligations Absolute....................................... 69
3.5 Indemnification; Nature of Issuing Lenders' Duties......... 70
3.6 Increased Costs and Taxes Relating to Letters of Credit.... 71
Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT.................. 72
4.1 Conditions to Term Loans and Initial Revolving Loans
and Swing Line Loans....................................... 72
4.2 Conditions to All Loans.................................... 83
4.3 Conditions to Letters of Credit............................ 84
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5. HOLDINGS' AND COMPANY'S REPRESENTATIONS AND
WARRANTIES........................................... 85
5.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries............................ 85
5.2 Authorization of Borrowing, etc...................... 86
5.3 Financial Condition.................................. 87
5.4 No Material Adverse Change; No Restricted
Junior Payments...................................... 88
5.5 Title to Properties; Liens; Real Property............ 88
5.6 Litigation; Adverse Facts............................ 89
5.7 Payment of Taxes..................................... 89
5.8 Performance of Agreements; Materially Adverse
Agreements; Material Contracts; Material Flagstar
Agreements........................................... 89
5.9 Government Regulation................................ 90
5.10 Securities Activities................................ 90
5.11 Employee Benefit Plans............................... 90
5.12 Certain Fees......................................... 91
5.13 Environmental Protection............................. 91
5.14 Employee Matters..................................... 92
5.15 Solvency............................................. 92
5.16 Matters Relating to Collateral....................... 92
5.17 Related Agreements................................... 94
5.18 Certain Indebtedness................................. 94
5.19 Disclosure........................................... 95
Section 6. HOLDINGS' AND COMPANY'S AFFIRMATIVE COVENANTS........ 95
6.1 Financial Statements and Other Reports............... 95
6.2 Corporate Existence, etc.; Books of Record........... 102
6.3 Payment of Taxes and Claims; Tax Consolidation....... 102
6.4 Maintenance of Properties; Insurance; Application
of Net Insurance/Condemnation Proceeds............... 103
6.5 Inspection Rights; Audits of Inventory and Accounts
Receivable; Lender Meeting .......................... 105
6.6 Compliance with Laws, etc............................ 105
6.7 Environmental Review and Investigation, Disclosure
Etc.; Loan Parties' Actions Regarding Hazardous
Materials Activities, Environmental Claims and
Violations of Environmental Laws..................... 106
6.8 Execution of Subsidiary Guaranty and Personal
Property Collateral Documents by Certain Subsidaries
and Future Subsidaries; Execution of Foreign
Intellectual Property Collateral Documents by Loan
Parties.............................................. 108
6.9 Matters Relating to Additional Real Property
Collateral........................................... 110
6.10 Fixture Filings; Liquor License Affiliates........... 112
6.11 Deposit Accounts and Cash Management Systems......... 112
6.12 Certain Matters Relating to Material Contracts
and Related Agreements............................... 115
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.13 Certain Payments Under Related Agreements............... 115
Section 7. HOLDINGS' AND COMPANY'S NEGATIVE COVENANTS.............. 115
7.1 Indebtedness............................................ 115
7.2 Liens and Related Matters............................... 117
7.3 Investments; Joint Ventures............................. 118
7.4 Contingent Obligations.................................. 119
7.5 Restricted Junior Payments.............................. 120
7.6 Financial Covenants..................................... 121
7.7 Restriction on Fundamental Changes; Asset Sales and
Acquisitions............................................ 122
7.8 Consolidated Capital Expenditures....................... 124
7.9 Restriction on Leases................................... 124
7.10 Sales and Lease-Backs................................... 125
7.11 Sale or Discount of Receivables......................... 125
7.12 Transactions with Shareholders and Affiliates........... 125
7.13 Disposal of Subsidiary Stock............................ 126
7.14 Conduct of Business..................................... 126
7.15 Amendments or Waivers of Certain Related Agreements;
Amendments of Documents Relating to Certain
Indebtedness............................................ 126
7.16 Fiscal Year............................................. 127
Section 8. EVENTS OF DEFAULT....................................... 127
8.1 Failure to Make Payments When Due....................... 127
8.2 Default in Other Agreements............................. 128
8.3 Breach of Certain Covenants............................. 128
8.4 Breach of Warranty...................................... 128
8.5 Other Defaults Under Loan Documents..................... 128
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.... 129
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc...... 129
8.8 Judgments and Attachments............................... 129
8.9 Dissolution............................................. 130
8.10 Employee Benefit Plans.................................. 130
8.11 Change in Control....................................... 130
8.12 Invalidity of Guaranties; Failure of Security;
Repudiation of Obligations.............................. 131
8.13 Failure to Consummate Acquisition........................131
8.14 Action Relating to Holdings Notes....................... 131
8.15 Matters Relating to Material Flagstar Agreements........ 131
Section 9. HOLDINGS GUARANTY....................................... 133
9.1 Guaranteed Obligations.................................. 133
9.2 Terms of Holdings Guaranty.............................. 134
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10. AGENTS................................................. 138
10.1 Appointment............................................ 138
10.2 Powers and Duties; General Immunity.................... 140
10.3 Representations and Warranties; No Responsibility
For Appraisal of Creditworthiness...................... 141
10.4 Right to Indemnity..................................... 141
10.5 Successor Agents and Swing Line Lender................. 142
10.6 Collateral Documents and Guaranties.................... 143
Section 11. MISCELLANEOUS.......................................... 144
11.1 Assignments and Participations in Loans and Letters
of Credit.............................................. 144
11.2 Expenses............................................... 147
11.3 Indemnity.............................................. 148
11.4 Set-Off; Security Interest in Deposit Accounts......... 149
11.5 Ratable Sharing........................................ 149
11.6 Amendments and Waivers................................. 150
11.7 Independence of Covenants.............................. 151
11.8 Notices................................................ 151
11.9 Survival of Representations, Warranties and
Agreements............................................. 152
11.10 Failure or Indulgence Not Waiver; Remedies Cumulative.. 152
11.11 Marshalling; Payments Set Aside........................ 152
11.12 Severability........................................... 153
11.13 Obligations Several; Independent Nature of Lenders'
Rights................................................. 153
11.14 Headings............................................... 153
11.15 Applicable Law......................................... 153
11.16 Successors and Assigns................................. 153
11.17 Consent to Jurisdiction and Service of Process......... 154
11.18 Waiver of Jury Trial................................... 154
11.19 Confidentiality........................................ 155
11.20 Counterparts; Effectiveness............................ 155
Signature Pages.................................... S-1
</TABLE>
iv
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV FORM OF TERM NOTE
V FORM OF REVOLVING NOTE
VI FORM OF SWING LINE NOTE
VII FORM OF COMPLIANCE CERTIFICATE
VIII FORM OF OPINION OF LATHAM & WATKINS
IX FORM OF OPINION OF O'MELVENY & MYERS
X FORM OF ASSIGNMENT AGREEMENT
XI-A FORM OF AUDITOR'S LETTER -- DELOITTE & TOUCHE LLP
XI-B FORM OF AUDITOR'S LETTER -- KPMG PEAT MARWICK
XII FORM OF CERTIFICATE RE NON-BANK STATUS
XIII FORM OF FINANCIAL CONDITION CERTIFICATE
XIV FORM OF COLLATERAL ACCOUNT AGREEMENT
XV FORM OF COMPANY PLEDGE AGREEMENT
XVI FORM OF COMPANY SECURITY AGREEMENT
XVII FORM OF COMPANY TRADEMARK SECURITY AGREEMENT
XVIII FORM OF SUBSIDIARY GUARANTY
XIX FORM OF SUBSIDIARY PLEDGE AGREEMENT
XX FORM OF SUBSIDIARY SECURITY AGREEMENT
XXI FORM OF SUBSIDIARY TRADEMARK SECURITY AGREEMENT
XXII FORM OF HOLDINGS PLEDGE AGREEMENT
XXIII FORM OF HOLDINGS SECURITY AGREEMENT
XXIV FORM OF MORTGAGE
XXV FORM OF RESTRICTED ACCOUNT LETTER
v
<PAGE>
SCHEDULES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1C CORPORATE AND CAPITAL STRUCTURE; OWNERSHIP; MANAGEMENT
4.1I CLOSING DATE MORTGAGED PROPERTIES
4.1J RESTRICTED ACCOUNTS
5.1 SUBSIDIARIES OF COMPANY
5.3 CONTINGENT OBLIGATIONS NOT REFLECTED IN FINANCIAL STATEMENTS
5.5 REAL PROPERTY
5.8 MATERIAL CONTRACTS
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
vi
<PAGE>
FRD ACQUISITION CO.
AND
FRI-M CORPORATION
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of May 23, 1996 and entered into by
and among FRD ACQUISITION CO., a Delaware corporation ("HOLDINGS"), FRI-M
CORPORATION, a Delaware corporation ("COMPANY"), THE FINANCIAL INSTITUTIONS
LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a
"LENDER" and collectively as "LENDERS"), BANKERS TRUST COMPANY ("BANKERS"),
CHEMICAL BANK ("CHEMICAL") and CITICORP USA, INC. ("CUSA"), as co-syndication
agents for Lenders (in such capacity, each individually referred to herein as a
"CO-SYNDICATION AGENT" and collectively as "CO-SYNDICATION AGENTS"), and CREDIT
LYONNAIS NEW YORK BRANCH ("CL"), as administrative agent for Lenders (in such
capacity, "ADMINISTRATIVE AGENT").
R E C I T A L S
---------------
WHEREAS, Holdings (this and other capitalized terms used in these
recitals without definition being used as defined in subsection 1.1) has been
formed by Flagstar Corporation, a Delaware corporation ("FLAGSTAR"), for the
purpose of acquiring all of the outstanding shares of capital stock of Company
and its Subsidiaries;
WHEREAS, on or before the Closing Date, Flagstar will contribute
$75,000,000 in cash to Holdings in exchange for all of the shares of Holdings
Common Stock;
WHEREAS, on the Closing Date, Holdings will issue and deliver to
Seller $150,000,000 in aggregate principal amount of Holdings Notes;
WHEREAS, on the Closing Date, Holdings will purchase all of the
outstanding shares of capital stock of Company and its Subsidiaries pursuant to
the Acquisition Agreement;
WHEREAS, Lenders have agreed to extend certain credit facilities to
Company, the proceeds of which will be (i) immediately loaned to Holdings to be
immediately used by Holdings, together with all of the proceeds of the cash
contribution from Flagstar in exchange for Holdings Common Stock and the
issuance and delivery of the Holdings Notes described above, to fund the
Acquisition Financing Requirements, and (ii) used to provide financing for
working capital and other general corporate purposes of Company and its
Subsidiaries;
<PAGE>
WHEREAS, Company desires to secure all of the Obligations hereunder
and under the other Loan Documents by granting to Administrative Agent, on
behalf of Lenders, a first priority Lien on substantially all of its personal
property, including without limitation a pledge of all of the capital stock of
each of its Subsidiaries; and
WHEREAS, Holdings and all of the Subsidiaries of Company have agreed
to guarantee the Obligations hereunder and under the other Loan Documents and to
secure their guaranties by granting to Administrative Agent, on behalf of
Lenders, a first priority Lien on substantially all of their respective personal
property and certain of their respective real property, including without
limitation a pledge of all of the capital stock of each of their respective
Subsidiaries:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Holdings, Company, Lenders and Agents
agree as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
---------------------
The following terms used in this Agreement shall have the following
meanings:
"ACQUISITION" means the acquisition by Holdings of all of the
outstanding shares of capital stock of Company and its Subsidiaries and the
other transactions contemplated by the Acquisition Agreement.
"ACQUISITION AGREEMENT" means that certain Stock Purchase Agreement by
and among Seller, FCI, Flagstar and Holdings dated as of March 1, 1996, in the
form delivered to Agents and Lenders prior to their execution of this Agreement
and as such agreement may be amended from time to time thereafter to the extent
permitted under subsection 7.15A.
"ACQUISITION CONSIDERATION" means payment of $125,000,000 in cash and
the issuance and delivery of Holdings Notes in the initial aggregate principal
amount equal to $150,000,000.
"ACQUISITION FINANCING REQUIREMENTS" means the aggregate of all
amounts necessary (i) to pay the Acquisition Consideration and (ii) to pay
Transaction Costs.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination
Date with respect to any Interest Period, the rate per annum (rounded to the
nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher
1/16 of 1%) determined pursuant to the following formula:
Adjusted Eurodollar Rate = Base Eurodollar Rate
--------------------------------------------
2
<PAGE>
(1 - Eurodollar Reserve Percentage)
"ADMINISTRATIVE AGENT" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor
Administrative Agent appointed pursuant to subsection 10.5A.
"AFFECTED LENDER" has the meaning assigned to that term in subsection
2.6C.
"AFFILIATE", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power (i) to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting securities
or by contract or otherwise or (ii) to vote 5% or more of the securities having
ordinary voting power for the election of directors of that Person.
"AGENTS" means Administrative Agent and Co-Syndication Agents.
"AGREEMENT" or the "CREDIT AGREEMENT" means this Credit Agreement
dated as of May 23, 1996, as it may be amended, supplemented or otherwise
modified from time to time.
"ASSET SALE" means the sale by Holdings, Company or any of Company's
Subsidiaries to any Person other than Company or any of its wholly-owned
Subsidiaries of (i) any of the stock of Company or any of Company's
Subsidiaries, (ii) substantially all of the assets of any division or line of
business of Holdings, Company or any of Company's Subsidiaries, or (iii) any
other assets (whether tangible or intangible) of Holdings, Company or any of
Company's Subsidiaries (other than (a) inventory sold in the ordinary course of
business and (b) any such other assets to the extent that the aggregate value of
such assets sold in any single transaction or related series of transactions
does not exceed $50,000).
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially
the form of Exhibit X annexed hereto.
---------
"ASSUMPTION AGREEMENT" means that certain Assumption Agreement among
Holdings, Company and Seller dated as of the Closing Date, as in effect on the
Closing Date, as such agreement may be amended from time to time to the extent
permitted under subsection 7.15A.
"AUDITOR'S LETTERS" means the letters, substantially in the form of
Exhibits XI-A and XI-B, respectively annexed hereto, executed by Deloitte &
- ------------- ----
Touche LLP and KPMG Peat Marwick, respectively, and delivered to Administrative
Agent pursuant to subsection 4.1T.
3
<PAGE>
"BANKERS" has the meaning assigned to that term in the introduction to
this Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE EURODOLLAR RATE" means, with respect to any Interest Period for
a Eurodollar Rate Loan, the rate for deposits in U.S. dollars which appears on
the Telerate Page 3750 as of 11:00 A.M., London time, on the second full
Business Day preceding the first day of such Interest Period in an amount
substantially equal to the Reference Amount for such Interest Period. If such
rate does not appear on the Telerate Page 3750, the rate will be the arithmetic
mean (rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%,
to the next higher 1/16 of 1%) of the rates quoted by major banks in New York
City, selected by Administrative Agent, as the rate at which U.S. dollar
deposits are offered to leading European banks, at approximately 11:00 A.M., New
York City time on the second full Business Day preceding the first day of such
Interest Period in an amount substantially equal to the respective Reference
Amounts for a term equal to such Interest Period. As used herein, "TELERATE PAGE
3750" means the display page designated as page 3750 on the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying London interbank offered rates of major banks).
"BASE RATE" means a fluctuating interest rate per annum as shall be in
effect from time to time, which rate per annum shall on any day be equal to the
higher of:
(a) the rate of interest publicly announced by CL from time to time as
its reference rate for short-term commercial loans in U.S. dollars to U.S.
domestic corporate borrowers (or, if CL has no such publicly announced rate
of interest, the arithmetic mean of the rates of interest publicly
announced by major banks in New York City selected by CL as their reference
rate for short-term commercial loans in U.S. dollars to U.S. domestic
corporate borrowers); and
(b) the Federal Funds Rate plus 1/2 of 1% per annum.
"BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.2A.
"BUSINESS DAY" means (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the States of California or New York or is a day
on which banking institutions located in such state are authorized or required
by law or other governmental action to close, and (ii) with respect to all
notices, determinations, fundings and payments in connection with the Adjusted
Eurodollar Rate or any Eurodollar Rate Loans, any day that is a Business Day
described in clause (i) above and that is also a day for trading by and between
banks in Dollar deposits in the London interbank market.
4
<PAGE>
"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"CASH" means money, currency or a credit balance in a Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within 180 days
after such date; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof, in each case maturing within 180 days after such
date and having, at the time of the acquisition thereof, the highest rating
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (iii) commercial paper in an aggregate
amount not to exceed $20,000,000 per issuer maturing no more than 180 days from
the date of creation thereof and having, at the time of the acquisition thereof,
a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) insured
certificates of deposit or bankers' acceptances maturing within 180 days after
such date and issued or accepted by any Lender or by any commercial bank that is
a member of the Federal Reserve System and organized under the laws of the
United States of America or any state thereof or the District of Columbia that
(a) is at least "adequately capitalized" (as defined in the regulations of its
primary Federal banking regulator) and (b) has Tier 1 capital (as defined in
such regulations) of not less than $500,000,000 or insured or uninsured demand
or time deposits with any such commercial bank; and (v) shares of any money
market mutual fund that (a) has at least 95% of its assets invested continuously
in the types of investments referred to in clauses (i) and (ii) above, (b) has
net assets of not less than $500,000,000, and (c) has the highest rating
obtainable from either S&P or Moody's.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in
the form of Exhibit XII annexed hereto delivered by a Lender to Administrative
-----------
Agent pursuant to subsection 2.7B(iii).
"CHEMICAL" has the meaning assigned to that term in the introduction
to this Agreement.
"CITIBANK" means Citibank, N.A.
"CL" has the meaning assigned to that term in the introduction to this
Agreement.
"CLASS" means, with respect to Lenders, each class of Lenders under
this Agreement, with there being two separate classes of Lenders, i.e., (i)
---
Lenders having Term Loan Exposure and (ii) Lenders having Revolving Loan
Exposure.
5
<PAGE>
"CLOSED RESTAURANT AGREEMENT" means that certain Closed Restaurant
Agreement dated as of the Closing Date between Seller, FRI-Admin Corporation and
Holdings, as in effect on the Closing Date and as such agreement may be amended
from time to time to the extent permitted under subsection 7.15A.
"CLOSING DATE" means the date on or before June 30, 1996, on which the
initial Loans are made.
"COLLATERAL" means, collectively, all of the real, personal and mixed
property (including capital stock) in which Liens are purported to be granted
pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL ACCOUNT" has the meaning assigned to that term in the
Collateral Account Agreement.
"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement
executed and delivered by Company and Administrative Agent on the Closing Date,
substantially in the form of Exhibit XIV annexed hereto, as such Collateral
-----------
Account Agreement may hereafter be amended, supplemented or otherwise modified
from time to time.
"COLLATERAL DOCUMENTS" means the Holdings Pledge Agreement, the
Holdings Security Agreement, the Company Pledge Agreement, the Company Security
Agreement, the Company Trademark Security Agreement, the Collateral Account
Agreement, the Subsidiary Pledge Agreement, the Subsidiary Security Agreement,
the Subsidiary Trademark Security Agreement, the Mortgages, the Restricted
Account Letters and all other instruments or documents delivered by any Loan
Party pursuant to this Agreement or any of the other Loan Documents in order to
grant to Administrative Agent, on behalf of Lenders, a Lien on any real,
personal or mixed property of that Loan Party as security for the Obligations.
"COMMITMENTS" means the commitments of Lenders to make Loans as set
forth in subsection 2.1A.
"COMPANY" has the meaning assigned to that term in the introduction to
this Agreement.
"COMPANY PLEDGE AGREEMENT" means the Company Pledge Agreement executed
and delivered by Company on the Closing Date, substantially in the form of
Exhibit XV annexed hereto, as such Company Pledge Agreement may thereafter be
- ----------
amended, supplemented or otherwise modified from time to time.
"COMPANY SECURITY AGREEMENT" means the Company Security Agreement
executed and delivered by Company on the Closing Date, substantially in the form
of Exhibit XVI annexed hereto, as such Company Security Agreement may thereafter
-----------
be amended, supplemented or otherwise modified from time to time.
6
<PAGE>
"COMPANY TRADEMARK SECURITY AGREEMENT" means the Company Trademark
Security Agreement executed and delivered by Company on the Closing Date,
substantially in the form of Exhibit XVII annexed hereto, as such Company
------------
Trademark Security Agreement may thereafter be amended, supplemented or
otherwise modified from time to time.
"COMPANY'S ACCOUNT" means Account No. 4070-0757 at Citibank, or such
other account at Citibank, Chemical or Bankers as may be agreed to from time to
time by Company and Administrative Agent as being the "Company's Account".
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of Exhibit VII annexed hereto delivered to Administrative Agent and Lenders by
-----------
Company pursuant to subsection 6.1(iv).
"CONSOLIDATED ADJUSTED EBITDA" means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) provisions for taxes based on income, (iv) total
depreciation expense, (v) total amortization expense, and (vi) other non-cash
items reducing Consolidated Net Income less other non-cash items increasing
----
Consolidated Net Income, all of the foregoing as determined on a consolidated
basis for Holdings and its Subsidiaries in conformity with GAAP (it being
understood that accrued Permitted Management Fees shall in no event increase
Consolidated Adjusted EBITDA).
"CONSOLIDATED ADJUSTED INTEREST COVERAGE RATIO" means, for any period,
the ratio of (i)(a) Holdings' Consolidated EBITDA (as defined in the Holdings
Note Indenture as in effect on the Closing Date) for the Reference Period (as
defined in the Holdings Note Indenture as in effect on the Closing Date) plus
----
(b) the aggregate amount of expenses relating to Permitted Management Fees and
Permitted Royalties deducted in calculating such Consolidated EBITDA (as defined
in the Holdings Note Indenture as in effect on the Closing Date) to (ii)
Holdings' Consolidated Interest Expense (as defined in the Holdings Note
Indenture as in effect on the Closing Date) for the Reference Period (as defined
in the Holdings Note Indenture as in effect on the Closing Date) minus the sum
-----
of (a) amortization of original issue discount and any deferred financing fees,
in each case to the extent included in Holdings' Consolidated Interest Expense
(as defined in the Holdings Note Indenture as in effect on the Closing Date) for
such period and (b) that portion of the PIK Interest Amounts included in
Holdings' Consolidated Interest Expense (as defined in the Holdings Note
Indenture as in effect on the Closing Date) for such period that is in excess of
the amount of interest which would have been payable with respect to the
Holdings Notes if such interest had been paid in cash.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the sum of
(i) the aggregate of all expenditures (whether paid in cash or other
consideration or accrued as a liability and including that portion of Capital
Leases which is capitalized on the consolidated balance sheet of Holdings and
its Subsidiaries) by Holdings and its Subsidiaries during that period that, in
conformity with GAAP, are included in "additions to property, plant or
equipment" or comparable items reflected in the consolidated statement of cash
flows of
7
<PAGE>
Holdings and its Subsidiaries plus (ii) to the extent not covered by
----
clause (i) of this definition, the aggregate of all expenditures by Holdings and
its Subsidiaries during that period (a) to purchase or develop computer software
or systems (but only to the extent such expenditures are capitalized on the
consolidated balance sheet of Holdings and its Subsidiaries in conformity with
GAAP) or (b) to acquire (by purchase or otherwise) the business, property or
fixed assets of any Person, or the stock or other evidence of beneficial
ownership of any Person that, as a result of such acquisition, becomes a
Subsidiary of Company.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period,
Consolidated Interest Expense for such period excluding, however, any interest
--------- -------
expense not payable in Cash (including amortization of discount and amortization
of debt issuance costs).
"CONSOLIDATED CURRENT ASSETS" means, as at any date of determination,
the total assets of Holdings and its Subsidiaries on a consolidated basis which
may properly be classified as current assets in conformity with GAAP, excluding
Cash and Cash Equivalents.
"CONSOLIDATED CURRENT LIABILITIES" means, as at any date of
determination, the total liabilities of Holdings and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities in
conformity with GAAP, excluding the current portion of any long-term
Indebtedness.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if
positive) equal to (i) the sum, without duplication, of the amounts for such
period of (a) Consolidated Adjusted EBITDA and (b) the Consolidated Working
Capital Adjustment minus (ii) the sum, without duplication, of the amounts for
-----
such period of (a) voluntary and scheduled repayments of Consolidated Total Debt
(excluding repayments of Revolving Loans except to the extent the Revolving Loan
Commitments are permanently reduced in connection with such repayments), (b)
Consolidated Capital Expenditures (net of any proceeds of any related financings
with respect to such expenditures), (c) Consolidated Cash Interest Expense, and
(d) the provision for current taxes based on income of Holdings and its
Subsidiaries and paid or payable in cash with respect to such period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest) of Holdings and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Holdings and
its Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements, but
excluding, however, any amortization of deferred financing fees incurred in
connection with the Credit Agreement and the Acquisition. For purposes of this
Agreement, liquidated damages paid or payable under the Registration Rights
Agreement shall be included in the calculation of Consolidated Interest Expense.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or
loss) of Holdings and its Subsidiaries on a consolidated basis for such period
taken as a single
8
<PAGE>
accounting period determined in conformity with GAAP; provided that there shall
--------
be excluded (the income (or loss) of any Person (other than a Subsidiary of
Holdings) in which any other Person (other than Holdings or any of its
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Holdings or any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Holdings or is
merged into or consolidated with Holdings or any of its Subsidiaries or that
Person's assets are acquired by Holdings or any of its Subsidiaries, (iii) the
income of any Subsidiary of Holdings to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted by operation of the terms of its charter or any
agreement (other than the Credit Agreement), instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary,
(iv) any after-tax gains or losses attributable to Asset Sales or returned
surplus assets of any Pension Plan, and (v) (to the extent not included in
clauses (i) through (iv) above) any net extraordinary gains or net non-cash
extraordinary losses.
"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate
amount of all rents paid or payable by Holdings and its Subsidiaries on a
consolidated basis during that period under all Capital Leases and Operating
Leases to which Holdings or any of its Subsidiaries is a party as lessee (net of
sublease income to the extent actually received).
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Holdings and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED WORKING CAPITAL" means, as at any date of determination,
the excess of Consolidated Current Assets over Consolidated Current Liabilities.
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the beginning of such period exceeds (or is
less than) Consolidated Working Capital as of the end of such period.
"CONTINGENT OBLIGATION", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another if the primary
purpose or intent thereof by the Person incurring the Contingent Obligation is
to provide assurance to the obligee of such obligation of another that such
obligation of another will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such obligation
will be protected (in whole or in part) against loss in respect thereof, (ii)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings, or (iii)
under Hedge Agreements. Contingent Obligations shall include, without
limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party
9
<PAGE>
or parties to an agreement, and (c) any liability of such Person for the
obligation of another through any agreement (contingent or otherwise) (X) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (Y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclauses (X) or (Y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
"CO-SYNDICATION AGENTS" has the meaning assigned to that term in the
introduction to this Agreement and also means and includes any successor Co-
Syndication Agent appointed pursuant to subsection 10.5C.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement to which Holdings, Company or any of Company's
Subsidiaries is a party.
"CUSA" has the meaning assigned to that term in the introduction to
this Agreement.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"DOLLARS" and the sign "$" mean the lawful money of the United States
of America.
"ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under
the laws of the United States or any state thereof; (ii) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; (iii) a commercial bank organized under the laws of any other
country or a political subdivision thereof; provided that (x) such bank is
--------
acting through a branch or agency located in the United States or (y) such bank
is organized under the laws of a country that is a member of the Organization
for Economic Cooperation and Development or a political subdivision of such
country; and (iv) any other entity which is an "accredited investor" (as defined
in Regulation D under the Securities Act) which extends credit or buys loans as
one of its businesses including, but not limited to, insurance companies, mutual
funds and lease financing companies; and (B) any
10
<PAGE>
Lender and any Affiliate of any Lender; provided that no Affiliate of Company
--------
shall be an Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is or was maintained or contributed to by any of
the Loan Parties or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, written notice, written
notice of violation, claim, action, suit, proceeding, written demand, abatement
order or other order or directive (conditional or otherwise), by any
governmental authority or any other Person, arising (i) pursuant to or in
connection with any actual or alleged violation of any Environmental Law, (ii)
in connection with any Hazardous Materials or any actual or alleged Hazardous
Materials Activity, or (iii) in connection with any actual or alleged damage,
injury, threat or harm to health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future statutes,
ordinances, orders, rules, regulations, guidance documents, judgments,
Governmental Authorizations, or any other requirements of governmental
authorities relating to (i) environmental matters, including those relating to
any Hazardous Materials Activity, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational safety
and health, industrial hygiene, or the protection of human, plant or animal
health or welfare, in any manner applicable to any Loan Party or any Facility,
including the Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Materials Transportation Act (49
-- ---
U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
-- ---
(S) 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S) 1251
-- ---
et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances
- -- --- -- ---
Control Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide and
-- ---
Rodenticide Act (7 U.S.C. (S)136 et seq.), the Occupational Safety and Health
-- ---
Act (29 U.S.C. (S) 651 et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et
-- --- --
seq) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. (S)
- ---
11001 et seq.), each as amended or supplemented, any analogous present or future
-- ---
state or local statutes or laws, and any regulations promulgated pursuant to any
of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Internal Revenue Code of which that Person is a member;
(ii) any trade or business (whether or not incorporated) which is a member of a
group of trades or businesses under common control within the meaning of Section
414(c) of the Internal Revenue Code of which that Person is a member; and (iii)
solely for the purposes of potential liability under Section 302(c)(11) of ERISA
and Section 412(c)(11) of the Internal Revenue Code and the lien created under
Section 302(f) of ERISA and Section 412(n) of the Internal Revenue Code (or any
other liability addressed in a representation or event of default, to the extent
a Loan Party is or may be jointly and severally liable for liability of an
entity described in Section 414(m) or (o) of
11
<PAGE>
the Internal Revenue Code), any member of an affiliated service group within the
meaning of Section 414(m) or (o) of the Internal Revenue Code of which that
Person, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member. Any former ERISA Affiliate of any
Loan Party shall continue to be considered an ERISA Affiliate of such Loan Party
within the meaning of this definition with respect to the period such entity was
an ERISA Affiliate of such Loan Party and with respect to liabilities arising
after such period for which such Loan Party could be liable under the Internal
Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by any of the Loan Parties or any of their respective ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to Section
4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (vi) the imposition of liability
on any of the Loan Parties or any of their respective ERISA Affiliates pursuant
to Section 4062(e) or 4069 of ERISA or by reason of the application of Section
4212(c) of ERISA; (vii) the withdrawal of any of the Loan Parties or any of
their respective ERISA Affiliates in a complete or partial withdrawal (within
the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if
there is any potential liability therefor, or the receipt by any of the Loan
Parties or any of their respective ERISA Affiliates of notice from any
Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated
under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or
omission which could give rise to the imposition on any of the Loan Parties or
any of their respective ERISA Affiliates of fines, penalties, taxes or related
charges under Chapter 43 of the Internal Revenue Code or under Section 409,
Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee
Benefit Plan; (ix) the assertion of a material claim (other than routine claims
for benefits) against any Employee Benefit Plan other than a Multiemployer Plan
or the assets thereof, or against any of the Loan Parties or any of their
respective ERISA Affiliates in connection with any Employee Benefit Plan; (x)
receipt from the Internal Revenue Service of notice of the failure of any
Pension Plan (or any other Employee Benefit Plan intended to be qualified under
Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of
the Internal Revenue Code, or the failure of any trust forming part of any
Pension Plan to qualify for exemption from taxation under Section 501(a) of the
Internal Revenue Code; or (xi) the
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<PAGE>
imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or pursuant to ERISA with respect to any Pension Plan.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"EURODOLLAR RESERVE PERCENTAGE" means, for any day, that percentage,
expressed as a decimal, which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including any marginal,
supplemental, emergency, special or other reserve requirements) for any member
bank of the Federal Reserve System in respect of "Eurocurrency liabilities" as
defined in Regulation D (or any successor category of liabilities under
Regulation D). Adjusted Eurodollar Rate shall be adjusted automatically on and
as of the effective date of any change in the Eurodollar Reserve Percentage.
"EVENT OF DEFAULT" means each of the events set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXISTING CREDIT AGREEMENT" means that certain Revolving Credit
Agreement dated as of January 27, 1994 among Company, certain guarantors named
therein, the lenders named therein and CL, as agent and collateral agent, as
amended prior to the Closing Date.
"EXISTING CREDIT AGREEMENT RELEASE AGREEMENT" shall mean that certain
letter agreement dated as of May 23, 1996 executed by Credit Lyonnais New York
Branch, as agent and collateral agent under the Existing Credit Agreement, each
lender party thereto, Company and each Subsidiary of Company pursuant to which
Credit Lyonnais New York Branch releases each Loan Party from all obligations
under the Existing Credit Agreement and documents related thereto.
"FACILITIES" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon) now,
hereafter or heretofore owned, leased, operated or used by any of the Loan
Parties or any of their respective predecessors or Affiliates.
"FCI" means Flagstar Companies, Inc., a Delaware corporation.
"FCI INTERCOMPANY NOTE" means that certain Subordinated Promissory
Note dated July 28, 1992 from Flagstar (formerly known as TW Services, Inc.) to
FCI (formerly known as TW Holdings, Inc.) in the aggregate principal amount of
$150,000,000.
"FEDERAL FUNDS RATE" means, for any day, the rate (rounded to the
nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, to the next higher
1/16 of 1%) on such day for Federal Funds as published in H.15(519), or any
successor publication, under the heading
13
<PAGE>
"Federal Funds (Effective)". In the event that such rate or such publication is
not published with respect to such day the Federal Funds Rate on such day shall
be the "Federal Funds/Effective Rate" as posted by the Federal Reserve Bank of
New York for that day in its publication "Composite Closing Quotations for U.S.
Government Securities." The Federal Funds Rate for Saturdays, Sundays and any
other day on which the Federal Reserve Bank of New York is closed shall be the
Federal Funds Rate as in effect for the next preceding date for which such rates
are published or posted, as the case may be.
"FEE PROPERTIES" means, at any time of determination, any fee interest
then owned by any Loan Party in any real property.
"FINANCIAL PLAN" has the meaning assigned to that term in subsection
6.1(xiii).
"FIRST PRIORITY" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that (i) such
Lien has priority over any other Lien on such Collateral and (ii) such Lien is
the only Lien (other than Permitted Encumbrances and Liens permitted pursuant to
subsection 7.2) to which such Collateral is subject.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Company and its Subsidiaries
ending on the last Thursday before December 31 of each calendar year.
"FLAGSTAR" has the meaning assigned to that term in the recitals to
this Agreement.
"FLAGSTAR CREDIT AGREEMENT" means that certain Second Amended and
Restated Credit Agreement dated as of April 10, 1996 among TWS Funding, Inc.,
Flagstar, the banks named therein, Bankers, Chemical and Citibank, N.A., as co-
administrative agents, and Citibank, N.A., as funding agent, and agreements
related thereto, as such credit agreement or any such related agreement may be
amended from time to time after the Closing Date to the extent permitted under
subsection 8.15.
"FLAGSTAR INDENTURES" means (i) that certain Indenture dated as of
September 23, 1993 between Flagstar and First Trust National Association, as
Trustee, relating to $275,000,000 of 10-3/4% Senior Notes due 2001, (ii) that
certain Indenture dated as of September 23, 1993 between Flagstar and The Bank
of New York Trust Company, National Association, as successor Trustee, relating
to $125,000,000 of 11-3/8% Senior Subordinated Debentures due 2003, (iii) that
certain Indenture dated as of November 16, 1992 between Flagstar (formerly known
as TW Services, Inc.) and The Bank of New York Trust Company, National
Association, as successor Trustee, relating to $738,800,000 of 11.25% Senior
Subordinated Debentures due 2004, (iv) that certain Indenture dated as of
November 16, 1992 between Flagstar (formerly known as TW Services, Inc.) and
First Trust National Association, as Trustee, relating to $300,000,000 of 10-
7/8% Senior Notes due 2002, and (v) that certain Indenture dated as of November
1, 1989 between Flagstar (formerly known as TW Food
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Services, Inc.) and United States Trust Company of New York, as Trustee,
relating to $100,000,000 of 10% Convertible Junior Subordinated Debentures due
2014 and, in each case, agreements relating thereto, in each case as in effect
on the Closing Date and as any such indenture or any such related agreement may
be amended from time to time to the extent permitted under subsection 8.15.
"FLOOD HAZARD PROPERTY" means a Mortgaged Property located in an area
designated by the Federal Emergency Management Agency as having special flood or
mud slide hazards.
"FUNDED DEBT", as applied to any Person, means all Indebtedness of
that Person which by its terms or by the terms of any instrument or agreement
relating thereto matures more than one year from, or is directly renewable or
extendable at the option of that Person to a date more than one year from
(including an option of that Person under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of one
year or more from), the date of the creation thereof.
"FUNDING AND PAYMENT OFFICE" means (i) the office of Administrative
Agent and Swing Line Lender located at 1301 Avenue of the Americas, New York,
New York 10019 or (ii) such other office of Administrative Agent and Swing Line
Lender as may from time to time hereafter be designated as such in a written
notice delivered by Administrative Agent and Swing Line Lender to Company and
each Lender.
"FUNDING NOTICE OFFICE" means (i) the office of Administrative Agent
at 303 Peachtree Street, N.E., Suite 4400, Atlanta, Georgia 30308 (Attention:
Ms. Lisa Dawson) or (ii) such other office of Administrative Agent as may from
time to time hereafter be designated as such in a written notice delivered by
Administrative Agent to Company and each Lender.
"FUNDING DATE" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof
set forth in subsection 1.2, generally accepted accounting principles set forth
in opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, in each case as the same are applicable to the
circumstances as of the date of determination.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"GTO" means either Gollust, Tierney and Oliver, a New Jersey general
partnership, or Gollust, Tierney and Oliver Incorporated, a New York
corporation.
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"GUARANTIES" means the Holdings Guaranty and the Subsidiary Guaranty.
"GUARANTOR" has the meaning assigned to that term in Section 9.
"HAZARDOUS MATERIALS" means (i) any chemical, material or substance at
any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic
pollutant", "contaminant", "restricted hazardous waste", "infectious waste",
"toxic substances", or any other term or expression intended to define, list or
classify substances by reason of properties harmful to health, safety or the
indoor or outdoor environment (including harmful properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive
toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or
petroleum derived substance; (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (iv) any flammable substances or
explosives; (v) any radioactive materials; (vi) any asbestos-containing
materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment
which contains any oil or dielectric fluid containing polychlorinated biphenyls;
(ix) pesticides; and (x) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental authority or which
may or could pose a hazard to the health and safety of the owners, occupants or
any Persons in the vicinity of any Facility or to the indoor or outdoor
environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or
threatened activity, event or occurrence involving any Hazardous Materials,
including the use, manufacture, possession, storage, holding, presence,
existence, location, Release, threatened Release, discharge, placement,
generation, transportation, processing, construction, treatment, abatement,
removal, remediation, disposal, disposition or handling of any Hazardous
Materials, and any corrective action or response action with respect to any of
the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency
Agreement designed to hedge against fluctuations in interest rates or currency
values, respectively.
"HOLDINGS" has the meaning assigned to that term in the introduction
to this Agreement.
"HOLDINGS COMMON STOCK" means the common stock of Holdings, par value
$0.10 per share.
"HOLDINGS GUARANTY" has the meaning assigned to that term in Section
9.
"HOLDINGS INTERCOMPANY NOTES" means (i) that certain promissory note
dated as of the Closing Date, issued by Holdings to Company in the original
principal amount of $51,169,460 in form and substance satisfactory to each Agent
evidencing the loan made by
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Company to Holdings in such amount on the Closing Date, and (ii) that certain
promissory note dated as of the Closing Date issued by Holdings to Company and
certain of its Subsidiaries in form and substance satisfactory to each Agent
evidencing the intercompany accounts payable of Seller to Company and certain of
its Subsidiaries assumed by Holdings pursuant to the Assumption Agreement in an
aggregate amount not to exceed $200,000,000, in each case as in effect on the
Closing Date and as such Holdings Intercompany Notes may be amended from time to
time to the extent permitted under subsection 7.15C; provided, that such
--------
Indebtedness shall not in any way be subordinated to any Indebtedness under the
Holdings Note Indenture.
"HOLDINGS NOTE INDENTURE" means the indenture pursuant to which the
Holdings Notes are issued, as in effect on the Closing Date and as such
indenture may be amended from time to time to the extent permitted under
subsection 7.15B.
"HOLDINGS NOTES" means Holdings' $150,000,000 in initial aggregate
principal amount of 12.50% senior unsecured unguaranteed notes due 2004 issued
by Holdings on the Closing Date pursuant to the Holdings Note Indenture, in the
form of Exhibit A to the Holdings Note Indenture as in effect on the Closing
Date less such senior unsecured unguaranteed notes, if any, returned by Seller
----
pursuant to the Acquisition Agreement in connection with post-closing purchase
price adjustments made in accordance with Section 1.3 thereof, together with
such senior unsecured unguaranteed notes issued by Holdings subsequent to the
Closing Date in such form (a) pursuant to the Acquisition Agreement in
connection with post-closing purchase price adjustments made in accordance with
Section 1.3 thereof and (b) in the aggregate principal amount equal to the PIK
Interest Amounts owing to the holders of the Holdings Notes, in each case as
such notes may be amended from time to time to the extent permitted under
subsection 7.15B; provided that such notes (i) shall be unsecured and
--------
unguaranteed, (ii) shall accrue interest at a rate not exceeding 12.50% per
annum; provided that such notes shall, during the period commencing on the
--------
Closing Date and ending on the 39-month anniversary of the Closing Date, provide
for payment in kind of interest (including without limitation liquidated damages
described in the Registration Rights Agreement) thereon (at a rate not exceeding
14.00% per annum) for up to four semi-annual interest periods if, on the
applicable record date relating to any interest payment date, the Consolidated
Adjusted Interest Coverage Ratio is less than 1.25:1.00 for the immediately
preceding four fiscal quarter period (pro forma as if the Acquisition had
occurred, and as if all Indebtedness incurred on and after the Closing Date had
been incurred, at the beginning of such four fiscal quarter period if such
beginning is prior to Closing Date) with payment in cash at the rate of 12.50%
per annum resuming if, on the applicable record date relating to any subsequent
interest payment date, the Consolidated Adjusted Interest Coverage Ratio for the
immediately preceding four fiscal quarter period is greater than or equal to
1.25:1.00, (iii) shall have a final scheduled maturity of not earlier than the
eighth anniversary of the Closing Date and (iv) shall have no scheduled
principal payments payable prior to that final scheduled maturity date.
"HOLDINGS PLEDGE AGREEMENT" means the Holdings Pledge Agreement
executed and delivered by Holdings on the Closing Date, substantially in the
form of Exhibit XXII
------------
17
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annexed hereto, as such Holdings Pledge Agreement may thereafter be amended,
supplemented or otherwise modified from time to time.
"HOLDINGS SECURITY AGREEMENT" means the Holdings Security Agreement
executed and delivered by Holdings on the Closing Date, substantially in the
form of Exhibit XXIII annexed hereto, as such Holdings Security Agreement may
-------------
thereafter be amended, supplemented or otherwise modified from time to time.
"INDEBTEDNESS", as applied to any Person, means (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof or (b) evidenced by a note or similar
written instrument, and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person. Obligations under Interest Rate Agreements and Currency
Agreements constitute (X) in the case of Hedge Agreements, Contingent
Obligations, and (Y) in all other cases, Investments, and in neither case
constitute Indebtedness.
"INDEMNITEE" has the meaning assigned to that term in subsection 11.3.
"INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Holdings, Company and Company's Subsidiaries as
currently conducted that are material to the condition (financial or otherwise),
business or operations or prospects of Holdings, Company and Company's
Subsidiaries, taken as a whole.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan,
each February 28, May 31, August 31 and November 30 of each year, commencing on
the first such date to occur after the Closing Date, and (ii) with respect to
any Eurodollar Rate Loan, the last day of each Interest Period applicable to
such Loan; provided that in the case of each Interest Period of six months
--------
"Interest Payment Date" shall also include the date that is three months after
the commencement of such Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in subsection
2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement to which Holdings, Company or any of Company's
Subsidiaries is a party.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the second Business Day prior to the first day of such Interest Period.
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<PAGE>
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any successor
statute.
"INVENTORY" means, with respect to any Person as of any date of
determination, all goods, merchandise and other personal property which are then
held by such Person for sale or lease, including raw materials and work in
process.
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Holdings, Company or any of Company's Subsidiaries of, or of a
beneficial interest in, any Securities of any other Person (including any
Subsidiary of Company), (ii) any direct or indirect loan, advance (other than
advances to employees for moving, entertainment and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business) or capital
contribution by Holdings, Company or any of Company's Subsidiaries to any other
Person, including all indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that other
Person in the ordinary course of business, or (iii) Interest Rate Agreements or
Currency Agreements not constituting Hedge Agreements. The amount of any
Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment.
"IP COLLATERAL" means, collectively, the Collateral under the Company
Trademark Security Agreement and the Subsidiary Trademark Security Agreement.
"ISSUING LENDER" means, with respect to any Letter of Credit, the
Revolving Lender which agrees or is otherwise obligated to issue such Letter of
Credit, determined as provided in subsection 3.1B(ii).
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
--------
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"KKR" means Kohlberg Kravis Roberts & Co., a Delaware limited
partnership.
"LENDER" and "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 11.1, and the term "Lenders" shall
include Swing Line Lender unless the context otherwise requires; provided that
--------
the term "Lenders", when used in the context of a particular Commitment, shall
mean Lenders having that Commitment.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Standby Letters of
Credit issued or to be issued by Issuing Lenders for the account of Company
pursuant to subsection 3.1.
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"LETTER OF CREDIT USAGE" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding plus
----
(ii) the aggregate amount of all drawings under Letters of Credit honored by
Issuing Lenders and not theretofore reimbursed by Company (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to subsection
3.3B).
"LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"LIQUOR LICENSE AFFILIATE" means each of the Persons designated on
Schedule 5.1 as a Liquor License Affiliate and each other Affiliate of any Loan
Party that may be organized from time to time and the business of which will be
limited to the holding of a liquor license for any business maintained by
Company or one of its Subsidiaries in any jurisdiction where Company and its
Subsidiaries are prohibited from holding a liquor license or where the holding
by Company or any such Subsidiary of a liquor license would, in the best
judgment of Company, be impracticable.
"LIQUOR LICENSE AFFILIATE AGREEMENTS" has the meaning assigned to that
term in subsection 4.1L.
"LOAN" or "LOANS" means one or more of the Term Loans, Revolving Loans
or Swing Line Loans or any combination thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of
Credit (and any applications for, or reimbursement agreements or other documents
or certificates executed by Company in favor of an Issuing Lender relating to,
the Letters of Credit), the Collateral Documents and the Guaranties.
"LOAN PARTY" means each of Holdings, Company and any of Company's
Subsidiaries from time to time executing a Loan Document, and "LOAN PARTIES"
means all such Persons, collectively.
"MANAGEMENT SERVICES AGREEMENT" means that certain Management Services
Agreement dated as of the Closing Date between Flagstar and Holdings, as such
agreement may be amended from time to time to the extent permitted under
subsection 7.15A; provided that the terms of such agreement are no less
--------
favorable to Holdings than those available to entities unrelated to Flagstar.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from time
to time.
20
<PAGE>
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Holdings, Company and Company's Subsidiaries, taken as a whole, or
(ii) the impairment of the ability of any Loan Party to perform, or of Agents or
Lenders to enforce, the Obligations.
"MATERIAL CONTRACT" means any contract or other arrangement to which
Holdings, Company or any of Company's Subsidiaries is a party (other than the
Loan Documents) for which breach, nonperformance, cancellation or failure to
renew could be reasonably expected to have a Material Adverse Effect.
"MATERIAL FLAGSTAR AGREEMENTS" means (i) the Flagstar Credit
Agreement, (ii) the Flagstar Indentures, (iii) the FCI Intercompany Note, (iv)
the Indenture dated as of July 12, 1990 between Denny's Realty, Inc. and State
Street Bank and Trust Company, as Trustee, (v) the Indenture dated as of
November 1, 1990 between Secured Restaurants Trust, as Issuer, and The Bank of
New York Trust Company of Florida, as successor Trustee, and (vi) any other loan
agreement, indenture or similar agreement (other than a lease) of FCI, Flagstar
or any other Affiliate of Flagstar (other than the Loan Parties) relating to any
Indebtedness or Contingent Obligations of FCI, Flagstar or any other Affiliate
of Flagstar (other than the Loan Parties) in an aggregate principal amount of
$1,000,000 or more or any other material agreement of such Person (other than a
lease) if such loan agreement, indenture, similar agreement or other material
agreement contains covenants or default provisions (other than cross-default
provisions) relating to Holdings or any or its Subsidiaries, in each case as in
effect on the Closing Date and as it may be amended from time to time after the
Closing Date to the extent permitted under subsection 8.15.
"MORTGAGE" means (i) a security instrument (whether designated as a
deed of trust or a mortgage or by any similar title) executed and delivered by
any Loan Party, substantially in the form of Exhibit XXIV annexed hereto or in
------------
such other form as may be approved by Administrative Agent in its sole
discretion, in each case with such changes thereto as may be recommended by
Administrative Agent's local counsel based on local laws or customary local
mortgage or deed of trust practices, or (ii) at Administrative Agent's option,
in the case of an Additional Mortgaged Property (as defined in subsection 6.9),
an amendment to an existing Mortgage, in form satisfactory to Administrative
Agent, adding such Additional Mortgaged Property to the Real Property Assets
encumbered by such existing Mortgage, in either case as such security instrument
or amendment may be amended, supplemented or otherwise modified from time to
time. "MORTGAGES" means all such instruments, including the Closing Date
Mortgages (as defined in subsection 4.1I) and any Additional Mortgages (as
defined in subsection 6.9), collectively.
"MORTGAGED PROPERTY" means a Closing Date Mortgaged Property (as
defined in subsection 4.1I) or an Additional Mortgaged Property (as defined in
subsection 6.9).
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
21
<PAGE>
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, Cash
payments (including any Cash received by way of deferred payment pursuant to, or
by monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale, net of any bona fide direct costs
incurred in connection with such Asset Sale, including without limitation (i)
income taxes payable as a result of any gain recognized in connection with such
Asset Sale and (ii) payment of the outstanding principal amount of, premium or
penalty, if any, and interest on any Indebtedness (other than the Loans) that is
secured by a Lien on the stock or assets in question and that is required to be
repaid under the terms thereof as a result of such Asset Sale.
"NET INSURANCE/CONDEMNATION PROCEEDS" means any Cash payments or
proceeds received by Holdings, Company or any of Company's Subsidiaries (i)
under any business interruption or casualty insurance policy in respect of a
covered loss thereunder or (ii) as a result of the taking of any assets of
Holdings, Company or any of Company's Subsidiaries by any Person pursuant to the
power of eminent domain, condemnation or otherwise, or pursuant to a sale of any
such assets to a purchaser with such power under threat of such a taking, in
each case net of any actual and reasonable documented costs incurred by
Holdings, Company or any of Company's Subsidiaries in connection with the
adjustment or settlement of any claims of Holdings, Company or such Subsidiary
in respect thereof.
"NOTES" means one or more of the Term Notes, Revolving Notes or Swing
Line Note or any combination thereof.
"NOTICE OF BORROWING" means a notice substantially in the form of
Exhibit I annexed hereto delivered by Company to Administrative Agent pursuant
- ---------
to subsection 2.1B with respect to a proposed borrowing.
"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in
the form of Exhibit II annexed hereto delivered by Company to Administrative
----------
Agent pursuant to subsection 2.2D with respect to a proposed conversion or
continuation of the applicable basis for determining the interest rate with
respect to the Loans specified therein.
"NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice substantially
in the form of Exhibit III annexed hereto delivered by Company to Administrative
-----------
Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a
Letter of Credit.
"OBLIGATIONS" means all obligations of every nature of each Loan Party
from time to time owed to Agents, Lenders or any of them under the Loan
Documents, whether for principal, interest, reimbursement of amounts drawn under
Letters of Credit, fees, expenses, indemnification or otherwise.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the board
(if an officer) or its president or one of its vice presidents and by its chief
financial officer or its treasurer or assistant treasurer; provided that every
--------
Officers' Certificate with respect to the compliance with
22
<PAGE>
a condition precedent to the making of any Loans hereunder shall include (i) a
statement that the officer or officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, (ii) a statement that, in the
opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied with, and
(iii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
"PERMITTED ADVERTISING FEES" means those advertising fees payable in
any fiscal quarter pursuant to a Permitted Franchise Agreement, which fees do
not exceed 3% of the subject restaurant's net revenue for the immediately
preceding fiscal quarter.
"PERMITTED ENCUMBRANCES" means the following types of Liens (excluding
any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal
Revenue Code or by ERISA, any such Lien relating to or imposed in connection
with any Environmental Claim, and any such Lien expressly prohibited by any
applicable terms of any of the Collateral Documents):
(i) Liens for taxes, assessments or governmental charges or claims the
payment of which is not, at the time, required by subsection 6.3;
(ii) statutory Liens of landlords, statutory Liens of banks and rights
of set-off, statutory Liens of carriers, warehousemen, mechanics,
repairmen, workmen and materialmen, and other Liens imposed by law, in each
case incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith by appropriate proceedings, so
long as (1) such reserves or other appropriate provisions, if any, as shall
be required by GAAP shall have been made for any such contested amounts,
and (2) in the case of a Lien with respect to any portion of the
Collateral, such contest proceedings conclusively operate to stay the sale
of any portion of the Collateral on account of such Lien;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and
23
<PAGE>
appeal bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money), so long as no
foreclosure, sale or similar proceedings have been commenced with respect
to any portion of the Collateral on account thereof;
(iv) any attachment or judgment Lien not constituting an Event of
Default under subsection 8.8;
(v) leases or subleases granted to third parties in accordance with
any applicable terms of the Collateral Documents and not interfering in any
material respect with the ordinary conduct of the business of Holdings,
Company or any of Company's Subsidiaries or resulting in a material
diminution in the value of any Collateral as security for the Obligations;
(vi) easements, rights-of-way, restrictions, encroachments, and other
minor defects or irregularities in title, in each case which do not and
will not interfere in any material respect with the ordinary conduct of the
business of Holdings, Company or any of Company's Subsidiaries or result in
a material diminution in the value of any Collateral as security for the
Obligations;
(vii) any (a) interest or title of a lessor or sublessor under any
lease permitted by subsection 7.9, (b) restriction or encumbrance that the
interest or title of such lessor or sublessor may be subject to, or (c)
subordination of the interest of the lessee or sublessee under such lease
to any restriction or encumbrance referred to in the preceding clause (b),
so long as the holder of such restriction or encumbrance agrees to
recognize the rights of such lessee or sublessee under such lease;
(viii) 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; and
(ix) licenses of patents, trademarks and other intellectual property
rights granted by Company or any of its Subsidiaries in the ordinary course
of business and not interfering in any material respect with the ordinary
conduct of the business of Holdings, Company or such Subsidiary.
"PERMITTED FRANCHISE AGREEMENT" means one or more Franchise Agreements
between Holdings and Flagstar or any of Flagstar's Subsidiaries pursuant to
which Holdings franchises the Denny's or El Pollo Loco concept from Flagstar or
such Subsidiary in the form consented to by Requisite Lenders, as such agreement
may be amended from time to time to the extent permitted under subsection 7.15A;
provided that (i) the terms of such agreement are no less favorable to Holdings
than those available to franchisees unrelated to Flagstar, (ii) all up-front and
similar fees are waived, (iii) the advertising fees permitted thereunder do not
exceed Permitted Advertising Fees and (iv) no other royalties or fees are
payable by Holdings or any of its Subsidiaries thereunder except Permitted
Royalties.
24
<PAGE>
"PERMITTED FRANCHISE FEES" means the Permitted Advertising Fees and
the Permitted Royalties.
"PERMITTED MANAGEMENT FEE" means a management fee payable pursuant to
the Management Services Agreement in any fiscal quarter not to exceed (a) 1.0%
of net revenues of Holdings and its Subsidiaries during the immediately
preceding fiscal quarter plus (b) the actual allocated share of the cost of
shared administrative services provided by Flagstar or its Subsidiaries (other
than any Loan Party) to Holdings and its Subsidiaries during such quarter (which
shall be calculated on a reasonable and consistent basis and shall be certified
quarterly by a certificate of the Chief Financial Officer of Flagstar delivered
to the Administrative Agent).
"PERMITTED ROYALTY" means a royalty payable pursuant to a Permitted
Franchise Agreement in any fiscal quarter not to exceed 4% of the subject
restaurant's net revenue for the immediately preceding fiscal quarter.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments (whether federal,
state or local, domestic or foreign, and including political subdivisions
thereof) and agencies or other administrative or regulatory bodies thereof.
"PIK INTEREST AMOUNTS" means, as of any date of determination, the
aggregate amount of payment-in-kind interest paid or accrued on the Holdings
Notes on or prior to such date of calculation in accordance with the terms of
the Holdings Note Indenture or the Registration Rights Agreement.
"PLEDGED COLLATERAL" means, collectively, the "Pledged Collateral" as
defined in the Holdings Pledge Agreement, the Company Pledge Agreement and the
Subsidiary Pledge Agreement.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"PRO RATA SHARE" means (i) with respect to all payments, computations
and other matters relating to the Term Loan Commitment or the Term Loan of any
Term Lender, the percentage obtained by dividing (x) the Term Loan Exposure of
--------
that Term Lender by (y) the aggregate Term Loan Exposure of all Term Lenders,
--
(ii) with respect to all payments, computations and other matters relating to
the Revolving Loan Commitment or the Revolving Loans of any Revolving Lender or
any Letters of Credit issued or participations therein purchased by any
Revolving Lender or any participations in any Swing Line Loans purchased by any
Revolving Lender, the percentage obtained by dividing (x) the Revolving Loan
--------
Exposure of that Revolving Lender by (y) the aggregate Revolving Loan Exposure
--
of all Revolving Lenders, and (iii) for all other purposes with respect to each
Lender, the percentage
25
<PAGE>
obtained by dividing (x) the sum of the Term Loan Exposure of that Lender plus
--------
the Revolving Loan Exposure of that Lender by (y) the sum of the aggregate Term
--
Loan Exposure of all Lenders plus the aggregate Revolving Loan Exposure of all
----
Lenders, in any such case as the applicable percentage may be adjusted by
assignments permitted pursuant to subsection 11.1. The initial Pro Rata Share of
each Lender for purposes of each of clauses (i), (ii) and (iii) of the preceding
sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed
hereto. ------------
"PTO" means the United States Patent and Trademark Office or any
successor or substitute office in which filings are necessary or, in the opinion
of Administrative Agent, desirable in order to create or perfect Liens on any IP
Collateral.
"REAL PROPERTY ASSET" means, at any time of determination, any
interest then owned by any Loan Party in any real property.
"REFERENCE AMOUNT" means, with respect to any Interest Period, the
amount scheduled to be outstanding during that Interest Period of the Eurodollar
Rate Loan, (i) without taking into account any reduction in the amount of any
Lender's Loan through any assignment or transfer and (ii) rounded up to the
nearest integral multiple of $1,000,000.
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
subsection 2.1A(iii).
"REGISTER" has the meaning assigned to that term in subsection 2.1D.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement dated as of the Closing Date between Seller and Holdings relating to
the Holdings Notes, as in effect on the Closing Date and as such agreement may
be amended from time to time to the extent permitted under subsection 7.15B.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.
"RELATED AGREEMENTS" means, collectively, the Acquisition Agreement,
the Holdings Notes, the Holdings Note Indenture, the Registration Rights
Agreement, the Closed Restaurant Agreement, the Restaurant Services Agreement,
the Transition Services Agreement, the Holdings Intercompany Notes, the Tax
Allocation Agreement, the Management Services Agreement, the Assumption
Agreement, the Liquor License Affiliate Agreements, and the Permitted Franchise
Agreement, if any.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of
26
<PAGE>
Hazardous Materials into the indoor or outdoor environment (including, without
limitation, the abandonment or disposal of any barrels, containers or other
closed receptacles containing any Hazardous Materials), including the movement
of any Hazardous Materials through the air, soil, surface water or groundwater.
"REQUISITE CLASS LENDERS" means, at any time (i) for the Class Lenders
having Term Loan Exposure, Lenders having or holding more than 50% of the sum of
the aggregate Term Loan Exposure of all Lenders, and (ii) for the Class Lenders
having Revolving Loan Exposure, Lenders having or holding more than 50% of the
sum of the aggregate Revolving Loan Exposure of all Lenders.
"REQUISITE LENDERS" means Lenders having or holding more than 50% of
the sum of the aggregate Term Loan Exposure of all Lenders plus the aggregate
----
Revolving Loan Exposure of all Lenders.
"RESTAURANT SERVICES AGREEMENT" means that certain Restaurant Services
Agreement dated as of the Closing Date among Seller, FRI-Admin Corporation, a
Delaware corporation, Coco's Restaurants, Inc., a California corporation, Far
West Concepts, Inc., a California corporation and Holdings, as in effect on the
Closing Date and as such agreement may be amended from time to time to the
extent permitted under subsection 7.15A.
"RESTRICTED ACCOUNT" has the meaning assigned to that term in Section
6.11.
"RESTRICTED ACCOUNT BANKS" means banks that have entered into one or
more Restricted Account Letters with any Loan Party and Administrative Agent.
"RESTRICTED ACCOUNT LETTER" means a Restricted Account Letter executed
and delivered by any Loan Party, Administrative Agent and a bank with which such
Loan Party maintains a Deposit Account, substantially in the form of Exhibit XXV
-----------
annexed hereto, with such modifications thereto as Administrative Agent shall
have agreed to, as such Restricted Account Letter may be amended, supplemented
or otherwise modified from time to time and "RESTRICTED ACCOUNT LETTERS" means
all such Restricted Account Letters, collectively.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company or Holdings now or hereafter outstanding, except a dividend payable
solely in shares of that class of stock to the holders of that class, (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
of Company or Holdings now or hereafter outstanding, (iii) any payment made to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock of Company or Holdings now
or hereafter outstanding, (iv) any payment or prepayment of principal of,
premium, if any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or similar payment
with respect to, any Subordinated Indebtedness or Holdings Notes, (v) any
payment by Company or any of its Subsidiaries to Holdings or any other Person
(other than Company
27
<PAGE>
and its Subsidiaries) under the Tax Allocation Agreement or any payment by
Holdings to any Person (other than any Loan Party) under the Tax Allocation
Agreement, (vi) any payment by Holdings to any Person (other than any Loan
Party) under the Management Services Agreement or any Permitted Franchise
Agreement (including, without limitation, any Permitted Franchise Fees and
Permitted Management Fees) and (vii) any other payment by any Loan Party to
Flagstar or any of its Affiliates (other than any Loan Party), including without
limitation management fees and any franchise fees).
"REVOLVING LENDERS" means any Lenders having Revolving Loan Exposure.
"REVOLVING LOAN COMMITMENT" means the commitment of a Revolving Lender
to make Revolving Loans to Company pursuant to subsection 2.1A(ii), and
"REVOLVING LOAN COMMITMENTS" means such commitments of all Revolving Lenders in
the aggregate.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means August 31, 1999.
"REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of any
date of determination (i) prior to the termination of the Revolving Loan
Commitments, that Lender's Revolving Loan Commitment and (ii) after the
termination of the Revolving Loan Commitments, the sum of (a) the aggregate
outstanding principal amount of the Revolving Loans of that Lender plus (b) in
----
the event that Lender is an Issuing Lender, the aggregate Letter of Credit Usage
in respect of all Letters of Credit issued by that Lender (in each case net of
any participations purchased by other Lenders in such Letters of Credit or any
unreimbursed drawings thereunder) plus (c) the aggregate amount of all
----
participations purchased by that Lender in any outstanding Letters of Credit or
any unreimbursed drawings under any Letters of Credit plus (d) in the case of
----
Swing Line Lender, the aggregate outstanding principal amount of all Swing Line
Loans (net of any participations therein purchased by other Lenders) plus (e)
----
the aggregate amount of all participations purchased by that Lender in any
outstanding Swing Line Loans.
"REVOLVING LOANS" means the Loans made by Revolving Lenders to Company
pursuant to subsection 2.1A(ii).
"REVOLVING NOTES" means (i) the promissory notes of Company issued
pursuant to subsection 2.1E(ii) on the Closing Date and (ii) any promissory
notes issued by Company pursuant to the last sentence of subsection 11.1B(i) in
connection with assignments of the Revolving Loan Commitments and Revolving
Loans of any Revolving Lenders, in each case substantially in the form of
Exhibit V annexed hereto, as they may be amended, supplemented or otherwise
- ---------
modified from time to time.
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any profit-
sharing agreement or arrangement, options, warrants, bonds, debentures, notes,
or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
28
<PAGE>
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing; provided,
--------
however that, solely for purposes of subsection 2.4B(iii)(d), notes issued by
- -------
Company to evidence any of the Obligations or to evidence Indebtedness incurred
after the Closing Date pursuant to subsection 7.1 shall not be deemed
"Securities".
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"SELLER" means Family Restaurants, Inc., a Delaware corporation.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"STANDBY LETTER OF CREDIT" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries arising by virtue of the laws of
any jurisdiction requiring third party insurers, (iv) obligations with respect
to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries, in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; provided that Standby
--------
Letters of Credit may not be issued for the purpose of supporting (a) trade
payables or (b) any Indebtedness constituting "antecedent debt" (as that term is
used in Section 547 of the Bankruptcy Code).
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of Company
subordinated in right of payment to the Obligations pursuant to documentation
containing maturities, amortization schedules, covenants, defaults, remedies,
subordination provisions and other material terms in form and substance
satisfactory to Agents and Requisite Lenders.
29
<PAGE>
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof; provided that so long as (i) less than 50% of the outstanding shares of
--------
stock of J.T. Beverages, Inc. and The L.C.S. Beverage Company, Inc. are owned by
the Loan Parties and (ii) such Persons continue to be Liquor License Affiliates
which conduct their business in accordance with subsection 7.14, such Persons
shall not be "Subsidiaries" of any Loan Party.
"SUBSIDIARY GUARANTOR" means any Subsidiary of Company that executes
and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or
from time to time thereafter pursuant to subsection 6.8.
"SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed and
delivered by existing Subsidiaries of Company on the Closing Date and to be
executed and delivered by additional Subsidiaries of Company from time to time
thereafter in accordance with subsection 6.8, substantially in the form of
Exhibit XVIII annexed hereto, as such Subsidiary Guaranty may hereafter be
- -------------
amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY PLEDGE AGREEMENT" means the Subsidiary Pledge Agreement
executed and delivered by existing Subsidiary Guarantors on the Closing Date and
to be executed and delivered by additional Subsidiary Guarantors from time to
time thereafter in accordance with subsection 6.8, substantially in the form of
Exhibit XIX annexed hereto, as such Subsidiary Pledge Agreement may hereafter be
- -----------
amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY SECURITY AGREEMENT" means the Subsidiary Security
Agreement executed and delivered by existing Subsidiary Guarantors on the
Closing Date or executed and delivered by additional Subsidiary Guarantors from
time to time thereafter in accordance with subsection 6.8, substantially in the
form of Exhibit XX annexed hereto, as such Subsidiary Security Agreement may
----------
hereafter be amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY TRADEMARK SECURITY AGREEMENT" means the Subsidiary
Trademark Security Agreement executed and delivered by existing Subsidiary
Guarantors on the Closing Date or executed and delivered by additional
Subsidiary Guarantors from time to time thereafter in accordance with subsection
6.8, substantially in the form of Exhibit XXI annexed hereto, as such Subsidiary
-----------
Trademark Security Agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
30
<PAGE>
"SUPERMAJORITY TERM LENDERS" means at any time Lenders having or
holding more than 70% of the sum of aggregate Term Loan Exposure of all Lenders.
"SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to that term
in subsection 10.1C.
"SWING LINE LENDER" means CL, or any Revolving Lender serving as a
successor Administrative Agent hereunder, in its capacity as Swing Line Lender
hereunder.
"SWING LINE LOAN COMMITMENT" means the commitment of Swing Line Lender
to make Swing Line Loans to Company pursuant to subsection 2.1A(iii).
"SWING LINE LOANS" means the Loans made by Swing Line Lender to
Company pursuant to subsection 2.1A(iii).
"SWING LINE NOTE" means (i) the promissory note of Company issued
pursuant to subsection 2.1E(iii) on the Closing Date and (ii) any promissory
note issued by Company to any successor Administrative Agent and Swing Line
Lender pursuant to the last sentence of subsection 10.5B, in each case
substantially in the form of Exhibit VI annexed hereto, as it may be amended,
----------
supplemented or otherwise modified from time to time.
"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; provided that "TAX ON THE OVERALL NET INCOME" of a Person shall be
--------
construed as a reference to a tax imposed by the jurisdiction in which that
Person is organized or in which that Person's principal office (and/or, in the
case of a Lender, its lending office) is located or in which that Person
(and/or, in the case of a Lender, its lending office) is deemed to be doing
business on all or part of the net income, profits or gains (whether worldwide,
or only insofar as such income, profits or gains are considered to arise in or
to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in
the case of a Lender, its lending office).
"TAX ALLOCATION AGREEMENT" means that certain Tax Sharing and
Allocation Agreement dated as of the Closing Date among FCI, Holdings and
Holdings' Subsidiaries, as in effect on the Closing Date, as such agreement may
be amended from time to time to the extent permitted under subsection 7.15C.
"TERM LENDERS" means any Lenders having Term Loan Exposure.
"TERM LOAN COMMITMENT" means the commitment of a Term Lender to make a
Term Loan to Company pursuant to subsection 2.1A(i), and "TERM LOAN COMMITMENTS"
means such commitments of all Term Lenders in the aggregate.
"TERM LOAN EXPOSURE" means, with respect to any Lender as of any date
of determination (i) prior to the funding of the Term Loans, that Lender's Term
Loan
31
<PAGE>
Commitment and (ii) after the funding of the Term Loans, the outstanding
principal amount of the Term Loan of that Lender.
"TERM LOANS" means the Loans made by Term Lenders to Company pursuant
to subsection 2.1A(i).
"TERM NOTES" means (i) the promissory notes of Company issued pursuant
to subsection 2.1E(i) on the Closing Date and (ii) any promissory notes issued
by Company pursuant to the last sentence of subsection 11.1B(i) in connection
with assignments of the Term Loan Commitments or Term Loans of any Lenders, in
each case substantially in the form of Exhibit IV annexed hereto, as they may be
----------
amended, supplemented or otherwise modified from time to time.
"TITLE COMPANY" means, collectively, Chicago Title Insurance Company
and/or one or more other title insurance companies reasonably satisfactory to
Administrative Agent.
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at any
date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans (other than Revolving Loans made for the purpose of
repaying any Refunded Swing Line Loans or reimbursing the applicable Issuing
Lender for any amount drawn under any Letter of Credit but not yet so applied)
plus (ii) the aggregate principal amount of all outstanding Swing Line Loans
- ----
plus (iii) the Letter of Credit Usage.
- ----
"TRANSACTION COSTS" means the fees, costs and expenses payable or
accrued by Holdings, Company or any of Company's Subsidiaries on or before the
Closing Date in connection with the transactions contemplated by the Loan
Documents and the Related Agreements.
"TRANSITION SERVICES AGREEMENT" means that certain Transition Services
Agreement dated as of the Closing Date between Seller and Holdings pursuant to
which Holdings purchases from Seller management information services and other
services, as in effect on the Closing Date and as such agreement may be amended
from time to time permitted under subsection 7.15A.
"UCC" means the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
"VOTING STOCK" means capital stock issued by a corporation, or
equivalent interest in any other Person, the holders of which are ordinarily, in
the absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even though the right to
vote has been suspended by the happening of any such a contingency.
32
<PAGE>
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER
------------------------------------------------------------------------
AGREEMENT.
---------
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to clauses (i), (ii),
(iii) and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP as
in effect at the time of such preparation (and delivered together with the
reconciliation statements provided for in subsection 6.1(v)). Calculations in
connection with the definitions, covenants and other provisions of this
Agreement shall utilize accounting principles and policies in conformity with
those used to prepare the financial statements referred to in subsection 5.3.
1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.
-------------------------------------------------------
A. Any of the terms defined herein may, unless the context otherwise
requires, be used in the singular or the plural, depending on the reference.
B. References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Agreement unless otherwise specifically
provided.
C. The use herein of the word "include" or "including", when
following any general statement, term or matter, shall not be construed to limit
such statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not
nonlimiting language (such as "without limitation" or "but not limited to" or
words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that fall within the broadest
possible scope of such general statement, term or matter.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; MAKING OF LOANS; THE REGISTER; NOTES.
-------------------------------------------------
A. COMMITMENTS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Holdings and Company
herein set forth, each Term Lender hereby severally agrees to make the Loans
described in subsection 2.1A(i), each Revolving Lender hereby severally agrees
to make the Loans described in subsection 2.1A(ii), and Swing Line Lender hereby
agrees to make the Loans described in subsection 2.1A(iii).
(i) Term Loans. Each Term Lender severally agrees to lend to Company
----------
on the Closing Date an amount not exceeding its Pro Rata Share of the
aggregate amount of the Term Loan Commitments to be used for the purposes
identified in subsection 2.5A. The amount of each Term Lender's Term Loan
Commitment is set forth opposite
33
<PAGE>
its name on Schedule 2.1 annexed hereto and the aggregate amount of the
------------
Term Loan Commitments is $56,000,000. Each Term Lender's Term Loan
Commitment shall expire immediately and without further action on June 30,
1996 if the Term Loans are not made on or before that date. Company may
make only one borrowing under the Term Loan Commitments. Amounts borrowed
under this subsection 2.1A(i) and subsequently repaid or prepaid may not be
reborrowed.
(ii) Revolving Loans. Each Revolving Lender severally agrees, subject
---------------
to the limitations set forth below with respect to the maximum amount of
Revolving Loans permitted to be outstanding from time to time, to lend to
Company from time to time during the period from the Closing Date to but
excluding the Revolving Loan Commitment Termination Date an aggregate
amount not exceeding its Pro Rata Share of the aggregate amount of the
Revolving Loan Commitments to be used for the purposes identified in
subsection 2.5B. The original amount of each Revolving Lender's Revolving
Loan Commitment is set forth opposite its name on Schedule 2.1 annexed
------------
hereto and the aggregate original amount of the Revolving Loan Commitments
is $35,000,000; provided that the Revolving Loan Commitments of Revolving
--------
Lenders shall be adjusted to give effect to any assignments of the
Revolving Loan Commitments pursuant to subsection 11.1B; and provided,
--------
further that the amount of the Revolving Loan Commitments shall be reduced
-------
from time to time by the amount of any reductions thereto made pursuant to
subsections 2.4B(ii) and 2.4B(iii). Each Revolving Lender's Revolving Loan
Commitment shall expire on the Revolving Loan Commitment Termination Date
and all Revolving Loans and all other amounts owed hereunder with respect
to the Revolving Loans and the Revolving Loan Commitments shall be paid in
full no later than that date; provided that each Revolving Lender's
--------
Revolving Loan Commitment shall expire immediately and without further
action on June 30, 1996 if the Term Loans are not made on or before that
date. Amounts borrowed under this subsection 2.1A(ii) may be repaid and
reborrowed during the period from the Closing Date to but excluding the
Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Revolving Loans and the Revolving Loan Commitments shall be subject to
the following limitations in the amounts and during the periods indicated:
(a) in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed the Revolving Loan Commitments then in
effect; and
(b) for 30 consecutive days during each consecutive twelve-month
period, the sum of the aggregate outstanding principal amount of all
Revolving Loans plus the aggregate outstanding principal amount of all
----
Swing Line Loans shall not exceed $10,000,000.
(iii) Swing Line Loans. Swing Line Lender hereby agrees, subject to
----------------
the limitations set forth below with respect to the maximum amount of Swing
Line Loans
34
<PAGE>
permitted to be outstanding from time to time, to make a portion of the
Revolving Loan Commitments available to Company from time to time during
the period from the Closing Date to but excluding the Revolving Loan
Commitment Termination Date by making Swing Line Loans to Company in an
aggregate amount not exceeding the amount of the Swing Line Loan Commitment
to be used for the purposes identified in subsection 2.5B, notwithstanding
the fact that such Swing Line Loans, when aggregated with Swing Line
Lender's outstanding Revolving Loans and Swing Line Lender's Pro Rata Share
of the Letter of Credit Usage then in effect, may exceed Swing Line
Lender's Revolving Loan Commitment. The original amount of the Swing Line
Loan Commitment is $10,000,000; provided that any reduction of the
--------
Revolving Loan Commitments made pursuant to subsection 2.4B(ii) or
2.4B(iii) which reduces the aggregate Revolving Loan Commitments to an
amount less than the then current amount of the Swing Line Loan Commitment
shall result in an automatic corresponding reduction of the Swing Line Loan
Commitment to the amount of the Revolving Loan Commitments, as so reduced,
without any further action on the part of Company, Agents or Swing Line
Lender. The Swing Line Loan Commitment shall expire on the Revolving Loan
Commitment Termination Date and all Swing Line Loans and all other amounts
owed hereunder with respect to the Swing Line Loans shall be paid in full
no later than that date; provided that the Swing Line Loan Commitment shall
--------
expire immediately and without further action on June 30, 1996 if the Term
Loans are not made on or before that date. Amounts borrowed under this
subsection 2.1A(iii) may be repaid and reborrowed during the period from
the Closing Date to but excluding the Revolving Loan Commitment Termination
Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Swing Line Loans and the Swing Line Loan Commitment shall be subject to
the following limitations in the amounts and during the periods indicated:
(a) in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed the Revolving Loan Commitments then in
effect; and
(b) for 30 consecutive days during each consecutive twelve-month
period, the sum of the aggregate outstanding principal amount of all
Revolving Loans plus the aggregate outstanding principal amount of all
----
Swing Line Loans shall not exceed $10,000,000.
Swing Line Lender, at any time in its sole and absolute discretion may
with respect to any amount of outstanding Swing Line Loans which have not
been voluntarily prepaid by Company pursuant to subsection 2.4B(i), and on
at least one Business Day during each ten calendar day period shall with
respect to all outstanding Swing Line Loans which have not been voluntarily
prepaid by Company pursuant to subsection 2.4B(i), deliver to
Administrative Agent at the Funding Notice Office (with a copy to Company),
no later than 11:00 A.M. (New York City time) on the first Business Day in
advance of the proposed Funding Date, a notice (which shall be
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deemed to be a Notice of Borrowing given by Company) requesting Revolving
Lenders to make Revolving Loans that are Base Rate Loans on such Funding
Date in an amount equal to the amount of the Swing Line Loans (the
"REFUNDED SWING LINE LOANS") outstanding on the date such notice is given
which Swing Line Lender requests Revolving Lenders to prepay. Anything
contained in this Agreement to the contrary notwithstanding, (i) the
proceeds of such Revolving Loans made by Revolving Lenders other than Swing
Line Lender shall be immediately delivered by Administrative Agent to Swing
Line Lender (and not to Company) and applied to repay a corresponding
portion of the Refunded Swing Line Loans and (ii) on the day such Revolving
Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing
Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan
made by Swing Line Lender, and such portion of the Swing Line Loans deemed
to be so paid shall no longer be outstanding as Swing Line Loans and shall
no longer be due under the Swing Line Note of Swing Line Lender but shall
instead constitute part of Swing Line Lender's outstanding Revolving Loans
and shall be due under the Revolving Note of Swing Line Lender. Company
hereby authorizes Administrative Agent and Swing Line Lender to charge
Company's accounts with Administrative Agent and Swing Line Lender (up to
the amount available in each such account) in order to immediately pay
Swing Line Lender the amount of the Refunded Swing Line Loans to the extent
the proceeds of such Revolving Loans made by Revolving Lenders, including
the Revolving Loan deemed to be made by Swing Line Lender, are not
sufficient to repay in full the Refunded Swing Line Loans. If any portion
of any such amount paid (or deemed to be paid) to Swing Line Lender should
be recovered by or on behalf of Company from Swing Line Lender in
bankruptcy, by assignment for the benefit of creditors or otherwise, the
loss of the amount so recovered shall be ratably shared among all Revolving
Lenders in the manner contemplated by subsection 11.5.
If for any reason (a) Revolving Loans are not made upon the request of
Swing Line Lender as provided in the immediately preceding paragraph in an
amount sufficient to repay any amounts owed to Swing Line Lender in respect
of any outstanding Swing Line Loans or (b) the Revolving Loan Commitments
are terminated at a time when any Swing Line Loans are outstanding, each
Revolving Lender shall be deemed to, and hereby agrees to, have purchased a
participation in such outstanding Swing Line Loans in an amount equal to
its Pro Rata Share (calculated, in the case of the foregoing clause (b),
immediately prior to such termination of the Revolving Loan Commitments) of
the unpaid amount of such Swing Line Loans together with accrued interest
thereon. Upon one Business Day's notice from Swing Line Lender, each
Revolving Lender shall deliver to Swing Line Lender an amount equal to its
respective participation in same day funds at the Funding and Payment
Office. In order to further evidence such participation (and without
prejudice to the effectiveness of the participation provisions set forth
above), each Revolving Lender agrees to enter into a separate participation
agreement at the request of Swing Line Lender in form and substance
reasonably satisfactory to Swing Line Lender. In the event any Revolving
Lender fails to make available to Swing Line Lender the amount of such
Revolving Lender's participation as provided in this paragraph, Swing Line
Lender shall be
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<PAGE>
entitled to recover such amount on demand from such Revolving Lender
together with interest thereon at the Federal Funds Rate for three Business
Days and thereafter at the Base Rate. In the event Swing Line Lender
receives a payment of any amount in which other Revolving Lenders have
purchased participations as provided in this paragraph, Swing Line Lender
shall promptly distribute to each such other Revolving Lender its Pro Rata
Share of such payment.
Anything contained herein to the contrary notwithstanding, each
Revolving Lender's obligation to make Revolving Loans for the purpose of
repaying any Refunded Swing Line Loans pursuant to the second preceding
paragraph and each Revolving Lender's obligation to purchase a
participation in any unpaid Swing Line Loans pursuant to the immediately
preceding paragraph shall be absolute and unconditional and shall not be
affected by any circumstance, including without limitation (a) any set-off,
counterclaim, recoupment, defense or other right which such Revolving
Lender may have against Swing Line Lender, Company or any other Person for
any reason whatsoever; (b) the occurrence or continuation of an Event of
Default or a Potential Event of Default; (c) any adverse change in the
business, operations, properties, assets, condition (financial or
otherwise) or prospects of Holdings, Company or any of Company's
Subsidiaries; (d) any breach of this Agreement or any other Loan Document
by any party thereto; or (e) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; provided that
--------
such obligations of each Revolving Lender are subject to the condition
that (X) Swing Line Lender believed in good faith that all conditions under
Section 4 to the making of the applicable Refunded Swing Line Loans or
other unpaid Swing Line Loans, as the case may be, were satisfied at the
time such Refunded Swing Line Loans or unpaid Swing Line Loans were made or
(Y) the satisfaction of any such condition not satisfied had been waived in
accordance with subsection 11.6 prior to or at the time such Refunded Swing
Line Loans or other unpaid Swing Line Loans were made.
B. BORROWING MECHANICS. Term Loans or Revolving Loans made on any
Funding Date (other than Revolving Loans made pursuant to a request by Swing
Line Lender pursuant to subsection 2.1A(iii) for the purpose of repaying any
Refunded Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B
for the purpose of reimbursing any Issuing Lender for the amount of a drawing
under a Letter of Credit issued by it) shall be in an aggregate minimum amount
of $1,000,000 and integral multiples of $500,000 in excess of that amount.
Swing Line Loans made on any Funding Date shall be in an aggregate minimum
amount of $500,000 and integral multiples of $100,000 in excess of that amount.
Whenever Company desires that Lenders make Term Loans or Revolving Loans it
shall deliver to Administrative Agent at the Funding Notice Office a Notice of
Borrowing no later than 11:00 A.M. (New York City time) at least three Business
Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate
Loan) or at least one Business Day in advance of the proposed Funding Date (in
the case of a Base Rate Loan). Whenever Company desires that Swing Line Lender
make a Swing Line Loan, it shall deliver to Administrative Agent at the Funding
Notice Office a Notice of Borrowing no later than 12:00 Noon (New York City
time) on the proposed Funding Date. The Notice of Borrowing shall specify (i)
the proposed
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<PAGE>
Funding Date (which shall be a Business Day), (ii) the amount and type of Loans
requested, (iii) in the case of Swing Line Loans, that such Loans shall be Base
Rate Loans, (iv) in the case of Revolving Loans or Term Loans, whether such
Loans shall be Base Rate Loans or Eurodollar Rate Loans; provided that any
-------------
Notice of Borrowing with respect to Eurodollar Rate Loans that is delivered
prior to the Closing Date shall include an indemnification provision in form and
substance satisfactory to each Agent indemnifying each Lender for all losses,
expenses and liabilities (including, without limitation, any interest paid by
that Lender to lenders of funds borrowed by it to make or carry its Eurodollar
Rate Loans and any loss, expense or liability sustained by that Lender in
connection with the liquidation or re-employment of such funds) which that
Lender may sustain, if for any reason (other than a default by that Lender) a
borrowing of such Eurodollar Rate Loans does not occur on a date specified
therefor in such Notice of Borrowing, and (v) in the case of any Loans requested
to be made as Eurodollar Rate Loans, the initial Interest Period requested
therefor. Term Loans and Revolving Loans may be continued as or converted into
Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection
2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may
give Administrative Agent telephonic notice by the required time of any proposed
borrowing under this subsection 2.1B; provided that such notice shall be
--------
promptly confirmed in writing by delivery of a Notice of Borrowing to
Administrative Agent on or before the applicable Funding Date.
Notwithstanding anything contained herein to the contrary, during the
period commencing on (and including) the Closing Date and ending on the earlier
of (i) the three-month anniversary of the date on which the first Eurodollar
Rate Loan is made under this Agreement and (ii) the date Administrative Agent
sends a notice to Company indicating that Lenders' primary syndication has been
concluded, (a) Company may only request Base Rate Loans or Eurodollar Rate Loans
with an Interest Period of one-month and (b) the last day of the Interest Period
applicable to any Eurodollar Rate Loan shall be the one-month anniversary, the
two-month anniversary or the three-month anniversary of the date on which the
first Eurodollar Rate Loan is made under this Agreement.
Neither Administrative Agent nor any Lender shall incur any liability
to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Company or
for otherwise acting in good faith under this subsection 2.1B, and upon funding
of Loans by Lenders in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected Loans hereunder.
Company shall notify Administrative Agent prior to the funding of any
Loans in the event that any of the matters to which Company is required to
certify in the applicable Notice of Borrowing is no longer true and correct as
of the applicable Funding Date, and the acceptance by Company of the proceeds of
any Loans shall constitute a re-certification by Company, as of the applicable
Funding Date, as to the matters to which Company is required to certify in the
applicable Notice of Borrowing.
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Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and Company shall be bound to make a borrowing in accordance
therewith.
C. DISBURSEMENT OF FUNDS. All Term Loans and Revolving Loans under this
Agreement shall be made by Lenders simultaneously and proportionately to their
respective Pro Rata Shares, it being understood that no Lender shall be
responsible for any default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder nor shall the Commitment of any
Lender to make the particular type of Loan requested be increased or decreased
as a result of a default by any other Lender in that other Lender's obligation
to make a Loan requested hereunder. Promptly after receipt by Administrative
Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice
in lieu thereof), Administrative Agent shall notify each Lender or Swing Line
Lender, as the case may be, of the proposed borrowing. Each Lender shall make
the amount of its Loan available to Administrative Agent not later than 12:00
Noon (New York City time) on the applicable Funding Date, and Swing Line Lender
shall make the amount of its Swing Line Loan available to Administrative Agent
not later than 2:00 P.M. (New York City time) on the applicable Funding Date, in
each case in same day funds in Dollars, at the Funding and Payment Office.
Except as provided in subsection 2.1A(iii) or subsection 3.3B with respect to
Revolving Loans used to repay Refunded Swing Line Loans or to reimburse any
Issuing Lender for the amount of a drawing under a Letter of Credit issued by
it, upon satisfaction or waiver of the conditions precedent specified in
subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the
case of all Loans), Administrative Agent shall make the proceeds of such Loans
available to Company on the applicable Funding Date by causing an amount of same
day funds in Dollars equal to the proceeds of all such Loans received by
Administrative Agent from Lenders or Swing Line Lender, as the case may be, to
be credited to the account of Company at the Funding and Payment Office.
Unless Administrative Agent shall have been notified by any Lender
prior to the Funding Date for any Loans that such Lender does not intend to make
available to Administrative Agent the amount of such Lender's Loan requested on
such Funding Date, Administrative Agent may assume that such Lender has made
such amount available to Administrative Agent on such Funding Date and
Administrative Agent may, in its sole discretion, but shall not be obligated to,
make available to Company a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to Administrative Agent by
such Lender, Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest thereon,
for each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the Federal Funds Rate for three Business Days and
thereafter at the Base Rate. If such Lender does not pay such corresponding
amount forthwith upon Administrative Agent's demand therefor, Administrative
Agent shall promptly notify Company and Company shall immediately pay such
corresponding amount to Administrative Agent together with interest thereon, for
each day from such Funding Date until the date such amount is paid to
Administrative Agent, at the rate payable under this Agreement for Base Rate
Loans. Nothing in this subsection 2.1C shall
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<PAGE>
be deemed to relieve any Lender from its obligation to fulfill its Commitments
hereunder or to prejudice any rights that Company may have against any Lender as
a result of any default by such Lender hereunder.
D. THE REGISTER.
(i) Administrative Agent shall maintain, at its address referred to in
subsection 11.8, a register for the recordation of the names and addresses
of Lenders and the Commitments and Loans of each Lender from time to time
(the "REGISTER"). The Register shall be available for inspection by
Company or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(ii) Administrative Agent shall record in the Register the Term Loan
Commitment and the Term Loan from time to time of each Term Lender, the
Revolving Loan Commitment and the Revolving Loans from time to time of each
Revolving Lender, the Swing Line Loan Commitment and the Swing Line Loans
from time to time of Swing Line Lender, and each repayment or prepayment in
respect of the principal amount of the Term Loan of each Term Lender,
Revolving Loans of each Revolving Lender or the Swing Line Loans of Swing
Line Lender. Any such recordation shall be conclusive and binding on
Company and each Lender, absent manifest error; provided that failure to
--------
make any such recordation, or any error in such recordation, shall not
affect any Lender's Commitments or Company's Obligations in respect of any
applicable Loans.
(iii) Each Term Lender and Revolving Lender shall record on its
internal records (including, without limitation, the Notes held by such
Lender) the amount of the Term Loan and each Revolving Loan, as applicable,
made by it and each payment in respect thereof. Any such recordation shall
be conclusive and binding on Company, absent manifest error; provided that
--------
failure to make any such recordation, or any error in such recordation,
shall not affect any Lender's Commitments or Company's Obligations in
respect of any applicable Loans; and provided, further that in the event of
-------- -------
any inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.
(iv) Company, Agents and Lenders shall deem and treat the Persons
listed as Lenders in the Register as the holders and owners of the
corresponding Commitments and Loans listed therein for all purposes hereof,
and no assignment or transfer of any such Commitment or Loan shall be
effective, in each case unless and until an Assignment Agreement effecting
the assignment or transfer thereof shall have been accepted by
Administrative Agent and recorded in the Register as provided in subsection
11.1B(ii). Prior to such recordation, all amounts owed with respect to the
applicable Commitment or Loan shall be owed to the Lender listed in the
Register as the owner thereof, and any request, authority or consent of any
Person who, at the time of making such request or giving such authority or
consent, is listed in the Register as
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<PAGE>
a Lender shall be conclusive and binding on any subsequent holder,
assignee or transferee of the corresponding Commitments or Loans.
(v) Company hereby designates CL to serve as Company's agent solely
for purposes of maintaining the Register as provided in this subsection
2.1D, and Company hereby agrees that, to the extent CL serves in such
capacity, CL and its officers, directors, employees, agents and affiliates
shall constitute Indemnitees for all purposes under subsection 11.3.
E. NOTES. Company shall execute and deliver on the Closing Date (i) to
each Term Lender (or to Administrative Agent for that Term Lender) a Term Note
substantially in the form of Exhibit IV annexed hereto to evidence that Term
----------
Lender's Term Loan, in the principal amount of that Term Lender's Term Loan and
with other appropriate insertions, (ii) to each Revolving Lender (or to
Administrative Agent for that Revolving Lender), a Revolving Note substantially
in the form of Exhibit V annexed hereto to evidence that Revolving Lender's
---------
Revolving Loans, in the principal amount of that Revolving Lender's Revolving
Loan Commitment and with other appropriate insertions, and (iii) to Swing Line
Lender (or to Administrative Agent for Swing Line Lender) a Swing Line Note
substantially in the form of Exhibit VI annexed hereto to evidence Swing Line
----------
Lender's Swing Line Loans, in the principal amount of the Swing Line Loan
Commitment and with other appropriate insertions.
2.2 INTEREST ON THE LOANS.
---------------------
A. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and
2.7, each Term Loan and each Revolving Loan shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate determined by reference to the Base Rate or
the Adjusted Eurodollar Rate. Subject to the provisions of subsection 2.7, each
Swing Line Loan shall bear interest on the unpaid principal amount thereof from
the date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate. The applicable basis for determining
the rate of interest with respect to any Term Loan or any Revolving Loan shall
be selected by Company initially at the time a Notice of Borrowing is given with
respect to such Loan pursuant to subsection 2.1B, and the basis for determining
the interest rate with respect to any Term Loan or any Revolving Loan may be
changed from time to time pursuant to subsection 2.2D. If on any day a Term Loan
or Revolving Loan is outstanding with respect to which notice has not been
delivered to Administrative Agent in accordance with the terms of this Agreement
specifying the applicable basis for determining the rate of interest, then for
that day that Loan shall bear interest determined by reference to the Base Rate.
Subject to the provisions of subsections 2.2E and 2.7, the Term Loans
and the Revolving Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, then at the sum of the Base Rate plus 1.50%
----
per annum; or
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<PAGE>
(ii) if a Eurodollar Rate Loan, then at the sum of the Adjusted
Eurodollar Rate plus 2.75% per annum.
----
Subject to the provisions of subsections 2.2E and 2.7, the Swing Line
Loans shall bear interest through maturity at the sum of the Base Rate plus
----
1.50% per annum.
B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan,
Company may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall
be, at Company's option, either a one, two, three or six month period; provided
--------
that:
(i) the initial Interest Period for any Eurodollar Rate Loan shall
commence on the Funding Date in respect of such Loan, in the case of a Loan
initially made as a Eurodollar Rate Loan, or on the date specified in the
applicable Notice of Conversion/Continuation, in the case of a Loan
converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest Periods applicable
to a Eurodollar Rate Loan continued as such pursuant to a Notice of
Conversion/Continuation, each successive Interest Period shall commence on
the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
--------
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (v) of this subsection 2.2B, end on the last Business Day
of a calendar month;
(v) no Interest Period with respect to any portion of the Term Loans
shall extend beyond August 31, 1999 and no Interest Period with respect to
any portion of the Revolving Loans shall extend beyond the Revolving Loan
Commitment Termination Date;
(vi) no Interest Period with respect to any portion of the Term Loans
shall extend beyond a date on which Company is required to make a scheduled
payment of principal of the Term Loans unless the sum of (a) the aggregate
principal amount of Term Loans that are Base Rate Loans plus (b) the
----
aggregate principal amount of Term Loans that are Eurodollar Rate Loans
with Interest Periods expiring on or before such date equals or exceeds the
principal amount required to be paid on the Term Loans on such date;
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<PAGE>
(vii) there shall be no more than 8 Interest Periods outstanding at
any time; and
(viii) in the event Company fails to specify an Interest Period for
any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of
Conversion/Continuation, Company shall be deemed to have selected an
Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity); provided that in the event any Swing Line Loans or any Revolving
--------
Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i),
interest accrued on such Swing Line Loans or Revolving Loans through the date of
such prepayment shall be payable on the next succeeding Interest Payment Date
applicable to Base Rate Loans (or, if earlier, at final maturity).
D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.6, Company shall have the option (i) to convert at any time all or any part of
its outstanding Term Loans or Revolving Loans equal to $1,000,000 and integral
multiples of $500,000 in excess of that amount from Loans bearing interest at a
rate determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis or (ii) upon the expiration of
any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any
portion of such Loan equal to $1,000,000 and integral multiples of $500,000 in
excess of that amount as a Eurodollar Rate Loan; provided, however, that a
--------- -------
Eurodollar Rate Loan may only be converted into a Base Rate Loan on the
expiration date of an Interest Period applicable thereto; and provided further,
-------- -------
that during the period commencing on (and including) the Closing Date and ending
on the earlier of (i) the three-month anniversary of the date on which the first
Eurodollar Rate Loan is made under this Agreement and (ii) the date
Administrative Agent sends a notice to Company indicating that Lenders' primary
syndication has been concluded, (a) no Loan may be made as or converted into a
Eurodollar Rate Loan having an Interest Period of longer than one month and (b)
the last day of the Interest Period applicable to any Eurodollar Rate Loan shall
be the one-month anniversary, the two-month anniversary or the three-month
anniversary of the date on which the first Eurodollar Rate Loan is made under
this Agreement.
Company shall deliver a Notice of Conversion/Continuation to
Administrative Agent no later than 11:00 A.M. (New York City time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan) and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation
shall specify (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount and type of the Loan to be converted/continued,
(iii) the nature of the proposed conversion/continuation, (iv) in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan, the requested
Interest Period, and (v) in the case of a conversion
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<PAGE>
to, or a continuation of, a Eurodollar Rate Loan, that no Potential Event of
Default or Event of Default has occurred and is continuing. In lieu of
delivering the above-described Notice of Conversion/Continuation, Company may
give Administrative Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2D; provided that such notice
--------
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Administrative Agent on or before the proposed
conversion/continuation date. Upon receipt of written or telephonic notice of
any proposed conversion/continuation under this subsection 2.2D, Administrative
Agent shall promptly transmit such notice by telefacsimile or telephone to each
Lender.
Neither Administrative Agent nor any Lender shall incur any liability
to Company in acting upon any telephonic notice referred to above that
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of Company or for
otherwise acting in good faith under this subsection 2.2D, and upon conversion
or continuation of the applicable basis for determining the interest rate with
respect to any Loans in accordance with this Agreement pursuant to any such
telephonic notice Company shall have effected a conversion or continuation, as
the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Conversion/Continuation for conversion to, or continuation of, a
Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable
on and after the related Interest Rate Determination Date, and Company shall be
bound to effect a conversion or continuation in accordance therewith.
E. DEFAULT RATE. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement with respect to the applicable Loans (or, in the
case of any such fees and other amounts, at a rate which is 2% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration
--------
of the Interest Period in effect at the time any such increase in interest rate
is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans
and shall thereafter bear interest payable upon demand at a rate which is 2% per
annum in excess of the interest rate otherwise payable under this Agreement for
Base Rate Loans. Payment or acceptance of the increased rates of interest
provided for in this subsection 2.2E is not a permitted alternative to timely
payment and shall not constitute a waiver of any Potential Event of Default or
Event of Default or otherwise prejudice or limit any rights or remedies of any
Agent or any Lender.
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F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed on
the basis of a 360-day year, in each case for the actual number of days elapsed
in the period during which it accrues. In computing interest on any Loan, the
date of the making of such Loan or the first day of an Interest Period
applicable to such Loan or, with respect to a Base Rate Loan being converted
from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan
to such Base Rate Loan, as the case may be, shall be included, and the date of
payment of such Loan or the expiration date of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar
Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate
Loan, as the case may be, shall be excluded; provided that if a Loan is repaid
--------
on the same day on which it is made, one day's interest shall be paid on that
Loan.
2.3 FEES.
----
A. COMMITMENT FEES. Company agrees to pay to Administrative Agent, for
distribution to each Revolving Lender in proportion to that Revolving Lender's
Pro Rata Share, commitment fees for the period from and including the Closing
Date to and excluding the Revolving Loan Commitment Termination Date equal to
the average of the daily excess of the Revolving Loan Commitments over the sum
of (i) the aggregate principal amount of outstanding Revolving Loans and Swing
Line Loans, plus (ii) the Letter of Credit Usage, multiplied by 1/2 of 1% per
---- ---------- --
annum, such commitment fees to be calculated on the basis of a 360-day year and
the actual number of days elapsed and to be payable quarterly in arrears on
February 28, May 31, August 31 and November 30 of each year, commencing on the
first such date to occur after the Closing Date, and on the Revolving Loan
Commitment Termination Date.
B. OTHER FEES. Company agrees to pay to Agents such other fees payable
by Company or Flagstar in the amounts and at the times as have been separately
agreed upon among Flagstar and Agents or Company and Agents, including without
limitation such other fees payable by Company or Flagstar pursuant to that
certain fee letter agreement dates as of February 29, 1996 among Flagstar, CL,
Bankers, Chemical and CUSA. After receipt of such other fees from Company,
Agents agree to pay to each Lender such portion of such other fees in the
amounts and at times as have been separately agreed upon in writing between
Agents and such Lender.
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS;
---------------------------------------------------------------------
GENERAL PROVISIONS REGARDING PAYMENTS; APPLICATION OF PROCEEDS OF
-----------------------------------------------------------------
COLLATERAL AND PAYMENTS UNDER GUARANTIES.
----------------------------------------
A. SCHEDULED PAYMENTS OF TERM LOANS.
Company shall make principal payments on the Term Loans in
installments on the dates and in the amounts set forth below:
45
<PAGE>
<TABLE>
<CAPTION>
Scheduled Repayment
Date of Term Loans
---- -------------------
<S> <C>
February 28, 1997 $ 4,000,000
May 31, 1997 $ 4,000,000
August 31, 1997 $ 4,000,000
November 30, 1997 $ 4,000,000
February 28, 1998 $ 5,000,000
May 31, 1998 $ 5,000,000
August 31, 1998 $ 5,000,000
November 30, 1998 $ 5,000,000
February 28, 1999 $ 6,000,000
May 31, 1999 $ 7,000,000
August 31, 1999 $ 7,000,000
-----------
Total: $56,000,000
===========
</TABLE>
; provided that the scheduled installments of principal of the Term Loans
--------
set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Term Loans in accordance with subsection
2.4B(iv); and provided, further that the Term Loans and all other amounts
-------- -------
owed hereunder with respect to the Term Loans shall be paid in full no later
than August 31, 1999, and the final installment payable by Company in
respect of the Term Loans on such date shall be in an amount, if such amount
is different from that specified above, sufficient to repay all amounts
owing by Company under this Agreement with respect to the Term Loans.
B. PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS.
(i) Voluntary Prepayments. Company may, upon written or telephonic
---------------------
notice to Administrative Agent at the Funding Notice Office on or prior to
12:00 Noon (New York City time) on the date of prepayment, which notice, if
telephonic, shall be promptly confirmed in writing, at any time and from
time to time prepay any Swing Line Loan on any Business Day in whole or in
part in an aggregate minimum amount of $500,000 and integral multiples of
$100,000 in excess of that amount. Company may, upon not less than one
Business Day's prior written or telephonic notice, in the case of Base Rate
Loans, and three Business Days' prior written or telephonic notice, in the
case of Eurodollar Rate Loans, in each case given to Administrative Agent at
the Funding Notice Office by 12:00 Noon (New York City time) on the date
required and, if given by telephone, promptly confirmed in writing to
Administrative Agent (which original written or telephonic notice
Administrative Agent will promptly transmit by telefacsimile or telephone to
each Lender), at any time and from time to time prepay any Term Loans or
Revolving Loans on any Business Day in whole or in part in an aggregate
minimum amount of $1,000,000 and integral multiples of $500,000 in excess of
that amount; provided, however, that a Eurodollar Rate Loan may only be
-------- -------
prepaid on the expiration of the Interest Period applicable thereto. Notice
of prepayment having
46
<PAGE>
been given as aforesaid, the principal amount of the Loans specified in such
notice shall become due and payable on the prepayment date specified
therein. Any such voluntary prepayment shall be applied as specified in
subsection 2.4B(iv).
(ii) Voluntary Reductions of Revolving Loan Commitments. Company may,
--------------------------------------------------
upon not less than three Business Days' prior written or telephonic notice
confirmed in writing to Administrative Agent at the Funding Notice Office
(which original written or telephonic notice Administrative Agent will
promptly transmit by telefacsimile or telephone to each Lender), at any time
and from time to time terminate in whole or permanently reduce in part,
without premium or penalty, the Revolving Loan Commitments in an amount up
to the amount by which the Revolving Loan Commitments exceed the Total
Utilization of Revolving Loan Commitments at the time of such proposed
termination or reduction; provided that any such partial reduction of the
--------
Revolving Loan Commitments shall be in an aggregate minimum amount of
$1,000,000 and integral multiples of $500,000 in excess of that amount.
Company's notice to Administrative Agent at the Funding Notice Office shall
designate the date (which shall be a Business Day) of such termination or
reduction and the amount of any partial reduction, and such termination or
reduction of the Revolving Loan Commitments shall be effective on the date
specified in Company's notice and shall reduce the Revolving Loan Commitment
of each Lender proportionately to its Pro Rata Share. Any such voluntary
reduction of the Revolving Loan Commitments shall be applied as specified in
subsection 2.4B(iv).
(iii) Mandatory Prepayments and Mandatory Reductions of Revolving Loan
----------------------------------------------------------------
Commitments. The Loans shall be prepaid and/or the Revolving Loan
-----------
Commitments shall be permanently reduced in the amounts and under the
circumstances set forth below, all such prepayments and/or reductions to be
applied as set forth below or as more specifically provided in subsection
2.4B(iv):
(a) Prepayments and Reductions From Net Asset Sale Proceeds.
-------------------------------------------------------
No later than the first Business Day following the date of receipt by
Holdings, Company or any of Company's Subsidiaries of any Net Asset
Sale Proceeds in respect of any Asset Sale in an aggregate cumulative
amount equal to or exceeding $1,000,000 (and as to which no prepayment
of the Loans shall have been made pursuant to this subsection
2.4B(iii)(a)), Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an aggregate amount equal
to such Net Asset Sale Proceeds; provided, however that so long as no
-------- -------
Event of Default or Potential Event of Default shall have occurred and
be continuing, the following Net Asset Sale Proceeds need not be
applied to the mandatory prepayment of the Loans or permanent reduction
of the Revolving Loan Commitments pursuant to this subsection
2.4B(iii)(a): (i) Net Asset Sale Proceeds received by Holdings, Company
or any of Company's Subsidiaries from and after the date hereof from
the sale of any restaurant (including its related equipment), to the
extent that such Net Asset Sale Proceeds are reinvested in new
restaurants or the construction or remodelling of restaurants
47
<PAGE>
within 180 days of such sale, and so long as the aggregate amount of
such Net Asset Sale Proceeds so excluded from the mandatory prepayment
provisions does not exceed $1,000,000 in any Fiscal Year, and (ii) Net
Asset Sale Proceeds from the sale and concurrent lease-back of any
restaurant opened or acquired after the Closing Date or any equipment
acquired after the Closing Date, in each case within 180 days of the
completion of such restaurant or the acquisition of such equipment, in
each case to the extent and only to the extent of Consolidated Capital
Expenditures made with respect to such restaurant or such equipment;
provided, further, that Company shall, within one Business Day of
-------- -------
the receipt by Holdings, Company or any of Company's Subsidiaries of
any Net Asset Sale Proceeds referred to in the immediately preceding
proviso, deliver to Administrative Agent at the Funding Notice Office
an Officers' Certificate setting forth (A) the amount of such Net Asset
Sale Proceeds and the amount of the mandatory prepayment to be made, if
any, pursuant to this subsection 2.4B(iii)(a) and setting forth in
reasonable detail the calculations from which such amounts were
derived, (B) with respect to the receipt of Net Asset Sale Proceeds
referred to in clause (i) above, in reasonable detail the intended
application of such Net Asset Sale Proceeds and the estimated costs and
timing of the reinvestment referred to in such clause (i) and (C) with
respect to the receipt of Net Asset Sale Proceeds referred to in clause
(ii) above, in reasonable detail the Consolidated Capital Expenditures
made by Loan Parties which account for the exclusion of any such Net
Asset Sale Proceeds from the requirements of this subsection
2.4B(iii)(a), which Officers' Certificate, in the case of clause (i)
above, may be amended by Company during the 180-day period following
receipt of such Net Asset Sale Proceeds. In the event that any portion
of any Net Asset Sale Proceeds received by Holdings, Company or any of
Company's Subsidiaries which are excluded from the mandatory prepayment
requirements of this subsection 2.4B(iii)(a) by operation of clause (i)
of the first proviso of the immediately preceding sentence are not
expended for the purposes specified in the Officers' Certificate, as
amended, delivered by Company in connection therewith within the 180-
day period specified in such clause, Company shall, immediately upon
the expiration of the applicable time period, make a mandatory
prepayment of the Loans as specified in the first sentence of this
subsection 2.4B(iii)(a) in an amount equal to such unexpended portion,
but only to the extent such amount has not been previously applied as a
mandatory prepayment under subsection 2.4B(iii)(e).
(b) Prepayments and Reductions from Net Insurance/Condemnation
----------------------------------------------------------
Proceeds. No later than the first Business Day following the date of
--------
receipt by Administrative Agent or by Holdings, Company or any of
Company's Subsidiaries of any Net Insurance/Condemnation Proceeds that
are required to be applied to prepay the Loans and/or reduce the
Revolving Loan Commitments pursuant to the provisions of subsection
6.4C, Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an
48
<PAGE>
aggregate amount equal to the amount of such Net Insurance/Condemnation
Proceeds.
(c) Prepayments and Reductions Due to Reversion of Surplus
------------------------------------------------------
Assets of Pension Plans. On the date of return to Holdings, Company or
-----------------------
any of Company's Subsidiaries of any surplus assets of any pension plan
of Holdings, Company or any of Company's Subsidiaries, Company shall
prepay the Loans and/or the Revolving Loan Commitments shall be
permanently reduced in an aggregate amount (such amount being the "NET
PENSION PROCEEDS") equal to 100% of such returned surplus assets, net
of transaction costs and expenses incurred in obtaining such return,
including incremental taxes payable as a result thereof.
(d) Prepayments and Reductions Due to Issuance of Debt
--------------------------------------------------
Securities. On the date of receipt by Holdings, Company or any of
----------
Company's Subsidiaries of the Cash proceeds (any such proceeds, net of
reasonable costs and expenses associated therewith, including without
limitation reasonable legal fees and expenses, being "NET SECURITIES
PROCEEDS") from the issuance of any debt Securities of Holdings,
Company or any of Company's Subsidiaries after the Closing Date,
Company shall prepay the Loans and/or the Revolving Loan Commitments
shall be permanently reduced in an aggregate amount equal to such Net
Securities Proceeds.
(e) Prepayments and Reductions from Consolidated Excess Cash
--------------------------------------------------------
Flow. In the event that there shall be Consolidated Excess Cash Flow
----
for any Fiscal Year (commencing with Fiscal Year 1996), Company shall,
no later than 90 days after the end of such Fiscal Year, prepay the
Loans and/or the Revolving Loan Commitments shall be permanently
reduced in an aggregate amount equal to 75% of such Consolidated Excess
Cash Flow.
(f) Calculations of Net Proceeds Amounts; Additional
------------------------------------------------
Prepayments and Reductions Based on Subsequent Calculations.
-----------------------------------------------------------
Concurrently with any prepayment of the Loans and/or reduction of the
Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(e),
Company shall deliver to Administrative Agent at the Funding Notice
Office an Officers' Certificate demonstrating the calculation of the
amount (the "NET PROCEEDS AMOUNT") of the applicable Net Asset Sale
Proceeds or Net Insurance/Condemnation Proceeds, the applicable Net
Pension Proceeds or Net Securities Proceeds (as such terms are defined
in subsections 2.4B(iii)(c) and (d)), or the applicable Consolidated
Excess Cash Flow, as the case may be, that gave rise to such prepayment
and/or reduction. In the event that Company shall subsequently
determine that the actual Net Proceeds Amount was greater than the
amount set forth in such Officers' Certificate, Company shall promptly
make an additional prepayment of the Loans (and/or, if applicable, the
Revolving Loan Commitments shall be permanently reduced) in an amount
equal to the amount of such excess, and Company shall
49
<PAGE>
concurrently therewith deliver to Administrative Agent at the Funding
Notice Office an Officers' Certificate demonstrating the derivation of
the additional Net Proceeds Amount resulting in such excess. If,
following the receipt by Holdings, Company or any of Company's
Subsidiaries of Cash proceeds of any Net Proceeds Amount, Company is
required to apply or cause to be applied any portion of such Net
Proceeds Amount to prepay any Funded Debt (other than any Funded Debt
required to be prepaid as contemplated by clause (ii) of the definition
of Net Asset Sale Proceeds) of any Loan Party pursuant to the
applicable documents pursuant to which such Funded Debt was issued,
then, notwithstanding anything in this subsection 2.4B(iii), Company
shall prepay the Loans and/or permanently reduce the Revolving Loan
Commitments so as to eliminate any obligation to prepay such Funded
Debt.
(g) Prepayments Due to Reductions or Restrictions of Revolving Loan
---------------------------------------------------------------
Commitments. Company shall from time to time prepay first the Swing
----------- -----
Line Loans and second the Revolving Loans to the extent necessary (1)
------
so that the Total Utilization of Revolving Loan Commitments shall not
at any time exceed the Revolving Loan Commitments then in effect and
(2) to give effect to the limitations set forth in clause (b) of the
second paragraph of subsection 2.1A(ii) and clause (b) of the second
paragraph of subsection 2.1A(iii).
(iv) Application of Prepayments.
--------------------------
(a) Application of Voluntary Prepayments by Type of Loans and Order
---------------------------------------------------------------
of Maturity. Any voluntary prepayments pursuant to subsection 2.4B(i)
-----------
shall be applied as specified by Company in the applicable notice of
prepayment; provided that in the event Company fails to specify the
--------
Loans to which any such prepayment shall be applied, such prepayment
shall be applied first to repay outstanding Term Loans to the full
-----
extent thereof, second to repay outstanding Swing Line Loans to the
------
full extent thereof, and third to repay outstanding Revolving Loans to
-----
the full extent thereof. Any voluntary prepayments of the Term Loans
pursuant to subsection 2.4B(i) shall be applied first, to the
-----
prepayment of the Term Loan in an amount equal to any installments of
principal of the Term Loans set forth in subsection 2.4A that
are scheduled to be paid within twelve months of the date of such
voluntary prepayment and which remain unpaid at the time of such
voluntary prepayment, such prepayment of the Term Loans to be applied
to reduce such scheduled installments of principal of the Term Loans in
forward order of maturity and second, to the extent of any excess, on a
------
pro rata basis (in accordance with the respective outstanding principal
amounts thereof) to each scheduled installment of principal of the Term
Loans set forth in subsection 2.4A that is unpaid at the time of such
prepayment.
(b) Application of Mandatory Prepayments by Type of Loans.
-----------------------------------------------------
Any amount (the "APPLIED AMOUNT") required to be applied as a
mandatory
50
<PAGE>
prepayment of the Loans and/or a reduction of the Revolving
Loan Commitments pursuant to subsections 2.4B(iii)(a)-(f) shall be
applied first to prepay the Term Loans to the full extent thereof,
-----
second, to the extent of any remaining portion of the Applied Amount,
------
to prepay the Swing Line Loans to the full extent thereof and, except
in the case of any Applied Amount required to be applied pursuant to
subsection 2.4B(iii)(e), to permanently reduce the Revolving Loan
Commitments by the amount of such prepayment, third, to the extent of
-----
any remaining portion of the Applied Amount, to prepay the Revolving
Loans to the full extent thereof and, except in the case of any Applied
Amount required to be applied pursuant to subsection 2.4B(iii)(e), to
further permanently reduce the Revolving Loan Commitments by the amount
of such prepayment, and fourth, to the extent of any remaining portion
------
of the Applied Amount, except in the case of any Applied Amount
required to be applied pursuant to subsection 2.4B(iii)(e), to further
permanently reduce the Revolving Loan Commitments to the full extent
thereof.
(c) Application of Mandatory Prepayments of Term Loans by Order of
--------------------------------------------------------------
Maturity. Any mandatory prepayments of the Term Loans pursuant to
--------
subsection 2.4B(iii) shall be applied first to the prepayment of the
-----
Term Loans in an amount equal to any installments of principal of the
Term Loans set forth in subsection 2.4A that are scheduled to be paid
within twelve months of the date of such mandatory prepayment and which
remain unpaid at the time of such mandatory prepayment, such prepayment
of the Term Loans to be applied to reduce such scheduled installments
of principal of the Term Loans in forward order of maturity and second,
------
to the extent of any excess, on a pro rata basis (in accordance with
the respective outstanding principal amounts thereof) to each scheduled
installment of principal of the Term Loans set forth in subsection 2.4A
that is unpaid at the time of such prepayment.
(d) Application of Prepayments to Base Rate Loans and Eurodollar
------------------------------------------------------------
Rate Loans. Considering Term Loans and Revolving Loans being prepaid
----------
separately, any prepayment thereof shall be applied first to Base Rate
Loans to the full extent thereof before application to Eurodollar Rate
Loans, in each case in a manner which minimizes the amount of any
payments required to be made by Company pursuant to subsection 2.6D.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by Company of principal,
--------------------------
interest, fees and other Obligations hereunder and under the Notes shall be
made in Dollars in same day funds, without defense, setoff or counterclaim,
free of any restriction or condition, and delivered to Administrative Agent
not later than 12:00 Noon (New York City time) on the date due at the
Funding and Payment Office for the account of Lenders; funds received by
Administrative Agent after that time on such due date shall be deemed to
have been paid by Company on the next succeeding Business
51
<PAGE>
Day and such extension of time shall be included in the computation of the
payment of interest hereunder or of the commitment fees hereunder, as the
case may be. Company hereby authorizes Administrative Agent to charge its
accounts with Administrative Agent in order to cause timely payment to be
made to Administrative Agent of all principal, interest, fees and expenses
due hereunder (subject to sufficient funds being available in its accounts
for that purpose).
(ii) Application of Payments to Principal and Interest. Except as
-------------------------------------------------
provided in subsection 2.2C, all payments in respect of the principal amount
of any Loan shall include payment of accrued interest on the principal
amount being repaid or prepaid, and all such payments (and, in any event,
any payments in respect of any Loan on a date when interest is due and
payable with respect to such Loan) shall be applied to the payment of
interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
-------------------------
payments in respect of Term Loans and Revolving Loans shall be apportioned
among all outstanding Loans to which such payments relate, in each case
proportionately to Lenders' respective Pro Rata Shares. Administrative
Agent shall promptly distribute to each Lender, at its primary address set
forth below its name on the appropriate signature page hereof or at such
other address as such Lender may request, its Pro Rata Share of all such
payments received by Administrative Agent and the commitment fees of such
Lender when received by Administrative Agent pursuant to subsection 2.3.
Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if,
pursuant to the provisions of subsection 2.6C, any Notice of
Conversion/Continuation is withdrawn as to any Affected Lender or if any
Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any
Eurodollar Rate Loans, Administrative Agent shall give effect thereto in
apportioning payments received thereafter.
(iv) Payments on Business Days. Whenever any payment to be made
-------------------------
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before disposing of
-------------------
any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; provided
--------
that the failure to make (or any error in the making of) a notation of any
Loan made under such Note shall not limit or otherwise affect the
obligations of Company hereunder or under such Note with respect to any Loan
or any payments of principal or interest on such Note.
52
<PAGE>
D. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER
GUARANTIES.
(i) Application of Proceeds of Collateral. Except as provided in
-------------------------------------
subsection 2.4B(iii)(a) with respect to prepayments from Net Asset Sale
Proceeds, all proceeds received by Administrative Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral under any Collateral Document may, in the discretion of Agents,
be held by Administrative Agent as Collateral for, and/or (then or at any
time thereafter) applied in full or in part by Administrative Agent against,
the applicable Secured Obligations (as defined in such Collateral Document)
in the following order of priority:
(a) To the payment of all costs and expenses of such sale,
collection or other realization, including reasonable compensation to
Administrative Agent and its agents and counsel, and all other
expenses, liabilities and advances made or incurred by Administrative
Agent in connection therewith, and all amounts for which Administrative
Agent is entitled to indemnification under such Collateral Document and
all advances made by Administrative Agent thereunder for the account of
the applicable Loan Party, and to the payment of all costs and expenses
paid or incurred by Administrative Agent in connection with the
exercise of any right or remedy under such Collateral Document, all in
accordance with the terms of this Agreement and such Collateral
Document;
(b) thereafter, to the extent of any excess of such proceeds, to
the payment of all other such Secured Obligations for the ratable
benefit of the holders thereof; and
(c) thereafter, to the extent of any excess of such proceeds, to
the payment to or upon the order of such Loan Party or to whosoever may
be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
(ii) Application of Payments Under Guaranties. All payments
----------------------------------------
received by Administrative Agent under either Guaranty shall be applied
promptly from time to time by Administrative Agent in the following order of
priority:
(a) To the payment of the costs and expenses of any collection or
other realization under such Guaranty, including reasonable
compensation to Administrative Agent and its agents and counsel, and
all expenses, liabilities and advances made or incurred by
Administrative Agent in connection therewith, all in accordance with
the terms of this Agreement and such Guaranty;
(b) thereafter, to the extent of any excess of such payments, to
the payment of all other Guarantied Obligations (as defined in such
Guaranty) for the ratable benefit of the holders thereof; and
53
<PAGE>
(c) thereafter, to the extent of any excess of such payments, to
the payment to Holdings or the applicable Subsidiary Guarantor or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct.
2.5 USE OF PROCEEDS.
---------------
A. TERM LOANS. $51,169,460 of the proceeds of the Term Loans shall
be immediately loaned to Holdings and such proceeds, together with the proceeds
of the equity capitalization of Holdings described in subsection 4.1D(i) and the
issuance and delivery of the Holdings Notes described in subsection 4.1H(iii),
shall be immediately applied by Holdings to fund the Acquisition Financing
Requirements and $4,830,540 of the proceeds of the Term Loans shall be used by
Company to pay Transaction Costs.
B. REVOLVING LOANS; SWING LINE LOANS. The proceeds of any Revolving
Loans and any Swing Line Loans shall be applied by Company for working capital
requirements and other general corporate purposes, which may include the making
of intercompany loans to any of Company's wholly-owned Subsidiaries, in
accordance with subsection 7.1(iv), for their own working capital requirements
and other general corporate purposes, including Transaction Costs not paid on
the Closing Date.
C. MARGIN REGULATIONS. No portion of the proceeds of any borrowing
under this Agreement shall be used by Holdings, Company or any of Company's
Subsidiaries in any manner (i) that might cause the borrowing or the application
of such proceeds to violate Regulation G, Regulation U, Regulation T or
Regulation X of the Board of Governors of the Federal Reserve System or any
other regulation of such Board or to violate the Exchange Act, in each case as
in effect on the date or dates of such borrowing and such use of proceeds, or
(ii) to purchase or carry any Margin Stock or to extend credit to others for the
purpose of purchasing or carrying any Margin Stock.
2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to Eurodollar Rate Loans as
to the matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable
after 11:00 A.M. (New York City time) on each Interest Rate Determination Date,
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate Loans for which an interest rate is then
being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to Company and
each Lender.
54
<PAGE>
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
Administrative Agent shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto), on any Interest Rate
Determination Date with respect to any Eurodollar Rate Loans, that by reason of
circumstances affecting the London interbank market adequate and fair means do
not exist for ascertaining the interest rate applicable to such Loans on the
basis provided for in the definition of Adjusted Eurodollar Rate, Administrative
Agent shall on such date give notice (by telefacsimile or by telephone confirmed
in writing) to Company and each Term Lender or each Revolving Lender, as
applicable, of such determination, whereupon (i) no Loans may be made as, or
converted to, Eurodollar Rate Loans until such time as Administrative Agent
notifies Company and Lenders that the circumstances giving rise to such notice
no longer exist and (ii) any Notice of Borrowing or Notice of Conversion/
Continuation given by Company with respect to the Loans in respect of which such
determination was made shall be deemed to be rescinded by Company.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Company and Agents) that the making,
maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful
as a result of compliance by such Lender in good faith with any law, treaty,
governmental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Lender material hardship,
as a result of contingencies occurring after the date of this Agreement which
materially and adversely affect the London interbank market or the position of
such Lender in that market, then, and in any such event, such Lender shall be an
"AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by
telephone confirmed in writing) to Company and Administrative Agent of such
determination (which notice Administrative Agent shall promptly transmit to each
other Lender). Thereafter (a) the obligation of the Affected Lender to make
Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until
such notice shall be withdrawn by the Affected Lender, (b) to the extent such
determination by the Affected Lender relates to a Eurodollar Rate Loan then
being requested by Company pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, the Affected Lender shall make such Loan as (or convert
such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's
obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED
LOANS") shall be terminated at the earlier to occur of the expiration of the
Interest Period then in effect with respect to the Affected Loans or when
required by law, and (d) the Affected Loans shall automatically convert into
Base Rate Loans on the date of such termination. Notwithstanding the foregoing,
to the extent a determination by an Affected Lender as described above relates
to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice
of Borrowing or a Notice of Conversion/Continuation, Company shall have the
option, subject to the provisions of subsection 2.6D, to rescind such Notice of
Borrowing or Notice of Conversion/Continuation as to all Lenders by giving
notice (by telefacsimile or by telephone confirmed in writing) to Administrative
Agent of such rescission on the date on which the Affected Lender gives notice
of its determination as described above (which notice of rescission
Administrative Agent shall
55
<PAGE>
promptly transmit to each other Lender). Except as provided in the immediately
preceding sentence, nothing in this subsection 2.6C shall affect the obligation
of any Lender other than an Affected Lender to make or maintain Loans as, or to
convert Loans to, Eurodollar Rate Loans in accordance with the terms of this
Agreement.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth the basis for requesting such amounts and shall be
conclusive and binding absent manifest error), for all losses, expenses and
liabilities (including, without limitation, any interest paid by that Lender to
lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and
any loss, expense or liability sustained by that Lender in connection with the
liquidation or re-employment of such funds) which that Lender may sustain: (i)
if for any reason (other than a default by that Lender) a borrowing of any
Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of
Borrowing or a telephonic request for borrowing, or a conversion to or
continuation of any Eurodollar Rate Loan does not occur on a date specified
therefor in a Notice of Conversion/Continuation or a telephonic request for
conversion or continuation, (ii) if any prepayment (including without limitation
any prepayment pursuant to subsection 2.4B(i)) or other principal payment or any
conversion of any of its Eurodollar Rate Loans occurs on a date prior to the
last day of an Interest Period applicable to that Loan, (iii) if any prepayment
of any of its Eurodollar Rate Loans is not made on any date specified in a
notice of prepayment given by Company, or (iv) as a consequence of any other
default by Company in the repayment of its Eurodollar Rate Loans when required
by the terms of this Agreement.
E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS.
Calculation of all amounts payable to a Lender under this subsection 2.6 and
under subsection 2.7A shall be made as though that Lender had actually funded
each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar
deposit bearing interest at the rate obtained pursuant to the definition of Base
Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan
and having a maturity comparable to the relevant Interest Period and through the
transfer of such Eurodollar deposit from an offshore office of that Lender to a
domestic office of that Lender in the United States of America; provided,
--------
however, that each Lender may fund each of its Eurodollar Rate Loans in any
- -------
manner it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this subsection 2.6 and under
subsection 2.7A.
G. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and
during the continuation of a Potential Event of Default or an Event of Default,
(i) Company may not elect to have a Loan be made or maintained as, or converted
to, a Eurodollar Rate Loan after the expiration of any Interest Period then in
effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any
Notice of Borrowing or Notice of Conversion/Continuation given by
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Company with respect to a requested borrowing or conversion/continuation that
has not yet occurred shall be deemed to be rescinded by Company.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
----------------------------------------
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the
provisions of subsection 2.7B (which shall be controlling with respect to the
matters covered thereby), in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such Lender)
with respect to this Agreement or any of its obligations hereunder or any
payments to such Lender (or its applicable lending office) of principal,
interest, fees or any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or
for the account of, or advances or loans by, or other credit extended by, or
any other acquisition of funds by, any office of such Lender (other than any
such reserve or other requirements with respect to Eurodollar Rate Loans
that are reflected in the definition of Adjusted Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, Company shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to Company (with a copy to Administrative
Agent) a written statement, setting forth in reasonable detail the basis for
calculating the additional amounts owed to such Lender under this subsection
2.7A, which statement shall be conclusive and binding upon all parties hereto
absent manifest error.
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B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. All sums payable by Company under
-----------------------------
this Agreement and the other Loan Documents shall (except to the extent
required by law) be paid free and clear of, and without any deduction or
withholding on account of, any Tax (other than a Tax on the overall net
income of any Lender) imposed, levied, collected, withheld or assessed by or
within the United States of America or any political subdivision in or of
the United States of America or any other jurisdiction from or to which a
payment is made by or on behalf of Company or by any federation or
organization of which the United States of America or any such jurisdiction
is a member at the time of payment.
(ii) Grossing-up of Payments. If Company or any other Person is
-----------------------
required by law to make any deduction or withholding on account of any such
Tax from any sum paid or payable by Company to any Agent or any Lender under
any of the Loan Documents:
(a) Company shall notify Administrative Agent of any such
requirement or any change in any such requirement as soon as Company
becomes aware of it;
(b) Company shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability
to pay is imposed on Company) for its own account or (if that
liability is imposed on such Agent or such Lender, as the case may
be) on behalf of and in the name of such Agent or such Lender;
(c) the sum payable by Company in respect of which the relevant
deduction, withholding or payment is required shall be increased to the
extent necessary to ensure that, after the making of that deduction,
withholding or payment, such Agent or such Lender, as the case may be,
receives on the due date a net sum equal to what it would have received
had no such deduction, withholding or payment been required or made;
and
(d) within 30 days after paying any sum from which it is required
by law to make any deduction or withholding, and within 30 days after
the due date of payment of any Tax which it is required by clause (b)
above to pay, Company shall deliver to Administrative Agent evidence
satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to any
--------
Lender under clause (c) above except to the extent that any change after the
date hereof (in the case of each Lender listed on the signature pages
hereof) or after the date of the Assignment Agreement pursuant to which such
Lender became a Lender (in the case
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of each other Lender) in any such requirement for a deduction, withholding
or payment as is mentioned therein shall result in an increase in the rate
of such deduction, withholding or payment from that in effect at the date of
this Agreement or at the date of such Assignment Agreement, as the case may
be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
-----------------------------------------------
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other
political subdivision thereof (for purposes of this subsection
2.7B(iii), a "NON-US LENDER") shall deliver to Administrative Agent for
transmission to Company, on or prior to the Closing Date (in the case
of each Lender listed on the signature pages hereof) or on or prior to
the date of the Assignment Agreement pursuant to which it becomes a
Lender (in the case of each other Lender), and at such other times as
may be necessary in the determination of Company or Administrative
Agent (each in the reasonable exercise of its discretion), (1) two
original copies of Internal Revenue Service Form 1001 or 4224 (or any
successor forms), properly completed and duly executed by such Lender,
together with any other certificate or statement of exemption required
under the Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is not subject to deduction or withholding
of United States federal income tax with respect to any payments to
such Lender of principal, interest, fees or other amounts payable under
any of the Loan Documents or (2) if such Lender is not a "bank" or
other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form 1001 or
4224 pursuant to clause (1) above, a Certificate re Non-Bank Status
together with two original copies of Internal Revenue Service Form W-8
(or any successor form), properly completed and duly executed by such
Lender, together with any other certificate or statement of exemption
required under the Internal Revenue Code or the regulations issued
thereunder to establish that such Lender is not subject to deduction or
withholding of United States federal income tax with respect to any
payments to such Lender of interest payable under any of the Loan
Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees,
from time to time after the initial delivery by such Lender of such
forms, certificates or other evidence, whenever a lapse in time or
change in circumstances renders such forms, certificates or other
evidence obsolete or inaccurate in any material respect, that such
Lender shall promptly (1) deliver to Administrative Agent for
transmission to Company two new original copies of Internal Revenue
Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two
original copies of Internal Revenue Service Form W-8, as the case may
be, properly completed and duly executed by such Lender, together with
any other certificate or statement of
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exemption required in order to confirm or establish that such Lender is
not subject to deduction or withholding of United States federal income
tax with respect to payments to such Lender under the Loan Documents or
(2) notify Administrative Agent and Company of its inability to deliver
any such forms, certificates or other evidence.
(c) Company shall not be required to pay any additional amount to
any Non-US Lender under clause (c) of subsection 2.7B(ii) if such
Lender shall have failed to satisfy the requirements of clause (a) or
(b)(1) of this subsection 2.7B(iii); provided that if such Lender shall
--------
have satisfied the requirements of subsection 2.7B(iii)(a) on the
Closing Date (in the case of each Lender listed on the signature pages
hereof) or on the date of the Assignment Agreement pursuant to which it
became a Lender (in the case of each other Lender), nothing in this
subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay
any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in
the event that, as a result of any change in any applicable law, treaty
or governmental rule, regulation or order, or any change in the
interpretation, administration or application thereof, such Lender is
no longer properly entitled to deliver forms, certificates or other
evidence at a subsequent date establishing the fact that such Lender
is not subject to withholding as described in subsection 2.7B(iii)(a).
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability after the date
hereof of any law, rule or regulation (or any provision thereof) regarding
capital adequacy, or any change therein or in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of, or with reference
to, such Lender's Loans or Commitments or Letters of Credit or participations
therein or other obligations hereunder with respect to the Loans or the Letters
of Credit to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Lender or such controlling corporation with regard to capital adequacy),
then from time to time, within five Business Days after receipt by Company from
such Lender of the statement referred to in the next sentence, Company shall pay
to such Lender such additional amount or amounts as will compensate such Lender
or such controlling corporation on an after-tax basis for such reduction. Such
Lender shall deliver to Company (with a copy to Administrative Agent) a written
statement, setting forth in reasonable detail the basis of the calculation of
such additional amounts, which statement shall be conclusive and binding upon
all parties hereto absent manifest error.
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2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE.
-----------------------------------------------------
Each Lender and Issuing Lender agrees that, as promptly as practicable
after the officer of such Lender or Issuing Lender responsible for administering
the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may
be, becomes aware of the occurrence of an event or the existence of a condition
that would cause such Lender to become an Affected Lender or that would entitle
such Lender or Issuing Lender to receive payments under subsection 2.7 or
subsection 3.6, it will, to the extent not inconsistent with the internal
policies of such Lender or Issuing Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, issue, fund or maintain the
Commitments of such Lender or the affected Loans or Letters of Credit of such
Lender or Issuing Lender through another lending or letter of credit office of
such Lender or Issuing Lender, or (ii) take such other measures as such Lender
or Issuing Lender may deem reasonable, if as a result thereof the circumstances
which would cause such Lender to be an Affected Lender would cease to exist or
the additional amounts which would otherwise be required to be paid to such
Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be
materially reduced and if, as determined by such Lender or Issuing Lender in its
sole discretion, the making, issuing, funding or maintaining of such Commitments
or Loans or Letters of Credit through such other lending or letter of credit
office or in accordance with such other measures, as the case may be, would
not otherwise materially adversely affect such Commitments or Loans or Letters
of Credit or the interests of such Lender or Issuing Lender; provided that
--------
such Lender or Issuing Lender will not be obligated to utilize such other
lending or letter of credit office pursuant to this subsection 2.8 unless
Company agrees to pay all incremental expenses incurred by such Lender or
Issuing Lender as a result of utilizing such other lending or letter of credit
office as described in clause (i) above. A certificate as to the amount of any
such expenses payable by Company pursuant to this subsection 2.8 (setting forth
in reasonable detail the basis for requesting such amount) submitted by such
Lender or Issuing Lender to Company (with a copy to Administrative Agent) shall
be conclusive absent manifest error.
SECTION 3. LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT AND REVOLVING LENDERS' PURCHASE OF
----------------------------------------------------------------
PARTICIPATIONS THEREIN.
----------------------
A. LETTERS OF CREDIT. In addition to Company requesting that
Revolving Lenders make Revolving Loans pursuant to subsection 2.1A(ii) and that
Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iii),
Company may request, in accordance with the provisions of this subsection 3.1,
from time to time during the period from the Closing Date to but excluding the
Revolving Loan Commitment Termination Date, that one or more Revolving Lenders
issue Letters of Credit for the account of Company for the purposes specified in
the definition of Standby Letters of Credit. Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties of Company herein set forth, any one or more Revolving Lenders may,
but (except as provided in subsection 3.1B(ii)) shall not be obligated to, issue
such Letters of Credit in accordance with the
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provisions of this subsection 3.1; provided that Company shall not request
--------
that any Revolving Lender issue (and no Revolving Lender shall issue):
(i) any Letter of Credit if, after giving effect to such issuance, the
Total Utilization of Revolving Loan Commitments would exceed the Revolving
Loan Commitments then in effect; or
(ii) any Letter of Credit having an expiration date later than the
earlier of (a) the Revolving Loan Commitment Termination Date and (b) the
date which is one year from the date of issuance of such Letter of Credit;
provided that the immediately preceding clause (b) shall not prevent any
--------
Issuing Lender from agreeing that a Letter of Credit will automatically be
extended for one or more successive periods not to exceed one year each
unless such Issuing Lender elects not to extend for any such additional
period; and provided, further that such Issuing Lender shall elect not to
-------- -------
extend such Letter of Credit if it has knowledge that an Event of Default
has occurred and is continuing (and has not been waived in accordance with
subsection 11.6) at the time such Issuing Lender must elect whether or not
to allow such extension; and provided further that an Issuing Lender may
-------- -------
agree in its sole discretion to permit any Letter of Credit to have an
expiration date not later than 60 days before the first anniversary of the
Revolving Loan Commitment Termination Date, provided that Company shall
--------
deposit into the Collateral Account at least five Business Days prior to the
Revolving Loan Commitment Termination Date an amount equal to 105% of the
sum of (i) the aggregate Letter of Credit Usage with respect to all Letters
of Credit that have an expiration date (after giving effect to any renewal)
that extends beyond the Revolving Loan Commitment Termination Date and (ii)
the aggregate amount of all fees and expenses owing on or in respect of such
Letters of Credit.
B. MECHANICS OF ISSUANCE.
(i) Notice of Issuance. Whenever Company desires the issuance of a
------------------
Letter of Credit, it shall deliver to Administrative Agent at the Funding
Notice Office a Notice of Issuance of Letter of Credit substantially in the
form of Exhibit III annexed hereto no later than 12:00 Noon (New York City
-----------
time) at least three Business Days or such shorter period as may be agreed
to by the Issuing Lender in any particular instance, in advance of the
proposed date of issuance. The Notice of Issuance of Letter of Credit shall
specify (a) the proposed date of issuance (which shall be a Business Day),
(b) the face amount of the Letter of Credit, (c) the expiration date of the
Letter of Credit, (d) the name and address of the beneficiary, and (e)
either the verbatim text of the proposed Letter of Credit or the proposed
terms and conditions thereof, including a precise description of any
documents to be presented by the beneficiary which, if presented by the
beneficiary on or before the expiration date of the Letter of Credit, would
require the Issuing Lender to make payment under the Letter of Credit;
provided that the Issuing Lender, in its reasonable discretion, may require
--------
changes in the text of the proposed Letter of Credit or any such documents;
and provided, further that no Letter of Credit shall require payment against
-------- -------
a conforming draft to be made thereunder
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on the same business day (under the laws of the jurisdiction in which the
office of the Issuing Lender to which such draft is required to be presented
is located) that such draft is presented if such presentation is made after
10:00 A.M. (in the time zone of such office of the Issuing Lender) on such
business day.
Company shall notify the applicable Issuing Lender (and
Administrative Agent, if Administrative Agent is not such Issuing Lender)
prior to the issuance of any Letter of Credit in the event that any of the
matters to which Company is required to certify in the applicable Notice of
Issuance of Letter of Credit is no longer true and correct as of the
proposed date of issuance of such Letter of Credit, and upon the issuance of
any Letter of Credit Company shall be deemed to have re-certified, as of the
date of such issuance, as to the matters to which Company is required to
certify in the applicable Notice of Issuance of Letter of Credit.
(ii) Determination of Issuing Lender. Upon receipt by Administrative
-------------------------------
Agent of a Notice of Issuance of Letter of Credit pursuant to subsection
3.1B(i) requesting the issuance of a Letter of Credit, in the event
Administrative Agent elects to issue such Letter of Credit, Administrative
Agent shall promptly so notify Company, and Administrative Agent shall be
the Issuing Lender with respect thereto. In the event that Administrative
Agent, in its sole discretion, elects not to issue such Letter of Credit,
Administrative Agent shall promptly so notify Company, whereupon Company may
request any other Revolving Lender to issue such Letter of Credit by
delivering to such Revolving Lender a copy of the applicable Notice of
Issuance of Letter of Credit. Any Revolving Lender so requested to issue
such Letter of Credit shall promptly notify Company and Administrative Agent
whether or not, in its sole discretion, it has elected to issue such Letter
of Credit, and any such Revolving Lender which so elects to issue such
Letter of Credit shall be the Issuing Lender with respect thereto. In the
event that all other Revolving Lenders shall have declined to issue such
Letter of Credit, notwithstanding the prior election of Administrative Agent
not to issue such Letter of Credit, Administrative Agent shall be obligated
to issue such Letter of Credit and shall be the Issuing Lender with respect
thereto, notwithstanding the fact that the Letter of Credit Usage with
respect to such Letter of Credit and with respect to all other Letters of
Credit issued by Administrative Agent, when aggregated with Administrative
Agent's outstanding Revolving Loans and Swing Line Loans, may exceed
Administrative Agent's Revolving Loan Commitment then in effect.
(iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in
----------------------------
accordance with subsection 11.6) of the conditions set forth in subsection
4.3, the Issuing Lender shall issue the requested Letter of Credit in
accordance with the Issuing Lender's standard operating procedures.
(iv) Notification to Revolving Lenders. Upon the issuance of any Letter
---------------------------------
of Credit the applicable Issuing Lender shall promptly notify Administrative
Agent and each other Revolving Lender of such issuance, which notice shall
be accompanied by a copy of such Letter of Credit. Promptly after receipt
of such notice (or, if
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Administrative Agent is the Issuing Lender, together with such notice),
Administrative Agent shall notify each Revolving Lender of the amount of
such Revolving Lender's respective participation in such Letter of Credit,
determined in accordance with subsection 3.1C.
(v) Reports to Lenders. Within 15 days after the end of each calendar
------------------
quarter ending after the Closing Date, so long as any Letter of Credit shall
have been outstanding during such calendar quarter, each Issuing Lender
shall deliver to each other Revolving Lender a report setting forth for such
calendar quarter the daily aggregate amount available to be drawn under the
Letters of Credit issued by such Issuing Lender that were outstanding during
such calendar quarter.
C. REVOLVING LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT.
Immediately upon the issuance of each Letter of Credit, each Revolving Lender
shall be deemed to, and hereby agrees to, have irrevocably purchased from the
Issuing Lender a participation in such Letter of Credit and any drawings honored
thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the
maximum amount which is or at any time may become available to be drawn
thereunder.
3.2 LETTER OF CREDIT FEES.
---------------------
Company agrees to pay the following amounts with respect to Letters
of Credit issued hereunder:
(i) with respect to each Letter of Credit, (a) a fronting fee, payable
directly to the applicable Issuing Lender for its own account, equal to the
greater of (X) $500 and (Y) 0.25% per annum of the daily amount available to
be drawn under such Letter of Credit and (b) a letter of credit fee, payable
to Administrative Agent for the account of Revolving Lenders, equal to 2.75%
per annum of the daily amount available to be drawn under such Letter of
Credit, each such fronting fee or letter of credit fee to be payable in
arrears on and to (but excluding) each February 28, May 31, August 31 and
November 30 of each year and computed on the basis of a 360-day year for the
actual number of days elapsed; and
(ii) with respect to the amendment or transfer of each Letter of Credit
and each payment of a drawing made thereunder, documentary and processing
charges payable directly to the applicable Issuing Lender for its own
account in accordance with such Issuing Lender's standard schedule for such
charges in effect at the time of such issuance, amendment, transfer or
payment, as the case may be.
For purposes of calculating any fees payable under clause (i) of this subsection
3.2, the daily amount available to be drawn under any Letter of Credit shall be
determined as of the close of business on any date of determination. Promptly
upon receipt by Administrative Agent of any amount described in clause (i)(b) of
this subsection 3.2, Administrative Agent shall distribute to each Revolving
Lender its Pro Rata Share of such amount.
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3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
------------------------------------------------------------------
A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to examine the
documents delivered under such Letter of Credit with reasonable care so as to
ascertain whether they appear on their face to be in accordance with the terms
and conditions of such Letter of Credit.
B. REIMBURSEMENT BY COMPANY OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
In the event an Issuing Lender has determined to honor a drawing under a Letter
of Credit issued by it, such Issuing Lender shall immediately notify Company and
Administrative Agent, and Company shall reimburse such Issuing Lender on or
before the Business Day immediately following the date on which such drawing is
honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same day funds
equal to the amount of such honored drawing; provided that, anything contained
--------
in this Agreement to the contrary notwithstanding, (i) unless Company shall have
notified Administrative Agent and such Issuing Lender prior to 10:00 A.M. (New
York City time) on the date such drawing is honored that Company intends to
reimburse such Issuing Lender for the amount of such honored drawing with funds
other than the proceeds of Revolving Loans, Company shall be deemed to have
given a timely Notice of Borrowing to Administrative Agent requesting Revolving
Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement
Date in an amount in Dollars equal to the amount of such honored drawing and
(ii) subject to satisfaction or waiver of the conditions specified in subsection
4.2B, Revolving Lenders shall, on the Reimbursement Date, make Revolving Loans
that are Base Rate Loans in the amount of such honored drawing, the proceeds of
which shall be applied directly by Administrative Agent to reimburse such
Issuing Lender for the amount of such honored drawing; and provided, further
-------- -------
that if for any reason proceeds of Revolving Loans are not received by such
Issuing Lender on the Reimbursement Date in an amount equal to the amount of
such honored drawing, Company shall reimburse such Issuing Lender, on demand, in
an amount in same day funds equal to the excess of the amount of such honored
drawing over the aggregate amount of such Revolving Loans, if any, which are so
received. Nothing in this subsection 3.3B shall be deemed to relieve any
Revolving Lender from its obligation to make Revolving Loans on the terms and
conditions set forth in this Agreement, and Company shall retain any and all
rights it may have against any Revolving Lender resulting from the failure of
such Revolving Lender to make such Revolving Loans under this subsection 3.3B.
C. PAYMENT BY REVOLVING LENDERS OF UNREIMBURSED AMOUNTS PAID UNDER
LETTERS OF CREDIT.
(i) Payment by Revolving Lenders. In the event that Company shall fail
----------------------------
for any reason to reimburse any Issuing Lender as provided in subsection
3.3B in an amount equal to the amount of any drawing honored by such Issuing
Lender under a Letter of Credit issued by it, such Issuing Lender shall
promptly notify each other Revolving Lender of the unreimbursed amount of
such honored drawing and of such other Revolving Lender's respective
participation therein based on such Revolving
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Lender's Pro Rata Share. Each Revolving Lender shall make available to such
Issuing Lender an amount equal to its respective participation, in Dollars
and in same day funds, at the office of such Issuing Lender specified in
such notice, not later than 12:00 Noon (New York City time) on the first
business day (under the laws of the jurisdiction in which such office of
such Issuing Lender is located) after the date notified by such Issuing
Lender. In the event that any Revolving Lender fails to make available to
such Issuing Lender on such business day the amount of such Revolving
Lender's participation in such Letter of Credit as provided in this
subsection 3.3C, such Issuing Lender shall be entitled to recover such
amount on demand from such Revolving Lender together with interest thereon
at the Federal Funds Rate for three Business Days and thereafter at the Base
Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right
of any Revolving Lender to recover from any Issuing Lender any amounts made
available by such Revolving Lender to such Issuing Lender pursuant to this
subsection 3.3C in the event that it is determined by the final judgment of
a court of competent jurisdiction that the payment with respect to a Letter
of Credit by such Issuing Lender in respect of which payment was made by
such Revolving Lender constituted gross negligence or willful misconduct on
the part of such Issuing Lender.
(ii) Distribution to Revolving Lenders of Reimbursements Received From
-----------------------------------------------------------------
Company. In the event any Issuing Lender shall have been reimbursed by
-------
other Revolving Lenders pursuant to subsection 3.3C(i) for all or any
portion of any drawing honored by such Issuing Lender under a Letter of
Credit issued by it, such Issuing Lender shall distribute to each other
Revolving Lender which has paid all amounts payable by it under subsection
3.3C(i) with respect to such honored drawing such other Revolving Lender's
Pro Rata Share of all payments subsequently received by such Issuing Lender
from Company in reimbursement of such honored drawing when such payments are
received. Any such distribution shall be made to a Revolving Lender at its
primary address set forth below its name on the appropriate signature page
hereof or at such other address as such Revolving Lender may request.
D. INTEREST ON AMOUNTS PAID UNDER LETTERS OF CREDIT.
(i) Payment of Interest by Company. Company agrees to pay to each
------------------------------
Issuing Lender, with respect to drawings honored under any Letters of Credit
issued by it, interest on the amount paid by such Issuing Lender in respect
of each such honored drawing from the date such drawing is honored to but
excluding the date such amount is reimbursed by Company (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to subsection
3.3B) at a rate equal to (a) for the period from the date such drawing is
honored to but excluding the Reimbursement Date, the rate then in effect
under this Agreement with respect to Revolving Loans that are Base Rate
Loans and (b) thereafter, a rate which is 2% per annum in excess of the rate
of interest otherwise payable under this Agreement with respect to Revolving
Loans that are Base Rate Loans. Interest payable pursuant to this
subsection 3.3D(i) shall be computed on the basis of a 360-day year for the
actual number of days elapsed in the period
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during which it accrues and shall be payable on demand or, if no demand is
made, on the date on which the related drawing under a Letter of Credit is
reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Lender. Promptly upon
---------------------------------------------------
receipt by any Issuing Lender of any payment of interest pursuant to
subsection 3.3D(i) with respect to a drawing honored under a Letter of
Credit issued by it, (a) such Issuing Lender shall distribute to each other
Revolving Lender, out of the interest received by such Issuing Lender in
respect of the period from the date such drawing is honored to but excluding
the date on which such Issuing Lender is reimbursed for the amount of such
drawing (including any such reimbursement out of the proceeds of Revolving
Loans pursuant to subsection 3.3B), the amount that such other Revolving
Lender would have been entitled to receive in respect of the letter of
credit fee that would have been payable in respect of such Letter of Credit
for such period pursuant to subsection 3.2 if no drawing had been honored
under such Letter of Credit, and (b) in the event such Issuing Lender shall
have been reimbursed by other Revolving Lenders pursuant to subsection
3.3C(i) for all or any portion of such honored drawing, such Issuing Lender
shall distribute to each other Revolving Lender which has paid all amounts
payable by it under subsection 3.3C(i) with respect to such honored drawing
such other Revolving Lender's Pro Rata Share of any interest received by
such Issuing Lender in respect of that portion of such honored drawing so
reimbursed by other Revolving Lenders for the period from the date on which
such Issuing Lender was so reimbursed by other Revolving Lenders to but
excluding the date on which such portion of such honored drawing is
reimbursed by Company. Any such distribution shall be made to a Revolving
Lender at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Revolving Lender may
request.
3.4 OBLIGATIONS ABSOLUTE.
--------------------
The obligation of Company to reimburse each Issuing Lender for
drawings honored under the Letters of Credit issued by it and to repay any
Revolving Loans made by Revolving Lenders pursuant to subsection 3.3B and
the obligations of Revolving Lenders under subsection 3.3C(i) shall be
unconditional and irrevocable and shall be paid strictly in accordance with
the terms of this Agreement under all circumstances including, without
limitation, any of the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right which
Company or any Revolving Lender may have at any time against a beneficiary
or any transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), any Issuing Lender or other Revolving Lender or
any other Person or, in the case of a Revolving Lender, against Company,
whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any underlying transaction
between Holdings, Company or one of Company's Subsidiaries and the
beneficiary for which any Letter of Credit was procured);
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(iii) any draft or other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(iv) payment by the applicable Issuing Lender under any Letter of Credit
against presentation of a draft or other document which does not
substantially comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Holdings, Company
or any of Company's Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto;
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or
(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;
provided, in each case, that payment by the applicable Issuing Lender under the
- --------
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question
(as determined by a final judgment of a court of competent jurisdiction).
3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.
--------------------------------------------------
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which such Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of such Issuing Lender as determined by a final judgment of a court of competent
jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor
by such Issuing Lender of a proper demand for payment made under any Letter of
Credit issued by it or (ii) the failure of such Issuing Lender to honor a
drawing under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions herein called
"GOVERNMENTAL ACTS").
B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any
Issuing Lender, Company assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by such Issuing Lender by, the respective
beneficiaries of such Letters of Credit.
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In furtherance and not in limitation of the foregoing, such Issuing Lender shall
not be responsible for: (i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of any such Letter of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (iii) failure of the beneficiary of any such Letter of Credit to comply
fully with any conditions required in order to draw upon such Letter of Credit;
(iv) errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise, whether or not they
be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of such Issuing Lender, including without
limitation any Governmental Acts, and none of the above shall affect or impair,
or prevent the vesting of, any of such Issuing Lender's rights or powers
hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Lender under or in connection with the Letters
of Credit issued by it or any documents and certificates delivered thereunder,
if taken or omitted in good faith, shall not put such Issuing Lender under any
resulting liability to Company.
Notwithstanding anything to the contrary contained in this subsection
3.5, Company shall retain any and all rights it may have against any Issuing
Lender for any liability to the extent such liability is found in a final, non-
appealable judgment by a court of competent jurisdiction to have resulted from
the gross negligence or willful misconduct of such Issuing Lender.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
-------------------------------------------------------
Subject to the provisions of subsection 2.7B (which shall be
controlling with respect to the matters covered thereby), in the event that any
Issuing Lender or Revolving Lender shall determine (which determination shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto) that any law, treaty or governmental rule, regulation or order, or any
change therein or in the interpretation, administration or application thereof
(including the introduction of any new law, treaty or governmental rule,
regulation or order), or any determination of a court or governmental authority,
in each case that becomes effective after the date hereof, or compliance by any
Issuing Lender or Revolving Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
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(i) subjects such Issuing Lender or Revolving Lender (or its applicable
lending or letter of credit office) to any additional Tax (other than any
Tax on the overall net income of such Issuing Lender or Revolving Lender)
with respect to the issuing or maintaining of any Letters of Credit or the
purchasing or maintaining of any participations therein or any other
obligations under this Section 3, whether directly or by such being imposed
on or suffered by any particular Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by any Issuing Lender
or participations therein purchased by any Revolving Lender; or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Issuing Lender or Revolving Lender (or its
applicable lending or letter of credit office) regarding this Section 3 or
any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Lender or Revolving Lender of agreeing to issue, issuing or maintaining any
Letter of Credit or agreeing to purchase, purchasing or maintaining any
participation therein or to reduce any amount received or receivable by such
Issuing Lender or Revolving Lender (or its applicable lending or letter of
credit office) with respect thereto; then, in any case, Company shall promptly
pay to such Issuing Lender or Revolving Lender, upon receipt of the statement
referred to in the next sentence, such additional amount or amounts as may be
necessary to compensate such Issuing Lender or Revolving Lender for any such
increased cost or reduction in amounts received or receivable hereunder. Such
Issuing Lender or Revolving Lender shall deliver to Company a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Issuing Lender or Revolving Lender under this subsection
3.6, which statement shall be conclusive and binding upon all parties hereto
absent manifest error.
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters
of Credit hereunder are subject to the satisfaction of the following conditions.
4.1 CONDITIONS TO TERM LOANS AND INITIAL REVOLVING LOANS AND SWING LINE
-------------------------------------------------------------------
LOANS.
-----
The obligations of Lenders to make the Term Loans and any Revolving
Loans and Swing Line Loans to be made on the Closing Date are, in addition to
the conditions precedent specified in subsection 4.2, subject to prior or
concurrent satisfaction of the following conditions:
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A. LOAN PARTY DOCUMENTS. On or before the Closing Date, Holdings and
Company shall, and shall cause each other Loan Party to, deliver to Lenders (or
to Administrative Agent for Lenders with sufficient originally executed copies,
where appropriate, for each Lender and its counsel) the following with respect
to Holdings, Company or such Loan Party, as the case may be, each, unless
otherwise noted, dated the Closing Date, each such document to be in form and
substance satisfactory to Administrative Agent:
(i) Certified copies of the Certificate or Articles of Incorporation of
such Person, together with a good standing certificate from the Secretary of
State of its jurisdiction of incorporation and each other state in which
such Person is qualified as a foreign corporation to do business and, to the
extent generally available, a certificate or other evidence of good standing
as to payment of any applicable franchise or similar taxes from the
appropriate taxing authority of each of such jurisdictions, each dated a
recent date prior to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the Closing
Date by such Person's corporate secretary or an assistant secretary;
(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of the Loan
Documents and Related Agreements to which it is a party, certified as of the
Closing Date by the corporate secretary or an assistant secretary of such
Person as being in full force and effect without modification or amendment;
(iv) Signature and incumbency certificates of the officers of such
Person executing the Loan Documents to which it is a party;
(v) Executed originals of the Loan Documents to which such Person is a
party; and
(vi) Such other documents as any Agent may reasonably request.
B. NO MATERIAL ADVERSE EFFECT. Since December 31, 1995, no Material
Adverse Effect shall have occurred.
C. CORPORATE AND CAPITAL STRUCTURE, OWNERSHIP, MANAGEMENT, ETC.
(i) Corporate Structure. The corporate organizational structure of
-------------------
Holdings, Company and Company's Subsidiaries, both before and after giving
effect to the Acquisition, shall be as set forth on Schedule 4.1C annexed
-------------
hereto.
(ii) Capital Structure and Ownership. The capital structure and
-------------------------------
ownership of Holdings and Company, both before and after giving effect to
the Acquisition, shall be as set forth on Schedule 4.1C annexed hereto.
-------------
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(iii) Management. The management structure of Holdings, Company and
----------
Company's Subsidiaries after giving effect to the Acquisition shall be as
set forth on Schedule 4.1C annexed hereto.
-------------
D. PROCEEDS OF DEBT AND EQUITY CAPITALIZATION OF HOLDINGS.
(i) Debt and Equity Capitalization of Holdings. On or before the
------------------------------------------
Closing Date, (a) Flagstar shall have contributed $75,000,000 in cash to
Holdings in exchange for all of the shares of Holdings Common Stock, (b)
Holdings shall have issued the Holdings Intercompany Note described in
clause (i) of the definition thereof to Company in exchange for a concurrent
loan by Company to Holdings of proceeds of the Term Loans in an aggregate
amount equal to $51,169,460 and (c) Holdings shall have issued the Holdings
Intercompany Note described in clause (ii) of the definition thereof in
connection with Holdings' assumption of such Indebtedness in accordance with
the terms of the Acquisition Agreement.
(ii) Use of Proceeds by Holdings and Company. Holdings and Company
---------------------------------------
shall have provided evidence satisfactory to each Agent that the proceeds of
the debt and equity capitalization of Holdings described in the immediately
preceding clause (i) have been irrevocably committed, prior to or
concurrently with the application of the proceeds of the Term Loans, to the
payment of the Acquisition Financing Requirements.
E. RELATED AGREEMENTS.
(i) Holdings Note Indenture and Holdings Notes. On or prior to the
------------------------------------------
Closing Date, (a) Holdings and the other parties thereto shall have executed
and delivered the Holdings Note Indenture and the Holdings Notes, in each
case all of the terms and conditions (including without limitation with
respect to interest rates, amortization, maturity, representations and
warranties, covenants, remedies and events of default) of which shall be in
form and substance satisfactory to Agents and Lenders, (b) the covenant and
default provisions contained in the Holdings Note Indenture and the Holdings
Notes shall be less restrictive than those provisions contained in this
Agreement, and (c) all conditions precedent to the issuance and sale of the
Holdings Notes under the Holdings Note Indenture shall have been satisfied
or waived.
(ii) Approval of Related Agreements. The Acquisition Agreement and each
------------------------------
of the other Related Agreements shall each be satisfactory in form and
substance to each Agent and Requisite Lenders.
(iii) Related Agreements in Full Force and Effect. Each Agent shall
-------------------------------------------
have received a fully executed or conformed copy of each Related Agreement
(other than the Liquor License Affiliate Agreements) and any documents
executed in connection therewith, and each such Related Agreement shall be
in full force and effect and no provision thereof shall have been modified
or waived in any respect determined by any Agent to be material, in each
case without the consent of each Agent and Requisite
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Lenders and each Agent shall have received an Officers' Certificate of
Holdings and Company certifying that attached thereto are true and complete
copies of the Related Agreements and the Material Flagstar Agreements.
F. MATTERS RELATING TO EXISTING INDEBTEDNESS OF COMPANY AND ITS
SUBSIDIARIES; EXISTING INDEBTEDNESS OF FLAGSTAR.
(i) Release From Existing Credit Agreement and Other Agreements of Loan
-------------------------------------------------------------------
Parties and Termination of Related Liens. On the Closing Date, Company and
----------------------------------------
its Subsidiaries shall have (a) been fully discharged from all obligations
under the Existing Credit Agreement and all other Loan Documents (as defined
in the Existing Credit Agreement) and repaid in full all Indebtedness under
any other agreement governing any other Indebtedness of Company and its
Subsidiaries (other than the Indebtedness in an aggregate amount not to
exceed $31,500,000 in respect of Capital Leases and other Indebtedness
described in Schedule 7.1 annexed hereto), (b) terminated any commitments to
------------
lend or make other extensions of credit thereunder, (c) delivered to each
Agent all documents or instruments (including without limitation termination
statements and terminations of lockbox agreements, blocked account
agreements and collateral account agreements, and the Existing Credit
Agreement Release Agreement in form and substance satisfactory to the
Lenders) necessary to release all Liens securing Indebtedness or other
obligations of Company and its Subsidiaries thereunder and (d) delivered to
each Agent an amendment to the Existing Credit Agreement executed by each
party that is a party to the Existing Credit Agreement, which amendment
shall release each Loan Party from all obligations under the Existing Credit
Agreement and all other Loan Documents (as defined in the Existing Credit
Agreement) and shall otherwise be in form and substance satisfactory to the
Lenders.
(ii) Existing Indebtedness of Loan Parties to Remain Outstanding. Each
-----------------------------------------------------------
Agent shall have received an Officers' Certificate of Holdings and Company
stating that, after giving effect to the Acquisition and the transactions
described in this subsection 4.1F, the only Indebtedness of Loan Parties
(other than Indebtedness under the Loan Documents and the Holdings Notes)
shall consist of (a) Indebtedness in an aggregate amount not to exceed
$31,500,000 in respect of Capital Leases and other Indebtedness described in
Schedule 7.1 annexed hereto, (b) intercompany accounts payable owing to
------------
Company and certain Subsidiaries of Company that are assumed by Holdings in
accordance with the Assumption Agreement in an aggregate amount not
exceeding $200,000,000, which obligation is evidenced by the Holdings
Intercompany Note described in clause (ii) of the definition thereof, and
(c) allocated portions of liabilities assumed by Loan Parties pursuant to
the Assumption Agreement in accordance with the Acquisition Agreement in an
aggregate amount not exceeding $25,000,000.
(iii) Existing Indebtedness of Flagstar. Each Agent shall have received
---------------------------------
a fully executed or conformed copy of each Material Flagstar Agreement and
the provisions thereof which are applicable to Holdings, Company or any of
Company's Subsidiaries
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<PAGE>
and the provisions thereof relating to "Unrestricted Subsidiaries" (as
defined therein) applicable to Holdings, Company or any of Company's
Subsidiaries shall be satisfactory in form and substance to each Agent and
Requisite Lenders. Each Material Flagstar Agreement shall be in full force
and effect and no provision thereof which is applicable to Holdings, Company
or any of Company's Subsidiaries or which relate to "Unrestricted
Subsidiaries" (as defined therein) applicable to Holdings, Company or any of
Company's Subsidiaries shall have been modified or waived in any respect
determined by any Agent to be material, in each case without the consent of
each Agent. Each Agent shall have received evidence in form and substance
satisfactory to such Agent that (i) the Acquisition and the other
transactions contemplated by the Loan Documents and the Related Agreements
are permitted under each Material Flagstar Agreement, and (ii) on the
Closing Date, after giving effect to the Acquisition and the other
transactions contemplated in the Loan Documents and the Related Agreements,
each of Holdings, Company and each of Company's Subsidiaries has been
designated as, and is, an "Unrestricted Subsidiary" pursuant to the terms
of, and as defined in, the Flagstar Credit Agreement and each Flagstar
Indenture (with the exception of the Flagstar Indenture dated as of November
1, 1989), and each Agent shall have received an Officers' Certificate of
Holdings and Company to the effect set forth in clauses (i) and (ii) above
(which Officers' Certificate shall have attached thereto written evidence of
designation of Company and each of Company's Subsidiaries as an
"Unrestricted Subsidiary" as described in clause (ii) above).
G. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF
WAITING PERIODS, ETC. Holdings and Company shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with the Acquisition, the other
transactions contemplated by the Loan Documents and the Related Agreements, and
the continued operation of the business conducted by Company and its
Subsidiaries in substantially the same manner as conducted prior to the
consummation of the Acquisition (including without limitation the consent of the
lenders under the Flagstar Credit Agreement, if necessary, to permit the equity
contribution by Flagstar to Holdings as described in subsection 4.1D(i) and to
consummate the transactions contemplated in the Loan Documents and the Related
Agreements) and each of the foregoing shall be in full force and effect, in each
case other than those the failure to obtain or maintain which, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. All applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority, and no
law or regulation is applicable, in each case which would restrain, prevent or
otherwise impose adverse conditions on the Acquisition or the financing thereof.
No action, request for stay, petition for review or rehearing, reconsideration,
or appeal with respect to any of the foregoing shall be pending, and the time
for any applicable agency to take action to set aside its consent on its own
motion shall have expired.
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H. CONSUMMATION OF ACQUISITION.
(i) All conditions to the Acquisition set forth in Article 5 of the
Acquisition Agreement shall have been satisfied or the fulfillment of any
such conditions shall have been waived with the consent of each Agent and
Requisite Lenders;
(ii) the Acquisition (including without limitation the acquisition by
Holdings from Seller of all of the capital stock of Company and each of its
Subsidiaries (other than FRI-Admin Corporation, FRI-MRD Corporation, El
Torito Restaurants, Inc. and Chi-Chi's Inc. and their respective
Subsidiaries)) shall have become effective in accordance with the terms of
the Acquisition Agreement and in compliance with law;
(iii) the aggregate consideration paid to the holders of equity
interests in Company and its Subsidiaries in respect of such equity
interests in connection with the Acquisition shall not exceed $125,000,000
in cash and Holdings Notes issued and delivered to Seller in an initial
aggregate principal amount not exceeding $150,000,000;
(iv) Transaction Costs shall not exceed $7,500,000, and each Agent shall
have received evidence to its satisfaction to such effect; and
(v) each Agent shall have received an Officers' Certificate of Holdings
and Company to the effect set forth in clauses (i)-(iv) above and stating
that Holdings and Company will proceed to consummate the Acquisition
immediately upon the making of the initial Loans.
I. CLOSING DATE MORTGAGES; CLOSING DATE MORTGAGE POLICIES; ETC.
Administrative Agent shall have received from Company and each applicable
Subsidiary Guarantor:
(i) Closing Date Mortgages. Fully executed and notarized Mortgages
----------------------
(each a "CLOSING DATE MORTGAGE" and, collectively, the "CLOSING DATE
MORTGAGES"), in proper form for recording in all appropriate places in all
applicable jurisdictions, encumbering each Real Property Asset listed in
Schedule 4.1I annexed hereto (each a "CLOSING DATE MORTGAGED PROPERTY" and,
-------------
collectively, the "CLOSING DATE MORTGAGED PROPERTIES");
(ii) Opinions of Local Counsel. An opinion of counsel (which counsel
-------------------------
shall be reasonably satisfactory to Administrative Agent) in each state in
which a Closing Date Mortgaged Property is located with respect to the
enforceability of the form(s) of Closing Date Mortgages to be recorded in
such state and such other matters as Administrative Agent may reasonably
request, in each case in form and substance reasonably satisfactory to
Administrative Agent;
(iii) Title Insurance. (a) ALTA mortgagee title insurance policies or
---------------
unconditional commitments therefor (the "CLOSING DATE MORTGAGE POLICIES")
issued by the Title Company with respect to the Closing Date Mortgaged
Properties listed in
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Schedule 4.1I annexed hereto, in amounts not less than the respective
-------------
amounts designated therein with respect to any particular Closing Date
Mortgaged Properties, showing that fee simple title to each such Closing
Date Mortgaged Property is vested in such Loan Party and insuring
Administrative Agent that the applicable Closing Date Mortgages create valid
and enforceable First Priority mortgage Liens (other than, with respect to
Coco's #162 located at 1025 Fletcher Parkway, El Cajon, California, the Lien
described in Schedule 7.2 annexed hereto) on the respective Closing Date
------------
Mortgaged Properties encumbered thereby, subject only to a standard survey
exception, which Closing Date Mortgage Policies (1) shall include an
endorsement for mechanics' liens, for future advances under this Agreement
and for any other matters reasonably requested by Administrative Agent and
(2) shall provide for affirmative insurance and such reinsurance as
Administrative Agent may reasonably request, all of the foregoing in form
and substance reasonably satisfactory to Administrative Agent; and (b)
evidence satisfactory to Administrative Agent that such Loan Party has (i)
delivered to the Title Company all certificates and affidavits required by
the Title Company in connection with the issuance of the Closing Date
Mortgage Policies and (ii) paid to the Title Company or to the appropriate
governmental authorities all expenses and premiums of the Title Company in
connection with the issuance of the Closing Date Mortgage Policies and all
recording and stamp taxes (including mortgage recording and intangible
taxes) payable in connection with recording the Closing Date Mortgages in
the appropriate real estate records;
(iv) Title Reports. With respect to each Closing Date Mortgaged
-------------
Property listed in Schedule 4.1I annexed hereto, a title report issued by
-------------
the Title Company with respect thereto, dated not more than 30 days prior to
the Closing Date and satisfactory in form and substance to Administrative
Agent;
(v) Copies of Documents Relating to Title Exceptions. Copies of all
------------------------------------------------
recorded documents listed as exceptions to title or otherwise referred to in
the Closing Date Mortgage Policies or in the title reports delivered
pursuant to subsection 4.1I(iv);
(vi) Matters Relating to Flood Hazard Properties. (a) Evidence, which
-------------------------------------------
may be in the form of a letter from an insurance broker or a municipal
engineer, as to whether (1) any Closing Date Mortgaged Property is a Flood
Hazard Property and (2) the community in which any such Flood Hazard
Property is located is participating in the National Flood Insurance
Program, (b) if there are any such Flood Hazard Properties, such Loan
Party's written acknowledgement of receipt of written notification from
Administrative Agent (1) as to the existence of each such Flood Hazard
Property and (2) as to whether the community in which each such Flood Hazard
Property is located is participating in the National Flood Insurance
Program, and (c) in the event any such Flood Hazard Property is located in a
community that participates in the National Flood Insurance Program,
evidence that Company has obtained flood insurance in respect of such
Flood Hazard Property to the extent required under the applicable
regulations of the Board of Governors of the Federal Reserve System; and
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(vii) Environmental Indemnity. If requested by any Agent, an
-----------------------
environmental indemnity agreement, satisfactory in form and substance to
such Agent and its counsel, with respect to the indemnification of Agents
and Lenders for any liabilities that may be imposed on or incurred by any of
them as a result of any Hazardous Materials Activity.
J. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. To the extent
not otherwise satisfied pursuant to subsection 4.1I, each Agent shall have
received evidence satisfactory to it that Holdings, Company and Subsidiary
Guarantors shall have taken or caused to be taken all such actions, executed and
delivered or caused to be executed and delivered all such agreements, documents
and instruments, and made or caused to be made all such filings and recordings
(other than the filing or recording of items described in clauses (iii), (iv)
and (v) below) that may be necessary or, in the opinion of such Agent, desirable
in order to create in favor of Administrative Agent, for the benefit of Lenders,
a valid and (upon such filing and recording) perfected First Priority security
interest in the entire personal and mixed property Collateral. Such actions
shall include, without limitation, the following:
(i) Schedules to Collateral Documents. Delivery to Administrative Agent
---------------------------------
of accurate and complete schedules to all of the applicable Collateral
Documents.
(ii) Stock Certificates and Instruments. Delivery to Administrative
----------------------------------
Agent of (a) certificates (which certificates shall be accompanied by
irrevocable undated stock powers, duly endorsed in blank and otherwise
satisfactory in form and substance to Administrative Agent) representing all
capital stock pledged pursuant to the Holdings Pledge Agreement, the Company
Pledge Agreement and the Subsidiary Pledge Agreement and (b) all promissory
notes (including without limitation the Holdings Intercompany Notes and any
other intercompany notes between or among the Loan Parties) or other
instruments (duly endorsed, where appropriate, in a manner satisfactory to
Administrative Agent) evidencing any Collateral;
(iii) Lien Searches and UCC Termination Statements. Delivery to
--------------------------------------------
Administrative Agent of (a) the results of a recent search, by a Person
satisfactory to Administrative Agent, of all effective UCC financing
statements and all judgment and tax lien filings which may have been made
with respect to any personal or mixed property of any Loan Party, together
with copies of all such filings disclosed by such search, and (b) UCC
termination statements duly executed by all applicable Persons for filing in
all applicable jurisdictions as may be necessary to terminate any effective
UCC financing statements disclosed in such search (other than any such
financing statements in respect of Liens permitted to remain outstanding
pursuant to the terms of this Agreement).
(iv) UCC Financing Statements and Fixture Filings. Delivery to
--------------------------------------------
Administrative Agent of UCC financing statements and, with respect to each
Closing Date Mortgaged Property, where appropriate, fixture filings, duly
executed by each applicable Loan Party with respect to all personal property
Collateral of such Loan Party, for filing in all jurisdictions as may be
necessary or, in the opinion of
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Administrative Agent, desirable to perfect the security interests created
in such Collateral pursuant to the Collateral Documents;
(v) PTO Cover Sheets, Etc. Delivery to Administrative Agent of all
---------------------
cover sheets or other documents or instruments required to be filed with the
PTO in order to create or perfect Liens in respect of any IP Collateral; and
(vi) Restricted Account Letters. Delivery to Administrative Agent of a
--------------------------
Restricted Account Letter executed by each Person that is a party thereto
with respect to Company's Account and each Deposit Account listed on
Schedule 4.1J annexed hereto.
-------------
K. FINANCIAL AND BUSINESS INFORMATION REQUESTED BY LENDERS. Lenders
shall have received such financial, business, and other information regarding
each Loan Party as they shall have requested, including without limitation
information as to possible contingent liabilities, tax matters, environmental
matters, obligations under ERISA, and collective bargaining agreements and other
arrangements with employees.
L. LIQUOR LICENSE AFFILIATES. Company shall have provided all
agreements and documents relating to the terms and conditions pursuant to which
third parties hold interests in any Liquor License Affiliates (collectively,
"LIQUOR LICENSE AFFILIATE AGREEMENTS") and such terms and conditions shall be in
form and substance satisfactory to Agents.
M. ENVIRONMENTAL REPORTS. Each Agent shall have received reports and
other information, in form, scope and substance satisfactory to such Agent,
regarding environmental matters relating to the Facilities, which reports shall
include a Phase I environmental assessment for each of the Facilities currently
owned, leased, operated or used by Company or any of its Subsidiaries
(collectively, the "PHASE I REPORT") which (a) conforms to the ASTM Standard
Practice for Environmental Site Assessments: Phase I Environmental Site
Assessment Process, E 1527, (b) was conducted no more than six months prior to
the Closing Date by First Environment and ENSR Consulting and Engineering, (c)
includes an assessment of asbestos-containing materials at such Facilities where
Company has reason to suspect the presence of asbestos-containing materials, and
(d) includes an analysis of the cost of remedial or abatement activity which
Company would be expected to incur in connection with any existing condition,
with the cost analysis being based on an objective 51% confidence factor that
the costs of remedial or abatement activity will not be exceeded.
N. FINANCIAL STATEMENTS; PRO FORMA BALANCE SHEET. On or before the
Closing Date, (A) Lenders shall have received from Company (i) unaudited
financial statements of Company and its Subsidiaries as at March 28, 1996,
consisting of a combined balance sheet and the related combined statements of
income, stockholders' equity and cash flows for the three-month period ending on
such date, all in reasonable detail and certified by the chief financial officer
of Company that they fairly present the financial condition of Company and its
Subsidiaries as at the dates indicated and the results of their operations and
their cash flows for the periods indicated, subject to changes resulting from
audit and normal year-end
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adjustments, (ii) an unaudited combined statement of cash flows for Company and
its Subsidiaries as of December 31, 1995, (iii) pro forma consolidated balance
sheets of Holdings, Company and Company's Subsidiaries as at the Closing Date,
prepared in accordance with GAAP and reflecting the consummation of the
Acquisition the related financings and the other transactions contemplated by
the Loan Documents and the Related Agreements, which pro forma financial
statements shall be in form and substance satisfactory to Lenders, and (iv) a
consolidated plan and financial forecast for the period beginning on the Closing
Date and ending on December 31, 1996 and for the three consecutive 12-month
periods beginning on January 1, 1997, including without limitation (a)
forecasted consolidated balance sheets and related forecasted consolidated
statements of income, stockholders' equity and cash flows for each such period
(for each monthly period within the period beginning on the Closing Date and
ending on December 31, 1996, and for each fiscal quarter period within each such
12-month period), together with an explanation of the assumptions on which such
forecasts are based, and (b) such other information and projections as any Agent
may reasonably request, and (B) all of the financial statements and other
information described in clauses (i) and (ii) above shall be substantially
consistent with any financial statements for the same periods delivered to
Agents prior to February 29, 1996 and all of the financial statements, forecasts
and other information described in clauses (iii) and (iv) above shall be
substantially consistent with any pro forma or projected financial information
for the same dates or periods delivered to Agents prior to February 29, 1996,
and all of the financial statements and other information described in clauses
(i) through (iv) above shall be otherwise in form and substance satisfactory to
Agents and Lenders .
O. SOLVENCY ASSURANCES. On the Closing Date, Agents and Lenders shall
have received a Financial Condition Certificate dated the Closing Date,
substantially in the form of Exhibit XIII annexed hereto and with appropriate
------------
attachments, in each case demonstrating that, after giving effect to the
consummation of the Acquisition, the related financings and the other
transactions contemplated by the Loan Documents and the Related Agreements, each
of the Holdings, Company, Holdings and its Subsidiaries, taken as a whole, and
Company and its Subsidiaries, taken as a whole, will be Solvent.
P. EVIDENCE OF INSURANCE. Each Agent shall have received a
certificate from Company's insurance broker or other evidence satisfactory to it
that all insurance required to be maintained pursuant to subsection 6.4 or the
Closing Date Mortgages is in full force and effect and that Administrative Agent
on behalf of Lenders has been named as additional insured and/or loss payee
thereunder to the extent required under subsection 6.4 or under the Closing Date
Mortgages.
Q. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders and their respective
counsel shall have received (i) originally executed copies of one or more
favorable written opinions of Latham & Watkins, counsel for Loan Parties, in
form and substance reasonably satisfactory to each Agent and its counsel, dated
as of the Closing Date and setting forth substantially the matters in the
opinions designated in Exhibit VIII annexed hereto and as to such other matters
------------
as such Agent acting on behalf of Lenders may reasonably request and (ii)
evidence
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satisfactory to such Agent that Holdings and Company have requested such
counsel to deliver such opinions to Lenders.
R. OPINIONS OF AGENTS' COUNSEL. Lenders shall have received
originally executed copies of one or more favorable written opinions of
O'Melveny & Myers, counsel to Agents, dated as of the Closing Date,
substantially in the form of Exhibit IX annexed hereto and as to such other
----------
matters as Agents acting on behalf of Lenders may reasonably request.
S. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS. Each Agent
and its counsel shall have received copies of each of the opinions of counsel
delivered to the parties under the Related Agreements, together with a letter
from each such counsel (to the extent not inconsistent with such counsel's
established internal policies) authorizing Lenders to rely upon such opinion to
the same extent as though it were addressed to Lenders.
T. AUDITOR'S LETTERS. Each Agent shall have received the executed
Auditor's Letters.
U. NO DISRUPTION OF FINANCIAL AND CAPITAL MARKETS. There shall have
been no material adverse change after February 29, 1996 in the syndication
markets for credit facilities similar in nature to the credit facilities
provided herein and there shall not have occurred and be continuing a material
disruption of or a material adverse change in the financial, banking or capital
markets that would have an adverse effect on such syndication market, in each
case as determined by each Agent in its sole discretion.
V. FEES. Company shall have paid to Agents, for distribution (as
appropriate) to Agents and Lenders, the fees payable on the Closing Date
referred to in subsection 2.3.
W. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS.
Holdings and Company shall have delivered to each Agent an Officers'
Certificate, in form and substance satisfactory to such Agent, to the effect
that the representations and warranties in Section 5 hereof and in the other
Loan Documents are true, correct and complete in all material respects on and as
of the Closing Date (both immediately before and immediately after giving effect
to the Acquisition) to the same extent as though made on and as of that date
(or, to the extent such representations and warranties specifically relate to an
earlier date, that such representations and warranties were true, correct and
complete in all material respects on and as of such earlier date) and that each
Loan Party shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement and the other Loan Documents
provides shall be performed or satisfied by it on or before the Closing Date
except as otherwise disclosed to and agreed to in writing by each Agent and
Requisite Lenders.
X. COMPLETION OF PROCEEDINGS. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
all documents incidental thereto not previously found acceptable by any Agent,
acting on behalf of Lenders, and its counsel shall be satisfactory in form and
substance to such each Agent and such counsel, and
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each Agent and such counsel shall have received all such counterpart originals
or certified copies of such documents as such Agent may reasonably request.
4.2 CONDITIONS TO ALL LOANS.
-----------------------
The obligations of Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. Administrative Agent shall have received on or before that
Funding Date, in accordance with the provisions of subsection 2.1B, an
originally executed Notice of Borrowing, in each case signed by the chief
executive officer, the chief financial officer or the treasurer of Company or by
any executive officer of Company designated by any of the above-described
officers on behalf of Company in a writing delivered to such Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the other
Loan Documents shall be true, correct and complete in all material respects
on and as of that Funding Date to the same extent as though made on and as
of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations
and warranties shall have been true, correct and complete in all material
respects on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result from
the consummation of the borrowing contemplated by such Notice of Borrowing
that would constitute an Event of Default or a Potential Event of Default;
(iii) Each Loan Party shall have performed in all material respects all
agreements and satisfied all conditions which this Agreement provides shall
be performed or satisfied by it on or before that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender from
making the Loans to be made by it on that Funding Date;
(v) The making of the Loans requested on such Funding Date shall not
violate any law including, without limitation, Regulation G, Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System; and
(vi) There shall not be pending or, to the knowledge of Holdings and
Company, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting Holdings, Company or any
of Company's Subsidiaries or any property of Holdings, Company or any of
Company's Subsidiaries that has not been disclosed by Holdings or Company in
writing pursuant to subsection 5.6 or 6.1(x) prior to the making of the last
preceding Loans (or, in the case of the initial Loans,
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<PAGE>
prior to the execution of this Agreement), there shall have occurred no
development not so disclosed in any such action, suit, proceeding,
governmental investigation or arbitration so disclosed, that, in either
event, in the opinion of any Agent or of Requisite Lenders, would be
expected to have a Material Adverse Effect and no such action, suit,
proceeding or governmental investigation or arbitration shall purport to
affect the validity, legality or enforceability of the Acquisition, the Loan
Documents, the Related Agreements or the consummation of the transactions
contemplated thereby and no injunction or other restraining order shall have
been issued and no hearing to cause an injunction or other restraining order
to be issued shall be pending or noticed with respect to any action, suit or
proceeding seeking to enjoin or otherwise prevent the consummation of, or to
recover any damages or obtain relief as a result of, the transactions
contemplated by this Agreement or the making of Loans hereunder.
4.3 CONDITIONS TO LETTERS OF CREDIT.
-------------------------------
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit,
Administrative Agent shall have received, in accordance with the provisions
of subsection 3.1B(i), an originally executed Notice of Issuance of Letter
of Credit, in each case signed by the chief executive officer, the chief
financial officer or the treasurer of Company or by any executive officer of
Company designated by any of the above-described officers on behalf of
Company in a writing delivered to Administrative Agent, together with all
other information specified in subsection 3.1B(i) and such other documents
or information as the applicable Issuing Lender may reasonably require in
connection with the issuance of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent
as if the issuance of such Letter of Credit were the making of a Loan and
the date of issuance of such Letter of Credit were a Funding Date.
SECTION 5. HOLDINGS' AND COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make
the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce
other Revolving Lenders to purchase participations therein, each of Holdings and
Company represents and warrants to each of the Agents and the Lenders, on the
date of this Agreement, on each Funding Date and on
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the date of issuance of each Letter of Credit, that the following statements are
true, correct and complete:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
----------------------------------------------------------------
SUBSIDIARIES.
------------
A. ORGANIZATION AND POWERS. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto. Each
------------
Loan Party has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Loan Documents and Related Agreements to which it
is a party and to carry out the transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to
do business and in good standing in every jurisdiction where its assets are
located and wherever necessary to carry out its business and operations, except
in jurisdictions where the failure to be so qualified or in good standing has
not had and will not have a Material Adverse Effect.
C. CONDUCT OF BUSINESS. Holdings, Company and Company's Subsidiaries
are engaged only in the businesses permitted to be engaged in pursuant to
subsection 7.14.
D. SUBSIDIARIES. All of the Subsidiaries of Holdings, both before and
after giving effect to the Acquisition, are identified in Schedule 5.1 annexed
------------
hereto, as said Schedule 5.1 may be supplemented from time to time pursuant to
------------
the provisions of subsection 6.1(xvi). The capital stock of each of the
Subsidiaries of Holdings identified in Schedule 5.1 annexed hereto (as so
------------
supplemented) is duly authorized, validly issued, fully paid and nonassessable
and none of such capital stock constitutes Margin Stock. Each of the
Subsidiaries of Holdings identified in Schedule 5.1 annexed hereto (as so
------------
supplemented) is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation set
forth therein, has all requisite corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted, and is qualified to do business and in good standing
in every jurisdiction where its assets are located and wherever necessary to
carry out its business and operations, in each case except where failure to be
so qualified or in good standing or a lack of such corporate power and authority
has not had and will not have a Material Adverse Effect. Schedule 5.1 annexed
------------
hereto (as so supplemented) correctly sets forth the ownership interest of
Holdings and Company and each of Company's Subsidiaries in each of the
Subsidiaries of Holdings and Company identified therein.
5.2 AUTHORIZATION OF BORROWING, ETC.
--------------------------------
A. AUTHORIZATION OF BORROWING. The execution, delivery and
performance of the Loan Documents and the Related Agreements have been duly
authorized by all necessary corporate action on the part of each Loan Party that
is a party thereto.
B. NO CONFLICT. The execution, delivery and performance by Loan
Parties of the Loan Documents and the Related Agreements to which they are
parties and the consummation
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of the transactions contemplated by the Loan Documents and such Related
Agreements do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Holdings, Company or any of
Company's Subsidiaries, the Certificate or Articles of Incorporation or Bylaws
of Holdings, Company or any of Company's Subsidiaries or any order, judgment or
decree of any court or other agency of government binding on Holdings, Company
or any of Company's Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of Holdings, Company or any of Company's Subsidiaries
other than the Existing Credit Agreement which, with respect to Company and its
Subsidiaries, shall be terminated in accordance with subsection 4.1F(i)
concurrently with the making of the Term Loans hereunder and under which Company
and its Subsidiaries shall have no obligations on and after the Closing Date,
(iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of Holdings, Company or any of Company's Subsidiaries
(other than any Liens created under any of the Loan Documents in favor of
Administrative Agent on behalf of Lenders and other than the Existing Credit
Agreement which, with respect to Company and its Subsidiaries, shall be
terminated in accordance with subsection 4.1F(i) concurrently with the making of
the Term Loans hereunder and under which Company and its Subsidiaries shall have
no obligations on and after the Closing Date), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Holdings, Company or any of Company's Subsidiaries, except for
such approvals or consents which will be obtained on or before the Closing Date
and disclosed in writing to Lenders.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Loan Parties of the Loan Documents and the Related Agreements to which they are
parties and the consummation of the transactions contemplated by the Loan
Documents and such Related Agreements do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body other than those notices required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, all of which have been duly given prior to
the Closing Date and all applicable waiting periods with respect to which have
expired prior to the Closing Date without any action being taken or threatened
by any competent authority.
D. BINDING OBLIGATION. Each of the Loan Documents and Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
E. VALID ISSUANCE OF HOLDINGS COMMON STOCK AND HOLDINGS NOTES.
(i) Holdings Common Stock. The Holdings Common Stock to be sold on or
---------------------
before the Closing Date is duly and validly issued, fully paid and nonassessable
and shall be free and clear of all Liens except for Liens granted to lenders
under the Flagstar Credit Agreement. No stockholder of Holdings has or will
have any preemptive rights to subscribe
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for any additional equity Securities of Holdings. The issuance and sale of such
Holdings Common Stock either (a) has been registered or qualified under
applicable federal and state securities laws or (b) is exempt therefrom.
(ii) Holdings Notes. Holdings has the corporate power and authority
--------------
to issue the Holdings Notes. The Holdings Notes have been duly authorized and
delivered by Holdings and are the legally valid and binding obligations of
Holdings, enforceable against Holdings in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability. The Holdings Notes
either (a) have been registered or qualified under applicable federal and state
securities laws or (b) are exempt therefrom.
5.3 FINANCIAL CONDITION.
-------------------
Holdings and Company have heretofore delivered to Lenders, at Lenders'
request, the following financial statements and information: (i) the audited
combined balance sheets of the Family Restaurant Division of Seller at December
22, 1994 and the related audited combined statements of income, stockholders'
equity and cash flows of the Family Restaurant Division of Seller, for the 11
months then ended, together with such statements of a predecessor for the one
month ended January 26, 1994, and the audited combined statements of income,
stockholders' equity and cash flows of the Family Restaurant Division of Seller
for the fiscal year ending December 23, 1993, (ii) the audited combined balance
sheet of Loan Parties and FRD Commissary at December 31, 1995 and the related
combined statements of income, (iii) The Restaurant Enterprises Group, Inc. 10-K
for the fiscal year ending December 28, 1992, (iv) the unaudited combined
balance sheet of Company and its Subsidiaries as at March 28, 1996 and the
related unaudited combined statements of income, stockholders' equity and cash
flows of Company and its Subsidiaries for the three months then ended, and (v)
the unaudited combined statement of cash flows for Company and its Subsidiaries
as of December 31, 1995. All such statements were prepared in conformity with
GAAP and fairly present, in all material respects, the financial position (on a
consolidated and, where applicable, consolidating or combined basis) of the
entities described in such financial statements as at the respective dates
thereof and the results of operations and cash flows (on a consolidated and,
where applicable, consolidating or combined basis) of the entities described
therein for each of the periods then ended, subject, in the case of any such
unaudited financial statements, to changes resulting from audit and normal
year-end adjustments. Except as set forth on Schedule 5.3, none of the Loan
------------
Parties has (and none of the Loan Parties will have following the funding of the
initial Loans) any Contingent Obligation, contingent liability or liability for
taxes, long-term lease or unusual forward or long-term commitment that is not
reflected in the foregoing financial statements or the notes thereto and which
in any such case is material in relation to the business, operations,
properties, assets, condition (financial or otherwise) or prospects of any such
Loan Party.
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5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
---------------------------------------------------------
Since December 31, 1995, no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material Adverse
Effect. None of the Loan Parties has directly or indirectly declared, ordered,
paid or made, or set apart any sum or property for, any Restricted Junior
Payment or agreed to do so except as permitted by subsection 7.5 and except for
dividends and distributions actually made by Company and its Subsidiaries prior
to the Closing Date to Seller in compliance with Section 3.1F of the Acquisition
Agreement.
5.5 TITLE TO PROPERTIES; LIENS; REAL PROPERTY.
-----------------------------------------
A. TITLE TO PROPERTIES; LIENS. Each Loan Party has (i) good,
sufficient and legal title to (in the case of fee interests in real property),
(ii) valid leasehold interests in (in the case of leasehold interests in real or
personal property), or (iii) good title to (in the case of all other personal
property), all of their respective properties and assets reflected in the
financial statements referred to in subsection 5.3 or in the most recent
financial statements delivered pursuant to subsection 6.1, in each case except
for assets disposed of since the date of such financial statements in the
ordinary course of business or as otherwise permitted under subsection 7.7.
Except as permitted by this Agreement, all such properties and assets are free
and clear of Liens.
B. REAL PROPERTY. As of the Closing Date, Schedule 5.5 annexed
------------
hereto contains a true, accurate and complete list of (i) all Fee Properties and
(ii) all leases, subleases or assignments of leases (together with all
amendments, modifications, supplements, renewals or extensions of any thereof)
affecting each Real Property Asset of any Loan Party, regardless of whether such
Loan Party is the landlord or tenant (whether directly or as an assignee or
successor in interest) under such lease, sublease or assignment. Except as
specified in Schedule 5.5 annexed hereto, each agreement listed in clause (ii)
------------
of the immediately preceding sentence is in full force and effect and neither
Holdings nor Company has knowledge of any default that has occurred and is
continuing thereunder, and each such agreement constitutes the legally valid and
binding obligation of each applicable Loan Party, enforceable against such Loan
Party in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles.
5.6 LITIGATION; ADVERSE FACTS.
-------------------------
There are no actions, suits, proceedings, arbitrations or governmental
investigations (whether or not purportedly on behalf of any Loan Party) at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign (including any Environmental Claims) that are pending or, to
the knowledge of Holdings or Company, threatened against or affecting any Loan
Party or any property of Loan Party and that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect and no such
action, suit,
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proceeding or governmental investigation or arbitration shall purport to affect
the validity, legality or enforceability of the Acquisition, the Loan Documents,
the Related Agreements or the consummation of the transactions contemplated
thereby. No Loan Party (i) is in violation of any applicable laws (including
Environmental Laws) that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, or (ii) is subject to or in
default with respect to any final judgments, writs, injunctions, decrees, rules
or regulations of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.
5.7 PAYMENT OF TAXES.
----------------
Except to the extent permitted by subsection 6.3, all tax returns and
reports of Loan Parties required to be filed by any of them have been timely
filed, and all taxes shown on such tax returns to be due and payable and all
assessments, fees and other governmental charges upon Loan Parties and upon
their respective properties, assets, income, businesses and franchises which are
due and payable have been paid when due and payable. Company knows of no
proposed tax assessment against any Loan Party which is not being actively
contested by such Loan Party in good faith and by appropriate proceedings;
provided that such reserves or other appropriate provisions, if any, as shall be
- --------
required in conformity with GAAP shall have been made or provided therefor.
5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS; MATERIAL
------------------------------------------------------------------
CONTRACTS; MATERIAL FLAGSTAR AGREEMENTS.
---------------------------------------
A. No Loan Party is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
of its Contractual Obligations, and no condition exists that, with the giving of
notice or the lapse of time or both, would constitute such a default, except
where the consequences, direct or indirect, of such default or defaults, if any,
would not have a Material Adverse Effect.
B. No Loan Party is a party to or is otherwise subject to any
agreements or instruments or any charter or other internal restrictions which,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.
C. Schedule 5.8 contains a true, correct and complete list of all the
------------
Material Contracts in effect on the Closing Date. Except as described on
Schedule 5.8, all such Material Contracts are in full force and effect and no
- ------------
material defaults currently exist thereunder.
D. The Flagstar Credit Agreement, the Flagstar Indentures, the
Indenture dated as of July 12, 1990 between Denny's Realty, Inc. and State
Street Bank & Trust Company, the Indenture dated as of November 1, 1990 between
Secured Restaurants Trust, as Issuer and The Bank of New York Trust Company of
Florida, as successor trustee, and the FCI Intercompany Note are the only
Material Flagstar Agreements in effect on the Closing Date. Company has
delivered to Lenders complete and correct copies of each Material Flagstar
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Agreement and of all exhibits and schedules thereto. Each of Holdings, Company
and Company's Subsidiaries is an "Unrestricted Subsidiary" under, and as defined
in, the Flagstar Credit Agreement and each of the Flagstar Indentures described
in clauses (i)-(iv) of the definition thereof.
5.9 GOVERNMENTAL REGULATION.
-----------------------
No Loan Party is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act
or the Investment Company Act of 1940 or under any other federal or state
statute or regulation which may limit its ability to incur Indebtedness or which
may otherwise render all or any portion of the Obligations unenforceable.
5.10 SECURITIES ACTIVITIES.
---------------------
A. No Loan Party is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any Margin Stock or in the business of purchasing or
carrying any Margin Stock.
B. Following application of the proceeds of each Loan, not more
than 25% of the value of the assets (whether of Company only, Holdings only, of
Holdings and its Subsidiaries on a consolidated basis or of Company and its
Subsidiaries on a consolidated basis) subject to the provisions of subsection
7.2 or 7.7 or subject to any restriction contained in any agreement or
instrument, between Company or any other Loan Party and any Lender or any
Affiliate of any Lender, relating to Indebtedness and within the scope of
subsection 8.2, will be Margin Stock.
5.11 EMPLOYEE BENEFIT PLANS.
----------------------
A. Each of the Loan Parties and each of their respective ERISA
Affiliates are in compliance with all material applicable provisions and
requirements of ERISA and the regulations and published interpretations
thereunder with respect to each Employee Benefit Plan, and have performed all
their material obligations under each Employee Benefit Plan. Each Employee
Benefit Plan which is intended to qualify under Section 401(a) of the
Internal Revenue Code is so qualified.
B. No ERISA Event has occurred or is reasonably expected to
occur.
C. Except to the extent required under Section 4980B of the
Internal Revenue Code or applicable state law, no Employee Benefit Plan provides
health or welfare benefits (through the purchase of insurance or otherwise) for
any retired or former employee of any of the Loan Parties or any of their
respective ERISA Affiliates.
D. As of the most recent valuation date for any Pension Plan, the
amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA), individually or in
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the aggregate for all Pension Plans (excluding for purposes of such computation
any Pension Plans with respect to which assets exceed benefit liabilities), does
not exceed $1,000,000.
E. As of the most recent valuation date for each Multiemployer
Plan for which the actuarial report is available, the potential liability of the
Loan Parties and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, does not exceed $1,000,000.
5.12 CERTAIN FEES.
------------
Other than the fees payable to Ernst & Young LLP as described in the
attachment to the Officers' Certificate delivered to Lenders on the Closing Date
pursuant to subsection 4.1, no broker's or finder's fee or commission will be
payable with respect to this Agreement or any of the transactions contemplated
hereby and each of Holdings and Company hereby indemnifies each of the Agents
and the Lenders against, and agrees that it will hold each of the Agents and the
Lenders harmless from, any claim, demand or liability for any such broker's or
finder's fees alleged to have been incurred in connection herewith or therewith
and any expenses (including reasonable fees, expenses and disbursements of
counsel) arising in connection with any such claim, demand or liability.
5.13 ENVIRONMENTAL PROTECTION.
------------------------
(i) None of the Loan Parties nor any of their respective Facilities or
operations are subject to any outstanding written order, consent decree or
settlement agreement with any Person relating to (a) any Environmental Law,
(b) any Environmental Claim, or (c) any Hazardous Materials Activity that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect;
(ii) no Loan Party has received any letter or request for
information under Section 104 of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S) 9604) or any comparable state
law;
(iii) there are and, to Holdings' and Company's knowledge, have been no
conditions, occurrences, or Hazardous Materials Activities which could
reasonably be expected to form the basis of an Environmental Claim against
any Loan Party that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect;
(iv) neither any Loan Party nor, to Holdings' and Company's knowledge,
any predecessor of any Loan Party has filed any notice under any
Environmental Law indicating past or present treatment of Hazardous
Materials at any Facility, and none of any Loan Party's operations involves
the generation, transportation, treatment, storage
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or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270
or any state equivalent; and
(v) compliance with all current requirements pursuant to or under
Environmental Laws will not, individually or in the aggregate, have a
reasonable possibility of giving rise to a Material Adverse Effect.
Notwithstanding anything in this subsection 5.13 to the contrary, no
event or condition has occurred or is occurring with respect to any Loan Party
relating to any Environmental Law, any Release of Hazardous Materials, or any
Hazardous Materials Activity which individually or in the aggregate has had or
could reasonably be expected to have a Material Adverse Effect.
5.14 EMPLOYEE MATTERS.
----------------
There is no strike or work stoppage in existence or threatened
involving any Loan Party that could reasonably be expected to have a Material
Adverse Effect.
5.15 SOLVENCY.
--------
Each Loan Party is and, upon the incurrence of any Obligations by such
Loan Party on any date on which this representation is made, will be, Solvent.
5.16 MATTERS RELATING TO COLLATERAL.
------------------------------
A. CREATION, PERFECTION AND PRIORITY OF LIENS. Subject to the release
of Liens granted under the Existing Credit Agreement, all of which shall be
released in accordance with subsection 4.1F(i) concurrently with the making of
the Term Loans hereunder, the execution and delivery of the Collateral Documents
by Loan Parties, together with (i) the actions taken on or prior to the date
hereof pursuant to subsections 4.1I, 4.1J, 6.8 and 6.9 and, with respect to
fixtures only, the actions taken after the date hereof pursuant to subsection
6.10, and (ii) the delivery to Administrative Agent of any Pledged Collateral
not delivered to Administrative Agent at the time of execution and delivery of
the applicable Collateral Document (all of which Pledged Collateral has been
so delivered) are effective to create in favor of Administrative Agent for the
benefit of Lenders, as security for the respective Secured Obligations (as
defined in the applicable Collateral Document in respect of any Collateral), a
valid and perfected First Priority Lien on all of the Collateral, and all
filings and other actions necessary or desirable to perfect and maintain the
perfection and First Priority status of such Liens have been duly made or taken
and remain in full force and effect, other than the filing of any UCC financing
statements delivered to Administrative Agent for filing (but not yet filed) and
the periodic filing of UCC continuation statements in respect of UCC financing
statements filed by or on behalf of Administrative Agent and, with respect to
fixtures only, the filing of fixture filings pursuant to subsection 6.10.
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B. GOVERNMENTAL AND OTHER AUTHORIZATIONS. No authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body or any other Person is required for either (i) the pledge or
grant by any Loan Party, or the perfection or maintenance of the Liens purported
to be created in favor of Administrative Agent pursuant to any of the Collateral
Documents or (ii) the exercise by Administrative Agent of any rights or remedies
in respect of any Collateral (whether specifically granted or created pursuant
to any of the Collateral Documents or created or provided for by applicable
law), except for filings or recordings contemplated by subsection 5.16A and
except as may be required, in connection with the disposition of any Pledged
Collateral, by laws generally affecting the offering and sale of securities.
C. ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in
favor of Administrative Agent as contemplated by subsection 5.16A and subject to
the release of Liens granted under the Existing Credit Agreement, all of which
shall be released in accordance with subsection 4.1F(i) concurrently with the
making of the Term Loans hereunder, (i) no effective UCC financing statement,
fixture filing or other instrument similar in effect covering all or any part of
the Collateral is on file in any filing or recording office and (ii) no
effective filing covering all or any part of the IP Collateral is on file in the
PTO.
D. MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant to
the Collateral Documents does not violate Regulation G, T, U or X of the Board
of Governors of the Federal Reserve System. None of the Pledged Collateral
constitutes Margin Stock.
E. INFORMATION REGARDING COLLATERAL. All information supplied to
Administrative Agent by or on behalf of any Loan Party with respect to any of
the Collateral (in each case taken as a whole with respect to any particular
Collateral) is accurate and complete in all material respects.
5.17 RELATED AGREEMENTS.
------------------
A. DELIVERY OF RELATED AGREEMENTS. Company has delivered to Lenders
complete and correct copies of each Related Agreement and of all exhibits and
schedules thereto.
B. SELLER'S WARRANTIES. Except to the extent otherwise set forth
herein or in the schedules hereto, each of the representations and warranties
given by Seller to Holdings and its Affiliates in the Acquisition Agreement and
the other Related Agreements to which it is a party is true and correct in all
material respects as of the date hereof (or as of any earlier date to which such
representation and warranty specifically relates) and will be true and correct
in all material respects as of the Closing Date (or as of such earlier date, as
the case may be), in each case subject to the qualifications set forth in the
schedules to the Acquisition Agreement and such other Related Agreements, as
applicable (it being understood that on any date of determination, any untrue or
incorrect representations and warranties of Seller under the Acquisition
Agreement shall not cause a breach of Holdings' and Company's representation and
warranty under this subsection 5.17B as of such date of determination to the
extent (and
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only to the extent) that (i) Holdings has indemnification rights as of such date
under the Acquisition Agreement for such untrue and incorrect representations
and warranties, (ii) the amount of the indemnification obligation that Holdings
is entitled to pursuant to such indemnification rights does not exceed the
outstanding amount of Restricted Notes (as defined in the Acquisition Agreement)
outstanding as of such date and (iii) Holdings and Company are diligently
enforcing their indemnification rights with respect thereto).
C. WARRANTIES OF FCI, FLAGSTAR AND LOAN PARTIES. Subject to the
qualifications set forth therein, each of the representations and warranties
given by any of FCI, Flagstar and any Loan Party to Seller in the Acquisition
Agreement and the other Related Agreements to which it is a party is true and
correct in all material respects as of the date hereof and will be true and
correct in all material respects as of the Closing Date.
D. SURVIVAL. Notwithstanding anything in the Acquisition Agreement
or any other Related Agreement to the contrary, the representations and
warranties of Holdings and Company set forth in subsections 5.17B and 5.17C
shall, solely for purposes of this Agreement, survive the Closing Date for the
benefit of Agents and Lenders.
5.18 CERTAIN INDEBTEDNESS.
--------------------
As of the Closing Date, after giving effect to the Acquisition and the
transactions described in subsection 4.1F, the only Indebtedness of Loan Parties
(other than Indebtedness under the Loan Documents and the Holdings Notes) shall
consist of (a) Indebtedness in an aggregate amount not to exceed $31,500,000 in
respect of Capital Leases and other Indebtedness described in Schedule 7.1
------------
annexed hereto, (b) intercompany accounts payable owing to Company and certain
Subsidiaries of Company that are assumed by Holdings in accordance with the
Assumption Agreement in an aggregate amount not exceeding $200,000,000, which
obligation is evidenced by the Holdings Intercompany Note described in clause
(ii) of the definition thereof, and (c) allocated portions of liabilities
assumed by Loan Parties pursuant to the Assumption Agreement in accordance with
the Acquisition Agreement in an aggregate amount not exceeding $25,000,000.
5.19 DISCLOSURE.
----------
No representation or warranty of FCI, Flagstar, Holdings, Company or
any of Company's Subsidiaries contained in any Loan Document or Related
Agreement or in any other document, certificate or written statement furnished
to Lenders by or on behalf of FCI, Flagstar, Holdings, Company or any of
Company's Subsidiaries for use in connection with the transactions contemplated
by this Agreement contains any untrue statement of a material fact or omits to
state a material fact (known to Holdings or Company, in the case of any document
not furnished by it) necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances in which the same were
made. Any projections and pro forma financial information contained in such
materials are based upon good faith estimates and assumptions believed by
Holdings or Company to be reasonable at the time made. There are no facts known
(or which should upon the reasonable exercise of diligence be known) to
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Holdings or Company (other than matters of a general economic nature) that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect and that have not been disclosed herein or in such other
documents, certificates and statements furnished to Lenders for use in
connection with the transactions contemplated hereby.
SECTION 6. HOLDINGS' AND COMPANY'S AFFIRMATIVE COVENANTS
Each of Holdings and Company covenants and agrees that, so long as any
of the Commitments hereunder shall remain in effect and until payment in full of
all of the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless Requisite Lenders shall otherwise give prior written
consent, each of Holdings and Company shall perform, and shall cause each of
Company's Subsidiaries to perform, all covenants in this Section 6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
--------------------------------------
Each of Holdings and Company will maintain, and cause each of
Company's Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP. Company will deliver to Agents
and Lenders:
(i) Monthly Financials: as soon as available and in any event within
------------------
35 days (or in the case of the last month in any Fiscal Quarter, 45 days,
or in the case of the last month in any Fiscal Year, 60 days) after the end
of each month ending after the Closing Date, the consolidated balance sheet
of Holdings and its Subsidiaries as at the end of such month and the
related consolidated statements of income, stockholders' equity and cash
flows of Holdings and its Subsidiaries for such month and for the period
from the beginning of the then current Fiscal Year to the end of such
month, setting forth in each case in comparative form the corresponding
figures for the corresponding periods of the previous Fiscal Year and the
corresponding figures from the Financial Plan for the current Fiscal Year,
to the extent prepared on a monthly basis, all in reasonable detail and
certified by the chief financial officer of Company that they fairly
present, in all material respects, the financial condition of Holdings and
its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments;
(ii) Quarterly Financials: as soon as available and in any event
--------------------
within 45 days after the end of each Fiscal Quarter, the consolidated
balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal
Quarter and the related consolidated statements of income, stockholders'
equity and cash flows of Holdings and its Subsidiaries for such Fiscal
Quarter and for the period from the beginning of the then current Fiscal
Year to the end of such Fiscal Quarter, setting forth in each case in
comparative form the corresponding figures for the corresponding periods of
the previous Fiscal Year and the corresponding figures from the Financial
Plan for the current Fiscal Year, all in
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reasonable detail and certified by the chief financial officer of Company
that they fairly present, in all material respects, the financial condition
of Holdings and its Subsidiaries as at the dates indicated and the results
of their operations and their cash flows for the periods indicated, subject
to changes resulting from audit and normal year-end adjustments;
(iii) Year-End Financials: as soon as available and in any event
-------------------
within 90 days after the end of each Fiscal Year, (a) the consolidated
balance sheet of Holdings and its Subsidiaries as at the end of such Fiscal
Year and the related consolidated statements of income, stockholders'
equity and cash flows of Holdings and its Subsidiaries for such Fiscal
Year, setting forth in each case in comparative form the corresponding
figures for the previous Fiscal Year and the corresponding figures from the
Financial Plan for the Fiscal Year covered by such financial statements,
all in reasonable detail and certified by the chief financial officer of
Holdings that they fairly present, in all material respects, the financial
condition of Holdings and its Subsidiaries as at the dates indicated and
the results of their operations and their cash flows for the periods
indicated, (b) in the case of each such consolidated financial statements,
a report thereon of Deloitte & Touche LLP or other independent certified
public accountants of recognized national standing selected by Company and
satisfactory to Administrative Agent, which report shall be unqualified,
shall express no doubts about the ability of Holdings and its Subsidiaries
to continue as a going concern, and shall state that such consolidated
financial statements fairly present, in all material respects, the
consolidated financial position of Holdings and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (except as otherwise disclosed in such
financial statements) and that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards;
(iv) Officers' and Compliance Certificates: (a) together with each
-------------------------------------
delivery of financial statements of Holdings and its Subsidiaries pursuant
to subdivisions (i), (ii) and (iii) above, an Officers' Certificate of
Company stating that the signers have reviewed the terms of this Agreement
and have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of Holdings and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during or
at the end of such accounting period, and that the signers do not have
knowledge of the existence as at the date of such Officers' Certificate, of
any condition or event that constitutes an Event of Default or Potential
Event of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
Holdings and Company have taken, are taking and propose to take with
respect thereto; and (b) together with each delivery of financial
statements of Holdings and its Subsidiaries pursuant to subdivisions (ii)
and (iii) above, a Compliance Certificate demonstrating in reasonable
detail compliance during and at the end of the applicable accounting
periods with the restrictions contained in Section 7;
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(v) Reconciliation Statements: if, as a result of any change in
-------------------------
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
consolidated financial statements of Holdings and its Subsidiaries
delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this
subsection 6.1 will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles and policies been
made, then (a) together with the first delivery of financial statements
pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1
following such change, consolidated financial statements of Holdings and
its Subsidiaries for (y) the current Fiscal Year to the effective date of
such change and (z) the two full Fiscal Years immediately preceding the
Fiscal Year in which such change is made, in each case prepared on a pro
forma basis as if such change had been in effect during such periods, and
(b) together with each delivery of financial statements pursuant to
subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following
such change, a written statement of the chief accounting officer or chief
financial officer of Company setting forth the differences (including
without limitation any differences that would affect any calculations
relating to the financial covenants set forth in subsection 7.6) which
would have resulted if such financial statements had been prepared without
giving effect to such change;
(vi) Accountants' Certification: together with each delivery of
--------------------------
consolidated financial statements of Holdings and its Subsidiaries pursuant
to subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating that
their audit examination has included a review of the terms of this
Agreement and the other Loan Documents as they relate to accounting
matters, (b) stating whether, in connection with their audit examination,
any condition or event that constitutes an Event of Default or Potential
Event of Default has come to their attention and, if such a condition or
event has come to their attention, specifying the nature and period of
existence thereof; provided that such accountants shall not be liable by
--------
reason of any failure to obtain knowledge of any such Event of Default or
Potential Event of Default that would not be disclosed in the course of
their audit examination, and (c) stating that based on their audit
examination nothing has come to their attention that causes them to believe
either or both that the information contained in the certificates delivered
therewith pursuant to subdivision (iv) above is not correct or that the
matters set forth in the Compliance Certificates delivered therewith
pursuant to clause (b) of subdivision (iv) above for the applicable Fiscal
Year are not stated in accordance with the terms of this Agreement;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
--------------------
restricted by applicable professional standards), copies of all reports
submitted to any Loan Party by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of Holdings and its Subsidiaries made by such accountants,
including, without limitation, any comment letter submitted by such
accountants to management in connection with their annual audit;
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(viii) SEC Filings and Press Releases: promptly upon their becoming
------------------------------
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by Holdings or Company to
its security holders or by any Subsidiary of Company to its security
holders other than Holdings, Company or another Subsidiary of Company, (b)
all regular and periodic reports and all registration statements (other
than on Form S-8 or a similar form) and prospectuses, if any, filed by
Holdings, Company or any of Company's Subsidiaries with any securities
exchange or with the Securities and Exchange Commission or any governmental
or private regulatory authority, and (c) all press releases and other
statements made available generally by Holdings, Company or any of
Company's Subsidiaries to the public concerning material developments in
the business of Holdings, Company or any of Company's Subsidiaries;
(ix) Events of Default, etc.: promptly upon any officer of Holdings
-----------------------
or Company obtaining knowledge (a) of any condition or event that
constitutes an Event of Default or Potential Event of Default, or becoming
aware that any Lender has given any notice (other than to Administrative
Agent) or taken any other action with respect to a claimed Event of Default
or Potential Event of Default, (b) that any Person has given any notice to
Holdings, Company or any of Company's Subsidiaries or taken any other
action with respect to a claimed default or event or condition of the type
referred to in subsection 8.2, (c) of any condition or event that would be
required to be disclosed in a current report filed by Holdings or Company
with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4, 5
and 6 of such Form as in effect on the date hereof) if Holdings or Company,
as applicable, were required to file such reports under the Exchange Act,
or (d) of the occurrence of any event or change that has caused or
evidences, either in any case or in the aggregate, a Material Adverse
Effect, an Officers' Certificate specifying the nature and period of
existence of such condition, event or change, or specifying the notice
given or action taken by any such Person and the nature of such claimed
Event of Default, Potential Event of Default, default, event or condition,
and what action Holdings and Company have taken, are taking and propose to
take with respect thereto;
(x) Litigation or Other Proceedings: promptly upon any officer of
-------------------------------
Holdings or Company obtaining knowledge of (X) the institution of, or non-
frivolous threat of, any action, suit, proceeding (whether administrative,
judicial or otherwise), governmental investigation or arbitration against
or affecting Holdings, Company or any of Company's Subsidiaries or any
property of Holdings, Company or any of Company's Subsidiaries
(collectively, "PROCEEDINGS") not previously disclosed in writing by
Company to Lenders or (Y) any material development in any Proceeding that,
in any case:
(1) if adversely determined, has a reasonable possibility of
giving rise to a Material Adverse Effect; or
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(2) seeks to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to Holdings or Company to enable Lenders and their
counsel to evaluate such matters;
(xi) ERISA Events: promptly upon becoming aware of the occurrence of
------------
or forthcoming occurrence of any ERISA Event, a written notice specifying
the nature thereof, what action any of the Loan Parties or any of their
respective ERISA Affiliates has taken, is taking or proposes to take with
respect thereto and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a) each
-------------
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
filed by any of the Loan Parties or any of their respective ERISA
Affiliates with the Internal Revenue Service with respect to each Pension
Plan; (b) all notices received by any of the Loan Parties or any of their
respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an
ERISA Event; and (c) copies of such other documents or governmental reports
or filings relating to any Employee Benefit Plan as any Agent shall
reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
---------------
later than the beginning of each Fiscal Year, a consolidated plan and
financial forecast for such Fiscal Year and all succeeding Fiscal Years
through December 31, 1999 (the "FINANCIAL PLAN" for such Fiscal Years),
including without limitation (a) forecasted consolidated balance sheets and
forecasted consolidated statements of income and cash flows of Holdings and
its Subsidiaries for each such Fiscal Year (and for each fiscal quarter
period within each such Fiscal Year), together with an explanation of the
assumptions on which such forecasts are based, and (b) such other
information and projections as any Lender may reasonably request;
(xiv) Insurance: as soon as practicable and in any event by the last
---------
day of each Fiscal Year, a report in form and substance satisfactory to
Administrative Agent outlining all material insurance coverage maintained
as of the date of such report by Holdings and its Subsidiaries and all
material insurance coverage planned to be maintained by Holdings and its
Subsidiaries in the immediately succeeding Fiscal Year;
(xv) Board of Directors: with reasonable promptness, written notice
------------------
of any change in the Board of Directors of Holdings or Company;
(xvi) New Subsidiaries: promptly upon any Person becoming a
----------------
Subsidiary of Company, a written notice setting forth with respect to such
Person (a) the date on
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which such Person became a Subsidiary of Company and (b) all of the data
required to be set forth in Schedule 5.1 annexed hereto with respect to all
------------
Subsidiaries of Company (it being understood that such written notice shall
be deemed to supplement Schedule 5.1 annexed hereto for all purposes of
------------
this Agreement);
(xvii) Material Contracts: promptly, and in any event within ten
------------------
Business Days after any Material Contract of Holdings or any of its
Subsidiaries is terminated or amended in a manner that is materially
adverse to Holdings or such Subsidiary, as the case may be, or any new
Material Contract is entered into, or any event of default occurs and is
continuing under any Material Contract or any other Related Agreement, a
written statement describing such event with copies of such material
amendments or new contracts, and an explanation of any actions being taken
with respect thereto;
(xviii) UCC Search Report: as promptly as practicable after the date
-----------------
of delivery to Administrative Agent of any UCC financing statement executed
by any Loan Party pursuant to subsection 4.1J(iv) or 6.8A, copies of
completed UCC searches evidencing the proper filing, recording and indexing
of all such UCC financing statement and listing all other effective
financing statements that name such Loan Party as debtor, together with
copies of all such other financing statements not previously delivered to
Administrative Agent by or on behalf of Holdings or such Loan Party;
(xix) Material Flagstar Agreements: promptly, and in any event
----------------------------
within 10 Business Days after any Material Flagstar Agreement is terminated
or amended in a manner that is materially adverse to any Loan Party or any
Lender or any new Material Flagstar Agreement is entered into, a written
statement describing such event with copies of such material amendment or
new contracts, and an explanation of any actions being taken with respect
thereto;
(xx) Closing Balance Sheet: on or before the date of delivery of the
---------------------
Closing Balance Sheet (as defined in the Acquisition Agreement) by Company
to Seller, a copy of the Closing Balance Sheet, calculations showing in
reasonable detail the derivation of the amount of the post-closing purchase
price adjustments and any reconciliation statements relating to the Closing
Balance Sheet or such calculations, which shall in each case be accompanied
by back-up information satisfactory in form and substance to Administrative
Agent;
(xxi) Revenue Agent Reports: within 10 days after receipt thereof by
---------------------
Company, copies of all Revenue Agent Reports (Internal Revenue Service Form
886), or other written proposals of the Internal Revenue Service, that
propose, determine or otherwise set forth adjustments increasing the
Federal income tax liability of the affiliated group (within the meaning of
Section 1504(a)(1) of the Internal Revenue Code) of which any Loan Party is
a member aggregating $5,000,000 or more;
(xxii) Tax Certificates: promptly, and in any event within five
----------------
Business Days after the due date (as the same may be extended from time to
time) for filing the final
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Federal income tax return in respect of each taxable year, a certificate,
signed by the president or chief financial officer of Company, stating that
the common parent of the affiliated group (within the meaning of Section
1504(a)(1) of the Internal Revenue Code) of which any Loan Party is a
member has paid to the Internal Revenue Service or other taxing authority,
or to Company, the full amount that such affiliated group is required to
pay in respect of Federal income tax for such year and that Holdings and
its Subsidiaries have received any amounts payable to them, and have not
paid amounts in respect of taxes (Federal, state, local or foreign) in
excess of the amount they are required to pay, under the Tax Allocation
Agreement in respect of such taxable year;
(xxiii) Payment in Kind under Holdings Note Indenture: as soon as
---------------------------------------------
Holdings has the option to elect to pay interest in additional Securities
(as defined in the Holdings Note Indenture) as provided in Section 4.1 of
the Holdings Note Indenture but in any event no later than 5 days prior to
the applicable Record Date (as defined in the Holdings Note Indenture),
notice of such election to pay interest in additional Securities (as
defined in the Holdings Note Indenture);
(xxiv) Holdings Intercompany Note Balance: within 60 days of the
----------------------------------
Closing Date, an Officers' Certificate of Holdings and Company setting
forth the respective amounts owed, as of May 23, 1996, by Holdings to
Company and each Subsidiary of Company that is a payee thereunder under the
Holdings Intercompany Note described in clause (ii) of the definition
thereof; and
(xxv) Other Information: with reasonable promptness, such other
-----------------
information and data with respect to Holdings or any of its Subsidiaries as
from time to time may be reasonably requested by any Lender.
6.2 CORPORATE EXISTENCE, ETC.; BOOKS OF RECORD.
------------------------------------------
A. Except as permitted under subsection 7.7, Holdings and Company
will, and will cause each of Company's Subsidiaries to, at all times preserve
and keep in full force and effect its corporate existence and all rights and
franchises material to its business; provided, however that neither Holdings nor
-------- -------
any of its Subsidiaries shall be required to preserve any such right or
franchise if the Board of Directors of Holdings or such Subsidiary shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of Holdings or such Subsidiary, as the case may be, and that the
loss thereof is not disadvantageous in any material respect to Holdings, such
Subsidiary or Lenders.
B. Holdings and Company shall, and shall cause each of Company's
Subsidiaries to, keep appropriate books of record and account, in which shall be
recorded all financial transactions and the assets and business of Holdings,
Company and Company's Subsidiaries in accordance with GAAP. Holdings shall
maintain books of record and account which are separate from the books of record
and account of Company and its Subsidiaries.
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6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
----------------------------------------------
A. Holdings and Company will, and will cause each of Company's
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
income, businesses or franchises before any penalty accrues thereon, and all
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums that have become due and payable and that by law have or may
become a Lien upon any of its properties or assets, prior to the time when any
penalty or fine shall be incurred with respect thereto; provided that no such
--------
charge or claim need be paid if it is being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted, so long as
(1) such reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor and (2) in the case of a
charge or claim which has or may become a Lien against any of the Collateral,
such contest proceedings conclusively operate to stay the sale of any portion of
the Collateral to satisfy such charge or claim.
B. Neither Holdings nor Company will, nor will it permit any of
Company's Subsidiaries to, file or consent to the filing of any consolidated
income tax return with any Person (other than FCI).
6.4 MAINTENANCE OF PROPERTIES; INSURANCE; APPLICATION OF NET INSURANCE/
-------------------------------------------------------------------
CONDEMNATION PROCEEDS.
----------------------
A. MAINTENANCE OF PROPERTIES. Holdings and Company will, and will
cause each of Company's Subsidiaries to, maintain or cause to be maintained in
good repair, working order and condition, ordinary wear and tear excepted, all
material properties used or useful in the business of Holdings and its
Subsidiaries (including, without limitation, all Intellectual Property) and from
time to time will make or cause to be made all appropriate repairs, renewals and
replacements thereof.
B. INSURANCE. Holdings and Company will maintain or cause to be
maintained, with financially sound and reputable insurers, such public liability
insurance, third party property damage insurance, business interruption
insurance and casualty insurance with respect to liabilities, losses or damage
in respect of the assets, properties and businesses of Holdings and its
Subsidiaries as may customarily be carried or maintained under similar
circumstances by corporations of established reputation engaged in similar
businesses, in each case in such amounts (giving effect to self-insurance), with
such deductibles, covering such risks and otherwise on such terms and conditions
as shall be customary for corporations similarly situated in the industry.
Without limiting the generality of the foregoing, Holdings and Company will
maintain or cause to be maintained (i) flood insurance with respect to each
Flood Hazard Property that is located in a community that participates in the
National Flood Insurance Program, in each case in compliance with any applicable
regulations of the Board of Governors of the Federal Reserve System, and (ii)
replacement value casualty insurance on the Collateral under such policies of
insurance, with such insurance companies, in such amounts, with such
deductibles, and covering such risks as are at all times satisfactory to
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Administrative Agent in its commercially reasonable judgment. Each such policy
of insurance shall (a) name Administrative Agent for the benefit of Lenders as
an additional insured thereunder as its interests may appear and (b) in the case
of each business interruption and casualty insurance policy, contain a loss
payable clause or endorsement, satisfactory in form and substance to
Administrative Agent, that names Administrative Agent for the benefit of Lenders
as the loss payee thereunder for any covered loss in excess of $1,000,000 and
provides for at least 30 days prior written notice to Administrative Agent of
any modification or cancellation of such policy.
C. APPLICATION OF NET INSURANCE/CONDEMNATION PROCEEDS.
(i) Business Interruption Insurance. Upon receipt by Holdings or any
-------------------------------
of its Subsidiaries of any business interruption insurance proceeds
constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event of
Default or Potential Event of Default shall have occurred and be continuing,
Holdings or such Subsidiary may retain and apply such Net
Insurance/Condemnation Proceeds for working capital purposes, and (b) if an
Event of Default or Potential Event of Default shall have occurred and be
continuing, Company shall apply an amount equal to such Net
Insurance/Condemnation Proceeds to prepay the Loans (and/or the Revolving
Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b).
(ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by
----------------------------------------
Holdings or any of its Subsidiaries of any Net Insurance/Condemnation
Proceeds other than from business interruption insurance, (a) so long as no
Event of Default or Potential Event of Default shall have occurred and be
continuing, Holdings and Company shall, or shall cause one or more of
Company's Subsidiaries to, promptly and diligently apply such Net
Insurance/Condemnation Proceeds to pay or reimburse the costs of repairing,
restoring or replacing the assets in respect of which such Net
Insurance/Condemnation Proceeds were received (or reinvesting in like or
similar properties within the same geographical area) or, to the extent not
so applied, to prepay the Loans (and/or the Revolving Loan Commitments shall
be reduced) as provided in subsection 2.4B(iii)(b); provided, however, that
-------- -------
if at any time Administrative Agent reasonably determines that such repair,
restoration, replacement or reinvestment cannot be completed within 180 days
after such receipt, Company shall prepay the Loans (and/or the Revolving
Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b),
and (b) if an Event of Default or Potential Event of Default shall have
occurred and be continuing, Company shall apply an amount equal to such Net
Insurance/Condemnation Proceeds to prepay the Loans (and/or the Revolving
Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(b).
(iii) Net Insurance/Condemnation Proceeds Received by Administrative
--------------------------------------------------------------
Agent. Upon receipt by Administrative Agent of any Net
-----
Insurance/Condemnation Proceeds as loss payee, (a) if and to the extent
Company would have been required to apply such Net Insurance/Condemnation
Proceeds (if it had received them directly) to prepay the Loans and/or
reduce the Revolving Loan Commitments, Administrative Agent shall, and
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<PAGE>
Holdings and Company hereby authorize Administrative Agent to, apply such
Net Insurance/Condemnation Proceeds to prepay the Loans (and/or the
Revolving Loan Commitments shall be reduced) as provided in subsection
2.4B(iii)(b), and (b) to the extent the foregoing clause (a) does not apply
and (1) the aggregate amount of such Net Insurance/Condemnation Proceeds
received (and reasonably expected to be received) by Administrative Agent in
respect of any covered loss does not exceed $5,000,000, Administrative Agent
shall deliver such Net Insurance/Condemnation Proceeds to Company, and
Company shall, or shall cause one or more of its Subsidiaries to, promptly
apply such Net Insurance/Condemnation Proceeds to the costs of repairing,
restoring, or replacing the assets in respect of which such Net
Insurance/Condemnation Proceeds were received (or reinvesting in like or
similar properties within the same geographical area), and (2) if the
aggregate amount of Net Insurance/Condemnation Proceeds received (and
reasonably expected to be received) by Administrative Agent in respect of
any covered loss exceeds $5,000,000, Administrative Agent shall hold such
Net Insurance/Condemnation Proceeds pursuant to the terms of a collateral
account agreement (X) which is in form and substance substantially similar
to the Collateral Account Agreement and otherwise in form and substance
satisfactory to Administrative Agent and (Y) which contains a provision
permitting investment of such proceeds, and, so long as Company or any of
its Subsidiaries proceeds diligently to repair, restore or replace the
assets of Company or such Subsidiary in respect of which such Net
Insurance/Condemnation Proceeds were received or to reinvest in like or
similar properties within the same geographical area, Administrative Agent
shall from time to time disburse to Company or such Subsidiary from the
collateral account maintained pursuant to such collateral account agreement,
to the extent of any such Net Insurance/Condemnation Proceeds remaining
therein in respect of the applicable covered loss, amounts necessary to pay
the cost of such repair, restoration, replacement or reinvestment after the
receipt by Administrative Agent of invoices or other documentation
reasonably satisfactory to Administrative Agent relating to the amount of
costs so incurred and the work performed (including, if required by
Administrative Agent, lien releases and architects' certificates); provided,
---------
however that if at any time Administrative Agent reasonably determines (A)
-------
that Company or such Subsidiary is not proceeding diligently with such
repair, restoration, replacement or reinvestment or (B) that such repair,
restoration, replacement or reinvestment cannot be completed with the Net
Insurance/Condemnation Proceeds then held by Administrative Agent for such
purpose, together with funds otherwise available to Company for such
purpose, or that such repair, restoration, replacement or reinvestment
cannot be completed within 180 days after the receipt by Administrative
Agent of such Net Insurance/Condemnation Proceeds, Administrative Agent
shall, and Holdings and Company hereby authorize Administrative Agent to,
apply such Net Insurance/Condemnation Proceeds to prepay the Loans (and/or
the Revolving Loan Commitments shall be reduced) as provided in subsection
2.4B(iii)(b).
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<PAGE>
6.5 INSPECTION RIGHTS; AUDITS OF INVENTORY AND ACCOUNTS RECEIVABLE; LENDER
----------------------------------------------------------------------
MEETING.
-------
A. INSPECTION RIGHTS. Holdings and Company shall, and shall cause
each of Company's Subsidiaries to, permit any authorized representatives
designated by any Lender to visit and inspect any of the properties of Holdings,
Company or of any of Company's Subsidiaries, to inspect, copy and take extracts
from its and their financial and accounting records, and to discuss its and
their affairs, finances and accounts with its and their officers and independent
public accountants (provided that Company may, if it so chooses, be present at
or participate in any such discussion), all upon reasonable notice and at such
reasonable times during normal business hours and as often as may reasonably be
requested.
B. LENDER MEETING. Company will, upon the request of any Agent or
Requisite Lenders, participate in a meeting of Agents and Lenders once during
each Fiscal Year to be held at Company's corporate offices (or at such other
location as may be agreed to by Company and such Agent) at such time as may be
agreed to by Company and such Agent.
6.6 COMPLIANCE WITH LAWS, ETC.
--------------------------
Holdings and Company shall comply, and shall cause each of Company's
Subsidiaries and all other Persons on or occupying any Facilities to comply,
with the requirements of all applicable laws, rules, regulations and orders of
any governmental authority (including all Environmental Laws), noncompliance
with which could reasonably be expected to cause, individually or in the
aggregate, a Material Adverse Effect.
6.7 ENVIRONMENTAL REVIEW AND INVESTIGATION, DISCLOSURE, ETC.; LOAN PARTIES'
-----------------------------------------------------------------------
ACTIONS REGARDING HAZARDOUS MATERIALS ACTIVITIES, ENVIRONMENTAL CLAIMS AND
--------------------------------------------------------------------------
VIOLATIONS OF ENVIRONMENTAL LAWS.
--------------------------------
A. ENVIRONMENTAL REVIEW AND INVESTIGATION. Each of Holdings and
Company agrees that any Agent may, from time to time and in its reasonable
discretion, (i) retain, at Company's expense, an independent professional
consultant to review any environmental audits, investigations, analyses and
reports relating to Hazardous Materials prepared by or for Company and (ii) in
the event (a) such Agent reasonably believes that Holdings or Company has
breached any representation, warranty or covenant contained in subsection 5.6,
5.13, 6.6 or 6.7 or that there has been a material violation of Environmental
Laws at any Facility or by Holdings or any of its Subsidiaries at any other
location (in which event the review shall be limited to the subject matter and
location of the breach or violation) or (b) an Event of Default has occurred and
is continuing, conduct its own investigation of any Facility; provided that, in
--------
the case of any Facility no longer owned, leased, operated or used by Holdings
or any of its Subsidiaries, Holdings and Company shall only be obligated to use
commercially reasonable efforts to obtain permission for such Agent's
professional consultant to conduct an investigation of such Facility. For
purposes of conducting such a review and/or investigation, Holdings and Company
hereby grant to such Agent and its agents, employees, consultants and
contractors the right to enter into or onto any Facilities currently owned,
leased, operated or used by Holdings or any of its Subsidiaries and to perform
such tests on such
103
<PAGE>
property (including taking samples of soil, groundwater and suspected asbestos-
containing materials) as are reasonably necessary in connection therewith. Any
such investigation of any Facility shall be conducted, unless otherwise agreed
to by Company and such Agent, during normal business hours and, to the extent
reasonably practicable, shall be conducted so as not to interfere with the
ongoing operations at such Facility or to cause any damage or loss to any
property at such Facility. Company and such Agent hereby acknowledge and agree
that any report of any investigation conducted at the request of such Agent
pursuant to this subsection 6.7A will be obtained and shall be used by Agents
and Lenders for the purposes of Lenders' internal credit decisions, to monitor
and police the Loans and to protect Lenders' security interests, if any, created
by the Loan Documents. Each Agent agrees to deliver a copy of any such report to
Holdings and Company with the understanding that each of Holdings and Company
acknowledges and agrees that (x) it will indemnify and hold harmless each Agent
and each Lender from any costs, losses or liabilities relating to Holdings', or
Company's use of or reliance on such report, (y) neither any Agent nor any
Lender makes any representation or warranty with respect to such report, and (z)
by delivering such report to Holdings and Company, neither any Agent nor any
Lender is requiring or recommending the implementation of any suggestions or
recommendations contained in such report.
B. ENVIRONMENTAL DISCLOSURE. Holdings and Company will deliver to
Agents and Lenders:
(i) Environmental Audits and Reports. As soon as practicable following
--------------------------------
receipt thereof, copies of all environmental audits, investigations,
analyses and reports of any kind or character, whether prepared by personnel
of Holdings or any of its Subsidiaries or by independent consultants,
governmental authorities or any other Persons, with respect to significant
environmental matters at any Facility which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect or with respect to any Environmental Claims which, individually or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect;
(ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly upon
--------------------------------------------------
the occurrence thereof, written notice describing in reasonable detail (a)
any Release required to be reported to any federal, state or local
governmental or regulatory agency under any applicable Environmental Laws,
(b) any remedial action taken by Company or any other Person in response to
(1) any Hazardous Materials Activities the existence of which has a
reasonable possibility of resulting in one or more Environmental Claims
having, individually or in the aggregate, a Material Adverse Effect, or (2)
any Environmental Claims that, individually or in the aggregate, have a
reasonable possibility of resulting in a Material Adverse Effect, and (c)
any Loan Party's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of any Facility that is likely to have
a material adverse effect on the continuation of the then current use or
planned future use of such Facility.
(iii) Written Communications Regarding Environmental Claims, Releases,
----------------------------------------------------------------
Etc. As soon as practicable following the sending or receipt thereof by
----
Holdings or any of
104
<PAGE>
its Subsidiaries, a copy of any and all written communications with respect
to (a) any Environmental Claims that, individually or in the aggregate, have
a reasonable possibility of giving rise to a Material Adverse Effect, (b)
any Release required to be reported to any federal, state or local
governmental or regulatory agency, and (c) any request for information from
any governmental agency that suggests such agency is investigating whether
Holdings or any of its Subsidiaries may be potentially responsible for any
Hazardous Materials Activity.
(iv) Notice of Certain Proposed Actions Having Environmental Impact.
--------------------------------------------------------------
Prompt written notice describing in reasonable detail (a) any proposed
acquisition of stock, assets, or property by Holdings or any of its
Subsidiaries that could reasonably be expected to (1) expose Holdings or any
of its Subsidiaries to, or result in, Environmental Claims that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect or (2) affect the ability of Holdings or any of its
Subsidiaries to maintain in full force and effect all material Governmental
Authorizations required under any Environmental Laws for their respective
operations and (b) any proposed action to be taken by Holdings or any of its
Subsidiaries to commence manufacturing or other industrial operations or to
modify current operations in a manner that could reasonably be expected to
subject Holdings or any of its Subsidiaries to any material additional
obligations or requirements under any Environmental Laws.
(v) Other Information. With reasonable promptness, such other
-----------------
documents and information as from time to time may be reasonably requested
by any Agent in relation to any matters disclosed pursuant to this
subsection 6.7.
C. LOAN PARTIES' ACTIONS REGARDING HAZARDOUS MATERIALS ACTIVITIES,
ENVIRONMENTAL CLAIMS AND VIOLATIONS OF ENVIRONMENTAL LAWS.
(i) Remedial Actions Relating to Hazardous Materials Activities.
-----------------------------------------------------------
Holdings and Company shall promptly undertake, and shall cause each of
Company's Subsidiaries promptly to undertake, any and all investigations,
studies, sampling, testing, abatement, cleanup, removal, remediation or
other response actions necessary to remove, remediate, clean up or abate any
Hazardous Materials Activity on, under or about any Facility that is in
violation of any Environmental Laws or that presents a material risk of
giving rise to an Environmental Claim. In the event Holdings or any of its
Subsidiaries undertakes any such action with respect to any Hazardous
Materials, Holdings or such Subsidiary shall conduct and complete such
action in compliance with all applicable Environmental Laws and in
accordance with the policies, orders and directives of all federal, state
and local governmental authorities except when, and only to the extent that,
Holdings' or such Subsidiary's liability with respect to such Hazardous
Materials Activity is being contested in good faith by Holdings or such
Subsidiary.
(ii) Actions with Respect to Environmental Claims and Violations of
--------------------------------------------------------------
Environmental Laws. Holdings and Company shall promptly take, and shall
------------------
cause each
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<PAGE>
of Company's Subsidiaries promptly to take, any and all actions necessary
to (i) cure any material violation of applicable Environmental Laws by
Holdings or its Subsidiaries and (ii) make an appropriate response to any
Environmental Claim against Holdings or any of its Subsidiaries and
discharge any obligations it may have to any Person thereunder where
failure to do so could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
6.8 EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL
-----------------------------------------------------------------
DOCUMENTS BY CERTAIN SUBSIDIARIES AND FUTURE SUBSIDIARIES; EXECUTION OF
-----------------------------------------------------------------------
FOREIGN INTELLECTUAL PROPERTY COLLATERAL DOCUMENTS BY LOAN PARTIES.
-------------------------------------------------------------------
A. EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY
COLLATERAL DOCUMENTS. In the event that any Person becomes a Subsidiary of
Company after the date hereof, Company will promptly notify Administrative Agent
of that fact and cause such Subsidiary to execute and deliver to Administrative
Agent a counterpart of each of the Subsidiary Guaranty, the Subsidiary Pledge
Agreement, the Subsidiary Security Agreement and the Subsidiary Trademark
Security Agreement and to take all such further actions and execute all such
further documents and instruments (including without limitation actions,
documents and instruments comparable to those described in subsection 4.1J) as
may be necessary or, in the opinion of Administrative Agent, desirable to create
in favor of Administrative Agent, for the benefit of Lenders, a valid and
perfected First Priority Lien on all of the personal and mixed property assets
of such Subsidiary described in the applicable forms of Collateral Documents.
B. SUBSIDIARY CHARTER DOCUMENTS, LEGAL OPINIONS, ETC. Company shall
deliver to Administrative Agent, together with such Loan Documents, (i)
certified copies of such Subsidiary's Certificate or Articles of Incorporation,
together with a good standing certificate from the Secretary of State of the
jurisdiction of its incorporation and each other state in which such Person is
qualified as a foreign corporation to do business and, to the extent generally
available, a certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority of
each of such jurisdictions, each to be dated a recent date prior to their
delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws,
certified by its corporate secretary or an assistant secretary as of a recent
date prior to their delivery to Administrative Agent, (iii) a certificate
executed by the secretary or an assistant secretary of such Subsidiary as to (a)
the fact that the attached resolutions of the Board of Directors of such
Subsidiary approving and authorizing the execution, delivery and performance of
such Loan Documents are in full force and effect and have not been modified or
amended and (b) the incumbency and signatures of the officers of such Subsidiary
executing such Loan Documents, and (iv) a favorable opinion of counsel to such
Subsidiary, in form and substance satisfactory to Administrative Agent and its
counsel, as to (a) the due organization and good standing of such Subsidiary,
(b) the due authorization, execution and delivery by such Subsidiary of such
Loan Documents, (c) the enforceability of such Loan Documents against such
Subsidiary, (d) such other matters (including without limitation matters
relating to the creation and perfection of Liens in any Collateral pursuant to
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<PAGE>
such Loan Documents) as Administrative Agent may reasonably request, all of the
foregoing to be satisfactory in form and substance to Administrative Agent and
its counsel.
C. FOREIGN INTELLECTUAL PROPERTY COLLATERAL. In the event that
any Agent or the Requisite Lenders shall make a written request therefor after
the date hereof (which request may be made in its or their sole discretion),
Holdings and Company shall, and shall cause each of Company's Subsidiaries to,
within 60 days of such request, at Company's expense, take all actions necessary
or, in the opinion of Administrative Agent or its counsel, desirable pursuant to
the laws of each of the foreign countries in which Company or any of its
Subsidiaries holds or owns any rights with respect to any Intellectual Property
(including, without limitation, all Trademarks, Registrations and Trademark
Rights (as each such term is defined in the Company Trademark Security Agreement
or the Subsidiary Trademark Security Agreement) registered or used in any such
foreign country) (the "FOREIGN INTELLECTUAL PROPERTY") to grant to
Administrative Agent, on behalf of Lenders and Interest Rate Exchangers, a valid
and perfected first priority security interest in the Foreign Intellectual
Property. Such actions shall include, but not be limited to, the delivery to
Administrative Agent of a security agreement (each of which shall be in form and
substance satisfactory to Administrative Agent) with respect to each such
foreign country duly executed by the applicable Loan Parties and duly
registered, filed or recorded with the appropriate governmental entities, and
one or more opinions of local counsel licensed to practice in each of said
foreign countries (which opinion shall be in form and substance satisfactory to
Administrative Agent) to the effect that the Administrative Agent has, for its
benefit and the ratable benefit of Lenders and Interest Rate Exchangers, a valid
and perfected first priority security interest in the Foreign Intellectual
Property relating to such foreign country; provided that Holdings and Company
--------
shall not be required to take any such action or deliver any such document with
respect to Foreign Intellectual Property relating to any foreign country if the
granting of such security interest would be unlawful, unenforceable or invalid
under the laws of such country.
6.9 MATTERS RELATING TO ADDITIONAL REAL PROPERTY COLLATERAL.
-------------------------------------------------------
A. ADDITIONAL MORTGAGES, ETC. From and after the Closing Date, in
the event that (i) Company or any Subsidiary Guarantor acquires any fee interest
in real property or (ii) at the time any Person becomes a Subsidiary Guarantor,
such Person owns or holds any fee interest in real property, excluding, in the
case of clause (ii) above, any such Real Property Asset the encumbrancing of
which requires the consent of then-existing senior lienholder, where Company and
its Subsidiaries are unable to obtain such senior lienholder's consent (any such
non-excluded Real Property Asset described in the foregoing clause (i) or (ii)
being an "ADDITIONAL MORTGAGED PROPERTY"), Company or such Subsidiary Guarantor
shall deliver to Administrative Agent, as soon as practicable after such Person
acquires such Additional Mortgaged Property or becomes a Subsidiary Guarantor,
as the case may be, the following:
(i) Additional Mortgage. A fully executed and notarized Mortgage (an
-------------------
"ADDITIONAL MORTGAGE"), in proper form for recording in all appropriate
places in all
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applicable jurisdictions, encumbering the interest of such Loan Party in
such Additional Mortgaged Property;
(ii) Opinions of Counsel. (a) A favorable opinion of counsel to such
-------------------
Loan Party, in form and substance satisfactory to Administrative Agent and
its counsel, as to the due authorization, execution and delivery by such
Loan Party of such Additional Mortgage and such other matters as
Administrative Agent may reasonably request, and (b) if required by
Administrative Agent, an opinion of counsel (which counsel shall be
reasonably satisfactory to Administrative Agent) in the state in which such
Additional Mortgaged Property is located with respect to the enforceability
of the form of Additional Mortgage to be recorded in such state and such
other matters (including without limitation any matters governed by the laws
of such state regarding personal property security interests in respect of
any Collateral) as Administrative Agent may reasonably request, in each case
in form and substance reasonably satisfactory to Administrative Agent;
(iii) Title Insurance. (a) If required by Administrative Agent, an
---------------
ALTA mortgagee title insurance policy or an unconditional commitment
therefor (an "ADDITIONAL MORTGAGE POLICY") issued by the Title Company with
respect to such Additional Mortgaged Property, in an amount satisfactory to
Administrative Agent, showing that fee simple title to such Additional
Mortgaged Property is vested in such Loan Party and insuring Administrative
Agent that such Additional Mortgage creates a valid and enforceable First
Priority mortgage Lien on such Additional Mortgaged Property, subject only
to a standard survey exception, which Additional Mortgage Policy (1) shall
include an endorsement for mechanics' liens, for future advances under this
Agreement and for any other matters reasonably requested by Administrative
Agent and (2) shall provide for affirmative insurance and such reinsurance
as Administrative Agent may reasonably request, all of the foregoing in form
and substance reasonably satisfactory to Administrative Agent; and (b)
evidence satisfactory to Administrative Agent that such Loan Party has (i)
delivered to the Title Company all certificates and affidavits required by
the Title Company in connection with the issuance of the Additional Mortgage
Policy and (ii) paid to the Title Company or to the appropriate governmental
authorities all expenses and premiums of the Title Company in connection
with the issuance of the Additional Mortgage Policy and all recording and
stamp taxes (including mortgage recording and intangible taxes) payable in
connection with recording the Additional Mortgage in the appropriate real
estate records;
(iv) Title Report. If no Additional Mortgage Policy is required with
------------
respect to such Additional Mortgaged Property, a title report issued by the
Title Company with respect thereto, dated not more than 30 days prior to the
date such Additional Mortgage is to be recorded and satisfactory in form and
substance to Administrative Agent;
(v) Copies of Documents Relating to Title Exceptions. Copies of all
------------------------------------------------
recorded documents listed as exceptions to title or otherwise referred to in
the Additional Mortgage Policy or title report delivered pursuant to clause
(iii) or (iv) above;
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(vi) Matters Relating to Flood Hazard Properties. (a) Evidence, which
-------------------------------------------
may be in the form of a letter from an insurance broker or a municipal
engineer, as to (1) whether such Additional Mortgaged Property is a Flood
Hazard Property and (2) if so, whether the community in which such Flood
Hazard Property is located is participating in the National Flood Insurance
Program, (b) if such Additional Mortgaged Property is a Flood Hazard
Property, such Loan Party's written acknowledgement of receipt of written
notification from Administrative Agent (1) that such Additional Mortgaged
Property is a Flood Hazard Property and (2) as to whether the community in
which such Flood Hazard Property is located is participating in the National
Flood Insurance Program, and (c) in the event such Additional Mortgaged
Property is a Flood Hazard Property that is located in a community that
participates in the National Flood Insurance Program, evidence that Company
has obtained flood insurance in respect of such Flood Hazard Property to the
extent required under the applicable regulations of the Board of Governors
of the Federal Reserve System; and
(vii) Environmental Audit. If required by any Agent, reports and
-------------------
other information, in form, scope and substance satisfactory to such Agent
and prepared by environmental consultants satisfactory to such Agent,
concerning any environmental hazards or liabilities to which Company or any
of its Subsidiaries may be subject with respect to such Additional Mortgaged
Property.
B. REAL ESTATE APPRAISALS. If requested by any Agent, Holdings and
Company shall, and shall cause each of Company's Subsidiaries to, permit an
independent real estate appraiser satisfactory to Administrative Agent, upon
reasonable notice, to visit and inspect any Additional Mortgaged Property for
the purpose of preparing an appraisal of such Additional Mortgaged Property
satisfying the requirements of any applicable laws and regulations (in each case
to the extent required under such laws and regulations as determined by
Administrative Agent in its discretion).
6.10 FIXTURE FILINGS; LIQUOR LICENSE AFFILIATES.
------------------------------------------
A. FIXTURE FILINGS. Company shall, within 45 days of the Closing
Date, deliver to Administrative Agent, in recordable form, fixture filings
executed by each applicable Loan Party with respect to all personal and mixed
property Collateral of such Loan Party, for filing in all jurisdictions as may
be necessary or, in the opinion of Administrative Agent, desirable (including
without limitation each county in which any Loan Party operates a restaurant) to
perfect the security interests created in such Collateral pursuant to the
Collateral Documents, which fixture filings shall have attached thereto an
accurate legal description of the applicable Real Property Asset and the name of
the fee owner of the applicable Real Property Asset.
B. LIQUOR LICENSE AFFILIATES. Company shall, within 10 days of the
Closing Date, deliver to Administrative Agent (i) a Liquor License Affiliate
Agreement for each Liquor License Affiliate in form and substance satisfactory
to Administrative Agent, and (ii) the stock certificate(s) issued by J.T.
Beverage, Inc. representing 49% ownership interest in J.T.
109
<PAGE>
Beverage, Inc. owned by jojos Restaurants, Inc., together with irrevocable
undated stock powers, duly endorsed in blank and a duly executed pledge
amendment to the Subsidiary Pledge Agreement.
6.11 DEPOSIT ACCOUNTS AND CASH MANAGEMENT SYSTEMS.
--------------------------------------------
Holdings and Company shall, and shall cause each of Company's
Subsidiaries to, use and maintain their respective Deposit Accounts and cash
management systems in a manner reasonably satisfactory to each Agent. Neither
Holdings nor Company shall permit any of such Deposit Accounts at any time to
have any principal balance unless Holdings, Company or such Subsidiary, as the
case may be, has (i) delivered to Administrative Agent a Restricted Account
Letter and (ii) taken all other steps necessary or, in the opinion of
Administrative Agent, desirable to ensure that Administrative Agent has sole
dominion and control over such Deposit Account (a "RESTRICTED ACCOUNT");
provided that if Holdings, Company or such Subsidiary is unable to obtain a
- --------
Restricted Account Letter from such financial institution Holdings and Company
shall, or shall cause such Subsidiary to, within 30 days after receiving a
written request by Administrative Agent to do so, transfer all amounts in the
applicable Deposit Account to a Deposit Account maintained at a financial
institution from which Holdings and Company or such Subsidiary has obtained such
an agreement; provided, further, that so long as no Event of Default or
-------- -------
Potential Event of Default has occurred and is continuing, Holdings, Company and
Company's Subsidiaries may permit any of such Deposit Accounts which are not
Restricted Accounts to have deposits which are held by any Loan Party for less
than or equal to three Business Days. Notwithstanding any other provision
contained in this Agreement, Holdings and Company shall, and shall cause its
Subsidiaries to, on a daily basis, transfer all balances in Deposit Accounts
which are not Restricted Accounts to Restricted Accounts (other than to the
Restricted Account described on Schedule 4.1J annexed hereto), and Company shall
-------------
at all times maintain a Restricted Account with respect to Company's Account.
Without limiting the generality of the foregoing, Holdings and Company
shall, and shall cause each of Company's Subsidiaries to, maintain Restricted
Accounts which are central cash concentration accounts with Citibank, Chemical
or Bankers, as applicable, and, to that end, (i) maintain Company's Account
(which shall be a Restricted Account) and other Restricted Accounts maintained
by Holdings, Company and Company's Subsidiaries with Citibank, Chemical or
Bankers, as applicable, as the principal operating accounts of Holdings, Company
and Company's Subsidiaries, as applicable, and (ii) pay or cause to be paid, at
or prior to the end of each Business Day, to Citibank, Chemical or Bankers, as
applicable, for deposit into Company's Account or such other Restricted Account,
all cash of Holdings, Company and Company's Subsidiaries (including, without
limitation, all proceeds of Collateral in which Holdings, Company or any such
Subsidiary is granting a security interest under the Collateral Documents) in
excess of the amount determined by Holdings, Company or such Subsidiary, as
applicable, in the exercise of its prudent business judgment, to be required by
Holdings, Company or such Subsidiary, as applicable, for the conduct of its
business operations in the ordinary course.
110
<PAGE>
Without limiting the generality of the foregoing, Holdings and
Company shall:
(a) Cause each Subsidiary of Holdings (other than Subsidiaries of
Holdings which maintain Restricted Accounts) to pay or cause to be paid, at
or prior to the end of each Business Day, to a Restricted Account Bank with
which Company or a Subsidiary of Company maintains a Restricted Account, for
deposit into such Restricted Account, (i) all proceeds of Collateral in
which it has granted a security interest under the Collateral Documents and
(ii) all other cash of such Subsidiary in excess of the amount determined by
such Subsidiary, in the exercise of its prudent business judgment, to be
reasonably necessary or advisable by such Subsidiary for the conduct of its
business operations in the ordinary course.
(b) Cause each Subsidiary of Holdings to, consistent with past practice,
instruct each other Person obligated at any time (each an "Obligor") to make
any payments to such Subsidiary, to make such payments directly to a
Restricted Account maintained by such Subsidiary or to Company's Account.
Holdings and Company shall cause all other payments received by any such
Subsidiary to be held in trust by such Subsidiary for the benefit of the
Administrative Agent and promptly deposited into a Restricted Account
maintained by such Subsidiary or into the Company's Account.
(c) Cause each Subsidiary of Holdings which maintains Restricted
Accounts to pay to a Restricted Account Bank with which such Subsidiary
maintains a Restricted Account for deposit into such Restricted Account, or
to Citibank, Chemical or Bankers, as applicable, for deposit into the
Company's Account, at or prior to the end of each Business Day, (i) all
proceeds of Collateral and (ii) all other cash of such Subsidiary in excess
of the amount determined by such Subsidiary, in the exercise of its prudent
business judgment, to be reasonably necessary or advisable by such
Subsidiary for the conduct of its business operations in the ordinary
course.
(d) Prior to the receipt by any Loan Party from the Administrative Agent
of notice pursuant to paragraph (e) below, (i) permit funds in the
Restricted Accounts maintained by any Subsidiary of Holdings, from time to
time at the request of such Subsidiary, to be paid or released to or for the
account of such Subsidiary to the extent determined by such Subsidiary, in
the exercise of its prudent business judgement, to be reasonably necessary
or advisable by such Subsidiary and (ii) cause such Subsidiary to instruct
the Restricted Account Banks with which such Subsidiary maintains Restricted
Accounts to pay to Citibank, Chemical or Bankers, as applicable, for deposit
into the Company's Account, at the end of each Business Day, in same day
funds, an amount equal to (x) the credit balance of such Restricted
Accounts, less (y) the amount, if any, determined by such Subsidiary, in the
exercise of its prudent business judgment, to be reasonably necessary or
advisable by such Subsidiary for the conduct of the business operations of
such Subsidiary in the ordinary course.
(e) Upon receipt by any Loan Party of notice from the Administrative
Agent which notice may be given at any time following the occurrence and
during the
111
<PAGE>
continuance of an Event of Default, instruct each financial institution with
which Holdings or Company maintains a Deposit Account, and cause each
Subsidiary of Company to instruct each financial institution with which such
Subsidiary maintains a Deposit Account (including without limitation each
Restricted Account Bank with which such Subsidiary maintains a Restricted
Account), to transfer to the Company's Account, at the end of each Business
Day, in same day funds, an amount equal to the credit balance in each such
Restricted Account or Deposit Account.
(f) Upon any termination of any Restricted Account Letter or other
agreement with respect to the maintenance of a Restricted Account by any
Loan Party or any Restricted Account Bank, cause such Loan Party to
immediately notify all Obligors that were making payments to such Restricted
Account to make all future payments to another Restricted Account or to the
Company's Account.
6.12 CERTAIN MATTERS RELATING TO MATERIAL CONTRACTS AND RELATED AGREEMENTS.
---------------------------------------------------------------------
Holdings and Company shall, and shall cause each of Company's
Subsidiaries to, comply in all material respects with each Material Contract
and Related Agreement, maintain each Material Contract and Related Agreement
in full force and effect (except as otherwise provided by the terms thereof)
and enforce all material rights of any Loan Party thereunder.
6.13 CERTAIN PAYMENTS UNDER RELATED AGREEMENTS.
-----------------------------------------
Holdings shall, immediately upon (i) receipt by Holdings of any
payments from FCI or any other Person (other than any Loan Party) pursuant
to the Tax Allocation Agreement or any other Related Agreement (other than
the Acquisition Agreement) or (ii) receipt by Holdings, Flagstar, FCI or any
of its Affiliates of any payments from Seller or any of Seller's Affiliates
or any other Person pursuant to the Acquisition Agreement (in each case,
including without limitation, pursuant to refund or indemnification
provisions contained therein), notify Administrative Agent of such receipt
and contribute or cause to be contributed, immediately upon receipt thereof
by any such Person, all of such payments to Company.
SECTION 7. HOLDINGS' AND COMPANY'S NEGATIVE COVENANTS
Each of Holdings and Company covenants and agrees that, so long as
any of the Commitments hereunder shall remain in effect and until payment in
full of all of the Loans and other Obligations and the cancellation or
expiration of all Letters of Credit, unless Requisite Lenders shall
otherwise give prior written consent, each of Holdings and Company shall
perform, and shall cause each of Company's Subsidiaries to perform, all
covenants in this Section 7.
7.1 INDEBTEDNESS.
------------
112
<PAGE>
Each of Holdings and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, create, incur, assume or
guaranty, or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:
(i) Company may become and remain liable with respect to the
Obligations;
(ii) Holdings and its Subsidiaries may become and remain liable
with respect to Contingent Obligations permitted by subsection 7.4 and, upon
any matured obligations actually arising pursuant thereto, the Indebtedness
corresponding to the Contingent Obligations so extinguished;
(iii) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness in respect of Capital Leases; provided that such
--------
Capital Leases are permitted under the terms of subsection 7.9;
(iv) Company may become and remain liable with respect to Indebtedness
to any of its wholly-owned Subsidiaries, and any wholly-owned Subsidiary of
Company may become and remain liable with respect to Indebtedness to Company
or any other wholly-owned Subsidiary of Company; provided that (a) all such
--------
intercompany Indebtedness shall be evidenced by promissory notes that are in
form and substance satisfactory to Administrative Agent, (b) all such
intercompany Indebtedness owed by Company to any of its Subsidiaries shall
be subordinated in right of payment to the payment in full of the
Obligations pursuant to the terms of the applicable promissory notes or an
intercompany subordination agreement in form and substance satisfactory to
Administrative Agent, (c) any payment by any Subsidiary of Company under any
guaranty of the Obligations shall result in a pro tanto reduction of the
--- -----
amount of any intercompany Indebtedness owed by such Subsidiary to Company
or to any of its Subsidiaries for whose benefit such payment is made; and
(d) all such promissory notes are pledged to the Lenders pursuant to the
Collateral Documents;
(v) Holdings may become and remain liable with respect to Indebtedness
evidenced by the Holdings Intercompany Notes; provided that (a) each
--------
Holdings Intercompany Note is pledged to Administrative Agent pursuant to
the terms of the Company Pledge Agreement or the Subsidiary Pledge
Agreement, as applicable, and (b) any payment by Holdings under any guaranty
of the Obligations shall result in a pro tanto reduction of the amount of
--- -----
the intercompany Indebtedness evidenced by the Holdings Intercompany Note
owing to Company;
(vi) Company and its Subsidiaries, as applicable, may remain liable
with respect to Indebtedness described in Schedule 7.1 annexed hereto;
------------
(vii) Holdings may remain liable with respect to Indebtedness
evidenced by the Holdings Notes in an aggregate principal amount not to
exceed $150,000,000 plus PIK Interest Amounts plus additional Holdings
---- ----
Notes, if any, issued in connection with post-closing purchase price
adjustments made pursuant to Section 1.3 of the Acquisition
113
<PAGE>
Agreement in an aggregate principal amount not to exceed $10,000,000 (or
minus the aggregate principal amount of Holdings Notes, if any, that are
-----
returned by Seller in connection with post-closing purchase price
adjustments made pursuant to Section 1.3 of the Acquisition Agreement);
(viii) Holdings may become and remain liable for Permitted
Royalties and Permitted Management Fees which are not permitted to be paid
by this Agreement or the Holdings Note Indenture; and
(ix) Company and its Subsidiaries may become and remain liable with
respect to Indebtedness incurred to finance the purchase price of equipment,
fixtures and any other similar property or the remodeling or other
improvement costs of any facility of Company or any of its Subsidiaries;
provided that the aggregate principal amount of such Indebtedness when
-------------
incurred shall not be less than 70% or more than 100% of the fair market
value of the equipment, fixtures and any other similar property acquired
plus the reasonable installation and delivery charges associated therewith
or the remodeling or other improvement costs relating to such facility and
provided further that (1) no Event of Default or Potential Event of Default
-------- -------
shall have occurred and be continuing at the time of incurrence of such
Indebtedness and (2) the aggregate principal amount of all such Indebtedness
shall not at any time exceed $5,000,000.
7.2 LIENS AND RELATED MATTERS.
-------------------------
A. PROHIBITION ON LIENS. Each of Holdings and Company shall not,
and shall not permit any of Company's Subsidiaries to, directly or indirectly,
create, incur, assume or permit to exist any Lien on or with respect to any
property or asset of any kind (including any document or instrument in respect
of goods or accounts receivable) of Holdings, Company or any of Company's
Subsidiaries, whether now owned or hereafter acquired, or any income or profits
therefrom, or file or permit the filing of, or permit to remain in effect, any
financing statement or other similar notice of any Lien with respect to any such
property, asset, income or profits under the Uniform Commercial Code of any
State or under any similar recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents, including
Liens granted in favor of a Lender or an Affiliate of such Lender which is a
counterparty to an Interest Rate Agreement permitted under subsection
7.4(iii);
(iii) Liens described in Schedule 7.2 annexed hereto;
------------
(iv) Liens on equipment, fixtures and other similar property of
Company and any of its Subsidiaries, securing Indebtedness described in
subsection 7.1(ix); provided that any such Lien shall extend only to the
-------------
equipment, fixtures, and other similar property so financed and provided
--------
further that with respect to any such Lien (1) no
-------
114
<PAGE>
Event of Default or Potential Event of Default shall have occurred and be
continuing at the time of incurrence of such Lien and (2) the aggregate
principal amount of all Indebtedness secured by all such Liens shall not at
any time exceed $5,000,000.
(v) Liens on segregated deposit accounts granted to Seller or its
Affiliates pursuant to the Restaurant Services Agreement so long as the only
funds deposited in such accounts are revenues from Dinnerhouse Properties
(as defined in the Restaurant Services Agreement); and
(vi) Other Liens securing Indebtedness in an aggregate amount not to
exceed $1,000,000 at any time outstanding.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Holdings, Company or any of
Company's Subsidiaries shall create or assume any Lien upon any of its
properties or assets, whether now owned or hereafter acquired, other than Liens
permitted by the provisions of subsection 7.2A, it shall make or cause to be
made effective provision whereby the Obligations will be secured by such Lien
equally and ratably with any and all other Indebtedness secured thereby as long
as any such Indebtedness shall be so secured; provided that, notwithstanding the
--------
foregoing, this covenant shall not be construed as a consent by Requisite
Lenders to the creation or assumption of any such Lien not permitted by the
provisions of subsection 7.2A.
C. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to an Asset Sale, neither
Holdings nor Company nor any of Company's Subsidiaries shall enter into any
agreement (other than the Holdings Note Indenture or any other agreement
prohibiting only the creation of Liens securing Subordinated Indebtedness)
prohibiting the creation or assumption of any Lien upon any of its properties or
assets, whether now owned or hereafter acquired.
D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES. Except as provided herein or in any other Loan Document, each of
Holdings and Company will not, and will not permit any of Company's Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any such
Subsidiary to (i) pay dividends or make any other distributions on any of such
Subsidiary's capital stock owned by Company or any other Subsidiary of Company,
(ii) repay or prepay any Indebtedness owed by such Subsidiary to Company or any
other Subsidiary of Company, (iii) make loans or advances to Company or any
other Subsidiary of Company, or (iv) transfer any of its property or assets to
Company or any other Subsidiary of Company.
7.3 INVESTMENTS; JOINT VENTURES.
---------------------------
Each of Holdings and Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, make or own any Investment in any
Person, including any Joint Venture, except:
115
<PAGE>
(i) Holdings and its Subsidiaries may make and own Investments in Cash
Equivalents to the extent, in the case of Holdings, permitted under
subsection 7.14;
(ii) Holdings may continue to own the Investments owned by it as of
the Closing Date in Company and its Subsidiaries as described on
Schedule 5.1 annexed hereto as in effect on the Closing Date and Company
------------
and its Subsidiaries may continue to own the Investments owned by them as of
the Closing Date in any Subsidiaries of Company as described on Schedule 5.1
------------
annexed hereto as in effect on the Closing Date;
(iii) Company and its Subsidiaries may make intercompany loans to the
extent permitted under subsections 7.1(iv) and 7.1(v);
(iv) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted by subsection 7.8;
(v) Company and its Subsidiaries may continue to own the Investments
owned by them and described in Schedule 7.3 annexed hereto;
------------
(vi) Company may own the Investments in Liquor License Affiliates
existing as of the Closing Date and make Investments in such Liquor License
Affiliates to the extent necessary to enable such Liquor License Affiliates
to pay taxes, fees and other expenses as and when required to maintain the
liquor licenses held by them; and
(vii) Company may make Investments in newly formed or newly acquired
wholly-owned Subsidiaries which comply with the provisions of subsections
6.8, 6.9, 6.10 and 6.11; provided that such Investments in such newly formed
or newly acquired wholly-owned Subsidiaries shall be permitted by subsection
7.8 and such newly formed or newly acquired wholly-owned Subsidiaries shall
make Consolidated Capital Expenditures only as permitted by subsection 7.8;
and
(viii) Company and its Subsidiaries may make and own other Investments
in an aggregate amount not to exceed at any time $100,000.
Notwithstanding anything contained herein to the contrary, Holdings shall not
directly own, create or acquire any Subsidiary other than Company.
7.4 CONTINGENT OBLIGATIONS.
----------------------
Each of Holdings and Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create or become or remain liable
with respect to any Contingent Obligation, except:
116
<PAGE>
(i) Holdings may become and remain liable with respect to Contingent
Obligations in respect of the Holdings Guaranty and Subsidiaries of Company
may become and remain liable with respect to Contingent Obligations in
respect of the Subsidiary Guaranty;
(ii) Company may become and remain liable with respect to Contingent
Obligations in respect of Letters of Credit;
(iii) Company may become and remain liable with respect to Contingent
Obligations under Hedge Agreements with respect to Indebtedness in an
aggregate notional principal amount not to exceed at any time $25,000,000;
(iv) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of customary indemnification
and purchase price adjustment obligations incurred in connection with Asset
Sales or other sales of assets; provided that the maximum assumable
--------
liability in respect of all such obligations shall at no time exceed the
gross proceeds actually received by Company's Subsidiaries in connection
with such Asset Sales and other sales;
(v) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of any Indebtedness of Company
or any of its Subsidiaries permitted by subsection 7.1; and
(vi) Company and its Subsidiaries, as applicable, may remain liable
with respect to Contingent Obligations described in Schedule 7.4 annexed
------------
hereto.
7.5 RESTRICTED JUNIOR PAYMENTS.
--------------------------
Each of Holdings and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, declare, order, pay, make or
set apart any sum for any Restricted Junior Payment; provided that so long as
--------
no Event of Default or Potential Event of Default shall have occurred and be
continuing or shall be caused thereby, (i) Holdings may make cash interest and
liquidated damages payments to the holders of the Holdings Notes in accordance
with the terms of, and only to the extent required by, the Holdings Note
Indenture or Registration Rights Agreement, as the case may be (it being
understood that if Holdings has the option to pay payment-in-kind interest or
payment-in-kind liquidated damages under the Holdings Note Indenture or
Registration Rights Agreement with respect to any interest payments or
liquidated damages payments, Holdings is not required by the Holdings Note
Indenture or Registration Rights Agreement, as applicable, to make cash interest
payments or cash liquidated damages payments thereunder with respect to such
interest payments or liquidated damages payments), (ii) Company may make
Restricted Junior Payments to Holdings to the extent necessary to permit
Holdings to make cash interest payments at the times, and in amounts, described
in clause (i) above for the sole purpose of allowing Holdings to make the
required cash interest payments as described in clause (i) above immediately
upon receipt thereof from Company, in each case so long as Holdings applies the
amount of any such
117
<PAGE>
Restricted Junior Payment for such purpose, (iii) Company may make Restricted
Junior Payments to Holdings (a) in an aggregate amount not to exceed $250,000 in
any Fiscal Year, to the extent necessary to permit Holdings to pay general
administrative costs and expenses, (b) to the extent necessary to permit
Holdings to discharge its obligations to FCI under the Tax Allocation Agreement,
(c) to the extent necessary for Holdings to pay Permitted Franchise Fees, and
(d) in an aggregate amount not to exceed $10,000,000 in any Fiscal Year, to the
extent necessary for Holdings to pay Permitted Management Fees, in each case,
for clauses (a), (b), (c) and (d), so long as Holdings is not prohibited from
making such payment under the Holdings Note Indenture, as in effect on the
Closing Date, and so long as Holdings applies the amount of any such Restricted
Junior Payment for such purpose, and (iv) Holdings may make payments to
discharge its obligations under the Tax Allocation Agreement and may pay
Permitted Franchise Fees and, in an aggregate amount not to exceed $10,000,000
in any Fiscal Year, Permitted Management Fees, in each case so long as Holdings
is not prohibited from making such payment under the Holdings Note Indenture, as
in effect on the Closing Date.
7.6 FINANCIAL COVENANTS.
-------------------
A. MINIMUM INTEREST COVERAGE RATIO. Each of Holdings and Company shall
not permit the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated
Interest Expense (a) for the Fiscal Quarter ending September 26, 1996 to be less
than 1.50:1.00, (b) for the two-Fiscal Quarter period ending December 26, 1996
to be less than 1.50:1.00, (c) for the three-Fiscal Quarter period ending March
27, 1997 to be less than 1.55:1.00, and (d) thereafter for any four-Fiscal
Quarter period ending as of the last day of any Fiscal Quarter as set forth
below to be less than the correlative ratio indicated:
<TABLE>
<CAPTION>
MINIMUM
DATE INTEREST COVERAGE RATIO
----------------------------- -----------------------
<S> <C>
June 26, 1997 1.65:1.00
September 25, 1997 1.75:1.00
December 25, 1997 1.85:1.00
March 26, 1998 1.85:1.00
June 25, 1998 1.90:1.00
September 24, 1998 1.95:1.00
December 24, 1998 2.00:1.00
March 25, 1999 2.00:1.00
June 24, 1999 and 2.05:1.00
the last day of each
Fiscal Quarter thereafter 2.10:1.00
</TABLE>
B. MAXIMUM LEVERAGE RATIO. Each of Holdings and Company shall not permit
the ratio of (i) (A) Consolidated Total Debt as of September 26, 1996, December
26, 1996 and March 27, 1997, respectively, to (B) Consolidated Adjusted EBITDA
multiplied by (a) for the Fiscal Quarter ending September 26, 1996, 4, (b) for
- -------------
the two-Fiscal Quarter period ending December 26, 1996, 2, and (c) for the
three-Fiscal Quarter period ending March 27, 1997, 4/3,
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<PAGE>
(x) for the Fiscal Quarter ending September 26, 1996, to exceed 5.65:1.00, (y)
for the two-Fiscal Quarter period ending December 26, 1996, to exceed 5.65:1.00,
and (z) for the three-Fiscal Quarter period ending March 27, 1997, to exceed
5.25:1.00 and (ii) (A) Consolidated Total Debt as of the last day of any Fiscal
Quarter as set forth below to (B) Consolidated Adjusted EBITDA for the four-
Fiscal Quarter period ending on such last day, to exceed the correlative ratio
indicated:
<TABLE>
<CAPTION>
DATE MAXIMUM LEVERAGE RATIO
----------------------------- -----------------------
<S> <C>
June 26, 1997 4.90:1.00
September 25, 1997 4.60:1.00
December 25, 1997 4.35:1.00
March 26, 1998 4.30:1.00
June 25, 1998 4.10:1.00
September 24, 1998 4.00:1.00
December 24, 1998 3.85:1.00
March 25, 1999 3.85:1.00
June 24, 1999 and 3.70:1.00
the last day of each
Fiscal Quarter thereafter 3.65:1.00
</TABLE>
C. MINIMUM CONSOLIDATED ADJUSTED EBITDA. Each of Holdings and Company
shall not permit Consolidated Adjusted EBITDA (a) for the Fiscal Quarter ending
September 26, 1996 to be less than $11,200,000, (b) for the two-Fiscal Quarter
period ending December 26, 1996 to be less than $20,500,000, (c) for the three-
Fiscal Quarter period ending March 27, 1997 to be less than $32,500,000, and (d)
thereafter for any four-Fiscal Quarter period ending as of the last day of any
Fiscal Quarter as set forth below to be less than the correlative amount
indicated:
<TABLE>
<CAPTION>
MINIMUM CONSOLIDATED
DATE ADJUSTED EBITDA
----------------------------- --------------------
<S> <C>
June 26, 1997 $45,600,000
September 25, 1997 47,500,000
December 25, 1997 49,000,000
March 26, 1998 49,000,000
June 25, 1998 49,500,000
September 24, 1998 49,500,000
December 24, 1998 49,500,000
March 25, 1999 49,500,000
June 24, 1999 and 49,500,000
the last day of each
Fiscal Quarter thereafter 49,500,000
</TABLE>
119
<PAGE>
7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
----------------------------------------------------------------
Each of Holdings and Company shall not, and shall not permit any of
Company's Subsidiaries to, alter the corporate, capital or legal structure of
Holdings, Company or any of Company's Subsidiaries, including the creation or
acquisition of any Subsidiaries, or enter into any transaction of merger or
consolidation, or liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or
sublessor), transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, property or assets, whether now
owned or hereafter acquired, or acquire by purchase or otherwise all or
substantially all the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of, any Person or any division or line of
business of any Person, except:
(i) any Subsidiary of Company may be merged with or into Company or
any wholly-owned Subsidiary Guarantor, or be liquidated, wound up or
dissolved, or all or any part of its business, property or assets may be
conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Company or any wholly-owned
Subsidiary Guarantor; provided that, in the case of such a merger, Company
--------
or such wholly-owned Subsidiary Guarantor shall be the continuing or
surviving corporation;
(ii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted under subsection 7.8;
(iii) Company and its Subsidiaries may dispose of obsolete, worn out
or surplus property in the ordinary course of business;
(iv) Company and its Subsidiaries may sell or otherwise dispose of
assets in transactions that do not constitute Asset Sales; provided that the
--------
consideration received for such assets shall be in an amount at least equal
to the fair market value thereof;
(v) Company and its Subsidiaries may sell, in sale and leaseback
transactions, restaurants opened or acquired after the Closing Date or any
equipment acquired after the Closing Date; provided that (a) the obligations
--------
of Company or any of its Subsidiaries under any related lease are permitted
under subsection 7.9, (b) such sale occurs within 180 days of the completion
or acquisition of such restaurant or the acquisition of such equipment, (c)
the consideration received for such assets is in an amount at least equal to
the fair market value thereof and (d) the sole consideration received is
cash;
(vi) subject to subsection 7.13, Company and its Subsidiaries may make
Asset Sales of assets having a fair market value not in excess of
$10,000,000 in the aggregate (on a cumulative basis) on and after the
Closing Date; provided that (x) the consideration received for such assets
--------
shall be in an amount at least equal to the fair
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<PAGE>
market value thereof; (y) the sole consideration received shall be cash; and
(z) the proceeds of such Asset Sales shall be applied as required by
subsection 2.4B(iii)(a).
7.8 CONSOLIDATED CAPITAL EXPENDITURES.
---------------------------------
Holdings shall not make or incur any Consolidated Capital Expenditures
and Company shall not, and shall not permit its Subsidiaries to, make or incur
Consolidated Capital Expenditures, in any Fiscal Year (or portion thereof in the
case of the 1996 Fiscal Year) indicated below, in an aggregate amount in excess
of the corresponding amount (the "MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES
AMOUNT") set forth below opposite such Fiscal Year (or portion thereof in the
case of the 1996 Fiscal Year); provided that the Maximum Consolidated Capital
--------
Expenditures Amount for any Fiscal Year (other than the 1996 Fiscal Year) shall
be increased by an amount ("CARRYOVER AMOUNT") equal to the excess, if any, (but
in no event more than 25% of the Maximum Consolidated Capital Expenditures
Amount for the previous Fiscal Year (or portion thereof in the case of the 1996
Fiscal Year), as set forth in the table below) of the Maximum Consolidated
Capital Expenditures Amount for the previous Fiscal Year over the actual amount
of Consolidated Capital Expenditures for such previous Fiscal Year (it being
understood (i) that Capital Expenditures in any Fiscal Year shall be applied to
the Maximum Consolidated Capital Expenditures Amount set forth below before
being applied to the Carryover Amount and (ii) any Carryover Amount which is not
expended in a Fiscal Year shall not be included in calculating the Carryover
Amount for any following Fiscal Year):
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
FISCAL YEAR CAPITAL EXPENDITURES
----------------------------- --------------------
<S> <C>
Closing Date through end
of 1996 Fiscal Year $ 5,000,000
1997 15,000,000
1998 16,000,000
1999 and each Fiscal Year thereafter 18,000,000
</TABLE>
7.9 RESTRICTION ON LEASES.
---------------------
Holdings shall not become liable in any way, whether directly or by
assignment or as a guarantor or other surety, for the obligations of the lessee
under any lease, whether an Operating Lease or a Capital Lease, and Company
shall not, and shall not permit any of its Subsidiaries to, become liable in any
way, whether directly or by assignment or as a guarantor or other surety, for
the obligations of the lessee under any lease, whether an Operating Lease or a
Capital Lease (other than intercompany leases between Company and its wholly-
owned Subsidiaries), unless, immediately after giving effect to the incurrence
of liability with respect to such lease, the Consolidated Rental Payments at the
time in effect during the then current Fiscal Year (or portion thereof in the
case of the 1996 Fiscal Year) shall not exceed the corresponding amount set
forth below opposite such Fiscal Year (or portion thereof in the case of the
1996 Fiscal Year):
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<PAGE>
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
FISCAL YEAR RENTAL PAYMENTS
----------------------------- --------------------
<S> <C>
From Closing Date through
end of 1996 Fiscal Year $20,000,000
1997 33,500,000
1998 33,800,000
1999 and each Fiscal Year thereafter 34,400,000
</TABLE>
7.10 SALES AND LEASE-BACKS.
---------------------
Each of Holdings and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, become or remain liable as
lessee or as a guarantor or other surety with respect to any lease, whether an
Operating Lease or a Capital Lease, of any property (whether real, personal or
mixed), whether now owned or hereafter acquired, (i) which Holdings or any of
its Subsidiaries has sold or transferred or is to sell or transfer to any other
Person (other than Holdings or any of its Subsidiaries) or (ii) which Holdings
or any of its Subsidiaries intends to use for substantially the same purpose as
any other property which has been or is to be sold or transferred by Holdings or
any of its Subsidiaries to any Person (other than Holdings or any of its
Subsidiaries) in connection with such lease; provided that Company and its
--------
Subsidiaries may become and remain liable as lessee, guarantor or other surety
with respect to any such lease if and to the extent that Company or any of its
Subsidiaries would be permitted to enter into, and remain liable under, such
lease under subsection 7.9.
7.11 SALE OR DISCOUNT OF RECEIVABLES.
-------------------------------
Each of Holdings and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, sell with recourse, or
discount or otherwise sell for less than the face value thereof, any of its
notes or accounts receivable.
7.12 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
---------------------------------------------
Each of Holdings and Company shall not, and shall not permit any of
Company's Subsidiaries to, directly or indirectly, enter into or permit to exist
any transaction (including, without limitation, the transactions contemplated by
the Tax Allocation Agreement, the Management Services Agreement, the Permitted
Franchise Agreements and any other agreement relating to the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
holder of 5% or more of any class of equity Securities of Holdings or with any
Affiliate of Holdings or of any such holder, on terms that are less favorable to
Holdings, Company or that Subsidiary, as the case may be, than those that might
be obtained at the time from Persons who are not such a holder or Affiliate;
provided that the foregoing restriction shall not apply to (i) any transaction
- --------
between Company and any of its wholly-owned Subsidiaries or between any of its
wholly-owned Subsidiaries or (ii) reasonable and customary fees paid to members
of the Boards of Directors of Holdings, Company and Company's Subsidiaries.
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<PAGE>
7.13 DISPOSAL OF SUBSIDIARY STOCK.
----------------------------
Except for any sale of 100% of the capital stock or other equity
Securities of any of its Subsidiaries in compliance with the provisions of
subsection 7.7(vi) and except pursuant to the Collateral Documents, each of
Holdings and Company shall not:
(i) directly or indirectly sell, assign, pledge or otherwise encumber
or dispose of any shares of capital stock or other equity Securities of any
of its Subsidiaries, except to qualify directors if required by applicable
law; or
(ii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other equity Securities of any of its Subsidiaries (including such
Subsidiary), except to Company, another Subsidiary of Company, or to qualify
directors if required by applicable law.
7.14 CONDUCT OF BUSINESS.
-------------------
From and after the Closing Date, Holdings shall not (i) engage in any
business other than entering into and performing its obligations under and in
accordance with the Loan Documents and Related Agreements to which it is a party
or (ii) own any assets other than (a) the capital stock of Company and (b) Cash
and Cash Equivalents in an amount not to exceed $250,000 at any one time for the
purpose of paying general operating expenses of Holdings. From and after the
Closing Date, Company shall not, and shall not permit any of its Subsidiaries
to, engage in any business other than (i) the businesses engaged in by Company
and its Subsidiaries on the Closing Date and similar or related businesses and
(ii) such other lines of business as may be consented to by Requisite Lenders.
From and after the Closing Date, neither Holdings nor Company shall permit any
Liquor License Affiliate to (i) engage in any business other than holding liquor
licenses and taking all actions necessary to maintain such liquor licenses, (ii)
own any assets other than such liquor licenses and Cash and Cash Equivalents in
an amount not to exceed $10,000 at any one time for the purpose of paying
general operating expenses for said Liquor License Affiliate or (iii) incur any
Indebtedness or any Contingent Obligations.
7.15 AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS; AMENDMENTS OF
------------------------------------------------------------------
DOCUMENTS RELATING TO CERTAIN INDEBTEDNESS.
------------------------------------------
A. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS. Neither
Holdings nor Company nor any of Company's Subsidiaries will agree to any
material amendment to, or waive any of its material rights under, or otherwise
change any material terms of, any Related Agreement (other than Holdings
Intercompany Notes, Tax Allocation Agreement, and any Related Agreement
evidencing or governing Indebtedness evidenced by Holdings Notes or any
Subordinated Indebtedness) after the Closing Date without in each case obtaining
the prior written consent of Requisite Lenders to such amendment or waiver.
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<PAGE>
B. AMENDMENTS OF DOCUMENTS RELATING TO CERTAIN INDEBTEDNESS. Each
of Holdings and Company shall not, and shall not permit any of Company's
Subsidiaries to, amend or otherwise change the terms of Indebtedness evidenced
by Holdings Notes (including without limitation each of the Holdings Note
Indenture, the Holdings Notes, the Registration Rights Agreement and each of the
exhibits to any of the foregoing) or any Subordinated Indebtedness, or make any
payment consistent with an amendment thereof or change thereto, if the effect of
such amendment or change is to increase the interest rate on such Indebtedness
evidenced by Holdings Notes or Subordinated Indebtedness, change (to earlier
dates) any dates upon which payments of principal or interest are due thereon,
change any event of default or condition to an event of default with respect
thereto (other than to eliminate any such event of default or increase any grace
period related thereto), change the redemption, prepayment or defeasance
provisions thereof, change the subordination provisions thereof (or of any
guaranty thereof), change any provisions pertaining to payment in kind of
interest (including without limitation any definitions relating thereto) under
the Holdings Note Indenture, the Holdings Notes, or the Registration Rights
Agreement or change any collateral therefor (other than to release such
collateral), or if the effect of such amendment or change, together with all
other amendments or changes made, is to increase materially the obligations of
the obligor thereunder or to confer any additional rights on the holders of such
Indebtedness evidenced by Holdings Notes or such Subordinated Indebtedness (or a
trustee or other representative on their behalf) which would be adverse to any
Loan Party or Lenders.
C. AMENDMENT OF CERTAIN OTHER DOCUMENTS. Neither Holdings nor
Company shall amend or otherwise change the terms of the Holdings Intercompany
Notes or Tax Allocation Agreement without the prior written consent of Requisite
Lenders.
7.16 FISCAL YEAR.
-----------
Company shall not change its Fiscal Year-end from the last Thursday
before December 31.
SECTION 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur:
8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
---------------------------------
Failure by Company to pay any installment of principal of any Loan
when due, whether at stated maturity, by acceleration, by notice of voluntary
prepayment, by mandatory prepayment or otherwise; failure by Company to pay when
due any amount payable to an Issuing Lender in reimbursement of any drawing
under a Letter of Credit; or failure by Holdings or Company, as applicable, to
pay any interest on any Loan or any fee or any other amount due under this
Agreement within two days after the date due; or
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<PAGE>
8.2 DEFAULT IN OTHER AGREEMENTS.
---------------------------
(i) Failure of Holdings or any of its Subsidiaries to pay when due any
principal of or interest on or any other amount payable in respect of one or
more items of Indebtedness (other than Indebtedness referred to in subsection
8.1) or Contingent Obligations in an individual principal amount of $2,500,000
or more or with an aggregate principal amount of $2,500,000 or more, in each
case beyond the end of any grace period provided therefor; or (ii) breach or
default by Holdings or any of its Subsidiaries with respect to any other term of
(a) one or more items of Indebtedness or Contingent Obligations in the
individual or aggregate principal amounts referred to in clause (i) above or (b)
any loan agreement, mortgage, indenture or other agreement relating to such
item(s) of Indebtedness or Contingent Obligation(s), if the effect of such
breach or default is to cause, or to permit the holder or holders of that
Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder
or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or
be declared due and payable prior to its stated maturity or the stated maturity
of any underlying obligation, as the case may be (upon the giving or receiving
of notice, lapse of time, both, or otherwise); or
8.3 BREACH OF CERTAIN COVENANTS.
---------------------------
Failure of Holdings or Company to perform or comply with any term or
condition contained in subsection 2.5, 6.1(ix), 6.1(xxiii), 6.2A. or 6.8 or
Section 7 of this Agreement; or
8.4 BREACH OF WARRANTY.
------------------
Any representation, warranty, certification or other statement made by
Holdings or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by Holdings or any of its Subsidiaries in writing
pursuant hereto or thereto or in connection herewith or therewith shall be false
in any material respect on the date as of which made; or
8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
-----------------------------------
Any Loan Party shall default in the performance of or compliance with
any term contained in this Agreement or any of the other Loan Documents, other
than any such term referred to in any other subsection of this Section 8, and
such default shall not have been remedied or waived within 10 days after the
earlier of (a) receipt by Company and such Loan Party of notice from any Agent
or any Lender of such default and (b) an officer of any Loan Party becoming
aware of such default; or
8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
-----------------------------------------------------
(i) A court having jurisdiction in the premises shall enter a decree
or order for relief in respect of Holdings or any of its Subsidiaries in an
involuntary case under the
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<PAGE>
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, which decree or order is not stayed; or any
other similar relief shall be granted under any applicable federal or state law;
or (ii) an involuntary case shall be commenced against Holdings or any of its
Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over Holdings or any of its Subsidiaries, or over all or a substantial
part of its property, shall have been entered; or there shall have occurred the
involuntary appointment of an interim receiver, trustee or other custodian of
Holdings or any of its Subsidiaries for all or a substantial part of its
property; or a warrant of attachment, execution or similar process shall have
been issued against any substantial part of the property of Holdings or any of
its Subsidiaries, and any such event described in this clause (ii) shall
continue for 30 days unless dismissed, bonded or discharged; or
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
---------------------------------------------------
(i) Holdings or any of its Subsidiaries shall have an order for relief
entered with respect to it or commence a voluntary case under the Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or Holdings or any of its Subsidiaries shall make any
assignment for the benefit of creditors; or (ii) Holdings or any of its
Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of
Directors of Holdings or any of its Subsidiaries (or any committee thereof)
shall adopt any resolution or otherwise authorize any action to approve any of
the actions referred to in clause (i) above or this clause (ii); or
8.8 JUDGMENTS AND ATTACHMENTS.
-------------------------
(i) Any money judgment, writ or warrant of attachment or similar
process involving (a) in any individual case an amount in excess of $1,000,000
or (b) in the aggregate at any time an amount in excess of $1,000,000 (in either
case not adequately covered by insurance as to which a solvent and unaffiliated
insurance company has acknowledged coverage) shall be entered or filed against
Holdings or any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of 20 days (or
in any event later than five days prior to the date of any proposed sale
thereunder) or (ii) any non-monetary judgment, order, writ or warrant of
attachment or similar process that is reasonably likely to have a Material
Adverse Effect shall be entered or filed against Holdings or any of its
Subsidiaries or any of their respective assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period of 20 days (or in any event later
than 5 days prior to the date of any proposed sale thereunder); or
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<PAGE>
8.9 DISSOLUTION.
-----------
Any order, judgment or decree shall be entered against Holdings or any
of its Subsidiaries decreeing the dissolution or split up of Holdings or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
8.10 EMPLOYEE BENEFIT PLANS.
----------------------
There shall occur one or more ERISA Events which individually or in
the aggregate results in or might reasonably be expected to result in liability
of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates
in excess of $1,000,000 during the term of this Agreement; or there shall exist
an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA), individually or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with respect to which assets
exceed benefit liabilities), which exceeds $1,000,000; or
8.11 CHANGE IN CONTROL.
-----------------
(i) Any Person or any two or more Persons acting in concert (other
than KKR, GTO and their respective Affiliates) shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act), directly or indirectly, of Securities of FCI
(or other Securities convertible into such Securities) representing more of the
combined voting power of all Voting Stock of FCI than the beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange commission
under the Exchange Act) by Securities of FCI representing the combined voting
power of all Voting Stock of FCI then held by KKR and its Affiliates other than
Persons that are Affiliates of KKR solely as a result of owning stock of FCI or
(ii) any Person or two or more Persons acting in concert (other than KKR and its
Affiliates) shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation, will result in its or
their acquisition of, the power to exercise, directly or indirectly, a
controlling influence over the management or policies of Flagstar or FCI or
(iii) Flagstar shall cease at any time to be a wholly-owned Subsidiary of FCI or
(iv) Holdings shall cease at any time to be a direct wholly-owned Subsidiary of
Flagstar or (v) Company shall cease at any time to be a direct wholly-owned
Subsidiary of Holdings or (vi) any Subsidiary of Company (other than a
Subsidiary whose aggregate assets and annual revenues do not exceed $100,000 and
$100,000, respectively) shall, other than pursuant to a merger permitted under
subsection 7.7(i) or pursuant to an Asset Sale permitted under Section 7.7,
cease at any time to be a wholly-owned Subsidiary of Company; or (vii) the
occurrence of a Change of Control under (and as defined in) the Holdings Note
Indenture; or
8.12 INVALIDITY OF GUARANTIES; FAILURE OF SECURITY; REPUDIATION OF
-------------------------------------------------------------
OBLIGATIONS.
------------
At any time after the execution and delivery thereof, (i) any Guaranty
for any reason, other than the satisfaction in full of all Obligations, shall
cease to be in full force and effect (other than in accordance with its terms)
or shall be declared to be null and void, (ii) any
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<PAGE>
Collateral Document shall cease to be in full force and effect (other than by
reason of a release of Collateral thereunder in accordance with the terms hereof
or thereof, the satisfaction in full of the Obligations or any other termination
of such Collateral Document in accordance with the terms hereof or thereof) or
shall be declared null and void, or Administrative Agent shall not have or shall
cease to have a valid and perfected First Priority Lien in any Collateral
purported to be covered thereby having a fair market value, individually or in
the aggregate, exceeding $1,000,000, in each case for any reason other than the
failure of any Agent or any Lender to take any action within its control, or
(iii) any Loan Party shall contest the validity or enforceability of any Loan
Document in writing or deny in writing that it has any further liability,
including without limitation with respect to future advances by Lenders, under
any Loan Document to which it is a party; or
8.13 FAILURE TO CONSUMMATE ACQUISITION.
---------------------------------
The Acquisition shall not be consummated in accordance with this
Agreement and the applicable Related Agreements concurrently with the making of
the initial Loans, or the Acquisition shall be unwound, reversed or otherwise
rescinded in whole or in part for any reason; or
8.14 ACTION RELATING TO HOLDINGS NOTES.
---------------------------------
Any event shall occur which, under the terms of the Holdings Notes
shall require Holdings or any of its Subsidiaries to purchase, redeem or
otherwise acquire, or offer to purchase, redeem or otherwise acquire, all or any
portion of the Holdings Notes; or Holdings or any of its Subsidiaries shall for
any other reason purchase, redeem or otherwise acquire, or offer to purchase,
redeem or otherwise acquire, or make any other payments in respect of, all or
any portion of the Holdings Notes except to the extent expressly permitted by
subsection 7.5; or
8.15. MATTERS RELATING TO MATERIAL FLAGSTAR AGREEMENTS.
------------------------------------------------
At any time after the Closing Date, (i) any of Holdings, Company or
any of Company's Subsidiaries shall fail at any time to be an "Unrestricted
Subsidiary" under, and as defined in, the Flagstar Credit Agreement, the
Flagstar Indentures (other than the Flagstar Indenture dated as of November 1,
1989) and any Material Flagstar Agreement executed and delivered after the
Closing Date, (ii) FCI, Flagstar or any Affiliate of Flagstar shall enter into a
new Material Flagstar Agreement (i) which has provisions applicable to Holdings,
Company or any or Company's Subsidiaries or provisions relating to "Unrestricted
Subsidiaries" (as defined therein) applicable to Holdings, Company or any or
Company's Subsidiaries, in each case which are more adverse to, or more
restrictive with respect to, Holdings, Company or any of Company's Subsidiaries
in any material respect than the corresponding provisions contained in the
Flagstar Credit Agreement or any Flagstar Indenture as in effect on the Closing
Date or (b) under which any of Holdings, Company or any of Company's
Subsidiaries is not designated as an "Unrestricted Subsidiary" (as defined
therein) or (iii) FCI, Flagstar, or any Affiliate of Flagstar that is a party to
the Flagstar Credit Agreement, any Flagstar Indenture or any other
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<PAGE>
Material Flagstar Agreement that is entered into after the Closing Date shall
agree to any material amendment to, or otherwise change any material rights
relating to, any provisions thereof applicable to Holdings, Company or any of
Company's Subsidiaries or any provisions thereof relating to "Unrestricted
Subsidiaries" (as defined therein) applicable to Holdings, Company or any of
Company's Subsidiaries, if the effect of any such amendment or change, together
with all other amendments and changes made, is more adverse to, or more
restrictive with respect to, Holdings, Company or any or Company's Subsidiaries
or to Lenders in any material respect or (iv) FCI, Flagstar or any other
Affiliate of Flagstar shall breach or default under any Material Flagstar
Agreement relating to Indebtedness or Contingent Obligations in an individual
principal amount of $10,000,000 or more or with an aggregate principal amount of
$10,000,000 or more, (i) if such breach or default results from the failure to
pay principal at final maturity or (ii) if the effect of such breach or default
is to cause that Indebtedness or Contingent Obligation to become or be declared
due and payable prior to its stated maturity or the stated maturity of any
underlying obligation, as the case may be (upon the giving or receiving of
notice, lapse of time, both or otherwise):
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit), and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Holdings and Company, and the obligation of each Lender to make any
Loan, the obligation of Administrative Agent to issue any Letter of Credit and
the right of any Revolving Lender to issue any Letter of Credit hereunder shall
thereupon terminate, and (ii) upon the occurrence and during the continuation of
any other Event of Default, Administrative Agent shall, upon the written request
or with the written consent of Requisite Lenders, by written notice to Company,
declare all or any portion of the amounts described in clauses (a) through (c)
above to be, and the same shall forthwith become, immediately due and payable,
and the obligation of each Lender to make any Loan, the obligation of
Administrative Agent to issue any Letter of Credit and the right of any
Revolving Lender to issue any Letter of Credit hereunder shall thereupon
terminate; provided that the foregoing shall not affect in any way the
--------
obligations of Revolving Lenders under subsection 3.3C(i) or the obligations of
Revolving Lenders to purchase participations in any unpaid Swing Line Loans as
provided in subsection 2.1A(iii).
Any amounts described in clause (b) above, when received by
Administrative Agent, shall be held by Administrative Agent pursuant to the
terms of the Collateral Account Agreement and shall be applied as therein
provided.
Notwithstanding anything contained in the second preceding paragraph,
if at any time within 60 days after an acceleration of the Loans pursuant to
clause (ii) of such paragraph Company shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than as a
result of such acceleration (with interest on principal and,
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<PAGE>
to the extent permitted by law, on overdue interest, at the rates specified in
this Agreement) and all Events of Default and Potential Events of Default (other
than non-payment of the principal of and accrued interest on the Loans, in each
case which is due and payable solely by virtue of acceleration) shall be
remedied or waived pursuant to subsection 11.6, then Requisite Lenders, by
written notice to Company, may at their option rescind and annul such
acceleration and its consequences; but such action shall not affect any
subsequent Event of Default or Potential Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to bind
Lenders to a decision which may be made at the election of Requisite Lenders and
are not intended, directly or indirectly, to benefit Company, and such
provisions shall not at any time be construed so as to grant Company the right
to require Lenders to rescind or annul any acceleration hereunder or to preclude
Agents or Lenders from exercising any of the rights or remedies available to
them under any of the Loan Documents, even if the conditions set forth in this
paragraph are met.
SECTION 9. HOLDINGS GUARANTY
Holdings hereby consents to and confirms its guaranty of all
Obligations of Company and all obligations of Company under Interest Rate
Agreements permitted under subsection 7.4(iii) to which a Lender or an Affiliate
of such Lender is a counterparty. In furtherance of the foregoing, Holdings
hereby agrees as follows:
9.1 GUARANTIED OBLIGATIONS.
-----------------------
As consideration for Lenders agreeing to enter into this Agreement and
extend the Commitments, make the Loans hereunder and issue the Letters of
Credit, Holdings hereby unconditionally and irrevocably guaranties, as a primary
obligor and not merely as a surety, the due and punctual payment when due
(whether at stated maturity, by required prepayment, declaration, demand or
otherwise) (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)
362(a)) of all Obligations of Company (including, without limitation, interest
which, but for the filing of a petition in bankruptcy with respect to Company
would accrue on such Obligations, whether or not allowable as a claim) and all
obligations of Company under Interest Rate Agreements (collectively, the "LENDER
INTEREST RATE AGREEMENTS") permitted under subsection 7.4(iii) to which a Lender
or an Affiliate of such Lender (in such capacity, collectively, "INTEREST RATE
EXCHANGERS") is a counterparty (the "Guarantied Obligations"). For purposes of
this Section 9, Holdings is referred to as a "GUARANTOR". Lenders and Interest
Rate Exchangers are each referred to herein as a "GUARANTIED PARTY" and
collectively as the "GUARANTIED PARTIES".
9.2 TERMS OF HOLDINGS GUARANTY.
--------------------------
Guarantor agrees that the Guarantied Obligations may be extended or
renewed, and the Loans repaid and reborrowed in whole or in part, without notice
or further assent from it, and that it will remain bound upon this Holdings
Guaranty notwithstanding any extension,
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renewal or other alteration of any such Guarantied Obligation or repayment and
reborrowing of the Loans.
Guarantor waives presentation of, demand of, payment from and protest
of any Guarantied Obligation and also waives notice of protest for nonpayment.
The obligations of Guarantor under this Holdings Guaranty shall not be affected
by, and Guarantor hereby waives its rights (to the extent permitted by law) in
connection with:
(a) the failure of any Agent or any Guarantied Party to assert any
claim or demand or to enforce any right or remedy against Company under the
provisions of this Agreement, any other Loan Documents or the Lender
Interest Rate Agreements or any other agreement or otherwise,
(b) any extension or renewal of any provision of this Agreement, any
other Loan Document or the Lender Interest Rate Agreements,
(c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Agreement or any instrument executed pursuant
hereto or the Lender Interest Rate Agreements,
(d) the release of any of the security held by any Agent for any of
the Guarantied Obligations,
(e) the failure of any Agent or any Guarantied Party to exercise any
right or remedy against any other guarantor of any of the Guarantied
Obligations,
(f) any Agent or any Guarantied Party taking and holding security or
collateral for the payment of this Holdings Guaranty, any other guaranties
of the Guarantied Obligations or other liabilities of Company, and
exchanging, enforcing, waiving and releasing any such security or
collateral,
(g) any Agent or any Guarantied Party applying any such security or
collateral and directing the order or manner of sale thereof as such Agent
in its discretion may determine, or
(h) any Agent or any Guarantied Party settling, releasing,
compromising, collecting or otherwise liquidating the Guarantied Obligations
and any security or collateral therefor in any manner determined by such
Agent or such Guarantied Party.
Guarantor further agrees that this Holdings Guaranty constitutes a
guaranty of payment when due and not of collection and waives any right to
require that any resort be had by any Agent or any other Person to any security
held for payment of the Guarantied Obligations or to any balance of any deposit
account or credit on the books of any Agent or any other Person in favor of
Company or any other Person.
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The obligations of Guarantor under this Holdings Guaranty shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Guarantied Obligations, discharge of
Company from such Guarantied Obligations in a bankruptcy or similar proceeding
or otherwise. Without limiting the generality of the foregoing, the obligations
of Guarantor under this Holdings Guaranty shall not be discharged or impaired or
otherwise affected by the failure of any Agent or any Guarantied Party to assert
any claim or demand or to enforce any remedy under this Agreement or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Guarantied Obligations, or by any other act or thing or omission or delay to do
any other act or thing that may or might in any manner or to any extent vary the
risk of Guarantor or would otherwise operate as a discharge of Guarantor as a
matter of law or equity.
Administrative Agent may, at its election, foreclose on any security
held by Administrative Agent by one or more judicial or nonjudicial sales, or
exercise any other right or remedy Administrative Agent may have against Company
or any security without affecting or impairing in any way the liability of
Guarantor hereunder except to the extent the Guarantied Obligations have been
paid. Guarantor waives any defense arising out of such election by
Administrative Agent, even though such election operates to impair or extinguish
any right of reimbursement or subrogation or other right or remedy of Guarantor
against Company or any security, so long as Administrative Agent has acted in a
commercially reasonable manner.
Guarantor further agrees that this Holdings Guaranty shall continue to
be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any Guarantied Obligation is
rescinded or must otherwise be restored by Administrative Agent upon the
bankruptcy or reorganization of Company or otherwise.
Guarantor further agrees, in furtherance of the foregoing and not in
limitation of any other right that Administrative Agent may have at law or in
equity against Guarantor by virtue hereof, upon the failure of Company to pay
any of its Guarantied Obligations when and as the same shall become due (whether
at stated maturity, by required prepayment, declaration, demand or otherwise),
Guarantor will forthwith pay, or cause to be paid, in cash, to Administrative
Agent an amount equal to the sum of the unpaid principal amount of such
Guarantied Obligations, accrued and unpaid interest on such Guarantied
Obligations and all other Obligations of Company to Administrative Agent.
Guarantor further agrees as follows:
(i) Guarantor hereby waives (i) any claim, right or remedy, direct or
indirect, that Guarantor now has or may hereafter have against Company or
any of its assets in connection with this Holdings Guaranty or the
performance by Guarantor of its obligations hereunder, in each case whether
such claim, right or remedy arises in equity,
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under contract, by statute (including without limitation under California
Civil Code Section 2847, 2848 or 2849), under common law or otherwise and
including without limitation (a) any right of subrogation, reimbursement or
indemnification that Guarantor now has or may hereafter have against
Company, (b) any right to enforce, or to participate in, any claim, right or
remedy that any Agent or any Guarantied Party now has or may hereafter have
against Company, and (c) any benefit of, and any right to participate in,
any collateral or security now or hereafter held by any Agent or any
Guarantied Party, and (ii) any right of contribution Guarantor may have
against any other guarantor of any of the Guarantied Obligations (including
without limitation any such right of contribution under California Civil
Code Section 2848);
(ii) In accordance with Section 2856 of the California Civil Code,
Guarantor waives any and all other rights and defenses available to
Guarantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of
the California Civil Code, including without limitation any and all rights
or defenses Guarantor may have by reason of protection afforded to the
principal with respect to any of the Guarantied Obligations, or to any other
guarantor (including any other guarantor under the Guaranty) of any of the
Guarantied Obligations with respect to any of such guarantor's obligations
under its guaranty, in either case pursuant to the antideficiency or other
laws of the State of California limiting or discharging the principal's
indebtedness or such guarantor's obligations, including without limitation
Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure;
and
(iii) In accordance with Section 2856 of the California Civil Code,
Guarantor waives all rights and defenses arising out of an election of
remedies by the creditor, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a Guarantied
Obligation, has destroyed Guarantor's rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the
California Code of Civil Procedure or otherwise; and even though that
election of remedies by the creditor, such as nonjudicial foreclosure with
respect to security for an obligation of any other guarantor (including any
other guarantor under the Guaranty) of any of the Guarantied Obligations,
has destroyed Guarantor's rights of contribution against such other
guarantor.
The foregoing California waivers are included solely out of an
abundance of caution, and shall not be construed to mean that any of the above-
referenced provisions of California law are in any way applicable to this
Guaranty or to any of the Guarantied Obligations. As used in the foregoing
paragraph, any reference to "the principal" includes Company, and any reference
to "the creditor" includes each Agent, each Lender and each Interest Rate
Exchanger.
Guarantor hereby waives and relinquishes any duty on the part of any
Agent or any Lender to disclose any matter, fact or thing relating to the
business, operations or conditions of Company or any of its Subsidiaries now
known or hereafter known by any Agent or any Lender.
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Guarantor further agrees that, to the extent the agreement to waive
its rights of subrogation, reimbursement, indemnification and contribution as
set forth herein is found by a court of competent jurisdiction to be void or
voidable for any reason, any rights or subrogation, reimbursement or
indemnification Guarantor may have against Company or against any collateral or
security, and any rights of contribution Guarantor may have against any such
other guarantor, shall be junior and subordinate to any rights Agents or
Guarantied Parties may have against Company, to all rights, title and interest
Agents or Guarantied Parties may have in any such collateral or security, and to
any right Agents or Guarantied Parties may have against such other guarantor.
Administrative Agent, on behalf of Guarantied Parties, may use, sell or dispose
of any item of collateral or security as it sees fit without regard to any
subrogation rights Guarantor may have, and upon any such disposition or sale any
rights of subrogation Guarantor may have shall terminate. If any amount shall be
paid to Guarantor on account of any such subrogation, reimbursement or
indemnification rights at any time when all Guarantied Obligations (other than
Guarantied Obligations which are contingent and unliquidated and not due and
owing on such date and which pursuant to the provisions of the Credit Agreement
survive the termination of the Credit Agreement, the repayment of the Guarantied
Obligations, the termination of the Commitments and the expiration or
cancellation of all Letters of Credit) shall not have been paid in full, such
amount shall be held in trust for Administrative Agent on behalf of Guarantied
Parties and shall forthwith be paid over to Administrative Agent for the benefit
of Guarantied Parties to be credited and applied against the Guarantied
Obligations, whether matured or unmatured, in accordance with the terms hereof.
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon failure of Company to
pay its Guarantied Obligations when due (whether at stated maturity, by required
prepayment, declaration, demand or otherwise) and consequent acceleration of the
Obligations pursuant to Section 8, each Agent is hereby authorized by Guarantor
at any time or from time to time, without notice to Guarantor or to any other
Person, any such notice being hereby expressly waived to the extent permitted by
applicable law, to set off and to appropriate and to apply any and all deposits
(general or special, including, not limited to, Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including trust
accounts) and any other Indebtedness at any time owing by such Agent to or for
the credit or the account of Guarantor against and on account of the obligations
and liabilities of Guarantor to such Agent under this Holdings Guaranty,
including, but not limited to, all such obligations and liabilities with respect
to all claims of any nature or description arising out of or connected with this
Agreement, this Holdings Guaranty or the Letters of Credit or any of the other
Loan Documents, irrespective of whether or not such Agent, with respect to any
Obligation owed under the Letters of Credit or this Agreement, shall have made
any demand hereunder. Each Agent agrees promptly to notify Guarantor after any
such set-off and application is made by such Agent.
Notwithstanding anything contained in this Section 9 to the contrary,
this Holdings Guaranty shall not be effective or in full force and effect until
the Closing Date.
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SECTION 10. AGENTS
10.1 APPOINTMENT.
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A. APPOINTMENT OF ADMINISTRATIVE AGENT. CL is hereby appointed
Administrative Agent hereunder and under the other Loan Documents and each
Lender hereby authorizes Administrative Agent to act as its agent in accordance
with the terms of this Agreement and the other Loan Documents. Administrative
Agent agrees to act upon the express conditions contained in this Agreement and
the other Loan Documents, as applicable. The provisions of this Section 10 are
solely for the benefit of Administrative Agent, the other Agents and Lenders and
no Loan Party shall have any rights as a third party beneficiary of any of the
provisions thereof. In performing its functions and duties under this
Agreement, Administrative Agent shall act solely as an agent of Lenders and does
not assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for Holdings or any of its Subsidiaries.
B. APPOINTMENT OF CO-SYNDICATION AGENTS. Bankers, Chemical and CUSA
are hereby appointed as Co-Syndication Agents hereunder and under the other Loan
Documents and each Lender hereby authorizes each Co-Syndication Agent to act as
a Co-Syndication Agent in accordance with the terms of this Agreement and the
other Loan Documents. Each Co-Syndication Agent agrees to act upon the express
conditions contained in this Agreement and the other Loan Documents, as
applicable. The provisions of this Section 10 are solely for the benefit of
Agents and Lenders and no Loan Party shall have any rights as a third party
beneficiary of any of the provisions thereof. In performing its functions and
duties under this Agreement, each Co-Syndication Agent shall act solely as an
agent of Lenders and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for Holdings or
any of its Subsidiaries.
C. APPOINTMENT OF SUPPLEMENTAL COLLATERAL AGENTS. It is the purpose of
this Agreement and the other Loan Documents that there shall be no violation of
any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or any of the other Loan Documents, and in particular in case of the enforcement
of any of the Loan Documents, or in case Administrative Agent deems that by
reason of any present or future law of any jurisdiction it may not exercise any
of the rights, powers or remedies granted herein or in any of the other Loan
Documents or take any other action which may be desirable or necessary in
connection therewith, it may be necessary that Administrative Agent appoint an
additional individual or institution as a separate trustee, co-trustee,
collateral agent or collateral co-agent (any such additional individual or
institution being referred to herein individually as a "SUPPLEMENTAL COLLATERAL
AGENT" and collectively as "SUPPLEMENTAL COLLATERAL AGENTS").
In the event that Administrative Agent appoints a Supplemental
Collateral Agent with respect to any Collateral, (i) each and every right,
power, privilege or duty expressed or intended by this Agreement or any of the
other Loan Documents to be exercised by or vested
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in or conveyed to Administrative Agent with respect to such Collateral shall be
exercisable by and vest in such Supplemental Collateral Agent to the extent, and
only to the extent, necessary to enable such Supplemental Collateral Agent to
exercise such rights, powers and privileges with respect to such Collateral and
to perform such duties with respect to such Collateral, and every covenant and
obligation contained in the Loan Documents and necessary to the exercise or
performance thereof by such Supplemental Collateral Agent shall run to and be
enforceable by either Administrative Agent or such Supplemental Collateral
Agent, and (ii) the provisions of this Section 10 and of subsections 11.2 and
11.3 that refer to Administrative Agent shall inure to the benefit of such
Supplemental Collateral Agent and all references therein to Administrative Agent
shall be deemed to be references to Administrative Agent and/or such
Supplemental Collateral Agent, as the context may require.
Should any instrument in writing from Holdings, Company or any other
Loan Party be required by any Supplemental Collateral Agent so appointed by
Administrative Agent for more fully and certainly vesting in and confirming to
him or it such rights, powers, privileges and duties, Holdings and Company
shall, or shall cause such Loan Party to, execute, acknowledge and deliver any
and all such instruments promptly upon request by Administrative Agent. In case
any Supplemental Collateral Agent, or a successor thereto, shall die, become
incapable of acting, resign or be removed, all the rights, powers, privileges
and duties of such Supplemental Collateral Agent, to the extent permitted by
law, shall vest in and be exercised by Administrative Agent until the
appointment of a new Supplemental Collateral Agent.
10.2 POWERS AND DUTIES; GENERAL IMMUNITY.
-----------------------------------
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes each
Agent to take such action on such Lender's behalf and to exercise such powers,
rights and remedies hereunder and under the other Loan Documents as are
specifically delegated or granted to said Agent by the terms hereof and thereof,
together with such powers, rights and remedies as are reasonably incidental
thereto. Each Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Loan Documents. Each Agent
may exercise such powers, rights and remedies and perform such duties by or
through its agents or employees. No Agent shall have, by reason of this
Agreement or any of the other Loan Documents, a fiduciary relationship in
respect of any Lender; and nothing in this Agreement or any of the other Loan
Documents, expressed or implied, is intended to or shall be so construed as to
impose upon any Agent any obligations in respect of this Agreement or any of the
other Loan Documents except as expressly set forth herein or therein.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or any
other Loan Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any Agent to Lenders or by or on behalf
of any Loan Party to any Agent or any Lender in connection with the Loan
Documents and the transactions contemplated thereby or for the financial
condition or business affairs of any Loan Party or any
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other Person liable for the payment of any Obligations, nor shall any Agent be
required to ascertain or inquire as to the performance or observance of any of
the terms, conditions, provisions, covenants or agreements contained in any of
the Loan Documents or as to the use of the proceeds of the Loans or the use of
the Letters of Credit or as to the existence or possible existence of any Event
of Default or Potential Event of Default. Anything contained in this Agreement
to the contrary notwithstanding, no Agent shall have any liability arising from
confirmations of the amount of outstanding Loans or the Letter of Credit Usage
or the component amounts thereof.
C. EXCULPATORY PROVISIONS. Neither any Agent nor any of each of their
officers, directors, employees or agents shall be liable to Lenders for any
action taken or omitted by such Agent under or in connection with any of the
Loan Documents except to the extent caused by such Agent's gross negligence or
willful misconduct. Each Agent shall be entitled to refrain from any act or the
taking of any action (including the failure to take an action) in connection
with this Agreement or any of the other Loan Documents or from the exercise of
any power, discretion or authority vested in it hereunder or thereunder unless
and until such Agent shall have received instructions in respect thereof from
Requisite Lenders (or such other Lenders as may be required to give such
instructions under subsection 11.6) and, upon receipt of such instructions from
Requisite Lenders (or such other Lenders, as the case may be), said Agent shall
be entitled to act or (where so instructed) refrain from acting, or to exercise
such power, discretion or authority, in accordance with such instructions.
Without prejudice to the generality of the foregoing, (i) each Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and shall be
entitled to rely and shall be protected in relying on opinions and judgments of
attorneys (who may be attorneys for Holdings, Company and its Subsidiaries),
accountants, experts and other professional advisors selected by it; and (ii) no
Lender shall have any right of action whatsoever against any Agent as a result
of such Agent acting or refraining from acting under this Agreement or any of
the other Loan Documents in accordance with the instructions of Requisite
Lenders (or such other Lenders as may be required to give such instructions
under subsection 11.6).
D. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans and the Letters of Credit, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as though it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" or "Lenders" or any similar
term shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity. Each Agent and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of banking, trust, financial
advisory or other business with any Loan Party or any of their Affiliates as if
it were not performing the duties specified herein, and may accept fees and
other consideration from any Loan Party for services in connection with this
Agreement and otherwise without having to account for the same to Lenders.
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10.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
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CREDITWORTHINESS.
----------------
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Holdings,
Company and its Subsidiaries in connection with the making of the Loans and the
issuance of Letters of Credit hereunder and that it has made and shall continue
to make its own appraisal of the creditworthiness of Holdings, Company and its
Subsidiaries. No Agent shall have any duty or responsibility, either initially
or on a continuing basis, to make any such investigation or any such appraisal
on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter, and no Agent shall have
any responsibility with respect to the accuracy of or the completeness of any
information provided to Lenders.
10.4 RIGHT TO INDEMNITY.
------------------
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by Company, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, counsel fees and disbursements) or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against such Agent in exercising its powers, rights and remedies or
performing its duties hereunder or under the other Loan Documents or otherwise
in its capacity as an Agent in any way relating to or arising out of this
Agreement or the other Loan Documents; provided that no Lender shall be
--------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from any Agent's gross negligence or willful misconduct. If any indemnity
furnished to any Agent for any purpose shall, in the opinion of such Agent, be
insufficient or become impaired, such Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until such
additional indemnity is furnished.
10.5 SUCCESSOR AGENTS AND SWING LINE LENDER.
--------------------------------------
A. SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign
at any time by giving 30 days' prior written notice thereof to Lenders and
Company, and Administrative Agent may be removed at any time with or without
cause by an instrument or concurrent instruments in writing delivered to Company
and Administrative Agent and signed by Requisite Lenders. Upon any such notice
of resignation or any such removal, Requisite Lenders shall have the right, upon
five Business Days' notice to Company, to appoint a successor Administrative
Agent with the consent of Company, which consent shall not be unreasonably
withheld. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, that successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Administrative Agent and the
retiring or removed Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring
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or removed Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
B. SUCCESSOR SWING LINE LENDER. Any resignation or removal of
Administrative Agent pursuant to subsection 10.5A shall also constitute the
resignation or removal of CL or its successor as Swing Line Lender, and any
successor Agent appointed pursuant to subsection 10.5A shall, upon its
acceptance of such appointment, become the successor Swing Line Lender for all
purposes hereunder. In such event (i) Company shall prepay any outstanding
Swing Line Loans made by the retiring or removed Administrative Agent in its
capacity as Swing Line Lender, (ii) upon such prepayment, the retiring or
removed Administrative Agent and Swing Line Lender shall surrender the Swing
Line Note held by it to Company for cancellation, and (iii) Company shall issue
a new Swing Line Note to the successor Administrative Agent and Swing Line
Lender substantially in the form of Exhibit VI annexed hereto, in the principal
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amount of the Swing Line Loan Commitment then in effect and with other
appropriate insertions.
C. SUCCESSOR CO-SYNDICATION AGENTS. Any Co-Syndication Agent may
resign at any time by giving 30 days' prior written notice thereof to Lenders
and Company, and any Co-Syndication Agent may be removed at any time with or
without cause by an instrument or concurrent instruments in writing delivered to
Company and such Co-Syndication Agent and signed by Requisite Lenders. Upon any
such notice of resignation or any such removal, Requisite Lenders shall have the
right, upon five Business Days' notice to Company, to appoint a successor Co-
Syndication Agent. Upon the acceptance of any appointment as Co-Syndication
Agent hereunder by a successor Co-Syndication Agent, that successor Co-
Syndication Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Co-Syndication
Agent and the retiring or removed Co-Syndication Agent shall be discharged from
its duties and obligations under this Agreement. After any retiring or removed
Co-Syndication Agent's resignation or removal hereunder as Co-Syndication Agent,
the provisions of this Section 10 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Co-Syndication Agent under this
Agreement.
10.6 COLLATERAL DOCUMENTS AND GUARANTIES.
-----------------------------------
Each Lender hereby further authorizes Administrative Agent, on behalf
of and for the benefit of Lenders, to enter into each Collateral Document as
secured party and to be the agent for and representative of Lenders under each
Guaranty, and each Lender agrees to be bound by the terms of each Collateral
Document and Guaranty; provided that Administrative Agent shall not (i) enter
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into or consent to any material amendment, modification, termination or waiver
of any provision contained in any Collateral Document or Guaranty or (ii)
release any Collateral (except as otherwise expressly permitted or required
pursuant to the terms of this Agreement or the applicable Collateral Document),
in each case without the prior consent of Requisite Lenders (or, if required
pursuant to subsection 11.6, all Lenders); provided further, however, that,
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without further written consent or authorization from Lenders, Administrative
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Agent may execute any documents or instruments necessary to (a) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted by this Agreement or to which Requisite Lenders
or all Lenders, as applicable, have otherwise consented or (b) release any
Subsidiary Guarantor from the Subsidiary Guaranty if all of the capital stock of
such Subsidiary Guarantor is sold to any Person (other than an Affiliate of
Company) pursuant to a sale or other disposition permitted hereunder or to which
Requisite Lenders or all Lenders, as applicable, have otherwise consented.
Anything contained in any of the Loan Documents to the contrary notwithstanding,
Company, Holdings, each Agent and each Lender hereby agree that (X) no Lender
shall have any right individually to realize upon any of the Collateral under
any Collateral Document or to enforce any Guaranty, it being understood and
agreed that all powers, rights and remedies under the Collateral Documents and
the Guaranties may be exercised solely by Administrative Agent for the benefit
of Lenders in accordance with the terms thereof, and (Y) in the event of a
foreclosure by Administrative Agent on any of the Collateral pursuant to a
public or private sale, Administrative Agent or any Lender may be the purchaser
of any or all of such Collateral at any such sale and Administrative Agent, as
agent for and representative of Lenders (but not any Lender or Lenders in its or
their respective individual capacities unless Requisite Lenders shall otherwise
agree in writing) shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Collateral sold at any such public sale, to use and apply any of the Obligations
as a credit on account of the purchase price for any collateral payable by
Administrative Agent at such sale.
SECTION 11. MISCELLANEOUS
11.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
-------------------------------------------------------------
A. GENERAL. Subject to subsection 11.1B, each Lender shall have the
right at any time to (i) sell, assign or transfer to any Eligible Assignee, or
(ii) sell participations to any Person in, all or any part of its Commitments or
any Loan or Loans made by it or its Letters of Credit or participations therein
or any other interest herein or in any other Obligations owed to it; provided
--------
that no such sale, assignment, transfer or participation shall, without the
consent of Company, require Company to file a registration statement with the
Securities and Exchange Commission or apply to qualify such sale, assignment,
transfer or participation under the securities laws of any state; provided,
--------
further that no such sale, assignment or transfer described in clause (i) above
- -------
shall be effective unless and until an Assignment Agreement effecting such sale,
assignment or transfer shall have been accepted by Administrative Agent and
recorded in the Register as provided in subsection 11.1B(ii); provided, further
-------- -------
that no such sale, assignment, transfer or participation of any Letter of Credit
or any participation therein may be made separately from a sale, assignment,
transfer or participation of a corresponding interest in the Revolving Loan
Commitment and the Revolving Loans of the Lender effecting such sale,
assignment, transfer or participation; and provided, further that, anything
-------- -------
contained herein to the contrary notwithstanding, the Swing Line Loan Commitment
and the Swing Line Loans of Swing Line Lender may not be sold, assigned or
transferred as described in clause (i) above to any Person other than a
successor Administrative Agent and Swing Line Lender
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to the extent contemplated by subsection 10.5. Except as otherwise provided in
this subsection 11.1, no Lender shall, as between Company and such Lender, be
relieved of any of its obligations hereunder as a result of any sale, assignment
or transfer of, or any granting of participations in, all or any part of its
Commitments or the Loans, the Letters of Credit or participations therein, or
the other Obligations owed to such Lender.
B. ASSIGNMENTS.
(i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter of
--------------------------------
Credit or participation therein, or other Obligation may (a) be assigned in
any amount to another Lender, or to an Affiliate of the assigning Lender or
another Lender, with the giving of notice to Company and each Agent or (b)
be assigned in an aggregate amount of not less than $2,500,000 (or such
lesser amount as shall constitute the aggregate amount of the Commitments,
Loans, Letters of Credit and participations therein, and other Obligations
of the assigning Lender) to any other Eligible Assignee with the consent of
Company and each Agent (which consent of Company and such Agent shall not be
unreasonably withheld or delayed). To the extent of any such assignment in
accordance with either clause (a) or (b) above, the assigning Lender shall
be relieved of its obligations with respect to its Commitments, Loans,
Letters of Credit or participations therein, or other Obligations or the
portion thereof so assigned. The parties to each such assignment shall
execute and deliver to Administrative Agent, for its acceptance and
recording in the Register, an Assignment Agreement, together with a
processing and recordation fee of $3,500 and such forms, certificates or
other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may be
required to deliver to Administrative Agent pursuant to subsection
2.7B(iii)(a). Upon such execution, delivery, acceptance and recordation,
from and after the effective date specified in such Assignment Agreement,
(y) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and (z) the assigning Lender thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment Agreement, relinquish its rights (other than any rights which
survive the termination of this Agreement under subsection 11.9B) and be
released from its obligations under this Agreement (and, in the case of an
Assignment Agreement covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall
cease to be a party hereto; provided that, anything contained in any of the
--------
Loan Documents to the contrary notwithstanding, if such Lender is the
Issuing Lender with respect to any outstanding Letters of Credit such Lender
shall continue to have all rights and obligations of an Issuing Lender with
respect to such Letters of Credit until the cancellation or expiration of
such Letters of Credit and the reimbursement of any amounts drawn
thereunder). The Commitments hereunder shall be modified to reflect the
Commitment of such assignee and any remaining Commitment of such assigning
Lender and, if any such assignment occurs after the issuance of the Notes
hereunder, the assigning Lender shall, upon the effectiveness of such
assignment or as promptly
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thereafter as practicable, surrender its applicable Notes to Administrative
Agent for cancellation, and thereupon new Notes shall be issued to the
assignee and/or to the assigning Lender, substantially in the form of
Exhibit IV or Exhibit V annexed hereto, as the case may be, with appropriate
---------- ---------
insertions, to reflect the new Commitments and/or outstanding Term Loans, as
the case may be, of the assignee and/or the assigning Lender.
(ii) Acceptance by Administrative Agent; Recordation in Register.
-----------------------------------------------------------
Upon its receipt of an Assignment Agreement executed by an assigning Lender
and an assignee representing that it is an Eligible Assignee, together with
the processing and recordation fee referred to in subsection 11.1B(i) and
any forms, certificates or other evidence with respect to United States
federal income tax withholding matters that such assignee may be required to
deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a),
Administrative Agent shall, if each Agent and Company have consented to the
assignment evidenced thereby (in each case to the extent such consent is
required pursuant to subsection 11.1B(i)), (a) accept such Assignment
Agreement by executing a counterpart thereof as provided therein (which
acceptance shall evidence any required consent of any Agent to such
assignment), (b) record the information contained therein in the Register,
and (c) give prompt notice thereof to Company. Administrative Agent shall
maintain a copy of each Assignment Agreement delivered to and accepted by it
as provided in this subsection 11.1B(ii).
C. PARTICIPATIONS. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity date of any
Loan allocated to such participation or (ii) a reduction of the principal amount
of or the rate of interest payable on any Loan allocated to such participation,
and all amounts payable by Company hereunder (including without limitation
amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall
be determined as if such Lender had not sold such participation. Company and
each Lender hereby acknowledge and agree that, solely for purposes of
subsections 11.4 and 11.5, (a) any participation will give rise to a direct
obligation of Company to the participant and (b) the participant shall be
considered to be a "Lender".
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
11.1, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between Company and such Lender, be
--------
relieved of any of its obligations hereunder as a result of any such assignment
and pledge and (ii) in no event shall such Federal Reserve Bank be considered to
be a "Lender" or be entitled to require the assigning Lender to take or omit to
take any action hereunder.
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E. INFORMATION. Each Lender may furnish any information concerning
Holdings and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 11.19.
F. REPRESENTATIONS OF LENDERS. Each Lender listed on the signature
pages hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of loans such as the Loans; and (iii) that it will
make its Loans for its own account in the ordinary course of its business and
without a view to distribution of such Loans within the meaning of the
Securities Act or the Exchange Act or other federal securities laws (it being
understood that, subject to the provisions of this subsection 11.1, the
disposition of such Loans or any interests therein shall at all times remain
within its exclusive control). Each Lender that becomes a party hereto pursuant
to an Assignment Agreement shall be deemed to agree that the representations and
warranties of such Lender contained in Section 2(c) of such Assignment Agreement
are incorporated herein by this reference.
11.2 EXPENSES.
--------
Whether or not the transactions contemplated hereby shall be
consummated, each of Holdings and Company agrees to pay promptly (i) all the
actual and reasonable costs and expenses of preparation of the Loan Documents
and any consents, amendments, waivers or other modifications thereto; (ii) all
the costs of furnishing all opinions by counsel for Loan Parties (including
without limitation any opinions requested by Lenders as to any legal matters
arising hereunder) and of each Loan Party's performance of and compliance with
all agreements and conditions on its part to be performed or complied with under
this Agreement and the other Loan Documents including, without limitation, with
respect to confirming compliance with environmental, insurance and solvency
requirements; (iii) the reasonable fees, expenses and disbursements of counsel
to Agents (including allocated costs of internal counsel) in connection with the
negotiation, preparation and execution of the commitment letter relating to the
transactions contemplated herein and the negotiation, preparation, execution and
administration of the Loan Documents and any consents, amendments, waivers or
other modifications thereto and any other documents or matters requested by any
Loan Party; (iv) all the actual costs and reasonable expenses of creating and
perfecting Liens in favor of Administrative Agent on behalf of Lenders pursuant
to any Collateral Document, including without limitation filing and recording
fees, expenses and taxes, stamp or documentary taxes, search fees, title
insurance premiums, and reasonable fees, expenses and disbursements of counsel
to any Agent and of counsel providing any opinions that any Agent or Requisite
Lenders may request in respect of the Collateral Documents or the Liens created
pursuant thereto; (v) all the actual costs and reasonable expenses (including
without limitation the reasonable fees, expenses and disbursements of any
auditors, accountants or appraisers and any environmental or other consultants,
advisors and agents employed or retained by any Agent or its counsel) of
obtaining and reviewing any appraisals provided for under subsection 6.9B, any
environmental audits or reports provided for under subsection 4.1M or 6.9A(vii);
(vi) all the actual costs and reasonable expenses arising from the custody or
preservation of any of the Collateral; (vii) all other actual and reasonable
costs and expenses incurred by Agents
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(including without limitation the reasonable fees, expenses and disbursements of
consultants and other experts and actual costs and reasonable expenses of
Agents, including without limitation due diligence and syndication expenses) in
connection with the syndication of the Commitments and the negotiation,
preparation and execution of the commitment letter relating to the transactions
contemplated herein and the negotiation, preparation and execution of the Loan
Documents and any consents, amendments, waivers or other modifications thereto
and the transactions contemplated thereby; and (viii) after the occurrence of an
Event of Default, all costs and expenses, including reasonable attorneys' fees
(including allocated costs of internal counsel) and costs of settlement,
incurred by Agents and Lenders in enforcing any Obligations of or in collecting
any payments due from any Loan Party hereunder or under the other Loan Documents
by reason of such Event of Default (including, without limitation, in connection
with the sale of, collection from, or other realization upon any of the
Collateral or the enforcement of the Guaranties) or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement in the nature of a "work-out" or pursuant to any insolvency or
bankruptcy proceedings.
11.3 INDEMNITY.
---------
In addition to the payment of expenses pursuant to subsection 11.2,
whether or not the transactions contemplated hereby shall be consummated, each
of Holdings and Company agrees to defend (subject to Indemnitees' consent to
such defense, the terms and conditions thereof and selection of counsel),
indemnify, pay and hold harmless Agents and Lenders, and the officers,
directors, employees, agents and affiliates of Agents and Lenders (collectively
called the "INDEMNITEES"), from and against any and all Indemnified Liabilities
(as hereinafter defined); provided that neither Holdings nor Company shall have
--------
any obligation to any Indemnitee hereunder with respect to any Indemnified
Liabilities to the extent such Indemnified Liabilities are found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of that Indemnitee.
As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any and
all liabilities, obligations, losses, damages (including natural resource
damages), penalties, actions, judgments, suits, claims (including Environmental
Claims), costs (including the costs of any investigation, study, sampling,
testing, abatement, cleanup, removal, remediation or other response action
necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of (i) this Agreement or the other Loan Documents or the Related
Agreements
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or the transactions contemplated hereby or thereby (including Lenders' agreement
to make the Loans hereunder or the use or intended use of the proceeds thereof
or the issuance of Letters of Credit hereunder or the use or intended use of any
thereof, or any enforcement of any of the Loan Documents (including any sale of,
collection from, or other realization upon any of the Collateral or the
enforcement of the Guaranties), (ii) the statements contained in the commitment
letter delivered by any Lender to Flagstar with respect thereto, or (iii) any
Environmental Claim or any Hazardous Materials Activity relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of Holdings, Company or any of Company's Subsidiaries.
To the extent that the undertakings to defend, indemnify, pay and hold
harmless set forth in this subsection 11.3 may be unenforceable in whole or in
part because they are violative of any law or public policy, Holdings and
Company shall contribute the maximum portion that it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by Indemnitees or any of them.
11.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS.
----------------------------------------------
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence of any
Event of Default each Lender is hereby authorized by Holdings and Company at any
time or from time to time, without notice to Holdings or Company or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, including,
but not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
Indebtedness at any time held or owing by that Lender to or for the credit or
the account of Holdings or Company against and on account of the obligations and
liabilities of Holdings or Company to that Lender under this Agreement, the
Letters of Credit and participations therein and the other Loan Documents,
including, but not limited to, all claims of any nature or description arising
out of or connected with this Agreement, the Letters of Credit and
participations therein or any other Loan Document, irrespective of whether or
not (i) that Lender shall have made any demand hereunder or (ii) the principal
of or the interest on the Loans or any amounts in respect of the Letters of
Credit or any other amounts due hereunder shall have become due and payable
pursuant to Section 8 and although said obligations and liabilities, or any of
them, may be contingent or unmatured. Company hereby further grants to each
Agent and each Lender a security interest in all deposits and accounts
maintained with such Agent or such Lender as security for the Obligations.
11.5 RATABLE SHARING.
---------------
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection
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of a deposit treated as cash collateral under the Bankruptcy Code, receive
payment or reduction of a proportion of the aggregate amount of principal,
interest, amounts payable in respect of Letters of Credit, fees and other
amounts then due and owing to that Lender hereunder or under the other Loan
Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is
greater than the proportion received by any other Lender in respect of the
Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (i) notify each Agent and each other
Lender of the receipt of such payment and (ii) apply a portion of such payment
to purchase participations (which it shall be deemed to have purchased from each
seller of a participation simultaneously upon the receipt by such seller of its
portion of such payment) in the Aggregate Amounts Due to the other Lenders so
that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders
in proportion to the Aggregate Amounts Due to them; provided that if all or part
--------
of such proportionately greater payment received by such purchasing Lender is
thereafter recovered from such Lender upon the bankruptcy or reorganization of
Holdings or any of its Subsidiaries or otherwise, those purchases shall be
rescinded and the purchase prices paid for such participations shall be returned
to such purchasing Lender ratably to the extent of such recovery, but without
interest. Each of Holdings and its Subsidiaries expressly consents to the
foregoing arrangement and agrees that any holder of a participation so purchased
may exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Holdings or any of it Subsidiaries to
that holder with respect thereto as fully as if that holder were owed the amount
of the participation held by that holder.
11.6 AMENDMENTS AND WAIVERS.
----------------------
No amendment, modification, termination or waiver of any provision of
this Agreement or of the Notes, and no consent to any departure by Holdings or
Company therefrom, shall in any event be effective without the written
concurrence of Requisite Lenders; provided that any such amendment,
--------
modification, termination, waiver or consent which: increases the amount of any
of the Commitments or reduces the principal amount of any of the Loans; changes
in any manner the definition of "Pro Rata Share" or the definition of "Requisite
Lenders", "Requisite Class Lenders" or "Supermajority Term Lenders" ; changes in
any manner any provision of this Agreement which, by its terms, expressly
requires the approval or concurrence of all Lenders; postpones the scheduled
final maturity date (but not the date of any scheduled installment of principal)
of any of the Loans; postpones the date on which any interest or any fees are
payable; decreases the interest rate borne by any of the Loans (other than any
waiver of any increase in the interest rate applicable to any of the Loans
pursuant to subsection 2.2E) or the amount of any fees payable hereunder;
increases the maximum duration of Interest Periods permitted hereunder; reduces
the amount or postpones the due date of any amount payable in respect of, or
extends the required expiration date of, any Letter of Credit; changes in any
manner the obligations of Lenders relating to the purchase of participations in
Letters of Credit; releases any Lien granted in favor of Administrative Agent
with respect to 10% or more in aggregate fair market value of the Collateral
(other than in accordance with the terms of the Loan Documents); releases
Holdings from its obligations under the Holdings Guaranty or releases any
Subsidiary Guarantor from its obligations under the Subsidiary Guaranty, in each
case other than in accordance with the terms of the Loan Documents; or
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changes in any manner the provisions contained in subsection 8.1 or this
subsection 11.6 shall be effective only if evidenced by a writing signed by or
on behalf of all Lenders. In addition, (i) any amendment, modification,
termination or waiver of any of the provisions contained in Section 4 shall be
effective only if evidenced by a writing signed by or on behalf of each Agent
and Requisite Lenders, (ii) no amendment, modification, termination or waiver of
any provision of any Note shall be effective without the written concurrence of
the Lender which is the holder of that Note, (iii) no amendment, modification,
termination or waiver of any provision of subsection 2.1A(iii) or of any other
provision of this Agreement relating to the Swing Line Loan Commitment or the
Swing Line Loans shall be effective without the written concurrence of Swing
Line Lender, (iv) no amendment, modification, termination or waiver of any
provision changing any voluntary or mandatory prepayments or Commitment
reductions applicable to any Class (an "AFFECTED CLASS") in a manner that
disproportionately disadvantages such Class relative to the other Class shall be
effective without the written concurrence of the Requisite Class Lenders of the
Affected Class (it being understood and agreed that any amendment, modification,
termination or waiver of any provision which only postpones or reduces any
voluntary or mandatory prepayment or Commitment reduction from those set forth
in subsection 2.4 with respect to only one Class shall be deemed to not
disproportionately disadvantage the other Class, and, therefore, shall not
require the consent of the Requisite Class Lenders of such other Class), (v) no
amendment, modification, termination or waiver of any provision changing any
interim scheduled payments of Term Loans shall be effective without the written
concurrence of the Supermajority Term Lenders , and (vi) no amendment,
modification, termination or waiver of any provision of Section 10 or of any
other provision of this Agreement which, by its terms, expressly requires the
approval or concurrence of any Agent shall be effective without the written
concurrence of such Agent. Administrative Agent may, but shall have no
obligation to, with the concurrence of any Lender, execute amendments,
modifications, waivers or consents on behalf of that Lender. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on Holdings or Company in
any case shall entitle Holdings or Company to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this subsection 11.6
shall be binding upon each Lender at the time outstanding, each future Lender
and, if signed by Holdings or Company, on Holdings or Company.
11.7 INDEPENDENCE OF COVENANTS.
-------------------------
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
11.8 NOTICES.
-------
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served,
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telexed or sent by telefacsimile or United States mail or courier service and
shall be deemed to have been given when delivered in person or by courier
service, upon receipt of telefacsimile or telex, or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed; provided that notices to any Agent shall not be effective until
--------
received. For the purposes hereof, the address of each party hereto shall be as
set forth under such party's name on the signature pages hereof or (i) as to
Holdings, Company and any Agent, such other address as shall be designated by
such Person in a written notice delivered to the other parties hereto and (ii)
as to each other party, such other address as shall be designated by such party
in a written notice delivered to Administrative Agent.
11.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
------------------------------------------------------
A. All representations, warranties and agreements made herein
shall survive the execution and delivery of this Agreement and the making of the
Loans and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to
the contrary, the agreements of Holdings and Company set forth in subsections
2.6D, 2.7, 3.5A, 3.6, 11.2, 11.3 and 11.4 and the agreements of Lenders set
forth in subsections 10.2C, 10.4 and 11.5 shall survive the payment of the
Loans, the cancellation or expiration of the Letters of Credit and the
reimbursement of any amounts drawn thereunder, and the termination of this
Agreement.
11.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of any Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
11.11 MARSHALLING; PAYMENTS SET ASIDE.
-------------------------------
Neither any Agent nor any Lender shall be under any obligation to
marshal any assets in favor of Holdings, Company or any other party or against
or in payment of any or all of the Obligations. To the extent that Holdings or
Company makes a payment or payments to Agents or Lenders (or to any Agent for
the benefit of Lenders), or Agents or Lenders enforce any security interests or
exercise their rights of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, any
other state or federal law, common law or any equitable cause, then, to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor or related thereto,
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shall be revived and continued in full force and effect as if such payment or
payments had not been made or such enforcement or setoff had not occurred.
11.12 SEVERABILITY.
------------
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
11.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
----------------------------------------------------------
The obligations of Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
11.14 HEADINGS.
--------
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
11.15 APPLICABLE LAW.
--------------
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
11.16 SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 11.1). None of
Holdings' and Company's rights or obligations hereunder nor any interest therein
may be assigned or delegated by Holdings or Company without the prior written
consent of all Lenders.
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11.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST OR BY HOLDINGS OR COMPANY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH OF HOLDINGS AND COMPANY, AGENTS AND LENDERS,
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO HOLDINGS OR COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 11.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER EACH OF HOLDINGS AND COMPANY
IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST HOLDINGS AND COMPANY
IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 11.17 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR
OTHERWISE.
11.18 WAIVER OF JURY TRIAL.
--------------------
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
150
<PAGE>
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver
is intended to be all-encompassing of any and all disputes that may be filed in
any court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims and all
other common law and statutory claims. Each party hereto acknowledges that this
waiver is a material inducement to enter into a business relationship, that each
has already relied on this waiver in entering into this Agreement, and that each
will continue to rely on this waiver in their related future dealings. Each
party hereto further warrants and represents that it has reviewed this waiver
with its legal counsel and that it knowingly and voluntarily waives its jury
trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION
11.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.
11.19 CONFIDENTIALITY.
---------------
Each Lender shall hold all non-public written information obtained
pursuant to the requirements of this Agreement which has been identified as
confidential by Company (other than any such information independently obtained
by such Lender) in accordance with such Lender's customary procedures for
handling confidential information of this nature and in accordance with safe and
sound banking practices, it being understood and agreed by Holdings and Company
that in any event a Lender may make disclosures to officers, directors, agents,
advisors and Affiliates of such Lender or disclosures reasonably required by any
bona fide assignee, transferee or participant in connection with the
contemplated assignment or transfer by such Lender of any Loans or any
participations therein and then only on a confidential basis or disclosures
required or requested by any governmental agency or representative thereof or
pursuant to legal process; provided that, unless specifically prohibited by
--------
applicable law or court order, each Lender shall use its reasonable efforts to
notify Company of any request by any governmental agency or representative
thereof (other than any such request in connection with any examination of the
financial condition of such Lender by such governmental agency) for disclosure
of any such non-public information prior to disclosure of such information; and
provided, further that in no event shall any Lender be obligated or required to
- -------- -------
return any materials furnished by Holdings or any of its Subsidiaries.
11.20 COUNTERPARTS; EFFECTIVENESS.
---------------------------
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same
151
<PAGE>
instrument; signature pages may be detached from multiple separate counterparts
and attached to a single counterpart so that all signature pages are physically
attached to the same document. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto and receipt by
Company and Agents of written or telephonic notification of such execution and
authorization of delivery thereof.
[Remainder of page intentionally left blank]
152
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
GUARANTOR:
FRD ACQUISITION CO.
By: /s/ Ronald B. Hutchison
--------------------------------
Title: Vice President and Treasurer
--------------------------------
Notice Address:
18831 Von Karman Avenue
Irvine, California 92715
Attn: President
COMPANY:
FRI-M CORPORATION
By: /s/ Ronald B. Hutchison
--------------------------------
Title: Vice President and Treasurer
--------------------------------
Notice Address:
18831 Von Karman Avenue
Irvine, California 92715
Attn: President
S-1
<PAGE>
LENDERS:
CREDIT LYONNAIS NEW YORK BRANCH,
individually and as Administrative Agent
By: /s/ Fred Haddad
----------------------------
Title: Senior Vice President
----------------------------
Notice Address:
Credit Lyonnais
1301 Avenue of the Americas
New York, New York 10019
Attn: Mark Koneval
BANKERS TRUST COMPANY,
individually and as Co-Syndication Agent
By: /s/ Mary Jo Jolly
----------------------------
Title: Assistant Vice President
----------------------------
Notice Address:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
14th Floor
New York, New York 10006
Attn: Mary Jo Jolly
With a copy to:
Bankers Trust Company
300 South Grand Avenue, 41st Floor
Los Angeles, California 90071
Attn: Mike Duckworth
S-2
<PAGE>
CHEMICAL BANK,
individually and as Co-Syndication Agent
By: /s/ William Rindfuss
--------------------------------------------
Title: Vice President
------------------------------------------
Notice Address:
Chemical Bank
270 Park Avenue
New York, New York 10017
Attn: Bill Rindfuss
CITICORP USA, INC.,
individually and as Co-Syndication Agent
By: /s/ Michael Mahre
---------------------------------------------
Title: Attorney-in-Fact
------------------------------------------
Notice Address:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Attn: Michael Mahre
S-3
<PAGE>
SCHEDULE 2.1
LENDERS' COMMITMENTS AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Pro Rata Share Revolving Share
Term Loan (re: Term Loan (re: Rev. Pro Rata Share Total
Lender Commitment Loans) Commitment Loans) (Overall) Commitment
------ ---------- ------ ---------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bankers Trust Company $18,666,666.66 33.33333333% $ 0 0% 20.51282051% $18,666,666.66
Chemical Bank 18,666,666.67 33.33333333 0 0 20.51282051 18,666,666.67
Citicorp USA, Inc. 18,666,666.67 33.33333333 0 0 20.51282051 18,666,666.67
Credit Lyonnais
New York Branch 0 0 35,000,000.00 100 38.46153846 35,000,000.00
-------------- ------------ -------------- --- ------------ --------------
TOTAL $56,000,000.00 100.00000000% $35,000,000.00 100% 100.00000000% $91,000,000.00
</TABLE>
<PAGE>
EXHIBIT 10.2
TAX SHARING AND ALLOCATION AGREEMENT
BY AND AMONG
FLAGSTAR COMPANIES, INC.,
FRD ACQUISITION CO., INC. and
FRI-M CORPORATION
AND ITS SUBSIDIARIES
This Tax Sharing and Allocation Agreement (the "Agreement") is made as
of May 23, 1996 by and among Flagstar Companies, Inc. ("Parent"), a Delaware
corporation, FRD Acquisition Co., Inc. ("FRD" or "Subgroup Common Parent"), a
Delaware corporation, and FRI-M Corporation, a Delaware corporation and a
wholly-owned subsidiary of FRD ("FRI-M"), and those subsidiaries, direct and
indirect, of FRI-M listed on Exhibit A hereto. As used in this Agreement, the
terms "Subsidiary", "Subsidiaries," "Subgroup" and "Subgroup Member" shall have
the meaning assigned to them in paragraph 2.
Whereas, Parent, FRD, FRI-M and each Subgroup Member are currently a
member of an affiliated group within the meaning of Section 1504 of the Internal
Revenue Code of 1986, as amended (the "Code") of which Parent is the common
parent corporation (the "Group");
Whereas, the parties to this Agreement desire to establish a method
for allocating the consolidated tax liability of the Subgroup among the Subgroup
Members and for reimbursing Parent for the payment of such liability and for
reimbursing the Subgroup in the event of Subgroup net operating losses;
Now, Therefore, in consideration of the promises and the mutual
agreements and covenants contained herein, the parties to this Agreement agree
as follows:
1. The Consolidated Federal Income Tax Return. Each Subgroup Member
------------------------------------------
agrees to be included in, and Parent agrees to file, a consolidated
Federal income tax return for the Group for each taxable year or
period ("Applicable Period") in which Parent and each Subgroup Member
are eligible to file consolidated returns as an affiliated group of
corporations, as such term is defined in Section 1504 of the Code.
2. Subgroup Common Parent, Subgroup, Subsidiary and Subgroup Member. For
----------------------------------------------------------------
purposes of making the computations described herein, Subgroup Common
Parent and all lower (with respect to Subgroup Common Parent) tier
entities including FRI-M and the Subsidiaries listed in Exhibit A,
(individually and collectively referred to as "Subsidiary" or
"Subsidiaries"), in which Subgroup Common Parent has direct or
indirect ownership shall be treated as an
<PAGE>
affiliated group of corporations ("Subgroup"), the Common Parent of
which is Subgroup Common Parent; provided, however, that Subgroup
shall only include any Subsidiary to the extent that such Subsidiary
meets the test of affiliation under Section 1504 of the Code as it
would apply to such Subgroup. Subgroup Common Parent and each
Subsidiary which is a member of the Subgroup shall sometimes be
referred to individually as a "Subgroup Member".
3. Computation by Parent; Separate Return Principles. For each
-------------------------------------------------
Applicable Period, Parent shall compute an estimated and an actual
Federal income tax liability for Subgroup. For purposes of computing
Subgroup's estimated and actual liabilities, Subgroup shall be treated
as if it were a separate affiliated group of corporations which had
filed a separate consolidated Federal income tax return for each
Applicable Period (taking into account all limitations which would be
applicable to Subgroup) and which was never affiliated with the Group.
Such estimated and actual Federal income tax liability shall be
computed in a manner consistent with the reporting of items of income,
gain, loss, deduction, or credit attributable to the Subgroup on
Parent's consolidated Federal income tax return; provided, however,
that for purposes of computing such estimated and actual Federal
income tax liability for Subgroup, all interest expense accrued on the
Notes (as defined below) shall be deemed to be deductible for Federal
income tax purposes in the taxable year that it accrues
notwithstanding any limitations that may otherwise be imposed under
section 163 of the Code.
4. Liability of Subgroup to Parent.
-------------------------------
(a) Estimated Liability. If Parent's good faith calculation under
-------------------
paragraph 3 with respect to Subgroup results in an estimated
Federal income tax liability for Subgroup with respect to the
Applicable Period, then, in that event, Subgroup Common Parent
shall pay such computed estimated income tax liability to Parent
in such amounts and at such times as Subgroup Common Parent would
have been required to pay the Internal Revenue Service, if
Subgroup were a separate affiliated group of corporations making
separate estimated consolidated payments of tax and filing a
separate consolidated tax return.
(b) Actual Liability.
----------------
i) Within 30 days following the filing of the tax return for
each Applicable Period, Parent shall compute Subgroup's
actual liability under paragraph 3.
2
<PAGE>
ii) If Subgroup's actual Federal income tax liability for the
Applicable Period exceeds the amount of Subgroup Common
Parent's estimated tax payments to Parent for such
Applicable Period in respect of such liability, then, in
that event, Subgroup Common Parent shall pay to Parent the
excess of its actual liability over its estimated tax
payments for such Applicable Period. If Subgroup Common
Parent's estimated tax payments to Parent for the Applicable
Period exceed Subgroup's finally determined actual
liability, the excess shall be refunded to Subgroup Common
Parent.
iii) If Parent's calculation with respect to Subgroup results in
a net operating loss for the Applicable Period that could be
carried back under the principles of Paragraph 3 and
Sections 172 and 1502 of the Code and the regulations
thereunder to periods of Subgroup with respect to which
Subgroup Common Parent previously made payments to Parent
pursuant to subparagraph (a) or (b)(ii) of this paragraph,
then, in that event, Parent shall pay Subgroup Common Parent
an amount equal to the tax refund to which Subgroup Common
Parent would have been entitled (but not in excess of the
aggregate amounts previously paid to Parent under
subparagraph (a) as adjusted by subparagraph (b)(ii) of this
paragraph with respect to the three preceding taxable years,
reduced by the aggregate refunds paid to Subgroup under this
subparagraph (b)(iii) with respect to such years) under the
separate consolidated return principles of paragraph 3.
iv) If Parent's calculation with respect to Subgroup results in
a net operating loss for any Applicable Period that could
not be carried back under the principles of Paragraph 3 and
Sections 172 and 1502 of the Code and the regulations
thereunder to periods of Subgroup with respect to which
Subgroup Common Parent previously made payments to Parent
pursuant to subparagraph (ii), then, in that event, such net
operating loss shall be a net operating loss carryover to be
used by Parent in computing Subgroup's Federal income tax
liability pursuant to paragraph 3 for future taxable
periods, under the law applicable to net operating loss
carryovers in general, as such law applies to the relevant
taxable period.
v) Any adjustment other than a net operating loss carryback
described in subparagraph (iii) or a net capital loss or
credit
3
<PAGE>
carryback described in subparagraph (vii) of this paragraph,
for whatever reason (including, without limitation, audits
or amended returns), to any item affecting a calculation of
tax liabilities under paragraph 3 and subparagraph (b) of
this paragraph, shall be given effect by Parent in
redetermining the amount payable by or due to Subgroup
Common Parent pursuant to this Agreement as if each
adjustment were part of the original determination
hereunder, including any interest that would be due to or
from the Internal Revenue Service, under the separate
consolidated return principles of paragraph 3 as a result of
such adjustment.
vi) Payments under subparagraphs 4(b)(ii) and(iii) shall be made
on the date that Parent files the Group's consolidated
Federal income tax return for the taxable year involved.
Payments under subparagraph 4(b)(v) shall be made promptly
(not later than 30 days) after the final determination of
any adjustment to which subparagraph 4(b)(v) relates.
vii) Principles similar to those of subparagraphs (iii) and (iv)
of this paragraph shall apply in the case of net capital
loss and credit carryovers.
viii) Notwithstanding any contrary provision in
this Agreement, no payment shall be made by any member of
Subgroup to Parent if it would violate the provisions of the
Indenture (as defined below).
5. Allocation of Subgroup Liability among Members of the Subgroup.
--------------------------------------------------------------
Subgroup Common Parent may allocate its liability under this Agreement
among Subgroup Members, provided, however, that such allocation of
liability shall not relieve Subgroup Common Parent of the obligations
set forth in this Agreement, and no member of the Subgroup other than
Subgroup Common Parent may make payments directly to Parent.
6. Elections. All elections relating to the filing of a consolidated
---------
Federal income tax return which are required or are available (as well
as elections applicable to the computation of Subgroup's estimated and
actual liabilities under Paragraph 3) shall be made by Parent. Each
Subsidiary shall execute such consents and other documents as are
necessary in connection therewith.
In making elections applicable to the computation of Subgroup's
estimated and actual liabilities under Paragraph 3, Parent shall make
such elections in a
4
<PAGE>
reasonable manner so as to minimize the tax liability of Subgroup,
provided, however, that such elections shall be consistent with the
elections made and positions taken in computing the Group's actual
Federal income tax liabilities for its Federal income tax returns.
7. Agency of Parent; Payments and Refunds.
--------------------------------------
Parent, as the common parent and agent of the Group, shall be
responsible for, and shall pay, any consolidated Federal income tax
liability of the Group, and, subject to the provisions hereof, has the
sole right to any refunds from the Internal Revenue Service.
8. Reliance on Income Projections. For purposes of making the estimated
------------------------------
tax liability computations required by this Agreement, Parent may
rely, to the extent reasonable, on the same income and loss
projections it generally uses in its overall tax planning.
9. State and Local Income Tax Returns. The provisions of this Agreement,
----------------------------------
with such modifications as Parent shall reasonably determine
necessary, shall apply in similar fashion to any consolidated,
combined or unitary foreign, state or other local income tax returns
which the Group may elect or be required to file.
10. Effective Term of this Agreement. With respect to each Subgroup
--------------------------------
Member, this Agreement shall be effective for the Group's 1996 taxable
period and all subsequent taxable periods until the date on which (i)
such Subgroup Member ceases to be a member of the Group under
applicable Federal law, (ii) the Group no longer remains in existence
within the meaning of Treasury Regulation (S) 1.1502-75(a), (iii) the
Group is no longer eligible to file, or is no longer eligible to join
in the filing of, a consolidated return for Federal income tax
purposes, or (iv) Subgroup Common Parent shall have discharged all
obligations pursuant to its 12 1/2% Senior Notes due 2004 (the
"Notes"), including discharge by virtue of defeasance pursuant to the
Indenture dated as of May 23, 1996 (the "Indenture"). After such
date, (i) Parent and such Subgroup Member, respectively, shall remain
fully responsible for any payments either was required to make under
this Agreement in respect of all computations regarding Applicable
Periods during which such Subgroup Member was a member of the Group,
and (ii) all other obligations of such Subgroup Member and Parent
under this Agreement shall terminate unless otherwise agreed.
11. Purpose and Effect. This Agreement is entered into by the parties
------------------
solely in recognition of the mutual benefits resulting from filing a
Federal (or state or
5
<PAGE>
other local) consolidated tax return and may not be terminated or
amended without the prior written consent of the holder or holders of
the majority of the outstanding Notes. The respective amounts of tax
liability allocated to Parent and each Subgroup Member for purposes of
computing such corporations' earnings and profits for Federal (or
state or other local) income tax purposes may differ from those
determined in accordance with this Agreement. Furthermore, any amount
treated for Federal (or state or other local) income tax purposes, on
account of such a difference, as a contribution to capital or a
distribution with respect to stock, or a combination thereof, as the
case may be, shall be treated as a contribution to capital, a
distribution with respect to stock, or a combination thereof, solely
for Federal (or state or other local) income tax purposes.
12. Binding Agreement. This Agreement shall be binding upon and inure to
-----------------
the benefit of the parties hereto and their respective successors and
assigns.
In Witness Whereof, the parties first listed above have executed this
Agreement by authorized officers thereof as of the date first above written.
FLAGSTAR COMPANIES, INC.
By /s/ Ronald B. Hutchison
____________________________
FRD ACQUISITION CO., INC.
By /s/ Ronald B. Hutchison
____________________________
FRI-M CORPORATION
By /s/ Ronald B. Hutchison
____________________________
6
<PAGE>
EXHIBIT A
---------
COMPANY STATE OF INCORPORATION
FRI-FRD Corporation Delaware
FRI-NA Corporation Delaware
FRI-J Corporation Delaware
FRI-DHD Corporation Delaware
FRI-C Corporation Delaware
jojos Restaurants, Inc. California
Far West Concepts, Inc. California
Carrows Restaurants, Inc. California
Carrows California Family
Restaurants, Inc. Delaware
CFC Franchising Company Delaware
jojos California Family
Restaurants, Inc. Delaware
Coco's Restaurants, Inc. California
7
<PAGE>
EXHIBIT 10.3
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is made and entered
into as of this 24th day of May, 1996, by and among FLAGSTAR CORPORATION, a
Delaware corporation ("Manager") and FRD ACQUISITION CO., a Delaware corporation
("FRD".)
PRELIMINARY STATEMENT
Each of the companies listed on Exhibit A attached hereto (individually,
---------
an "Operating Company" and collectively the "Operating Companies") is a wholly-
owned, direct or indirect subsidiary of both Manager and FRD. Manager employs a
staff of administrative and professional personnel that provide management,
training, marketing, financial, real estate, purchasing, recruiting and other
support services, and Manager incurs expenses incident thereto for the benefit
of the Operating Companies and the businesses conducted by them. Manager also
arranges for support services to be provided to the Operating Companies by
itself and its subsidiaries other than the Operating Companies.
FRD has acquired the Operating Companies from Family Restaurants, Inc.
("FRI") and in connection with such acquisition FRD has issued Senior Notes
(the "Notes") in the aggregate principal amount of $150,000,000.00 pursuant to
an Indenture dated May 23, 1996 (the "Indenture") and has entered into that
certain Credit Agreement (the "Credit Agreement") dated as of May 23, 1996 by
and among FRD, FRI-M Corporation, certain financial institutions and Credit
Lyonnais, New York Branch, as administrative agent, initially providing for an
aggregate of $91,000,000.00 of borrowings. The Indenture and Credit Agreement
limit payments from FRD and its subsidiaries to Manager and its affiliates.
This Agreement is subject in all respects to applicable provisions of the
Indenture and Credit Agreement. Unless otherwise defined herein, defined terms
shall have the respective meaning given to such terms in the Indenture as in
effect on the Closing Date.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and legal
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. ENGAGEMENT. FRD hereby engages Manager to provide those
management and support services requested from time to time by any Operating
Company, and Manager shall endeavor to render to the Operating Company services
requested by the Operating Company that Manager determines to be of a nature and
extent generally performed by Manager and which can be performed by Manager
within its authority from its Board of Directors (all such services are referred
to as the "Services").
2. STANDARD OF CONDUCT; LIMITATION OF LIABILITY/DAMAGES. Manager
covenants that the Services shall be furnished to each Operating Company in a
professional and diligent manner and in accordance with reasonable requests made
by the Operating Company.
1
<PAGE>
Notwithstanding the foregoing, Manager shall not be liable for any direct,
indirect or consequential damages suffered or incurred by the Operating Company
or to any third party, including, without limitation, lost profits, arising from
or relating to any breach by Manager of its obligations hereunder absent a
finding in a final judgment of a court of competent jurisdiction that such
damages proximately resulted from the bad faith, gross negligence or willful
misconduct of Manager or its agents. In addition, Manager shall not be liable
to any Operating Company or to any third party on account of any action or
omission by Manager relating to its rendition of the Services based upon
incorrect information supplied by the Operating Company reasonably relied upon
by Manager. Nothing herein contained shall authorize or empower Manager to
supervise or manage the Operating Company's personnel or to become involved in
the Operating Company's day-to-day business decisions in the ordinary course of
business.
3. TERM. The initial term of this Agreement shall commence on May
23, 1996 and shall continue until midnight on July 31, 2004 (the "Initial
Term"). Upon the expiration of the Initial Term and of each succeeding term
hereunder, this Agreement shall automatically be renewed for an additional term
of one (1) year each unless terminated as herein provided, or unless either
party shall provide not less than one hundred eighty (180) days written notice
prior to the expiration of the Initial Term or any renewal term that such party
does not intend to renew this Agreement. Notwithstanding the foregoing, either
party may terminate this Agreement at any time (i) if the other party breaches
the terms and conditions and does not cure any such breach within thirty (30)
days after written notice, or (ii) upon one hundred eighty (180) days prior
written notice to the other party. The termination of this Agreement by or with
respect to one or more Operating Companies shall not terminate this Agreement
with respect to any other Operating Company.
4. REIMBURSEMENT AND PAYMENT. Subject to subsections 4(c) and (d),
FRD shall reimburse Manager for the Services as follows:
(a) FOR EXECUTIVE MANAGEMENT AND EXPERTISE IN THE RESTAURANT
INDUSTRY. FRD shall pay Manager 1% of FRD's consolidated net revenues during
any fiscal quarter.
(b) FOR SHARED ALLOCATED COSTS ATTRIBUTABLE TO A PARTICULAR
OPERATING COMPANY. Manager's Chief Financial Officer shall prepare an Officer's
Certificate setting forth in sufficient detail FRD's and each Operating
Company's allocated share of shared administrative services provided by Manager
and its subsidiaries (other than FRD or any Loan Party) in the preceding fiscal
quarter, which shall be calculated on a reasonable and consistent basis. This
total fee together with the amount under Section 4(a) shall be referred to as
the "Management Charge."
(c) TIMING OF PAYMENTS. After closing its books for each fiscal
quarter during the term of this Agreement, FRD shall certify to Manager the
extent to which FRD's Consolidated EBITDA for the Reference Period (calculated
to exclude all expenses related to the Permitted Royalties and the Management
Charge) exceeds (the "Surplus") or is less than 2.0 times FRD's Consolidated
Fixed Charges for such period. FRD shall then pay to
2
<PAGE>
Manager the lesser of (i) the Management Charge; and (ii) the Surplus for such
period. Any Management Charge not paid in full shall be accrued without interest
or penalty and paid when and to the extent FRD's Consolidated EBITDA for
subsequent Reference Periods, after giving effect to such payments, exceeds 2.0
times FRD's Consolidated Fixed Charges; however, the total amount collected
shall not exceed $10,000,000.00 in any fiscal year so long as the Credit
Agreement is in effect. Such payments shall be made after payment of any
principal or interest then due and payable under the Indenture. All payments of
the Management Charge are subordinated in priority of payment to all amounts due
and payable under the Credit Agreement, the Loan Documents as defined in the
Credit Agreement, and the Notes. All accrued amounts shall be due and payable in
full at the expiration of the term of this Agreement.
(d) LIMITATION. Notwithstanding anything herein to the
contrary, no payment otherwise due hereunder (including paragraph 8) shall be
payable if prohibited by the terms of the Indenture or the Credit Agreement.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MANAGER. Manager
hereby represents, warrants and covenants to FRD as follows:
(a) Manager is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation and has
all requisite power and authority to own and operate its business as presently
conducted.
(b) Manager has full power and authority to execute, deliver
and perform this Agreement. The execution, delivery and performance of this
Agreement have been duly authorized by Manager and no other action or proceeding
on the part of Manager is necessary to authorize this Agreement or the
performance thereof. This Agreement has been duly and validly executed and
delivered by Manager and constitutes a legal, valid and binding obligation of
Manager, enforceable in accordance with its terms.
(c) The execution, delivery and performance of this Agreement by
Manager will not (with or without the giving of notice or the lapse of time or
both) (i) violate or require any consent or approval under any applicable
provision of any order, injunction, rule, regulation or law; (ii) require any
consent under, conflict with, constitute a default under, or otherwise violate
the terms of any agreements, instruments or other obligations to which Manager
is a party or by which it or any of its property may be bound or affected; or
(iii) require any consent or approval by, notice to or registration with any
governmental authority. In the event at any time during the term of this
Agreement any consents, approvals, notices or registrations are required in
connection with the performance of this Agreement, Manager shall take all
necessary and appropriate steps to obtain or file such consents, approvals,
notices or registrations.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF FRD. FRD
represents, warrants and covenants to Manager as follows:
(a) Each Operating Company is a corporation duly organized,
validly
3
<PAGE>
existing and in good standing under the laws of its state of incorporation and
has all requisite power and authority to own and operate the business which it
intends to operate.
(b) FRD has full power and authority to execute,
deliver and perform this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by FRD and no other action or
proceeding on the part of FRD is necessary to authorize this Agreement or the
performance thereof. This Agreement has been duly and validly executed and
delivered by FRD and constitutes a legal, valid and binding obligation of FRD,
enforceable in accordance with its terms.
(c) The execution, delivery and performance of this
Agreement by FRD will not (with or without the giving of notice or the lapse of
time or both) (i) violate or require any consent or approval under any
applicable provision of any order, injunction, rule, regulation or law; (ii)
require any consent under, conflict with, constitute default under, or otherwise
violate the terms of any agreements, instruments or other obligations to which
FRD is a party or by which it or any of its property may be bound or affected;
or (iii) require any consent or approval by, notice to or registration with any
governmental authority. In the event at any time during the term of this
Agreement any consents, approvals, notices or registrations are required in
connection with the performance of this Agreement, FRD shall take all necessary
and appropriate steps to obtain or file such consents, approvals, notices or
registrations.
7. NO RIGHT TO PARTICIPATE IN MANAGEMENT; INDEPENDENT
CONTRACTORS. This Agreement shall not be construed to grant Manager any right to
control or participate in the management or financial decisions of the Operating
Companies in the ordinary course of business. In the rendition of the Services,
Manager shall provide the Services based upon compliance with policies and
procedures established by the Board of Directors and officers of the Operating
Companies. FRD and Manager stipulate and agree that with respect to the subject
matter of this Agreement neither party is an agent, employee or representative
of the other and that nothing contained herein shall be construed to create an
agency, employment or representative relationship or a relationship of partners
or joint venturers.
8. INDEMNIFICATION. Subject to the other terms and conditions
hereof, FRD agrees to indemnify and hold harmless Manager, and Manager agrees to
indemnify and hold harmless FRD (as the context requires, the "Indemnifying
Party" and the "Indemnified Party") of and from any and all claims, demands,
causes of action, liabilities, judgments, losses, deficiencies and expenses
(including court costs and reasonable attorneys' fees) incurred by the
Indemnified Party and arising out of or in any manner, directly or indirectly,
relating to the performance by the Indemnified Party of its obligations
hereunder (other than and excluding the respective indemnification obligations
under this Section) or relating to any act or omission of the Indemnifying
Party's employees or agents. Anything herein to the contrary notwithstanding, no
party shall be obligated to indemnify any other party hereto with respect to any
expenses, loss or damages incurred by the Indemnified Party to the extent that
the Indemnified Party has insurance coverage with respect to such expenses, loss
or damages. FRD shall not be required to reimburse Manager under this Section to
the extent that such amount together with any Management Charge actually paid
under this Agreement exceeds the Permitted Management Fee
4
<PAGE>
under the Indenture.
9. GENERAL TERMS.
(a) This Agreement shall not be assignable by any
party, in whole or in part, without the prior written consent of any other
affected party.
(b) This Agreement sets forth the entire
understanding and agreement of the parties with respect to the subject matter
hereof. Except as otherwise expressly provided herein, this Agreement may not
be changed, modified or amended except in a writing signed by the affected
parties. All previous negotiations and understandings among the parties are
merged into this Agreement, and there are no warranties, agreements or
understandings, express or implied, except such as are expressly set forth
herein.
(c) Any notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if hand-delivered, delivered by facsimile or overnight courier, or if
mailed by certified or registered mail, postage prepaid and return receipt
requested, addressed as set forth hereinafter (or at such other address for a
party as shall be specified by like notice; provided that notice of a change of
address shall be effective only upon receipt thereof):
To Manager: FLAGSTAR CORPORATION
203 East Main Street
Spartanburg, SC 29319
To FRD: FRD ACQUISITION CO.
18831 Von Karman Ave.
Irvine, CA 92715
To any Operating Company: in care of FRD at the address set forth above
(d) This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their respective successors and permitted
assigns, wherever the context admits or requires.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
(f) Any waiver of any provision of this Agreement by
either party may be made only by written notice to the other. No waiver of any
breach or default hereunder shall be deemed to constitute a waiver of any other
breach or default not of the same breach or default on a future occasion.
5
<PAGE>
(g) This Agreement shall be interpreted, construed and enforced in
accordance with the laws of Delaware.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date above written.
FLAGSTAR CORPORATION
By: /s/ Ronald B. Hutchison
------------------------------
Ronald B. Hutchison, Vice President
FRD ACQUISITION CO.
By: /s/ Timothy E. Flemming
------------------------------
Timothy E. Flemming,
Assistant Secretary
6
<PAGE>
EXHIBIT A
OPERATING COMPANIES
FRI-M Corporation
CFC Franchising Company
Coco's Restaurants, Inc.
L.C.S. Beverage Company, Inc.
Far West Concepts, Inc.
jojos Restaurants, Inc.
jojos California Family Restaurants, Inc.
J.T. Beverage, Inc.
Carrows Restaurants, Inc.
Carrows California Family Restaurants, Inc.
7
<PAGE>
EXHIBIT 12.1
FRD ACQUISITION CO.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (NOTE A)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR PRO FORMA
------------------------------------------------------------- -------------------------
THREE MONTHS THREE MONTHS
FISCAL YEAR ENDED DECEMBER(B), ENDED MARCH(C), YEAR ENDED ENDED
------------------------------------------- ---------------- DECEMBER 31, MARCH 31,
1991 1992 1993 1994(B) 1995(C) 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) before
income taxes........... $17,883 $18,634 $25,928 $20,139 $11,394 $1,582 $ 794 $ 3,775 $ (570)
Add:
Interest
expense (d)(e)........ 4,601 4,852 4,594 6,934 16,515 2,750 3,931 29,333 7,249
------- ------- ------- ------- ------- ------- ------- ------- ------
Earnings available for
fixed charges.......... $22,484 $23,486 $30,522 $27,073 $27,909 $4,332 $ 4,725 $33,108 $6,679
======= ======= ======= ======= ======= ======= ======= ======= ======
Fixed Charges:
Interest
expense (d)(e)........ $ 4,601 $ 4,852 $ 4,594 $ 6,934 $16,515 $ 2,750 $ 3,931 $29,333 $7,249
======= ======= ======= ======= ======= ======= ======= ======= ======
Ratio of earnings to
fixed charges.......... 4.9x 4.8x 6.6x 3.9x 1.7x 1.6x 1.2x 1.1x (f)
======= ======= ======= ======= ======= ======= ======= ======= ======
</TABLE>
- -------
(a) The table above sets forth the ratio of earnings to fixed charges for the
Company on a historical and pro forma basis which, for accounting purposes
only, upon consummation of the Acquisition, is considered the Predecessor
entity to the Company.
(b) The Company's five most recently completed fiscal years ended on December
30, 1991, December 28, 1992, December 26, 1993, December 25, 1994 and
December 31, 1995.
(c) The Company's two most recently completed fiscal quarters ended on March
26, 1995 and March 31, 1996.
(d) The Company does not capitalize interest as the amounts are not considered
material to the Company's overall financial position.
(e) Interest expense includes the interest portion of rentals.
(f) On a pro forma basis for the three months ended March 31, 1996, earnings
were insufficient to cover fixed charges by $570,000.
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF THE COMPANY
FRI-M Corporation
FRI-FRD Corporation
CFC Franchising Company
FRI-NA Corporation
Coco's Restaurants, Inc.
L.C.S. Beverage Company, Inc.
FRI-DHD Corporation
Far West Concepts, Inc.
FRI-J Corporation
jojos Restaurants, Inc.
J.T. Beverage, Inc.
jojos California Family Restaurants, Inc.
FRI-C Corporation
Carrows Restaurants, Inc.
Carrows California Family Restaurants, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
FRD Acquisition Co.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Orange County, California
July 3, 1996
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) /3/___/3/
__________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
13-5160382
(I.R.S. employer identification no.)
48 Wall Street, New York, New York 10286
(Address of principal executive offices) (Zip Code)
___________________
The Bank of New York
10161 Centurion Parkway
Towermarc Plaza, 2nd Floor
Jacksonville, Florida 32256
Attn: Ms. Sandra Carreker
(904) 998-4716
(Name, address and telephone number of agent for service)
____________________
FRD ACQUISITION CO.
(Exact name of obligor as specified in its charter)
Delaware 57-1040952
State or other jurisdiction of (IRS employer
incorporation or organization identification no.)
18831 Von Karman Avenue, Irvine, California 92715
(Address of principal executive offices) (Zip code)
____________________
12.50% Senior Notes due 2004
(Title of the indenture securities)
<PAGE>
1. General Information.
-------------------
Furnish the following information as to the trustee--
Name and address of each examining or supervising authority to which it
is subject.
Superintendent of Banks of the State of New York
2 Rector Street New York, N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York
33 Liberty Plaza
New York, N.Y. 10045
Federal Deposit Insurance Corporation
Washington, D.C. 20429
New York Clearing House Association
New York, N.Y.
Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
-------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 4.)
16. List of Exhibits.
----------------
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
(1) A copy of the Organization Certificate of the Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a
<PAGE>
grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment
1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a
and 1b to Form T-1 filed with Registration Statement No. 33-21672 and
Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.)
(4) A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
(6) The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration No. 33-44051.)
(7) A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of
all facts on which to base a responsive answer to Item 2, the answer to said
Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an amendment to
this Form T-1.
<PAGE>
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, in connection with the proposed issuance of FRD Acquisition Co. 12.50%
Senior Notes due 2004, The Bank of New York hereby consents that reports of
examinations by Federal, State, and Territorial or District Authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
THE BANK OF NEW YORK
By: /s/ Sandra Carreker
----------------------
Sandra Carreker, Agent
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Jacksonville and the
State of Florida, on the 27th day of June, 1996.
THE BANK OF NEW YORK
By: /s/ Sandra Carreker
----------------------
Sandra Carreker, Agent
<PAGE>
EXHIBIT 7 TO FORM T-1
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the Federal Reserve
System, at the close of business March 31, 1996, published in accordance with a
call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
<S> <C>
ASSETS
- ------
Cash and balances due from
depository institutions:
Noninterest-bearing balances
and currency and coin $ 2,461,550
Interest-bearing balances 835.563
Securities:
Held-to-maturity securities 802,064
Available-for-sale securities 2,051,263
Federal funds sold and securities
purchased under agreements to resell
in domestic offices of the bank:
Federal funds sold 3,885,475
Securities purchased under
agreements to resell
Loans and lease financing receivables:
Loans and leases,
net of unearned income 27,820,159
LESS: Allowance for loan and
lease losses 509,817
LESS: Allocated transfer
risk reserve 1,000
Loans and leases, net of unearned
income and allowance and reserve 27,309,342
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Assets held in trading accounts 837,118
Premises and fixed assets (including
capitalized leases) 614,567
Other real estate owned 51,631
Investments in unconsolidated
subsidiaries and associated
companies 225,158
Customers' liability to this bank
on acceptances outstanding 800,375
Intangible assets 436,668
Other assets 1,247,908
-----------
Total assets $41,558,682
===========
LIABILITIES
- -----------
Deposits:
In domestic offices $18,851,327
Noninterest-bearing 7,102,645
Interest-bearing 11,748,682
In foreign offices, Edge and
Agreement subsidiaries, and IBFs 10,965,604
Noninterest-bearing 37,855
Interest-bearing 10,927,749
Federal funds purchased and securities
sold under agreements to repurchase
in domestic offices of the bank and
of its Edge and Agreement
subsidiaries, and in IBFs:
Federal funds purchased 1,224,886
Securities sold under agreements
to repurchase 29,728
Demand notes issued to the
U.S. Treasury 118,870
Trading liabilities 673,944
Other borrowed money:
With original maturity of one year
or less 2,713,248
With original maturity of more
than one year 20,780
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Bank's liability on acceptances
executed and outstanding 803,292
Subordinated notes and debentures 1,022,860
Other liabilities 1,590,564
-----------
Total liabilities 38,015,103
===========
EQUITY CAPITAL
- --------------
Common stock 942,284
Surplus 525,666
Undivided profits and capital
reserves 2,078,197
Net unrealized holding gains (losses)
on available-for-sale securities 3,197
Cumulative foreign currency
translation adjustments (5,765)
-----------
Total equity capital 3,543,579
-----------
Total liabilities and equity capital $41,558,682
===========
</TABLE>
<PAGE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Thomas A. Renyi ) Directors
Alan R. Griffith )
